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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 11. DERIVATIVE FINANCIAL INSTRUMENTS The following table provides the outstanding notional balances and fair values of outstanding derivative positions at September 30, 2024 and December 31, 2023.
|  | September 30, 2024 |  |  | December 31, 2023 |
|  | Outstanding Notional Balance |  |  | Asset Derivative Fair Value |  |  | Liability Derivative Fair Value |  |  | Outstanding Notional Balance |  |  | Asset Derivative Fair Value |  |  | Liability Derivative Fair Value |
|  | (Dollars in thousands) |
Interest rate lock commitments |  | $ | 12,625 |  |  |  | 276 |  |  |  | — |  |  | $ | 7,113 |  |  | $ | 218 |  |  | $ | — |
Forward mortgage-backed securities trades |  |  | 25,500 |  |  |  | 27 |  |  |  | 80 |  |  |  | 14,250 |  |  |  | 1 |  |  |  | 161 |
Commercial loan interest rate swaps and caps: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Loan customer counterparty |  |  | 53,465 |  |  |  | — |  |  |  | 1,375 |  |  |  | 67,408 |  |  |  | — |  |  |  | 3,899 |
Financial institution counterparty |  |  | 53,465 |  |  |  | 1,365 |  |  |  | — |  |  |  | 67,408 |  |  |  | 3,876 |  |  |  | — |
These financial instruments are not designated as hedging instruments and are used for asset and liability management and commercial customers’ financing needs. All derivatives are carried at fair value in either other assets or other liabilities, and all related cash flows are reported in the operating section of the consolidated statements of cash flows. Interest rate lock commitments (“IRLCs”) — In the normal course of business, the Company enters into interest rate lock commitments with consumers to originate mortgage loans at a specified interest rate. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Forward mortgage-backed securities trades — The Company manages the changes in fair value associated with changes in interest rates related to IRLCs by using forward sold commitments known as forward mortgage-backed securities trades. These instruments are typically entered into at the time the interest rate lock commitment is made. Interest rate swaps and caps — These derivative positions relate to transactions in which the Company enters into an interest rate swap or cap with a customer, while at the same time entering into an offsetting interest rate swap or cap with another financial institution. An interest rate swap transaction allows the Company’s customer to effectively convert a variable rate loan to a fixed rate. In connection with each swap, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution a similar fixed interest rate on the same notional amount and receive substantially the same variable interest rate on the same notional amount. In connection with each interest rate cap, the Company sells a cap to the customer and agrees to pay interest if the underlying index exceeds the strike price defined in the cap agreement. Simultaneously the Company purchases a cap with matching terms from another financial institution that agrees to pay the Company if the underlying index exceeds the strike price. The commercial loan customer counterparty weighted average received and paid interest rates for interest rate swaps outstanding at September 30, 2024 and December 31, 2023 are presented in the following table.
|  | Weighted-Average Interest Rate |
|  | September 30, 2024 |  |  | December 31, 2023 |
|  | Received |  |  | Paid |  |  | Received |  |  | Paid |
Loan customer counterparty |  |  | 2.97 | % |  |  | 6.40 | % |  |  | 3.07 | % |  |  | 6.81 | %
The Company’s credit exposure on interest rate swaps is limited to the net favorable value of all swaps by each counterparty, which was approximately $905 thousand at September 30, 2024 and $3.9 million at December 31, 2023. This credit exposure is partly mitigated as transactions with customers are secured by the collateral, if any, securing the underlying transaction being hedged. The Company’s credit exposure, net of collateral pledged, relating to interest rate swaps with upstream financial institution counterparties was $155 thousand at September 30, 2024. A credit support annex is in place and allows the Company to call collateral from upstream financial institution counterparties. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. The Company’s cash collateral pledged for interest rate swaps was zero at September 30, 2024 and December 31, 2023. The initial and subsequent changes in the fair value of IRLCs and the forward sales of mortgage-backed securities are recorded in net gain on sale of mortgage loans. These gains and losses were not attributable to instrument-specific credit risk. For interest rate swaps and caps, because the Company acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on its results of operations. Income (loss) for the three and nine months ended September 30, 2024 and 2023 was as follows:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
Derivatives not designated as hedging instruments |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  | (Dollars in thousands) |
Interest rate lock commitments |  | $ | 129 |  |  | $ | (11 | ) |  | $ | 58 |  |  | $ | 103 |
Forward mortgage-backed securities trades |  |  | (284 | ) |  |  | 510 |  |  |  | 41 |  |  |  | 668 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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