Fair Values of Assets and Liabilities

9 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair Values of Assets and Liabilities

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 debt securities, trading account securities and equity securities with readily determinable fair value—Fair values for available-for-sale debt 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 determine the fair value of these securities. 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 fair value of U.S. Treasury securities and certain equity securities with readily determinable fair value are based on unadjusted quoted prices in active markets for identical securities. As such, these securities are classified as Level 1 in the fair value hierarchy.

The Company’s Investment Operations Department is responsible for the valuation of Level 3 available-for-sale debt 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, 2022, the Company classified $122.4 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’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 investment debt security, 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 2022, all of the ratings derived by the Investment Operations Department using the above process were “BBB” or better. The fair value measurement noted above 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, 2022 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.

Mortgage loans held-for-sale—The fair value of mortgage loans held-for-sale is typically determined by reference to investor price sheets for loan products with similar characteristics. Loans measured with this valuation technique are classified as Level 2 in the fair value hierarchy.

At September 30, 2022, the Company classified $48.4 million of certain delinquent mortgage loans held-for-sale as Level 3. For such delinquent loans in which investor interest may be limited, the Company estimates fair value by discounting future scheduled cash flows for the specific loan through its life, adjusted for estimated credit losses. The Company uses a discount rate based on prevailing market coupon rates on loans with similar characteristics. The assumed weighted average discount rate used as an input to value these loans at September 30, 2022 was 6.19%. The higher the rate utilized to discount estimated future cash flows, the lower the fair value measurement. Additionally, the weighted average credit discount used as an input to value the specific loans was 0.23% with credit loss discount ranging from 0%-14% at September 30, 2022.

Loans held-for-investment—The fair value for certain loans in which the Company previously 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 prepayment or life assumptions. These loans primarily consist of early buyout loans guaranteed by U.S. government agencies that are delinquent and, as a result, investor interest may be limited. The Company uses a discount rate based on the actual coupon rate of the underlying loan. At September 30, 2022, the Company classified $98.6 million of loans held-for-investment carried at fair value as Level 3. The assumed weighted average discount rate used as an input to value these loans at September 30, 2022 was 6.21%. 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 average life as well as credit losses. The weighted average prepayments speed used as an input to value current loans was 6.49% at September 30, 2022. Prepayment speeds are inversely related to the fair value of these loans as an increase in prepayment speeds results in a decreased valuation. For delinquent loans in which performance is not assumed and there is a higher probability of resolution of the loan ending in foreclosure, the weighted average life of such loans was 5.5 years. Average life is inversely related to the fair value of these loans as an increase in estimated life results in a decreased valuation. Additionally, the weighted average credit discount used as an input to value the specific loans was 0.61% with credit loss discounts ranging from 0%-35% at September 30, 2022.

MSRs—Fair value for MSRs is determined utilizing a valuation model which calculates the fair value of each servicing right based on the present value of estimated future cash flows. The Company uses a discount rate commensurate with the risk associated with each servicing right, given current market conditions. At September 30, 2022, the Company classified $229.7 million of MSRs as Level 3. The weighted average discount rate used as an input to value the pool of MSRs at September 30, 2022 was 10.29% with discount rates applied ranging from 8%-20%. 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 ranged from 0%-90% or a weighted average prepayment speed of 6.49%. Further, for current and delinquent loans, the Company assumed a weighted average cost of servicing of $75 and $371, 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 classified as Level 2 in the fair value hierarchy. 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, 2022, the Company classified $141,000 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, 2022 was 85.48% with pull-through rates applied ranging from 2% 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. These assets are classified as Level 2 in the fair value hierarchy.

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

	September 30, 2022
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	44,013		—		44,013		—
Municipal	174,001		—		51,569		122,432
Corporate notes	87,033		—		87,033		—
Mortgage-backed	2,618,606		—		2,618,606		—
Trading account securities	179		—		179		—
Equity securities with readily determinable fair value	114,012		105,946		8,066		—
Mortgage loans held-for-sale	376,160		—		327,740		48,420
Loans held-for-investment	156,893		—		58,326		98,567
MSRs	229,671		—		—		229,671
Nonqualified deferred compensation assets	13,387		—		13,387		—
Derivative assets	313,480		—		313,339		141
Total	$	4,127,435	$	105,946	$	3,522,258	$	499,231
Derivative liabilities	$	357,170	$	—	$	357,170	$	—

	December 31, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	—	$	—	$	—	$	—
U.S. government agencies	52,507		—		52,507		—
Municipal	165,594		—		59,907		105,687
Corporate notes	95,704		—		95,704		—
Mortgage-backed	2,013,988		—		2,013,988		—
Trading account securities	1,061		—		1,061		—
Equity securities with readily determinable fair value	90,511		82,445		8,066		—
Mortgage loans held-for-sale	817,912		—		817,912		—
Loans held-for-investment	38,598		—		22,707		15,891
MSRs	147,571		—		—		147,571
Nonqualified deferred compensation assets	16,240		—		16,240		—
Derivative assets	165,008		—		154,448		10,560
Total	$	3,604,694	$	82,445	$	3,242,540	$	279,709
Derivative liabilities	$	123,000	$	—	$	123,000	$	—

	September 30, 2021
(In thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. Treasury	$	6,000	$	6,000	$	—	$	—
U.S. government agencies	53,275		—		53,275		—
Municipal	174,600		—		56,876		117,724
Corporate notes	99,118		—		99,118		—
Mortgage-backed	2,040,485		—		2,040,485		—
Trading account securities	1,103		—		1,103		—
Equity securities with readily determinable fair value	88,193		80,127		8,066		—
Mortgage loans held-for-sale	925,312		—		925,312		—
Loans held-for-investment	30,979		—		18,847		12,132
MSRs	133,552		—		—		133,552
Nonqualified deferred compensation assets	15,797		—		15,797		—
Derivative assets	191,612		—		177,000		14,612
Total	$	3,760,026	$	86,127	$	3,395,879	$	278,020
Derivative liabilities	$	161,314	$	—	$	161,314	$	—

The aggregate remaining contractual principal balance outstanding as of September 30, 2022, December 31, 2021 and September 30, 2021 for mortgage loans held-for-sale measured at fair value under ASC 825 was $394.0 million, $801.6 million and $900.8 million, respectively, while the aggregate fair value of mortgage loans held-for-sale was $376.2 million, $817.9 million and $925.3 million, for the same respective periods, as shown in the above tables. At September 30, 2022, $5.9 million of mortgage loans held-for-sale were classified as nonaccrual. Additionally, there were $34.7 million of loans past due greater than 90 days and still accruing in the mortgage loans held-for-sale portfolio as of September 30, 2022 compared to $125.5 million as of December 31, 2021 and $122.6 million as of September 30, 2021. All of the nonaccrual loans and loans past due greater than 90 days and still accruing as of September 30, 2022 were individual delinquent mortgage loans bought back from GNMA at the unconditional option of the Company as servicer for those loans.

The changes in Level 3 assets measured at fair value on a recurring basis during the three and nine months ended September 30, 2022 and 2021 are summarized as follows:

			Mortgage loans held-for-sale		U.S. Government agencies		Loans held-for- investment		Mortgage servicing rights		Derivative assets
(In thousands)	Municipal
Balance at July 1, 2022	$	113,485	$	88,963	$	—	$	84,798	$	212,664	$	6,649
Total net (losses) gains included in:
Net income (1)	—		(787)		—		(1,574)		17,007		(6,508)
Other comprehensive income or loss	(2,618)		—		—		—		—		—
Purchases	11,590		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(25)		(27,512)		—		(12,986)		—		—
Net transfers (out of)/into Level 3	—		(12,244)		—		28,329		—		—
Balance at September 30, 2022	$	122,432	$	48,420	$	—	$	98,567	$	229,671	$	141

			Mortgage loans held-for-sale		U.S. Government agencies		Loans held-for- investment		Mortgage servicing rights		Derivative assets
(In thousands)	Municipal
Balance at July 1, 2021	$	117,606	$	—	$	—	$	11,007	$	127,604	$	22,570
Total net gains (losses) included in:
Net income (1)	—		—		—		54		5,948		(7,958)
Other comprehensive income or loss	(757)		—				—		—		—
Purchases	875		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	—		—		—		(588)		—		—
Net transfers into Level 3	—		—		—		1,659		—		—
Balance at September 30, 2021	$	117,724	$	—	$	—	$	12,132	$	133,552	$	14,612

(1)Changes in the balance of MSRs, mortgage loans held-for-sale 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.

			Mortgage loans held-for-sale		U.S. Government Agencies		Loans held-for- investment		Mortgage servicing rights		Derivative Assets
(In thousands)	Municipal
Balance at January 1, 2022	$	105,687	$	—	$	—	$	15,891	$	147,571	$	10,560
Total net (losses) gains included in:
Net income (1)	—		(3,687)		—		(4,121)		82,100		(10,419)
Other comprehensive income or loss	(8,752)		—		—		—		—		—
Purchases	28,333		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(2,836)		(27,512)		—		(21,884)		—		—
Net transfers into Level 3	—		79,619		—		108,681		—		—
Balance at September 30, 2022	$	122,432	$	48,420	$	—	$	98,567	$	229,671	$	141

			Mortgage loans held-for-sale		U.S. Government Agencies		Loans held-for- investment		Mortgage servicing rights		Derivative Assets
(In thousands)	Municipal
Balance at January 1, 2021	$	109,876	$	—	$	1,966	$	10,280	$	92,081	$	48,091
Total net (losses) gains included in:
Net income (1)	—		—		(4)		(309)		41,471		(33,479)
Other comprehensive income or loss	(3,199)		—		(24)		—		—		—
Purchases	19,038		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(7,991)		—		(1,938)		(4,565)		—		—
Net transfers into Level 3	—		—		—		6,726		—		—
Balance at September 30, 2021	$	117,724	$	—	$	—	$	12,132	$	133,552	$	14,612

(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.

Also, the Company may be required, from time to time, to measure certain other assets at fair value on a non-recurring 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 non-recurring 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, 2022:

	September 30, 2022								Three Months Ended September 30, 2022 Fair Value Losses Recognized, net		Nine Months Ended September 30, 2022 Fair Value Losses Recognized, net
(In thousands)	Total		Level 1		Level 2		Level 3
Individually assessed loans - foreclosure probable and collateral-dependent	$	81,889	$	—	$	—	$	81,889	$	837	$	12,878
Other real estate owned (1)	6,687		—		—		6,687		153		435
Total	$	88,576	$	—	$	—	$	88,576	$	990	$	13,313

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

Individually assessed loans—In accordance with ASC 326, the allowance for credit losses for loans and other financial assets held at amortized cost should be measured on a collective or pooled basis when such assets exhibit similar risk characteristics. In instances in which a financial asset does not exhibit similar risk characteristics to a pool, the Company is required to measure such allowance for credit losses on an individual asset basis. For the Company’s loan portfolio, nonaccrual loans and TDRs are considered to not exhibit similar risk characteristics as pools and thus are individually assessed. Credit losses are 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. Individually assessed loans are considered a fair value measurement where an allowance for credit loss is established based on the fair value of collateral. Appraised values on relevant real estate properties, which may

require adjustments to market-based valuation inputs, are generally used on foreclosure probable and collateral-dependent loans within the real estate portfolios.

The Company’s Managed Assets Division is primarily responsible for the valuation of Level 3 inputs of individually assessed loans. For more information on individually assessed loans refer to Note 7 – Allowance for Credit Losses. At September 30, 2022, the Company had $105.4 million of individually assessed loans classified as Level 3. Of the $105.4 million of individually assessed loans, $81.9 million were measured at fair value based on the underlying collateral of the loan as shown in the table above. The remaining $23.5 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, 2022, the Company had $6.7 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, 2022 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	$	122,432	Bond pricing	Equivalent rating	BBB-AA+	N/A			Increase
Mortgage loans held-for-sale	48,420		Discounted cash flows	Discount rate	6.19%	6.19%			Decrease
				Credit discount	0% - 14%	0.23%			Decrease
Loans held-for-investment	98,567		Discounted cash flows	Discount rate	6.00% - 6.50%	6.21%			Decrease
				Credit discount	0% - 35%	0.61%			Decrease
				Constant prepayment rate (CPR) - current loans	6.49%	6.49%			Decrease
				Average life - delinquent loans (in years)	1 year - 13 years	5.5 years			Decrease
MSRs	229,671		Discounted cash flows	Discount rate	8% - 20%	10.29%			Decrease
				Constant prepayment rate (CPR)	0% - 90%	6.49%			Decrease
				Cost of servicing	$70 - $200	$	75		Decrease
				Cost of servicing - delinquent	$200 - 1,250	$	371		Decrease
Derivatives	141		Discounted cash flows	Pull-through rate	2% - 100%	85.48		%	Increase
Measured at fair value on a non-recurring basis:
Individually assessed loans - foreclosure probable and collateral-dependent	81,889		Appraisal value	Appraisal adjustment - cost of sale	10%	10.00%			Decrease
Other real estate owned	6,687		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, 2022				At December 31, 2021				At September 30, 2021
	Carrying		Fair		Carrying		Fair		Carrying		Fair
(In thousands)	Value		Value		Value		Value		Value		Value
Financial Assets:
Cash and cash equivalents	$	489,647	$	489,647	$	411,205	$	411,205	$	462,299	$	462,299
Securities sold under agreements to repurchase with original maturities exceeding three months	—		—		700,000		700,000		—		—
Interest-bearing deposits with banks	3,968,605		3,968,605		5,372,603		5,372,603		5,232,315		5,232,315
Available-for-sale securities	2,923,653		2,923,653		2,327,793		2,327,793		2,373,478		2,373,478
Held-to-maturity securities	3,389,842		2,679,326		2,942,285		2,900,694		2,736,722		2,699,480
Trading account securities	179		179		1,061		1,061		1,103		1,103
Equity securities with readily determinable fair value	114,012		114,012		90,511		90,511		88,193		88,193
FHLB and FRB stock, at cost	178,156		178,156		135,378		135,378		135,408		135,408
Brokerage customer receivables	20,327		20,327		26,068		26,068		26,378		26,378
Mortgage loans held-for-sale, at fair value	376,160		376,160		817,912		817,912		925,312		925,312
Loans held-for-investment, at fair value	156,893		156,893		38,598		38,598		30,979		30,979
Loans held-for-investment, at amortized cost	38,010,720		37,224,753		34,750,506		35,297,878		33,233,064		33,276,688
Nonqualified deferred compensation assets	13,387		13,387		16,240		16,240		15,797		15,797
Derivative assets	313,480		313,480		165,008		165,008		191,612		191,612
Accrued interest receivable and other	317,142		317,142		268,921		268,921		272,293		272,293
Total financial assets	$	50,272,203	$	48,775,720	$	48,064,089	$	48,569,870	$	45,724,953	$	45,731,335
Financial Liabilities
Non-maturity deposits	$	38,720,873	$	38,720,873	$	38,126,796	$	38,126,796	$	35,822,012	$	35,822,012
Deposits with stated maturities	4,076,318		4,087,196		3,968,789		3,965,372		4,130,546		4,124,199
FHLB advances	2,316,071		2,230,921		1,241,071		1,186,280		1,241,071		1,164,168
Other borrowings	447,215		447,971		494,136		494,670		504,527		504,527
Subordinated notes	437,260		417,363		436,938		472,684		436,811		474,171
Junior subordinated debentures	253,566		285,238		253,566		212,226		253,566		207,675
Derivative liabilities	357,170		357,170		123,000		123,000		161,314		161,314
Accrued interest payable	18,479		18,479		9,304		9,304		15,030		15,030
Total financial liabilities	$	46,626,952	$	46,565,211	$	44,653,600	$	44,590,332	$	42,564,877	$	42,473,096

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, 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, municipal bonds issued by various municipal government entities primarily located in the Chicago metropolitan area and southern Wisconsin and mortgage-backed securities. 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 generally 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. 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.