| FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS |
21. FAIR VALUE MEASUREMENTS AND FAIR VALUES OF FINANCIAL INSTRUMENTS The Corporation measures certain assets at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. FASB ASC Topic 820, “Fair Value Measurements and Disclosures” establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs used in determining valuations into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Corporation for identical assets. These generally provide the most reliable evidence and are used to measure fair value whenever available. Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable either directly or indirectly for substantially the full term of the asset through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets, quoted market prices in markets that are not active for identical or similar assets and other observable inputs. Level 3 – Fair value is based on significant unobservable inputs. Examples of valuation methodologies that would result in Level 3 classification include option pricing models, discounted cash flows and other similar techniques. The Corporation monitors and evaluates available data relating to fair value measurements on an ongoing basis and recognizes transfers among the levels of the fair value hierarchy as of the date of an event or change in circumstances that affects the valuation method chosen. Examples of such changes may include the market for a particular asset becoming active or inactive, changes in the availability of quoted prices, or changes in the availability of other market data. At December 31, 2025 and 2024, assets measured at fair value and the valuation methods used are as follows: | | | | | | | | | | | | | | | December 31, 2025 | | | Quoted Prices | | Other Observable | | Unobservable | | | | | in Active Markets | | Inputs | | Inputs | | Total | (In Thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Fair Value | Recurring fair value measurements, assets: | | | | | | | | | | | | | AVAILABLE-FOR-SALE DEBT SECURITIES: | | | | | | | | | | | | | Obligations of the U.S. Treasury | | $ | 7,482 | | $ | 0 | | $ | 0 | | $ | 7,482 | Obligations of U.S. Government agencies | | | 0 | | | 10,749 | | | 0 | | | 10,749 | Bank holding company debt securities | | | 0 | | | 34,076 | | | 0 | | | 34,076 | Obligations of states and political subdivisions: | | | | | | | | | | | | | Tax-exempt | | | 0 | | | 98,359 | | | 0 | | | 98,359 | Taxable | | | 0 | | | 44,152 | | | 0 | | | 44,152 | Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: | | | | | | | | | | | | | Residential pass-through securities | | | 0 | | | 143,921 | | | 0 | | | 143,921 | Residential collateralized mortgage obligations | | | 0 | | | 63,707 | | | 0 | | | 63,707 | Commercial mortgage-backed securities | | | 0 | | | 92,631 | | | 0 | | | 92,631 | Private label commercial mortgage-backed securities | | | 0 | | | 3,489 | | | 0 | | | 3,489 | Asset-backed securities, | | | | | | | | | | | | | Collateralized loan obligations | | | 0 | | | 8,009 | | | 0 | | | 8,009 | Total available-for-sale debt securities | | | 7,482 | | | 499,093 | | | 0 | | | 506,575 | Marketable equity security | | | 890 | | | 0 | | | 0 | | | 890 | Servicing rights | | | 0 | | | 0 | | | 3,893 | | | 3,893 | RPA Out | | | 0 | | | 2 | | | 0 | | | 2 | Interest rate swap agreements, assets | | | 0 | | | 1,318 | | | 0 | | | 1,318 | Total recurring fair value measurements, assets | | $ | 8,372 | | $ | 500,413 | | $ | 3,893 | | $ | 512,678 | | | | | | | | | | | | | | Recurring fair value measurements, liabilities: | | | | | | | | | | | | | RPA In | | $ | 0 | | $ | 5 | | $ | 0 | | $ | 5 | Interest rate swap agreements, liabilities | | | 0 | | | 1,318 | | | 0 | | | 1,318 | Total recurring fair value measurements, liabilities | | $ | 0 | | $ | 1,323 | | $ | 0 | | $ | 1,323 | | | | | | | | | | | | | | Nonrecurring fair value measurements, assets: | | | | | | | | | | | | | Loans individually evaluated for credit loss, net | | $ | 0 | | $ | 0 | | $ | 2,629 | | $ | 2,629 | Foreclosed assets held for sale | | | 0 | | | 0 | | | 189 | | | 189 | Total nonrecurring fair value measurements, assets | | $ | 0 | | $ | 0 | | $ | 2,818 | | $ | 2,818 |
| | | | | | | | | | | | | | | December 31, 2024 | | | Quoted Prices | | Other Observable | | Unobservable | | | | | in Active Markets | | Inputs | | Inputs | | Total | (In Thousands) | | (Level 1) | | (Level 2) | | (Level 3) | | Fair Value | Recurring fair value measurements, assets: | | | | | | | | | | | | | AVAILABLE-FOR-SALE DEBT SECURITIES: | | | | | | | | | | | | | Obligations of the U.S. Treasury | | $ | 7,118 | | $ | 0 | | $ | 0 | | $ | 7,118 | Obligations of U.S. Government agencies | | | 0 | | | 9,025 | | | 0 | | | 9,025 | Bank holding company debt securities | | | 0 | | | 25,246 | | | 0 | | | 25,246 | Obligations of states and political subdivisions: | | | | | | | | | | | | | Tax-exempt | | | 0 | | | 101,302 | | | 0 | | | 101,302 | Taxable | | | 0 | | | 42,506 | | | 0 | | | 42,506 | Mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored agencies: | | | | | | | | | | | | | Residential pass-through securities | | | 0 | | | 94,414 | | | 0 | | | 94,414 | Residential collateralized mortgage obligations | | | 0 | | | 49,894 | | | 0 | | | 49,894 | Commercial mortgage-backed securities | | | 0 | | | 64,501 | | | 0 | | | 64,501 | Private label commercial mortgage-backed securities | | | 0 | | | 8,374 | | | 0 | | | 8,374 | Total available-for-sale debt securities | | | 7,118 | | | 395,262 | | | 0 | | | 402,380 | Marketable equity security | | | 863 | | | 0 | | | 0 | | | 863 | Servicing rights | | | 0 | | | 0 | | | 2,782 | | | 2,782 | RPA Out | | | 0 | | | 2 | | | 0 | | | 2 | Interest rate swap agreements, assets | | | 0 | | | 2,385 | | | 0 | | | 2,385 | Total recurring fair value measurements, assets | | $ | 7,981 | | $ | 397,649 | | $ | 2,782 | | $ | 408,412 | | | | | | | | | | | | | | Recurring fair value measurements, liabilities, | | | | | | | | | | | | | RPA In | | $ | 0 | | $ | 2 | | $ | 0 | | $ | 2 | Interest rate swap agreements, liabilities | | | 0 | | | 2,385 | | | 0 | | | 2,385 | Total recurring fair value measurements, liabilities | | $ | 0 | | $ | 2,387 | | $ | 0 | | $ | 2,387 | | | | | | | | | | | | | | Nonrecurring fair value measurements, assets: | | | | | | | | | | | | | Loans individually evaluated for credit loss, net | | $ | 0 | | $ | 0 | | $ | 136 | | $ | 136 | Foreclosed assets held for sale | | | 0 | | | 0 | | | 181 | | | 181 | Total nonrecurring fair value measurements, assets | | $ | 0 | | $ | 0 | | $ | 317 | | $ | 317 |
Level 2 valuation techniques used to measure fair value for the financial instruments in the preceding tables are as follows: Available-for-sale debt securities - Level 2 debt securities are valued by a third-party pricing service. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings and matrix pricing. Derivative instruments - Interest rate SWAP agreements, RPA Out and RPA In- The fair value of derivatives are based on valuation models using observable market data as of the measurement date, valued by a third-party pricing service using quantitative models that utilize multiple market inputs. The inputs include prices and indices to generate continuous yield or pricing curves, estimates of current and potential future credit exposure and calculated discounted cash flow factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. Management’s evaluation and selection of valuation techniques and the unobservable inputs used in determining the fair values of assets valued using Level 3 methodologies include sensitive assumptions. Other market participants might use substantially different assumptions, which could result in calculations of fair values that would be substantially different than the amount calculated by management. The following table shows quantitative information regarding significant techniques and inputs used at December 31, 2025 and 2024 for servicing rights assets measured using unobservable inputs (Level 3 methodologies) on a recurring basis: | | | | | | | | | | | | | | | Fair Value at | | | | | | | | | | | | 12/31/2025 | | Valuation | | Unobservable | | | | | Method or Value As of | Asset | | (In Thousands) | | Technique | | Input(s) | | | | | 12/31/2025 | Servicing rights | | $ | 3,893 | | Discounted cash flow | | Discount rate | | | 13.00 | % | Rate used through modeling period | | | | | | | | Loan prepayment speeds | | | 124.00 | % | Weighted-average PSA |
| | | | | | | | | | | | | | | Fair Value at | | | | | | | | | | | | 12/31/2024 | | Valuation | | Unobservable | | | | | Method or Value As of | Asset | | (In Thousands) | | Technique | | Input(s) | | | | | 12/31/2024 | Servicing rights | | $ | 2,782 | | Discounted cash flow | | Discount rate | | | 13.00 | % | Rate used through modeling period | | | | | | | | Loan prepayment speeds | | | 116.00 | % | Weighted-average PSA |
The fair value of servicing rights is affected by expected future interest rates. Increases (decreases) in future expected interest rates tend to increase (decrease) the fair value of the Corporation’s servicing rights because of changes in expected prepayment behavior by the borrowers on the underlying loans. Following is a reconciliation of activity for Level 3 assets (servicing rights) measured at fair value on a recurring basis: | | | | | | | | | | (In Thousands) | | Years Ended December 31, | | | 2025 | | 2024 | | 2023 | Servicing rights balance, beginning of period | | $ | 2,782 | | $ | 2,659 | | $ | 2,653 | Acquired servicing rights | | | 963 | | | 0 | | | 0 | Originations of servicing rights | | | 406 | | | 287 | | | 206 | Unrealized loss included in earnings | | | (258) | | | (164) | | | (200) | Servicing rights balance, end of period | | $ | 3,893 | | $ | 2,782 | | $ | 2,659 |
Loans are individually evaluated for credit loss when they do not share similar risk characteristics as similar loans within its loan pool. Foreclosed assets held for sale consist of real estate acquired by foreclosure. For individually evaluated loans secured by real estate and foreclosed assets held for sale, estimated fair values are determined primarily using values from third-party appraisals. Appraised values are discounted to arrive at the estimated selling price of the collateral, which is considered to be the estimated fair value. The discounts also include estimated costs to sell the property. The estimated fair value determined for individually evaluated loans secured by real estate and foreclosed assets held for sale used unobservable inputs (Level 3 methodologies). At December 31, 2025 and 2024, quantitative information regarding significant techniques and inputs used for nonrecurring fair value measurements using unobservable inputs (Level 3 methodologies) are as follows: | | | | | | | | | | | | | | | | | (Dollars In Thousands) | | | | | | | | | | | | | | | Range (Weighted | | | | | | | Valuation | | | | | | | | | Average) | | | | Balance at | | Allowance at | | Fair Value at | | Valuation | | Unobservable | | Discount at | | Asset | | 12/31/2025 | | 12/31/2025 | | 12/31/2025 | | Technique | | Inputs | | 12/31/2025 | | | | | | | | | | | | | | | | | | | Loans individually evaluated for credit loss: | | | | | | | | | | | | | | | | | Commercial real estate - nonowner occupied | | $ | 1,423 | | $ | 140 | | $ | 1,283 | | Sales comparison | | Discount to appraised value | | 18%-77% (66) | % | Commercial real estate - owner occupied | | | 485 | | | 266 | | | 219 | | Sales comparison | | Discount to appraised value | | 34% (34) | % | All other commercial Loans | | | 3,493 | | | 2,366 | | | 1,127 | | Sales comparison | | Discount to appraised value | | 0%-100% (82) | % | Total loans individually evaluated for credit loss | | $ | 5,401 | | $ | 2,772 | | $ | 2,629 | | | | | | | | Foreclosed assets held for sale - real estate: | | | | | | | | | | | | | | | | | Residential (1-4 family) | | $ | 33 | | $ | 0 | | $ | 33 | | Sales comparison | | Discount to appraised value | | 62%-84% (72) | % | Commercial real estate | | | 156 | | | 0 | | | 156 | | Sales comparison | | Discount to appraised value | | 18%-77% (34) | % | Total foreclosed assets held for sale | | $ | 189 | | $ | 0 | | $ | 189 | | | | | | | |
| | | | | | | | | | | | | | | | | (Dollars In Thousands) | | | | | | | | | | | | | | | Range (Weighted | | | | | | | Valuation | | | | | | | | | Average) | | | | Balance at | | Allowance at | | Fair Value at | | Valuation | | Unobservable | | Discount at | | Asset | | 12/31/2024 | | 12/31/2024 | | 12/31/2024 | | Technique | | Inputs | | 12/31/2024 | | | | | | | | | | | | | | | | | | Loans individually evaluated for credit loss: | | | | | | | | | | | | | | | | | Commercial real estate - owner occupied | | $ | 258 | | $ | 122 | | $ | 136 | | Sales comparison & SBA guaranty | | Discount to appraised value | | 95% (95) | % | Total loans individually evaluated for credit loss | | $ | 258 | | $ | 122 | | $ | 136 | | | | | | | | Foreclosed assets held for sale - real estate: | | | | | | | | | | | | | | | | | Residential (1-4 family) | | $ | 25 | | $ | 0 | | $ | 25 | | Sales comparison | | Discount to appraised value | | 62% (62) | % | Commercial real estate | | | 156 | | | 0 | | | 156 | | Sales comparison | | Discount to appraised value | | 18%-77% (34) | % | Total foreclosed assets held for sale | | $ | 181 | | $ | 0 | | $ | 181 | | | | | | | |
Certain of the Corporation’s financial instruments are not measured at fair value in the consolidated financial statements. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from disclosure requirements. Therefore, the aggregate fair value amounts presented may not represent the underlying fair value of the Corporation. The estimated fair values, and related carrying amounts, of the Corporation’s financial instruments that are not recorded at fair value are as follows: | | | | | | | | | | | | | | | (In Thousands) | | Fair Value | | December 31, 2025 | | December 31, 2024 | | | Hierarchy | | Carrying | | Fair | | Carrying | | Fair | | | Level | | Amount | | Value | | Amount | | Value | Financial assets: | | | | | | | | | | | | | | | Cash and cash equivalents | | Level 1 | | $ | 44,706 | | $ | 44,706 | | $ | 123,574 | | $ | 123,574 | Certificates of deposit | | Level 2 | | | 1,350 | | | 1,331 | | | 2,600 | | | 2,513 | Restricted equity securities (included in other assets) | | N/A | | | 26,623 | | | 26,623 | | | 21,567 | | | N/A | Loans, net | | Level 3 | | | 2,323,317 | | | 2,261,934 | | | 1,875,813 | | | 1,789,044 | Accrued interest receivable | | Level 2 | | | 11,594 | | | 11,594 | | | 8,735 | | | 8,735 | | | | | | | | | | | | | | | | Financial liabilities: | | | | | | | | | | | | | | | Deposits with no stated maturity | | Level 2 | | | 1,958,011 | | | 1,958,011 | | | 1,609,552 | | | 1,609,552 | Time deposits | | Level 2 | | | 606,705 | | | 603,494 | | | 484,357 | | | 484,900 | Short-term borrowings | | Level 2 | | | 28,618 | | | 28,618 | | | 2,488 | | | 2,488 | Long-term borrowings - FHLB advances | | Level 2 | | | 120,935 | | | 122,211 | | | 165,451 | | | 165,616 | Senior notes, net | | Level 2 | | | 14,970 | | | 14,751 | | | 14,899 | | | 13,579 | Subordinated debt, net | | Level 2 | | | 24,949 | | | 23,361 | | | 24,831 | | | 21,051 | Accrued interest payable | | Level 2 | | | 1,744 | | | 1,744 | | | 1,771 | | | 1,771 |
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