Note 21 – Fair value measurements

Financial instruments measured at fair value on recurring basis.

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with FASB ASC 820, Fair Value Measurement, fair value is the 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. Fair value is best determined based upon quoted market prices. However, when quoted market prices are not available, fair values are estimated using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. In cases where market activity for an asset or liability has significantly decreased, determining fair value may require the use of multiple valuation techniques and significant judgment. The fair value estimates may not be realized in an immediate settlement of the instrument.

The Company groups its assets and liabilities measured at fair value in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 – Unobservable inputs that are significant to the fair value measurement.

Securities

The Company’s investment securities are classified within the fair value hierarchy based on the observability of inputs used in their valuation. Securities with quoted prices in active markets are classified as Level 1. Securities valued using quoted prices for similar assets in active markets or other observable market data are classified as Level 2. Securities valued using significant unobservable inputs are classified as Level 3.

All of the Company’s investment securities as of December 31, 2025 and 2024 are classified as Level 2. These securities include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions, and certain corporate and other securities. Fair values for these securities are obtained from independent pricing services that use pricing models based on quoted prices for similar securities and other observable market data.

Derivatives Assets/Liabilities – Interest Rate Lock Commitments (IRLCs)

The Company recognizes IRLCs at fair value based on the price of the underlying loans obtained from an investor for loans that will be delivered on a best efforts basis while taking into consideration the probability that the rate lock commitments will close. All of the Company’s IRLCs are classified as Level 3. The Company’s IRLCs are included in “Other Assets” on the Consolidated Balance Sheets.

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Note 21 – Fair value measurements (continued)

The following table summarizes the Company’s financial assets that were measured at fair value on a recurring basis during the period:

During the year ended December 31, 2025, the fair value of Level 3 assets consisted entirely of IRLCs, which increased from $42,000 at December 31, 2024 to $99,000 at December 31, 2025; there were no transfers into or out of Level 3, and no purchases, sales, or settlements of Level 3 instruments during the period. The change reflects the net effect of new rate lock commitments issued and existing commitments closed or expired during the year.

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Note 21 – Fair value measurements (continued)

The following table provides additional quantitative information about assets measured at fair value on a recurring basis and for which we have utilized Level 3 inputs to determine fair value:

Assets measured at fair value on a nonrecurring basis.

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value. Fair values are based on quoted prices or commitments from third-party investors who have agreed to purchase the loans. Loans held for sale are classified as Level 2 in the fair value hierarchy because fair values are determined using quoted prices for similar assets rather than quoted prices for identical assets in active markets. As of December 31, 2025 and 2024, the fair value of loans held for sale exceeded their cost, and accordingly, no fair value adjustments were required. Gains and losses on the sale of loans are recorded in noninterest income in the Consolidated Statements of Income.
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Note 21 – Fair value measurements (continued)

Other Real Estate Owned

There was no OREO as of December 31, 2025 and 2024.

Collateral Dependent Loans with an ACL

In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things. A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. As of December 31, 2025 and 2024, we had $10,238,000 and $12,626,000 in collateral dependent loans with an associated allowance for credit losses of $72,000 and $193,000, respectively.

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Note 21 – Fair value measurements (continued)

*Includes loans charged down to the net realizable value of the collateral.

The following table provides additional quantitative information about assets measured at fair value on a non-recurring basis and for which we have utilized Level 3 inputs to determine fair value:

*Includes loans charged down to the net realizable value of the collateral.

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Note 21 – Fair value measurements (continued)

*Includes loans charged down to the net realizable value of the collateral.

Financial Instruments

ASC 825, Financial Instruments, requires fair value disclosures for financial instruments, including those not measured at fair value on the Consolidated Balance Sheets. Certain financial instruments and all nonfinancial instruments are excluded from these disclosure requirements. The aggregate fair value amounts presented do not represent the fair value of the Company as a whole. The carrying amounts and estimated fair values of the Company’s financial instruments at December 31, 2025 and 2024 are presented in the following tables.

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