XML 29 R23.htm IDEA: XBRL DOCUMENT v3.25.3
Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

Note 13 — Derivative Financial Instruments

The Corporation offers interest rate swap products directly to qualified commercial borrowers. The Corporation economically hedges client derivative transactions by entering into offsetting interest rate swap contracts executed with a third party. Derivative transactions executed as part of this program are not considered hedging instruments and are marked-to-market through earnings each period. The derivative contracts have mirror-image terms, which results in the positions’ changes in fair value offsetting through earnings each period. The credit risk and risk of non-performance embedded in the fair value calculations is different between the dealer counterparties and the commercial borrowers which may result in a difference in the changes in the fair value of the mirror-image swaps. The Corporation incorporates credit valuation adjustments to appropriately reflect both its own non-performance risk and the counterparty’s risk in the fair value measurements. When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds, and guarantees. As of September 30, 2025 and December 31, 2024, the credit valuation allowance was $116,000 and $149,000, respectively.

The Corporation receives fixed rates and pays floating rates based upon designated benchmark interest rates used on the swaps with commercial borrowers. Commercial borrower swaps are completed independently with each borrower and are not subject to master netting arrangements. The Corporation pays fixed rates and receives floating rates based upon designated benchmark interest rates used on the swaps with dealer counterparties. Dealer counterparty swaps are subject to master netting agreements among the contracts within our Bank and are reported on the unaudited Consolidated Balance Sheet. The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative asset of $35.5 million and gross derivative liability of $10.2 million as of September 30, 2025.

All changes in fair value of these instruments are recorded in other non-interest income. Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and nine months ended September 30, 2025 and 2024 had an insignificant impact on the unaudited Consolidated Statements of Income.

The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The instruments are designated as cash flow hedges as the receipt of floating rate interest from the counterparty is used to manage interest rate risk related to cash outflows attributable to future wholesale deposit or short-term FHLB advance borrowings. The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. A pre-tax unrealized loss of $665,000 and $9.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2025, respectively, and there were no ineffective portions of the hedges. A pre-tax unrealized loss of $11.6 million and $6.5 million was recognized in other comprehensive income for the three and nine months ended September 30, 2024, respectively, and there were no ineffective portions of the hedges.

The Corporation also enters into interest rate swaps to mitigate market value volatility on certain long-term fixed securities. The objective of the hedge is to protect the Corporation against changes in fair value due to changes in benchmark interest rates. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the SOFR swap rate, the designated benchmark interest rate. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Corporation making fixed-rate payments over the life of the agreement, without the exchange of the underlying notional value. The change in the fair value of these

hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affect earnings. A pre-tax unrealized loss of $13,000 and $257,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2025, respectively, and there was no ineffective portion of the hedges. A pre-tax unrealized loss of $246,000 and $24,000 was recognized in other comprehensive income for the three and nine months ended September 30, 2024, respectively, and there was no ineffective portion of the hedges.

 

 

 

As of September 30, 2025

 

 

 

Number of
Instruments

 

 

Notional
Amount

 

 

Weighted
Average
Maturity
(In Years)

 

 

Fair
Value

 

 

 

(Dollars in Thousands)

 

Included in Derivative assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements on loans with commercial
   loan clients

 

 

49

 

 

$

580,438

 

 

 

3.87

 

 

$

10,157

 

Interest rate swap agreements on loans with third-party
   counterparties

 

 

114

 

 

 

1,139,194

 

 

 

4.44

 

 

 

25,377

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap related to AFS securities

 

 

11

 

 

$

12,500

 

 

 

6.53

 

 

$

757

 

Interest rate swap related to wholesale funding

 

 

4

 

 

 

48,400

 

 

 

2.37

 

 

 

1,343

 

Included in Derivative liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements on loans with commercial
   loan clients

 

 

65

 

 

$

558,756

 

 

 

5.04

 

 

$

35,534

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap related to wholesale funding

 

 

44

 

 

$

448,755

 

 

 

3.31

 

 

$

3,192

 

 

 

 

As of December 31, 2024

 

 

 

Number of
Instruments

 

 

Notional
Amount

 

 

Weighted
Average
Maturity
(In Years)

 

 

Fair
Value

 

 

 

(Dollars in Thousands)

 

Included in Derivative assets

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements on loans with commercial
   loan clients

 

 

20

 

 

$

232,488

 

 

 

4.55

 

 

$

2,015

 

Interest rate swap agreements on loans with third-party
   counter parties

 

 

106

 

 

 

1,022,365

 

 

 

5.24

 

 

 

54,544

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap related to AFS securities

 

 

11

 

 

$

12,500

 

 

 

7.28

 

 

$

1,014

 

Interest rate swap related to wholesale funding

 

 

36

 

 

 

384,655

 

 

 

3.95

 

 

 

8,189

 

Included in Derivative liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements on loans with commercial
   loan clients

 

 

86

 

 

$

789,877

 

 

 

5.44

 

 

$

56,559

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swap related to wholesale funding

 

 

10

 

 

$

100,000

 

 

 

1.55

 

 

$

509