Hoyne Bancorp, Inc. Fair Value Disclosure
10.Fair Value Measurements and Disclosures
The Bank utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. From time to time, the Bank may be required to record at fair value other assets on a nonrecurring basis, such as individually evaluated loans and real estate owned. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets. Additionally, the Bank is required to disclose, but not record, the fair value of other financial instruments.
Fair Value Hierarchy
The Bank groups assets and liabilities 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. These levels are:
Level 1 — Valuation is based upon quoted prices for identical instruments traded in active markets.
Level 2 — Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 — Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.
Cash and Cash Equivalents
The carrying value of cash and cash equivalents is a reasonable estimate of fair value.
Certificates of Deposit
The carrying value of certificates of deposit is a reasonable estimate of fair value given short term nature of instruments.
10.Fair Value Measurements and Disclosures (continued)
Investment Securities
Available-for-sale securities are recorded at market value and held-to-maturity securities are carried at amortized cost. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and state, county and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.
| Assets Measured at Fair Value on a Recurring Basis | |||||||||||
At December 31, 2025 | ||||||||||||
| Quoted Prices | | Significant | | | |||||||
in Active | Other | Significant | ||||||||||
Markets for | Observable | Unobservable | Balance | |||||||||
Identical Assets | Inputs | Inputs | at December 31, | |||||||||
(Level 1) | (Level 2) | (Level 3) | 2025 | |||||||||
Available-for-sale debt securities: | |
| |
| |
| | |||||
Mortgage-backed | $ | — | $ | 67,464,303 | $ | — | $ | 67,464,303 | ||||
Agencies |
| — |
| 38,499,490 |
| — |
| 38,499,490 | ||||
Municipal bonds |
| — |
| 689,970 |
| — |
| 689,970 | ||||
Total available-for-sale debt securities | $ | — | $ | 106,653,763 | $ | — | $ | 106,653,763 | ||||
| Assets Measured at Fair Value on a Recurring Basis | |||||||||||
At December 31, 2024 | ||||||||||||
| Quoted Prices | | Significant | | | |||||||
in Active | Other | Significant | ||||||||||
Markets for | Observable | Unobservable | Balance | |||||||||
Identical Assets | Inputs | Inputs | at December 31, | |||||||||
(Level 1) | (Level 2) | (Level 3) | 2024 | |||||||||
Available-for-sale debt securities: |
| |
| |
| |
| | ||||
Mortgage-backed | $ | — | $ | 75,107,824 | $ | — | $ | 75,107,824 | ||||
Agencies |
| — |
| 35,840,915 |
| — |
| 35,840,915 | ||||
Municipal Bonds |
| — |
| 1,130,663 |
| — |
| 1,130,663 | ||||
Treasuries |
| 4,475,340 |
| — |
| — |
| 4,475,340 | ||||
Total available-for-sale debt securities | $ | 4,475,340 | $ | 112,079,402 | $ | — | $ | 116,554,742 | ||||
The Bank estimates the fair value of these investments through independent pricing sources. Independent pricing sources utilize information such as similar security transactions and observable yield curves to estimate the fair value of individual securities.
Bank Owned Life Insurance
The carrying value of bank owned life insurance approximates fair value.
Other Investments
The carrying value of other investments includes FHLB Stock and Bankers Bank stock and approximates fair value.
10. Fair Value Measurements and Disclosures (continued)
Loans
The Bank does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered individually evaluated and a specific reserve is established within the allowance for credit losses. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are individually evaluated. Once a loan is identified as individually evaluated, management measures specific reserves in accordance with GAAP. The fair value of individually evaluated loans is estimated using one of three methods, including collateral value, market value of similar debt, and discounted cash flows. Those individually evaluated loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. In accordance with GAAP, individually evaluated loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price, the Bank records the individually evaluated loan as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the individually evaluated loan as nonrecurring Level 3. For disclosure purposes, the fair value of fixed rate loans which are not considered individually evaluated is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For collectively evaluated variable rate loans, the carrying amount is a reasonable estimate of fair value for disclosure purposes.
Real Estate Owned
Real estate owned properties are adjusted to fair value upon transfer of the loans to real estate owned. Subsequently, real estate owned assets are carried at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Bank records the real estate owned as nonrecurring Level 2. When an appraised value is used or an appraisal is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Bank records the real estate owned asset as nonrecurring Level 3.
Deposits
The fair value of savings accounts, interest-bearing checking accounts, noninterest-bearing checking accounts and market rate checking accounts is the amount payable on demand at the reporting date, while the fair value of fixed maturity certificate of deposits is estimated by discounting the future cash flows using current rates at which comparable certificates would be issued.
Assets Recorded at Fair Value on a Recurring Basis
The Bank’s only assets recorded at fair value on a recurring basis are available-for-sale securities that had a fair value of $106.7 million and $116.6 million at December 31, 2025 and 2024, respectively. They are classified as Level 1 and Level 2.
10.Fair Value Measurements and Disclosures (continued)
Assets Recorded at Fair Value on a Nonrecurring Basis
The Bank may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. There were no assets measured at fair value on a nonrecurring basis as of December 31, 2025 and 2024.
The carrying amounts and estimated fair value (in thousands) of the Bank’s financial instruments at December 31, 2025 and 2024 are as follows:
2025 | 2024 | |||||||||||||
Carrying | Estimated | Carrying | Estimated | |||||||||||
| | Amount | | Fair Value | | Amount | | Fair Value | ||||||
Financial assets: | ||||||||||||||
Cash and cash equivalents |
| Level 1 | $ | 47,595 | $ | 47,595 | $ | 15,327 | $ | 15,327 | ||||
Certificates of deposit |
| Level 2 |
| 870 |
| 870 |
| 1,350 |
| 1,350 | ||||
Investment securities AFS |
| Level 2 |
| 106,654 |
| 106,654 |
| 112,080 |
| 112,080 | ||||
Treasuries |
| Level 1 |
| — |
| — |
| 4,475 |
| 4,475 | ||||
Investment securities HTM |
| Level 2 |
| 28,369 |
| 26,040 |
| 34,022 |
| 30,415 | ||||
Other Investments |
| Level 3 |
| 2,158 |
| 2,158 |
| 2,158 |
| 2,158 | ||||
Accrued interest receivable |
| Level 1 |
| 1,451 |
| 1,451 |
| 1,481 |
| 1,481 | ||||
Loans, net |
| Level 3 |
| 267,949 |
| 258,840 |
| 240,928 |
| 232,226 | ||||
Bank owned life insurance |
| Level 2 |
| 14,949 |
| 14,949 |
| 16,990 |
| 16,990 | ||||
Financial liabilities: |
| |
|
| |
| |
| | |||||
Deposits |
| Level 2 |
| 321,551 |
| 320,437 |
| 357,292 |
| 355,997 | ||||
Accrued interest payable |
| Level 1 |
| 735 |
| 735 |
| 773 |
| 773 | ||||
Limitations
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 Bank’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank’s financial instruments, fair value estimates are based on many judgments. 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 and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.