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Note 12 - Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2019

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note

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. Derivative Instruments and Hedging Activities

Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income.

The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the loan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. The Company’s interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period. The fair value hedges were effective as of

December 31, 2019.

The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:

		December 31,
		2019												2018
(Amounts in thousands)		Notional or Contractual Amount				Derivative Assets				Derivative Liabilities				Notional or Contractual Amount				Derivative Assets				Derivative Liabilities
Derivatives designated as hedges
Interest rate swaps		$	17,432			$	-			$	510			$	5,483			$	12			$	-
Total derivatives		$	17,432			$	-			$	510			$	5,483			$	12			$	-

The following table presents the effect of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated:

		Year Ended December 31,
(Amounts in thousands)		2019				2018				2017			Income Statement Location
Derivatives designated as hedges
Interest rate swaps		$	12			$	40			$	78		Interest and fees on loans
Total derivative expense		$	12			$	40			$	78

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- Definition

The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 815
-URI http://asc.fasb.org/topic&trid=2229140

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- References

No definition available.

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