v3.25.2
Note 12 - Derivatives and Hedging Activities
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities

12. DERIVATIVES AND HEDGING ACTIVITIES

 

QNB's risk management objective with respect to derivative financial instruments is to hedge the risk of changes in the fair value of certain fixed-rate investment securities, included in a closed portfolio, for changes in the Secured Overnight Financing Rate ("SOFR"). The effective portions of changes in the fair value of each derivative financial instrument are reported in accumulated other

comprehensive (loss) income, net of tax, and are reclassified to interest income as interest payments are made or received on the hedged portfolios. QNB assesses the effectiveness of each hedging relationship using a regression analysis of prior periodic changes in fair value of both the hedge and the hedged item. In the assessment of hedge effectiveness, QNB will consider the likelihood of the counterparty's compliance with the contractual terms of the hedging derivative that could require the counterparty to make payments (counterparty default risk). If the likelihood that the counterparty will not default ceases to be probable, the hedge may no longer be highly effective and hedge ineffectiveness due to counterparty payment risk will be assessed.

 

The following tables present the notional amounts of derivatives designated as fair value hedging instruments at June 30, 2025, and December 31, 2024. QNB pledges cash or securities to cover the negative fair value of derivatives instruments. Cash collateral associated with the derivative instruments are not added to or netted against the fair value amounts.

 

 

 

Interest Rate Swaps-Fair Value Hedges

 

 

 

At June 30, 2025

 

 

At December 31, 2024

 

Balance Sheet Classification

 

Notional Amount

 

 

Amortized Cost of Hedged Portfolio

 

 

Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount of Hedged Asset

 

 

Notional Amount

 

 

Amortized Cost of Hedged Portfolio

 

 

Cumulative Amount of Fair Value Hedging Adjustment Included in Carrying Amount of Hedged Asset

 

Investment Securities Available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

$

75,000

 

 

$

96,375

 

 

$

(618

)

 

$

75,000

 

 

$

96,709

 

 

$

1,566

 

U.S. Government agencies and GSE mortgage-backed securities

 

 

220,413

 

 

 

293,240

 

 

 

(1,188

)

 

 

225,000

 

 

 

309,546

 

 

 

3,264

 

Total

 

$

295,413

 

 

$

389,615

 

 

$

(1,806

)

 

$

300,000

 

 

$

406,255

 

 

$

4,830

 

 

The following table presents amounts included in the Consolidated Statements of Income for derivatives designated as fair value hedging instruments for the three and six months ended June 30, 2025 and 2024.

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Income Sheet Classification

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Interest and dividends on available-for-sale and equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

State and municipal securities

 

 

 

 

 

 

 

 

 

 

 

 

Recognized on fair value hedge

 

$

815

 

 

$

1,000

 

 

$

1,646

 

 

$

2,010

 

Recognized on hedge portfolio

 

 

(668

)

 

 

(661

)

 

 

(1,343

)

 

 

(1,329

)

Recognized on remeasurement of fair value hedge

 

 

25

 

 

 

8

 

 

 

40

 

 

 

(10

)

U.S. Government agencies and GSE mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

Recognized on fair value hedge

 

 

2,430

 

 

 

2,999

 

 

 

4,898

 

 

 

5,995

 

Recognized on hedge portfolio

 

 

(2,034

)

 

 

(2,039

)

 

 

(4,094

)

 

 

(4,076

)

Recognized on remeasurement of fair value hedge

 

 

33

 

 

 

44

 

 

 

29

 

 

 

(12

)

Total

 

$

601

 

 

$

1,351

 

 

$

1,176

 

 

$

2,578