Commercial Bancgroup, Inc. Fair Value Disclosure
Note 16. Disclosures About Fair Value of Assets and Liabilities
ASC 820, Fair Value Measurements, defines fair value as 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. ASC 820 also specifies a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. | |
| Level 2: | 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 for substantially the full term of the assets or liabilities. | |
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Available-for-sale securities:
Where quoted market prices are available in an active market, securities are classified within Level l of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include all of the Company’s available-for-sale securities, consisting of U.S. Treasury, government agencies, municipals and mortgage-backed securities. Inputs used to estimate the fair value of Level 2 securities when pricing models are used include the security’s call date, maturity date, interest rate and current market interest rates. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.
Interest rate swap agreements:
The fair value is estimated using inputs including the remaining term of the agreement and current market interest rates, that are observable or that can be corroborated by observable marked data and, therefore, are classified within Level 2 of the valuation hierarchy.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31:
| December 31, 2025 | ||||||||||||||||
| Quoted prices | Significant | |||||||||||||||
| in active | other | Significant | ||||||||||||||
| markets for | observable | unobservable | ||||||||||||||
| Fair | identical assets | inputs | inputs | |||||||||||||
| value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| U.S. Government and federal agency | $ | 14,830,375 | $ | $ | 14,830,375 | $ | ||||||||||
| U.S. Government sponsored enterprises (GSEs) | 5,395 | 5,395 | ||||||||||||||
| Mortgage-backed: | ||||||||||||||||
| GSE residential | 12,787,023 | 12,787,023 | ||||||||||||||
| State and political subdivision securities | 15,513,879 | 15,513,879 | ||||||||||||||
| Interest rate swaps | 14,130,763 | 14,130,763 | ||||||||||||||
| Liabilities | ||||||||||||||||
| Interest rate swaps | 14,130,763 | 14,130,763 | ||||||||||||||
| December 31, 2024 | ||||||||||||||||
| Quoted prices | Significant | |||||||||||||||
| in active | other | Significant | ||||||||||||||
| markets for | observable | unobservable | ||||||||||||||
| Fair | identical assets | inputs | inputs | |||||||||||||
| value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets | ||||||||||||||||
| U.S. Government and federal agency | $ | 15,268,645 | $ | $ | 15,268,645 | $ | ||||||||||
| U.S. Government sponsored enterprises (GSEs) | 55,929 | 55,929 | ||||||||||||||
| Mortgage-backed: | ||||||||||||||||
| GSE residential | 16,143,431 | 16,143,431 | ||||||||||||||
| State and political subdivision securities | 16,470,010 | 16,470,010 | ||||||||||||||
| Interest rate swaps | 22,178,477 | 22,178,477 | ||||||||||||||
| Liabilities | ||||||||||||||||
| Interest rate swaps | 22,178,477 | 22,178,477 | ||||||||||||||
The Company has no assets or liabilities whose fair values are measured using Level 3 inputs on a recurring basis.
Following is a description of the valuation methodologies and inputs used for assets and liabilities measured at fair value on a nonrecurring basis and recognized in the accompanying consolidated balance sheets, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.
Collateral-dependent and individually evaluated:
The fair value of Collateral-dependent loans was primarily measured based on the value of the collateral securing these loans and classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. These loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.
Foreclosed assets held for sale:
The fair value is estimated using the fair value method of measuring the amount of impairment. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value. The fair value method is classified within Level 3 of the fair value hierarchy.
The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31:
| 2025 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Foreclosed assets | ||||||||||||||||
| held for sale | $ | $ | $ | $ | ||||||||||||
| Collateral-dependent loans | $ | 230,000 | $ | $ | $ | 230,000 | ||||||||||
| 2024 | ||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| Fair value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Foreclosed assets | ||||||||||||||||
| held for sale | $ | 73,020 | $ | $ | $ | 73,020 | ||||||||||
| Collateral-dependent loans | $ | 230,000 | $ | $ | $ | 230,000 | ||||||||||
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which we have utilized Level 3 inputs to determine fair value at December 31:
| 2025 | ||||||||||||
| Significant | ||||||||||||
| Fair | Valuation | unobservable | Weighted | |||||||||
| value | techniques(1) | inputs | average | |||||||||
| Foreclosed assets held for sale | $ | Appraisal | Estimated costs to sell | 0 | % | |||||||
| Collateral-dependent loans | $ | 230,000 | Appraisal | Estimated costs to sell | 8 | % | ||||||
| 2024 | ||||||||||||
| Significant | ||||||||||||
| Fair | Valuation | unobservable | Weighted | |||||||||
| value | techniques(1) | inputs | average | |||||||||
| Foreclosed assets held for sale | $ | 73,020 | Appraisal | Estimated costs to sell | 25 | % | ||||||
| Collateral-dependent loans | $ | 230,000 | Appraisal | Estimated costs to sell | 8 | % | ||||||
| (1) | The fair value is generally determined through independent appraisals of the underlying collateral, which may include Level 3 inputs that are not identifiable, or by using the discounted cash flow method if the loan is not Collateral-dependent. |
Fair values of financial instruments:
The carrying amounts and estimated fair values of financial instruments not carried at fair value, at December 31, 2025 and 2024, are as follows:
| 2025 | ||||||||||||||||||||
| Carrying | Fair value measurements | |||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 144,318,929 | $ | 144,318,929 | $ | $ | $ | 144,318,929 | ||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| U.S. Government and federal agency | 42,681,410 | 41,878,600 | 41,878,600 | |||||||||||||||||
| U.S. Government-sponsored enterprises (GSEs) | 13,599,444 | 13,308,535 | 13,308,535 | |||||||||||||||||
| Mortgage-backed: GSE residential | 37,534,375 | 35,524,297 | 35,524,297 | |||||||||||||||||
| State and political subdivisions | 3,912,892 | 3,744,446 | 3,744,446 | |||||||||||||||||
| 97,728,121 | 94,455,878 | 94,455,878 | ||||||||||||||||||
| Loans Receivable | 1,855,434,066 | 1,820,894,000 | 1,820,894,000 | |||||||||||||||||
| Interest rate swaps | 14,130,763 | 14,130,763 | 14,130,763 | |||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||
| Time Deposits | 487,032,489 | 485,172,000 | 485,172,000 | |||||||||||||||||
| Long-Term borrowings | 78,587,361 | 77,385,800 | 77,385,800 | |||||||||||||||||
| Short-Term borrowings | 88,251,290 | 88,251,290 | 88,251,290 | |||||||||||||||||
| Interest rate swaps | 14,130,763 | 14,130,763 | 14,130,763 | |||||||||||||||||
| 2024 | ||||||||||||||||||||
| Carrying | Fair value measurements | |||||||||||||||||||
| amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets | ||||||||||||||||||||
| Cash and cash equivalents | $ | 178,197,916 | $ | 178,197,916 | $ | $ | $ | 178,197,916 | ||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| U.S. Government and federal agency | 87,467,213 | 84,439,850 | 84,439,850 | |||||||||||||||||
| U.S. Government-sponsored enterprises (GSEs) | 19,270,853 | 18,559,597 | 18,559,597 | |||||||||||||||||
| Mortgage-backed: GSE residential | 19,030,532 | 15,864,131 | 15,864,131 | |||||||||||||||||
| State and political subdivisions | 2,448,356 | 2,178,581 | 2,178,581 | |||||||||||||||||
| 128,216,954 | 121,042,159 | 121,042,159 | ||||||||||||||||||
| Loans Receivable | 1,788,791,583 | 1,742,200,000 | 1,742,200,000 | |||||||||||||||||
| Interest rate swaps | 22,178,477 | 22,178,477 | 22,178,477 | |||||||||||||||||
| Financial Liabilities | ||||||||||||||||||||
| Time Deposits | 576,501,235 | 574,604,000 | 574,604,000 | |||||||||||||||||
| Long-Term borrowings | 105,182,081 | 109,165,065 | 109,165,065 | |||||||||||||||||
| Short-Term borrowings | 3,391,566 | 3,391,566 | 3,391,566 | |||||||||||||||||
| Interest rate swaps | 22,178,477 | 22,178,477 | 22,178,477 | |||||||||||||||||
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.