9.FAIR VALUE

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Fair value represents the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date in the principal, or most advantageous, market. The fair value hierarchy prioritizes the inputs used in measuring fair value into the following three levels:

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Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

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Level 2: Significant other observable inputs, including quoted prices for similar assets or liabilities; quoted prices in markets that are not active; and other inputs that are observable or can be corroborated by observable market data.

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Level 3: Significant unobservable inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing an asset or liability.

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Authoritative accounting guidance requires maximizing the use of observable inputs and minimizing the use of unobservable inputs when measuring fair value. When limited or no observable market data exists, the Company develops estimates based on available information, including the characteristics of the asset or liability, current economic and market conditions, and other relevant factors. Accordingly, fair value estimates are inherently subjective and may not be realized in an actual sale or immediate settlement of the related asset or liability.

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The Bank used the following valuation techniques and significant assumptions to estimate the fair value of its financial instruments:

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Available-for-sale debt securities: Except for U.S. Treasury securities and the Bank’s TRUP investment, the fair value of AFS debt securities is generally determined using matrix pricing, a valuation technique that relies on the securities' relationships to benchmark securities with observable market prices rather than quoted prices for the specific securities (Level 2 inputs).

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The fair value of U.S. Treasury securities is based on quoted market prices in active markets (Level 1 inputs).

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As of June 30, 2026 and December 31, 2025, the Company owned one nominal private-label MBS classified as AFS with an amortized cost of $0 at both dates. At December 31, 2025, the Bank classified this MBS as a Level 3 and utilized an income valuation model (present value model) approach in determining the fair value of this security. Beginning in 2026, due to the insignificance of the position, the Company elected not to obtain Level 3 pricing.

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As of June 30, 2026, due to the investment's illiquidity and the limited availability of observable market inputs, the TRUP investment is classified within Level 3 of the fair value hierarchy.

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Equity securities with readily determinable fair value: The fair value of the Company’s FHLMC preferred stock is determined based on market prices of similar securities and is classified within Level 2 of the fair value hierarchy.

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Mortgage loans held for sale, at fair value: The fair value of mortgage loans HFS is based on quoted secondary market prices and is classified within Level 2 of the fair value hierarchy.

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Consumer loans held for sale, at fair value: The fair value of consumer loans HFS is based primarily on contractual sales terms and other unobservable inputs and is therefore classified within Level 3 of the fair value hierarchy.

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Mortgage banking derivatives: Mortgage banking derivatives consist primarily of mandatory forward sales contracts and interest rate lock commitments. Fair value is determined using market-based pricing obtained from broker-dealers and other observable market inputs. Because the valuation relies principally on observable inputs, these instruments are classified within Level 2 of the fair value hierarchy.

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Interest rate swap agreements: Interest rate swaps are recorded at fair value on a recurring basis. The Company values its interest rate swaps using a third-party valuation service and classifies such valuations as Level 2. Valuations of these interest rate swaps are also received from the relevant dealer counterparty and validated against the Company’s calculations. The Company has considered counterparty credit risk in the valuation of its interest rate swap assets and has considered its own credit risk in the valuation of its interest rate swap liabilities.

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Discussion of assets measured at fair value on a non-recurring basis follows:

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Collateral-dependent loans: Collateral-dependent loans generally reflect partial charge-downs to fair value, which is typically determined using recent real estate appraisals or BPOs. These valuations may utilize one or more approaches, including comparable sales and income-based methodologies. Significant adjustments may be applied by the independent valuation specialists to account for differences between the subject property and comparable market data. As a result, the valuation of real estate collateral generally relies on significant unobservable inputs and is classified within Level 3 of the fair value hierarchy.

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Non-real estate collateral is generally valued using appraisals, net book values reported in borrower financial statements, aging reports, or other relevant information. These values may be adjusted based on management's knowledge of the borrower, changes in market conditions since the valuation date, and other judgmental factors. Accordingly, valuations of non-real estate collateral are generally classified within Level 3 of the fair value hierarchy.

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Collateral-dependent loans are evaluated quarterly for impairment, and valuation adjustments are recorded as necessary.

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Other real estate owned: Assets acquired through, or in lieu of, foreclosure are initially recorded at fair value less estimated costs to sell, which establishes a new cost basis. Thereafter, OREO is carried at the lower of cost or fair value less estimated costs to sell. Fair value is generally based on recent real estate appraisals or BPOs, which may utilize one or more valuation approaches, including comparable sales and income-based methodologies. Because these valuations often incorporate significant adjustments and unobservable inputs, OREO is generally classified within Level 3 of the fair value hierarchy.

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Appraisals for collateral-dependent loans, bank premises, and OREO are performed by qualified independent appraisers whose credentials and licenses are reviewed and approved by the Bank. Upon receipt, appraisals are reviewed by members of the Bank’s CCAD to evaluate the reasonableness of the assumptions, methodologies, and resulting values, including comparisons to available market data and industry information. In addition, the Bank performs periodic back-testing by comparing actual sales proceeds to the most recent appraised values of similar collateral. These analyses are performed by collateral class, such as RRE and CRE, and may result in additional valuation adjustments for similar collateral.

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Mortgage servicing rights: MSRs are evaluated for impairment at least quarterly by comparing the fair value of each tranche to its carrying amount. If the carrying amount of a tranche exceeds its fair value, impairment is recognized, and the tranche is carried at fair value. If the fair value of a tranche subsequently exceeds its carrying amount, previously recognized impairment is reversed, and the tranche's carrying amount is adjusted in accordance with the applicable valuation methodology. Fair value is determined using a valuation model that incorporates assumptions market participants would use in estimating future net servicing income. Because these assumptions are generally observable or can be corroborated by market data, MSRs are classified within Level 2 of the fair value hierarchy.

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Transfers between levels of the fair value hierarchy are recognized as of the end of the reporting period. During the first quarter of 2026, one nominal AFS private-label MBS transferred from Level 3 to Level 2. Other than this transfer, there were no transfers into or out of Levels 1, 2, or 3 during the three and six month periods ended June 30, 2026 and 2025.

The following tables summarize assets and liabilities measured at fair value on a recurring basis, including financial instruments for which the Bank has elected the fair value option.

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Trust Preferred Security

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The following table presents a rollforward of the Company’s TRUP investment, which is measured at fair value on a recurring basis and classified within Level 3 of the fair value category.

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The fair value of the Company’s TRUP investment is based on the most recent bid price available for this instrument, as provided by a third-party broker.

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Mortgage Loans Held for Sale

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The following table presents the aggregate fair value, contractual balance, and unrealized gain on mortgage loans HFS carried at fair value:

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The following table presents the total net gains recognized in earnings from changes in the fair value of mortgage loans HFS carried at fair value:

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Consumer Loans Held for Sale

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RCS carries loans originated through its installment loan program at fair value. Interest income is recognized in accordance with the contractual terms of the loans and the Bank's accounting policies. None of these loans were past due 90 days or more or on nonaccrual status as of June 30, 2026, and December 31, 2025.

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The significant unobservable inputs used in estimating the fair value of the Bank's short-term installment loans are net contractual premiums and the percentage of loans sold at a discount. Changes in these inputs could have a significant impact on the resulting fair value measurement.

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The following table presents quantitative information about recurring Level 3 fair value measurement inputs for installment loans:

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The following table presents the aggregate fair value, contractual balance, and unrealized gain on consumer loans HFS carried at fair value:

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The following table presents the total net gains recognized in earnings from changes in the fair value of consumer loans HFS carried at fair value:

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The following tables presents assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy used to determine such fair values:

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The following tables present quantitative information regarding significant unobservable inputs used in Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis:

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Collateral Dependent Loans

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Collateral-dependent loans are generally measured based on the fair value of the underlying collateral, less estimated costs to sell, when applicable. The Bank typically obtains new or updated appraisals or BPOs as part of its initial impairment assessment and subsequently evaluates the need for updated valuations based on market conditions and other relevant factors. The Bank may adjust collateral values for estimated selling costs, delinquent real estate taxes, and, when appropriate, deterioration in the physical condition of the property, adverse economic factors, or changes in market conditions. If a current appraisal or BPO is not available, management may apply a discount to an existing valuation to estimate current fair value. To the extent the estimated fair value of the collateral, net of selling costs, is less than the carrying value of the loan, a charge-off is recorded. Collateral-dependent loans are classified within Level 3 of the fair value hierarchy.

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During the three and six month periods ended June 30, 2026 and 2025, Provision recorded related to collateral-dependent loans was not material.

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Other Real Estate Owned

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OREO is carried at the lower of cost or fair value less estimated costs to sell. Fair value is generally based on external appraisals or BPOs. Because these valuations incorporate significant unobservable inputs, OREO is classified within Level 3 of the fair value hierarchy.

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The following tables presents information related to OREO, including carrying amounts and valuation write-downs:

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Financial Instruments

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The following tables presents the carrying amounts and estimated exit-price fair values of the Company's financial instruments:

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