Fair Value Measurements

Financial assets and financial liabilities measured at fair value on a recurring basis are as follows:



			Fair Value Measurements at Reporting Date Using
As of September 30, 2014	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Obligations of U.S. government agencies	$	728,497	$	—	$	728,497	$	—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	857,662			—	857,662			—
Private mortgage-backed securities	344			—	344			—
Mortgage servicing rights	27,292			—	27,292			—



			Fair Value Measurements at Reporting Date Using
As of December 31, 2013	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Investment securities available-for-sale:
Obligations of U.S. government agencies	$	763,238	$	—	$	763,238	$	—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	1,184,053			—	1,184,053			—
Private mortgage-backed securities	415			—	415			—
Mortgage servicing rights	25,698			—	25,698			—

There were no changes in valuation methodologies or transfers between levels of the fair value hierarchy during the nine months ended September 30, 2014 or 2013.

The methodologies used by the Company in determining the fair values of each class of financial instruments are based primarily on the use of independent, market-based data to reflect a value that would be reasonably expected in an orderly transaction between market participants at the measurement date. The Company obtains fair value measurements for investment securities from an independent pricing service and evaluates mortgage servicing rights for impairment using an independent valuation service. The vendors chosen by the Company are widely recognized vendors whose evaluations support the pricing functions of financial institutions, investment and mutual funds, and portfolio managers. The Company has documented and evaluated the pricing methodologies used by the vendors and maintains internal processes that regularly test valuations. These internal processes include obtaining and reviewing available reports on internal controls, evaluating the prices for reasonableness given market changes, obtaining and evaluating the inputs used in the model for a sample of securities, investigating anomalies and confirming determinations through discussions with the vendor. For investment securities, if needed, a broker may be utilized to determine the reported fair value. Further details on the methods used to estimate the fair value of each class of financial instruments above are discussed below.

Investment Securities Available-for-Sale. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investment's terms and conditions, among other things.

Mortgage Servicing Rights. Mortgage servicing rights are initially recorded at fair value based on comparable market quotes and are amortized in proportion to and over the period of estimated net servicing income. Mortgage servicing rights are evaluated quarterly for impairment using an independent valuation service. The valuation service utilizes discounted cash flow modeling techniques, which consider observable data that includes market consensus prepayment speeds and the predominant risk characteristics of the underlying loans including loan type, note rate and loan term. Management believes the significant inputs utilized in the valuation model are observable in the market.

Additionally, from time to time, certain assets are measured at fair value on a non-recurring basis. Adjustments to fair value generally result from the application of lower-of-cost-or-market accounting or write-downs of individual assets due to impairment.

The following table presents information about the Company’s assets and liabilities measured at fair value on a non-recurring basis.



				Fair Value Measurements at Reporting Date Using
As of September 30, 2014	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	41,996	$	—	$	—	$	41,996
Other real estate owned	6,499			—		—	6,499
Long-lived assets to be disposed of by sale	1,186			—		—	1,186

				Fair Value Measurements at Reporting Date Using
As of December 31, 2013	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	57,302	$	—	$	—	$	57,302
Other real estate owned	8,502			—		—	8,502
Long-lived assets to be disposed of by sale	1,186			—		—	1,186

Impaired Loans. Collateralized impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from collateral. The impaired loans are reported at fair value through specific valuation allowance allocations. In addition, when it is determined that the fair value of an impaired loan is less than the recorded investment in the loan, the carrying value of the loan is adjusted to fair value through a charge to the allowance for loan losses. Collateral values are estimated using independent appraisals and management estimates of current market conditions. As of September 30, 2014, certain impaired loans with a carrying value of $57,086 were reduced by specific valuation allowance allocations of $6,570 and partial loan charge-offs of $8,520 resulting in a reported fair value of $41,996. As of December 31, 2013, certain impaired loans with a carrying value of $80,526 were reduced by specific valuation allowance allocations of $8,929 and partial loan charge-offs of $14,295 resulting in a reported fair value of $57,302.

OREO.The fair values of OREO are estimated using independent appraisals and management estimates of current market conditions. Upon initial recognition, write-downs based on the foreclosed asset's fair value at foreclosure are reported through charges to the allowance for loan losses. Periodically, the fair value of foreclosed assets is remeasured with any subsequent write-downs charged to OREO expense in the period in which they are identified. Write-downs of $87 during the nine months ended September 30, 2014 were based on management's estimate of the current fair value of the properties. Write-downs of $2,564 during the nine months ended September 30, 2013, included $196 directly related to receipt of updated appraisals and $2,368 based on management estimates of the current fair value of properties.

Long-lived Assets to be Disposed of by Sale. Long-lived assets to be disposed of by sale are carried at the lower of carrying value or fair value less estimated costs to sell. The fair values of long-lived assets to be disposed of by sale are based upon observable market data and management estimates of current market conditions. As of September 30, 2014 and December 31, 2013, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $1,785 that were reduced by write-downs of $599 resulting in an aggregate fair value of $1,186.

In addition, mortgage loans held for sale are required to be measured at the lower of cost or fair value. The fair value of mortgage loans held for sale is based upon binding contracts or quotes or bids from third party investors. As of September 30, 2014 and December 31, 2013, all mortgage loans held for sale were recorded at cost.

The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. The methodologies for estimating the fair value of financial instruments that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial instruments are discussed below. For financial instruments bearing a variable interest rate where no credit risk exists, it is presumed that recorded book values are reasonable estimates of fair value.

Financial Assets. Carrying values of cash, cash equivalents and accrued interest receivable approximate fair values due to the liquid and/or short-term nature of these instruments. Fair values for investment securities held-to-maturity are obtained from an independent pricing service, which considers observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the investment’s terms and conditions, among other things. Fair values of fixed rate loans and variable rate loans that reprice on an infrequent basis are estimated by discounting future cash flows using current interest rates at which similar loans with similar terms would be made to borrowers of similar credit quality. Carrying values of variable rate loans that reprice frequently, and with no change in credit risk, approximate the fair values of these instruments.

Financial Liabilities. The fair values of demand deposits, savings accounts, securities sold under repurchase agreements and accrued interest payable are the amounts payable on demand at the reporting date. The fair values of fixed-maturity certificates of deposit are estimated using external market rates currently offered for deposits with similar remaining maturities. The carrying values of the interest bearing demand notes to the United States Treasury are deemed an approximation of fair values due to the frequent repayment and repricing at market rates. The fixed and floating rate subordinated debentures, floating rate subordinated term loan, notes payable to the FHLB, fixed rate subordinated term debt, and capital lease obligation are estimated by discounting future cash flows using current rates for advances with similar characteristics.

Commitments to Extend Credit and Standby Letters of Credit. The fair value of commitments to extend credit and standby letters of credit, based on fees currently charged to enter into similar agreements, is not significant.

The estimated fair values of financial instruments that are reported in the Company's consolidated balance sheets, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value, are as follows:



					Fair Value Measurements at Reporting Date Using
As of September 30, 2014	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	819,963	$	819,963	$	—	$	819,963	$	—
Investment securities available-for-sale	1,586,503		1,586,503		—		1,586,503		—
Investment securities held-to-maturity	583,271		588,032		—		588,032		—
Accrued interest receivable	30,282		30,282		—		30,282		—
Mortgage servicing rights, net	13,894		27,292		—		27,292		—
Net loans	4,780,151		4,784,957		—		4,742,961		41,996
Total financial assets	$	7,814,064	$	7,837,029	$	—	$	7,795,033	$	41,996

Financial liabilities:
Total deposits, excluding time deposits	$	5,705,490	$	5,705,490	$	—	$	5,705,490	$	—
Time deposits	1,254,009		1,259,444		—		1,259,444		—
Securities sold under repurchase agreements	432,478		432,478		—		432,478		—
Other borrowed funds	1,934		1,934		—		1,934		—
Accrued interest payable	5,569		5,569		—		5,569		—
Long-term debt	36,882		36,524		—		36,524		—
Subordinated debentures held by subsidiary trusts	102,916		98,177		—		98,177		—
Total financial liabilities	$	7,539,278	$	7,539,616	$	—	$	7,539,616	$	—



					Fair Value Measurements at Reporting Date Using
As of December 31, 2013	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and cash equivalents	$	534,827	$	534,827	$	—	$	534,827	$	—
Investment securities available-for-sale	1,947,706		1,947,706		—		1,947,706		—
Investment securities held-to-maturity	203,837		205,926		—		205,926		—
Accrued interest receivable	26,450		26,450		—		26,450		—
Mortgage servicing rights, net	13,546		25,698		—		25,698		—
Net loans	4,259,514		4,246,539		—		4,189,237		57,302
Total financial assets	$	6,985,880	$	6,987,146	$	—	$	6,929,844	$	57,302

Financial liabilities:
Total deposits, excluding time deposits	$	4,943,033	$	4,943,033	$	—	$	4,943,033	$	—
Time deposits	1,190,717		1,196,250		—		1,196,250		—
Securities sold under repurchase agreements	457,437		457,437		—		457,437		—
Other borrowed funds	3		3		—		3		—
Accrued interest payable	4,963		4,963		—		4,963		—
Long-term debt	36,917		34,508		—		34,508		—
Subordinated debentures held by subsidiary trusts	82,477		72,045		—		72,045		—
Total financial liabilities	$	6,715,547	$	6,708,239	$	—	$	6,708,239	$	—