•

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3 Inputs – Significant unobservable inputs that reflect an entity’s own assumptions that market participants would use in pricing the assets or liabilities.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

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. 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.

Securities classified as

available-for-sale

and trading are reported at fair value utilizing Level 1 and 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 market spreads, cash flows, the United States Treasury yield curve, live trading levels, trade execution data, dealer quotes, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other items.

See notes 4 and 5 related to the determination of fair value for loans

held-for-sale,

IRLCs and forward mortgage-backed securities trades.

There were no transfers between Level 1 and Level 2 or Level 2 and Level 3 during the three months ended March 31, 2020 and 2019, and the year ended December 31, 2019.

The following table summarizes the Company’s

available-for-sale

securities which are measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (dollars in thousands):


March 31, 2020
	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury securities	$	10,113	$	—		$	—	$	10,113
Obligations of states and political subdivisions		—		1,807,671			—		1,807,671
Corporate bonds		—		220			—		220
Residential mortgage-backed securities		—		1,679,980			—		1,679,980
Commercial mortgage-backed securities		—		604,554			—		604,554
Other securities		4,531		—			—		4,531


Total	$	14,644	$	4,092,425		$	—	$	4,107,069


Loans held-for-sale	$	—	$	39,659		$	—	$	39,659

IRLCs	$	—	$	296		$	—	$	296

Forward mortgage-backed securities trades	$	—	$	(3,200	)	$	—	$	(3,200	)


March 31, 2019
	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury securities	$	9,991	$	—		$	—	$	9,991
Obligations of states and political subdivisions		—		1,239,730			—		1,239,730
Corporate bonds		—		456			—		456
Residential mortgage-backed securities		—		1,516,288			—		1,516,288
Commercial mortgage-backed securities		—		441,944			—		441,944
Other securities		4,403		—			—		4,403


Total	$	14,394	$	3,198,418		$	—	$	3,212,812


Loans held-for-sale	$	—	$	12,007		$	—	$	12,007

IRLCs	$	—	$	1,299		$	—	$	1,299

Forward mortgage-backed securities trades	$	—	$	(301	)	$	—	$	(301	)


December 31, 2019
	Level 1 Inputs		Level 2 Inputs			Level 3 Inputs		Total Fair Value
Available-for-sale investment securities:
U.S. Treasury securities	$	10,019	$	—		$	—	$	10,019
Obligations of states and political subdivisions		—		1,288,983					1,288,983
Corporate bonds		—		230			—		230
Residential mortgage-backed securities		—		1,608,863			—		1,608,863
Commercial mortgage-backed securities		—		500,744			—		500,744
Other securities		4,478		—			—		4,478


Total	$	14,497	$	3,398,820		$	—	$	3,413,317


Loans held-for-sale	$	—	$	23,076		$	—	$	23,076

IRLCs	$	—	$	886		$	—	$	886

Forward mortgage-backed securities trades	$	—	$	(152	)	$	—	$	(152	)

Certain financial assets and financial liabilities 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). Impaired loans are reported at the fair value of the underlying collateral less selling costs if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 inputs based on observable market data. At March 31, 2020, impaired loans with a carrying value of $28,106,000 were reduced by specific valuation reserves totaling $3,386,000 resulting in a net fair value of $24,720,000.

Certain

non-financial

assets and

non-financial

liabilities measured at fair value on a

non-recurring

basis include other real estate owned, goodwill and other intangible assets and other

non-financial

long-lived assets.

Non-financial

assets measured at fair value on a

non-recurring

basis during the three months ended March 31, 2020 and 2019 include other real estate owned which, subsequent to their initial transfer to other real estate owned from loans, were

re-measured

at fair value through a write-down included in gain (loss) on sale of foreclosed assets. During the reported periods, all fair value measurements for foreclosed assets utilized Level 2 inputs based on observable market data, generally third-party appraisals, or Level 3 inputs based on customized discounting criteria. These appraisals are evaluated individually and discounted as necessary due to the age of the appraisal, lack of comparable sales, expected holding periods of property or special use type of the property. Such discounts vary by appraisal based on the above factors but generally range from 5% to 25% of the appraised value.

Re-evaluation

of other real estate owned is performed at least annually as required by regulatory guidelines or more often if particular circumstances arise. There were no other real estate owned properties that were

re-measured

subsequent to their initial transfer to other real estate owned during the three months ended March 31, 2020 and 2019.

At March 31, 2020 and 2019, and December 31, 2019, other real estate owned totaled $982,000, $612,000 and $982,000, respectively.

The Company is required under current authoritative accounting guidance to disclose the estimated fair value of their financial instrument assets and liabilities including those subject to the requirements discussed above. For the Company, as for most financial institutions, substantially all of its assets and liabilities are considered financial instruments. Many of the Company’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Cash and due from banks, federal funds sold, interest-bearing deposits and time deposits in banks and accrued interest receivable and payable are liquid in nature and considered Levels 1 or 2 of the fair value hierarchy.

Financial instruments with stated maturities have been valued using a present value discounted cash flow with a discount rate approximating current market for similar assets and liabilities and are considered Levels 2 and 3 of the fair value hierarchy. Financial instrument liabilities with no stated maturities have an estimated fair value equal to both the amount payable on demand and the carrying value and are considered Level 1 of the fair value hierarchy.

The carrying value and the estimated fair value of the Company’s contractual

off-balance-sheet

unfunded lines of credit, loan commitments and letters of credit, which are generally priced at market at the time of funding, are not material.

The estimated fair values and carrying values of all financial instruments under current authoritative guidance were as follows (in thousands).


	March 31,								December 31,
	2020				2019				2019
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Fair Value Hierarchy
Cash and due from banks	$	191,486	$	191,486	$	176,278	$	176,278	$	231,534	$	231,534		Level 1

Federal Funds Sold		—		—		12,825		12,825		3,150		3,150		Level 1

Interest-bearing deposits in banks		76,378		76,378		197,758		197,758		47,920		47,920		Level 1

Interest-bearing time deposits in banks		—		—		1,458		1,458		—		—		Level 2

Available-for-sale securities		4,107,069		4,107,069		3,212,812		3,212,812		3,413,317		3,413,317		Levels 1 and 2

Loans held for investment		4,639,389		4,619,017		3,989,160		3,973,329		4,194,969		4,209,826		Level 3

Loans held for sale		42,034		41,953		14,446		14,512		28,228		28,343		Level 2

Accrued interest receivable		34,329		34,329		29,372		29,372		36,894		36,894		Level 2

Deposits with stated maturities		465,808		467,804		441,393		441,433		420,013		421,397		Level 2

Deposits with no stated maturities		6,744,658		6,744,658		5,909,348		5,909,348		6,183,793		6,183,793		Level 1

Borrowings		857,871		857,871		382,711		382,711		381,356		381,356		Level 2

Accrued interest payable		783		783		575		575		628		628		Level 2

IRLCs		296		296		1,299		1,299		886		886		Level 2

Forward mortgage-backed securities trades		3,200		3,200		301		301		152		152		Level 2