Hedging Strategies in Action

Receive-fixed swaps were the most popular hedging strategy discussed on Q3 earnings calls, though several institutions also purchased floors as an alternative form of downside protection. While rising rate strategies drew fewer mentions, some institutions proactively executed pay-fixed swaps and collars to capitalize on the significant improvement to upside protection pricing.

Here are a few strategies that we found interesting:

Bank of Hawaii: terminated existing pay-fixed swaps and extended protection with new swaps at lower fixed rates
USCB Financial Holdings, Inc.: added a collar to mitigate higher rates risk, with little-to-no upfront premium cost
KeyCorp: layered in lower rates protection with forward-starting receive-fixed swaps to reduce initial expense vs. spot-starting structures

Elsewhere, this has been a strong quarter for customer swap programs. Some institutions flagged YoY increases as high as 150% in swap fee income, rates were often cited as a driver of growth.

Read on for our complete summary:

Rising Rate Hedging

Bank of Hawaii	Pay-Fixed Swap Unwinds & Extensions	“We also repositioned our interest rate swap portfolio by terminating $1 billion of swaps that were scheduled to mature in 2026…In addition, we added $100 million spot starting swap as well as $100 million forward starting swaps…we finished the quarter with a pay fixed received float interest rate swap portfolio of $1.4 billion…”
Blue Foundry Bancorp	Pay-Fixed Swaps	“…we did take advantage during the quarter of putting on another broker deposit. And while we’re trying to manage funding costs with that, we were able to swap that and get that into at a lower rate.”
CVB Financial Corp.	Pay-Fixed Swaps	“…[the $700 million of interest rate swaps] will probably become a negative drag on our net interest income next year. But we put those on and continue to look to them as a true fair value hedge…We extended them last quarter out for that same reason to be better aligned with the duration of the AFS portfolio.”
Metropolitan Bank Holding Corp.	Pay-Fixed Swaps	“We have $1 billion of hedged indexed deposits, which display positive carry down to a Fed funds effective rate of approximately 3.5%.”
USCB Financial Holdings, Inc.	Interest Rate Collar	“…We issued $100 million of brokered CDs, which were used as hedging instruments as we put on an interest rate collar to mitigate interest rate risk…The cap rate on the collar is 4.5% with a floor rate of 1.88%…”

Declining Rates Hedging

Associated Banc-Corp	Receive-Fixed Swaps	“…We’ve protected our variable rate loan portfolio by maintaining receive-fixed swap balances of approximately $2.45 billion, and we built a $3 billion fixed rate auto book with low prepayment risk. While we’re still modestly asset sensitive, a down 100 ramp scenario now represents just a 0.5% impact to our NII as of Q3.”
BankUnited, Inc.	Declining Rates Hedges	“We’ve done some hedging to protect the margin if rates should decline* more than the forward curves would suggest…”*
Citizens Financial Group Inc.	Declining Rates Hedges	“…Over time, we’ve been layering in hedges to protect the kind of downside if the Fed cuts rates more aggressively. And so that’s been a focal point. But again, we don’t want to be wrong…we’ve kept kind of a balanced view as to let’s put those hedges on opportunistically when we see little spikes.” “…Although we’re slightly asset sensitive, we believe that positives on active swaps and a mix will overcome the asset sensitivity and allow us to hit $305 million into the fourth quarter.”
Customers Bancorp, Inc.	Receive-Fixed Swaps	“On the receive-fixed swaps that we put on, we put on those at a receive-fixed rate between 350 and 360 and then we’re paying 1 month SOFR on that. So when you put on those kind of swaps, that’s actually a negative to our net interest income right now. But again, you don’t put on swaps to earn money or not earn money. It’s for risk management purposes.“
Great Southern Bancorp, Inc.	Pay-Fixed Swap Unwinds	“The company recognized approximately $2 million in interest income related to the terminated interest rate swap during the third quarter of 2025…this benefit has now concluded following the swaps originally scheduled maturity date of October 6, 2025.”
Independent Bank Corporation	Interest Rate Floors	“The NII sensitivity position shows slightly more exposure to declining rate environment…Some of the increase in asset repricing was offset by purchased floors, currently 38.4% of the assets repriced in 1 month and 49.8% reprice in the next 12 months.”
KeyCorp	Receive-Fixed Swaps	“…You’ll see with forward starters coming on something like $34 billion of swaps in the 3.8% to 3.9% range. So as rates come down, those will go from a slight negative carry today to a pretty strong benefit. So we feel very good about that position.”
M&T Bank Corporation	Declining Rates Hedges	“The way our balance sheet is really structured is we have to hedge to kind of have the position that we are at. And if we don’t do any hedging on how we operate, within a year, we can become very asset sensitive very quickly, just naturally as things happen. So we’re constantly having to hedge to kind of neutralize our interest rate sensitivity from that perspective. So we feel really good about where our net interest margin is.”
Regions Financial Corporation	Declining Rates Hedges	“We believe net interest income remains well protected from lower short-term interest rates with a neutral position when combining our floating rate product mix, prudent hedging program and ability to manage deposit costs.” We have our hedge portfolio that’s protecting us. So as rates continue to come down, that negative carry that we have today will dissipate or decline, helping us support net interest income and the resulting margin. And that’s why we have a fairly stable margin at just about in any interest rate environment, especially if the Fed moves at a moderated pace.
Simmons First National Corporation	Declining Rates Hedges	“…We were layering in some hedges throughout the balance of the third quarter. And so that really is what kind of fuels the guide from us into that 3.65% plus area. But again, I would go back to just the defensibility of margin in that area. That’s where we feel really, really strong given the hedging actions that we’ve taken, even with the Fed continuing to cut rates…I think margin can kind of hold its head right here over the next 12 months.”
Southside Bancshares, Inc.	Pay-Fixed Swap Unwinds	“…The unrealized gain on the fair value hedges on municipal and mortgage-backed securities was approximately $905,000 compared to $5.2 million linked quarter. The decrease is primarily driven by the unwinding of fair value hedges associated with the restructuring in the AFS portfolio.”
Texas Capital Bancshares, Inc.	Receive-Fixed Swaps	“…A series of receive-fixed SOFR swaps have recently or will become active…We do still anticipate future interest rate derivative or securities actions over the remainder of the year as we look to augment potential rates fall earnings generation at materially better terms than available during our deliberate pause through the mid part of last year.”
The PNC Financial Services Group Inc.	Receive-Fixed Swaps	“Regarding our swaps, active receive-fixed rate swaps totaled $45 billion on September 30 with a receive rate of 3.64%. And forward starting swaps were $9 billion with a receive rate of 4.11%.”
Wintrust Financial Corporation	Receive-Fixed Swaps	“Well, the swaps are effective all the time. They’re just tied to the 3 months, SOFR – the 1-month SOFR rate. And so if SOFR goes down a basis point, those help us a basis point as they go up 1 basis point, it hurts us a basis point and vice versa…those are effective for us in hedging those variable rate loans regardless of where SOFR moves to because of the swap nature of it.”
WSFS Financial Corporation	Interest Rate Floors	“…We have floor options that mitigate and neutralize some of the asset sensitivity. We have about $850 million of those that are in the money right now. And with the next rate cut, another $250 million would come in the money. And if we have 3 more cuts you would have the entire $1.5 billion program actually in the money. So that would neutralize essentially $1.5 billion of variable rate loans and essentially neutralize that to look like fixed…”

Rising and Declining Rates Hedging

Huntington Bancshares Incorporated	Rising & Declining Rates Hedges	“We continue to manage our hedging program to accomplish our objectives of protecting capital from a potential higher rate environment while protecting NIM from a potential lower rate environment. Over the last year, we’ve reduced our asset sensitivity to a near-neutral position.”
Truist Financial Corporation	Receive-Fixed & Pay-Fixed Swaps	“As of September 30, we had $105 billion of notional received fixed swaps and $28 billion of notional pay-fixed swaps… During the quarter, we increased our notional receive-fixed swap position by adding additional forward starting receive-fixed swaps as part of our overall strategy to maintain a relatively neutral position to changes in rates relative to our baseline view.“

Customer Hedging Programs

Associated Banc-Corp	Customer Hedging	“In Q3, total noninterest income of $81 million was up 21% relative to both the prior quarter and the same period last year…In the capital market space, in particular, the increase was due to an elevated level of activity in our syndications and swaps businesses.“
Atlantic Union Bankshares Corporation	Customer Hedging	“I’d also like to point out the strength we saw in fee income, especially with interest rate swaps and in wealth management. Opportunities in both lines were augmented by the Sandy Spring acquisition. And during the quarter, approximately $1 million of swap income is attributed to the former Sandy Spring Bank.”
Bank of Hawaii	Customer Hedging	“Adjusting for these normalizing items, noninterest income increased by $2.8 million, primarily due to higher customer derivative activity…“
Bridgewater Bancshares	Customer Hedging	“Over the past 5 quarters, swap fees have averaged about $300,000 per quarter, but have ranged from 0 to nearly $1 million. I can say that we expect a rebound in swap fees in the fourth quarter as we have already booked some in October.”
F.N.B. Corporation	Customer Hedging	“Capital markets income grew 27% on record debt capital markets and international banking income as well as contributions from customer swap activity, syndications, public finance and advisory services.”
Financial Institutions, Inc.	Customer Hedging	“Swap fee income was up 150% to $847,000* as a result of increased commercial back-to-back swap activity during the quarter.”*
First Citizens Bancshares	Customer Hedging	“We are also encouraged by the performance of our capital markets business as we are on target to achieve another year of record fee income…I do want to caution that given the changing rate environment, our client derivative positions can fluctuate between quarters causing some lumpiness in our results.”
First Hawaiian, Inc.	Customer Hedging	“Noninterest income was $57.1 million in the quarter. Noninterest income benefited from higher BOLI income due to favorable market movements and swap income.”
Five Star Bancorp	Customer Hedging	“Noninterest income increased to $2 million in the third quarter from $1.8 million in the previous quarter primarily due to an increase in swap referral fees…”
Flushing Financial Corporation	Customer Hedging	“Noninterest income should continue to benefit from our healthy pipeline of approximately $59 million in back-to-back swap loans* scheduled to close by the end of the year.”*
Independent Bank Corp.	Customer Hedging	“We are seeing a pretty modest pickup in swap activity…So you saw a bit of an uptick in the third quarter fee income as it relates to swap fees..”
M&T Bank	Customer Hedging	“Trading and FX increased $6 million to $18 million from higher commercial customer swap activity.”
OceanFirst Financial Corp.	Customer Hedging	“Lastly, noninterest income increased 5% to $12.3 million during the quarter, primarily driven by strong swap demand linked to our commercial growth.”
Old National Bancorp	Customer Hedging	“Slide 11 shows trends in adjusted noninterest income, which was $130 million for the quarter, exceeding our guidance…driven by a handful of larger swap fees.”
Origin Bancorp, Inc.	Customer Hedging	“This is highlighted by treasury management fee income increasing 7% year-over-year and loan and swap fees up 62% during the same period.”
Orrstown Financial Services, Inc.	Customer Hedging	“We saw an increase in noninterest income to $13.4 million in the third quarter from $12.9 million for the second quarter…Swap fees were substantial at $800,000…”
Seacoast Banking Corporation of Florida	Customer Hedging	“Other income totaled $6 million, and included higher gains on SBA loan sales and higher loan swap fees.”
Synovous Financial Corp.	Customer Hedging	“We produced…a 36% increase in capital markets income, primarily from client derivative and arranger fees… And I think as rates move, you’re going to still see people wanting to lock in fixed rates, especially as rates come lower. So as production remains elevated and continues to grow, you’ll continue to see the derivative income come in.”
UMB Financial Corporation	Customer Hedging	“So the run rate there is about $13 million…the biggest driver of that was back-to-back swaps. So our derivative team had a pretty impressive quarter with $5 million of fees this quarter compared to about $3 million, $3.5 million last quarter.”
USCB Financial Holdings, Inc.	Customer Hedging	“The swap fees specifically with rates being lower, there’s a lot of activity on swaps, and I would anticipate a somewhat similar number, maybe between Q2 and Q3 could repeat again in the fourth quarter. So a lot of the loan volume right now…So there’s a fair amount of swap volume in there, too.”
Valley National Bancorp	Customer Hedging	“I think heading into 2026, there is definitely momentum…The swap activity tends to be more tied to commercial real estate originations, which have picked up over the last couple of quarters and helped support revenue there.”
Webster Financial Corporation	Customer Hedging	“…we saw a nice growth in client activity. As loan originations have picked up, there’s more activity, more swap income.”
Wesbanco, Inc.	Customer Hedging	“We also saw a nice improvement in gross swap fees, which increased $2.1 million year-over-year to $3.2 million in the third quarter, reflecting both the interest rate environment and traction within our newest markets.”
Zions Bancorporation	Customer Hedging	“Notably, capital market fees, excluding net CVA, increased 25%* compared to the prior year period, driven by higher loan syndications and customer swap fee revenue.”*