Note 15 - Fair Value Measurements

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 15 - 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.

Loans receivable, net: The fair value of loans is estimated by discounting the future cash flows using the current rate at which similar loans and leases would be made to borrowers with similar credit and for the same remaining maturities. Additionally, to be consistent with the requirements under FASB ASC Topic 820 for Fair Value Measurements and Disclosures, the loans were valued at a price that represents the Company’s exit price or the price at which these instruments would be sold or transferred.

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 derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, 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 fair 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:

	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
SBA		—		6,293		—		6,293
Corporate debt		1,977		36,824		—		38,801
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

	December 31, 2024
	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	$	12,059	$	65,817	$	—	$	77,876
ABS agency		—		12,876		—		12,876
ABS corporate		—		16,122		—		16,122
SBA		—		8,666		—		8,666
Corporate debt		1,917		52,574		—		54,491
MBS agency		—		98,697		—		98,697
MBS non-agency		—		39,735		31,881		71,616
Sold loan servicing rights		—		—		3,281		3,281
Interest rate swap derivative		—		267		—		267
Total assets measured at fair value	$	13,976	$	294,754	$	35,162	$	343,892
Financial Liabilities
Interest rate swap derivative	$	—	$	123	$	—	$	123

 

The following table provides 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 date indicated:

December 31, 2025	Fair Value (dollars in thousands)		Valuation Technique	Unobservable Input	Range (Weighted Average) (1)
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 Year Ended December 31,
(dollars in thousands)	2025			2024
Sold loan servicing rights:
Balance at beginning of period	$	3,281		$	3,793
Servicing rights that result from transfers and sale of financial assets		13			38
Changes in fair value due to changes in model inputs or assumptions (1)		(280	)		(550	)
Balance at end of period	$	3,014		$	3,281
(1) Represents changes due to collection/realization of expected cash flows and curtailments.

	As of or For the Year Ended December 31,
(dollars in thousands)	2025			2024
Securities available for sale:
MBS non-agency
Balance at beginning of period	$	31,881		$	27,469
Purchases		—			22,683
Principal payments and maturities		(25,460	)		(18,410	)
Unrealized Gains		178			139
Balance at end of period	$	6,599		$	31,881

Assets measured at fair value on a nonrecurring basis - Assets are considered to be fair 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:

	December 31, 2025
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent loans	$	—	$	—	$	25,582	$	25,582
Real estate owned and repossessed assets		—		—		1,380		1,380

	December 31, 2024
(dollars in thousands)	Level 1		Level 2		Level 3		Total
Collateral-dependent loans	$	—	$	—	$	33,246	$	33,246

At December 31, 2025 and 2024, there were no collateral-dependent loans with discounts to appraisal disposition value or other unobservable inputs.

December 31, 2025	Fair Value (dollars in thousands)		Valuation Technique	Unobservable Input	Range (Weighted-Average) (1)
Real estate owned and repossessed assets	$	1,380	Market comparable	Discount to appraisal	0% - 10% (5%)

(1)  Discount to appraisal disposition value.

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

	December 31, 2025
	Carrying		Estimated Fair		Fair Value Measurements Using:
(dollars in thousands)	Amount		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		—
Servicing rights on sold loans, 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		—

	December 31, 2024
	Carrying		Estimated Fair		Fair Value Measurements Using:
(dollars in thousands)	Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	72,448	$	72,448	$	72,448	$	—	$	—
Investment securities available for sale		340,344		340,344		13,976		294,487		31,881
Loans held for sale		472		472		—		472		—
Loans receivable, net		1,675,186		1,536,748		—		—		1,536,748
FHLB stock		14,435		14,435		—		14,435		—
Accrued interest receivable		8,159		8,159		—		8,159		—
Servicing rights on sold loans, at fair value		3,281		3,281		—		—		3,281
Interest rate swap derivative		267		267		—		267		—
Financial liabilities
Demand deposits	$	1,040,184	$	1,040,184	$	1,040,184	$	—	$	—
Time deposits		647,842		648,232		—		—		648,232
FHLB Borrowings		290,000		288,512		—		—		288,512
Line of credit		6,500		6,526		—		—		6,526
Subordinated debt, net		39,514		39,974		—		—		39,974
Accrued interest payable		3,295		3,295		—		3,295		—
Interest rate swap derivative		123		123		—		123		—