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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2024
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE 15. FAIR VALUE MEASUREMENTS ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows: •Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. •Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. This category generally includes agency residential CMOs, agency commercial and residential MBS, municipal securities, collateralized loan obligations, registered publicly rated private label CMOs, corporate debt securities, SBA securities, and asset-backed securitizations. •Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes some of our corporate debt securities, and our equity warrants and credit-linked notes. We use fair value to measure certain assets and liabilities on a recurring basis, primarily AFS securities and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and OREO and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets. The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At December 31, 2024, the fair value of these investments was $109.6 million. The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:
| Fair Value Measurements as of
| December 31, 2024
Measured on a Recurring Basis | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Securities available‑for‑sale: |  |  |  |  |  |  |
Agency residential MBS | $ | 861,840 |  |  | $ | — |  |  | $ | 861,840 |  |  | $ | — |
Agency commercial MBS | 51,564 |  |  | — |  |  | 51,564 |  |  | — |
Agency residential CMOs | 446,631 |  |  | — |  |  | 446,631 |  |  | — |
Municipal securities | 594 |  |  | — |  |  | 594 |  |  | — |
Corporate debt securities | 257,712 |  |  | — |  |  | 255,582 |  |  | 2,130 |
Private label residential CMOs | 316,910 |  |  | — |  |  | 316,910 |  |  | — |
Collateralized loan obligations | 279,416 |  |  | — |  |  | 279,416 |  |  | — |
Private label commercial MBS | 12,372 |  |  | — |  |  | 12,372 |  |  | — |
Asset-backed securities | 15,600 |  |  | — |  |  | 15,600 |  |  | — |
SBA securities | 4,200 |  |  | — |  |  | 4,200 |  |  | — |
Total securities available-for-sale | $ | 2,246,839 |  |  | $ | — |  |  | $ | 2,244,709 |  |  | $ | 2,130 |
Equity investments with readily determinable fair values | $ | 3 |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |
Derivatives (1): |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |
Cash flow hedges | 1,442 |  |  | — |  |  | 1,442 |  |  | — |
Interest rate and foreign exchange contracts | 7,031 |  |  | — |  |  | 7,031 |  |  | — |
Equity warrants | 3,763 |  |  | — |  |  | — |  |  | 3,763 |
Derivative liabilities: |  |  |  |  |  |  |
Interest rate and foreign exchange contracts | 7,562 |  |  | — |  |  | 7,562 |  |  | — |
Credit-linked notes | 118,838 |  |  | — |  |  | — |  |  | 118,838 |
____________________ (1) For information regarding derivative instruments, see Not e 12. Derivatives.
| Fair Value Measurements as of
| December 31, 2023
Measured on a Recurring Basis | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Securities available‑for‑sale: |  |  |  |  |  |  |
Agency residential MBS | $ | 1,187,609 |  |  | $ | — |  |  | $ | 1,187,609 |  |  | $ | — |
Municipal securities | 28,083 |  |  | — |  |  | 28,083 |  |  | — |
Agency commercial MBS | 253,306 |  |  | — |  |  | 253,306 |  |  | — |
Agency residential CMOs | 284,334 |  |  | — |  |  | 284,334 |  |  | — |
U.S. Treasury securities | 4,968 |  |  | 4,968 |  |  | — |  |  | — |
Corporate debt securities | 267,232 |  |  | — |  |  | 226,983 |  |  | 40,249 |
Private label commercial MBS | 20,813 |  |  | — |  |  | 20,813 |  |  | — |
Collateralized loan obligations | 108,416 |  |  | — |  |  | 108,416 |  |  | — |
Private label residential CMOs | 158,412 |  |  | — |  |  | 158,412 |  |  | — |
Asset-backed securities | 19,952 |  |  | — |  |  | 19,952 |  |  | — |
SBA securities | 13,739 |  |  | — |  |  | 13,739 |  |  | — |
Total securities available-for-sale | $ | 2,346,864 |  |  | $ | 4,968 |  |  | $ | 2,301,647 |  |  | $ | 40,249 |
Equity investments with readily determinable fair values | $ | 1 |  |  | $ | 1 |  |  | $ | — |  |  | $ | — |
Derivatives (1): |  |  |  |  |  |  |
Derivative assets: |  |  |  |  |  |  |
Interest rate and foreign exchange contracts | 8,309 |  |  | — |  |  | 8,309 |  |  | — |
Equity warrants | 3,689 |  |  | — |  |  | — |  |  | 3,689 |
Derivative liabilities: |  |  |  |  |  |  |
Cash flow hedges | 4,090 |  |  | — |  |  | 4,090 |  |  | — |
Interest rate and foreign exchange contracts | 6,459 |  |  | — |  |  | 6,459 |  |  | — |
Credit-linked notes | 123,116 |  |  | — |  |  | — |  |  | 123,116 |
____________________ (1) For information regarding derivative instruments, see Not e 12. Derivatives. During the year ended December 31, 2024, there was a $21,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis. There was also an $38.1 million transfer of corporate debt securities from Level 3 to Level 2 during the year ended December 31, 2024. The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third-party pricing service for our Level 3 corporate debt securities available-for-sale measured at fair value on a recurring basis as of the date indicated:
| December 31, 2024
| Corporate Debt Securities
| Input or |  | Weighted
| Range |  | Average
Unobservable Inputs | of Inputs |  | Input (1)
Spread to 10 Year Treasury | 6.4% - 9.5% |  | 7.9%
Discount rates | 11.0% - 14.1% |  | 12.5%
____________________ (1) Unobservable inputs for corporate debt securities were weighted by the relative fair values of the instruments. The following table presents information about the quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:
| December 31, 2024
| Equity Warrants
|  |  | Weighted
| Range |  | Average
Unobservable Inputs | of Inputs |  | Input (1)
Volatility | 22.7% - 169.0% |  | 25.4%
Risk-free interest rate | 4.2% - 4.4% |  | 4.3%
Remaining life assumption (in years) | 0.08 - 5.00 |  | 3.29
__________________ (1) Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments. The following table summarizes activity for our Level 3 corporate debt securities available-for-sale measured at fair value on a recurring basis for the years indicated:
| Year Ended December 31,
Level 3 Corporate Debt Securities | 2024 |  | 2023
| (In thousands)
Balance, beginning of year | $ | 40,249 |  |  | $ | — |
Total included in other comprehensive income | 30 |  |  | (11,501) |
Transfer from Level 2 | — |  |  | 51,750 |
Transfer to Level 2 | (38,149) |  |  | — |
Balance, end of year | $ | 2,130 |  |  | $ | 40,249 |
Unrealized net gains (losses) for the period included in other |  |  |
comprehensive income for securities held at quarter-end | $ | (870) |  |  | $ | (11,501) |
The following table summarizes activity for our Level 3 equity warrants measured at fair value on a recurring basis for the years indicated:
| Year Ended December 31,
Level 3 Equity Warrants | 2024 |  | 2023 |  | 2022
| (In thousands)
Balance, beginning of year | $ | 3,689 |  |  | $ | 4,048 |  |  | $ | 3,555 |
Total included in earnings | 408 |  |  | (718) |  |  | 2,490 |
Exercises and settlements (1) | (829) |  |  | (218) |  |  | (2,675) |
Issuances | 516 |  |  | 613 |  |  | 696 |
Transfers to Level 1 (equity investments with readily |  |  |  |  |
determinable fair values) | (21) |  |  | (36) |  |  | (18) |
Balance, end of year | $ | 3,763 |  |  | $ | 3,689 |  |  | $ | 4,048 |
______________________ (1) Includes the exercise of warrants that upon exercise become equity securities in public companies. These are often subject to lock-up restrictions that must be met before the equity security can be sold, during which time they are reported as equity investments with readily determinable fair values. The following table summarizes activity for our Level 3 credit-linked notes measured at fair value on a recurring basis for the year indicated:
| Year Ended December 31,
Level 3 Credit-Linked Notes | 2024 |  | 2023 |  | 2022
| (In thousands)
Balance, beginning of year | $ | 123,116 |  |  | $ | 132,030 |  |  | $ | — |
Total included in earnings | (1,411) |  |  | 5,404 |  |  | 911 |
Total included in other comprehensive income | 2,589 |  |  | (7,794) |  |  | — |
Issuances | — |  |  | — |  |  | 132,815 |
Principal payments | (5,456) |  |  | (6,524) |  |  | (1,696) |
Balance, end of year | $ | 118,838 |  |  | $ | 123,116 |  |  | $ | 132,030 |
The following tables present assets measured at fair value on a non‑recurring basis as of the dates indicated:
| Fair Value Measurement as of
| December 31, 2024
Measured on a Non‑Recurring Basis | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Individually evaluated loans and leases | $ | 58,948 |  |  | $ | — |  |  | $ | 45,962 |  |  | $ | 12,986 |
OREO | 3,372 |  |  | — |  |  | 3,372 |  |  | — |
Total non-recurring | $ | 62,320 |  |  | $ | — |  |  | $ | 49,334 |  |  | $ | 12,986 |
| Fair Value Measurement as of
| December 31, 2023
Measured on a Non‑Recurring Basis | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Individually evaluated loans and leases | $ | 6,402 |  |  | $ | — |  |  | $ | 4,051 |  |  | $ | 2,351 |
OREO | 3,422 |  |  | — |  |  | 3,422 |  |  | — |
Total non-recurring | $ | 9,824 |  |  | $ | — |  |  | $ | 7,473 |  |  | $ | 2,351 |
The following table presents losses recognized on assets measured on a nonrecurring basis for the years indicated:
| Year Ended December 31,
Loss on Assets Measured on a Non‑Recurring Basis | 2024 |  | 2023 |  | 2022
| (In thousands)
Individually evaluated loans and leases | $ | 35,699 |  |  | $ | 4,403 |  |  | $ | 6,532 |
OREO | 983 |  |  | 1,307 |  |  | 29 |
Total net loss | $ | 36,682 |  |  | $ | 5,710 |  |  | $ | 6,561 |
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
| December 31, 2024
|  |  | Valuation |  | Unobservable |  | Input or |  | Weighted
Asset | Fair Value |  | Technique |  | Inputs |  | Range |  | Average
| (Dollars in thousands)
Individually evaluated |  |  |  |  |  |  |  |  |
loans and leases | $ | 5,815 |  | Discounted cash flows |  | Discount rates |  | 8.00% - 8.25% |  | 8.03%
Individually evaluated |  |  |  |  |  |  |  |  |
loans and leases | 7,171 |  | Third-party appraisals |  | No discounts |  |  |  |
Total non-recurring Level 3 | $ | 12,986 |  |  |  |  |  |  |  |
ASC Topic 825, “Financial Instruments,” requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements. The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
| December 31, 2024
| Carrying |  | Estimated Fair Value
| Amount |  | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 192,006 |  |  | $ | 192,006 |  |  | $ | 192,006 |  |  | $ | — |  |  | $ | — |
Interest‑earning deposits in financial institutions | 2,310,206 |  |  | 2,310,206 |  |  | 2,310,206 |  |  | — |  |  | — |
Securities available‑for‑sale | 2,246,839 |  |  | 2,246,839 |  |  | — |  |  | 2,244,709 |  |  | 2,130 |
Securities held-to-maturity | 2,306,149 |  |  | 2,156,694 |  |  | 173,283 |  |  | 1,976,265 |  |  | 7,146 |
Investment in FRB and FHLB stock | 147,773 |  |  | 147,773 |  |  | — |  |  | 147,773 |  |  | — |
Loans held for sale | 26,331 |  |  | 26,562 |  |  | — |  |  | 26,562 |  |  | — |
Loans and leases held for investment, net | 23,542,303 |  |  | 22,412,073 |  |  | — |  |  | 45,962 |  |  | 22,366,111 |
Equity investments with readily determinable fair values | 3 |  |  | 3 |  |  | 3 |  |  | — |  |  | — |
Equity warrants | 3,763 |  |  | 3,763 |  |  | — |  |  | — |  |  | 3,763 |
Cash flow hedges | 1,442 |  |  | 1,442 |  |  | — |  |  | 1,442 |  |  | — |
Interest rate and foreign exchange contracts | 7,031 |  |  | 7,031 |  |  | — |  |  | 7,031 |  |  | — |
Servicing rights | 19,623 |  |  | 21,040 |  |  | — |  |  | — |  |  | 21,040 |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits | 22,625,485 |  |  | 22,625,485 |  |  | — |  |  | 22,625,485 |  |  | — |
Time deposits | 4,566,424 |  |  | 4,556,575 |  |  | — |  |  | 4,556,575 |  |  | — |
Borrowings | 1,391,814 |  |  | 1,382,742 |  |  | — |  |  | 1,263,904 |  |  | 118,838 |
Subordinated debt | 941,923 |  |  | 901,532 |  |  | — |  |  | 901,532 |  |  | — |
Interest rate and foreign exchange contracts | 7,562 |  |  | 7,562 |  |  | — |  |  | 7,562 |  |  | — |
| December 31, 2023
| Carrying |  | Estimated Fair Value
| Amount |  | Total |  | Level 1 |  | Level 2 |  | Level 3
| (In thousands)
Financial Assets: |  |  |  |  |  |  |  |  |
Cash and due from banks | $ | 202,427 |  |  | $ | 202,427 |  |  | $ | 202,427 |  |  | $ | — |  |  | $ | — |
Interest‑earning deposits in financial institutions | 5,175,149 |  |  | 5,175,149 |  |  | 5,175,149 |  |  | — |  |  | — |
Securities available‑for‑sale | 2,346,864 |  |  | 2,346,864 |  |  | 4,968 |  |  | 2,301,647 |  |  | 40,249 |
Securities held-to-maturity | 2,287,291 |  |  | 2,168,316 |  |  | 175,579 |  |  | 1,976,015 |  |  | 16,722 |
Investment in FHLB stock | 126,346 |  |  | 126,346 |  |  | — |  |  | 126,346 |  |  | — |
Loans held for sale | 122,757 |  |  | 126,646 |  |  | — |  |  | 126,646 |  |  | — |
Loans and leases held for investment, net | 25,208,000 |  |  | 23,551,725 |  |  | — |  |  | 4,051 |  |  | 23,547,674 |
Equity investments with readily determinable fair values | 1 |  |  | 1 |  |  | 1 |  |  | — |  |  | — |
Equity warrants | 3,689 |  |  | 3,689 |  |  | — |  |  | — |  |  | 3,689 |
Interest rate and foreign exchange contracts | 8,309 |  |  | 8,309 |  |  | — |  |  | 8,309 |  |  | — |
Servicing rights | 22,174 |  |  | 22,174 |  |  | — |  |  | — |  |  | 22,174 |
Financial Liabilities: |  |  |  |  |  |  |  |  |
Demand, checking, savings and money market deposits | 23,768,896 |  |  | 23,768,896 |  |  | — |  |  | 23,768,896 |  |  | — |
Time deposits | 6,632,873 |  |  | 6,732,246 |  |  | — |  |  | 6,732,246 |  |  | — |
Borrowings | 2,911,322 |  |  | 2,908,527 |  |  | — |  |  | 2,785,411 |  |  | 123,116 |
Subordinated debt | 936,599 |  |  | 851,625 |  |  | — |  |  | 851,625 |  |  | — |
Cash flow hedges | 4,090 |  |  | 4,090 |  |  | — |  |  | 4,090 |  |  | — |
Interest rate and foreign exchange contracts | 6,459 |  |  | 6,459 |  |  | — |  |  | 6,459 |  |  | — |
The following is a description of the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820, “Fair Value Measurement”) and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825). Cash and due from banks. The carrying amount is assumed to be the fair value because of the liquidity of these instruments. Interest‑earning deposits in financial institutions. The carrying amount is assumed to be the fair value given the short‑term nature of these deposits. Securities available‑for‑sale. AFS securities are measured and carried at fair value on a recurring basis, net of the allowance for credit losses. Unrealized gains and losses on AFS securities are reported as a component of “Accumulated other comprehensive loss, net” in the consolidated balance sheets. See Note 4. Investment Securities for further information on unrealized gains and losses on AFS securities. Fair value for securities categorized as Level 1, which are publicly traded securities, are based on readily available quoted prices. In determining the fair value of the securities categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the broker‑dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. Our corporate debt securities (“the Level 3 AFS Securities”) were categorized as Level 3 due in part to the inactive market for such securities. There is a wide range of prices quoted for our Level 3 AFS Securities among independent third party pricing services, and this range reflects the significant judgment being exercised over the assumptions and variables that determine the pricing of such securities. We consider this subjectivity relating to our Level 3 AFS Securities to be a significant unobservable input. Had significant changes in default expectations, loss severity factors, or discount rates occurred all together or in isolation, it would have resulted in different fair value measurements at December 31, 2024. Securities held-to-maturity. HTM securities are carried at amortized cost, net of the allowance for credit losses. Fair value for securities categorized as Level 1, which are publicly traded securities, are based on readily available quoted prices. In determining the fair value of the securities categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the broker‑dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy. FRB and FHLB stock. Investments in FRB and FHLB stock are recorded at cost and measured for impairment quarterly. Ownership of FRB and FHLB stock is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FRB and FHLB stock is equal to the carrying amount. Loans and leases. As loans and leases are not measured at fair value, the following discussion relates to estimating the fair value disclosures under ASC Topic 825. Fair values are measured using the exit price and are estimated for portfolios of loans and leases with similar characteristics. Loans are segregated by type and further segmented into fixed and adjustable rate, term and line of credit, as well as interest-only and non-interest-only. To determine the exit price of a loan or lease, the cash flows are estimated using a model which utilizes future cash flows to calculate their present value using a discounting yield curve with additional spread to account for marked to market adjustments and credit and illiquidity premiums. For similar, homogeneous loans, management may make adjustments to the discount rate arrived at using the previously described methodology based upon the pricing for recent loan pool purchases and/or rates on recent originations. Individually evaluated loans and leases. Defaulted loans and leases with outstanding balances greater than $250,000 are reviewed individually for expected credit loss, if any, and are recorded at fair value on a non-recurring basis. These defaulted loans and leases are excluded from the loan pools used within the collective evaluation of estimated credit losses. The criteria for default may include any one of the following: (1) on nonaccrual status, (2) payment delinquency of 90 days or more, (3) partial charge-off recognized, or (4) risk rated doubtful or loss. To the extent a defaulted loan or lease is collateral dependent, we measure expected credit loss based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral; such valuation inputs result in a nonrecurring fair value measurement that is categorized as a Level 2 measurement. The Level 2 measurement is based on appraisals obtained within the last 12 months and for which a charge‑off was recognized or a change in the specific valuation allowance was made during the year ended December 31, 2024. When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable, and the fair value measurement is categorized as a Level 3 measurement. The individually evaluated loans and leases categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, including an SBA government guarantee, cash flows discounted at the effective loan rate, and management’s judgment. The individually evaluated loan and lease balances shown above as measured on a non-recurring basis represent those defaulted loans and leases for which expected credit loss was recognized during the year ended December 31, 2024. The amounts shown as net losses include the expected credit loss recognized during the year ended December 31, 2024, for the loan and lease balances shown. OREO. The fair value of OREO is generally based on the lower of estimated market prices from independently prepared current appraisals or negotiated sales prices with potential buyers, less estimated costs to sell; such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurement on a nonrecurring basis. As a matter of policy, appraisals are required annually and may be updated more frequently as circumstances require in the opinion of management. The Level 2 measurement for OREO is based on appraisals obtained within the last 12 months and for which a write‑down was recognized during the year ended December 31, 2024. When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and there is no observable market price, such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement. The OREO losses disclosed are write‑downs based on either a recent appraisal obtained after foreclosure or an accepted purchase offer by an independent third party received after foreclosure. Equity warrants. Equity warrants with net settlement terms are received in connection with extending loan commitments to certain of our customers. We estimate the fair value of equity warrants using a Black-Scholes option pricing model to approximate fair market value. We typically classify our equity warrant derivatives in Level 3 of the fair value hierarchy. Equity investments with readily determinable fair values. Our equity investments with readily determinable fair values include investments in public companies and publicly-traded mutual funds. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - Other income.” Fair value measurements related to these investments are typically classified within Level 1 of the fair value hierarchy. Deposits. Deposits are carried at historical cost. The fair values of deposits with no stated maturity, such as core deposits (defined as noninterest‑bearing demand, interest checking, money market, and savings accounts) and wholesale non-maturity deposits, are equal to the amount payable on demand as of the balance sheet date and considered Level 2. The fair value of time deposits is based on the discounted value of contractual cash flows and considered Level 2. The discount rate is estimated using the borrowing rates currently offered by FHLB for similar remaining maturities. No value has been separately assigned to the Company’s long‑term relationships with its deposit customers, such as a core deposit intangible. Borrowings. Borrowings are carried at amortized cost. The fair value of fixed‑rate borrowings is estimated by discounting scheduled cash flows through the maturity dates or call dates, if applicable, using estimated market discount rates that reflect current rates offered for borrowings with similar remaining maturities and characteristics and are considered Level 2. Borrowings also include variable-rate credit-linked notes which are carried at fair value. Fair value is estimated by discounting the future expected cash flows by a rate which represents the interest rate spread at issuance adjusted to account for market movement between the issuance date and the valuation date. Since the future expected cash flows are determined based on the unique collateral and waterfall characteristics of our credit-linked notes, they are considered Level 3. Subordinated debt. Subordinated debt is carried at amortized cost. The fair value of subordinated debt is determined using the price observations for comparable debts that is provided by a major broker-dealer and is considered Level 2. Derivative assets and liabilities. Derivatives are carried at fair value on a recurring basis and primarily relate to forward exchange contracts which we enter into to manage foreign exchange risk. Our derivatives are principally traded in over-the-counter markets where quoted market prices are not readily available. Instead, the fair value of derivatives is estimated using market observable inputs such as foreign exchange forward rates, interest rate yield curves, volatilities and basis spreads. We also consider counter-party credit risk in valuing our derivatives. We typically classify our foreign exchange derivatives in Level 2 of the fair value hierarchy. Commitments to extend credit. The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally not assignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the table above because it is not material. Limitations Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of December 31, 2024, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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