DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Non-designated Hedges

The Corporation does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Corporation's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair value of these mortgage banking derivatives are included in net gains and fees on sales of loans.

The table below presents the fair value of the Corporation’s non-designated hedges, as well as their classification on the Consolidated Condensed Balance Sheets, as of March 31, 2025, and December 31, 2024.


	March 31, 2025				December 31, 2024
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Interest rate swaps	$	1,381,111	$	62,871	$	1,386,757	$	76,528
Forward contracts related to mortgage loans to be delivered for sale	38,472		576		39,142		465
Interest rate lock commitments	35,890		287		15,000		140
Included in other assets	$	1,455,473	$	63,734	$	1,440,899	$	77,133
Included in other liabilities:
Interest rate swaps	$	1,489,483	$	62,785	$	1,486,764	$	76,450
Forward contracts related to mortgage loans to be delivered for sale	37,000		113		13,020		18
Interest rate lock commitments	15,934		46		14,457		100
Included in other liabilities	$	1,542,417	$	62,944	$	1,514,241	$	76,568

In the normal course of business, the Corporation may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in "Net gains and fees on sales of loans" in the Consolidated Condensed Statements of Income and is considered a cost of executing a forward contract. The amount of gain (loss) recognized into income related to non-designated hedging instruments is included in the table below for the periods indicated.


Derivatives Not Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized into Income on Derivatives
		Three Months Ended March 31, 2025		Three Months Ended March 31, 2024
Forward contracts related to mortgage loans to be delivered for sale	Net gains and fees on sales of loans	$	(232)	$	(1)
Interest rate lock commitments	Net gains and fees on sales of loans	201		(13)
Total net gain (loss) recognized in income		$	(31)	$	(14)

The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties. The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s at or above investment grade. The Corporation’s mitigation of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.

Credit-risk-related Contingent Features

The Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequately capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts. Additionally, the Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations. As of March 31, 2025, the termination value of derivatives in a net liability position related to these agreements was $8.0 million, which resulted in no collateral pledged to counterparties as of March 31, 2025. While the Corporation did not breach any of these provisions as of March 31, 2025, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.