This quarter, we've opted to send our summary of earnings commentary on an ongoing basis to deliver these insights in a more timely manner. Click here to read our summary from Q2.
Unsurprisingly, the Fed's first 50bp rate cut has shifted the focus of both analysts and banks towards a declining rate environment. As a result, most hedging mentions during this first slate of earnings focused on strategies that reduce asset sensitivity. Forward starting receive-fixed swaps in particular remain a popular tool for deferring some of the negative carry associated with the inverted curve. Since the end of Q3, the forward curve has rebounded significantly from the ~3% levels we noted a few weeks ago, potentially offering opportunistic hedgers a window to add to downside protection.
Ally Financial
Pay-Fixed Swaps
"Hedges have been an effective mechanism to reduce exposure to rising rates. Hedging activity has contributed more than $1 billion in NII since the tightening cycle and continues to generate significant positive carry. That benefit has come down over time, which will continue given the decline in benchmark rates and natural maturity of the swaps."
Atlantic Union
Customer Hedging Program
"So we'll continue to go after certainly smaller business, butwe can move into the pure middle market. We bring new capabilities to the table, be it equipment finance, asset-based lending,foreign exchange, arobust interest rate hedging program, additional treasury management services."
Bank of America
Receive-Fixed Swaps
"You've talked about hedges in the past in terms of the sensitivity of your floating rate loans, specifically in commercial... Will the hedges give you some floor in your sensitivity?"
"So I think it's okay to start with the same sensitivity on the way down, because the company is largely positioned the same way. We've got some cash flow swaps, a number of them are pointed against the commercial [loans]... As we get into the third quarter and fourth quarter of '25, you'll see a benefit in commercial yields there because those ones are at lower rates and they will be repriced in Q3 and Q4."
Bank OZK
Customer Hedging Program
"We've also launched an interest rate hedging desk. The bank has historically pushed off all of our hedging opportunities, whether those are caps or swaps or other derivative instruments to a third party. We now have the opportunity and the abilities and capabilities to handle those in-house through a desk that we've stood up... It allows us to chase additional clients, but it also allows us to keep our eye on over time,continue to improve our additional fee income for the institution."
Comerica
Receive-Fixed Swaps
"Successful execution of our interest rate strategy and the composition of our balance sheet has made us slightly liability sensitive and allows us to better protect our profitability from a declining rate environment.By strategically managing our swap and securities portfoliowhile considering balance sheet dynamics,we intend to maintain our insulated positionover time."
Fifth Third
Receive-Fixed Swaps
"If we were to get to a normal shape curve, there would be even more benefit then from the fixed rate asset we're pricing. And we would also have a little bit of opportunity to get a little bit more economics out of duration in the security portfolio and then the swap portfolio over time."
Fulton Financial
Customer Hedging Program
"Commercial banking fees increased $879,000,driven mostly by an increase in commercial customer swap income. All other commercial categories were relatively in line with the past quarter."
Huntington Bank
Forward Starting Receive-Fixed Swaps
"We just did another $1 billion of forward starting receivers just in the early part of this quarter that are really starting out into the second half of 2025 that will just continue to drive asset sensitivity lower at the time we really want it. At this point, the game plan... is [to] gradually allow the pay-fixed swaptions to reduce and to expire, put on more forward starting receivers when we see nice opportunities in the market to do that."
KeyBank
Receive-Fixed Swaps
"We've been moving towards rate sensitivity... I think the best version of the world is the one we appear to be headed in if a soft landing is coming, which is a steepening curve right now... Something that's flat to upward sloping, I think is the best profile for all of us... We feel good about our ability to price [deposits] over time. And given that the swaps positions are coming off, we feel better just about our overall rate sensitivity."
M&T Bank
Receive-Fixed Swaps
"When you look at hedging, we knowwe already have locked in hedge improvementsin our swap book... If you look at the cash flow hedges, point-to-point they should go up about 55 basis points and the fair value hedges should go up about 37 basis points, point-to-point in '25. That's if rates don't even change. So that's probably very positive in there."
Mercantile Bank
Customer Hedging Program
"Income from interest rate swaps declined 8% as demand for interest rate protection by borrowers shifted with the borrower's future rate expectations."
Metropolitan Bank
Pay-Fixed Swaps
"The balance of deposits that were priced with Fed move was approximately $3.7 billion. The deposits not repriced include deposits swapped to fixedand deposits that already carry a very low coupon."
PNC Bank
Forward Starting Receive-Fixed Swaps
"Our active receive-fixed rate swaps pointed to the commercial loan book totaled $33 billion on September 30... Our forward starting swaps were $15 billion with a weighted average receive rate of 4.26%. Importantly, with our forward starting swaps, we've locked in the replacement yield on the majority of our 2025 swap maturitiesat levels higher than existing swapsand current market rates."
Regions Bank
Receive-Fixed Swaps
"Now as we transition to a falling rate environment, hedging and the ability to reduce deposit expense result in a well-protected profile… Of course, we have our derivatives that naturally reset. Those are a negative carry this past quarter of $110 million... As rates come down, that certainly helps offset lowering rates. So that gives us confidence that we can go into next year in grow margin."
S&T Bank
Receive-Fixed Swaps
"We have about a$500 million receive-fixed swap ladder that we built as rates began to rise. That starts to mature at the pace of about $50 million per quarter, starting in the first quarter. So we're underwater on those, anywhere from 200 to 300 basis points. Soas those mature, if we let those fully go, that will also provide some margin supportthat will show up really in the loan line versus in the deposit space."
ServisFirst Bank
Customer Hedging Program
"The rate cuts will help some of our developers who've been pinched by the rate increases. A good example is one of our larger relationships as a workforce housing real estate developer that experienced tight cash flows in the last year as their interest rate hedges have expired."
Synovus Bank
Receive-Fixed Swaps
"When you look heading into 2025, what you'll see is stability in the balances, of the hedge portfolio, but a little bit of remixing is there's a couple of maturities that come through, and then you have some forward starting hedges that start. So you'll see the effective rate on the hedges increase as we go through early 2025, getting up to about the 3% area in the second quarter."
Texas Capital Bank
Receive-Fixed Swaps
"We pick up about 40 basis points as those swaps ultimately expire... The curve is not particularly conducive to adding any additional downside rate protection at this point."
Truist Bank
Receive-Fixed & Pay-Fixed Swaps
"On the swaps... we have two programs that we use to manage our rate position. We've got our receive-fixed program, which we primarily rely on to manage our NII sensitivity and risks and opportunities, and we have our pay fix program to manage our asset values, manage our capital volatility risk in the future... We added about 15, give or take, $1 billion of forward starting receivers during the third quarter. That takes notional up into the, call it, $60-or-so billion area. We also added about $5 billion of pay-fixed swaps we added to the investment portfolio during the quarter as well."
Webster Bank
Receive-Fixed Swaps
"We've got a$5 billion hedge portfolio that helps support our current positioning. And then there's another large factor for us is that we have approximately $5 billion of fixed-rate securities that mature and churn annually."
Zions Bank
Customer Hedging Program
"Customer-related noninterest income was $161 million compared to $154 million in the prior quarter, largely driven by a $7 million increase in capital market fees that Harris alluded to previously. We remain optimistic that our expanded capital market focus will allow us to grow fee income meaningfully moving forward."
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