v3.25.1
Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2025
Derivative Financial Instruments [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS

 

Risk Management Objective of Using Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily 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 through 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 payments principally related to certain variable-rate assets.

 

Non-designated Hedges

 

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps 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 swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

 

Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into Interest Rate Lock Commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and included in Other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and included in Other liabilities in the consolidated balance sheets.

 

The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of March 31, 2025, and December 31, 2024.

   March 31, 2025   December 31, 2024 
($ in thousands)  Notional   Fair   Notional   Fair 
   Amount   Value   Amount   Value 
Asset Derivatives                
Derivatives not designated as hedging instruments                
Interest rate swaps associated with loans  $86,247   $2,756   $79,235   $4,029 
Forward contracts   18,767    25    11,000    69 
Total contracts  $105,014   $2,781   $90,235   $4,098 
                     
Liability Derivatives                    
Derivatives not designated as hedging instruments                    
Interest rate swaps associated with loans  $86,247   $(2,756)  $79,235   $(4,029)
IRLCs   21,500    (3)   7,412    (21)
Total contracts  $107,747   $(2,759)  $86,647   $(4,050)

 

The fair value of interest rate swaps was estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC or forward contract and the balance sheet date.

 

The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the three months ended March 31, 2025, and 2024.

 

      Three Months Ended
March 31,		 
($ in thousands)  Statement of income classification  2025   2024 
Interest rate swap contracts  Other income  $107   $
-
 
IRLCs  Gain on sale of mortgage loans & OMSR   18    9 
Forward contracts  Gain on sale of mortgage loans & OMSR   (44)   8 

The following table shows the offsetting of financial assets and derivative assets at March 31, 2025, and at December 31, 2024.

 

       Gross amounts   Net amounts of assets   Gross amounts not offset in the
consolidated balance sheet		     
($ in thousands)  Gross amounts of recognized assets   offset in the consolidated balance sheet   presented in the consolidated balance sheet   Financial instruments   Cash collateral received   Net amount 
                         
March 31, 2025                        
Interest rate swaps  $               3,323   $         567   $2,756   $
                   -
   $2,710   $  46 
                               
December 31, 2024                              
Interest rate swaps  $4,172   $143   $4,029   $
-
   $3,130   $899 

 

The following table shows the offsetting of financial liabilities and derivative liabilities at March 31, 2025, and at December 31, 2024.

 

       Gross amounts   Net amounts of liabilities   Gross amounts not offset in the consolidated balance sheet     
($ in thousands)  Gross amounts of recognized liabilities   offset in the consolidated balance sheet   presented in the consolidated balance sheet   Financial instruments   Cash collateral pledged   Net amount 
                         
March 31, 2025                        
Interest rate swaps  $3,323   $567   $2,756   $
         -
   $
      -
   $2,756 
                               
December 31, 2024                              
Interest rate swaps  $4,172   $143   $4,029   $
-
   $
-
   $4,029