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Derivatives and Hedging Activities
 9 Months Ended
Sep. 30, 2025
Derivatives and Hedging Activities  
Derivatives and Hedging Activities

Note 8 – Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives – The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.

Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s assets and liabilities.

Interest rate positions – The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s borrowings and loan portfolios. An interest rate derivative is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged.

The following table reflects information about the Company’s derivative positions at the dates indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:

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September 30, 2025

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Weighted Average Rate

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Notional

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Weighted Average

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Current Rate

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Current Rate

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Amount

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Maturity

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Paid

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Received

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Fair Value

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(in thousands)

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(in years)

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(in thousands)

Interest rate swaps

$

300,000

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3.5

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4.31

%

3.44

%

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$

1,592

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​

​

​

​

​

​

​

​

​

​

​

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Total

$

300,000

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​

​

​

​

​

​

​

$

1,592

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The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is 3 years. Included in the table above is a forward-starting interest rate swap with a notional amount of $150 million, which does not begin exchanging cash flows until Q3 2026 and carries a 3-year term during the swap period.

For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $54,000 (pre-tax) to be reclassified as an increase to net interest income from other comprehensive income related to the Company’s cash flow hedges in the twelve months following September 30, 2025. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve at September 30, 2025. The Company had no hedges in place for the three and nine months ended September 30, 2024.

Non-designated Hedges – Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships, exclusive of credit valuation adjustments, are recorded directly in earnings.

The Company executes interest rate swaps and cap agreements with commercial banking customers to facilitate its respective risk management strategies. Those interest rate swap and cap agreements are simultaneously hedged by offsetting interest rate swaps and caps that are executed with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As of September 30, 2025, the Company had 71 interest rate swap agreements with an aggregate notional amount of $458.7 million compared to 67 interest rate swap agreements with an aggregate notional amount of $429.9 million related to this program as of December 31, 2024.

Risk Participation Agreements – Risk Participation Agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap.

The interest rate swap is transacted such that any and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs, and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment. RPAs where the Company acts as the lead bank are referred to as “participations out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations out generally occur concurrently with the sale of new customer derivatives. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer. As of September 30, 2025, the Company had 17 RPAs with an aggregate notional amount of $44.7 million related to this program compared to 17 RPAs with an aggregate notional amount of $44.9 million as of December 31, 2024. These RPAs all represent “participations-in” and generally have terms ranging from five to ten years.

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The table below presents the fair value of the Company’s derivative financial instruments not designated as hedging instruments, as well as their classification on the consolidated balance sheets as of the dates stated:

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Derivative

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Derivative

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Assets (1)

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Liabilities (2)

September 30, 2025

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(in thousands)

Derivatives not designated as hedging instruments:

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Interest rate products

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$

22,772

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$

22,771

RPA credit contracts

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—

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2

Total derivatives not designated as hedging instruments

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$

22,772

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$

22,773

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December 31, 2024

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Derivatives not designated as hedging instruments:

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Interest rate products

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$

27,174

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$

27,174

RPA credit contracts

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​

—

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3

Total derivatives not designated as hedging instruments

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$

27,174

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$

27,177

(1)Recorded in prepaid expenses and other assets on the consolidated balance sheets.
(2)Recorded in accrued expenses and other liabilities on the consolidated balance sheets.

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Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $208,000 and $375,000 for the three months ended September 30, 2025 and 2024, respectively, and $820,000 and $1.1 million for the nine months ended September 30, 2025 and 2024, respectively.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty. The Company also has agreements with certain of its derivative counterparties that contain a provision whereby if the counterparty fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty. In order to mitigate counterparty default risk in conjunction with these interest rate products and RPA credit contracts, the Company was required to maintain $9.1 million of collateral deposit accounts with the counterparties to these agreements as of September 30, 2025 and December 31, 2024.