v3.25.4
DERIVATIVE FINANCIAL INSTRUMENTS
 12 Months Ended
Dec. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

NOTE 8 – DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps Designated as Fair Value Hedges

The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate loans. These transactions are designated as fair value hedges. In this type of transaction, the Company typically receives from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (LIBOR) or one-month SOFR plus a spread to the index and pays a fixed-rate cash flow equal to the customer loan rate. At December 31, 2025, the portfolio of interest rate swaps had a weighted average maturity of 6.27 years, a weighted average pay rate of 4.45% and a weighted average rate received of 7.10%. At December 31, 2024, the portfolio of interest rate swaps had a weighted average maturity of 5.9 years, a weighted average pay rate of 4.60% and a weighted average rate received of 7.70%.

Interest Rate Swaps Designated as Cash Flow Hedges

The Company has entered into cash flow hedges to hedge future cash flows related to subordinated notes and Federal Home Loan Bank advance interest expense and prime rate adjustable rate loans interest income. These agreements are designated as cash flow hedges and are marked to market through other comprehensive income.

The following table lists the cash flow hedges at December 31, 2025 and 2024.

 

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

Weighted average
Maturity in years

 

 

Weighted average pay rate

 

 

Weighted average rate received

 

 

Weighted average
Maturity in years

 

 

Weighted average pay rate

 

 

Weighted average rate received

 

Subordinated note hedges

 

 

9.7

 

 

 

2.81

%

 

 

6.10

%

 

 

10.7

 

 

 

2.81

%

 

 

7.01

%

Variable rate FHLB advance hedges

 

 

0.2

 

 

 

3.59

%

 

 

3.71

%

 

 

1.2

 

 

 

3.58

%

 

 

4.42

%

Total cash flow hedges

 

 

0.9

 

 

 

3.53

%

 

 

3.88

%

 

 

1.9

 

 

 

3.54

%

 

 

4.60

%

Stand-Alone Derivatives

The Company periodically enters into interest rate swaps with our borrowers and simultaneously enters into swaps with a counterparty with offsetting terms for the purpose of providing our borrowers long-term fixed rate loans. Neither swap is designated as a hedge and both are marked to market through earnings. Through prior acquisitions, the Company obtained swap agreements with counterparties designed to offset the economic impact of fixed-rate loans. These swaps did not have corresponding agreements with the borrowers. At December 31, 2025, this portfolio of interest rate swaps had a weighted average maturity of 6.17 years, weighted

average pay rate of 6.79% and a weighted average rate received of 6.82%. At December 31, 2024, this portfolio of interest rate swaps had a weighted average maturity of 5.6 years, a weighted average pay rate of 6.72% and a weighted average rate received of 6.85%.

Reconciliation of Derivative Fair Values and Gains/(Losses)

The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows received or paid. The notional amount of derivatives serves as a level of involvement in various types of derivatives. The notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is significantly smaller.

The following table shows the notional balances and fair values (including net accrued interest) of the derivatives outstanding by derivative type at December 31, 2025, and December 31, 2024.

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

Notional
Amount

 

 

Derivative
Assets

 

 

Derivative
Liabilities

 

 

Notional
Amount

 

 

Derivative
Assets

 

 

Derivative
Liabilities

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

10,086

 

 

$

935

 

 

$

—

 

 

$

14,503

 

 

$

1,465

 

 

$

—

 

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

107,500

 

 

 

1,881

 

 

 

—

 

 

 

107,500

 

 

 

2,753

 

 

 

—

 

Total derivatives designated as hedging relationships

 

 

117,586

 

 

 

2,816

 

 

 

—

 

 

 

122,003

 

 

 

4,218

 

 

 

—

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

183,489

 

 

 

2,942

 

 

 

2,808

 

 

 

143,831

 

 

 

3,837

 

 

 

3,546

 

Total derivatives not designated as hedging
   instruments

 

 

183,489

 

 

 

2,942

 

 

 

2,808

 

 

 

143,831

 

 

 

3,837

 

 

 

3,546

 

Total

 

$

301,075

 

 

 

5,758

 

 

 

2,808

 

 

$

265,834

 

 

 

8,055

 

 

 

3,546

 

Cash collateral

 

 

 

 

 

—

 

 

 

3,359

 

 

 

 

 

 

—

 

 

 

7,270

 

Netting adjustments

 

 

 

 

 

(3,367

)

 

 

(3,367

)

 

 

 

 

 

(7,173

)

 

 

(7,173

)

Net amount presented in balance sheet

 

 

 

 

$

2,391

 

 

$

2,800

 

 

 

 

 

$

882

 

 

$

3,643

 

 

The table below lists designated and qualifying hedged items in fair value hedges at December 31, 2025, and December 31, 2024.

 

 

 

December 31, 2025

 

 

December 31, 2024

 

 

 

Carrying Amount

 

 

Hedging Fair Value Adjustment

 

 

Fair Value Adjustments on Discontinued Hedges

 

 

Carrying Amount

 

 

Hedging Fair Value Adjustment

 

 

Fair Value Adjustments on Discontinued Hedges

 

Commercial real estate loans

 

$

14,337

 

 

$

(1,129

)

 

$

(354

)

 

$

14,985

 

 

$

(1,658

)

 

$

(399

)

Total

 

$

14,337

 

 

$

(1,129

)

 

$

(354

)

 

$

14,985

 

 

$

(1,658

)

 

$

(399

)

The following table shows net gains or losses on derivatives and hedging activities for the years ended December 31, 2025, 2024, and 2023.

 

 

 

2025

 

 

2024

 

 

2023

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

24

 

 

$

18

 

 

$

(17

)

Total net gains (losses) related to derivatives designated
   as hedging instruments

 

 

24

 

 

 

18

 

 

 

(17

)

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

—

 

 

 

—

 

 

 

—

 

Total net gains (losses) related to derivatives designated
   as cash flow hedges

 

 

—

 

 

 

—

 

 

 

—

 

Total net gain (loss) related to hedging relationships

 

 

24

 

 

 

18

 

 

 

(17

)

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Economic hedges:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

766

 

 

 

314

 

 

 

227

 

Total net gains (losses) related to derivatives not designated
   as hedging instruments

 

 

766

 

 

 

314

 

 

 

227

 

Net gains (losses) on derivatives and hedging activities

 

$

790

 

 

$

332

 

 

$

210

 

The following table shows the recorded net gains or losses on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the years ended December 31, 2025, 2024, and 2023.

 

 

December 31, 2025

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
on Hedged
Items

 

 

Net Fair Value
Hedge
Gain/(Loss)

 

 

Effect of
Derivatives on
Net Interest
Income

 

Commercial real estate loans

 

$

(455

)

 

$

479

 

 

$

24

 

 

$

444

 

Total

 

$

(455

)

 

$

479

 

 

$

24

 

 

$

444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
on Hedged
Items

 

 

Net Fair Value
Hedge
Gain/(Loss)

 

 

Effect of
Derivatives on
Net Interest
Income

 

Commercial real estate loans

 

$

(103

)

 

$

121

 

 

$

18

 

 

$

612

 

Total

 

$

(103

)

 

$

121

 

 

$

18

 

 

$

612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
on Hedged
Items

 

 

Net Fair Value
Hedge
Gain/(Loss)

 

 

Effect of
Derivatives on
Net Interest
Income

 

Commercial real estate loans

 

$

(508

)

 

$

525

 

 

$

17

 

 

$

717

 

Total

 

$

(508

)

 

$

525

 

 

$

17

 

 

$

717

 

 

 

The following table shows the recorded net gains or losses on derivatives and the related hedged items in cash flow hedging relationships and the impact of those derivatives on the Company’s net interest income for the years ended December 31, 2025, 2024 and 2023.

 

 

 

December 31, 2025

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

FHLB Advance hedges

 

$

(554

)

 

$

(421

)

 

$

662

 

Subordinated note hedges

 

 

(299

)

 

 

(224

)

 

 

264

 

Total

 

$

(853

)

 

$

(645

)

 

$

926

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

Prime based receivable loan hedges

 

$

1,157

 

 

$

876

 

 

$

(1,267

)

FHLB advance hedges

 

 

(116

)

 

 

(86

)

 

 

1,580

 

Subordinated note hedges

 

 

193

 

 

 

152

 

 

 

340

 

Total

 

$

1,234

 

 

$

942

 

 

$

653

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2023

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

Prime based receivable loan hedges

 

$

3,164

 

 

$

2,376

 

 

$

(3,942

)

FHLB advance hedges

 

 

684

 

 

 

517

 

 

 

1,246

 

Subordinated note hedges

 

 

(146

)

 

 

(105

)

 

 

246

 

Total

 

$

3,702

 

 

$

2,788

 

 

$

(2,450

)