| Fair Value Measurements |
Note 16. Fair Value Measurements Fair Value Measurements Using Fair Value Hierarchy The Company classifies measurements of fair value within a hierarchy based upon inputs that give the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The Company did not change its methodology in measuring fair value during the year ended December 31, 2025. The fair value hierarchy is as follows: | ● | Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| o | quoted prices for similar assets and liabilities in active markets, |
| o | quoted prices for identical assets and liabilities in inactive markets, |
| o | inputs that are observable for the asset or liability (such as interest rates, prepayment speeds, credit risks, etc.); or |
| o | inputs that are derived principally from or corroborated by observable market data by correlation or by other means. |
| ● | Level 3 inputs are unobservable and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Fair Value of Financial Instruments The following tables show the carrying amounts and estimated fair values of the Company’s financial instruments (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements at December 31, 2025 using | | | Carrying
Value | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Fair Value | FINANCIAL ASSETS: | | | | | | | | | | | | | | | | Cash and restricted cash | | $ | 11,564 | | $ | 11,564 | | $ | — | | $ | — | | $ | 11,564 | Certificates of deposit | | | 1,519 | | | — | | | 1,524 | | | — | | | 1,524 | Loans, net | | | 90,827 | | | — | | | — | | | 89,013 | | | 89,013 | Investments in joint venture | | | 875 | | | — | | | — | | | 875 | | | 875 | Other investments | | | 1,098 | | | — | | | — | | | 1,098 | | | 1,098 | Accrued interest receivable | | | 439 | | | — | | | — | | | 439 | | | 439 | Servicing assets | | | 161 | | | — | | | — | | | 161 | | | 161 | FINANCIAL LIABILITIES: | | | | | | | | | | | | | | | | Other secured borrowings | | $ | 6 | | $ | — | | $ | — | | $ | 6 | | $ | 6 | Debt certificates payable | | | 94,438 | | | — | | | — | | | 93,880 | | | 93,880 | Other financial liabilities | | | 108 | | | — | | | — | | | 108 | | | 108 |
| | | | | | | | | | | | | | | | | | | | | Fair Value Measurements at December 31, 2024 using | | | Carrying
Value | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Fair Value | FINANCIAL ASSETS: | | | | | | | | | | | | | | | | Cash and restricted cash | | $ | 10,771 | | $ | 10,771 | | $ | — | | $ | — | | $ | 10,771 | Certificates of deposit | | | 1,304 | | | — | | | 1,308 | | | — | | | 1,308 | Loans, net | | | 93,171 | | | — | | | — | | | 90,684 | | | 90,684 | Investments in joint venture | | | 873 | | | — | | | — | | | 873 | | | 873 | Other investments | | | 1,082 | | | — | | | — | | | 1,082 | | | 1,082 | Accrued interest receivable | | | 447 | | | — | | | — | | | 447 | | | 447 | Servicing assets | | | 177 | | | — | | | — | | | 177 | | | 177 | FINANCIAL LIABILITIES: | | | | | | | | | | | | | | | | Other secured borrowings | | | 6 | | $ | — | | $ | — | | $ | 6 | | $ | 6 | Debt certificates payable | | | 95,073 | | | — | | | — | | | 94,031 | | | 94,031 | Other financial liabilities | | | 479 | | | — | | | — | | | 479 | | | 479 |
Management uses judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates presented herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction at December 31, 2025 and 2024. The Company used the following methods and assumptions to estimate the fair value of financial instruments: | ● | Cash – The carrying amounts reported in the balance sheets approximate fair value for cash. |
| ● | Certificates of deposit – Management estimates fair value by using a present value discounted cash flow with a discount rate approximating the current market rate for similar assets. Management classifies certificates of deposits as Level 2 of the fair value hierarchy. |
| ● | Loans (other than collateral-dependent impaired loans) – Management estimates fair value by discounting the future cash flows of the loans. The discount rate the Company uses is the current average rates at which it would make loans to borrowers with similar credit ratings and for the same remaining maturities. Also included is $6 thousand of loan participations transferred under a recourse agreement. |
| ● | Investments in joint venture – Management estimates fair value by analyzing the operations and marketability of the underlying investment to determine if the investment is other-than-temporarily impaired. |
| ● | Other investments – Management estimates fair value by determining the whether there is an indication of potential lack of performance on the part of the insurance companies in which the investments are made, and whether those indications would impair the investments. |
| ● | Debt certificates payable – Management estimates the fair value of fixed maturity debt certificates by discounting the future cash flows of the debt certificates. The discount rate the Company uses is the rate currently offered for debt certificates payable of similar remaining maturities. Company management estimates the discount rate by using market rates that reflect the interest rate risk inherent in the debt certificates. |
| ● | Accrued interest receivable - The carrying amounts reported in the balance sheets approximate fair value for accrued interest receivable. The Company has made the accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts as the Company writes off accrued interest receivable when a loan is 90 days past due or interest is otherwise considered uncollectible. |
| ● | Servicing assets – Servicing assets are included in other assets on the balance sheets. The carrying amounts reported in the balance sheets approximate fair value for servicing assets. |
| ● | Lines of credit, term-debt, other secured borrowings – Management estimates the fair value of borrowings from financial institutions discounting the future cash flows of the borrowings. The discount rate the Company uses is the current incremental borrowing rate for similar types of borrowing arrangements. |
| ● | Off-balance sheet instruments – Management determines the fair value of loan commitments on fees currently charged to enter into similar agreements, taking into account the remaining term of the agreements and the counterparties’ credit standing. The fair value of loan commitments is insignificant at December 31, 2025 and 2024. |
Fair Value Measured on a Nonrecurring Basis The Company measures certain assets at fair value on a nonrecurring basis. On these assets, the Company only makes fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the fair value of assets measured on a nonrecurring basis (dollars in thousands): | | | | | | | | | | | | | | | Fair Value Measurements Using: | | | | | | Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Total | Assets at December 31, 2025: | | | | | | | | | | | | | Collateral-dependent loans (net of allowance and discount) | | $ | — | | $ | — | | $ | 8,474 | | $ | 8,474 | Investments in joint venture | | | — | | | — | | | 875 | | | 875 | Other investments | | | — | | | — | | | 1,098 | | | 1,098 | Total | | $ | — | | $ | — | | $ | 10,447 | | $ | 10,447 | | | | | | | | | | | | | | Assets at December 31, 2024: | | | | | | | | | | | | | Collateral-dependent loans (net of allowance and discount) | | $ | — | | $ | — | | $ | 9,535 | | $ | 9,535 | Investments in joint venture | | | — | | | — | | | 873 | | | 873 | Other investments | | | — | | | — | | | 1,082 | | | 1,082 | Foreclosed assets (net of allowance) | | | — | | | — | | | 301 | | | 301 | Total | | $ | — | | $ | — | | $ | 11,791 | | $ | 11,791 |
There was no activity during the years ended December 31, 2025 and December 31, 2024 in Level 3 assets for those assets in which there were purchases or sales, or in which assets were transferred between levels. Impaired Loans The fair value of collateral-dependent impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. Such fair values are obtained using independent appraisals, which the Company may discount due to age or other factors, which the Company considers to be Level 3 inputs. The range of these discounts is shown in the table below. The Company also estimates the fair value of non-collateral-dependent impaired loans using the discounted cash flow method. This method uses estimates of the future cash flows of the loan and discounts those cash flows using the loan’s interest rate. Foreclosed Assets At the date of foreclosure, the Company initially records real estate acquired through foreclosure or other proceedings (foreclosed assets) at fair value less estimated costs of disposal, which establishes a new cost. After foreclosure, management periodically performs valuations on foreclosed assets. The company carries foreclosed assets held for sale at the lower of cost or fair value, less estimated costs of disposal. The fair values of real properties initially are determined based on appraisals. In some cases, management adjusts the appraised values for various factors including age of the appraisal, age of comparable properties included in the appraisal, and known changes in the market or in the collateral. The Company makes subsequent valuations of the real properties based either on management estimates or on updated appraisals. If management makes significant adjustments to appraised values based on unobservable inputs, the Company categorizes foreclosed assets under Level 3. Otherwise, if management bases the foreclosed assets’ value on recent appraisals and the only adjustments made are for known contractual selling costs, the Company will categorize the foreclosed assets under Level 2. Other Investments Other investments comprise two indexed annuity insurance contracts. The Company measures fair value on its annuity investments on a nonrecurring basis. On these assets, the Company only makes fair value adjustments when there is evidence of impairment. As the principal amounts and recognized income on the annuities is guaranteed, only impairment of the assets would indicate a degradation in their fair value. The Company concluded that no impairment of the annuity investments existed at December 31, 2025. As such, the Company has determined that the carrying value of its other investments equals its fair value at December 31, 2025. The table below summarizes the valuation methodologies used to measure the fair value adjustments for Level 3 assets recorded at fair value on a nonrecurring basis (dollars in thousands): | | | | | | | | | | December 31, 2025 | Assets | | Fair Value
(in thousands) | | Valuation
Techniques | | Unobservable
Input | | Range
(Weighted Average) | Impaired loans | | $ | 8,474 | | Discounted appraised value | | Selling cost / Estimated market decrease | | 10% (10%) | Investments in joint venture | | | 875 | | Internal evaluations | | Estimated future market value | | 0% (0%) | Other investments | | | 1,098 | | Internal evaluations | | Indications of non-performance by insurance companies | | 0% (0%) |
| | | | | | | | | | December 31, 2024 | Assets | | Fair Value
(in thousands) | | Valuation
Techniques | | Unobservable
Input | | Range
(Weighted Average) | Impaired loans | | $ | 9,535 | | Discounted appraised value | | Selling cost / Estimated market decrease | | 10% (10%) | Investments in joint venture | | | 873 | | Internal evaluations | | Estimated future market value | | 0% (0%) | Other investments | | | 1,082 | | Internal evaluations | | Indications of non-performance by insurance companies | | 0% (0%) | Foreclosed assets | | | 301 | | Internal evaluations | | Selling cost | | 6% (6%) |
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