FAIR VALUE MEASUREMENTS

Recurring fair value measurements

The Company has segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to estimate the fair value at the measurement date in the tables below. See Note 1, Summary of Significant Accounting Policies, in the 2015 Annual Report on Form 10-K for the year ended December 31, 2015, for a description of how fair value measurements are determined.



	September 30, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Securities available for sale	$	—	$	2,885,413	$	—	$	2,885,413
Mortgage loans held for sale	—		210,866		—		210,866
Derivative instruments	—		55,804		—		55,804
Total	$	—	$	3,152,083	$	—	$	3,152,083
Liabilities
Derivative instruments	$	—	$	58,939	$	—	$	58,939
Total	$	—	$	58,939	$	—	$	58,939



	December 31, 2015
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Securities available for sale	$	—	$	2,800,286	$	—	$	2,800,286
Mortgage loans held for sale	—		166,247		—		166,247
Derivative instruments	—		30,486		—		30,486
Total	$	—	$	2,997,019	$	—	$	2,997,019
Liabilities
Derivative instruments	$	—	$	24,939	$	—	$	24,939
Total	$	—	$	24,939	$	—	$	24,939

During the nine months ended September 30, 2016 there were no transfers between the Level 1 and Level 2 fair value categories.

Non-recurring fair value measurements

The Company has segregated all assets and liabilities that are measured at fair value on a non-recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below.



	September 30, 2016
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Loans	$	—	$	—	$	85,463	$	85,463
OREO, net	—		—		405		405
Total	$	—	$	—	$	85,868	$	85,868



	December 31, 2015
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets
Loans	$	—	$	—	$	31,669	$	31,669
OREO, net	—		—		1,662		1,662
Total	$	—	$	—	$	33,331	$	33,331

The tables above exclude the initial measurement of assets and liabilities that were acquired as part of the acquisitions completed in 2015. These assets and liabilities were recorded at their fair value upon acquisition in accordance with U.S. GAAP and were not re-measured during the periods presented unless specifically required by U.S. GAAP. Acquisition date fair values represent either Level 2 fair value measurements (investment securities, property, equipment, and debt) or Level 3 fair value measurements (loans, OREO, deposits, and core deposit intangible assets).

In accordance with the provisions of ASC Topic 310, the Company records certain loans considered impaired at their estimated fair value. A loan is considered impaired if it is probable the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Fair value is measured at the estimated fair value of the collateral for collateral-dependent loans. Impaired loans with an unpaid principal balance of $120.6 million and $40.2 million were recorded at their fair value at September 30, 2016 and December 31, 2015, respectively. These loans include reserves and charge-offs of $35.2 million and $8.5 million included in the Company's allowance for credit losses at September 30, 2016 and December 31, 2015, respectively.

The Company did not record any liabilities at fair value for which measurement of the fair value was made on a non-recurring basis at September 30, 2016 and December 31, 2015.

Fair value option

The Company has elected the fair value option for certain originated residential mortgage loans held for sale, which allows for a more effective offset of the changes in fair values of the loans and the derivative instruments used to hedge them without the burden of complying with the requirements for hedge accounting. During the third quarter, an immaterial amount of mortgage loans held for sale for which the fair value option was elected were transferred from loans held for sale to loans held for investment.

The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for mortgage loans held for sale measured at fair value:



	September 30, 2016						December 31, 2015
(Dollars in thousands)	Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Unpaid Principal		Aggregate Fair Value		Aggregate Unpaid Principal		Aggregate Fair Value Less Unpaid Principal
Mortgage loans held for sale, at fair value	$	210,866	$	203,293	$	7,573	$	166,247	$	161,083	$	5,164

Interest income on mortgage loans held for sale is recognized based on contractual rates and is reflected in interest income on loans held for sale in the consolidated statements of comprehensive income. Net gains (losses) resulting from the change in fair value of these loans that were recorded in mortgage income in the consolidated statements of comprehensive income for the three and nine months ended September 30, 2016 totaled ($1.5 million) and $2.4 million, respectively, while net gains resulting from the change in fair value of these loans were $7 thousand and $3.7 million for the three and nine months ended September 30, 2015, respectively. The changes in fair value are mostly offset by economic hedging activities, with an immaterial portion of these changes attributable to changes in instrument-specific credit risk.