v3.26.1
Note 12 - Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2025
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS

 

As part of its liability management, the Company has historically utilized pay-fixed interest rate swaps to manage exposure against the variability in the expected future cash flows (future interest payments) attributable to changes in the 1-month SOFR associated with the forecasted issuances of 1-month fixed rate debt arising from a rollover strategy. To mitigate credit risk, securities were pledged to the Company by the counterparties in an amount greater than or equal to the gain position of the derivative contracts. Conversely, securities were pledged to the counterparties by the Company in an amount greater than or equal to the loss position of the derivative contracts, if applicable. There were no assets or liabilities recorded in the accompanying consolidated balance sheets at  December 31, 2025 or  December 31, 2024 associated with the swap contracts, other than interest rate swaps related to customer loans, described below.

 

Customer Derivatives – Interest Rate Swaps

 

The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC Topic 815, “Derivatives and Hedging,” and changes in fair value are recognized in other operating income. 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 Topic 820, “Fair Value Measurement.” The Company did not recognize any gains or losses in other operating income resulting from fair value adjustments of these swap agreements during the years ended  December 31, 2025, 2024 and 2023.

 

The table below presents the notional amounts and fair values of the Company's derivative financial instruments as well as their classification on the accompanying consolidated balance sheets at  December 31, 2025 and  December 31, 2024 (dollars in thousands).

 

      

Fair Value

 
  

Notional(1)

  

Derivative Assets(2)

  

Derivative Liabilities(2)

 

December 31, 2025

            

Interest rate swaps

 $361,564  $11,660  $11,660 
             

December 31, 2024

            

Interest rate swaps

 $373,845  $17,195  $17,195 

 

 (1)At  December 31, 2025 the Company had notional amounts of $180.8 million in interest rate swap contracts with customers and $180.8 million in offsetting interest rate swap contracts with other financial institutions. At  December 31, 2024 the Company had notional amounts of $186.9 million in interest rate swap contracts with customers and $186.9 million in offsetting interest rate swap contracts with other financial institutions.
 (2)Derivative assets and liabilities are reported at fair value in “Other assets” and “Accrued taxes and other liabilities,” respectively, in the accompanying consolidated balance sheets.

 

The table below presents the gross presentation, the effects of offsetting, and a net presentation of the Company’s derivative financial instruments and securities sold under agreements to repurchase at  December 31, 2025 and  December 31, 2024 (dollars in thousands). For additional information regarding the Company’s repurchase agreements see Note 9. Securities Sold Under Agreements to Repurchase. 

 

              

Gross Amounts Not Offset in the Consolidated Balance Sheets

     
  

Gross Amounts Recognized

  

Gross Amounts Offset in the Consolidated Balance Sheets

  

Net Amounts Presented in the Consolidated Balance Sheets

  

Financial Instruments

  

Cash Collateral(1)

  

Net Amount

 

December 31, 2025

                        

Financial assets:

                        

Interest rate swaps

 $11,660  $—  $11,660  $—  $(8,729) $2,931 

Total

 $11,660  $—  $11,660  $—  $(8,729) $2,931 
                         

Financial liabilities:

                        

Interest rate swaps

 $11,660  $—  $11,660  $—  $—  $11,660 

Repurchase agreements

  11,183   —   11,183   (11,183)  —   — 

Total

 $22,843  $—  $22,843  $(11,183) $—  $11,660 
                         

December 31, 2024

                        

Financial assets:

                        

Interest rate swaps

 $17,195  $—  $17,195  $—  $(15,445) $1,750 

Total

 $17,195  $—  $17,195  $—  $(15,445) $1,750 
                         

Financial liabilities:

                        

Interest rate swaps

 $17,195  $—  $17,195  $—  $—  $17,195 

Repurchase agreements

  8,376   —   8,376   (8,376)  —   — 

Total

 $25,571  $—  $25,571  $(8,376) $—  $17,195 

 

 (1)The Company had no collateral posted with counterparties at  December 31, 2025 and 2024. Collateral received from counterparties is included in “Interest-bearing deposits” in the accompanying consolidated balance sheets.