Otter Tail CorpOTTR

Otter Tail Corp Fair Value Disclosure

10-KFiled Feb 18, 20263 min read
Fair Value Measurements
The following tables present our assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and 2024 classified by the input method used to measure fair value:
(in thousands)Level 1Level 2Level 3
December 31, 2025
Assets
Investments:
Money Market Funds$2,666 $— $— 
Mutual Funds16,727 — — 
Corporate Debt Securities— 1,320 — 
Government Debt Securities— 63,136 — 
Derivative Instruments— 124 — 
Total Assets
19,393 64,580 — 
Liabilities
Derivative Instruments— 2,717 — 
Total Liabilities
$— $2,717 $— 
December 31, 2024
Assets
Investments:
Money Market Funds$596 $— $— 
Mutual Funds10,653 — — 
Corporate Debt Securities— 1,628 — 
Government Debt Securities— 61,131 — 
Total Assets
11,249 62,759 — 
Liabilities
Derivative Instruments— 1,989 — 
Total Liabilities
$— $1,989 $— 
Level 1 fair value measurements are based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access at the measurement date.
The level 2 fair value measurements for government and corporate debt securities are determined based on valuations provided by third parties which utilize industry accepted valuation models and observable market inputs to determine valuation. Some valuations or model inputs used by the pricing services may be based on broker quotes.
The level 2 fair value measurements for derivative instruments are determined by using inputs such as forward electric commodity prices, adjusted for location differences. These inputs are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
In addition to assets recorded at fair value on a recurring basis, we also hold financial instruments that are not recorded at fair value in the consolidated balance sheets but for which disclosure of the fair value of these financial instruments is provided. The following reflects the carrying value and estimated fair value of these assets and liabilities as of December 31, 2025 and 2024:
 December 31, 2025December 31, 2024
(in thousands)Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
Assets:
Cash and Cash Equivalents$386,193 $386,193 $294,651 $294,651 
Total386,193 386,193 294,651 294,651 
Liabilities:
Short-Term Debt60,242 60,242 69,615 69,615 
Long-Term Debt1,043,517 923,639 943,734 806,826 
Total$1,103,759 $983,881 $1,013,349 $876,441 
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that fair value:
Cash Equivalents: The carrying amount approximates fair value because of the short-term maturity of these instruments. Fair value is determined based on quoted prices in active markets, a Level 1 fair value input.
Short-Term Debt: The carrying amount approximates fair value because the debt obligations are short-term in nature and balances outstanding are subject to variable rates of interest which reset frequently, a Level 2 fair value input.
Long-Term Debt: The fair value of long-term debt is estimated based on current market indications for borrowings of similar maturities with similar terms, a Level 2 fair value input.

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.

Other Available Disclosures

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