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

11.

Derivative Financial Instruments

 

Fair Value Hedges

The Company uses interest rate swaps to convert certain long term fixed rate loans to floating rates to hedge interest rate risk exposure. The Company uses hedge accounting in accordance with ASC 815, with the unrealized gains and losses, representing the change in fair value of the derivative and the change in fair value of the risk being hedged on the related loan, being recorded in the consolidated statements of income. The ineffective portions of the unrealized gains or losses, if any, are recorded in interest income and interest expense in the consolidated statements of income.

 

During 2023, the Company executed an interest rate swap designated as a fair value hedge with an original notional amount of $25.0 million to convert certain long-term fixed rate 1-4 family loans to floating rates to hedge interest rate risk exposure using the portfolio layer method.

 

The portfolio layer method allows the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors that would affect the timing and amount of cash flow. The fair value portfolio level basis adjustment on the hedged loans has not been attributed to the individual loans on the consolidated balance sheet.

 

The table below identifies the notional amount, fair value and balance sheet category of the Company's interest rate swaps at March 31, 2025, and  December 31, 2024 (in thousands):

 

  

Notional Amount

  

Fair Value

 

Balance Sheet Category

March 31, 2025

         

Interest rate swaps

 $8,427  $741 

Other assets

Interest rate swaps

  25,000   (216)

Other liabilities

December 31, 2024

         

Interest rate swaps

 $8,531  $909 

Other assets

Interest rate swaps

  25,000   (161)

Other liabilities

 

The table below identifies the carrying amount of the hedged assets and cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets that are designated as a fair value hedge accounting relationship at March 31, 2025, and  December 31, 2024 (in thousands):

 

       

Cumulative Amount of Fair Value

 
 

Location in the consolidated

 

Carrying Amount of

  

Hedging Adjustment Included in

 
 

balance sheet

 

the Hedged Assets

  

Carrying Amount of Hedged Assets

 

March 31, 2025

         

Interest rate swaps

Loans receivable, net

 $51,378  $(524)

December 31, 2024

         

Interest rate swaps

Loans receivable, net

 $52,567  $(748)

 

Back-to-Back Loan Swaps

The Company has interest rate swap loan relationships with customers to assist them in managing their interest rate risk. Upon entering into these loan swaps, the Company enters into offsetting positions with counterparties in order to minimize interest rate risk. These back-to-back loan swaps qualify as free standing financial derivatives with the fair values reported in other assets and other liabilities on the consolidated balance sheets. Any gains and losses on these back-to-back swaps are recorded in noninterest income on the consolidated statements of income, and for the three months ended March 31, 2025, and March 31, 2024, no gain or loss was recognized. The table below identifies the balance sheet category and fair values of the derivative instruments designated as loan swaps at March 31, 2025, and  December 31, 2024 (in thousands):

 

           

Weighted Average

  

Weighted Average

 
  

Notional Amount

  

Fair Value

 

Balance Sheet Category

 

Receive Rate

  

Pay Rate

 

March 31, 2025

                 

Customer interest rate swaps

 $13,133  $135 

Other assets

  6.32%  5.85%

Customer interest rate swaps

  13,133   (135)

Other liabilities

  5.85%  6.32%

December 31, 2024

                 

Customer interest rate swaps

 $12,258  $87 

Other assets

  6.48%  5.81%

Customer interest rate swaps

  12,258   (87)

Other liabilities

  5.81%  6.48%

 

The Company was required to pledge $1.2 million and $1.3 million of securities as collateral for these derivative financial instruments at March 31, 2025, and December 31, 2024, respectively. The Company's counterparties were not required to pledge collateral at March 31, 2025 and  December 31, 2024.