v3.25.2
Derivative Financial Instruments
 6 Months Ended
Jun. 30, 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 June 30, 2025, and December 31, 2024.

 

   June 30, 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  $96,374   $1,852   $79,235   $4,029 
Forward contracts   16,077    96    11,000    69 
Total contracts  $112,451   $1,948   $90,235   $4,098 
                     
Liability Derivatives                    
Derivatives not designated as hedging instruments                    
Interest rate swaps associated with loans  $96,374   $(1,852)  $79,235   $(4,029)
IRLCs   25,000    (188)   7,412    (21)
Total contracts  $121,374   $(2,040)  $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 and six months ended June 30, 2025, and 2024.

 

      Three Months Ended
June 30,		   Six Months Ended
June 30,		 
($ in thousands)  Statement of income classification  2025   2024   2025   2024 
Interest rate swap contracts  Other income  $135   $
-
   $242   $
-
 
IRLCs  Gain on sale of mortgage loans & OMSR   (185)   (39)   (167)   (30)
Forward contracts  Gain on sale of mortgage loans & OMSR   71    69    27    77 

 

The following table shows the offsetting of financial assets and derivative assets at June 30, 2025, and at December 31, 2024.

 

   Gross
amounts of		   Gross amounts
offset in the		   Net amounts of assets
presented
in the		   Gross amounts not offset in the consolidated balance sheet     
($ in thousands)  recognized
assets		   consolidated
balance sheet		   consolidated
balance sheet		   Financial
instruments		   Cash collateral
received		   Net amount 
June 30, 2025                        
Interest rate swaps  $2,827   $975   $1,852   $       -   $1,780   $72 
                               
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 June 30, 2025, and at December 31, 2024.

 

   Gross
amounts of		   Gross amounts
offset in the		   Net amounts of liabilities
presented
in the		   Gross amounts not offset in the consolidated balance sheet     
($ in thousands)  recognized
liabilities		   consolidated
balance sheet		   consolidated
balance sheet		   Financial
instruments		   Cash collateral
pledged		   Net amount 
June 30, 2025                        
Interest rate swaps  $2,827   $975   $1,852   $         -   $         -   $1,852 
                               
December 31, 2024                              
Interest rate swaps  $4,172   $143   $4,029   $-   $-   $4,029