Publicly traded banks generally added declining rates protection in Q3, continuing this year’s trend as swap rates hit decade-plus highs across most of the curve. While floors and floor collars were the most popular strategies across our client base, receive-fixed swaps remained the most prevalent strategy in earnings calls. Meanwhile, most rising rates hedges were executed as extensions of upcoming hedge maturities, while some were geared toward AOCI protection.
Elsewhere, customer swap programs showed mixed results, with some banks seeing a slowdown amid elevated rates but others reporting modestly higher fee income.
Here are a few ALM hedging strategies that we found interesting:
- Simmons First National Corporation: capitalized on the current rate environment to execute receive-fixed swaps to protect downside if rates fall.
- Happen, Inc.: extended rising rates protection out of upcoming maturities.
- Regions Financial Corporation: executed pay-fixed swaps to protect capital from further increases in rates.
Read on for our complete summary:
Rising Rates Hedging
| Bank of Hawaii Corporation | Pay-Fixed Swaps | “$200 million of forward starting swaps became active during the quarter, and we finished the period with an active pay-fixed, receive-float swap portfolio of $1.6 billion… $1.1 billion of these swaps hedge our loan portfolio and $500 million hedge our securities.” |
| Cullen/Frost Bankers, Inc. | Pay-Fixed Swaps | “We haven’t added any more [forward starting swaps] than what we already had put on… Our plan is to kind of put one on about every year… And if we put another one on next year and then another one over about 4 or 5 years, we should have between $2.5 billion to $3 billion built up…” |
| First Western Financial, Inc. | Pay-Fixed Swaps | “[The bank has] $400 million in fair value and cash flow swaps… it really gives us a lot of protection in an [up-rate scenario].” |
| Hanmi Financial Corporation | Interest Rate Caps, Pay-Fixed Swaps | “Next, the company secured a 2-year interest rate cap for its $26 million floating rate trust preferred securities… The bank also secured a 2-year interest rate swap for its $180 million of State of California time deposits…” |
| Happen, Inc. | Rising Rates Hedges | “…we had about a $3 million [hedging portfolio] gain last quarter… and $15 million this quarter… the movement in rates was higher, and so that created a larger gain. But over the course of the quarter, we increased the notional hedge amount that we were doing… We were getting to the point of some of our earlier hedges where they were rolling off, and so renewing them gave us the benefit of additional duration from the hedging portfolio.” |
| Metropolitan Bank Holding Corp. | Pay-Fixed Swaps | “We are slightly liability-sensitive, and then at the end of the day, I’ve got $1 billion worth of swaps that are going to roll off in April and August next year.” |
| Regions Financial Corporation | Pay-Fixed Swaps | “…so we saw a big move this quarter… it’s one of the reasons why we’re so active in making sure that our hedging program factors that in… the fair value hedges that we put on this quarter to protect capital in a potential rising rate environment. So, we’ll continue to execute strategies like that to protect capital…” |
| Southside Bancshares, Inc. | Rising Rates Hedges | “We have a notional of $291.1 million in fair value swaps on municipal and MBS securities. This is a reduction of $67 million linked quarter due to an MBS maturity on September 1.” “Our cash flow hedge notional remains at $615 million with no maturities or additions in Q3. The next maturity is a $25 million notional maturing in November… After this maturity and some amortization related to past unwinds is fully expensed in October, the rate on our current cash flow hedges will drop approximately 25 basis points, assuming current spreads.” |
| USCB Financial Holdings, Inc. | Interest Rate Caps | “Additionally, our interest rate caps, which we put on last year, are designed to protect the balance sheet if rates continue to rise at a fast pace. The $100 million notional caps will be in the money if SOFR hits 4.50%.” |
| WaFd, Inc. | Rising Rates Hedges | “…I would say no significant changes from the deal announcement. Obviously, the biggest changes have happened in the interest rates, and so those would be the biggest changes. But we also took some proactive measures both on the WaFd side and the EverBank side to try to hedge some of that risk from interest rates…” |
| Zions Bancorporation, National Association | Pay-Fixed Swaps | “This mark-to-market impact [from declines in the fair value of AFS securities] was tempered by pay-fixed, receive-floating interest rate swaps, designated as hedges of our AFS securities to reduce volatility in our AOCI balance.” |
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…” |
| Central Bancompany, Inc. | Declining Rates Hedges | “So beginning last quarter, and we’re going to continue to look at this, we did put on a cash flow hedge at the very end of the quarter that’s designed to moderate that asset sensitivity back a little bit.” |
| Enterprise Financial Services Corp | Declining Rates Hedges | “We also added $150 million in additional loan hedges during the third quarter to further stabilize our interest rate risk profile.” |
| Fifth Third Bancorp | Receive-Fixed Swaps | “…we added $7 billion of receive-fixed cash flow hedges.” |
| Hancock Whitney Corporation | Declining Rates Hedges | “So we use our cash flow hedges along with the fair value hedges to kind of control and mitigate some of our asset sensitivity… And I think what you saw this quarter in terms of us adding a couple of hundred million…” |
| Independent Bank Corporation | Interest Rate Floors, Terminated Pay-Fixed Swaps | “Our position remains modestly asset sensitive… We continue to manage exposure to lower rates through $50 million notional floor purchases and the termination of a $25 million pay fixed swap.” |
| KeyCorp | Receive-Fixed Swaps | “I think we feel, again, quite good about the neutral position we’re in…we’ve effectively been replacing swaps at this point as they roll off and as we noted, replacing them at much higher levels right now. And we’ve done a little bit of maintenance sort of out into ’28 and ’29…” |
| M&T Bank Corporation | Receive-Fixed Swaps | “If you look at our swap book, it has come down in the last quarter or two. It starts to go back up again in the second quarter next year and climbs out of that, so I feel good on our swap book, giving us momentum as you get into the middle and later part of ’27.” |
| Simmons First National Corporation | Receive-Fixed Swaps | “…we continue to try to protect on the downside and you will see that in the deck where we put on additional $550 million of swaps to do that. It was a cheap opportunistic time to do that. While we still have asset sensitivity as rates go up, we want to be able to protect on the downside given the strong NIM that we have.” |
| Texas Capital Bancshares, Inc. | Receive-Fixed Swaps | “During Q3, we executed $600 million of two-year receive-fixed swaps against one-month SOFR, with a weighted average receive rate of 4.16%, managing interest rate sensitivity within our desired range while realizing the higher rates embedded in the forward curve. Additionally, on the back of historic rate moves, in October, we executed another $200 million of two-year receive-fixed swaps against one-month SOFR, with a weighted average receive rate of 4.72%.” |
| The PNC Financial Services Group, Inc. | Receive-Fixed Swaps | “Our receive-fixed swap portfolio totaled $83 billion at quarter-end with an average receive-fixed rate of 3.92%, which increased 17 basis points from last quarter.” |
| Wintrust Financial Corporation | Receive-Fixed Swaps | “…we do have the swaps in place that hedge part of that floating-rate SOFR portfolio.” |
| WSFS Financial Corporation | Interest Rate Floors | “…we had a hedging program in place to mitigate interest rate impact on the way down… the tool that we used for that program was really floor options. And the reason why we used that tool was to maintain our upside for if the rate cycle changed…” |
| Zions Bancorporation, National Association | Receive-Fixed Swaps | “…on the receive-fixed side, really trying to think about the downside sensitivity should rates reverse, and minus 100 or minus 200 rate environment… So, we did add some hedges during the quarter.” “…we’ve really been keeping our cash flow hedges, which are the receive-fixed, shorter maturities kind of under two years… So, we’ve just been kind of rolling those on a continuous basis forward over time.” |
Customer Hedging Program
| Alerus Financial Corporation | Customer Hedging | “Swap fee income declined modestly from the second quarter. As a reminder, we do not include swap fees in our guidance given the variability.” |
| Amerant Bancorp Inc. | Customer Hedging | “[The increase in non-interest income was] partially offset by lower loan-level derivative income and lower other non-interest income during the quarter.” |
| Atlantic Union Bankshares Corporation | Customer Hedging | “Adjusted operating non-interest income decreased $3.1 million, driven primarily by lower loan-related interest rate swap fees… as higher interest rates tempered customer activity.” |
| Bank OZK | Customer Hedging | “So, not only providing the loan products, but… if they need… interest rate hedging, commodity hedging, that true relationship focus is really where we aim to be and where we are really shining.” |
| Banner Corporation | Customer Hedging | “Total non-interest income decreased $2.8 million from the prior quarter… lower income from swap-related activities also contributed to the decrease.” |
| Beacon Financial Corporation | Customer Hedging | “Non-interest income remains stable across our diversified revenue streams, reflecting consistent performance in… loan level derivative income…” |
| Bridgewater Bancshares, Inc. | Customer Hedging | “Swap fees were a bit lighter in the third quarter as swap pricing dynamics are less favorable in the current rate environment.” |
| Business First Bancshares, Inc. | Customer Hedging | “Non-interest income results for the third quarter were slightly below our expectations, primarily due to the lower-than-expected… swap fee revenue… over the immediate and longer term, we do expect a steady build in overall contribution.” |
| Byline Bancorp, Inc. | Customer Hedging | “We also had higher swap income and wealth management income, partially offset by lower servicing asset valuation.” |
| Eagle Bancorp, Inc. | Customer Hedging | “We had no loan sale gains this quarter… and was partially offset by a $1.1 million increase in swap fee income. …We benefited from continued margin expansion and stronger swap activity…” |
| East West Bancorp, Inc. | Customer Hedging | “Foreign-exchange activity really has just been driven by other customer transactions and other customer activity, some hedging activity, and some notable spot transaction activity that we saw throughout the quarter.” |
| FB Financial Corporation | Customer Hedging | “Higher swap fee and investment services income partially offset this [revenue] decline, which was supported by healthy customer activity.” |
| Financial Institutions, Inc. | Customer Hedging | “Key driver of this variance was lower commercial back-to-back swap activity in the third quarter following a very strong second quarter. We now expect swap fees for the year to come in between $750,000 and $1.2 million, down from the previous guidance of $1 million to $2 million.” |
| First Business Financial Services, Inc. | Customer Hedging | “Swap fee income increased $393,000, reflecting fluctuations in the interest-rate environment and deal timing.” |
| First Commonwealth Financial Corporation | Customer Hedging | “Fee income was unchanged from last quarter, but that’s only because real progress in core fee items such as… back-to-back interest rate swaps was offset by the loss of $1.3 million of second quarter one-time gains we didn’t have this quarter.” |
| First Financial Bancorp. | Customer Hedging | “Third quarter adjusted fee income was the highest in the company’s history, led by double-digit percentage growth in wealth management income, bankcard income and client derivative fees.” |
| FirstSun Capital Bancorp | Customer Hedging | “…very encouraged by what we’re seeing in the other fee businesses… including our loan syndication and swap business.” |
| Flagstar Bank, National Association | Customer Hedging | “And we do feel that from capital market fees, treasury management fees, the swaps, FX… we’re going to continue to expand that fee income as we move forward, but we’re just right now in the higher rate environment.” |
| F.N.B. Corporation | Customer Hedging | “The move in interest rates, delayed swap execution… we have a good start to the fourth quarter. But with rates moving up, some customers decided to hold off on swaps they were looking to execute.” |
| Great Southern Bancorp, Inc. | Customer Hedging | “Other income also included $116,000 in origination fees from a back-to-back interest rate swap on a new commercial real estate loan.” |
| Independent Bank Corp. | Customer Hedging | “…the higher interest rate environment softened demand in… loan level swap activity.” |
| KeyCorp | Customer Hedging | “In the quarter, we saw derivatives or client hedging fees come down, and I think that’s really just reflective of the rate volatility. So we might see that come back.” |
| M&T Bank Corporation | Customer Hedging | “Capital markets and advisory decreased $9 million to $32 million from lower interest rate swap transactions with commercial customers…” |
| Mercantile Bank Corporation | Customer Hedging | “Non-interest income in total increased 16% during the first nine months of 2026 compared to the respective 2025 period, including… an 11% increase in swap income, in large part reflecting growth in commercial relationships.” “I think as rates have popped up… it appears that our customers are a little more hesitant than they have been typically in the past to get into the swaps, but if they want a fixed rate, it’s obviously a product that we can offer them that will give them their desired fixed rate.” |
| OceanFirst Financial Corp. | Customer Hedging | “Lastly, non-interest income was $13 million during the quarter, up from $10.6 million in the prior quarter… partly offset by… lower commercial loan swap income.” |
| Orrstown Financial Services, Inc. | Customer Hedging | “Swap fees declined slightly due to the impact of timing…” |
| Pinnacle Financial Partners, Inc. | Customer Hedging | “Capital markets are up 23%, and there’s some big numbers in there… derivatives up 26%, big, big numbers.” |
| Regions Financial Corporation | Customer Hedging | “Capital markets income increased 23% compared to the prior quarter, driven by stronger… commercial swap income…” |
| SB Financial Group, Inc. | Customer Hedging | “This quarter, our hedging program was instrumental in managing our end markets interest rate volatility, generating $319,000 in revenue with over $500,000 produced year-to-date.” |
| Seacoast Banking Corporation of Florida | Customer Hedging | “Other income increased $1.4 million from the prior quarter, reflecting higher swap and syndication fees, higher gains on SBA loan sales and higher income from SBIC investments.” |
| Southside Bancshares, Inc. | Customer Hedging | “…we spent a lot of time over the last 2 years making sure that the new real estate transactions we’re booking for the most part are floating rate transactions. Customers are always interested in interest rate protection. So we are putting them into back-to-back swaps, and we’ve done a really good job of that in the last couple of years.” |
| SouthState Bank Corporation | Customer Hedging | “…when the curve gets steeper, the interest rate swap business has a little bit more of a challenge, whereas the fixed income business does a little bit better.” |
| Third Coast Bancshares, Inc. | Customer Hedging | “For this quarter specifically, the differences versus prior quarters were we had more swap fees, and we had more loan fee income… The swap fees, I mean, they’re customer-dependent.” |
| USCB Financial Holdings, Inc. | Customer Hedging | “With yields elevated, client appetite for swaps slowed considerably.” “…in Q1 of this year when we had rates going down, we booked $1.4 million in swap activity. The second and third quarter we booked nearly negligible dollar amount so, with a rising rate environment, I think we’re going to be challenged on swaps…” |
| Washington Trust Bancorp, Inc. | Customer Hedging | “Loan-related derivative income was up by $924,000…” |
| Zions Bancorporation, National Association | Customer Hedging | “…the interest rate hedging business that we have, which is about a $30 million-ish revenue business just on interest rate hedging for our clients, that — as rates continue to go up, that could actually be impacted some, although we haven’t seen too much weakness there.” |