v3.25.2
Financial Derivative Instruments
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Derivative Instruments Financial Derivative Instruments
The Bank uses derivative financial instruments for risk management purposes and not for trading or speculative purposes. As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant effect on net interest income.
The Bank recognizes its derivative instruments in the consolidated balance sheets at fair value. On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in OCI. Any ineffective portion is recorded in earnings. The Bank discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.
The details of the Bank's swap agreements are as follows:
June 30, 2025December 31, 2024June 30, 2024
Effective DateMaturity DateVariable Index ReceivedFixed Rate PaidPresentation on Consolidated Balance SheetsNotional Amount
Fair Value
Notional Amount
Fair Value
Notional Amount
Fair Value
Cash Flow Hedges
01/10/202301/01/2026USD-SOFR-OIS COMPOUND3.836%Other Assets$75,000,000 $106,000 $75,000,000 $198,000 $75,000,000 $928,000 
$75,000,000 $106,000 $75,000,000 $198,000 $75,000,000 $928,000 
Fair Value Hedges
03/08/202303/01/2026USD-SOFR-OIS COMPOUND4.712%Other Liabilities$— $— $40,000,000 $(270,000)$40,000,000 $(24,000)
03/08/202303/01/2027USD-SOFR-OIS COMPOUND4.402%Other Liabilities30,000,000 (404,000)30,000,000 (216,000)30,000,000 (32,000)
03/08/202303/01/2028USD-SOFR-OIS COMPOUND4.189%Other Liabilities30,000,000 (590,000)30,000,000 (137,000)30,000,000 (11,000)
07/12/202308/01/2025USD-SOFR-OIS COMPOUND4.703%Other (Liabilities) Assets50,000,000 (9,000)50,000,000 (135,000)50,000,000 135,000 
$110,000,000 $(1,003,000)$150,000,000 $(758,000)$150,000,000 $68,000 
Total swap agreements$185,000,000 $(897,000)$225,000,000 $(560,000)$225,000,000 $996,000 

The Company would reclassify unrealized gains or losses accounted for within AOCI into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate for cash flow hedges, or would amortize the gain or loss over the remaining life of the hedged instrument for fair value hedges. In the second quarter of 2025, a fair value swap with a notional amount of $40,000,000 was terminated; the termination fee paid by the Bank is being amortized over the remaining lives of the underlying hedged instruments. Amounts paid or received under the swaps are reported in interest income or interest expense in the consolidated statements of income, and reflected in net income in the consolidated statements of cash flows.
Customer loan derivatives
The Bank will enter into interest rate swaps with qualified commercial customers. Through these arrangements, the Bank is able to provide a means for a loan customer to obtain a long-term fixed rate, while it simultaneously contracts with an approved, highly-rated, third-party financial institution as counterparty to swap the fixed rate for a variable rate. Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheets.
At June 30, 2025 there were 12 customer loan swap arrangements in place. This compares to 10 customer loan swap arrangements in place at December 31, 2024 and eight customer loan swap arrangements in place at June 30, 2024. The details of the Bank's customer loan swap arrangements are detailed below:
June 30, 2025December 31, 2024June 30, 2024
Presentation on Consolidated Balance SheetNumber of PositionsNotional AmountFair ValueNumber of PositionsNotional AmountFair ValueNumber of PositionsNotional AmountFair Value
Pay Fixed, Receive VariableOther Assets6$34,105,000 $3,707,000 8$43,415,000 $4,772,000 7 $40,290,000 $4,851,000 
Pay Fixed, Receive VariableOther Liabilities623,618,000 (611,000)24,342,000 (87,000)1 2,662,000 (61,000)
1257,723,000 3,096,000 1047,757,000 4,685,000 8 42,952,000 4,790,000 
Receive Fixed, Pay VariableOther Assets623,618,000 611,000 24,342,000 87,000 1 2,662,000 61,000 
Receive Fixed, Pay VariableOther Liabilities634,105,000 (3,707,000)843,415,000 (4,772,000)7 40,290,000 (4,851,000)
1257,723,000 (3,096,000)1047,757,000 (4,685,000)8 42,952,000 (4,790,000)
Total24$115,446,000 $— 20$95,514,000 $— 16 $85,904,000 $— 
Derivative collateral
The Bank has entered into a master netting arrangement with its counterparty and settles payments with the counterparty as necessary. The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested. At June 30, 2025, there was no collateral posted on its swap contracts or required amount to be pledged.