Fair Value Measurements

9 Months Ended

Sep. 30, 2025

(15)	Fair Value Measurements:

	Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value:

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

	●	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

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

	The following is a description of valuation methodologies used for assets recorded at fair value:

	Debt securities available for sale: The fair values of the Company’s debt securities available for sale are primarily determined by quoted prices in active markets (Level 1) and matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific debt securities, but rather by relying on the debt securities’ relationship to other benchmark quoted securities. The values determined by matrix pricing are considered Level 2 fair value measurements.

	Mortgage loans held for sale: The fair values of the Company’s mortgage loans held for sale are based on quotes from third party investors.

TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(000s omitted except share data)

(15)	Fair Value Measurements (continued):

	Derivatives: Derivatives instruments such as interest rate lock commitments and forward contracts are valued by means of pricing models based on readily observable market parameters such as interest rate yield curves and option pricing volatilities.

	Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower’s financial statements or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and borrower’s business. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

	Foreclosed assets: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property must be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management’s comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(000s omitted except share data)

(15)	Fair Value Measurements (continued):

The following table presents the Company’s approximate fair value hierarchy for assets measured at fair value as of September 30:


2025
			Fair Value Measurements at
			Reporting Date Using
	Total		(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
Assets:
Debt securities available for sale	$	154,071	$	17,357	$	136,714		-
Mortgage loans held for sale	$	14,034			$	14,034		-
Derivative assets	$	590			$	590		-
Liabilities:
Forward contracts	$	23			$	23		-

Assets measured at fair value on a non-recurring basis:
Assets:
Collateral-dependent loans, net of specific reserves	$	3,257		-		-	$	3,257
Foreclosed assets	$	101		-		-	$	101

The following table presents the Company’s approximate fair value hierarchy for assets measured at fair value as of December 31:


2024
			Fair Value Measurements at
			Reporting Date Using
	Total		(Level 1)		(Level 2)		(Level 3)
Assets measured at fair value on a recurring basis:
Assets:
Debt securities available for sale	$	143,735	$	24,598	$	119,137		-
Mortgage loans held for sale	$	9,011			$	9,011		-
Derivative assets	$	188			$	188		-
Forward contracts	$	62			$	62		-

Assets measured at fair value on a non-recurring basis:
Assets:
Collateral-dependent loans, net of specific reserves	$	6,460		-		-	$	6,460
Foreclosed assets	$	920		-		-	$	920

There were no transfers between Level 1, Level 2, or Level 3 during 2025 or 2024.

TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(000s omitted except share data)

(15)	Fair Value Measurements (continued):

	The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined by quoted market prices; however, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or valuation techniques. Those techniques are significantly affected by 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. Accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of September 30, 2025:


2025
			Fair Value Measurements at
			Reporting Date Using
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	52,788	$	52,788					$	52,788
Securities available for sale		154,071		17,357		136,714				154,071
Federal Home Loan Bank stock		5,552						5,552		5,552
Mortgage held for sale		14,034				14,034				14,034
Loans, net		1,284,178						1,262,730		1,262,730
Accrued interest receivable		9,759		9,759						9,759
Mortgage servicing rights		626				5,274				5,274
Derivative assets		590				590				590

Financial liabilities:
Deposits	$	1,253,006	$	855,541			$	397,896	$	1,253,437
FHLB advances and other borrowings		121,917						121,917		121,917
Securities sold under agreements to repurchase		25,597		25,597						25,597
Accrued interest payable		3,098		3,098						3,098
Forward commitments		23				23				23

TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(000s omitted except share data)

(15)	Fair Value Measurements (continued):

	The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of December 31, 2024:


	2024
			Fair Value Measurements at
					Reporting Date Using
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)		Total
Financial assets:
Cash and cash equivalents	$	44,976	$	44,976					$	44,976
Securities available for sale		143,735		24,598		119,137				143,735
Federal Home Loan Bank stock		3,420						3,420		3,420
Mortgage held for sale		9,011				9,011				9,011
Loans, net		1,261,965						1,219,281		1,219,281
Accrued interest receivable		7,474		7,474						7,474
Mortgage servicing rights		790				5,274				5,274
Derivative assets		188				188				188
Forward commitments		62				62				62

Financial liabilities:
Deposits	$	1,273,296	$	865,392			$	408,560	$	1,273,952
FHLB advances and other borrowings		67,917						67,917		67,917
Securities sold under agreements to repurchase		22,679		22,679						22,679
Accrued interest payable		2,899		2,899						2,899

- 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

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+ Details

Tri-County Financial Group, Inc. 10-Q