DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
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| DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | NOTE 12 — DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives The Corporation uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and cash payments principally related to specific assets and short-term wholesale funding positions. The Corporation entered into four swap contracts effective September 20, 2023, one swap contract effective September 4, 2024 and two additional swap contracts effective July 15, 2025. Fair Values of Derivative Instruments on the Statement of Financial Condition The tables below present the fair value of the Corporation’s derivative financial instruments as well as their classification on the consolidated balance sheets as of December 31, 2025, and December 31, 2024:
The following tables present the derivative assets and liabilities subject to an enforceable master netting arrangement as of December 31, 2025 and 2024.
The following table presents the remaining contractual maturity of the master netting arrangements as of December 31, 2025.
Fair Value Hedges of Interest Rate Risk The Corporation is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Corporation uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rates. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets. As of December 31, 2025, the Corporation had a total of four interest rate swaps with a combined notional amount of $96,646,000 hedging fixed-rate debt securities available-for-sale and one interest rate swap with a notional amount of $75,000,000 hedging fixed-rate loans. As of December 31, 2025, and December 31, 2024, the following amounts were recorded on the balance sheets related to the cumulative basis adjustment for fair value hedges:
The amount of gain, net of fair value re-measurements, included in interest income on the Corporation’s consolidated statements of income for derivative instruments designated as fair value hedges was $665,000 for the year ended December 31, 2025 and $773,000 for the year ended December 31, 2024. Cash Flow Hedges of Interest Rate Risk The Corporation uses derivatives to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation has entered into interest rate swaps as part of its interest rate risk management strategy. These interest rate products are designated as cash flow hedges. As of December 31, 2025, the Corporation had two interest rate swaps with a combined notional amount of $100,000,000 hedging specific short-term wholesale funding positions. For derivatives designated as cash flow hedges, the gain or loss on the derivatives is recorded in other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. During the next twelve months, it is estimated that an additional $937,000 will be reclassified as interest expense. Interest rate swaps designated as cash flow hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For cash flow hedges on the Corporation’s short-term wholesale funding positions, amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation’s hedged variable rate short-term wholesale funding positions. During the year ended December 31, 2025, the Corporation reclassified $82,000 in interest expense. The table below presents the pre-tax effects of the Corporation’s derivative instruments designated as cash flow hedges on the consolidated statements of income for the years ended December 31, 2025, and 2024:
Credit Risk-Related Contingent Features The Corporation has agreements with each of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, then the Corporation could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Corporation also has agreements with its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well-capitalized institution, then the Corporation could be required to terminate its derivative positions with the counterparty. As of December 31, 2025 and December 31, 2024, the Corporation’s derivatives were in a net liability position resulting in the Company having collateral in the amount of $6,570,000 posted with the counterparty at December 31, 2025 and December 31, 2024. |
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