Note 14 - Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES

We are exposed to certain risks arising from both business operations and economic conditions. We principally manage the exposure to a wide variety of operational risks through core business activities. Economic risks, including interest rate, liquidity and credit risk, are primarily administered via the amount, sources and duration of assets and liabilities. Derivative financial instruments may also be used to assist in managing economic risks.

Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. We execute interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with correspondent banks to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap transactions. These swap agreements are cross collateralized with the underlying loans. 

As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent banks are recognized directly to earnings. Fees paid to us by the correspondent banks are recognized as noninterest income on our Consolidated Statements of Income on the settlement date.

NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The fair values of derivative instruments as of December 31, 2023, are reflected in the following table.

(Dollars in thousands)	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	676,526	Other Assets	$	27,505
Derivative Liabilities
Interest rate swaps		674,499	Other Liabilities		27,964

The effect of interest rate swaps that are not designated as hedging instruments resulted in expense of $0.3 million during the year ended December 31, 2023 that was recorded in other noninterest expense on our Consolidated Statements of Income.  We have master netting arrangements with our correspondent banks that allow us to net receivables and payables. The netting agreement also allows us to net related cash collateral received and transferred up to the fair value exposure amount. We have elected to not offset these transactions on the Consolidated Balance Sheets. The netting of derivative instruments as of December 31, 2023 is presented in the following table.

			Gross Amounts Not Offset on the Consolidated Balance Sheet
(Dollars in thousands)	Net Amounts Recognized		Financial Instruments		Cash Collateral Received or posted		Net Amount
Derivative Assets
Interest rate swaps	$	27,505	$	5,175	$	14,010	$	8,320
Derivative Liabilities
Interest rate swaps		27,964	$	5,175		3,120	$	19,669

NOTE 14 – DERIVATIVES AND HEDGING ACTIVITIES (Continued)

The fair values of derivative instruments as of December 31, 2022, are reflected in the following table.

(Dollars in thousands)	Notional Amount		Balance Sheet Location	Fair Value
Derivative Assets
Interest rate swaps	$	401,572	Other Assets	$	26,173
Derivative Liabilities
Interest rate swaps		401,572	Other Liabilities		26,377

The effect of interest rate swaps that are not designated as hedging instruments resulted in income of less than $0.1 million during the year ended December 31, 2022 that was recognized in other noninterest expense on our Consolidated Statements of Income. The netting of derivative instruments as of December 31, 2022 is presented in the following table.

			Gross Amounts Not Offset on the Consolidated Balance Sheet
(Dollars in thousands)	Net Amounts Recognized		Financial Instruments		Cash Collateral Received or posted		Net Amount
Derivative Assets
Interest rate swaps	$	26,173	$	415	$	24,760	$	998
Derivative Liabilities
Interest rate swaps		26,377	$	415		0	$	25,962