| Fair Value Measurements |
NOTE 9 – FAIR VALUE MEASUREMENTS The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. Accounting Standards Codification Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: ●
Level 1 Inputs -
Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date .
●
Level 2 Inputs -
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might 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 (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from, or corroborated, by market data by correlation or other means .
●
Level 3 Inputs -
Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Assets and Liabilities Measured at Fair Value on a Recurring Basis Securities Available for Sale.
U.S. Treasury securities are reported at fair value utilizing Level 1 inputs. Other securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, credit information and the bond’s terms and conditions, among other things. In general, the Company does not purchase securities that have a complicated structure. The Company’s entire portfolio consists of traditional investments, nearly all of which are U.S. Treasury obligations, federal agency bullet or mortgage pass -through securities, or general obligation or revenue -based municipal bonds. Pricing for such instruments is easily obtained. At least annually, the Company will validate prices supplied by the independent pricing service by compari ng them to prices obtained from an independent third-party source.
Loans Held for Sale
. The fair value of residential mortgage loans held for sale based on Level 2 inputs is determined, when possible, using either quoted secondary -market prices or investor commitments. If no such quoted price exists, the fair value is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. The Company has elected the fair value option accounting for its held for sale loans. Mortgage Banking Derivative Instruments.
The fair values of interest rate lock commitments (“IRLCs”) are derived by valuation models incorporating market pricing for instruments with similar characteristics, commonly referred to as best execution pricing, or investor commitment prices for best effort IRLCs which have unobservable inputs, such as an estimate of the fair value of the servicing rights expected to be recorded upon sale of the loans, net estimated costs to originate the loans, and the pull-through rate, and are therefore classified as Level 3 within the fair value hierarchy. The fair value of forward sale commitments is based on observable market pricing for similar instruments and are therefore classified as
Level 2 within the fair value hierarchy. Interest Rate Swap.
The Company’s derivative positions are classified as
Level 2 within the fair value hierarchy and are valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers. The fair value derivatives are determined using discounted cash flow models.
. The Company entered into a stand-alone derivative contract with the purchaser of its Visa Class B shares. The valuation represents the amount due and payable to the counterparty based upon the revised share conversion rate, if any, during the period. The Company’s derivative positions are classified as
Level 2 within the fair value hierarchy and use actively quoted or observable market input values from external market data providers. There was a $ 0.1
0.2
million counterparty payment
at
September 30, 2026 and December 31, 202 5, respectively. A summary of fair values for assets and liabilities recorded at fair value on a recurring basis consisted of the following:
Level 1
Level 2
Level 3
(Dollars in Thousands)
Inputs
Inputs
Inputs
Value
September 30, 2026
ASSETS:
Securities Available for Sale: $
594,343
$
-
$
-
$
594,343
-
160,311
-
160,311
States and Political Subdivisions -
32,575
-
32,575
Mortgage-Backed Securities -
44,329
-
44,329
Corporate Debt Securities -
30,539
-
30,539
-
23,455
-
23,455
Forward Sales Contracts
-
397
-
397
Residential Mortgage Loan Commitments ("IRLCs") -
-
474
474
December 31, 2025
ASSETS:
Securities Available for Sale: $
333,264
$
-
$
-
$
333,264
-
172,114
-
172,114
States and Political Subdivisions -
34,911
-
34,911
Mortgage-Backed Securities -
52,004
-
52,004
Corporate Debt Securities -
43,532
-
43,532
Equity Securities
-
-
2,069
2,069
-
21,695
-
21,695
Residential Mortgage Loan Commitments ("IRLCs") -
-
464
464
LIABILITIES:
Forward Sales Contracts
-
84
-
84
Mortgage Banking Activities
. The Company had Level 3 issuances and transfers related to mortgage banking activities of $ 5.9
and $
12.1
million, respectively, for the nine months ended September 30, 2026, and $
6.1
13.0
million, respectively, for
the nine months ended September 30, 2025. Issuances are valued based on the change in fair value of the underlying mortgage loan from inception of the IRLC to the Consolidated Statement of Financial Condition date, adjusted for pull-through rates and costs to originate. IRLCs transferred out of Level 3 represent IRLCs that were funded and moved to mortgage loans held for sale, at fair value.
Assets Measured at Fair Value on a Non-Recurring Basis Certain assets are measured at fair value on a non -recurring basis (i.e., the assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances). An example would be assets exhibiting evidence of impairment.
The following is a description of valuation methodologies used for assets measured on a non -recurring basis.
Collateral Dependent Loans
. Impairment for collateral dependent loans is measured using the fair value of the collateral less selling costs. The fair value of collateral is determined by an independent valuation or professional appraisal in conformance with banking regulations. Collateral values are estimated using Level 3 inputs due to the volatility in the real estate market, and the judgment and estimation involved in the real estate appraisal process. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. Valuation techniques are consistent with those techniques applied in prior periods. Collateral-dependent loans had a carrying value of $ 14.7
million with valuation allowance of $
1.0
2026 and a carrying value of $ 6.4
0.1
million valuation allowance at December 31, 2025.
Other Real Estate Owned
. During the first nine months of 2026, certain foreclosed assets, upon initial recognition, were measured and reported at fair value through a charge-off to the allowance for credit losses based on the fair value of the foreclosed asset less estimated cost to sell. The fair value of the foreclosed asset is determined by an independent valuation or professional appraisal in conformance with banking regulations. On an ongoing basis, we obtain updated appraisals on foreclosed assets and realize valuation adjustments as necessary. The fair value of foreclosed assets is estimated using Level 3 inputs due to the judgment and estimation involved in the real estate valuation process. Mortgage Servicing Rights
. Residential mortgage loan servicing rights are evaluated for impairment at each reporting period based upon the fair value of the rights as compared to the carrying amount. Fair value is determined by a third party valuation model using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). The fair value is estimated using Level 3 inputs, including a
discount rate, weighted average prepayment speed, and the cost of loan servicing. Further detail on the key inputs utilized are provided in Note 4 – Mortgage Banking Activities. At each of September 30, 2026 and December 31, 2025, there was no
allowance for loan servicing rights.
Assets and Liabilities Disclosed at Fair Value The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities, for which it is practical to estimate fair value and the following is a description of valuation methodologies used for those assets and liabilities. Cash and Short-Term Investments.
The carrying amount of cash and short-term investments is used to approximate fair value, given the short time frame to maturity and as such assets do not present unanticipated credit concerns. Securities Held to Maturity
. Securities held to maturity are valued in accordance with the methodology previously noted in the caption “Assets and Liabilities Measured at Fair Value on a Recurring Basis – Securities Available for Sale.” Loans.
The loan portfolio is segregated into categories and the fair value of each loan category is calculated using present value
techniques based upon projected cash flows and estimated discount rates. The values reported reflect the incorporation of a liquidity discount to meet the objective of “exit price” valuation.
Deposits.
The fair value of Noninterest Bearing Deposits, NOW Accounts, Money Market Accounts and Savings Accounts are the
amounts payable on demand at the reporting date. The fair value of fixed maturity certificates of deposit is estimated using present value techniques and rates currently offered for deposits of similar remaining maturities. Subordinated Notes Payable.
The fair value of each note is calculated using present value techniques, based upon projected cash
flows and estimated discount rates as well as rates being offered for similar obligations. Short-Term and Long-Term Borrowings.
The fair value of each note is calculated using present value techniques, based upon
projected cash flows and estimated discount rates as well as rates being offered for similar debt. A summary of estimated fair values of significant financial instruments not recorded at fair value consisted of the following:
September 30, 2026
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
71,617
$
71,617
$
-
$
-
Fed Funds Sold and Interest Bearing Deposits 340,015
340,015
-
-
Investment Securities, Held to Maturity 315,142
-
293,832
-
Mortgage Servicing Rights 908
-
-
1,534
Loans, Net of Allowance for Credit Losses 2,459,355
-
-
2,321,370
LIABILITIES:
Deposits
$
3,666,568
$
-
$
3,665,513
$
-
Short-Term Borrowings
38,881
-
38,881
-
Subordinated Notes Payable 33,303
-
31,339
-
567
-
567
-
December 31, 2025
Carrying
Level 1
Level 2
Level 3
(Dollars in Thousands)
Value
Inputs
Inputs
Inputs
ASSETS:
Cash
$
62,189
$
62,189
$
-
$
-
Fed Funds Sold and Interest Bearing Deposits 467,782
467,782
-
-
Investment Securities, Held to Maturity 377,446
129,268
240,052
-
Other Equity Securities
2,848
-
2,848
-
Mortgage Servicing Rights 924
-
-
1,359
Loans, Net of Allowance for Credit Losses 2,515,117
-
-
2,416,937
LIABILITIES:
Deposits
$
3,662,312
$
-
$
3,662,466
$
-
Short-Term Borrowings
50,092
-
50,092
-
Subordinated Notes Payable 42,582
-
40,116
-
680
-
680
-
All non-financial instruments are excluded from the above table. The disclosures also do not include goodwill. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. |