XML 30 R20.htm IDEA: XBRL DOCUMENT v3.25.2
Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2025
Derivative Financial Instruments  
Derivative Financial Instruments

NOTE 12: Derivative Financial Instruments

​

The Corporation uses derivative financial instruments primarily to manage risks to the Corporation associated with changing interest rates, and to assist customers with their risk management objectives. The Corporation recognizes derivative financial instruments at fair value as either an other asset or other liability in the Consolidated Balance Sheets. The Corporation’s derivative financial instruments include (1) interest rate swaps that qualify and are designated as cash flow hedges on the Corporation’s trust preferred capital notes, (2) interest rate swaps with certain qualifying commercial loan customers and dealer counterparties and (3) interest rate contracts arising from mortgage banking activities, including interest rate lock commitments (IRLCs) on mortgage loans. The gain or loss on the Corporation’s cash flow hedges is reported as a component of other comprehensive income (loss), net of deferred income taxes, and reclassified into earnings in the same period(s) during which the hedged transactions affect earnings. IRLCs and interest rate swaps with loan customers and dealer counterparties are not designated as hedging instruments, and therefore changes in the fair value of these instruments are reported as noninterest income.

​

Cash flow hedges.  The Corporation designates interest rate swaps as cash flow hedges when they are used to manage exposure to variability in cash flows on variable rate borrowings such as the Corporation’s trust preferred capital notes. These interest rate swaps are derivative financial instruments that manage the risk of variability in cash flows by exchanging variable-rate interest payments on a notional amount of the Corporation’s borrowings for fixed-rate interest payments.  Interest rate swaps designated as cash flow hedges are expected to be highly effective in offsetting the effect of changes in interest rates on the amount of variable-rate interest payments, and the Corporation assesses the effectiveness of each hedging relationship quarterly. If the Corporation determines that a cash flow hedge is no longer highly effective, future changes in the fair value of the hedging instrument would be reported in earnings. As of June 30, 2025, the Corporation has designated cash flow hedges to manage its exposure to variability in cash flows on certain variable rate borrowings for periods that end between June 2026 and June 2029.

 

All interest rate swaps were entered into with counterparties that met the Corporation’s credit standards and the agreements contain collateral provisions protecting the at-risk party. The Corporation believes that the credit risk inherent in these derivative contracts is not significant.

​

These cash flow hedges are reported at fair value in “other assets” in the Consolidated Balance Sheets. Unrealized gains or losses recorded in other comprehensive income (loss) related to cash flow hedges are reclassified into earnings in the same period(s) during which the hedged interest payments affect earnings. When a designated hedging instrument is terminated and the hedged interest payments remain probable of occurring, any remaining unrecognized gain or loss in other comprehensive income (loss) is reclassified into earnings in the period(s) during which the forecasted interest payments affect earnings.  Amounts reclassified into earnings and interest receivable or payable under designated interest rate swaps are reported in interest expense.  The Corporation does not expect any unrealized losses related to cash flow hedges to be reclassified into earnings in the next twelve months. Refer to Note 6 for additional information on amounts reclassified into net income related to these cash flow hedges.

​

Loan swaps.  The Bank also enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets.  Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of swaps with borrowers and swaps with dealer counterparties.

​

Mortgage banking.  The mortgage banking segment enters into IRLCs with customers to originate loans for which the interest rates are determined (or “locked”) prior to funding. The mortgage banking segment is exposed to interest rate risk through fixed-rate IRLCs and mortgage loans from the time that interest rates are locked until the loans are sold in the secondary market. The mortgage banking segment mitigates this interest rate risk by entering into forward sales contracts

with investors, which at times includes the community banking segment, at the time that interest rates are locked for mortgage loans to be delivered on a best efforts basis. IRLCs are derivative financial instruments and are reported at fair value in other assets and other liabilities in the Consolidated Balance Sheets, along with the changes in fair value of the related forward sales of loans.  Changes in the fair value of mortgage banking derivatives are recorded as a component of gains on sales of loans.

​

At June 30, 2025, the mortgage banking segment had $56.39 million of IRLCs and $44.76 million of unpaid principal on mortgage loans held for sale for which it managed interest rate risk using best-efforts forward sales contracts for $101.15 million in mortgage loans.  

​

At December 31, 2024, the mortgage banking segment had $39.29 million of IRLCs and $20.11 million of unpaid principal on mortgage loans held for sale for which it managed interest rate risk using best-efforts forward sales contracts for $59.40 million in mortgage loans.  

​

The following tables summarize key elements of the Corporation’s derivative instruments.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

June 30, 2025

 

​

    

Notional

    

​

    

​

    

 

(Dollars in thousands)

​

Amount

​

Assets

​

Liabilities

​

 

Cash flow hedges:

​

​

​

​

​

​

​

​

​

​

​

Interest rate swap contracts

​

$

25,000

​

$

750

​

$

219

​

​

Not designated as hedges:

​

 

​

​

 

​

​

 

​

​

​

Customer-related interest rate swap contracts:

​

 

​

​

 

​

​

 

​

​

​

Matched interest rate swaps with borrower

​

 

84,428

​

 

251

​

 

2,784

​

​

Matched interest rate swaps with counterparty

​

​

84,428

​

​

2,784

​

​

251

​

​

Mortgage banking contracts:

​

​

​

​

​

​

​

​

​

​

​

IRLCs

​

​

56,389

​

​

763

​

​

—

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2024

​

​

    

Notional

    

​

    

​

    

​

(Dollars in thousands)

​

Amount

​

Assets

​

Liabilities

​

​

Cash flow hedges:

​

​

​

​

​

​

​

​

​

​

​

Interest rate swap contracts

​

$

25,000

​

$

1,169

​

$

—

​

​

Not designated as hedges:

​

​

​

​

 

​

​

 

​

​

​

Customer-related interest rate swap contracts:

​

 

​

​

 

​

​

 

​

​

​

Matched interest rate swaps with borrower

​

 

77,820

​

 

—

​

 

4,636

​

​

Matched interest rate swaps with counterparty

​

​

77,820

​

​

4,636

​

​

—

​

​

Mortgage banking contracts:

​

​

​

​

​

​

​

​

​

​

​

IRLCs

​

​

39,291

​

​

585

​

​

—

​

​

​

​

​

​

​

​

The Corporation and the Bank are required to maintain cash collateral with dealer counterparties for interest rate swap relationships in a loss position.  At both June 30, 2025 and December 31, 2024, there was no cash collateral maintained with dealer counterparties.  

​