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Note 11 - Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2025
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Financial Instruments:

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a variable rate loan while creating a fixed rate loan for the customer by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $89.7 million and fair value of $1.1 million in other assets and $1.1 million in other liabilities at September 30, 2025. At December 31, 2024, the Company had interest rate swaps associated with commercial loans with a notional value of $65.7 million and fair value of $3.8 million in other assets and $3.8 million in other liabilities. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

 

There were no net gains or losses for interest rate swaps for the three or nine month periods ended September 30, 2025 and 2024.

 

Interest Rate Swap Designated as a Fair Value Hedge

 

The Company has one interest rate swap with a notional amount of $100.0 million that was in place at both September 30, 2025 and December 31, 2024. This swap is designated as a fair value hedge to mitigate the risk of further interest rate increases and the subsequent impact on the valuation of the Company’s state and political subdivision municipal bond portfolio. The gross aggregate fair value of the swap at September 30, 2025 is $(542,000) and is recorded as a $540,000 mark to market adjustment in other liabilities and $2,000 recorded to other assets for the accrued interest receivable in the Consolidated Balance Sheet. At December 31, 2024, the gross aggregate fair value of the swap was $(168,000) and was recorded as a $418,000 mark to market adjustment in other liabilities, and $250,000 was recorded to other assets for the accrued interest receivable in the Consolidated Balance Sheet. The Company expects the hedge to remain in effect for the remaining term of the swap, which matures August 2026. A summary of the interest rate swap designated as a fair value hedge is presented below:

 

(In Thousands of Dollars)

  September 30, 2025   December 31, 2024 

Notional amount fair value hedge

 $100,000  $100,000 

Fixed pay rates

  4.35%  4.35%

Variable SOFR receive rates

  4.24%  4.49%

Remaining maturity (in years)

  0.8   1.6 

Fair value

 $(542) $(168)

 

Mortgage Banking Derivatives

 

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third-party investors are considered derivatives. The Company enters into forward commitments for the future delivery of residential mortgage loans when the interest rate locks are committed in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships.

 

The net gains (losses) relating to non-designated derivative instruments used for risk management are included in Net Gains on Sale of Loans on the Consolidated Statements of Income and are summarized below for the quarters ended September 30, 2025 and September 30, 2024:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30,

  

September 30,

 
  

2025

  

2024

  

2025

  

2024

 

Forward sales contracts

 $69  $(18) $(16) $0 

Interest rate lock commitments

  79   43   146   (12)

 

The following table reflects the amount and fair value of mortgage banking derivatives included in the Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024:

 

  

September 30, 2025

  

December 31, 2024

 
  

Notional

  

Fair

  

Notional

  

Fair

 

(In Thousands of Dollars)

 Amount  Value  Amount  Value 

Included in other assets:

                

Forward sales contracts

 $16,000  $1  $6,500  $17 

Interest rate lock commitments

  15,886   165   4,896   19 

Total included in other assets

 $31,886  $166  $11,396  $36