Fair Values of Assets and Liabilities

The Company measures, monitors and discloses certain of its assets and liabilities on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the inputs used to determine fair value. These levels are:


•	Level 1—unadjusted quoted prices in active markets for identical assets or liabilities.

•

Level 2—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 or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•

Level 3—significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

A financial instrument’s categorization within the above valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the assets or liabilities. The following is a description of the valuation methodologies used for the Company’s assets and liabilities measured at fair value on a recurring basis.

Available-for-sale securities, trading account securities and equity securities with readily determinable fair value—Fair values for available-for-sale securities, trading account securities and equity securities with readily determinable fair value are typically based on prices obtained from independent pricing vendors. Securities measured with these valuation techniques are generally classified as Level 2 of the fair value hierarchy. Typically, standard inputs such as benchmark yields, reported trades for similar securities, issuer spreads, benchmark securities, bids, offers and reference data including market research publications are used to fair value a security. When these inputs are not available, broker/dealer quotes may be obtained by the vendor to determine the fair value of the security. We review the vendor’s pricing methodologies to determine if observable market information is being used, versus unobservable inputs. Fair value measurements using significant inputs that are unobservable in the market due to limited activity or a less liquid market are classified as Level 3 in the fair value hierarchy.

The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale securities. The methodology and variables used as inputs in pricing Level 3 securities are derived from a combination of observable and unobservable inputs. The unobservable inputs are determined through internal assumptions that may vary from period to period due to external factors, such as market movement and credit rating adjustments.

At September 30, 2018, the Company classified $97.6 million of municipal securities as Level 3. These municipal securities are bond issues for various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin and are privately placed, non-rated bonds without CUSIP numbers. The Company also classified $3.3 million of U.S. government agencies as Level 3 at September 30, 2018. The Company’s methodology for pricing these securities focuses on three distinct inputs: equivalent rating, yield and other pricing terms. To determine the rating for a given non-rated municipal bond, the Investment Operations Department references a rated, publicly issued bond by the same issuer if available. A reduction is then applied to the rating obtained from the comparable bond, as the Company believes if liquidated, a non-rated bond would be valued less than a similar bond with a verifiable rating. The reduction applied by the Company is one complete rating grade (i.e. a “AA” rating for a comparable bond would be reduced to “A” for the Company’s valuation). For bond issues without comparable bond proxies, a rating of "BBB" was assigned. In the third quarter of 2018, all of the ratings derived by the Investment Operations Department using the above process were "BBB" or better. The fair value measurement of municipal bonds is sensitive to the rating input, as a higher rating typically results in an increased valuation. The remaining pricing inputs used in the bond valuation are observable. Based on the rating determined in the above process, Investment Operations obtains a corresponding current market yield curve available to market participants. Other terms including coupon, maturity date, redemption price, number of coupon payments per year, and accrual method are obtained from the individual bond term sheets. Certain municipal bonds held by the Company at September 30, 2018 are continuously callable. When valuing these bonds, the fair value is capped at par value as the Company assumes a market participant would not pay more than par for a continuously callable bond. To determine the rating for the U.S. government agency securities, the Investment Operations Department assigned a AAA rating as it is guaranteed by the U.S. government.

Mortgage loans held-for-sale—The fair value of mortgage loans held-for-sale is determined by reference to investor price sheets for loan products with similar characteristics.

Loans held-for-investment—The fair value for loans in which the Company elected the fair value option is estimated by discounting future scheduled cash flows for the specific loan through maturity, adjusted for estimated credit losses and prepayments. The Company uses a discount rate based on the actual coupon rate of the underlying loan. At September 30, 2018, the Company classified $13.5 million of loans held-for-investment as Level 3. The weighted average discount rate used as an input to value these loans at September 30, 2018 was 4.57% with discount rates applied ranging from 4%-5%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. As noted above, the fair value estimate also includes assumptions of prepayment speeds and credit losses. The Company included a prepayments speed assumption of 10.31% at September 30, 2018. Prepayment speeds are inversely related to the fair value of these loans as an increase in prepayment speeds results in a decreased valuation. Additionally, the weighted average credit discount used as an input to value the specific loans was 1.00% with credit loss discount ranging from 0%-7% at September 30, 2018.

MSRs—Fair value for MSRs is determined utilizing a valuation model which calculates the fair value of each servicing rights based on the present value of estimated future cash flows. The Company uses a discount rate commensurate with the risk associated with each servicing rights, given current market conditions. At September 30, 2018, the Company classified $74.5 million of MSRs as Level 3. The weighted average discount rate used as an input to value the pool of MSRs at September 30, 2018 was 10.03% with discount rates applied ranging from 7%-18%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. The fair value of MSRs was also estimated based on other assumptions including prepayment speeds and the cost to service. Prepayment speeds used as an input to value the MSRs at September 30, 2018 ranged from 0%-81% or a weighted average prepayment speed of 10.03%. Further, for current and delinquent loans, the Company assumed a weighted average cost of servicing of $78 and $274, respectively, per loan. Prepayment speeds and the cost to service are both inversely related to the fair value of MSRs as an increase in prepayment speeds or the cost to service results in a decreased valuation. See Note 9 - Mortgage Servicing Rights (“MSRs”) for further discussion of MSRs.

Derivative instruments—The Company’s derivative instruments include interest rate swaps, caps and collars, commitments to fund mortgages for sale into the secondary market (interest rate locks), forward commitments to end investors for the sale of mortgage loans and foreign currency contracts. Interest rate swaps, caps and collars are valued by a third party, using models that primarily use market observable inputs, such as yield curves, and are validated by comparison with valuations provided by the respective counterparties. The credit risk associated with derivative financial instruments that are subject to master netting agreements is measured on a net basis by counterparty portfolio. The fair value for mortgage-related derivatives is based on changes in mortgage rates from the date of the commitments. The fair value of foreign currency derivatives is computed based on change in foreign currency rates stated in the contract compared to those prevailing at the measurement date.

At September 30, 2018, the Company classified $2.5 million of derivative assets related to interest rate locks as Level 3. The fair value of interest rate locks is based on prices obtained for loans with similar characteristics from third parties, adjusted for the pull-through rate, which represents the Company’s best estimate of the likelihood that a committed loan will ultimately fund. The weighted-average pull-through rate at September 30, 2018 was 91.12% with pull-through rates applied ranging from 20% to 100%. Pull-through rates are directly related to the fair value of interest rate locks as an increase in the pull-through rate results in an increased valuation.

Nonqualified deferred compensation assets—The underlying assets relating to the nonqualified deferred compensation plan are included in a trust and primarily consist of non-exchange traded institutional funds which are priced based by an independent third party service.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented:



	September 30, 2018
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	124,761	$	—	$	124,761	$	—
U.S. Government agencies	111,020		—		107,705		3,315
Municipal	133,373		—		35,787		97,586
Corporate notes	93,453		—		93,453		—
Mortgage-backed	1,702,378		—		1,702,378		—
Trading account securities	688		—		688		—
Equity securities with readily determinable fair value	36,414		—		36,414		—
Mortgage loans held-for-sale	338,111		—		338,111		—
Loans held-for-investment	77,883		—		64,427		13,456
MSRs	74,530		—		—		74,530
Nonqualified deferred compensation assets	12,503		—		12,503		—
Derivative assets	96,153		—		93,661		2,492
Total	$	2,801,267	$	—	$	2,609,888	$	191,379
Derivative liabilities	$	71,381	$	—	$	71,381	$	—



	December 31, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	143,822	$	—	$	143,822	$	—
U.S. Government agencies	156,915		—		153,136		3,779
Municipal	115,352		—		38,171		77,181
Corporate notes	31,050		—		31,050		—
Mortgage-backed	1,319,725		—		1,319,725		—
Equity securities	36,802		—		36,802		—
Trading account securities	995		—		995		—
Mortgage loans held-for-sale	313,592		—		313,592		—
Loans held-for-investment	33,717		—		—		33,717
MSRs	33,676		—		—		33,676
Nonqualified deferred compensation assets	11,065		—		11,065		—
Derivative assets	52,069		—		49,912		2,157
Total	$	2,248,780	$	—	$	2,098,270	$	150,510
Derivative liabilities	$	35,671	$	—	$	35,671	$	—



	September 30, 2017
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	144,145	$	—	$	144,145	$	—
U.S. Government agencies	159,328		—		155,385		3,943
Municipal	116,016		—		47,633		68,383
Corporate notes	60,614		—		60,614		—
Mortgage-backed	1,149,448		—		1,149,448		—
Equity securities	36,352		—		36,352		—
Trading account securities	643		—		643		—
Mortgage loans held-for-sale	370,282		—		370,282		—
Loans held-for-investment	29,704		—		—		29,704
MSRs	29,414		—		—		29,414
Nonqualified deferred compensation assets	10,824		—		10,824		—
Derivative assets	48,198		—		46,982		1,216
Total	$	2,154,968	$	—	$	2,022,308	$	132,660
Derivative liabilities	$	35,773	$	—	$	35,773	$	—

The aggregate remaining contractual principal balance outstanding as of September 30, 2018, December 31, 2017 and September 30, 2017 for mortgage loans held-for-sale measured at fair value under ASC 825 was $317.4 million, $299.5 million and $356.4 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $338.1 million, $313.6 million and $370.3 million, for the same respective periods, as shown in the above tables. There were $622,000 of loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio as of September 30, 2018 and no loans as of December 31, 2017 and September 30, 2017.

The changes in Level 3 assets measured at fair value on a recurring basis during the three and nine months ended September 30, 2018 and 2017 are summarized as follows:



				U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
(Dollars in thousands)	Municipal			U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
Balance at July 1, 2018	$	96,566		$	3,482		$	13,764		$	63,194	$	3,819
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			(32		)	11,336		(1,327		)
Other comprehensive loss	(2,573		)	(9		)	—			—		—
Purchases	4,830			—			—			—		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(1,237		)	(158		)	(1,520		)	—		—
Net transfers into/(out of) Level 3	—			—			1,244			—		—
Balance at September 30, 2018	$	97,586		$	3,315		$	13,456		$	74,530	$	2,492


(1)	Changes in the balance of MSRs and derivative assets related to fair value adjustments are recorded as components of mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are recorded as other non-interest income.



				U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
(Dollars in thousands)	Municipal			U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
Balance at January 1, 2018	$	77,181		$	3,779		$	33,717		$	33,676	$	2,157
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			(1,420		)	27,048		335
Other comprehensive loss	(5,658		)	(306		)	—			—		—
Purchases ⁽²⁾	31,846			—			—			13,806		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(5,783		)	(158		)	(24,177		)	—		—
Net transfers into/(out of) Level 3	—			—			5,336			—		—
Balance at September 30, 2018	$	97,586		$	3,315		$	13,456		$	74,530	$	2,492



				U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
(Dollars in thousands)	Municipal			U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
Balance at July 1, 2017	$	77,341		$	4,110		$	30,173		$	27,307	$	1,047
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			177			2,107		169
Other comprehensive income (loss)	(4,113		)	(167		)	—			—		—
Purchases	—			—			—			—		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(4,845		)	—			(4,504		)	—		—
Net transfers into/(out of) Level 3	—			—			3,858			—		—
Balance at September 30, 2017	$	68,383		$	3,943		$	29,704		$	29,414	$	1,216



				U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
(Dollars in thousands)	Municipal			U.S. Government Agencies			Loans held-for- investment			Mortgage servicing rights		Derivative Assets
Balance at January 1, 2017	$	79,626		$	—		$	22,137		$	19,103	$	2,291
Total net gains (losses) included in:
Net income ⁽¹⁾	—			—			1,369			10,311		(1,075		)
Other comprehensive income (loss)	(1,084		)	(340		)	—			—		—
Purchases	10,879			—			—			—		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(21,038		)	—			(9,995		)	—		—
Net transfers into/(out of) Level 3	—			4,283			16,193			—		—
Balance at September 30, 2017	$	68,383		$	3,943		$	29,704		$	29,414	$	1,216


(1)	Changes in the balance of MSRs and derivative assets related to fair value adjustments are recorded as components of mortgage banking revenue. Changes in the balance of loans held-for-investment related to fair value adjustments are recorded as other non-interest income.


(2)	Purchased as a part of the Veterans First business combination. See Note 3 - Business Combinations for further discussion.

Also, the Company may be required, from time to time, 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 impairment charges on individual assets. For assets measured at fair value on a nonrecurring basis that were still held in the balance sheet at the end of the period, the following table provides the carrying value of the related individual assets or portfolios at September 30, 2018.



	September 30, 2018								Three Months Ended September 30, 2018 Fair Value Losses Recognized, net		Nine Months Ended September 30, 2018 Fair Value Losses Recognized, net
(Dollars in thousands)	Total		Level 1		Level 2		Level 3
Impaired loans—collateral based	$	106,219	$	—	$	—	$	106,219	$	3,978	$	11,152
Other real estate owned ⁽¹⁾	28,303		—		—		28,303		1,504		5,173
Total	$	134,522	$	—	$	—	$	134,522	$	5,482	$	16,325


(1)	Fair value losses recognized, net on other real estate owned include valuation adjustments and charge-offs during the respective period.

Impaired loans—A loan is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due pursuant to the contractual terms of the loan agreement. A loan modified in a TDR is an impaired loan according to applicable accounting guidance. Impairment is measured by estimating the fair value of the loan based on the present value of expected cash flows, the market price of the loan, or the fair value of the underlying collateral. Impaired loans are considered a fair value measurement where an allowance is established based on the fair value of collateral. Appraised values, which may require adjustments to market-based valuation inputs, are generally used on real estate collateral-dependent impaired loans.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs of impaired loans. For more information on the Managed Assets Division review of impaired loans refer to Note 7 – Allowance for Loan Losses, Allowance for Losses on Lending-Related Commitments and Impaired Loans. At September 30, 2018, the Company had $132.5 million of impaired loans classified as Level 3. Of the $132.5 million of impaired loans, $106.2 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $26.3 million were valued based on discounted cash flows in accordance with ASC 310.

Other real estate owned —Other real estate owned is comprised of real estate acquired in partial or full satisfaction of loans and is included in other assets. Other real estate owned is recorded at its estimated fair value less estimated selling costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in value are reported as adjustments to the carrying amount and are recorded in other non-interest expense. Gains and losses upon sale, if any, are also charged to other non-interest expense. Fair value is generally based on third party appraisals and internal estimates that are adjusted by a discount representing the estimated cost of sale and is therefore considered a Level 3 valuation.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs for other real estate owned. At September 30, 2018, the Company had $28.3 million of other real estate owned classified as Level 3. The unobservable input applied to other real estate owned relates to the 10% reduction to the appraisal value representing the estimated cost of sale of the foreclosed property. A higher discount for the estimated cost of sale results in a decreased carrying value.

The valuation techniques and significant unobservable inputs used to measure both recurring and non-recurring Level 3 fair value measurements at September 30, 2018 were as follows:

(Dollars in thousands)

Fair Value

Valuation Methodology

Significant Unobservable Input

Range

of Inputs

Weighted

Average

of Inputs

Impact to valuation

from an increased or

higher input value

Measured at fair value on a recurring basis:

Municipal Securities

97,586

Bond pricing

Equivalent rating

BBB-AA+

N/A

Increase

U.S. Government agencies

3,315

Bond pricing

Equivalent rating

AAA

Increase

Loans held-for-investment

13,456

Discounted cash flows

Discount rate

4%-5%

4.57%

Decrease

Credit discount

0%-7%

1.00%

Decrease

Constant prepayment rate (CPR)

10.31%

Decrease

MSRs

74,530

Discounted cash flows

Discount rate

7%-18%

10.03%

Decrease

Constant prepayment rate (CPR)

0%-81%

10.03%

Decrease

Cost of servicing

$15-$200

$78

Decrease

Cost of servicing - delinquent

$200-$1,000

$274

Decrease

Derivatives

2,492

Discounted cash flows

Pull-through rate

20%-100%

91.12%

Increase

Measured at fair value on a non-recurring basis:

Impaired loans—collateral based

106,219

Appraisal value

Appraisal adjustment - cost of sale

10%

10.00%

Decrease

Other real estate owned

28,303

Appraisal value

Appraisal adjustment - cost of sale

10%

10.00%

Decrease

The Company is required under applicable accounting guidance to report the fair value of all financial instruments on the consolidated statements of condition, including those financial instruments carried at cost. The table below presents the carrying amounts and estimated fair values of the Company’s financial instruments as of the dates shown:



	At September 30, 2018				At December 31, 2017				At September 30, 2017
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	279,993	$	279,993	$	277,591	$	277,591	$	251,952	$	251,952
Interest bearing deposits with banks	1,137,044		1,137,044		1,063,242		1,063,242		1,218,728		1,218,728
Available-for-sale securities	2,164,985		2,164,985		1,803,666		1,803,666		1,665,903		1,665,903
Held-to-maturity securities	966,438		911,597		826,449		812,516		819,340		807,036
Trading account securities	688		688		995		995		643		643
Equity securities with readily determinable fair value	36,414		36,414		—		—		—		—
FHLB and FRB stock, at cost	99,998		99,998		89,989		89,989		87,192		87,192
Brokerage customer receivables	15,649		15,649		26,431		26,431		23,631		23,631
Mortgage loans held-for-sale, at fair value	338,111		338,111		313,592		313,592		370,282		370,282
Loans held-for-investment, at fair value	77,883		77,883		33,717		33,717		29,704		29,704
Loans held-for-investment, at amortized cost	23,046,068		23,261,545		21,607,080		21,768,978		20,929,678		21,064,801
MSRs	74,530		74,530		33,676		33,676		29,414		29,414
Nonqualified deferred compensation assets	12,503		12,503		11,065		11,065		10,824		10,824
Derivative assets	96,153		96,153		52,069		52,069		48,198		48,198
Accrued interest receivable and other	254,879		254,879		227,649		227,649		225,435		225,435
Total financial assets	$	28,601,336	$	28,761,972	$	26,367,211	$	26,515,176	$	25,710,924	$	25,833,743
Financial Liabilities
Non-maturity deposits	$	19,456,677	$	19,456,677	$	18,775,977	$	18,775,977	$	18,228,388	$	18,228,388
Deposits with stated maturities	5,460,038		5,475,048		4,407,370		4,350,004		4,666,675		4,608,760
FHLB advances	615,000		615,342		559,663		544,750		468,962		454,753
Other borrowings	373,571		373,571		266,123		266,123		251,680		251,680
Subordinated notes	139,172		146,838		139,088		144,266		139,052		145,376
Junior subordinated debentures	253,566		258,488		253,566		264,696		253,566		240,305
Derivative liabilities	71,381		71,381		35,671		35,671		35,773		35,773
FDIC indemnification liability	—		—		—		—		15,472		15,472
Accrued interest payable	15,374		15,374		8,030		8,030		9,177		9,177
Total financial liabilities	$	26,384,779	$	26,412,719	$	24,445,488	$	24,389,517	$	24,068,745	$	23,989,684

Not all the financial instruments listed in the table above are subject to the disclosure provisions of ASC Topic 820, as certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, interest bearing deposits with banks, brokerage customer receivables, FHLB and FRB stock, FDIC indemnification liability, accrued interest receivable and accrued interest payable and non-maturity deposits.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments that were not previously disclosed.

Held-to-maturity securities. Held-to-maturity securities include U.S. Government-sponsored agency securities and municipal bonds issued by various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin. Fair values for held-to-maturity securities are typically based on prices obtained from independent pricing vendors. In accordance with ASC 820, the Company has categorized these held-to-maturity securities as a Level 2 fair value measurement. Fair values for certain other held-to-maturity securities are based on the bond pricing methodology discussed previously related to certain available-for-sale securities. In accordance with ASC 820, the Company has categorized these held-to-maturity securities as a Level 3 fair value measurement.

Loans held-for-investment, at amortized cost. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are analyzed by type such as commercial, residential real estate, etc. Each category is further segmented by interest rate type (fixed and variable) and term. For variable-rate loans that reprice frequently, estimated fair values are based on carrying values. The fair value of residential loans is based on secondary market sources for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value for other fixed rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect credit and interest rate risks inherent in the loan. The primary impact of credit risk on the present value of the loan portfolio, however, was assessed through the use of the allowance for loan losses, which is believed to represent the current fair value of probable incurred losses for purposes of the fair value calculation. In accordance with ASC 820, the Company has categorized loans as a Level 3 fair value measurement.

Deposits with stated maturities. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently in effect for deposits of similar remaining maturities. In accordance with ASC 820, the Company has categorized deposits with stated maturities as a Level 3 fair value measurement.

FHLB advances. The fair value of FHLB advances is obtained from the FHLB which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities to discount cash flows. In accordance with ASC 820, the Company has categorized FHLB advances as a Level 3 fair value measurement.

Subordinated notes. The fair value of the subordinated notes is based on a market price obtained from an independent pricing vendor. In accordance with ASC 820, the Company has categorized subordinated notes as a Level 2 fair value measurement.

Junior subordinated debentures. The fair value of the junior subordinated debentures is based on the discounted value of contractual cash flows. In accordance with ASC 820, the Company has categorized junior subordinated debentures as a Level 3 fair value measurement.