15. Fair value of financial instruments:

The following methods and assumptions were used by the Company to construct the summary table below containing the fair values and related carrying amounts of financial instruments measured at fair value:

Investment securities: The fair values of marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model and quoted market prices.

At December 31, 2025, the Company owned 27 corporate debt securities with an aggregate amortized cost and fair value of $24.3 million and $24.8 million, respectively. At December 31, 2025, the market for one corporate debt security was not active based on transaction criteria for similar instruments. The aggregate amortized cost and fair value for this security was $0.9 million and $1.0 million, respectively, at December 31, 2025. The Company obtained a valuation for this security from a third-party service provider that prepared the valuation using a market approach that involves identifying a population of transactions for similar instruments and incorporating an evaluation to capture credit risk associated with the bond. Management takes measures to validate the service providers’ analysis and is actively involved in the valuation process, including reviewing the population and evaluation of credit risk. Management believes this approach to be a conservative approach as it takes into consideration securities that have longer maturities or longer call

dates, issuers with smaller asset sizes, and securities with smaller issue amounts. These factors are typically considered to be factors that would add credit spread to a bond, thus resulting in a higher required yield. Management believes the valuation results from this market approach to be consistent with pricing and data for similar deals at December 31, 2025. The Company considers the inputs used in the market approach to be unobservable Level 3 inputs because, while inputs are based on actual transactions, the relative number of transactions in the population is small and subjective assumptions are used in considering factors considered to incorporate credit spreads into the price determination. Management will continue to monitor the market for this security to assess the market activity and the availability of observable inputs and will continue to apply these controls and procedures to the valuations received from People's third-party service provider. During the year ended December 31, 2025, there were no transfers into Level 3.

Individually evaluated loans: Fair values for individually evaluated loans are estimated using underlying collateral values, where applicable.

Interest rate swaps and floors: Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, market index rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Other real estate owned: Other real estate owned ("OREO") represents properties that the Company has acquired through foreclosure by either accepting a deed in lieu of foreclosure, or by taking possession of assets that collateralized a loan, and former bank premises that are no longer used for operations or for future expansion. The Company reports OREO at the lower of cost or fair value less cost to sell, adjusted periodically based on a current appraisal. Write-downs and any gain or loss upon the sale of OREO is recorded in other noninterest income. OREO is reported in other assets on the consolidated balance sheet. At December 31, 2025, OREO had a carrying amount of $1.7 million and $0.7 million December 31, 2024. During the year ended December 31, 2024, one former community banking office with a carrying value of $711 thousand was transferred to OREO. In 2025, an additional former banking office with a carrying value of $221 thousand was transferred to OREO, and the Company acquired one commercial property through foreclosure. The commercial property had a recorded investment of $750 thousand that was included in OREO at December 31, 2025. Other real estate owned is classified within Level 3 in the fair value hierarchy based on appraisals, letters of intent or agreement of sale received from third parties.

Assets and liabilities measured at fair value on a recurring basis at December 31, 2025, and 2024 are summarized as follows:


		At December 31, 2025
		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
					Identical Assets			Inputs			Inputs
(Dollars in thousands)		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	30,998		$	30,998		$			$
U.S. government-sponsored enterprises
State and municipals:
Taxable			61,622						61,622
Tax-exempt			125,117						125,117
Residential mortgage-backed securities:
U.S. government agencies			42,699						42,699
U.S. government-sponsored enterprises			160,080						160,080
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises			1,770						1,770
Private collateralized mortgage obligations			48,484						48,484
Asset backed securities			16,267						16,267
Corporate debt securities			24,794						23,806			988
Negotiable certificates of deposit			732						732
Common equity securities			2,598			2,598
Total investment securities		$	515,161		$	33,596		$	480,577		$	988
Interest rate swap-other assets		$	15,583					$	15,583
Interest rate swap-other liabilities		$	(15,345)					$	(15,345)


		At December 31, 2024
		Fair Value Measurement Using
					Quoted Prices in			Significant			Significant
					Active Markets for			Other Observable			Unobservable
					Identical Assets			Inputs			Inputs
(Dollars in thousands)		Amount			(Level 1)			(Level 2)			(Level 3)
U.S. Treasury securities		$	167,551		$	167,551		$			$
U.S. government-sponsored enterprises
State and municipals:
Taxable			68,899						68,899
Tax-exempt			66,117						66,117
Residential mortgage-backed securities:
U.S. government agencies			1,376						1,376
U.S. government-sponsored enterprises			126,376						126,376
Commercial mortgage-backed securities:
U.S. government-sponsored enterprises			1,856						1,856
Private collateralized mortgage obligations			38,572						38,572
Asset backed securities			23,252						23,252
Corporate debt securities			31,621						26,999			4,622
Negotiable certificates of deposit			709						709
Common equity securities			2,430			2,430
Total investment securities		$	528,759		$	169,981		$	354,156		$	4,622
Interest rate swap-other assets		$	20,537					$	20,537
Interest rate swap-other liabilities		$	(20,151)					$	(20,151)

Assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2025, and 2024 are summarized as follows:

Fair Value Measurement Using

Quoted Prices in

Significant

Active Markets for

Other Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

December 31, 2025

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

Loans individually evaluated for credit loss

10,203

Other real estate owned

1,682

Fair Value Measurement Using

Quoted Prices in

Significant Other

Significant

Active Markets for

Observable

Unobservable

(Dollars in thousands)

Identical Assets

Inputs

December 31, 2024

 

Amount

 

(Level 1)

 

(Level 2)

 

(Level 3)

Loans individually evaluated for credit loss

22,164

Other real estate owned

738

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:


		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)		Fair Value							Range
December 31, 2025		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Loans individually evaluated for credit loss		$	10,203		Appraisal of collateral		Appraisal adjustments		0.0% to 100.0% (52.4)%
							Liquidation expenses		0.0% to 12.2% (0.26)%
Other real estate owned		$	1,682		Appraisal of collateral		Appraisal adjustments		10.0% to 25.0% (16.9)%
							Liquidation expenses		0.0% to 0.0% (0.0)%


		Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands, except percents)		Fair Value							Range
December 31, 2024		Estimate			Valuation Techniques		Unobservable Input		(Weighted Average)
Loans individually evaluated for credit loss		$	22,164		Appraisal of collateral		Appraisal adjustments		3.0% to 111.9% (59.6)%
							Liquidation expenses		0.0% to 6.0% (5.6)%
Other real estate owned		$	738		Appraisal of collateral		Appraisal adjustments		0.0% to 10.0% (9.7)%
							Liquidation expenses		3.0% to 6.0% (5.0)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percentage of the appraisal.

The carrying and fair values of the Company’s financial instruments at December 31, 2025, and 2024 and their placement within the fair value hierarchy are as follows:


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
December 31, 2025		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	268,984		$	268,984		$	268,984		$			$
Investment securities:
Available for sale			512,563			512,563			30,998			480,577			988
Held to maturity			72,047			62,798						62,798
Equity securities			2,598			2,598			2,598
Loans held for sale			805			805						805
Net loans			4,027,889			3,953,431									3,953,431
Accrued interest receivable			17,633			17,633						17,633
Mortgage servicing rights			1,211			2,099						2,099
Restricted equity securities (FHLB and other)			12,457			12,457						12,457
Other assets - interest rate swaps			15,583			15,583						15,583
Total		$	4,931,770		$	4,848,951
Financial liabilities:
Deposits		$	4,434,069		$	4,431,901		$			$	4,431,901		$
Short-term borrowings			32,721			32,904						32,904
Long-term debt			134,352			134,982						134,982
Subordinated debt			83,187			86,456						86,456
Junior subordinated debt			8,140			7,293						7,293
Accrued interest payable			6,792			6,792						6,792
Other liabilities - interest rate swaps			15,345			15,345						15,345
Total		$	4,714,606		$	4,715,673


								Fair Value Hierarchy
								Quoted
								Prices in
								Active			Significant
								Markets for			Other			Significant
								Identical			Observable			Unobservable
(Dollars in thousands)		Carrying			Fair			Assets			Inputs			Inputs
December 31, 2024		Value			Value			(Level 1)			(Level 2)			(Level 3)
Financial assets:
Cash and due from banks		$	135,851		$	135,851		$	135,851		$			$
Investment securities:
Available for sale			526,329			526,329			167,551			354,156			4,622
Held to maturity			78,184			65,152						65,152
Equity securities			2,430			2,430			2,430
Loans held for sale
Net loans			3,951,729			3,830,062									3,830,062
Accrued interest receivable			15,632			15,632						15,632
Mortgage servicing rights			1,304			2,314						2,314
Restricted equity securities (FHLB and other)			10,220			10,220						10,220
Other assets - interest rate swaps			20,537			20,537						20,537
Total		$	4,742,216		$	4,608,527
Financial liabilities:
Deposits		$	4,407,552		$	4,404,117		$			$	4,404,117		$
Short-term borrowings			15,900			15,900						15,900
Long-term debt			98,637			98,875						98,875
Subordinated debt			33,000			32,506						32,506
Junior subordinated debt			8,039			8,167						8,167
Accrued interest payable			5,503			5,503						5,503
Other liabilities - interest rate swaps			20,151			20,151						20,151
Total		$	4,588,782		$	4,585,219

Historical Timeline

Fiscal Year	Filed
2025	Mar 16, 2026	Showing above
2024	Mar 28, 2025

2023	Mar 15, 2024

2022	Mar 15, 2023

2021	Mar 16, 2022

2020	Mar 16, 2021

2019	Mar 16, 2020

2018	Mar 15, 2019

2017	Mar 14, 2018

2016	Mar 16, 2017

2015	Mar 11, 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.

PEOPLES FINANCIAL SERVICES CORP. Fair Value Disclosure

Historical Timeline

About Fair Value Disclosures

Other Available Disclosures