XML 30 R18.htm IDEA: XBRL DOCUMENT

Derivatives Financial Instruments

3 Months Ended

Mar. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives Financial Instruments

Note 10.Derivatives Financial Instruments

Derivatives designated as fair value hedges:

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative net investment hedge instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of certain fixed rate securities designated as available-for-sale. The hedging strategy converts the fixed interest rates to SOFR-based variable interest rates. These derivatives are designated as partial term hedges covering specified periods of time prior to the maturity date of the hedged securities. The Company adopted ASU 2017-12, “Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities” in 2018, which allows such partial term hedge designations.

A summary of the Company’s fair value hedge relationships for the periods presented are as follows (dollars in thousands):

Weighted

Average

Balance

Remaining

Weighted

Sheet

Maturity

Average

Receive

Notional

Estimated

Asset/Liability derivatives

Location

(In Years)

Pay Rate

Rate

Amount

Fair Value

March 31, 2025:

Interest rate swap agreements - securities

Other liabilities

1.45

4.31

%

SOFR

$

51,507

$

(380)

December 31, 2024:

Interest rate swap agreements - securities

Other liabilities

1.70

4.31

%

SOFR

$

51,507

$

(224)

The effects of the Company’s fair value hedge relationships reported in interest income on taxable securities on the consolidated income statement were as follows (in thousands):


		Three Months Ended
		March 31,
		2025			2024
Interest income on taxable securities		$	4,774		$	4,442
Effects of fair value hedge relationships			1			106
Reported interest income on taxable securities		$	4,775		$	4,548


		Three Months Ended
		March 31,
Gain (loss) on fair value hedging relationship		2025			2024
Interest rate swap agreements - securities:
Hedged items		$	(380)		$	(9)
Derivative designated as hedging instruments			380			9
Carry amount of hedged assets - mortgage-backed securities			48,115			48,507

Derivatives designated as cash flow hedges:

The Company enters into interest rate derivative contracts on assets and liabilities that are designated as qualifying cash flow hedges. The Company hedges the exposure to variability in expected future cash flows attributable to changes in contractual specified interest rates. To qualify for hedge accounting, a formal assessment is prepared to determine whether

the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in offsetting cash flows attributable to the hedged risk. At inception, a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in accumulated other comprehensive income (“AOCI”) is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax, see – Consolidated Statements of Comprehensive Income (Loss). Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability, as future interest payments are made on the underlying assets. At March 31, 2025, the Company estimates that in the next 12 months an additional $0 thousand will be reclassified in interest income and $79 thousand will be reclassified as an increase in interest expense.

At March 31, 2025 and December 31, 2024, cash flow hedges are as follows (in thousands):

March 31, 2025

December 31, 2024

Balance Sheet

Notional

Estimated

Balance Sheet

Notional

Estimated

Location

Amount

Fair Value

Location

Amount

Fair Value

Cash flow hedges:

Assets

Other liabilities

$

100,000

$

(171)

Other liabilities

$

100,000

$

(559)

Liabilities

Other liabilities

150,000

(79)

Other liabilities

150,000

(280)

The following table presents the effect of fair value and cash flow hedge accounting on AOCI (in thousands):


Derivatives in cash flow hedging relationships:			Amount of Gain (Loss) Recognized on OCI on Derivative		Location of Gain or (Loss) Recognized from AOCI into Income			Amount of Gain or (Loss) Reclassified from AOCI into Income
Three Months Ended March 31, 2025
Interest rate swaps - Assets		$	387		Interest income		$	13
Interest rate swaps - Liabilities			201		Interest expense			(164)

Three Months Ended March 31, 2024
Interest rate swaps - Assets		$	(1,221)		Interest income		$	(204)
Interest rate swaps - Liabilities			189		Interest expense			(242)

The following table presents the effect of fair value and cash flow hedge accounting on the income statement (in thousands):


		Three Months Ended
		March 31,
		2025			2024
Total interest income		$	66,363		$	59,987
Effects of cash flow hedge relationships			13			(204)
Reported total interest income		$	66,376		$	59,783

Total interest expense		$	27,974		$	28,304
Effects of cash flow hedge relationships			164			(242)
Reported total interest expense		$	28,138		$	28,062

Non-hedged derivatives:

The Company provides a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a dealer bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the

interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. Since the income statement impact of the offsetting positions is limited, any changes in fair value are recognized as other noninterest income in the current period.

At March 31, 2025 and December 31, 2024, interest rate swaps related to the Company’s loan hedging program that were outstanding are presented in the following table (in thousands):


		March 31, 2025						December 31, 2024
			Notional			Estimated			Notional			Estimated
			Amount			Fair Value			Amount			Fair Value
Interest rate swap agreements:
Assets		$	422,429		$	12,081		$	393,268		$	12,135
Liabilities			422,429			(12,081)			393,268			(12,135)

The Company establishes limits and monitors exposures for customer swap positions. Any fees received to enter the swap agreements at inception are recognized in earnings when received and is included in noninterest income. Such fees were as follows (in thousands):


		Three Months Ended
		March 31,
		2025			2024
Interest rate swap agreements		$	457		$	113

Collateral requirements:

These derivative rate contracts have collateral requirements, both at inception of the trade and as the value of each derivative position changes. At March 31, 2025, and December 31, 2024, collateral totaling $150 was pledged to the derivative counterparties to comply with collateral requirements.