The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC 825 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 825 are described in "Note 1. Summary of Significant Accounting Policies" of these Notes to Unaudited Consolidated Financial Statements.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. Transfers between levels in the fair value hierarchy are recognized at the end of the reporting period.

Under ASC 825, the Company elected the FVO treatment for the junior subordinated debt and certain investment securities. This election is generally irrevocable and unrealized gains and losses on these items must be reported in earnings at each reporting date. The Company continues to account for these items under the FVO. Since adoption, there were no financial instruments purchased by the Company which met the ASC 825 fair value election criteria, and therefore, no additional instruments have been added under the FVO election.

All securities for which the fair value measurement option had been elected are included in a separate line item on the consolidated balance sheet entitled “securities measured at fair value.”

For the three and nine months ended September 30, 2014 and 2013, gains and losses from fair value changes included in the consolidated income statements were as follows:



	Changes in Fair Values for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net			Interest Income on Securities		Interest Expense on Junior Subordinated Debt			Total Changes Included in Current-Period Earnings
	(in thousands)
Three Months Ended September 30, 2014:
Securities measured at fair value	$	(52	)	$	4	$	—		$	(48	)
Junior subordinated debt	918			—		(443		)	475
Total	$	866		$	4	$	(443	)	$	427
Nine Months Ended September 30, 2014:
Securities measured at fair value	$	(36	)	$	6	$	—		$	(30	)
Junior subordinated debt	65			—		(1,307		)	(1,242		)
Total	$	29		$	6	$	(1,307	)	$	(1,272	)



	Changes in Fair Values for Items Measured at Fair Value Pursuant to Election of the Fair Value Option
	Unrealized Gain/(Loss) on Assets and Liabilities Measured at Fair Value, Net			Interest Income on Securities		Interest Expense on Junior Subordinated Debt			Total Changes Included in Current-Period Earnings
	(in thousands)
Three Months Ended September 30, 2013:
Securities measured at fair value	$	(142	)	$	1	$	—		$	(141	)
Junior subordinated debt	478			—		(460		)	18
Total	$	336		$	1	$	(460	)	$	(123	)
Nine Months Ended September 30, 2013:
Securities measured at fair value	$	(196	)	$	7	$	—		$	(189	)
Junior subordinated debt	(3,229		)	—		(1,381		)	(4,610		)
Total	$	(3,425	)	$	7	$	(1,381	)	$	(4,799	)

The following table presents the portion of trading securities losses related to trading securities still held at the reporting date:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands)
Net gains and (losses) for the period on trading securities included in earnings	$	(52	)	$	(142	)	$	(36	)	$	(196	)
Less: net gains and (losses) recognized during the period on trading securities sold during the period	—			—			—			—
Change in unrealized gains or (losses) for the period included in earnings for trading securities held at the end of the reporting period	$	(52	)	$	(142	)	$	(36	)	$	(196	)

Interest income on securities measured at fair value is accounted for similarly to those classified as AFS and HTM. Any premiums or discounts are recognized in interest income over the term of the securities. For MBS, estimates of prepayments are considered in the constant yield calculations. Interest expense on junior subordinated debt is also determined under a constant yield calculation.

Fair value on a recurring basis

Financial assets and financial liabilities measured at fair value on a recurring basis include the following:

AFS securities: ARPS securities, trust preferred securities, corporate debt securities and CRA mutual fund investments are reported at fair value utilizing Level 1 inputs. Other securities classified as AFS are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. 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 bond’s terms and conditions, among other things.

Securities measured at fair value: All of the Company’s securities measured at fair value, the majority of which are mortgage-backed securities, are reported at fair value utilizing Level 2 inputs in the same manner as described above for AFS securities.

Independent pricing service: Our independent pricing service provides pricing information on Level 1, 2 and 3 securities, and represents the pricing source for the majority of the portfolio. Management independently evaluates fair value measurements received from our third-party pricing service through multiple review steps. First, management reviews what has transpired in the marketplace with respect to interest rates, credit spreads, volatility, mortgage rates, among other things, and develops an expectation on changes to the securities valuations from the previous quarter. Then management obtains market values from additional sources. The pricing service provides management with observable market data, including interest rate curves and mortgage prepayment speed grids, as well as dealer quote sheets, new bond offering sheets, and historical trade documentation. Management reviews the assumptions and decides whether they are reasonable. Management may compare interest rates, credit spreads and prepayments speeds used as part of the assumptions to those that management believes are reasonable. Management may price securities using the provided assumptions to determine whether they can develop similar prices on like securities. Any discrepancies between management’s review and the prices provided by the vendor are discussed with the vendor and the Company’s other valuation advisors. Last, management selects a sample of investment securities and compares the values provided by our primary third-party pricing service to the market values obtained from secondary sources and evaluates those with notable variances.

Annually, the Company receives an SSAE 16 report from its independent pricing service attesting to the controls placed on the operations of the service from its auditor.

Interest rate swaps: Interest rate swaps are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations to value its interest rate swaps.

Junior subordinated debt: The Company estimates the fair value of its junior subordinated debt using a discounted cash flow model, which incorporates the effect of the Company’s own credit risk in the fair value of the liabilities (Level 3). The Company’s cash flow assumptions were based on the contractual cash flows as the Company anticipates that it will pay the debt according to its contractual terms. During 2013, the Company established and continues to use the BB 20-Year Index adjusted for a credit risk spread as of September 30, 2014. The Company estimated the discount rate at 5.925%, which is a 569 basis point spread over 3 month LIBOR (0.235% as of September 30, 2014). As of December 31, 2013, the Company estimated the discount rate at 5.861%, which was a 562 basis point spread over 3 month LIBOR 0.246%.

The fair value of assets and liabilities measured at fair value on a recurring basis were determined using the following inputs at the periods presented:



	Fair Value Measurements at the End of the Reporting Period Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
September 30, 2014
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	1,935	$	—	$	1,935
Available-for-sale
U.S. government sponsored agency securities	$	—	$	17,994	$	—	$	17,994
Corporate debt securities	—		96,946		—		96,946
Municipal obligations	—		307,395		—		307,395
Preferred stock	82,227		—		—		82,227
Mutual funds	37,814		—		—		37,814
Residential MBS issued by GSEs	—		907,952		—		907,952
Commercial MBS issued by GSEs	—		2,117		—		2,117
Private label residential MBS	—		53,645		—		53,645
Private label commercial MBS	—		5,336		—		5,336
Trust preferred securities	—		26,220		—		26,220
CRA investments	23,990		—		—		23,990
Collateralized debt obligations	—		1,320		6,733		8,053
Total AFS	$	144,031	$	1,418,925	$	6,733	$	1,569,689
Positive NPVs on interest rate swaps	$	—	$	29,190	$	—	$	29,190
Liabilities:
Junior subordinated debt	$	—	$	—	$	41,793	$	41,793
Negative NPVs on interest rate swaps	$	—	$	29,875	$	—	$	29,875



	Fair Value Measurements at the End of the Reporting Period Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value
	(in thousands)
December 31, 2013
Assets:
Measured at fair value
Residential MBS issued by GSEs	$	—	$	3,036	$	—	$	3,036

Available-for-sale
U.S. government sponsored agency securities	$	—	$	46,975	$	—	$	46,975
Municipal obligations	—		115,665		—		115,665
Preferred stock	61,484		—		—		61,484
Mutual funds	36,532		—		—		36,532
Residential MBS issued by GSEs	—		1,021,421		—		1,021,421
Private label residential MBS	—		36,099		—		36,099
Private label commercial MBS	—		5,433		—		5,433
Trust preferred securities	—		23,805		—		23,805
CRA investments	23,282		—		—		23,282
Total AFS	$	121,298	$	1,249,398	$	—	$	1,370,696
Positive NPVs on interest rate swaps	$	—	$	2,783	$	—	$	2,783
Liabilities:
Junior subordinated debt	$	—	$	—	$	41,858	$	41,858
Negative NPVs on interest rate swaps	$	—	$	4,168	$	—	$	4,168

For the three and nine months ended September 30, 2014 and 2013, the change in Level 3 assets and liabilities measured at fair value on a recurring basis was as follows:



	Three Months Ended September 30, 2014						Three Months Ended September 30, 2013
	Junior Subordinated Debt			Available-For-Sale Securities			Junior Subordinated Debt			Available-For-Sale Securities
	(in thousands)
Beginning balance	$	(42,711	)	$	58		$	(39,925	)	$	—
Transfers into Level 3	—			6,725			—			—
Total gains (losses) for the period
Included in earnings (1)	918			(50		)	478			—
Ending balance	$	(41,793	)	$	6,733		$	(39,447	)	$	—
Change in unrealized gains (losses) for the period included in earnings	$	918		$	(50	)	$	478		$	—

	Nine Months Ended September 30, 2014						Nine Months Ended September 30, 2013
	Junior Subordinated Debt			Available-For-Sale Securities			Junior Subordinated Debt			Available-For-Sale Securities
	(in thousands)
Beginning balance	$	(41,858	)	$	—		$	(36,218	)	$	—
Transfers into Level 3	—			6,783			—			—
Total gains (losses) for the period
Included in earnings (1)	65			(50		)	(3,229		)	—
Ending balance	$	(41,793	)	$	6,733		$	(39,447	)	$	—
Change in unrealized gains (losses) for the period included in earnings	$	65		$	(50	)	$	(3,229	)	$	—


(1)	Total gains (losses) for the period are included in the non-interest income line, unrealized gains (losses) on assets and liabilities measured at fair value, net.

For Level 3 liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:



	September 30, 2014		Valuation Technique	Significant Unobservable Inputs	Input Value
	(dollars in thousands)
Junior subordinated debt	$	41,793	Discounted cash flow	Adjusted Corporate Bond over Treasury Index with comparable credit spread	5.925	%
Available-for-sale securities	6,733		S&P Model	Pricing indications from comparable securities



	December 31, 2013		Valuation Technique	Significant Unobservable Inputs	Input Value
	(dollars in thousands)
Junior subordinated debt	$	41,858	Discounted cash flow	Adjusted Corporate Bond over Treasury Index with comparable credit spread	5.861	%

Fair value on a nonrecurring basis

Certain assets are measured at fair value on a nonrecurring basis. That is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents such assets carried on the balance sheet by caption and by level within the ASC 825 hierarchy:



	Fair Value Measurements at the End of the Reporting Period Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Active Markets for Similar Assets (Level 2)		Unobservable Inputs (Level 3)
	(in thousands)
As of September 30, 2014:
Impaired loans with a specific valuation allowance	$	166,013	$	—	$	—	$	166,013
Impaired loans without a specific valuation allowance	330		—		—		330
Other assets acquired through foreclosure	51,787		—		—		51,787
December 31, 2013
Impaired loans with a specific valuation allowance	$	20,474	$	—	$	—	$	20,474
Impaired loans without a specific valuation allowance	95,695		—		—		95,695
Other assets acquired through foreclosure	66,719		—		—		66,719

Impaired loans: The specific reserves for collateral dependent impaired loans are based on collateral value, net of estimated disposition costs and other identified quantitative inputs. Collateral value is determined based on third-party appraisals. Appraisals may utilize a single valuation approach or a combination of approaches, including comparable sales and the income approach. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. In some cases, adjustments are made to the appraised values due to various factors, including age of the appraisal (which are generally obtained every twelve months), age of comparables included in the appraisal and known changes in the market and in the collateral. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement. These Level 3 impaired loans had an estimated fair value of $183.5 million and $25.8 million, respectively, at September 30, 2014 and December 31, 2013. The fair value of these Level 3 impaired loans reflects the carrying value of loans, which has been reduced by any deficit in appraised value compared to book value, estimated disposition costs, and estimated losses of similar impaired loans based on historical loss experience. Specific reserves in the allowance for loan losses for these loans were $17.5 million and $5.3 million, respectively, at September 30, 2014 and December 31, 2013.

Other assets acquired through foreclosure: Other assets acquired through foreclosure consist of properties acquired as a result of, or in-lieu-of, foreclosure. Properties or other assets classified as other assets acquired through foreclosure and other repossessed property are initially reported at the fair value determined by independent appraisals using appraised value, less estimated costs to sell. Such properties are generally re-appraised every six to twelve months. There is risk for subsequent volatility. Costs relating to the development or improvement of the assets are capitalized and costs relating to holding the assets are charged to expense. The Company had $51.8 million of such assets at September 30, 2014. Fair value is determined, where possible, using market prices derived from an appraisal or evaluation, which are considered to be Level 2. However, certain assumptions and unobservable inputs are often used by the appraiser, therefore qualifying the assets as Level 3 in the fair value hierarchy. When significant adjustments are based on unobservable inputs, such as when a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the resulting fair value measurement has been categorized as a Level 3 measurement.

Credit vs. non-credit losses

Under the provisions of ASC 320, Investments-Debt and Equity Securities, OTTI is separated into the amount of total impairment related to the credit loss and the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in OCI.

For the three and nine months ended September 30, 2014 and 2013, the Company determined that no securities experienced credit losses.

The following table presents a rollforward of the amount related to impairment credit losses recognized in earnings for the nine months ended September 30, 2013. As a result of the sale of these securities during the second quarter of 2013, there is no OTTI balance recognized in comprehensive income as of September 30, 2014.



Private Label Mortgage- Backed Securities	Nine Months Ended September 30, 2013
	(in thousands)
Beginning balance of impairment losses held in other comprehensive income	$	(1,811	)
Current period OTTI credit losses recognized through earnings	—
Reductions for securities sold during the period	1,811
Additions or reductions in credit losses due to change of intent to sell	—
Reductions for increases in cash flows to be collected on impaired securities	—
Ending balance of net unrealized losses held in other comprehensive income	$	—

FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company’s financial instruments is as follows:



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
AFS	$	1,569,689	$	144,031	$	1,418,925	$	6,733	$	1,569,689
Trading	1,935		—		1,935		—		1,935
Loans, net	7,820,359		—		7,445,872		166,343		7,612,215
Financial liabilities:
Deposits	8,697,627		—		8,702,552		—		8,702,552
Customer repurchase agreements	52,957		—		52,957		—		52,957
FHLB and FRB advances	272,698		—		272,698		—		272,698
Other borrowed funds	58,084		—		—		61,074		61,074
Junior subordinated debt	41,793		—		—		41,793		41,793
Negative NPVs on interest rate swaps	29,875		—		29,875		—		29,875



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(in thousands)
Financial assets:
Investment securities:
HTM	$	283,006	$	22,200	$	259,496	$	8	$	281,704
AFS	1,370,696		121,298		1,249,398		—		1,370,696
Trading	3,036		—		3,036		—		3,036
Positive NPVs on interest rate swaps	2,783		—		2,783		—		2,783
Loans, net	6,701,365		—		6,090,962		116,169		6,207,131
Financial liabilities:
Deposits	7,838,205		—		7,842,014		—		7,842,014
Customer repurchase agreements	71,192		—		71,192		—		71,192
FHLB and FRB advances	273,879		—		273,879		—		273,879
Other borrowed funds	67,217		3,000		—		71,475		74,475
Junior subordinated debt	41,858		—		—		41,858		41,858
Negative NPVs on interest rate swaps	4,168		—		4,168		—		4,168

Interest rate risk

The Company assumes interest rate risk (the risk to the Company’s earnings and capital from changes in interest rate levels) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments as well as its future net interest income will change when interest rate levels change and that change may be either favorable or unfavorable to the Company.

Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in EVE and net interest income resulting from hypothetical changes in interest rates. If potential changes to EVE and net interest income resulting from hypothetical interest rate changes are not within the limits established by the Board of Directors, the Board may direct management to adjust the asset and liability mix to bring interest rate risk within Board-approved limits. As of September 30, 2014, the Company’s interest rate risk profile was within Board-approved limits.

WAB has an ALCO charged with managing interest rate risk within the Board of Directors approved limits. Limits are structured to prohibit an interest rate risk profile that does not conform to both management and Board of Directors risk tolerances. There is also ALCO reporting at the holding company level for reviewing interest rate risk for the Consolidated Company.

Fair value of commitments

The estimated fair value of standby letters of credit outstanding at September 30, 2014 and December 31, 2013 was insignificant. Loan commitments on which the committed interest rates were less than the current market rate are also insignificant at September 30, 2014 and December 31, 2013.