DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2026

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and also through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used as risk management tools by the Company to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investment securities and borrowings and are not used for trading or speculative purposes.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.

Interest rate swaps designated as cash flow hedges involve the hedge of the exposure to variability in expected future cash flows through the receipt of fixed or variable amounts from a counterparty in exchange for the Company making variable-rate or fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company, however, discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period due to circumstances, such as the forecasted transaction being no longer probable or the hedge ceases to be highly effective. Upon discontinuance, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and subsequent changes in the fair value of the cash flow hedge are recognized in earnings.

At both March 31, 2026 and December 31, 2025, the Company had two interest rate swaps designated as a cash flow hedge with a notional value of $160.0 million for the purpose of hedging variable cash flows associated with the Company's borrowings and brokered money market deposits. During the three months ended March 31, 2026 and 2025, the Company did not enter into new interest rate swaps designated as cash flow hedges.

Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The gain or loss on the fair value hedge, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in current earnings as the fair value changes. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability.

During the three months ended March 31, 2025, the Company terminated its three pay-fixed interest rate swaps with a total notional value of $100.0 million, which were on closed portfolio loans with the Bank's commercial clients. The interest rate swaps were designated as fair value hedges and allowed the Company to offer long-term fixed rate loans to commercial clients while mitigating the interest rate risk of a long-term asset by converting fixed rate interest payments to floating rate interest payments indexed to a synthetic U.S. SOFR rate. During the three months ended March 31, 2026, the Company did not enter into new interest rate swaps designated as fair value hedges.

The Company enters into interest rate swap agreements that allow its commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. In addition, the Company may enter into interest rate caps that allow its commercial loan customers to gain protection against significant interest rate increases and provide an upper limit, or cap, on the variable interest rate. The Company then enters into a corresponding swap or cap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps and interest rate caps with both the customers and third parties are not designated as hedges and are marked through earnings. At March 31, 2026, the Company had 107 customer and 107 corresponding third-party broker interest rate derivatives not designated as a hedging instrument with an aggregate notional amount of $1.2 billion. At December 31, 2025, the Company had 96 customer and 96 third-party broker interest rate derivatives not designated as a hedging instrument with an aggregate notional value of $1.1 billion. During the three months ended March 31, 2026, the Company entered into 16 new interest rate swaps with commercial loan customers, and recorded swap fee income of $1.3 million. There were three swap terminations and two matured swap agreements during the three months ended March 31, 2026. The Company entered into nine new interest rate swaps and recorded $394 thousand in swap fee income during the three months ended March 31, 2025. Swap fee income is included in other noninterest income in the unaudited condensed consolidated statements of income.

At March 31, 2026 and December 31, 2025, the Company had cash collateral of $10.7 million and $8.0 million with third parties for certain of these derivatives, respectively. At March 31, 2026 and December 31, 2025, the Company held cash collateral of $1.9 million and zero from a counterparty for these derivatives, respectively.

The Company also may enter into risk participation agreements with a financial institution counterparty for an interest rate derivative contract related to a loan in which the Company may be a participant or the agent bank. The risk participation agreement provides credit protection to the agent bank should the borrower fail to perform on its interest rate derivative contracts with the agent bank. The Company manages its credit risk on the risk participation agreement by monitoring the creditworthiness of the borrower, which is based on the same credit review process as though the Company had entered into the derivative instruments directly with the borrower. The notional amount of such risk participation agreement reflects the Company’s pro-rata share of the derivative instrument, consistent with its share of the related loan participation. At March 31, 2026, the Company had five risk participation agreements with sold protection with a notional value of $26.1 million compared to six risk participation agreements with sold protection with a notional value of $44.6 million at December 31, 2025. The Company had six risk participations with purchased protection with a notional value of $31.6 million at March 31, 2026 compared to six risk participations with purchased protection with a notional value of $31.7 million at December 31, 2025. The Company did not enter into any risk participation agreements during the three months ended March 31, 2026 and 2025. The Company did not terminate any risk participations during the three months ended March 31, 2026. One risk participation with sold protection matured during the three months ended March 31, 2026. one risk participation with sold protection was terminated during the three months ended March 31, 2025.

As a part of its normal residential mortgage operations, the Company will enter into an interest rate lock commitment with a potential borrower. The Company may enter into a corresponding commitment with an investor to sell that loan at a specific price shortly after origination. Adjustments are recorded through earnings to account for the net change in fair value of these transactions for the held for sale loan pipeline. The fair value of held for sale loans can vary based on the interest rate locked with the customer and the current market interest rate at the balance sheet date.

The following table summarizes the fair value of the Company's derivative instruments at March 31, 2026 and December 31, 2025:

	March 31, 2026					December 31, 2025
	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Cash flow hedge designation:
Interest rate swaps - FHLB advances	$	75,000	Other assets	$	114	$	75,000	Other liabilities	$	(348)
Interest rate swaps - FHLB advances and brokered money market deposits	85,000		Other assets	643		85,000		Other assets	132
Total derivatives designated as hedging instruments				$	757				$	(216)
Derivatives not designated as hedging instruments:
Interest rate swaps	$	585,979	Other assets	$	12,243	$	539,225	Other assets	$	14,463
Interest rate swaps	585,979		Other liabilities	(12,575)		539,225		Other liabilities	(14,720)
Purchased options – rate cap	5,681		Other assets	1		5,709		Other assets	—
Written options – rate cap	5,681		Other liabilities	(1)		5,709		Other liabilities	—
Risk participations - sold credit protection	26,097		Other liabilities	(76)		44,638		Other liabilities	(70)
Risk participations - purchased credit protection	31,620		Other assets	50		31,702		Other assets	43
Interest rate lock commitments with customers	3,101		Other assets	63		1,811		Other assets	38
Forward sale commitments	3,554		Other assets	10		5,948		Other liabilities	(11)
Total derivatives not designated as hedging instruments				$	(285)				$	(257)

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of March 31, 2026 and 2025. During the three months ended March 31, 2025, the Company terminated its three pay-fixed interest rate swaps with a total notional value of $100.0 million.

	Carrying Amounts of Hedged Assets			Cumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets
	March 31,			March 31,
	2026	2025		2026	2025
Commercial loans	n/a	$	—	n/a	$	—

The following tables summarize the effect of the Company's derivative financial instruments on OCI and net income for the three months ended March 31, 2026 and 2025:

	Amount of Gain (Loss) Recognized in OCI on Derivative
	Three Months Ended March 31,
	2026		2025
Derivatives in cash flow hedging relationships:
Interest rate products	$	972	$	(916)

	Amount of Loss Reclassified from AOCI into Income				Location of Loss Recognized from AOCI into Income
	Three Months Ended March 31,
	2026		2025
Derivatives in cash flow hedging relationships:
Interest rate products	$	—	$	—	Interest income

	Amount of (Loss) Gain Recognized in Income				Location of Gain Recognized in Income
	Three Months Ended March 31,
	2026		2025
Derivatives designated as hedging instruments
Fair value hedge designation:
Interest rate swaps - commercial loans (1)	$	—	$	(1)	Interest income on loans
Derivatives not designated as hedging instruments:
Interest rate products	$	(75)	$	(252)	Other operating expenses
Risk participation agreements	1		3		Other operating expenses
Interest rate lock commitments with customers	25		93		Mortgage banking activities
Forward sale commitments	22		(25)		Mortgage banking activities
Total derivatives not designated as hedging instruments	$	(27)	$	(181)
(1) Amount includes the net of the change in the fair value of the interest rate swaps hedging commercial loans and the change in the carrying value included in the hedged commercial loans.

The following table is a summary of components for interest rate swaps designated as hedging instruments at March 31, 2026 and December 31, 2025:

	Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Maturity in Years
March 31, 2026
Cash flow hedge designation:
Interest rate swaps - FHLB advances and brokered deposits	3.35	%	3.67	%	2.3
December 31, 2025
Cash flow hedge designation:
Interest rate swaps - FHLB advances and brokered deposits	3.35	%	3.93	%	2.5