Hedging Strategies in Action: Q1 Earnings Calls Part I
April 24th, 2025
This quarter, we've opted to send our summary of earnings commentary in two parts to deliver these insights in a more timely manner.
Receive-fixed swaps remained the most popular hedging strategy among larger regional banks in Q1, similar to what we noted in Q4 of 2024. That trend continued despite an increase in hedging costs as rates declined throughout the quarter, suggesting that banks see an aggressive reduction in rates by the Fed as the most likely tail risk for markets going forward.
As we continue through bank earnings season, we expect to see a better balance of hedging direction, particularly with small depositories. While our clients continue to execute pay-fixed swaps, we've previously highlighted the shift towards options-based strategies both earlier in the year and in the wake of the market's tariff-driven volatility.
Lastly, banks continued to emphasize the success of their borrower hedging programs, with several institutions citing market volatility as a possible catalyst for greater volume in the coming quarters.
Read on for our complete summary:
Rising Rates Hedging:
Bank of Hawaii Corporation
Pay-Fixed Swaps
"We maintained our interest rate hedges at $2 billion notional. Earlier in this second quarter, we added $200 million of currently active pay fixed, receive floating swaps... In addition, we added $200 million of forward starting swaps that will become active in 1 year... These are in addition to the $2 billion active swaps and $300 million in forward starting swaps that were in place at March 31."
Hancock Whitney Corporation
Pay-Fixed Swaps
"Additionally, $164 million of our fair value hedges became effective and contributed 4 basis points to the overall yield pickup of 7 basis points… For the remainder of 2025, an additional $85 million of our fair value hedges will become effective, providing additional yield."
U.S. Bancorp
Pay-Fixed Swaps
"About half of the AFS book or about just over 1/4 of the book in total is floating rate in nature… we have… a lot of hedges in place to protect from shocks on higher rates to protect capital in that sense."
Declining Rates Hedging
Citizens Financial Group Inc.
Receive-Fixed Swaps
"We're pretty well hedged from a swap standpoint… out through the middle of 2027… we are close to neutral from an asset sensitivity perspective."
Comerica Incorporated
Receive-Fixed Swaps
"By strategically managing our swap and securities portfolios while considering the balance sheet dynamics, we intend to maintain our insulated position over time."
East West Bancorp Inc.
Receive-Fixed Swaps
Q: "What's the blended receive-fixed rate on the existing swap book after that $1 billion rolled off in first quarter?"
A: "We've had about $500 million of forward starting swaps, just under 4%, that we'll receive-fixed starting in Q3. And so to the extent we see rate cut in Q3, we'll poised to be in the money on those... There will be a total of $1 billion over the back half of 2025, again, both with the receive-fixed rate at around 4%."
First Horizon Corporation
Hedging Declining Rates
Q: "Given the persistently sort of relatively high rates, is there any sort of discussion internally to protect the margin a little bit to the downside?"
A: "Yes... we do have conversations about the long tail events. And when we sit here today, I can make almost as good argument for higher rates with inflation as I can for lower rates with a slowdown in economic activity... We will continue to have those conversations and make appropriate decisions."
Great Southern Bancorp Inc.
Pay-Fixed Swap Termination
"As a reminder, we will lose the benefit of the terminated interest rate swap after the third quarter of 2025. We expect to continue realizing approximately $2 million per quarter in interest income from the terminated swap through the first 3 quarters of 2025, after which that benefit to interest income will cease."
Huntington Bancshares Incorporated
Floor Spreads
"We continue to manage our hedging program to both protect net interest margin from a lower rate environment... during the first quarter, we added to our down rate risk hedges with approximately $4 billion in floor spreads. We continue to analyze multiple potential rate scenarios and will remain dynamic as we continue to calibrate to the most likely rate environment."
MT Bank Corporation
Receive-Fixed Swaps
"We know for a fact that our swap book is going to go up and accrete more over time up to 30 basis points. We should be in the 3.70s by the end of the year and early '26."
Regions Financial Corporation
Hedging Declining Rates
"Our de-risking efforts and best-in-class hedging program have contributed to a strong capital position… The benefits from lower deposit costs and hedging have protected the margin during the falling rate cycle."
Synovus Financial Corp.
Receive-Fixed Swaps
Q: "You noted that you guys are… a little bit asset-sensitive, longer term. Any thoughts on kind of neutralizing or changing anything around that rate sensitivity at this point in the cycle?"
A: "We had an opportunity, rates were higher, much higher than they are now, about 4%. And we received fixed for a couple of years out there on $500 million at 4%. And that was a positive because we wanted to maintain neutrality even out there."
Texas Capital Bancshares Inc.
Receive-Fixed Swaps
"Improvements in rates fall earnings sensitivities were driven by... the addition of $300 million in forward-starting receive-fixed swaps that will become active in Q3... we do anticipate future interest rate derivative or securities actions over the course of 2025 augmenting potential rates fall, earnings generation at materially better terms than available during our deliberate pause to the mid part of last year."
The PNC Financial Services Group Inc.
Receive-Fixed Swaps
"Our active receive-fixed rate swaps totaled $39 billion on March 31... Our forward starting swaps now total $20 billion, including $9 billion that were added during the first quarter, which will roll on through 2026. With the addition of these swaps, we've reduced our interest rate sensitivity and further locked in a portion of our fixed rate asset repricing."
U.S. Bancorp
Receive-Fixed Swaps
"Even though the investment portfolio has some mix towards floating rate, we have other things that can offset that such as receive-fixed swaps on the commercial loans."
Customer Hedging Programs:
Bank7 Corp.
Customer Hedging
"And our large energy borrowers, they're very active with hedging. And there's been opportunities here over the last couple of years to lock in for very extended periods of time for these borrowers so they could meet their hurdles on returns and really de-risk their operations."
Comerica Incorporated
Customer Hedging
"We expect the second quarter to be stronger than the first, and project growth in customer-related fee income through the balance of the year… if you think about what our business is made up of, it's our syndications business on what we do in some of our risk products for our customers, so interest rate, FX and energy."
Fifth Third Bancorp
Customer Hedging
"As it relates to hedging activity, the volatility in the markets has actually generated a real pickup in conversations... We just -- we probably need commodities prices, in particular, to settle out enough for people to be able to execute here, but just a modest decline in volatility helps that."
F.N.B. Corporation
Customer Hedging
"Derivative fee income is directly linked to the interest rate environment. I would say that we've seen some pretty decent activity recently. So that's one area that could help contribute to doing better in noninterest income. The other one -- the other areas that we've expanded into commodities hedging, that's relatively new."
Independent Bank Corp.
Customer Hedging
"Noninterest income increased modestly in the first quarter despite fewer business days versus the prior quarter, with wealth management income results, weathering the volatile market storm nicely as well as increased loan-level swap income as compared to the prior quarter."
Orrstown Financial Services Inc.
Customer Hedging
"One other item of note is the commercial lending team had another strong quarter of originating swaps for clients.... Fee income in general remains a focal point for us. For the first quarter, it was 19% of total revenues, but our goal remains to be to exceed 20%."
QCR Holdings Inc.
Customer Hedging
"Robust long-term demand for affordable housing continues to support the sustainability of our LIHTC lending and swap fee revenue. Our pipeline in this business remains strong and continues to grow. As a result, we expect our capital markets revenue from swap fees for the next 4 quarters to continue to be in our guidance range of $50 million to $60 million."
Simmons First National Corporation
Customer Hedging
"Noninterest income grew 6% linked quarter. We delivered strong swap fee income in our Q1 loan production as well as diversified growth from our other fee-based businesses."
Synovus Financial Corp.
Customer Hedging
"So as loan production continues to increase in the areas I mentioned earlier, I think we'll see more syndication fees, joint arranger fees, andas the interest rate environment kind of plays out, I think you'll see more swap income."
Veritex Holdings Inc.
Customer Hedging
"Our customer swap income is a place that they're having -- they had a good first quarter, and I'm encouraged by how the second quarter has started."
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