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Derivatives and Hedging Activities | 6 Months Ended
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Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Note 6 – Derivatives and Hedging Activities 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. Fair Value Hedges of Interest Rate Risk During 2025, the Company began utilizing receive-fixed, pay-floating interest rate swaps, accounted for as fair value hedges, to protect itself against adverse fluctuations in the fair value of interest-bearing deposits attributable to changes in the benchmark interest rate. Adjustments are made to record the hedging instrument at fair value on the balance sheet, with changes in fair value recognized in interest expense. The carrying value of the interest-bearing deposits are also adjusted through interest expense, based on changes in fair value attributable to changes in the benchmark interest rate. During 2025, the Company also utilized pay-fixed, receive-floating interest rate swaps, accounted for as fair value hedges, to protect itself against adverse fluctuations in the fair value of AFS securities attributable to changes in the designated benchmark interest rate. Adjustments were made to record the hedging instrument at fair value on the balance sheet, with changes in fair value recognized in interest income. Changes in fair value of the AFS securities attributable to changes in the hedged risk were reclassified out of other comprehensive income (loss) through interest income each period to offset changes in fair value of the hedging instrument. The Company voluntarily discontinued this fair value hedging relationship in 2025. The Company is amortizing the hedging basis adjustment over a period consistent with amortization of other discounts or premiums on the asset. The cumulative amount of fair value hedging adjustments included in the amortized cost basis of the AFS securities was $283 thousand as of June 30, 2026. Cash Flow Hedges of Interest Rate Risk The Company utilizes interest rate swaps, accounted for as cash flow hedges, to protect itself against adverse fluctuations in interest payments on variable rate loans. These swaps consist of receive-fixed, pay-floating interest rate swaps used to hedge the designated benchmark interest rate. The Company designates the receive-fixed, pay-floating interest rate swap as a cash flow hedge of the risk of changes in the cash flows on the hedged transactions. These swaps will be recorded on the balance sheet at fair value and, assuming the hedging relationship qualifies as highly effective, the gain or loss on the hedging instrument will be recorded in accumulated other comprehensive income and reclassified into interest income in the same period(s) during which the hedged transactions affect earnings. Any interest accruals will flow through earnings as adjustments to interest income. Interest Rate Swaps Related to Customer Loans Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings (loss). Credit Risk Related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC 815, "Derivatives and Hedging". In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. As of June 30, 2026, the Company had posted no cash collateral with other financial institutions and held $16.0 million of cash collateral on behalf of other financial institutions. The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; and 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. The table below presents the amounts recorded on the balance sheet related to cumulative basis adjustments for fair value hedges.
|  | As of
(dollars in thousands) |  | June 30, 2026 |  | December 31, 2025 |  | June 30, 2026 |  | December 31, 2025
Line Item in the Balance Sheet in Which the Hedged Item is Included |  | Carrying Amount of the Hedged Assets (Liabilities) |  | Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of the Hedged Assets (Liabilities)
Deposits |  | $ | (383,550) |  |  | $ | (389,295) |  |  | $ | 6,450 |  |  | $ | 705 |
The table below identifies the balance sheet category and fair value of the Company’s derivative instruments. The Company has a minimum collateral posting threshold with its derivative counterparty. If the Company had breached any provisions under the agreement as of June 30, 2026, it could have been required to settle its obligations under the agreement at the termination value.
|  | As of
|  | June 30, 2026 |  | December 31, 2025
(dollars in thousands) |  | Notional Amount |  | Fair Value |  | Balance Sheet Category |  | Notional Amount |  | Fair Value |  | Balance Sheet Category
Derivatives in an asset position: |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | $ | — |  |  | $ | — |  |  | Other Assets |  | $ | 300,000 |  |  | $ | 60 |  |  | Other Assets
Fair value hedges |  | — |  |  | — |  |  | Other Assets |  | — |  |  | — |  |  | Other Assets
Total hedging instruments |  | — |  |  | — |  |  |  |  | 300,000 |  |  | 60 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps related to customer loans |  | 1,036,130 |  |  | 25,254 |  |  | Other Assets |  | 808,009 |  |  | 24,272 |  |  | Other Assets
Total derivatives in an asset position |  | $ | 1,036,130 |  |  | $ | 25,254 |  |  |  |  | $ | 1,108,009 |  |  | $ | 24,332 |  |  |
Derivatives in a liability position: |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | $ | 600,000 |  |  | $ | 7,092 |  |  | Other Liabilities |  | $ | — |  |  | $ | — |  |  | Other Liabilities
Fair value hedges |  | 390,000 |  |  | 6,579 |  |  | Other Liabilities |  | 390,000 |  |  | 927 |  |  | Other Liabilities
Total hedging instruments |  | 990,000 |  |  | 13,671 |  |  |  |  | 390,000 |  |  | 927 |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps related to customer loans |  | 1,036,130 |  |  | 24,293 |  |  | Other Liabilities |  | 808,009 |  |  | 23,015 |  |  | Other Liabilities
Total derivatives in a liability position |  | $ | 2,026,130 |  |  | $ | 37,964 |  |  |  |  | $ | 1,198,009 |  |  | $ | 23,942 |  |  |
The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and six months ended June 30, 2026 and 2025.
The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)
|  | Amount of Gain (Loss) Recognized in OCI |  | Location of Gain (Loss) Recognized from Accumulated Other Comprehensive Income (Loss) into Income (Loss) |  | Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Year Ended Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(dollars in thousands) |  | Total |  | Included Component |  | Excluded Component |  |  | Total |  | Included Component |  | Excluded Component
For the Three Months Ended June 30, 2026 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | (4,784) |  |  | $ | (4,784) |  |  | $ | — |  |  | Interest income |  | $ | 421 |  |  | $ | 421 |  |  | $ | — |
For the Three Months Ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | Interest expense |  | $ | — |  |  | $ | — |  |  | $ | — |
For the Six Months Ended June 30, 2026 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | (7,826) |  |  | $ | (7,826) |  |  | $ | — |  |  | Interest income |  | $ | 766 |  |  | $ | 766 |  |  | $ | — |
For the Six Months Ended June 30, 2025 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | Interest expense |  | $ | — |  |  | $ | — |  |  | $ | — |
The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations.
The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Operations
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
|  | 2026 |  | 2025 |  | 2026 |  | 2025 |  |
(dollars in thousands) |  | Interest Income (Expense) |  | Interest Income (Expense)
Total amounts of expense line items presented in the Consolidated Statements of Operations in which the effects of fair value and cash flow hedges are recorded |  | $ | (765) |  |  | $ | — |  |  | $ | (1,480) |  |  | $ | — |  |  |
The effect of fair value and cash flow hedging: |  |  |  |  |  |  |  |  |  |
Gain (loss) on fair value hedging relationships in Subtopic 815-20: |  |  |  |  |  |  |  |  |  |
Interest rate products: |  |  |  |  |  |  |  |  |  |
Hedged items |  | $ | 3,400 |  |  | $ | — |  |  | $ | 5,745 |  |  | $ | — |  |  |
Derivatives designated as hedging instruments |  | (3,744) |  |  | — |  |  | (6,459) |  |  | — |  |  |
Gain (loss) on cash flow hedging relationships in Subtopic 815-20: |  |  |  |  |  |  |  |  |  |
Interest rate products: |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss) |  | $ | (421) |  |  | $ | — |  |  | $ | (766) |  |  | $ | — |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring |  | — |  |  | — |  |  | — |  |  | — |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss) - included component |  | (421) |  |  | — |  |  | (766) |  |  | — |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income (loss) - excluded component |  | — |  |  | — |  |  | — |  |  | — |  |  |
The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations.
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Operations
(dollars in thousands) |  | Location of Gain or (Loss) Recognized in Income on Derivative |  | Amount of Gain or (Loss) Recognized in Income on Derivatives
|  | For the Three Months Ended June 30, |  | For the Six Months Ended June 30,
|  | 2026 |  | 2025 |  | 2026 |  | 2025 |  |
Derivatives Not Designated as Hedging Instruments under ASC 815-20: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate products |  | Other income / (expense) |  | $ | 274 |  |  | $ | 566 |  |  | $ | 695 |  |  | $ | 560 |  |  |

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