v3.26.1
Note 20 - Fair Value Measurements and Fair Values of Financial Instruments
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

Note 20 – Fair Value Measurements and Fair Values of Financial Instruments

 

Fair value estimates are based on quoted market prices, if available, quoted market prices of similar assets or liabilities, or the present value of expected future cash flows and other valuation techniques. These valuations are significantly affected by discount rates, cash flow assumptions, and risk assumptions used. Therefore, fair values estimates may not be substantiated by comparison to independent markets and are not intended to reflect the proceeds that may be realizable in an immediate settlement of the instruments.

 

Fair value is determined at one point in time and is not representative of future value. These amounts do not reflect the total value of a going concern organization. Management does not have the intention to dispose of a significant portion of its assets and liabilities and therefore, the unrealized gains or losses should not be interpreted as a forecast of future earnings and cash flows.

 

The following disclosures show the hierarchal disclosure framework associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels of pricing are as follows:

 

 Level I:

Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

 Level II:

Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

 Level III:

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

This hierarchy requires the use of observable market data when available.

 

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 19 of the Company’s Form 10-K for the fiscal year ended December 31, 2025, as the fair value of loans, excluding previously presented impaired loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit and non-performance risk. Loans are considered a Level 3 classification.

 

The following is a discussion of assets and liabilities measured at fair value on a recurring and non-recurring basis and valuation techniques applied:

 

Investment Securities Available for Sale: The fair value of securities available for sale are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

 

We may be required from time to time to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets.

 

Individually Evaluated Loans: Individually evaluated loans are carried at the lower of cost or the fair value of the collateral for collateral-dependent loans less estimated costs to sell. Collateral is primarily in the form of real estate. The use of independent appraisals, discounted cash flow models and management’s best judgment are significant inputs in arriving at the fair value measure of the underlying collateral and impaired loans are therefore classified within Level 3 of the fair value hierarchy.

 

The table below sets forth the financial assets and liabilities that were accounted for on a recurring and nonrecurring basis by level within the fair value hierarchy as of December 31, 2025 (in thousands):

 

  

December 31, 2025

 
  

Fair Value Measurements Using:

 
  

Total Fair Value

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other Observable Inputs

(Level 2)

  

Unobservable Inputs

(Level 3)

 

Recurring fair value measurements:

                

Investment securities available for sale

                

Government National Mortgage Association mortgage-backed securities

 $848  $-  $848  $- 

Federal National Mortgage Association mortgage- backed securities

  34   -   34   - 

Total investment securities available for sale

 $882  $-  $882  $- 

Total recurring fair value measurements

 $882  $-  $882  $- 
                 

Nonrecurring fair value measurements:

                

Other real estate owned

 $360  $-  $-  $360 

 

 

The table below sets forth the financial assets and liabilities that were accounted for on a recurring basis by level within the fair value hierarchy as of December 31, 2024 (in thousands):

 

  

December 31, 2024

 
  

Fair Value Measurements Using:

 
  

Total Fair Value

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other Observable Inputs

(Level 2)

  

Unobservable Inputs

(Level 3)

 

Recurring fair value measurements:

                

Investment securities available for sale

                

Government National Mortgage Association mortgage-backed securities

 $1,631  $-  $1,631  $- 

Federal National Mortgage Association mortgage- backed securities

  35   -   35   - 

Total investment securities available for sale

 $1,666  $-  $1,666  $- 

Total recurring fair value measurements

 $1,666  $-  $1,666  $- 

 

 

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of December 31, 2025 (in thousands):

 

  

December 31, 2025

 
  

Quantitative Information About Level 3 Fair Value Measurements

 
  

Total Fair Value

 

Valuation Techniques

Unobservable Input

 

Range (Weighted Average)

 

Collateral-dependent loans

 $5,057 

Appraisal of collateral (1)

Appraisal adjustments (2)

  8% (8%)
           

Other real estate owned

 $360 

Appraisal of collateral (1)

Appraisal adjustments (2)

  0%

_______________

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are identifiable.

(2)

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 following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has used Level 3 inputs to determine fair value as of December 31, 2024 (in thousands):

 

  

December 31, 2024

 
  

Quantitative Information About Level 3 Fair Value Measurements

 
  

Total Fair Value

 

Valuation Techniques

Unobservable Input

 

Range (Weighted Average)

 

Collateral-dependent loans

 $3,222 

Appraisal of collateral (1)

Appraisal adjustments (2)

  8%(8%)

_______________

(1)

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are identifiable.

(2)

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 estimated fair values of the Company’s financial instruments that are not required to be measured or reported at fair value were as follows at December 31, 2025 and 2024 (in thousands):

 

          

Fair Value Measurements at

 
          

December 31, 2025

 
  

Carrying Amount

  

Fair Value Estimate

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other Observable Inputs

(Level 2)

  

Unobservable Inputs

(Level 3)

 

Financial Assets

                    

Investment in interest-earning time deposits

 $912  $936  $-  $-  $936 

Loans held for sale

  60,956   63,308   -   63,308   - 

Loans receivable, net

  535,641   533,964   -   -   533,964 

Individually evaluated loans

  5,057   5,057   -   -   5,057 
                     

Financial Liabilities

                    

Deposits

  597,278   604,465   242,561   -   361,904 

Senior debt

  9,619   9,763   -   -   9,763 

Subordinated debt

  8,000   7,760   -   -   7,760 

 

 

          

Fair Value Measurements at

 
          

December 31, 2024

 
  

Carrying Amount

  

Fair Value Estimate

  

Quoted Prices in Active Markets for Identical Assets

(Level 1)

  

Significant Other Observable Inputs

(Level 2)

  

Unobservable Inputs

(Level 3)

 

Financial Assets

                    

Investment in interest-earning time deposits

 $912  $964  $-  $-  $964 

Loans held for sale

  64,281   65,624   -   65,624   - 

Loans receivable, net

  531,471   515,073   -   -   515,073 
Individually evaluated loans  3,222   3,222           3,222 
                     

Financial Liabilities

                    

Deposits

  553,252   560,701   270,361   -   290,340 

FHLB long-term borrowings

  2,855   2,848   -   -   2,848 

Subordinated debt

  22,000   21,733   -   -   21,733 

 

For cash and cash equivalents, accrued interest receivable, investment in FHLB stock, bank-owned life insurance, FHLB short-term borrowings, accrued interest payable, and advances from borrowers for taxes and insurance, the carrying value is a reasonable estimate of the fair value and are considered Level 1 measurements.