Quarterly report [Sections 13 or 15(d)]

Note 11 - Derivative Financial Instruments

v3.25.1
Note 11 - Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2025
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 11 – Derivative Financial Instruments

 

The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. The Company has certain interest rate derivative positions that are not designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Condensed Consolidated Balance Sheet and do not take into account the effects of master netting agreements. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Company agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact the Company’s results of operations.

 

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying condensed consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging.

 

The following table shows the amounts of non-hedging derivative financial instruments:

 

March 31, 2025

          
 

Asset derivatives

    

Liability derivatives

  

(Dollars in thousands)

Statement of Financial Condition classification

  

Fair value

    

Statement of Financial Condition classification

    

Fair value

  

Interest rate swap contracts

Other assets

   $ 4,382    

Other liabilities

     $ 4,382  

Interest rate lock commitments

Other assets

     47     N/A       -  

Total

   $ 4,429           $ 4,382  

 

December 31, 2024

          
 

Asset derivatives

    

Liability derivatives

  

(Dollars in thousands)

Statement of Financial Condition classification

  

Fair value

    

Statement of Financial Condition classification

    

Fair value

  

Interest rate swap contracts

Other assets

   $ 5,486    

Other liabilities

     $ 5,486  

Interest rate lock commitments

Other assets

     24     N/A       -  

Total

   $ 5,510           $ 5,486  

 

The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:

 

     

Quarter Ended March 31,

  

(Dollars in thousands)

Statement of Income Classification

  

2025

    

2024

  

Interest rate swap contracts

Fees and service charges

   $ (30 )   $ (30 )

Interest rate lock commitments

Gain on sale of loans held-for-sale, net

     (35 )     8  

Total

   $ (65 )   $ (22 )

 

The following table shows the offsetting of financial assets and derivative assets:

 

                           

Gross Amounts not Offset in the

          
                           

Statement of Financial Condition

          

(Dollars in thousands)

  

Gross Amounts

of Recognized

 Assets

    

Gross Amounts Offset

in the Statement of

Financial Condition

    

Net Amounts of Assets

Presented in the

Statement of Financial

 Condition

    

Financial 

Instruments

    

Cash

Collateral

Received

    

Net Amount

  

March 31, 2025

                                                

Interest rate swap contracts

   $ 4,382     $ -     $ 4,382     $ -     $ 3,630     $ 752  

Interest rate lock commitments

     47       -       47       -       -       47  

Total

   $ 4,429     $ -     $ 4,429     $ -     $ 3,630     $ 799  

 

                           

Gross Amounts not Offset in the

          
                           

Statement of Financial Condition

          

(Dollars in thousands)

  

Gross Amounts

of Recognized

Assets

    

Gross Amounts Offset

in the Statement of

Financial Condition

    

Net Amounts of Assets

Presented in the

Statement of Financial 

Condition

    

Financial

Instruments

    

Cash

Collateral

Received

    

Net Amount

  

December 31, 2024

                                                

Interest rate swap contracts

   $ 5,486     $ -     $ 5,486     $ -     $ 5,120     $ 366  

Interest rate lock commitments

     82       -       82       -       -       82  

Total

   $ 5,568     $ -     $ 5,568     $ -     $ 5,120     $ 448  

 

The following table shows the offsetting of financial liabilities and derivative liabilities:

 

                           

Gross Amounts not Offset in the

          
                           

Statement of Financial Condition

          

(Dollars in thousands)

  

Gross Amounts

of Recognized

Liabilities

    

Gross Amounts Offset

in the Statement of

Financial Condition

    

Net Amounts of Assets 

Presented in the

Statement of Financial 

Condition

    

Financial

Instruments

    

Cash

Collateral

Pledged

    

Net Amount

  

March 31, 2025

                                                

Interest rate swap contracts

   $ 4,382     $ -     $ 4,382     $ -     $ -     $ 4,382  

 

                           

Gross Amounts not Offset in the

          
                           

Statement of Financial Condition

          

(Dollars in thousands)

  

Gross Amounts

of Recognized 

Liabilities

    

Gross Amounts Offset

in the Statement of

Financial Condition

    

Net Amounts of Assets

Presented in the 

Statement of Financial

Condition

    

Financial

Instruments

    

Cash

Collateral

Pledged

    

Net Amount

  

December 31, 2024

                                                

Interest rate swap contracts

   $ 5,486     $ -     $ 5,486     $ -     $ -     $ 5,486