ECB Bancorp, Inc. /MD/ Fair Value Disclosure

NOTE 13 – FAIR VALUE MEASUREMENTS

 

ASC 820-10, Fair Value Measurement – Overall, provides a framework for measuring fair value under U.S. GAAP. This guidance also allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

 

In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities 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 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

 

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

 

Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

 

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for December 31, 2025 and December 31, 2024.

 

Cash and Cash Equivalents

 

For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value.

 

Available-for-Sale and Held-to-Maturity Securities

 

The Company’s investment in debt securities is generally classified within Level 2 of the fair value hierarchy. For those securities, the Company obtains fair value measurements from independent pricing services which are not adjusted by management. The fair value measurements consider observable data that considers standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, credit spreads and new issue data.

 

FHLB Stock

 

The fair value of FHLB stock approximates the carrying amount based on the redemption provisions of the FHLB. These assets were classified as Level 2.

 

Loans Held-for-Sale

 

The fair value of loans held for sale, whose carrying amounts approximate fair value, is based on committed secondary market prices. These assets were classified as Level 2 given the use of observable inputs.

 

Loans

 

The fair value of loans is measured on an exit price basis incorporating discounts for credit, liquidity and marketability factors. Loans were classified as Level 3 since the valuation methodology utilizes significant unobservable inputs.

 

Bank-Owned Life Insurance

 

The fair value of bank-owned life insurance was based upon quotations received from bank-owned life insurance dealers. These assets were classified as Level 2 given the use of observable inputs.

 

Accrued Interest Receivable

 

For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value.

 

Deposits

 

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, interest-bearing demand deposits, savings and money market accounts, was equal to their carrying amount. The fair value of certificates of deposits is valued using a replacement cost of funds approach, and discounted to the market rates and based on weighted remaining maturity. Deposits were classified as Level 2 given the use of observable market inputs.

 

Accrued Interest Payable

 

For these financial instruments, which have original maturities of 90 days or less, their carrying amounts reported in the Consolidated Balance Sheets approximate fair value.

 

Derivative Instruments

 

The fair value of interest rate swaps was determined using discounted cash flow analysis on the expected cash flows of the interest rate swaps. This analysis reflects the contractual terms of the interest rate swaps, including the period of maturity, and uses observable market-based inputs including interest rate curves. The inputs used to value the Company’s interest rate swaps fall within Level 2 of the fair value hierarchy and as a result, the interest rate swaps were categorized as Level 2 within the fair value hierarchy.

 

As of December 31, 2025 and 2024, the following summarizes assets measured at fair value on a recurring basis:

 

		Fair Value Measurements at Reporting Date Using
						Quoted Prices				Significant
						in Active				Other				Significant
						Markets for				Observable				Unobservable
						Identical Assets				Inputs				Inputs
		Total				Level 1				Level 2				Level 3
						(in thousands)
As of December 31, 2025
Assets:
Available-for-sale securities
Mortgage-backed securities		$	6,459			$	—			$	6,459			$	—
Collateralized mortgage obligations			10,948				—				10,948				—
Corporate bonds			16,910				—				16,910				—
Loans held-for-sale			357				—				357				—
Derivative instruments			2				—				2				—
Total assets measured at fair value on a recurring basis		$	34,676			$	—			$	34,676			$	—
Liabilities:
Derivative instruments		$	1,603			$	—			$	1,603			$	—
Total liabilities measured at fair value on a recurring basis		$	1,603			$	—			$	1,603			$	—
As of December 31, 2024
Assets:
Available-for-sale securities
Mortgage-backed securities		$	4,126			$	—			$	4,126			$	—
Collateralized mortgage obligations			1,438				—				1,438				—
Corporate bonds			1,000				—				1,000				—
Derivative instruments			557				—				557				—
Total assets measured at fair value on a recurring basis		$	7,121			$	—			$	7,121			$	—
Liabilities:
Derivative instruments		$	173			$	—			$	173			$	—
Total liabilities measured at fair value on a recurring basis		$	173			$	—			$	173			$	—

 

Under certain circumstances, the Company makes fair value adjustments to its assets and liabilities although they are not measured at fair value on an ongoing basis.

 

As of December 31, 2025 and 2024, the Bank had no assets or liabilities for which a nonrecurring change in fair value had been recorded.

 

ASC Topic 825, “Financial Instruments,” requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value are discussed above. The estimated fair values and related carrying amounts of assets and liabilities for which fair value is only disclosed are shown below at the dates indicated:

 

		December 31, 2025
		Carrying				Fair
		Amount				Value				Level 1				Level 2				Level 3
						(in thousands)
Financial assets:
Cash and cash equivalents		$	86,922			$	86,922			$	86,922			$	—			$	—
Interest-bearing time deposits			7,998				7,998				—				7,998				—
Held-to-maturity securities			55,764				52,326				—				52,326				—
FHLB stock			11,852				11,852				—				11,852				—
Loans, net			1,371,819				1,343,233				—				—				1,343,233
Accrued interest receivable			5,214				5,214				5,214				—				—
Bank-owned life insurance			15,420				15,420				—				15,420				—
Financial liabilities:
Deposits, other than certificates of deposit		$	404,033			$	404,033			$	—			$	404,033			$	—
Certificates of deposit			728,311				730,175				—				730,175				—
Federal Home Loan Bank advances			284,815				286,754				—				286,754				—
Accrued interest payable			1,905				1,905				1,905				—				—

 

		December 31, 2024
		Carrying				Fair
		Amount				Value				Level 1				Level 2				Level 3
						(in thousands)
Financial assets:
Cash and cash equivalents		$	157,617			$	157,617			$	157,617			$	—			$	—
Interest-bearing time deposits			100				100				—				100				—
Held-to-maturity securities			73,215				67,505				—				67,505				—
FHLB stock			10,000				10,000				—				10,000				—
Loans, net			1,136,449				1,079,916				—				—				1,079,916
Accrued interest receivable			4,015				4,015				4,015				—				—
Bank-owned life insurance			14,945				14,945				—				14,945				—
Financial liabilities:
Deposits, other than certificates of deposit		$	393,018			$	393,018			$	—			$	393,018			$	—
Certificates of deposit			605,515				606,387				—				606,387				—
Federal Home Loan Bank advances			234,000				232,027				—				232,027				—
Accrued interest payable			2,207				2,207				2,207				—				—