FAIR VALUE MEASUREMENTS

Below is a description of certain assets and liabilities measured at fair value.

The following table summarizes financial instruments measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:



	March 31, 2019
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	53,781	$	—	$	53,781
Obligations of states and political subdivisions	—		116,985		—		116,985
Agency mortgage-backed securities	—		897,544		—		897,544
U.S. Treasury bills	—		10,077		—		10,077
Corporate debt securities	—		20,798				20,798
Total securities available for sale	—		1,099,185		—		1,099,185
Other investments	145		—		—		145
Derivatives	—		6,703		—		6,703
Total assets	$	145	$	1,105,888	$	—	$	1,106,033

Liabilities
Derivatives	$	—	$	7,967	$	—	$	7,967
Total liabilities	$	—	$	7,967	$	—	$	7,967



	December 31, 2018
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Assets
Securities available for sale
Obligations of U.S. Government-sponsored enterprises	$	—	$	98,498	$	—	$	98,498
Obligations of states and political subdivisions	—		26,810		—		26,810
Agency mortgage-backed securities	—		586,136		—		586,136
U.S. Treasury bills	—		9,925		—		9,925
Total securities available for sale	—		721,369		—		721,369
Other investments	121		—		—		121
Derivatives	—		3,023		—		3,023
Total assets	$	121	$	724,392	$	—	$	724,513

Liabilities
Derivatives	$	—	$	3,023	$	—	$	3,023
Total liabilities	$	—	$	3,023	$	—	$	3,023

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Securities available for sale. Securities classified as available for sale are reported at fair value utilizing Level 2 and Level 3 inputs. Fair values for Level 2 securities are based upon dealer quotes, market spreads, the U.S. Treasury yield curve, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions at the security level. Changes in fair value are recognized through accumulated other comprehensive income.

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Other investments. At March 31, 2019, of the $34.9 million of other investments on the condensed consolidated balance sheet, approximately $0.2 million was carried at fair value. The remaining $34.7 million of other investments were accounted for at cost. Other investments reported at fair value represent equity securities with quoted market prices (Level 1). Changes in fair value are recognized in net income.

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Derivatives. The Company uses interest rate swaps as part of its cash flow strategy to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques as discussed further below. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The estimates of fair value are made using a standardized methodology that nets the discounted expected future cash receipts and cash payments (based on observable market inputs). Derivatives are reported at fair value utilizing Level 2 inputs.

Level 3 financial instruments

The following table presents the changes in Level 3 financial instruments measured at fair value on a recurring basis as of March 31, 2019 and 2018.



	State tax credits held for sale
	Three months ended March 31,
(in thousands)	2019		2018
Beginning balance	$	—	$	400
Total gains:
Included in earnings	—		3
Purchases, sales, issuances and settlements:
Sales	—		(53		)
Ending balance	$	—	$	350

Change in unrealized gains (losses) relating to assets still held at the reporting date	$	—	$	(13	)

From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets measured at the lower of cost or fair value that were recognized at fair value below cost at the end of the period. There were no financial instruments and non-financial assets measured at fair value on a non-recurring basis as of March 31, 2019.

Following is a summary of the carrying amounts and fair values of the Company’s financial instruments on the consolidated balance sheets at March 31, 2019 and December 31, 2018. Fair values that are not estimable are listed at the carrying value.



	March 31, 2019				December 31, 2018
(in thousands)	Carrying Amount		Estimated fair value		Carrying Amount		Estimated fair value
Balance sheet assets
Cash and due from banks	$	85,578	$	85,578	$	91,511	$	91,511
Federal funds sold	1,934		1,934		1,714		1,714
Interest-bearing deposits	137,455		137,455		106,512		106,512
Securities available for sale	1,099,185		1,099,185		721,369		721,369
Securities held to maturity	64,368		64,147		65,679		63,934
Other investments, at cost	34,860		34,860		26,654		26,654
Loans held for sale	654		654		392		392
Derivative financial instruments	6,703		6,703		3,023		3,023
Portfolio loans, net	4,973,982		4,920,761		4,306,525		4,253,239
State tax credits, held for sale	37,215		39,355		37,587		39,169
Accrued interest receivable	26,276		26,276		16,069		16,069

Balance sheet liabilities
Deposits	5,537,113		5,532,053		4,587,985		4,583,047
Subordinated debentures and notes	140,668		131,634		118,156		106,316
Federal Home Loan Bank advances	180,466		180,463		70,000		70,000
Other borrowings	212,171		212,026		223,450		223,260
Derivative financial instruments	7,967		7,967		3,023		3,023
Accrued interest payable	3,231		3,231		1,977		1,977

For information regarding the methods and assumptions used to estimate the fair value of each class of financial instruments for which it is practical to estimate such value, refer to Note 18 – Fair Value Measurements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the Securities and Exchange Commission.

The following table presents the level in the fair value hierarchy for the estimated fair values of only the Company’s financial instruments that are not already presented on the condensed consolidated balance sheets at fair value at March 31, 2019, and December 31, 2018.



	Estimated Fair Value Measurement at Reporting Date Using						Balance at March 31, 2019
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	64,147	$	—	$	64,147
Portfolio loans, net	—		—		4,920,761		4,920,761
State tax credits, held for sale	—		—		39,355		39,355
Financial Liabilities:
Deposits	4,732,365		—		799,688		5,532,053
Subordinated debentures and notes	—		131,634		—		131,634
Federal Home Loan Bank advances	—		180,463		—		180,463
Other borrowings	—		212,026		—		212,026

	Estimated Fair Value Measurement at Reporting Date Using						Balance at December 31, 2018
(in thousands)	Level 1		Level 2		Level 3
Financial Assets:
Securities held to maturity	$	—	$	63,934	$	—	$	63,934
Portfolio loans, net	—		—		4,253,239		4,253,239
State tax credits, held for sale	—		—		39,169		39,169
Financial Liabilities:
Deposits	3,903,556		—		679,491		4,583,047
Subordinated debentures and notes	—		106,316		—		106,316
Federal Home Loan Bank advances	—		70,000		—		70,000
Other borrowings	—		223,260		—		223,260