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, 2015	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:
U.S. Treasury Notes	$	3,941	$	—	$	3,941	$	—
Obligations of U.S. government agencies	606,044			—	606,044			—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	931,055			—	931,055			—
Private mortgage-backed securities	258			—	258			—
Other investments	3,795			—	3,795			—
Derivative assets:
Interest rate swaps	918			—	918			—
Derivative liabilities:
Interest rate swaps	1,400			—	1,400			—



			Fair Value Measurements at Reporting Date Using
As of December 31, 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	$	720,933	$	—	$	720,933	$	—
U.S. agencies mortgage-backed securities & collateralized mortgage obligations	990,666			—	990,666			—
Private mortgage-backed securities	325			—	325			—
Derivative assets:
Interest rate swaps	61			—	61			—
Derivative liabilities:
Interest rate swaps	59			—	59			—

There were no changes in valuation methodologies or transfers between levels of the fair value hierarchy during the nine months ended September 30, 2015 or 2014.

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 and derivative financial instruments from independent pricing services. 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 investment securities pricing 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.

Derivative Liabilities. Fair values for interest rate swap derivative liabilities are based upon the estimated amounts to settle the contracts considering current interest rates and are calculated using discounted cash flows that are observable or that can be corroborated by observable market data. The inputs used to determine fair value include the 3 month LIBOR forward curve to estimate variable rate cash inflows and the Fed Funds Effective Swap Rate to estimate the discount rate. The estimated variable rate cash inflows are compared to the fixed rate outflows and such difference is discounted to a present value to estimate the fair value of the interest rate swaps.

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, 2015	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	44,940	$	—	$	—	$	44,940
Other real estate owned	4,067			—		—	4,067
Long-lived assets to be disposed of by sale	2,083			—		—	2,083

				Fair Value Measurements at Reporting Date Using
As of December 31, 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	$	30,494	$	—	$	—	$	30,494
Other real estate owned	4,554			—		—	4,554
Long-lived assets to be disposed of by sale	1,083			—		—	1,083

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, 2015, certain impaired loans with a carrying value of $47,502 were reduced by specific valuation allowance allocations of $8,573 and partial loan charge-offs of $11,134 resulting in a reported fair value of $27,795. As of December 31, 2014, certain impaired loans with a carrying value of $45,046 were reduced by specific valuation allowance allocations of $5,792 and partial loan charge-offs of $8,760 resulting in a reported fair value of $30,494.

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 $179 during the nine months ended September 30, 2015 included $106 directly related to receipt of updated appraisals and 73 based on management estimates of the current fair value of properties. 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.

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, 2015, the Company had long-lived assets to be disposed of by sale with carrying values aggregating $3,590 that were reduced by write-downs of $1,507 resulting in an aggregate fair value of $2,083. As of December 31, 2014, 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 $702 resulting in an aggregate fair value of $1,083.

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, 2015 and December 31, 2014, all mortgage loans held for sale were recorded at cost.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair values:



As of September 30, 2015	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	44,940	Appraisal	Appraisal adjustment	0%	-	51%	(19%)
Other real estate owned	4,067		Appraisal	Appraisal adjustment	0%	-	50%	(15%)
Long-lived assets to be disposed of by sale	2,083		Appraisal	Appraisal adjustment	0%	-	9%	(5%)

As of December 31, 2014	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	30,494	Appraisal	Appraisal adjustment	0%	-	51%	(19%)
Other real estate owned	4,554		Appraisal	Appraisal adjustment	0%	-	50%	(15%)
Long-lived assets to be disposed of by sale	1,083		Appraisal	Appraisal adjustment	0%	-	9%	(5%)

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 fair values of derivative liabilities are obtained from an independent pricing service, which considers observable data that may include the three-month LIBOR forward curve, the federal funds effective swap rate and cash flows, among other things. 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, 2015	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	$	708,295	$	708,295	$	708,295	$	—	$	—
Investment securities available-for-sale	1,545,093		1,545,093		—		1,545,093		—
Investment securities held-to-maturity	522,543		534,633		—		534,633		—
Accrued interest receivable	31,590		31,590		—		31,590		—
Mortgage servicing rights, net	15,336		31,544		—		31,544		—
Net loans	5,102,244		5,055,788		—		5,010,848		44,940
Total financial assets	$	7,925,101	$	7,906,943	$	708,295	$	7,153,708	$	44,940

Financial liabilities:
Total deposits, excluding time deposits	$	5,885,462	$	5,885,462	$	5,885,462	$	—	$	—
Time deposits	1,150,332		1,154,128		—		1,154,128		—
Securities sold under repurchase agreements	437,533		437,533		—		437,533		—
Other borrowed funds	10		10		—		10		—
Derivative liabilities	436		436		—		436		—
Accrued interest payable	5,327		5,327		—		5,327		—
Long-term debt	43,089		41,818		—		41,818		—
Subordinated debentures held by subsidiary trusts	82,477		74,723		—		74,723		—
Total financial liabilities	$	7,604,666	$	7,599,437	$	5,885,462	$	1,713,975	$	—



					Fair Value Measurements at Reporting Date Using
As of December 31, 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	$	798,670	$	798,670	$	798,670	$	—	$	—
Investment securities available-for-sale	1,711,924		1,711,924		—		1,711,924		—
Investment securities held-to-maturity	575,186		584,533		—		584,533		—
Accrued interest receivable	27,063		27,063		—		27,063		—
Mortgage servicing rights, net	14,038		21,434		—		21,434		—
Net loans	4,823,243		4,800,725		—		4,770,231		30,494
Total financial assets	$	7,950,124	$	7,944,349	$	798,670	$	7,115,185	$	30,494

Financial liabilities:
Total deposits, excluding time deposits	$	5,767,992	$	5,767,992	$	5,767,992	$	—	$	—
Time deposits	1,238,220		1,244,324		—		1,244,324		—
Securities sold under repurchase agreements	502,250		502,250		—		502,250		—
Other borrowed funds	9		9		—		9		—
Accrued interest payable	5,833		5,833		—		5,833		—
Long-term debt	38,067		37,781		—		37,781		—
Subordinated debentures held by subsidiary trusts	82,477		75,734		—		75,734		—
Total financial liabilities	$	7,634,848	$	7,633,923	$	5,767,992	$	1,865,931	$	—