Note 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Association measures certain financial assets and liabilities at fair value in accordance with GAAP, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the instrument’s fair value measurement. The three levels within the fair value hierarchy are described as follows:

Level 1—Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data of substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs for the asset or liability for which there is little, if any, market activity at the measurement date. The inputs are developed based on the best information available in the circumstances, which might include the Association’s own financial data such as internally developed pricing models, discounted cash flow methodologies, as well as instruments for which the fair value determination requires significant management judgment.

Fair Value of Financial Instruments—Financial instruments are classified within the fair value hierarchy using the methodologies described above. The following disclosures include financial instruments that are not carried at fair value on the Statements of Financial Condition. The calculation of estimated fair values is based on market conditions at a specific point in time and may not reflect current or future fair values.

Certain financial instruments generally expose the Association to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The carrying value of these financial instruments assumes to approximate the fair value of these instruments. These instruments include cash and cash equivalents, non-interest-bearing deposit accounts, FHLB and FRB advances, FHLB stock, escrow deposits and accrued interest receivable and payable.

Available-for-Sale Securities

Where quoted market prices are available in an active market, securities such as U.S. Treasuries, would be classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy. In certain cases where Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.

The Association’s financial assets measured at fair value on a recurring basis are available-for-sale securities. Available-for-sale securities are classified within Level 2 because they are valued based on market prices for similar assets. The fair value of the Association’s available-for-sale securities as of March 31, 2026 and March 31, 2025 was $62.5 million and $59.4 million, respectively. The Association does not have any other assets or liabilities measured at fair value on a recurring basis as of March 31, 2026 or March 31, 2025.

There were no transfers of financial instruments between Levels 1, 2, and 3 during the year ended March 31, 2026. The Association does not have any financial instruments measured at fair value on a recurring basis classified as Level 3.

Nonrecurring Measurements

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Individually Evaluated Loans

Individually evaluated loans are measured at fair value on a nonrecurring basis when they require a specific allocation of the allowance for credit losses. Fair value is generally based on recent real estate appraisals, which may incorporate a single valuation approach or a combination of approaches, including the comparable sales method and the income approach. Independent appraisers routinely make adjustments to account for differences between the subject property and comparable sales or income data; such adjustments are often significant and result in a Level 3 classification of inputs used to determine fair value.

For loans collateralized by non-real estate assets, fair value may be determined using collateral appraisals, net book value information from the borrower’s financial statements, or aging reports. These values are adjusted or discounted, as appropriate, based on management’s assessment of historical experience, current market conditions, and the specific characteristics of the borrower and the underlying collateral. These inputs are also considered Level 3 within the fair value hierarchy.

Individually evaluated loans are reviewed at least monthly for additional impairment, and valuations are adjusted as necessary to reflect current conditions.

Due to the subjective nature of these valuations and the use of significant unobservable inputs, the disclosure of a range of such inputs is not considered meaningful.

Other Real Estate Owned (ORE)

Other real estate owned (“ORE”) is comprised of properties acquired through foreclosure or in satisfaction of loans and is carried at the lower of cost or fair value less estimated costs to sell. ORE is measured at fair value on a nonrecurring basis at the time of transfer and subsequently when events or changes in circumstances indicate that the carrying amount may not be recoverable.

Fair value is generally based on current real estate appraisals or evaluations, which may utilize the comparable sales approach, income approach, or a combination thereof. Independent appraisers commonly adjust valuation inputs to reflect differences between the subject property and comparable market transactions or income assumptions. These adjustments can be significant and result in a Level 3 classification within the fair value hierarchy.

Management also considers recent sales activity, listing prices, broker opinions of value, and other market data, as well as estimated costs to sell, in determining fair value. When appropriate, management applies additional discounts to reflect current market conditions, time-to-sell expectations, and the condition of the property.

ORE properties are periodically evaluated, and their carrying values are adjusted as necessary to reflect changes in market conditions or updated valuation information. Any write-downs are recorded as a charge to earnings.

Due to the subjective nature of these valuations and the use of significant unobservable inputs, disclosure of a range of such inputs is not considered meaningful.