v3.26.1
DERIVATIVE FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and its sources of funding these assets. The Company will periodically enter into interest rate swaps or interest rate caps/floors to manage certain interest rate risk exposure.

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 SOFR plus a spread to the index and pays a fixed-rate cash flow equal to the customer loan rate. At June 30 , 2026, the portfolio of interest rate swaps had a weighted average maturity of 8.36 years, a weighted average pay rate of 4.28% and a weighted average rate received of 6.95%. 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%.

Interest Rate Swaps Designated as Cash Flow Hedges

The Company has entered into cash flow hedges to hedge future cash flows related to subordinated debt and Federal Home Loan Bank advances interest expense and 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 June 30, 2026, and December 31, 2025.

 

 

June 30, 2026

 

 

December 31, 2025

 

 

 

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 debt hedges

 

 

9.2

 

 

 

2.81

%

 

 

5.74

%

 

 

9.7

 

 

 

2.81

%

 

 

6.10

%

Variable rate FHLB advance hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.2

 

 

 

3.59

%

 

 

3.71

%

Total cash flow hedges

 

 

9.2

 

 

 

2.81

%

 

 

5.74

%

 

 

0.9

 

 

 

3.53

%

 

 

3.88

%

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, in addition to stand alone interest-rate swaps designed to offset the economic impact of fixed rate loans. Neither swap is designated as a hedge, and both are marked to market through earnings. At June 30, 2026, this portfolio of interest rate swaps had a weighted average maturity of 5.91 years, weighted average pay rate of 6.77% and a weighted average rate received of 6.80%. 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 weighted average rate received of 6.82%.

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 June 30, 2026, and December 31, 2025.

 

 

June 30, 2026

 

 

December 31, 2025

 

 

 

Notional
Amount

 

 

Derivative
Assets

 

 

Derivative
Liabilities

 

 

Notional
Amount

 

 

Derivative
Assets

 

 

Derivative
Liabilities

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

6,765

 

 

$

865

 

 

$

—

 

 

$

10,086

 

 

$

935

 

 

$

—

 

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

7,500

 

 

 

1,876

 

 

 

—

 

 

 

107,500

 

 

 

1,881

 

 

 

—

 

Total derivatives designated as hedging relationships

 

 

14,265

 

 

 

2,741

 

 

 

—

 

 

 

117,586

 

 

 

2,816

 

 

 

—

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

175,483

 

 

 

3,194

 

 

 

3,066

 

 

 

183,489

 

 

 

2,942

 

 

 

2,808

 

Total derivatives not designated as hedging
   instruments

 

 

175,483

 

 

 

3,194

 

 

 

3,066

 

 

 

183,489

 

 

 

2,942

 

 

 

2,808

 

Total

 

$

189,748

 

 

 

5,935

 

 

 

3,066

 

 

$

301,075

 

 

 

5,758

 

 

 

2,808

 

Cash collateral

 

 

 

 

 

—

 

 

 

4,754

 

 

 

 

 

 

—

 

 

 

3,359

 

Netting adjustments

 

 

 

 

 

(4,735

)

 

 

(4,735

)

 

 

 

 

 

(3,367

)

 

 

(3,367

)

Net amount presented in Balance Sheet

 

 

 

 

$

1,200

 

 

$

3,085

 

 

 

 

 

$

2,391

 

 

$

2,800

 

The table below lists designated and qualifying hedged items in fair value hedges at June 30, 2026, and December 31, 2025.

 

 

 

June 30, 2026

 

 

December 31, 2025

 

 

 

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

 

$

10,731

 

 

$

(1,240

)

 

$

(332

)

 

$

14,337

 

 

$

(1,129

)

 

$

(354

)

Total

 

$

10,731

 

 

$

(1,240

)

 

$

(332

)

 

$

14,337

 

 

$

(1,129

)

 

$

(354

)

The Company reports hedging derivative gains (losses) as adjustments to loan interest income and loan interest expense along with the related net interest settlements. The non-hedging derivative gains (losses) and related net interest settlements for

economic derivatives are reported in other income. For the three and six month periods ended June 30, 2026, and 2025, the Company recorded net gains (losses) on derivatives and hedging activities as shown in the table below.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2026

 

 

June 30, 2025

 

 

June 30, 2026

 

 

June 30, 2025

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

(156

)

 

$

7

 

 

$

(152

)

 

$

14

 

Total net gain (loss) related to derivatives designated as hedging instruments

 

 

(156

)

 

 

7

 

 

 

(152

)

 

 

14

 

Derivatives designated as cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total net gain (loss) related to derivatives designated as cash flow hedges

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total net gains (losses) related to hedging relationships

 

 

(156

)

 

 

7

 

 

 

(152

)

 

 

14

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

Economic hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

 

114

 

 

 

39

 

 

 

118

 

 

 

428

 

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

 

 

114

 

 

 

39

 

 

 

118

 

 

 

428

 

Net gains (losses) on derivatives and hedging activities

 

$

(42

)

 

$

46

 

 

$

(34

)

 

$

442

 

 

 

The following tables show the recorded net gains (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 three month periods ended June 30, 2026, and 2025.

 

 

 

June 30, 2026

 

 

 

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

 

$

21

 

 

$

(177

)

 

$

(156

)

 

$

65

 

Total

 

$

21

 

 

$

(177

)

 

$

(156

)

 

$

65

 

 

 

 

June 30, 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

 

$

(119

)

 

$

126

 

 

$

7

 

 

$

113

 

Total

 

$

(119

)

 

$

126

 

 

$

7

 

 

$

113

 

 

The following tables show the recorded net gains (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 six month periods ended June 30, 2026, and 2025.

 

 

 

June 30, 2026

 

 

 

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

 

$

3

 

 

$

(155

)

 

$

(152

)

 

$

151

 

Total

 

$

3

 

 

$

(155

)

 

$

(152

)

 

$

151

 

 

 

 

June 30, 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

 

$

(318

)

 

$

332

 

 

$

14

 

 

$

228

 

Total

 

$

(318

)

 

$

332

 

 

$

14

 

 

$

228

 

 

 

 

 

The following tables show 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 three month periods ended June 30, 2026, and 2025.

 

 

 

June 30, 2026

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

FHLB advance hedges

 

$

—

 

 

$

—

 

 

$

—

 

Subordinated note hedges

 

 

31

 

 

 

21

 

 

 

55

 

Total

 

$

31

 

 

$

21

 

 

$

55

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2025

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

FHLB advance hedges

 

$

(46

)

 

$

(37

)

 

$

186

 

Subordinated note hedges

 

 

(72

)

 

 

(55

)

 

 

67

 

Total

 

$

(118

)

 

$

(92

)

 

$

253

 

 

The following tables show 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 six month periods ended June 30, 2026, and 2025.

 

 

 

June 30, 2026

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

FHLB advance hedges

 

$

(13

)

 

$

(10

)

 

$

17

 

Subordinated note hedges

 

 

13

 

 

 

28

 

 

 

111

 

Total

 

$

—

 

 

$

18

 

 

$

128

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2025

 

 

 

Gain/(Loss)
on
Derivatives

 

 

Gain/(Loss)
Recorded in Accumulated Other Comprehensive Income

 

 

Effect of
Derivatives on
Net Interest
Income

 

FHLB advance hedges

 

$

(302

)

 

$

(231

)

 

$

371

 

Subordinated note hedges

 

 

(266

)

 

 

(192

)

 

 

135

 

Total

 

$

(568

)

 

$

(423

)

 

$

506