SR Bancorp, Inc.

Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying unaudited Consolidated Financial Statements of SR Bancorp, Inc. (the “Company”) have been prepared in conformity with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q. The Consolidated Financial Statements are prepared on an accrual basis and include the accounts of the Company’s wholly-owned subsidiary, Somerset Regal Bank (the “Bank”) and its wholly-owned subsidiaries Somerset Investment Co. (the “Investment Co.”), RB Properties, LLC and Somerset Consumer Service Corp. (“SCS”). All significant intercompany accounts and transactions have been eliminated in consolidation.

The Investment Co. is a special purpose entity subject to the investment company provisions of the New Jersey Corporation Business Tax Act whose activities are limited to holding investment securities and recognizing income and other gains/losses thereon. RB Properties, LLC was formed to own and manage real estate property acquired through foreclosure or in lieu of foreclosure in connection with loans. RB Properties, LLC is currently inactive. SCS was originally formed for the purpose of selling annuity products and is currently inactive.

The interim Consolidated Financial Statements reflect all adjustments, including normal and recurring accruals, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three months ended September 30, 2025 are not necessarily indicative of the results of operations that may be expected for the full fiscal year or any other period. In preparing the Consolidated Financial Statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statements of financial condition and the results of operations for the periods presented. Actual results could differ from these estimates.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2025.

Business

SR Bancorp, Inc., a Maryland corporation, is the holding company for Somerset Regal Bank. The Bank, which was formed in 1887, serves Essex, Hunterdon, Middlesex, Morris, Somerset and Union counties in New Jersey. The Bank is a New Jersey chartered commercial bank subject to the laws and regulations of federal and state agencies. As a locally managed commercial bank, the Bank provides retail and commercial banking services to individuals, businesses and local municipalities through its 14 full-service branch locations.

The Company became the holding company for Somerset Regal Bank as part of the mutual-to-stock conversion of Somerset Savings Bank, SLA. On September 19, 2023, Somerset Savings Bank, SLA converted from the mutual to stock form of organization and SR Bancorp, Inc. completed its stock offering. The Company’s common stock began trading on the Nasdaq Capital Market under the trading symbol “SRBK” on September 20, 2023. Somerset Regal Bank was formed through the combination of Somerset Savings Bank, SLA and Regal Bank, two New Jersey chartered institutions, on September 19, 2023.

Concentrations of Credit Risk

The Company's lending activity is concentrated in loans secured by real estate located primarily in New Jersey. Credit risk exposure in this area of lending is mitigated by adhering to conservative underwriting practices and policies, and close monitoring of the loan portfolio. The Company does not have any significant concentrations to any one industry or customer.

Note 3 discusses the types of investment securities in which the Company invests. Credit risk as it relates to investment activities is mitigated through the monitoring of ratings. The Company's portfolio consists principally of highly-rated government-sponsored agency securities.

Segment Reporting

Accounting Standards Codification ("ASC") Topic 280, Segment Reporting, establishes standards for the way business enterprises report information about operating segments in annual Consolidated Financial Statements. The Company operates exclusively as a community bank within the "Community Banking" financial services industry. Community Banking encompasses the Company's primary business, which includes providing a wide range of commercial, retail and related banking services. The Company's primary focus within Community Banking is to grow loans using deposits generated by the Company's branches. Our business is generated principally in central and northern New Jersey.

The Company’s CEO is the chief operating decision maker who uses consolidated net income to assess performance and profitability of our single business segment. Consolidated net income is used to assess performance by comparing results on a monthly basis, including variances to budget and prior period results. Consideration is given to performance of components of the business, such as branches and geographic regions, which are then aggregated. This information is used to achieve strategic initiatives by allowing the chief operation decision maker to manage resources that drive our business and earnings. Additionally, consolidated net income is used to benchmark the Company against its banking peers.

Recently Adopted Accounting Changes

In November 2023, the Financial Accounting Standards Board (the “FASB”) issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). This update requires public entities with reportable segments to provide additional and more detailed disclosures. The Company adopted ASU 2023-07 on June 30, 2025, which didnot have a material impact on its Consolidated Financial Statements.

In March 2024, the FASB issued ASU 2024-01 Compensation - Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards ("ASU 2024-01"). This update provides guidance for profits interest and similar awards. The Company adopted ASU 2024-01 on July 1, 2025, which didnot have a material impact on its Consolidated Financial Statements.

Accounting Standards Update 2024-02, "Codification Improvements" ("ASU 2024-02"), amends the Codification to remove references to various concept statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in ASU 2024-02 are not intended to result in significant accounting changes for most entities. The Company adopted ASU 2024-02 on July 1, 2025, and it didnot have a material impact on its Consolidated Financial Statements.

Recent Accounting Standards Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The amendments in this ASU require improved annual income tax disclosures surrounding rate reconciliation, income taxes paid, and other disclosures. This update will be effective for annual financial statements issued for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this standard, which is not expected to have a material impact on our financial statements.

Accounting Standards Update 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures" ("ASU 2024-03"), requires additional expense disclosures by public entities in the notes to the financial statements. ASU 2024-03 outlines the specific costs that are required to be disclosed, which include costs such as: employee compensation, depreciation, intangible asset amortization, selling costs and depreciation. It also requires qualitative descriptions of the amounts remaining in the relevant income statement captions that are not separately disaggregated quantitatively in the notes to the financial statements and the entity's definition of selling expenses. The disclosures are required for each interim and annual reporting period. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026. In January 2025, the FASB issued Accounting Standards Update 2025-01, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Clarifying the Effective Date" ("ASU 2025-01"), clarifying the interim reporting date when an entity must adopt ASU 2024-03. According to ASU 2025-01, ASU 2024-03 is effective for interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this standard, which is not expected to have a material impact on our financial statements.

Accounting Standards Update 2025-06, “Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software” (“ASU 2025-06”) to modernize the accounting for software costs that are accounted for under Subtopic 350-40, Intangibles—Goodwill and Other—Internal-Use Software (referred to as “internal-use software”). The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact of this standard, which is not expected to have a material impact on our financial statements.

Subsequent Events

The Company has evaluated subsequent events for recognition or disclosure through November 14, 2025, the date the Consolidated Financial Statements were available to be issued.

Earnings Per Share

Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding. Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that weighted-average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potential dilutive common shares (such as those resulting from the exercise of stock options and vested restricted stock awards) were issued during the period, computed using the treasury stock method. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. For the three months ended September 30, 2025, there were 760,593 options that were not included in the computation of diluted earnings per share because to do so would be anti-dilutive. Options with an exercise price greater than the average market price of the common shares are considered anti-dilutive.

The following table presents the composition of the weighted average common shares used in the earnings per share calculation:

Investment Securities

The Company ownedno investment securities available-for-sale at September 30, 2025 or June 30, 2025. The amortized cost and approximate fair value of securities held-to-maturity are as follows at the dates indicated:

There wereno purchases or sales of available-for sale securities during thethree months ended September 30, 2025 or 2024.

The amortized cost and fair value of securities held-to-maturity by contractual maturity at September 30, 2025 are shown in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations. Securities are assigned to categories based on contractual maturity except for mortgage-backed securities and CMOs, which are based on the estimated average life of the securities.

On a quarterly basis, management evaluates whether there is a credit loss associated with any declines in fair value. Management considers the nature of the collateral, default rates, delinquency rates, credit ratings and interest rate changes, among other factors. The Company's held-to-maturity portfolio predominantly consists of mortgage-backed securities issued by the U.S. government and government-sponsored agencies for which management has determined to have azero expected credit loss. Furthermore, at September 30, 2025 and June 30, 2025, the Company hadno securities held-to-maturity that were past due 30 days or more with respect to principal or interest payments.

Equity securities consisted of several equity investments in consumer banking and financial services companies. At September 30, 2025 and June 30, 2025, the Company had $35,000 and $37,000, respectively, in equity securities recorded at fair value. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities for the three months ended September 30, 2025 and 2024:

At September 30, 2025 and June 30, 2025, mortgage-backed securities with a carrying value of approximately $1.6 million and $1.7 million, respectively, were pledged as collateral to secure public funds on deposit. During thethree months ended September 30, 2025 and 2024, there wereno sales of securities held-to-maturity.

Loans Receivable

Loans at September 30, 2025 and June 30, 2025 are summarized as follows:

The Company engages primarily in the lending of fixed-rate and adjustable-rate commercial real estate and residential mortgage loans. Lending activities are targeted to individuals within the Company's geographic footprint. Risks associated with lending activities include changes in economic conditions and interest rates, which can adversely impact both the ability of borrowers to repay their loans and the value of the associated collateral. Credit risk exposure is minimized by the evaluation of the creditworthiness of the borrower, including debt-to-income ratios, credit scores and conservative underwriting standards with loan-to-value ratios of generally no more than 75% for commercial loans,80% for multifamily loans and 80% for residential loans. Residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion generally require private mortgage insurance. The real estate home equity portfolio consists of fixed-rate home equity loans and variable-rate home equity lines of credit. Risks associated with second lien loans secured by residential properties are generally lower than commercial loans and include general economic risks, such as the strength of the job market, employment stability and the strength of the housing market.

At September 30, 2025 and June 30, 2025, commercial loans represented 45.3% and 45.0% of net loans, respectively, while residential mortgage, consumer and other loans represented 54.7% and 55.0%, respectively, nearly all of which is concentrated within our primary market area in New Jersey. At September 30, 2025 and June 30, 2025, the Company held 95.3% and 96.6%, respectively, of its commercial loan portfolio in commercial real estate, consisting of multi-family, mixed use and owner occupied loans, with less than 2.70% secured by office buildings as of September 30, 2025 and less than 1.0% secured by office buildings as of June 30, 2025. The Company hadno non-accrual commercial loans at September 30, 2025 and June 30, 2025.

The following tables summarize the activity in the allowance for credit losses by loan class for thethree months ended September 30, 2025 and 2024.

The following table presents the credit risk profile of loans by class and fiscal year of origination as of September 30, 2025 and June 30, 2025:

As of September 30, 2025 and June 30, 2025, the company had no collateral-dependent non-accrual loans.

The following tables present the classes of loans summarized by past due status as of September 30, 2025 and June 30, 2025:

At September 30, 2025 and June 30, 2025, the Company hadno foreclosed real estate owned and there wereno loan modifications to borrowers experiencing financial difficulty.

Premises and Equipment

Premises and equipment at September 30, 2025 and June 30, 2025 are summarized as follows:

Depreciation expense amounted to $218,000 and$297,000 for thethree months ended September 30, 2025 and 2024, respectively.

Leases

The Company accounts for its leases in accordance with ASC Topic 842. The Company's right-of-use asset and operating lease liability are recognized at lease commencement based on the present value of the remaining lease payment obligations using discount rates that represent the Company’s incremental borrowing rate as of the lease commencement dates. The Company leases only office space and equipment under operating leases, with original lease terms ranging from five toten years. The Company elected not to include short-term leases with initial terms of twelve months or less on the Consolidated Statements of Financial Condition. As of September 30, 2025, the Company had not entered into any material leases that have not yet commenced. The operating lease agreements recognized on the Consolidated Statements of Financial Condition as a right-of-use asset and a corresponding lease liability, as well as other information related to the Company's operating leases, are summarized in the table below.

Future undiscounted minimum lease payments for operating leases with initial terms of one year or more as of September 30, 2025 are as follows:

Goodwill and Intangible Assets

Goodwill and core deposit intangibles resulted from the Company's acquisition of Regal Bancorp, which was accounted for under FASB ASC 805, Business Combinations. As of September 30, 2025 the carrying amount of goodwill was $20.4 million, and the carrying amount of the core deposit intangibles, net of accumulated amortization was $6.0 million. The intangible assets are related to core deposits and are being amortized over 10 years, using an accelerated method.

The changes in the carrying amount of goodwill and core deposit intangibles for thethree months ended September 30, 2025 and 2024 are summarized as follows:

Goodwill and Intangible assets at September 30, 2025 and June 30, 2025:

As of September 30, 2025, the amortization of the core deposit intangibles in future fiscal years is as follows:

Deposits

Deposits at September 30, 2025 and June 30, 2025 consisted of the following:

Certificates of deposit with balances in excess of the Federal Deposit Insurance Corporation (the "FDIC") insurance limit of $250,000 at September 30, 2025 and June 30, 2025 amounted to approximately$64.3 million and$58.9 million, respectively. Uninsured deposits of municipalities and local government agencies are protected under a New Jersey supplemental insurance program with collateralized assets.

At September 30, 2025, the scheduled maturities of certificates of deposit are as follows:

Borrowings

The Company can borrow overnight funds from the Federal Home Loan Bank (the "FHLB") under a redesigned overnight advance program up to the Company’s maximum borrowing capacity based on the Company’s ability to collateralize such borrowings. At September 30, 2025 and June 30, 2025, the Company's maximum borrowing capacity was$100.0 million.

At September 30, 2025, the Company had a $35.0 million advance with the Federal Home Loan Bank of New York at a fixed rate of 3.67%, which matures on September 8, 2027. At June 30, 2025, the Company had a $30.0 million advance at a fixed rate of 4.42%, which matured on July 7, 2025.

At September 30, 2025 and June 30, 2025, the Company's Board of Directors authorized borrowings of up to$25.0 million from the Federal Reserve Bank of New York (the “FRB-NY”), secured by pledges of the Company’s qualifying loan portfolio and generally on overnight terms with an interest rate quoted at the time of the borrowing. The Company hadno outstanding borrowings from the FRB-NY at September 30, 2025 or June 30, 2025.

Commitments and Contingencies

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

At September 30, 2025, total unfunded loan-related commitments, including lines of credit, amounted to$67.7 million, comprised of$43.3 million for unused equity lines of credit and$24.4 million to originate and purchase loans, expiring within three months.

At June 30, 2025, total unfunded loan-related commitments, including lines of credit, amounted to$79.0 million, comprised of$38.0 million for unused equity lines of credit and$41.0 million to originate and purchase loans, expiring within three months.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.

A reserve for unfunded commitments is recognized and included in other liabilities on the Consolidated Statements of Financial Condition. Periodic adjustments to either increase or decrease the reserve are recognized in non-interest expense in the Consolidated Statements of Income. The Company recorded$5,000 and $41,000 expense for thethree months ended September 30, 2025 and 2024, respectively. The balance for unfunded commitments was$47,000 at September 30, 2025 and $42,000 at June 30, 2025.

Stock-Based Compensation

On November 20, 2024, the Company adopted the SR Bancorp, Inc. 2024 Equity Incentive Plan ("2024 Equity Plan”). The 2024 Equity Plan authorizes 1,331,110 shares of common stock for equity-based compensation awards including restricted stock awards, restricted stock units, non-qualified stock options, and incentive stock options. As of September 30, 2025, there were 266,286 shares available for future grants.

Stock Options

On November 21, 2024, the stockholders of the Company granted 237,695 stock options to non-employee directors. On January 29, 2025 and February 5, 2025, the Company granted 465,889 and 57,009, respectively, of stock options to certain officers and employees of the Company. The stock option grants have a contractual term of 10 years. The stock options vest in equal annual installments over afive-year period beginning on the first anniversary of the date of grant. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The following table represents stock option activities for the period indicated:

The aggregate intrinsic value is the amount by which the fair value of the underlying stock exceeds the exercise price of an option on the exercise date.

Restricted Stock Awards

On November 21, 2024, the Company granted 95,075 restricted stock awards to non-employee directors. On January 29, 2025 and February 5, 2025, the Company granted 186,356 and 22,800, respectively, of restricted stock awards to certain officers and employees. The restricted stock awards vest in equal annual installments over afive-year period. The restricted stock awards are measured based on grant-date fair value, which reflects the closing price of the Company’s stock on the date of grant.

The following table represents information regarding restricted stock award activities for the three months ended September 30, 2025. There wereno restricted stock awards granted during the three months ended September 30, 2024:

The following table represents the compensation expense and income tax benefit recognized for stock options and restricted stock awards for the three months ended September 30, 2025. There wasno compensation expense recorded during the three months ended September 30, 2024:

The following table sets forth the total compensation cost related to non-vested awards not yet recognized and the weighted average period (in years) over which it is expected to be recognized as of September 30, 2025:

Regulatory Capital

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the following table) of total capital, Tier 1 capital (as defined in the regulations) and common equity Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. A capital conservation buffer of 2.50%, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements and must be maintained to avoid limitations on capital distributions.

In 2021, the Bank adopted the new community bank leverage ratio framework. This framework simplifies the regulatory capital requirements by requiring the Bank to meet only the Tier 1 capital to average assets (leverage) ratio. The Bank must only maintain a leverage ratio greater than the 9.0% required minimum to be considered well capitalized under this framework. The Bank can opt out of the new framework and return to the risk-weighting framework at any time.

Market risk, credit risk, operational risk and deposit outflows are some of the factors that can impact the capital adequacy ratio and in turn, adversely affect the performance of the Bank. As of September 30, 2025, the Bank met all capital adequacy requirements to which it is subject. As of September 30, 2025, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum ratios as set forth in the following tables. There are no conditions or events since that notification that management believes have changed the Bank's category. The Bank's actual capital amounts and ratios are as follows:

Fair Value Measurements and Disclosures

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Additionally, from time to time, the Company may be required to record at fair value other assets or liabilities on a non-recurring basis. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting or write-downs of individual assets.

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value as an exit price representing the amount that would be received to sell an asset or settle a liability in an orderly transaction between market participants. A three-level hierarchy has been established for fair value measurements based upon the inputs to the valuation of an asset or liability.

Level 1 - Valuation is based on quoted prices in active markets for identical assets or liabilities;

Level 2 - Valuation is determined from quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

Level 3 - Valuation is derived from model-based and other techniques in which at least one significant input is unobservable and which may be based on the Company’s own estimates about the assumptions that a market participant would use to value the asset or liability.

For financial assets measured at fair value on a recurring basis as of September 30, 2025 and June 30, 2025, the fair value measurements by level within the fair value hierarchy used are as follows:

The classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Equity securities are measured at fair value using quoted market prices in an active market for identical assets and are classified as Level 1 in the hierarchy. The estimated fair values of equity securities are determined by obtaining quoted prices on nationally recognized exchanges (Level 1 inputs).

All debt securities are measured at fair value using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices and are classified as Level 2 in the hierarchy.

There wereno transfers between levels within the fair value hierarchy during thethree months ended September 30, 2025 and 2024.

Fair Value of Financial Instruments not Carried at Fair Value

The Company discloses fair value information about financial assets, whether or not recognized in the statements of financial condition, for which it is practicable to estimate that value. The fair value of financial assets that are not measured at fair value in the financial statements were based on the exit price notion. The following estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, the estimates below are not necessarily indicative of amounts that could be realized in the marketplace. The use of different market assumptions or valuation methodologies may have a material effect on the estimated fair value amounts.

Financial Assets Measured at Fair Value on a Nonrecurring Basis

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2025 and June 30, 2025 were as follows:

Loans

The fair values of performing loans was estimated by segregating the portfolio into its primary loan categories—owner occupied commercial real estate, other commercial real estate, multi-family, commercial and industrial, residential and consumer. These categories were further disaggregated based upon significant financial characteristics such as type of interest rate (fixed/variable). The Company discounts the contractual cash flows for each loan category using interest rates currently being offered for loans with similar terms to borrowers of similar quality and incorporates estimates of future loan prepayments.

Deposits

The fair value of deposits with no defined maturities (e.g. demand deposits, interest-bearing demand accounts, money market accounts and savings accounts) is the amount payable on demand of the liabilities at the reporting date (i.e. their carrying amounts). This approach to estimating fair value excludes the significant benefit that results from the low-cost funding provided by such deposit liabilities, as compared to alternative sources of funding. Deposits with stated maturities (time deposits) have been valued using the present value of cash flows discounted at rates approximating the current market for similar deposits.

Borrowed Funds

The fair value of federal funds purchased is equal to the amount borrowed. The fair value of FRB-NY or FHLB advances represents contractual repayments discounted using interest rates currently available for borrowings with similar characteristics and remaining maturities. The discount rates used are representative of approximate rates currently offered on borrowings with similar characteristics and maturities.