AUBURN NATIONAL BANCORPORATION, INCAUBN
AUBURN NATIONAL BANCORPORATION, INC Fair Value Disclosure
NOTE 14: FAIR VALUE
Fair Value Hierarchy
“Fair value” is defined by ASC 820,
Fair Value Measurements and Disclosures
, as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous
market in the absence of a principal market) for an asset or liability at the measurement date. GAAP 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 to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active
markets.
Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the
asset or liability, either directly or indirectly.
Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the
inputs market participants would use in pricing the asset or liability.
Level changes in fair value measurements
Transfers between levels of the fair value hierarchy are generally recognized at the end of the reporting period. The
Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when
transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such
that transfers in and out of any level are expected to be infrequent. For the years ended December 31, 2025 and 2024, there
were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.
Assets and liabilities measured at fair value on a recurring basis
Securities available-for-sale
Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company
obtains pricing from third party pricing services. These third-party pricing services consider observable data that may
include broker/dealer quotes, market spreads, cash flows, market consensus prepayment speeds, benchmark yields, reported
trades for similar securities, credit information and the securities’ terms and conditions. On a quarterly basis, management
reviews the pricing received from the third-party pricing services for reasonableness given current market conditions. As
part of its review, management may obtain non-binding third party broker quotes to validate the fair value measurements.
In addition, management will periodically submit pricing provided by the third-party pricing services to another
independent valuation firm on a sample basis. This independent valuation firm will compare the price provided by the
third-party pricing service with its own price and will review the significant assumptions and valuation methodologies used
with management.
Quoted Prices in
Significant
Active Markets
Other
Significant
for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Dollars in thousands)
Amount
(Level 1)
(Level 2)
(Level 3)
December 31, 2025:
Securities available-for-sale:
Agency obligations
$
53,784
—
53,784
—
Agency MBS
161,927
—
161,927
—
State and political subdivisions
17,548
—
17,548
—
Total securities available -for-sale
233,259
—
233,259
—
Total assets at fair value
$
233,259
—
233,259
—
Other liabilities - interest rate swaps
22
—
22
—
Total liabilities at fair value
$
22
—
22
—
December 31, 2024:
Securities available-for-sale:
Agency obligations
$
52,411
—
52,411
—
Agency MBS
173,676
—
173,676
—
State and political subdivisions
16,925
—
16,925
—
Total securities available -for-sale
243,012
—
243,012
—
Total assets at fair value
$
243,012
—
243,012
—
Assets and liabilities measured at fair value on a nonrecurring basis
Collateral Dependent Loans
Collateral dependent loans are measured at the fair value of the collateral securing loan less estimated selling costs. The
fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of
comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on
various sources, including third party asset valuations and internally determined values based on cost adjusted for
depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3
of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the
borrower’s underlying financial condition.
Mortgage servicing rights, net
Mortgage servicing rights, net, included in other assets on the accompanying consolidated balance sheets, are carried at the
lower of cost or estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine
the fair value of MSRs, the Company engages an independent third party. The independent third party’s valuation model
calculates the present value of estimated future net servicing income using assumptions that market participants would use
in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to
service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the
Company will review broker surveys and other market research to validate significant assumptions used in the model. The
significant unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted
average discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the
Company’s MSRs are classified within Level 3 of the valuation hierarchy.
The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of
December 31, 2025 and 2024, respectively, by caption, on the accompanying consolidated balance sheets and by ASC 820
valuation hierarchy (as described above):
Quoted Prices in
Active Markets
Other
Significant
for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Dollars in thousands)
Amount
(Level 1)
(Level 2)
(Level 3)
December 31, 2025:
Loans, net
(1)
$
378
—
—
378
Other assets
(2)
771
—
—
771
Total assets at fair value
$
1,149
—
—
1,149
December 31, 2024:
Loans, net
(1)
$
503
—
—
503
Other assets
(2)
892
—
—
892
Total assets at fair value
$
1,395
—
—
1,395
(1)
Loans considered collateral dependent under ASC 326,
Financial Instruments - Credit Losses.
(2)
Represents MSRs, net carried at lower of cost or estimated fair value.
Quantitative Disclosures for Level 3 Fair Value Measurements
At December 31, 2025 and 2024, the Company had no Level 3 assets measured at fair value on a recurring basis. For Level
3 assets measured at fair value on a non-recurring basis as of December 31, 2025 and 2024, the significant unobservable
inputs used in the fair value measurements are presented below.
Weighted
Carrying
Significant
Average
(Dollars in thousands)
Amount
Valuation Technique
Range
of Input
December 31, 2025:
Collateral dependent loans
$
378
Appraisal
Appraisal discounts
10.0
-
10.0
%
10.0
%
Mortgage servicing rights, net
771
Discounted cash flow
Prepayment speed or CPR
6.8
-
8.4
%
8.2
%
Discount rate
9.5
-
11.5
%
9.5
%
December 31, 2024:
Collateral dependent loans
$
503
Appraisal
Appraisal discounts
10.0
-
10.0
%
10.0
%
Mortgage servicing rights, net
892
Discounted cash flow
Prepayment speed or CPR
6.7
-
11.2
%
7.3
%
Discount rate
10.0
-
12.0
%
10.0
%
Fair Value of Financial Instruments
ASC 825,
Financial Instruments
, requires disclosure of fair value information about financial instruments, whether or not
recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the
estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are
not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be
significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The
following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered
representative of the liquidation value of the Company’s financial instruments, but rather are good faith estimates of the fair
value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Loans, net
Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar
loans would be made for the same remaining maturities. Expected future cash flows were projected based on contractual
cash flows, adjusted for estimated prepayments. The fair value of loans was measured using an exit price notion.
Loans held for sale
Loans held for sale are recorded at the lower of cost or fair value. Fair values are determined using quoted secondary
market prices for similar loans.
Time Deposits
Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently
offered for deposits with similar remaining maturities.
The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial
instruments at December 31, 2025 and 2024 are presented below. This table excludes financial instruments for which the
carrying amount approximates fair value. Financial assets for which fair value approximates carrying value included cash
and cash equivalents. Financial liabilities for which fair value approximates carrying value included noninterest-bearing
demand deposits, interest-bearing demand deposits, and savings deposits. Fair value approximates carrying value in these
financial liabilities due to these products having no stated maturity. Additionally, financial liabilities for which fair value
approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under
agreements to repurchase.
The following table summarizes our fair value estimates:
Fair Value Hierarchy
Carrying
Estimated
Level 1
Level 2
Level 3
(Dollars in thousands)
amount
fair value
inputs
inputs
Inputs
December 31, 2025:
Financial Assets:
Loans, net (1)
$
558,178
$
542,382
$
—
$
—
$
542,382
Loans held for sale
172
179
—
179
—
Financial Liabilities:
Time Deposits
$
176,801
$
176,137
$
—
$
176,137
$
—
December 31, 2024:
Financial Assets:
Loans, net (1)
$
557,146
$
532,344
$
—
$
—
$
532,344
Financial Liabilities:
Time Deposits
$
191,247
$
190,363
$
—
$
190,363
$
—
(1) Represents loans, net and the allowance for credit losses. The fair value of loans was measured using an exit price notion.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 17, 2026 | Showing above |
| 2024 | Mar 11, 2025 | |
| 2023 | Mar 14, 2024 | |
| 2022 | Mar 17, 2023 | |
| 2021 | Mar 8, 2022 | |
| 2020 | Mar 9, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 12, 2019 | |
| 2017 | Mar 13, 2018 | |
| 2016 | Mar 3, 2017 | |
| 2015 | Mar 10, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.