Company: COFS
Filing Date: 2025-03-11
Form Type: 10-K
Source: 0000950170-25-036839
Chunk: 103

Company: CHOICEONE FINANCIAL SERVICES INC
Filing Date: 2025-03-11
Form: 10-K
Item: Item 8
Chunk 103
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       Back to Back Loan Swaps Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. ChoiceOne executes interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. This is known as a back to back loan swap agreement. The net result is the desired floating rate loan and a minimization of the risk exposure of the interest rate swap transactions. Under this arrangement the Bank has three freestanding interest rate swaps, each of which is carried at fair value. 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 bank are recognized directly to earnings.  The table below presents the notional and fair value of these derivative instruments as of December 31, 2024 and December 31, 2023: 

 73

        December 31, 2024

        (Dollars in thousands)
        Notional Amount
         
        Balance Sheet Location
        Fair Value

        Derivative assets

        Interest rate swaps
        $
        56,526
         
         Other Assets
        $
        686

        Derivative liabilities

        Interest rate swaps
        $
        56,526
         
         Other Liabilities
        $
        686

        December 31, 2023

        (Dollars in thousands)
         Notional Amount
         
         Balance Sheet Location
         Fair Value

        Derivative assets

        Interest rate swaps
        $
        -
         
         Other Assets
        $
        -

        Derivative liabilities

        Interest rate swaps
        $
        -
         
         Other Liabilities
        $
        -

       The fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements was $686,000 and $0 as of December 31, 2024 and December 31, 2023, respectively.  ChoiceOne has a master netting agreement with the correspondent bank and has the right to offset, however, ChoiceOne has elected to present the assets and liabilities gross. ChoiceOne is required to pledge collateral to the correspondent bank equal to or