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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2025

NOTE 6. FAIR VALUE MEASUREMENTS

In accordance with fair value guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 — Valuation is based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 assets and liabilities generally include debt and equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 — Valuation is based on inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on 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 for substantially the full term for the asset or liability.

Level 3 — Valuation is based on unobservable income inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

Fair value is an exit price, representing the amount that would be received to sell an asset or to transfer a liability in an orderly transaction between market participants. Fair value measurements are not adjusted for transaction costs. A fair value hierarchy is used that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quotes priced in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

Fair values of assets and liabilities measured on a recurring basis at September 30, 2025 and December 31, 2024 follows:


	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
September 30, 2025
Securities available-for-sale:
Mortgage-backed securities	$	43,302	$	-	$	43,302	$	-
Municipal obligations		1,551		-		1,551		-
Total	$	44,853	$	-	$	44,853	$	-

December 31, 2024
Securities available-for-sale:
Mortgage-backed securities	$	27,202	$	-	$	27,202	$	-
Municipal obligations		1,510		-		1,510		-
Total	$	28,712	$	-	$	28,712	$	-

Fair values of assets and liabilities measured on a nonrecurring basis at September 30, 2025 and December 31, 2024 follows:


	Fair Value Measurements at Reporting Date Using
(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
September 30, 2025
Loans individually evaluated for credit losses	$	160	$	-	$	-	$	160
Foreclosed assets		76		-		-		76
Total	$	236	$	-	$	-	$	236
December 31, 2024
Loans individually evaluated for credit losses	$	314	$	-	$	-	$	314
Foreclosed assets		194		-		-		194
Total	$	508	$	-	$	-	$	508

At September 30, 2025 and December 31, 2024, individually evaluated loans with a recorded investment of $214,000 and $452,000, respectively, have been written down to their fair value by a charge to the allowance for credit losses. Foreclosed assets are adjusted to fair value by recording a related gain or loss through foreclosed asset expense. Foreclosed asset expense for the three and nine months ended September 30, 2025 included write-downs of $4,000 and $18,000, respectively, to adjust foreclosed assets to fair value. Foreclosed asset expense for the three and nine months ended September 30, 2024 included net losses of $39,000 and $37,000, respectively, to adjust foreclosed assets to fair value.

The fair value of foreclosed assets is estimated using third-party appraisals of the asset held less estimated costs to sell and discounts to reflect current conditions. The fair value of collateral-dependent loans individually evaluated for credit losses is estimated using third-party appraisals of the collateral less estimated costs to sell and discounts to reflect current conditions. The fair value of loans individually evaluated for credit losses that are not collateral-dependent is estimated by discounting expected cash flows using discount rates determined with reference to current market rates at which similar loans would be made.

The following table shows significant unobservable inputs used in the fair value measurement of Level 3 assets. The weighted average presented in the following table was weighted based on the undiscounted result of the valuation technique.


(Dollars in thousands)	Fair Value		Valuation Technique	Unobservable Inputs	Range of Discounts			Weighted Average Discount
September 30, 2025
Loans individually evaluated for credit losses	$	160	Third party appraisals	Market discounts and estimated costs to sell	6%	-	30%	24%
Foreclosed assets		76	Third party appraisals and sales contracts	Market discounts and estimated costs to sell	6%	-	100%	49%

December 31, 2024
Loans individually evaluated for credit losses	$	314	Third party appraisals	Market discounts and estimated costs to sell	0%	-	30%	18%
Foreclosed assets		194	Third party appraisals and sales contracts	Market discounts and estimated costs to sell	6%	-	54%	22%

The following methods and assumptions were used to estimate the fair value of each class of financial instruments of which it is practicable to estimate that value. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instruments. Certain financial instruments and all nonfinancial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Cash and cash equivalents - The carrying amounts reported in the statements of financial condition for cash and cash equivalents approximate those assets’ fair values and are classified within Level 1 of the fair value hierarchy.

Investment securities - The fair market values of investments securities are obtained from a third-party service provider, whose prices are based on a combination of observed market prices for identical or similar instruments and various matrix pricing programs. The fair market values of investment securities are classified within Level 2 of the fair value hierarchy.

Loans receivable, net – The fair value of loans are generally determined by discounting scheduled cash flows using discount rates determined with reference to current market rates at which similar loans would be made. Loans receivable are classified within Level 3 of the fair value hierarchy.

Loans individually evaluated for credit losses - The fair value of loans individually evaluated for credit losses is measured by the fair value of the collateral if the loan is collateral dependent. Fair value of the collateral is determined by appraisals or by independent valuation. Loans individually evaluated for credit losses are classified within Level 3 of the fair value hierarchy.

Bank-owned life insurance - The cash surrender value of bank-owned life insurance approximates its fair value and is classified within Level 2 of the fair value hierarchy.

Non-maturity deposit liabilities - The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, NOW, money market and checking accounts, is equal to the amount payable on demand at the reporting date. These non-maturity deposit liabilities are classified within Level 1 of the fair value hierarchy.

Certificates of deposit – Fair values are estimated by discounting scheduled cash flows using the rates currently offered for deposits of similar remaining maturities. Certificates of deposit are classified within Level 2 of the fair value hierarchy.

Borrowings – The fair value is estimated by discounting the future contractual cash flows using current market rates at which debt with similar terms could be obtained. Borrowings are classified within Level 2 of the fair value hierarchy.

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business or the value of assets and liabilities that are not considered financial instruments.

The estimated fair values of the Company’s financial instruments as of September 30, 2025 and December 31, 2024 are as follows:


	September 30, 2025
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	37,271	$	37,271	$	37,271	$	-	$	-
Investment securities:
Available-for-sale		44,853		44,853		-		44,853		-
Held-to-maturity		14,945		13,464		-		13,464		-
Loans receivable, net		162,370		157,811		-		-		157,811
Bank-owned life insurance		14,849		14,849		-		14,849		-
Financial Liabilities:
Deposits		186,372		186,012		127,300		58,712		-
Borrowed funds		14,693		14,466		-		14,466		-


	December 31, 2024
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	44,295	$	44,295	$	44,295	$	-	$	-
Investment securities:
Available-for-sale		28,712		28,712		-		28,712		-
Held-to-maturity		13,447		11,284		-		11,284		-
Loans receivable, net		164,554		161,412		-		-		161,412
Bank-owned life insurance		14,489		14,489		-		14,489		-
Financial Liabilities:
Deposits		185,674		185,087		124,983		60,104		-
Borrowed funds		9,558		9,069		-		9,069		-

The carrying amounts in the preceding table are included in the statement of financial condition under the applicable captions. It is not practical to estimate the fair value of stock in correspondent banks because the equity securities are not marketable. The carrying amount of investments without readily determinable fair value are reported in the statements of financial condition at historical cost.