The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. This hierarchy requires the Company to maximize the use of observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Each fair value measurement is placed into the proper level based on the lowest level of significant input. These levels are:

Transfers between fair value levels are recognized at the end of the fiscal quarter in which the associated change in inputs occurs.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis categorized by the level of inputs used in the valuation of each asset and liability at December 31, 2018 and 2017:

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2018
Assets
Investment securities available-for-sale	$	1,187,252	$	—	$	1,187,252	$	—
Equity securities with readily determinable fair values not held for trading		5,840		5,840		—		—
Derivative assets		11,136		—		11,136		—
Net profits interests		5,779		—		—		5,779
Investments in limited partnerships		11,191		—		—		11,191
Total recurring basis measured assets	$	1,221,198	$	5,840	$	1,198,388	$	16,970
Liabilities
Derivative liabilities	$	32,350	$	—	$	32,350	$	—
Total recurring basis measured liabilities	$	32,350	$	—	$	32,350	$	—

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2017
Assets
Investment securities available-for-sale	$	1,257,063	$	—	$	1,257,063	$	—
Equity securities with readily determinable fair values not held for trading		5,885		5,885		—		—
Derivative assets		3,958		—		3,958		—
Net profits interests		15,833		—		—		15,833
Total recurring basis measured assets	$	1,282,739	$	5,885	$	1,261,021	$	15,833
Liabilities
Derivative liabilities	$	25,280	$	—	$	25,280	$	—
Total recurring basis measured liabilities	$	25,280	$	—	$	25,280	$	—

There were no transfers between the Level 1 and Level 2 fair value categories during each of the three years in the period ended December 31, 2018.

The table below includes a roll-forward of the consolidated balance sheet amounts for each of the years in the period ended December 31, 2018 for changes in the fair value of financial instruments within Level 3 of the valuation hierarchy that are recorded on a recurring basis. Level 3 financial instruments typically include unobservable components, but may also include some observable components that may be validated to external sources. The gains or (losses) in the following table (which are reported in Other Noninterest Income in the consolidated income statements) may include changes to fair value due in part to observable factors that may be part of the valuation methodology.

	For the Year Ended December 31,
	2018			2017			2018			2017
(In thousands)	Net Profits Interests						Investments in Limited Partnerships
Beginning Balance	$	15,833		$	19,425		$	—		$	—
Transfers in due to adoption of ASU 2016-01		—			—			5,129			—
Adjustment recorded in retained earnings due to adoption of ASU 2016-01		—			—			1,201			—
Sales proceeds		(5,308	)		—			—			—
Net (losses) gains included in earnings		(3,177	)		(2,442	)		2,457			—
Contributions paid		—			—			3,807			—
Distributions received		(1,569	)		(1,150	)		(1,403	)		—
Ending Balance at December 31, 2018	$	5,779		$	15,833		$	11,191		$	—
Net unrealized (losses) gains included in earnings relating to assets held at the end of the period	$	(2,818	)	$	(2,442	)	$	2,457		$	—

The fair value of the net profit interests in oil and gas reserves was estimated using discounted cash flow analyses applied to the expected cash flows from producing developed wells. Expected cash flows are derived from reports prepared by consulting engineers under established professional standards for the industry. These expected cash flow projections contain significant unobservable inputs regarding the net recoverable oil and gas reserves and forward-looking commodity prices discounted at a rate of 10%. Therefore, the fair value is subject to change based on these commodity markets. An increase of 5% in the discount rate will not produce a material change in the fair value of the net profits interest.

The fair value of certain investments in limited partnerships was estimated using the practical expedient of net asset value. For other investments in limited partnerships that do not qualify for the practical expedient, we use a measurement alternative which measures these investments at cost, less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer.

From time to time, the Company may be required to measure certain other financial assets at fair value on a nonrecurring basis in accordance with GAAP. These adjustments to fair value usually result from the application of lower of cost or fair value accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis which were still held on the balance sheets at December 31, 2018 and 2017, the following tables provide the level of valuation assumptions used to determine each adjustment and the related carrying value:

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2018
Loans held for sale	$	59,461		—	$	59,461	$	—
Impaired loans, net of specific allowance		71,741		—		—		71,741
Other real estate		2,406		—		—		2,406
Total assets measured on a nonrecurring basis	$	133,608	$	—	$	59,461	$	74,147

(In thousands)	Carrying Value		(Level 1)		(Level 2)		(Level 3)
December 31, 2017
Loans held for sale	$	61,359		—	$	61,359	$	—
Impaired loans, net of specific allowance		65,088		—		—		65,088
Other real estate		7,605		—		—		7,605
Total assets measured on a nonrecurring basis	$	134,052	$	—	$	61,359	$	72,693

The fair value of collateral-dependent impaired loans and OREO and the related fair value adjustments are generally based on unadjusted third-party appraisals. Appraisals that are not based on observable inputs or that require significant adjustments or fair value measurements that are not based on third-party appraisals are considered to be based on significant unobservable inputs.

Nonrecurring fair value measurements of collateral dependent loans secured by oil and gas reserves and mineral rights are generally based on borrower provided or third-party reserve reports (which are reviewed by the Company’s engineering team) that utilize projected cash flows under current market conditions and include significant unobservable inputs. Projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Assets are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current prices with existing conventional equipment, operating methods and costs. The significant unobservable inputs used in these valuations have been developed through our contacts with oil and gas industry participants, asset management and workout professionals and approved by senior management.

Significant unobservable inputs used in Level 3 fair value measurements for financial assets measured at fair value on a nonrecurring basis are summarized below:

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable Inputs

Range

December 31, 2018

Impaired loans, net of specific allowance

71,741

Appraised value, as adjusted

Discount to fair value

0% - 20%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 10%

0 - 10%

Discounted cash flow

Discount rates - 2.9% to 8.7%

0% - 20%⁽¹⁾

Enterprise value

Exit multiples

0 - 15%⁽¹⁾

Estimated closing costs

10%

Other real estate

2,406

Appraised value, as adjusted

Discount to fair value

0% - 20%

Estimated closing costs

10%

(1) - Represents difference of unpaid balance to fair value.

Quantitative Information about Level 3 Fair Value Measurements

(In thousands)

Carrying

Value

Valuation

Methods

Unobservable

Inputs

Range

December 31, 2017

Impaired loans, net of specific allowance

65,088

Appraised value, as adjusted

Discount to fair value

0% - 50%

Discounted cash flow

Net recoverable oil and gas reserves and forward-looking commodity prices. Discount rate - 9%

0% - 29%⁽¹⁾

Discounted cash flow

Discount rates - 3.6% to 8.0%

0% - 1%⁽¹⁾

Estimated

closing costs

10%

Other real estate

7,605

Appraised value, as adjusted

Discount of

fair value

0%-20%

Estimated

closing costs

10%

(1) - Represents fair value as a percent of the unpaid principal balance.

In accordance with ASC 820-10-35, fair values are based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following describes the assumptions and methodologies used to estimate the fair value of financial instruments recorded at fair value in the consolidated balance sheets and for estimating the fair value of financial instruments for which fair value is disclosed under ASC 825-10-50.

Investment Securities. When quoted prices are available in an active market, securities are classified as Level 1. For securities reported at fair value utilizing Level 2 inputs, the Company obtains fair value measurements from an independent pricing service. These fair value measurements consider observable market data that may include benchmark yield curves, reported trades, broker/dealer quotes, issuer spreads and credit information, among other inputs.

Loans Held for Sale. Loans held for sale are recorded at the lower of aggregate cost or fair value. Fair value is generally based on quoted market prices of similar loans and is considered to be Level 2.

Net Loans. Loans are valued on an individual basis, with consideration given to the loans’ underlying characteristics, including account types, remaining terms, annual interest rates or coupons, interest types, accrual basis, timing of principal and interest payments, current market rates, and remaining balances. A discounted cash flow model is used to estimate the fair value of the loans using assumption for the coupon rates, remaining maturities, prepayments speeds, projected default probabilities by risk grade, and estimates of prevailing discount rates. The discounted cash flow approach models the projected cash flows, applying various assumptions regarding interest and payment risks for the loans based on the loan types, payment types and fixed or variable classifications. For variable rate loans, forward interest rate curves are integrated into the projection of cash flows. The forward curves are index specific and obtained from a leading third-party provider. Future coupon payments are determined based upon the applicable forward curve, spread, next repricing date, and repricing frequency. Estimated fair values are disclosed through the application of the exit price notion. The assumptions used to estimate fair value are intended to approximate those that a market participant would use in an orderly transaction on the measurement date.

Derivative Financial Instruments. Derivative financial instruments are measured at fair value based on modeling that utilizes observable market inputs for various interest rates published by leading third-party financial news and data providers. This is observable data that represents the rates used by market participants for instruments entered into at that date; however, they are not based on actual transactions, so they are classified as Level 2.

Other Assets - Net profits interests. The fair value of the net profit interests in oil and gas reserves was estimated using discounted cash flow analyses applied to the expected cash flows from producing developed wells. Expected cash flows are derived from reports prepared by consulting engineers under established professional standards for the industry.

Investments in Limited Partnerships.The fair value of certain investments in limited partnerships was estimated using the net asset value practical expedient provided by the partnership as allowed by ASC 820 for an equity security without a readily determinable fair value. Certain other limited partnerships without readily determinable fair values that do not qualify for the practical expedient are accounted for at cost minus impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The investments in affordable housing projects are carried at amortized costs which approximate fair value (Note 20).

Deposits. The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for CDs are estimated using a discounted cash flow calculation that applies interest rate spreads to current Treasury yields.

Security Sold Under Agreements to Repurchase. The carrying amount of security repurchase agreements approximates their fair values.

Senior Debt. The fair value of senior debt was estimated by obtaining broker indications that compared the Company’s senior debt to other comparable financial institutions.

Subordinated Debt. The fair value of subordinated debentures was estimated by obtaining broker indications that compared the Company’s subordinated debentures to other comparable financial institutions.

Junior Subordinated Debentures. The fair value of junior subordinated debentures was estimated by obtaining broker indications that compared the Company’s junior subordinated debentures to other comparable financial institutions.

Limitations. The following fair value estimates are determined as of a specific point in time utilizing various assumptions and estimates. The use of assumptions and various valuation techniques, as well as the absence of secondary markets for certain financial instruments, will likely reduce the comparability of fair value disclosures between financial institutions. The fair values for loans involve the use of significant internally-developed pricing assumptions due to market-illiquidity for loans net of unearned income and loans held for sale as of December 31, 2018 and 2017. These assumptions are considered to reflect inputs that market participants would use in transactions involving these instruments as of the measurement date. This table only includes financial instruments of the Company, and, accordingly, the total of the fair value amounts does not represent, and should not be construed to represent, the underlying value of the Company.

The estimated fair values of the Company’s financial instruments are as follows:

	December 31, 2018
(In thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	237,342	$	237,342	$	237,342	$	—	$	—
Interest-bearing deposits in other banks		523,436		523,436		523,436		—		—
Federal funds sold		18,502		18,502		18,502		—		—
Investment securities available-for-sale		1,187,252		1,187,252		—		1,187,252		—
Equity securities with readily determinable fair values not held for trading		5,840		5,840		5,840		—		—
Loans held for sale		59,461		59,461		—		59,461		—
Net loans		9,959,545		9,735,130		—		—		9,735,130
Derivative assets		11,136		11,136		—		11,136		—
Net profits interests		5,779		5,779		—		—		5,779
Investments in limited partnerships		36,917		36,917		—		—		36,917
Financial Liabilities:
Deposits		10,708,689		10,700,350		—		10,700,350		—
Advances from FHLB		150,000		150,000		—		150,000		—
Securities sold under agreements to repurchase		1,106		1,106		—		1,106		—
Senior debt		184,801		194,762		—		194,762		—
Subordinated debt		98,910		103,008		—		103,008		—
Junior subordinated debentures		36,953		46,946		—		46,946		—
Derivative liabilities		32,350		32,350		—		32,350		—

	December 31, 2017
(In thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and due from banks	$	238,707	$	238,707	$	238,707	$	—	$	—
Interest-bearing deposits in other banks		482,568		482,568		482,568		—		—
Federal funds sold		9,536		9,536		9,536		—		—
Securities available-for-sale		1,257,063		1,257,063		—		1,257,063		—
Securities held-to-maturity		290		311		—		311		—
Equity securities with readily determinable fair values not held for trading		5,885		5,885		5,885		—		—
Loans held for sale		61,359		61,359		—		61,359		—
Net loans		8,165,851		8,134,903		—		—		8,134,903
Derivative assets		3,958		3,958		—		3,958		—
Net profits interests		15,833		15,833		—		—		15,833
Financial Liabilities:
Deposits		9,011,515		9,006,890		—		9,006,890		—
Advances from FHLB		150,000		150,000		—		150,000		—
Securities sold under agreements to repurchase		1,026		1,026		—		1,026		—
Senior debt		184,629		194,484		—		194,484		—
Subordinated debt		98,687		94,724		—		94,724		—
Junior subordinated debentures		36,472		49,161		—		49,161		—
Derivative liabilities		25,280		25,280		—		25,280		—