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Note 11 - Fair Value Measurements
 3 Months Ended
Mar. 31, 2026
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

Note 11 - Fair Value Measurements

 

Fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants in the Company’s principal market. The Company has established and documented its process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, management determines the fair value of the Company’s assets and liabilities using valuation models or third-party pricing services, both of which rely on market-based parameters when available, such as interest rate yield curves, option volatilities and credit spreads, or unobservable inputs. Unobservable inputs may be based on management’s judgment, assumptions, and estimates related to credit quality, liquidity, interest rates, and other relevant inputs.

 

Any changes to valuation methodologies are reviewed by management to ensure they are relevant and justified. Valuation methodologies are refined as more market-based data becomes available.

 

 

A three-level valuation hierarchy is used in determining fair value that is based on the transparency of the inputs used in the valuation process. The inputs used in determining fair value in each of the three levels of the hierarchy are as follows:

 

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

 

Level 2 - Either: (i) quoted prices for similar assets or liabilities; (ii) observable inputs, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.

 

Level 3 - Unobservable inputs.

 

The hierarchy gives the highest ranking to Level 1 inputs and the lowest ranking to Level 3 inputs. The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the overall fair value measurement.

 

The Company used the following methods to measure fair value on a recurring and nonrecurring basis.

 

Securities available for sale: Where quoted prices are available in an active market, securities are classified as Level 1. Level 1 instruments include highly liquid government bonds, securities issued by the U.S. Treasury, and exchange-traded equity securities. If quoted prices are not available, management determines fair value using pricing models, quoted prices of similar securities, which are considered Level 2, or discounted cash flows. In certain cases, where there is limited activity in the market for an instrument, assumptions must be made to determine their fair value. Such instruments are classified as Level 3.

 

Sold loan servicing rights, at fair value: The fair value of sold loan servicing rights is determined through a discounted cash flow analysis, which uses interest rates, prepayment speeds, discount rates, and delinquency rate assumptions as inputs. Servicing rights are classified as Level 3 due to reliance on assumptions used in the valuation.

 

Interest rate swap derivative: The fair values of interest rate swap agreements are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s securities derivatives are traded in an over-the-counter market where quoted market prices are not always available. The Company also entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans. The fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including market transactions and third-party pricing services. The fair values of all interest rate swaps are determined from third-party pricing services without adjustment.

 

Assets and liabilities measured at fair value on a recurring basis - Assets and liabilities are considered to be valued on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly, or quarterly). The following tables show the Company’s assets and liabilities measured at fair value on a recurring basis at the dates indicated:

 

  

March 31, 2026

 
  

Quoted Prices in Active Markets for Identical Assets or Liabilities

  

Significant Other Observable Inputs

  

Significant Unobservable Inputs

     

(dollars in thousands)

 

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Financial Assets

                

Securities available-for-sale

                

Municipal bonds

 $11,884  $67,681  $—  $79,565 

ABS agency

  —   11,632   —   11,632 

ABS corporate

  —   7,676   —   7,676 

Corporate debt

  1,965   35,427   —   37,392 

SBA

  —   5,820   —   5,820 

MBS agency

  —   97,968   —   97,968 

MBS non-agency

  —   26,349   6,583   32,932 

Sold loan servicing rights

  —   —   2,999   2,999 

Total assets measured at fair value

 $13,849  $252,553  $9,582  $275,984 

Financial Liabilities

                

Interest rate swap derivative

 $—  $871  $—  $871 

 

 

  

December 31, 2025

 
  

Quoted Prices in Active Markets for Identical Assets or Liabilities

  

Significant Other Observable Inputs

  

Significant Unobservable Inputs

     

(dollars in thousands)

 

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

Financial Assets

                

Securities available-for-sale

                

Municipal bonds

 $11,908  $68,344  $—  $80,252 

ABS agency

  —   11,943   —   11,943 

ABS corporate

  —   7,961   —   7,961 

Corporate debt

  1,977   36,824   —   38,801 

SBA

  —   6,293   —   6,293 

MBS agency

  —   91,656   —   91,656 

MBS non-agency

  —   26,805   6,599   33,404 

Sold loan servicing rights

  —   —   3,014   3,014 

Total assets measured at fair value

 $13,885  $249,826  $9,613  $273,324 

Financial Liabilities

                

Interest rate swap derivative

 $—  $1,703  $—  $1,703 

 

The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company's assets and liabilities classified as Level 3 and measured at fair value on a recurring basis at the dates indicated:

 

March 31, 2026

 

Fair Value (dollars in thousands)

 

Valuation Technique

 

Unobservable Input (1)

 

Range (Weighted Average)

 

Sold loan servicing rights

 $2,999 

Discounted cash flow

 

Constant prepayment rate

  

3.42% - 30.45% (5.42%)

 
       

Discount rate

  

10.63% - 14.38% (11.25%)

 

MBS non-agency

 $6,583 

Consensus pricing

 

Offered quotes

  

98.3 - 100.2

 

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

 

 

December 31, 2025

 

Fair Value (dollars in thousands)

 

Valuation Technique

 

Unobservable Input (1)

 

Range (Weighted Average)

 

Sold loan servicing rights

 $3,014 

Discounted cash flow

 

Constant prepayment rate

  

4.31% - 31.02% (5.88%)

 
       

Discount rate

  

10.38% - 12.52% (10.99%)

 

MBS non-agency

 $6,599 

Consensus pricing

 

Offered quotes

  

99.0 - 100.4

 

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

 

 

The following tables summarize the changes in Level 3 assets measured at fair value on a recurring basis, at the dates indicated:

 

 

  

As of or For the Three Months Ended March 31,

 

(dollars in thousands)

 

2026

  

2025

 

Sold loan servicing rights:

        

Balance at beginning of period

 $3,014  $3,281 

Servicing rights that result from transfers and sale of financial assets

  3   11 

Changes in fair value due to changes in model inputs or assumptions (1)

  (18)  9 

Balance at end of period

 $2,999  $3,301 

(1) Represents changes due to collection/realization of expected cash flows and curtailments.

 

 

 

  

As of or For the Three Months Ended March 31,

 

(dollars in thousands)

 

2026

  

2025

 

Securities available for sale:

        

MBS non-agency

        

Balance at beginning of period

 $6,599  $31,881 

Principal payments and maturities

  —   (13,424)

Unrealized (Losses) Gains

  (16)  86 

Balance at end of period

 $6,583  $18,543 

 

Assets and liabilities measured at fair value on a nonrecurring basis - Assets are considered to be valued on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the consolidated balance sheets. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements that require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value.

 

The following tables present the Company’s assets measured at fair value on a nonrecurring basis at the dates indicated:

 

  

March 31, 2026

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Individually evaluated collateral-dependent loans

 $—  $—  $37,479  $37,479 

Other real estate owned

  —   —   1,380   1,380 

 

  

December 31, 2025

 

(dollars in thousands)

 

Level 1

  

Level 2

  

Level 3

  

Total

 

Individually evaluated collateral-dependent loans

 $—  $—  $25,582  $25,582 

Other real estate owned

  —   —   1,380   1,380 

 

At  March 31, 2026 and December 31, 2025, there were no individually evaluated loans with discounts to appraisal disposition value or other unobservable inputs.

 

The following tables present the carrying value and estimated fair value of financial instruments at the dates indicated:

 

  

March 31, 2026

 
          

Fair Value Measurements Using:

 

(dollars in thousands)

 

Carrying Amount

  

Estimated Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Financial assets

                    

Cash and cash equivalents

 $104,136  $104,136  $104,136  $—  $— 

Investment securities available for sale

  272,985   272,985   13,849   252,553   6,583 

Loans held for sale

  1,140   1,140   —   1,140   — 

Loans receivable, net

  1,612,979   1,512,743   —   —   1,512,743 

FHLB stock

  13,927   13,927   —   13,927   — 

Accrued interest receivable

  7,051   7,051   —   7,051   — 

Sold loan servicing rights, at fair value

  2,999   2,999   —   —   2,999 

Financial liabilities

                    

Demand deposits

 $1,092,352  $1,092,352  $1,092,352  $—  $— 

Time deposits

  509,230   508,757   —   —   508,757 

FHLB Borrowings

  280,000   279,950   —   —   279,950 

Line of Credit

  13,500   13,592   —   —   13,592 

Subordinated debt, net

  34,660   35,882   —   —   35,882 

Accrued interest payable

  280   280   —   280   — 

Interest rate swap derivative

  871   871   —   871   — 

 

 

  

December 31, 2025

 
          

Fair Value Measurements Using:

 

(dollars in thousands)

 

Carrying Amount

  

Estimated Fair Value

  

Level 1

  

Level 2

  

Level 3

 

Financial assets

                    

Cash and cash equivalents

 $85,117  $85,117  $85,117  $—  $— 

Investment securities available for sale

  270,310   270,310   13,885   249,826   6,599 

Loans held for sale

  1,063   1,063   —   1,063   — 

Loans receivable, net

  1,612,028   1,504,219   —   —   1,504,219 

FHLB stock

  13,105   13,105   —   13,105   — 

Accrued interest receivable

  6,498   6,498   —   6,498   — 

Sold loan servicing rights, at fair value

  3,014   3,014   —   —   3,014 

Financial liabilities

                    

Demand deposits

  1,079,327  $1,079,327  $1,079,327  $—  $— 

Time deposits

  519,774   520,033   —   —   520,033 

FHLB Borrowings

  260,000   260,510   —   —   260,510 

Line of Credit

  13,500   13,589   —   —   13,589 

Subordinated debt, net

  34,643   35,973   —   —   35,973 

Accrued interest payable

  1,223   1,223   —   1,223   — 

Interest rate swap derivative

  1,703   1,703   —   1,703   —