Declining rates hedges dominated flows for the second consecutive quarter as banks locked in attractive pricing amid year-plus highs in rates. Receive-fixed swaps were widespread in Q2 earnings calls, though floors and floor collars have been the predominant strategies across our client base. Meanwhile, costless cap collars emerged as an earnings-friendly strategy for banks exposed to rising rates.
Here are a few ALM hedging strategies that we found interesting:
- Texas Capital Bancshares, Inc.: added receive-fixed swaps, opting for spot-starting structures given the current positive carry.
- Independent Bank Corporation: executed floors and pay-fixed swap unwinds to mitigate asset sensitivity.
- OceanFirst Financial Corp.: executed caps and collars to protect against outsized rate moves higher.
Read on for our complete summary:
Rising Rates Hedging
| Bank of Hawaii Corporation | Pay-Fixed Swaps | “We finished the quarter with an active pay-fixed receive-float swap portfolio of $1.4 billion with a weighted average fixed rate of 3.3% and an average life of 1.4 years. $1 billion of these swaps hedge our loan portfolio, while $400 million hedge our securities. In addition, we have $200 million of forward starting swaps with a weighted average fixed rate of 3% and an average life of 2.1 years.” |
| Dime Commercial Bancshares, Inc. | Rising Rates Hedges | “… we have… $350 million of hedges that will reprice if rates increase, and we believe this should offset any deposit cost increases from the $7.5 billion of non-maturity interest-bearing deposits on the balance sheet.” |
| Happen, Inc. | Interest Rate Caps, Pay-Fixed Swaps | “The [hedging] program is meant to protect revenue and earnings across interest rate cycles, while minimizing short-term volatility. At the end of the quarter, we had $2.1 billion of notional balances using a combination of caps and interest rate swaps.” |
| OceanFirst Financial Corp. | Interest Rate Caps, Collars | “… the hedges that we did put on were essentially caps and collars… just to hedge against spikes, larger increases in rates, about $1.3 billion that ranged out over 3-, 4-, 5-, 6-year kind of period.” “… the acquisition… made us liability sensitive. So what we were focused on with the hedges is more of the tail risk like outside the normal operating environment because the normal plus or minus 100 basis points really doesn’t move the number much for us.” |
| Southside Bancshares, Inc. | Rising Rates Hedges | “… overall our funding costs increased due to a change in our funding mix and the maturity of $245 million in cash flow hedges during the first quarter.” “Our cash flow hedge notional remains at $615 million with no maturities or additions in Q2… We have a notional of $358.1 million in fair value swaps on municipal and MBS securities, including $100 million of MBS fair value swaps added in Q2.” |
Declining Rates Hedging
| Associated Banc-Corp | Receive-Fixed Swaps | “We’re protecting our variable-rate loan portfolio by maintaining receive-fixed swap balances of approximately $2.45 billion.” |
| Citizens Financial Group, Inc. | Declining Rates Hedges | “… we have a very disciplined hedging program, and we continue to hedge our — any downside risk.” |
| Enterprise Financial Services Corp | Declining Rates Hedges | “We also added $200 million in loan hedges over the last several months to further reduce sensitivity to interest rate movements.” |
| Fifth Third Bancorp | Receive-Fixed Swaps | “… adding $3 billion of forward-starting receive-fixed swaps as a cash flow hedge on our commercial loan portfolio, added to the NII outlook while beginning to reduce our asset sensitivity.” |
| Independent Bank Corporation | Interest Rate Floors + Terminated Pay-Fixed Swaps | “NII sensitivity to lower rates declined modestly, while the benefit to higher rates remained largely unchanged. Reduced exposure to lower rates is due to a $50 million notional of floor purchases, termination of $50 million of pay-fixed swaps. The overall position is closely matched for smaller rate changes of plus or minus 100 basis points.” |
| M&T Bank Corporation | Declining Rates Hedges | “… our naturally asset-sensitive balance sheet provides flexibility, and we can adjust our sensitivity as warranted through maturities of cash flow swaps, shifts in cash and securities mix, and the addition of pay-fixed swaps.” |
| Pinnacle Financial Partners, Inc. | Declining Rates Hedges | “As you’re aware, our balance sheet is naturally asset sensitive. So to get to a spot of neutrality at the front of the curve, we have hedges in place.” |
| Regions Financial Corporation | Declining Rates Hedges | “The interest rate environment is highly uncertain… Our balance sheet is positioned well for the environment… with the ability to benefit from elevated long-term rates. Hedging activity in the quarter was largely focused on extending interest rate protection.” |
| Texas Capital Bancshares, Inc. | Receive-Fixed Swaps | “During Q2, we executed $400 million in two-year receive-fixed SOFR swaps at 3.87%, which became effective June 1st, maintaining our target interest rate sensitivity while realizing anticipated rate increases contemplated in the curve.” |
| Wintrust Financial Corporation | Receive-Fixed Swaps | “We did add some swaps during the quarter… the strike rates were actually higher than what the one month SOFR rate was… since these were in the money, we decided to put them as an immediate start and just get a slight benefit from it for the first year.” |
Customer Hedging Programs
| Alerus Financial Corporation | Customer Hedging | “Other income increased meaningfully, primarily due to higher swap fee income, which totaled $738,000 in the quarter. As we noted before, swap fee revenue can be variable based on client timing and activity.” |
| Atlantic Union Bankshares Corporation | Customer Hedging | “… adjusted operating non-interest income increased $3.1 million to $57.9 million, driven by higher loan-related interest rate swap fees associated with higher loan originations…” |
| BankUnited, Inc. | Customer Hedging | “We did see a pickup over last quarter as we expected… some of our activity, such as swaps tracks our lending activity. So lending picked up, that derivative activity picked up.” |
| Beacon Financial Corporation | Customer Hedging | “Non-interest income totaled $26 million, an increase of $2 million or 9% from the first quarter. The increase was driven by… higher loan level derivative income…” |
| Bridgewater Bancshares, Inc. | Customer Hedging | “Swap fees and investment advisory fees continue to be meaningful sources of fee income that we didn’t have a couple years ago.” |
| Business First Bancshares, Inc. | Customer Hedging | “We had a really good [first] quarter, in those fees… So they [swap fees] were down [in Q2], but probably closer to in line with the forecast for the year. And I think we’ve already got some indications of some pretty good wins in the third quarter. So I think we’ll see that come back up closer to [Q1] levels.” |
| Byline Bancorp, Inc. | Customer Hedging | “Non-interest income totaled $17 million in Q2, an increase of $4.3 million or 35% compared to the first quarter. The increase was primarily driven by… stronger swap fee income.” |
| East West Bancorp, Inc. | Customer Hedging | “While total fee income was down $3 million from Q1, this largely reflects… a slight downtick in some derivative activity.” |
| Eastern Bankshares, Inc. | Customer Hedging | “Non-interest income also benefited from notable growth in investment advisory fees and interest rate swap income… The higher swap income was due to increased commercial loan volume and greater customer adoption of interest rate risk management solutions.” |
| F.N.B. Corporation | Customer Hedging | “Capital markets income increased 16% to $8 million on solid contributions from debt capital markets, interest rate derivatives, and international banking…” “I think derivatives have been flat for several years and maybe we’re getting through the end of some of those fixed rate cycles, so some of these borrowers are going to have to do something. So, we’ll probably see that pick up a little bit.” |
| Financial Institutions, Inc. | Customer Hedging | “Notably, swap fee income more than doubled from the first quarter, given increased back-to-back swap volume, as lending activity strengthened.” |
| First Financial Bancorp. | Customer Hedging | “Second quarter adjusted fee income was below our expectations after a very strong first quarter: lower foreign exchange, swap income… led to a decline in total non-interest income compared to the linked quarter.” |
| First Hawaiian, Inc. | Customer Hedging | “Non-interest income was $60.3 million, primarily due to higher… higher swap fees.” |
| First Merchants Corporation | Customer Hedging | “Customer-related fees… were strong with notable quarter-over-quarter growth in gains on sales of loans and derivative hedge fees.” |
| Five Star Bancorp | Customer Hedging | “Non-interest income increased to $1.9 million in Q2 2026 from $1.6 million in Q1 2026… partially offset by a decrease in fees from swap referrals…” |
| Flagstar Bank, National Association | Customer Hedging | “We are experiencing good opportunities for interest rate hedging with those customers, including not just the C&I book, but as the CRE book… There are very good interest rate hedging opportunities. Our commercial clients are often sourcing or selling internationally. So there’s FX opportunities.” |
| Independent Bank Corp. | Customer Hedging | “… we saw solid fee income growth from our deposit and treasury management services as well as increased swap volume.” |
| M&T Bank Corporation | Customer Hedging | “Derivatives and trading increased $8 million to $22 million from revenues from the interest rate swap transactions with commercial customers.” “… we had a big quarter in our derivative area that we sell to customers… So, we really have strong, robust growth, and we’re doing great there, and feel very positive on the momentum we have on fees.” |
| National Bank Holdings Corporation | Customer Hedging | “We did have nice swap fee income. Again, that can be lumpy, but we did have half a million in derivatives-type of swap product sold income.” |
| OceanFirst Financial Corp. | Customer Hedging | “Excluding non-core items and Flushing’s contribution of $1.4 million, other income increased $2.5 million, primarily driven by… commercial loan swap income.” |
| Orrstown Financial Services, Inc. | Customer Hedging | “Swap fees were around $700,000 in the quarter. The balance will continue to fluctuate based on timing, but remains a consistent source of solid fee income for us.” |
| Pinnacle Financial Partners, Inc. | Customer Hedging | “We’ve also expanded on the FX side. We’ve seen expansions on hedging, which has driven some of the growth… I think that’s generated almost $1 million of incremental revenue…” |
| Regions Financial Corporation | Customer Hedging | “… improvements in loan syndications, M&A advisory fees, and real-estate capital markets were offset by lower commercial swap income.” |
| Southside Bancshares, Inc. | Customer Hedging | “Non-interest income increased $1.4 million or 11.2% for the linked quarter due to increases in… income from swap fees…” |
| UMB Financial Corporation | Customer Hedging | “Derivative income related to customer swap activity was $4.1 million, an increase of $1.3 million linked-quarter.” |
| USCB Financial Holdings, Inc. | Customer Hedging | “Total non-interest income for the second quarter was $3.6 million… As anticipated, this was down from the first quarter, primarily due to elevated swap activity in the prior period. Swap fees normalized to $572,000 from $1.6 million in Q1.” |
| Valley National Bancorp | Customer Hedging | “Within capital markets… swap activity has benefited from higher commercial real estate origination volumes.” “So I do think the swap income element was slightly elevated. Maybe that equates to $1 million or $2 million in aggregate.” |
| WesBanco, Inc. | Customer Hedging | “Gross swap fees were $2.8 million in the second quarter and $4 million on a year-to-date basis, as we are seeing solid customer demand from our commercial swap product and expect to see some meaningful improvement in swap fees in the back half of the year…” |