v3.25.2
Note 7 - Fair Value
 6 Months Ended
Jun. 30, 2025
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

NOTE 7 - 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:

 

 

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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.

   
 

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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.

   
 

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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 the fair value of each type of financial instrument:

 

Securities: The fair value for investment securities is determined by quoted market prices, if available (Level 1).  The fair values of debt securities are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value 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).

 

 

Loans Individually Evaluated: The Company does not record portfolio loans at fair value on a recurring basis. However, periodically, a loan is individually evaluated and is reported at the fair value of the underlying collateral, less estimated costs to sell, if repayment is expected solely from the collateral. If the collateral value is not sufficient, a specific reserve is recorded. Collateral values are estimated using a combination of observable inputs, including recent appraisals, and unobservable inputs based on customized discounting criteria. Due to the significance of unobservable inputs, fair values of individually evaluated collateral dependent loans have
been classified as Level 3.

 

Foreclosed assets: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach with data from comparable properties. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Foreclosed assets are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

The following table sets forth the Company’s financial assets that were accounted for at fair value and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

  

Fair Value Measurements Using

     
  

Quoted Prices in Active Markets for Identical Assets (Level 1)

  

Significant Observable Inputs (Level 2)

  

Significant Unobservable Inputs (Level 3)

  

Fair Value

 

June 30, 2025

                

Securities:

                

Municipal securities

 $—  $706  $—  $706 

U.S. Treasury Bills and Notes

  432,733   —   —   432,733 

Mortgage-backed securities - residential

  —   2,736   —   2,736 

Collateralized mortgage obligations - residential

  —   790   —   790 
  $432,733  $4,232  $—  $436,965 

December 31, 2024

                

Securities:

                

Municipal securities

 $—  $706  $—  $706 

U.S. Treasury Bills and Notes

  246,290   —   —   246,290 

U.S. government-sponsored agencies

  —   109,773   —   109,773 

Mortgage-backed securities - residential

  —   2,911   —   2,911 

Collateralized mortgage obligations - residential

  —   850   —   850 
  $246,290  $114,240  $—  $360,530 

 

The following table sets forth the Company’s assets that were measured at fair value on a non-recurring basis:

 

  

Fair Value Measurement Using

     
  

Quoted Prices in Active Markets for Identical Assets (Level 1)

  

Significant Observable Inputs (Level 2)

  

Significant Unobservable Inputs (Level 3)

  

Fair Value

 

June 30, 2025

                

Loans individually evaluated

 $—  $—  $6,345  $6,345 

 

At  June 30, 2025 there was one U.S. Government equipment finance transaction individually evaluated with a carrying value of $8.4 million and a valuation allowance of $2.1 million that was measured using the discounted cash flow method.  At  December 31, 2024, there were no individually evaluated loans that were measured using the fair value of the collateral for collateral–dependent loans and which had specific valuation allowances.

 

 

Foreclosed assets are carried at the lower of cost or fair value less costs to sell.  At  June 30, 2025 and  December 31, 2024 there were no foreclosed assets with valuation allowances.  There were no valuation adjustments of foreclosed assets recorded for the three and  six months ended  June 30, 2025 and 2024.

 

The following table presents quantitative information, based on certain empirical data with respect to Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:

 

  

Fair Value

 

Valuation Technique(s)

 

Significant Unobservable Input(s)

  

Range (Weighted Average)

 

June 30, 2025

            

Loans individually evaluated

 $6,345 

Discounted cash flow

 

Discount applied to projected cash flow

   6.6%

 

The carrying amount and estimated fair value of financial instruments are as follows:

 

      

Fair Value Measurements at June 30, 2025 Using:

     
  

Carrying Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial assets

                    

Cash and cash equivalents

 $112,236  $111,816  $420  $—  $112,236 

Interest-bearing time deposits in other financial institutions

  20,273   —   20,273   —   20,273 

Securities

  436,965   432,733   4,232   —   436,965 

Loans receivable, net of allowance for credit losses

  795,963   —   —   757,956   757,956 

FHLB and FRB stock

  7,490   —   —   —   N /A 

Accrued interest receivable

  4,824   430   97   4,297   4,824 

Financial liabilities

                    

Certificates of deposit

  255,396   —   254,158   —   254,158 

Borrowings

  15,000   —   15,016   —   15,016 

Subordinated notes

  18,263   —   17,205   —   17,205 

 

      

Fair Value Measurements at December 31, 2024 Using:

     
  

Carrying Amount

  

Level 1

  

Level 2

  

Level 3

  

Total

 

Financial assets

                    

Cash and cash equivalents

 $84,829  $84,399  $430  $—  $84,829 

Interest-bearing time deposits in other financial institutions

  34,156   —   34,156   —   34,156 

Securities

  360,530   246,290   114,240   —   360,530 

Loans receivable, net of allowance for credit losses

  887,586   —   —   845,303   845,303 

FHLB and FRB stock

  7,490   —   —   —   N /A 

Accrued interest receivable

  6,401   158   1,452   4,791   6,401 

Financial liabilities

                    

Certificates of deposit

  234,979   —   233,639   —   233,639 

Borrowings

  20,000   —   19,990   —   19,990 

Subordinated notes

  18,736   —   17,571   —   17,571