Derivative Financial Instruments |
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| Derivative Financial Instruments | NOTE 16: Derivative Financial Instruments The Company enters into derivative financial instruments, primarily interest rate swaps, to convert certain long term fixed rate loans to floating rates to manage interest rate risk, facilitate asset/liability management strategies and manage other exposures. The fair value of derivative positions outstanding is included in other assets and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these line items in the operating section of the accompanying consolidated statements of cash flows. The unrealized gains and losses, representing the change in fair value of the derivative is being recorded in interest income 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. Fair Value Hedges. The Company executed two interest rate swaps with original notional amounts totaling $20.0 million during fiscal 2025, and executed two interest rate swaps with original notional amounts totaling $40.0 million during fiscal 2024, for a total of $60.0 million outstanding as of June 30, 2026, designated as fair value hedges, to convert certain long-term fixed rate 1-4 family residential real estate loans to floating rates to hedge interest rate risk exposure. The portfolio layer method is being used, which allows the Company to designate a stated amount of the assets that are not expected to be affected by prepayments, defaults or other factors that could affect the timing and amount of the cash flow, as the hedged item. The effect of the swaps on loan interest income in the consolidated statements of income during the year ended June 30, 2026 was $18,000 compared to $364,000 and $28,000 in the fiscal years ended June 30, 2025 and June 30, 2024, respectively. The notional amounts and estimated fair values of the Company’s interest rate swaps at June 30, 2026 and June 30, 2025 are presented in the table below.
The carrying amount of the hedged assets, located in loans receivable, net and cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets at June 30, 2026 and June 30, 2025 are presented in the table below.
A Non-Hedging Interest Rate Derivatives. During the fiscal year ended June 30, 2026, the Company entered into two interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into interest rate swap contracts executed with customers to assist them in managing their interest rate risk while executing offsetting interest rate swaps with an upstream counterparty. Additionally, the Company receives an upfront, non-refundable fee from the upstream counterparty, dependent upon the pricing, that is recognized in noninterest income upon receipt from the counterparty. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts, for the most part, offset each other and do not significantly impact the Company’s results of operations. Interest rate swaps that were not designated as hedging instruments as of June 30, 2026 are summarized as follows:
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