Note 14 - Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE  14.  DERIVATIVE FINANCIAL INSTRUMENTS

We use derivative instruments primarily to protect against the risk of adverse interest rate movements on the cash flows and fair values of certain assets and liabilities. Each of our derivative transactions qualify under the rules for “hedge accounting” in accordance with GAAP.  A summary of our derivative transactions follows:

Cash flow hedges

We have entered into three pay-fixed/receive variable interest rate swaps as follows:

• A $20 million notional interest rate swap with an effective date of October 18, 2021 and expiring on October 18, 2024, designated as a cash flow hedge of $20 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 1.1055% and receive a variable rate equal to three month LIBOR.

• A $50 million notional interest rate swap with an effective date of May 18, 2023 and expiring on May 18, 2025, designated as a cash flow hedge of $50 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 3.768% and receive a variable rate equal to daily SOFR.

• A $50 million notional interest rate swap with an effective date of July 18, 2023 and expiring on January 18, 2026, designated as a cash flow hedge of $50 million of forecasted series of short-term fixed rate Federal Home Loan Bank advances. Under the terms of this swap, we pay a fixed rate of 4.36% and receive a variable rate equal to daily SOFR.

In addition, we have purchased two interest rate caps as follows:

• A $100 million notional interest rate cap with an effective date of July 20, 2020 and expiring on April 18, 2030, designated as a cash flow hedge of $100 million of a forecasted series short-term fixed rate Federal Home Loan Bank advances. Under the terms of this cap, we hedge the variability of cash flows when three month LIBOR is above 0.75%.

• A $100 million notional interest rate cap with an effective date of December 29, 2020 and expiring on December 18, 2025, designated as a cash flow hedge of $100 million of certain indexed interest bearing demand deposit accounts. Under the terms of this cap, we hedge the variability of cash flows when the indexed rate of daily SOFR is above 0.50​​​​​​%.

Fair value hedges

We have entered into three pay-fixed/receive variable interest rate swaps as follows:

• An original $9.95 million (current $6.5 million) notional amortizing interest rate swap with an effective date of January 15, 2015 and expiring on January 15, 2025, designated to hedge the variability in fair value of a fixed rate commercial loan with the same principal, amortization, and maturity terms of the swap. Under the terms of this swap, we pay a fixed rate of 4.33% and receive a variable rate equal to three month LIBOR plus 2.23%.

• An original $11.3 million (current $9.5 million) notional amortizing interest rate swap with an effective date of December 18, 2015 and expiring on January 15, 2026, designated to hedge the variability in fair value of a fixed rate commercial loan with the same principal, amortization, and maturity terms as the swap. Under the terms of this swap, we pay a fixed rate of 4.30% and receive a variable rate equal to one month LIBOR plus 2.18%.

• A $71.25 million notional pay fixed/receive variable interest rate swap with an effective date of April 1, 2024 (hedge designated on October 27, 2021) and expiring on February 1, 2031 to hedge the variability in fair value of a designated portfolio of available for sale taxable municipal securities.  Under the terms of this swap, we will pay a fixed rate of 1.587% and will receive a variable rate equal to daily Federal funds.

A summary of our derivative financial instruments as of  March 31, 2024 and  December 31, 2023 follows:

	March 31, 2024
			Derivative Fair Value				Net Ineffective
Dollars in thousands	Notional Amount		Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	120,000	$	1,248	$	—	$	—
Interest rate cap hedging:
Short term borrowings	$	100,000	$	18,596	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		6,725		—		—
FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	15,994	$	592	$	—	$	—
Available for sale taxable municipal securities		71,245		9,642		—		(2	)
Total	$	407,239	$	36,803	$	—	$	(2	)

	December 31, 2023
			Derivative Fair Value				Net Ineffective
Dollars in thousands	Notional Amount		Asset		Liability		Hedge Gains/(Losses)
CASH FLOW HEDGES
Pay-fixed/receive-variable interest rate swaps
Short term borrowings	$	120,000	$	1,059	$	375	$	—
Interest rate cap hedging:
Short term borrowings	$	100,000	$	17,578	$	—	$	—
Indexed interest bearing demand deposit accounts		100,000		6,736		—		—
FAIR VALUE HEDGES
Pay-fixed/receive-variable interest rate swaps
Commercial real estate loans	$	16,175	$	583	$	—	$	—
Available for sale taxable municipal securities		71,245		7,564		—		1
Total	$	407,420	$	33,520	$	375	$	1

Loan commitments:  ASC Topic 815, Derivatives and Hedging, requires that commitments to make mortgage loans should be accounted for as derivatives if the loans are to be held for sale, because the commitment represents a written option and accordingly is recorded at the fair value of the option liability.