Note 17 - Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2025

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 17 - Derivatives and Hedging Activities

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreement without the exchange of the underlying notional amount.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

At  December 31, 2025 and 2024, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.

(dollars in thousands)	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Line item in the Consolidated Balance Sheets where the hedged item is included:
December 31, 2025
Investment securities (1)	$	50,980	$	980
Loans receivable (2)		100,903		903
Total	$	151,883	$	1,883
December 31, 2024
Investment securities (1)	$	50,220	$	220
Loans receivable (2)		99,812		(188	)
Total	$	150,032	$	32

(1) These amounts include the amortized cost basis of a closed portfolio of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At December 31, 2025 and 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $56.1 million, and $56.7 million, respectively; the cumulative basis adjustments associated with this hedging relationship was $980,000 and $220,000, respectively; and the amount of the designated hedged items was $50.0 million for both periods.

(2) These amounts include the amortized cost basis of a closed portfolio of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period. At December 31, 2025 and 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $213.3 million and $258.1 million, respectively; the cumulative basis adjustments associated with this hedging relationship was $903,000 and $188,000, respectively; and the amount of the designated hedged items was $100.0 million for both periods.

The following table summarizes the Company’s derivative instruments at the date indicated. The Company has master netting agreements with derivative dealers with which it does business, but reflects gross assets and liabilities as "Other assets" and "Other liabilities," respectively, on the Consolidated Balance Sheets, as follows:

			Fair Value
(dollars in thousands)	Notional Amount		Other Assets		Other Liabilities
December 31, 2025
Fair value hedges:
Interest rate swaps - securities	$	50,000	$	—	$	860
Interest rate swaps - loans		100,000		—		843
December 31, 2024
Fair value hedges:
Interest rate swaps - securities	$	50,000	$	—	$	123
Interest rate swaps - loans		100,000		267		—

The following table summarizes the effect of fair value accounting on the Consolidated Statements of Operations for the periods shown:

	Year Ended December 31,
(dollars in thousands)	2025			2024
Total amounts recognized in interest on investment securities	$	13,484		$	15,025
Total amounts recognized in interest and fees on loans receivable		90,290			93,752
Net gains (losses) on fair value hedging relationships
Interest rate swaps - securities
Recognized on hedged items	$	(760	)	$	220
Recognized on derivatives designated as hedging instruments		706			(142	)
Interest rate swaps - loans
Recognized on hedged items		(1,091	)		(188	)
Recognized on derivatives designated as hedging instruments		1,046			211
Net (expense) income recognized on fair value	$	(99	)	$	101

Credit Risk-related Contingent Features

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to hedging instruments. The counterparties to all derivative transactions are major financial institutions with investment grade credit ratings. However, this does not eliminate the Company’s exposure to credit risk with these institutions. This credit risk is limited to the unrealized gains in such contracts should any of these counterparties fail to perform as contracted.

The Company has interest rate swap agreements with its derivative counterparty that contain provisions where if the Company either defaults or fails to maintain its status as a well or adequately capitalized institution, then the Company could be required to terminate the contract or post additional collateral. At December 31, 2025, the Company had derivatives in a net liability position related to this agreement. The Company has minimum collateral posting thresholds with its derivative counterparty and has posted cash of $3.5 million at December 31, 2025, to secure the interest rate swap agreements as needed. In certain cases, the Company will have posted excess collateral compared to total exposure due to initial margin requirements or day-to-day rate volatility.

As of December 31, 2025, the Company was in compliance with all credit risk-related contingent features. Given the considerations described above, the Company considers the impact of the risk of counterparty default to be immaterial.