DERIVATIVES |
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Dec. 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DERIVATIVES | Note 23—DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Effective May 2023, we entered into the Loan Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The strategy for this hedge uses fair value hedges under the portfolio layer method permitted by ASC 815. The Company designated a $150.0 million hedged layer within a closed portfolio of fixed-rate commercial and fixed-rate commercial real estate loans for this hedging relationship. Effective April 2025, we entered into the Investment Pay-Fixed Swap Agreement for a notional amount of $19.8 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate investments included in the investment portfolio.
The Company recognizes gains and losses for the Loan Pay-Fixed Swap Agreement as interest income or expense, with an offset to the fair value of the hedge. During the years ended December 31, 2025 and 2024, the Company recognized interest income of $1.0 million and $2.4 million, respectively.
The Company recognizes gains and losses for the Investment Pay-Fixed Swap Agreement as interest income or expense, with an offset to the fair value of the hedge. During the years ended December 31, 2025 and 2024, the Company recognized interest income of $77 thousand and $0, respectively.
The following table presents the amounts recorded on the balance sheet related to cumulative basis adjustment for the fair value hedges as of December 31, 2025 and 2024:
The following table presents the gross notional amounts and estimated fair value of derivative instruments employed by the Company as of December 31, 2025 and 2024:
The above derivative is under a master netting arrangement. However, as of December 31, 2025 and 2024, there were no other outstanding derivative contracts. The net fair value of the hedged item and derivative item is recorded in other assets in the statement of financial condition. The following represents the carrying value of hedged items in fair value hedging relationships:
During the year ended December 31, 2025, income on interest settlements totaled $1.1 million. Changes in the fair value of the hedged item of $16 thousand were mostly offset by changes in the fair value of the swap derivative of $17 thousand. The residual was a result of hedge ineffectiveness and recorded in other income on the consolidated statement of operations. No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing. No hedges were terminated during the year ended December 31, 2025.
During the year ended December 31, 2024, income on interest settlements totaled $2.4 million. Changes in the fair value of the hedged item of $907 thousand were offset by changes in the fair value of the swap derivative of $896 thousand. The residual was a result of hedge ineffectiveness and recorded in other income on the consolidated statement of operations. No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing. No hedges were terminated during the year ended December 31, 2024. |
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