Orange County Bancorp, Inc. /DE/ Fair Value Disclosure
Note 4 — Fair Value
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity 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 a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value:
Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).
Collateral Dependent Loans and Other Real Estate Owned: The fair value of collateral dependent loans and other real estate owned that are individually evaluated for impairment are generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach and resulted in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.
Appraisals are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by a third-party appraisal management company that the Company has engaged in accordance with internal vendor management policies and approval of the Company’s Board of Directors. Once received, the appraisal review function is conducted by the appraisal management company and consists of a review of the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or
industry-wide statistics. Through this review, the appraisal management company evaluates the validity of the appraised value and the strength of the conclusions, which are subsequently reviewed by a member of the Credit Department. Discounts to the appraised value are then applied to recognize the carrying costs incurred until disposition, realtor fees, deterioration in the quality of the asset, and the age of the appraisal. The net effect of these adjustments was included in the charge-off to the allowance upon acquisition of the foreclosed property and/or upon partial charge-off of the collateral dependent loan. The most recent analysis of property appraisals including the appropriate discount rates are incorporated into the allowance methodology for the respective loan portfolio segments.
Assets and liabilities measured at fair value on a recurring basis, are summarized below:
Fair Value Measurements Using: | ||||||||||||
| | Quoted Prices in | | | ||||||||
Active Markets | Significant Other | Significant | ||||||||||
Total at | for Identical | Observable | Unobservable | |||||||||
December 31, | Assets | Inputs | Inputs | |||||||||
2025 | (Level 1) | (Level 2) | (Level 3) | |||||||||
U.S. government agencies and treasuries |
| $ | 61,570 | $ | — | $ | 61,570 | $ | — | |||
Mortgage-backed securities |
| 251,825 |
| — |
| 251,825 |
| — | ||||
Corporate securities |
| 23,276 |
| — |
| 22,014 |
| 1,262 | ||||
Obligations of states and political subdivisions |
| 82,735 |
| — |
| 82,735 |
| — | ||||
Total securities available-for-sale | $ | 419,406 | $ | — | $ | 418,144 | $ | 1,262 | ||||
The Level 3 amount reflects the fair value of certain subordinated notes with limited availability of market pricing and determined based on discounted cash flows and other market value indicators. During 2025 and 2024, there were no transfers between Level 2 and Level 3.
Fair Value Measurements Using: | ||||||||||||
| | Quoted Prices in | | | ||||||||
Active Markets | Significant Other | Significant | ||||||||||
Total at | for Identical | Observable | Unobservable | |||||||||
December 31, | Assets | Inputs | Inputs | |||||||||
2024 | (Level 1) | (Level 2) | (Level 3) | |||||||||
U.S. government agencies and treasuries |
| $ | 76,154 | $ | — | $ | 76,154 | $ | — | |||
Mortgage-backed securities |
| 257,339 |
| — |
| 257,339 |
| — | ||||
Corporate securities | 20,034 |
| — |
| 17,299 |
| 2,735 | |||||
Obligations of states and political subdivisions |
| 90,248 |
| — |
| 90,248 |
| — | ||||
Total securities available-for-sale | $ | 443,775 | $ | — | $ | 441,040 | $ | 2,735 | ||||
There were no transfers between Level 1 and Level 2 during 2025 or 2024.
Assets measured at fair value on a non-recurring basis as of December 31, 2025 and 2024 are summarized below:
Fair Value Measurements Using: | ||||||||||||
| | Quoted Prices in | | | ||||||||
Active Markets | Significant Other | Significant | ||||||||||
Total at | for Identical | Observable | Unobservable | |||||||||
December 31, | Assets | Inputs | Inputs | |||||||||
2025 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Collateral dependent loan - Commercial real estate | $ | 8,675 | $ | — | $ | — | $ | 8,675 | ||||
| Fair Value Measurements Using: | |||||||||||
Quoted Prices | Significant | |||||||||||
in Active | Other | Significant | ||||||||||
Total at | Markets for | Observable | Unobservable | |||||||||
| December 31, 2024 |
| Identical Assets |
| Inputs |
| Inputs | |||||
| | (Level 1) | (Level 2) | (Level 3) | ||||||||
Collateral dependent loans- Commercial real estate | $ | 2,800 | $ | — | $ | — | $ | 2,800 | ||||
The fair value amounts shown in the above table are collateral dependent loans net of reserves allocated to said loans. The total reserves allocated to these collateral dependent loans are $887 for December 31, 2025 and $563 for December 31, 2024.
The following table presents additional quantitative information about level 3 fair value measured at fair value on a non-recurring basis at December 31, 2025 and 2024:
| Fair Value | | | | Range |
| ||||
December 31, 2025 | Value | Valuation Technique | Unobservable Input | (Average) |
| |||||
Collateral dependent loan - Commercial real estate | $ | 8,675 |
| Appraisal of collateral(1) |
| Appraisal and liquidation |
| 20-44 | % | |
adjustments(2) | (23) | % | ||||||||
| Fair Value | | | | | | Range |
| ||
December 31, 2024 | Value | Valuation Technique | Unobservable Input | (Weighted Average) |
| |||||
Collateral dependent loans - Commercial real estate | $ | 2,800 | Appraisal of collateral (1) | Appraisal and liquidation | 20% | |||||
adjustments (2) | (20%) | |||||||||
| (1) | Fair value is generally determined through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable. |
| (2) | Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. |
The carrying amounts and estimated fair values of the Company’s financial instruments not carried at fair value are as follows at December 31, 2025 and 2024:
December 31, 2025 | |||||||||||||||
| Carrying | | Fair | | | | |||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Cash and due from banks | $ | 204,232 | $ | 204,232 | $ | 204,232 | $ | — | $ | — | |||||
Loans, net |
| 1,921,949 |
| 1,877,174 |
| — |
| — |
| 1,877,174 | |||||
Accrued interest receivable |
| 10,383 |
| 10,383 |
| — |
| 1,832 |
| 8,551 | |||||
Restricted investment in bank stocks |
| 5,917 |
| NA |
| — |
| — |
| — | |||||
Financial liabilities: | |||||||||||||||
Deposits |
| 2,310,373 |
| 2,309,901 |
| 2,151,362 |
| 158,539 |
| — | |||||
FHLB advances, short term | — | — | — | — | — | ||||||||||
FHLB advances, long term |
| 10,000 |
| 10,050 |
| — |
| 10,050 |
| — | |||||
Subordinated notes, net of issuance costs |
| 24,555 |
| 25,065 |
| — |
| 25,065 |
| — | |||||
Accrued interest payable |
| 1,046 |
| 1,046 |
| — |
| 1,046 |
| — | |||||
December 31, 2024 | |||||||||||||||
| Carrying | | Fair | | | | |||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||
Financial assets: | |||||||||||||||
Cash and due from banks | $ | 150,334 | $ | 150,334 | $ | 150,334 | $ | — | $ | — | |||||
Loans, net |
| 1,789,674 |
| 1,707,825 |
| — |
| — |
| 1,707,825 | |||||
Accrued interest receivable |
| 6,680 |
| 6,680 |
| — |
| 2,201 |
| 4,479 | |||||
Restricted investment in bank stocks |
| 9,716 |
| NA |
| — |
| — |
| — | |||||
Financial liabilities: |
| ||||||||||||||
Deposits |
| 2,153,359 |
| 2,152,731 |
| 1,932,345 |
| 220,386 |
| — | |||||
FHLB advances, short term |
| 113,500 | 113,286 | — | 113,286 | — | |||||||||
FHLB advances, long term |
| 10,000 |
| 9,861 |
| — |
| 9,861 |
| — | |||||
Subordinated notes, net of issuance costs |
| 19,591 |
| 24,538 |
| — |
| 24,538 |
| — | |||||
Accrued interest payable | 655 |
| 655 |
| — |
| 655 |
| — | ||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 16, 2026 | Showing above |
| 2024 | Mar 17, 2025 | |
| 2023 | Mar 29, 2024 | |
| 2022 | Mar 24, 2023 | |
| 2021 | Mar 30, 2022 | |
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.