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Derivatives | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as interest rate exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line items other assets or other liabilities at fair value in accordance with ASC 815, “Derivatives and Hedging.” See Note 1, “Basis of presentation” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for additional information on the Company’s accounting policies related to derivative instruments and hedging activities. Derivatives designated as fair value hedges The Company enters into fair value hedging relationships using interest rates swaps to mitigate the Company’s exposure to losses in market value as interest rates change. Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps that relate to pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. The critical terms of the interest rate swaps match the terms of the corresponding hedged items. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Any initial and ongoing assessment of expected hedge effectiveness is based on regression analysis. At December 31, 2023, the Company had interest rate swaps designated as fair value hedges to convert fixed rate money market deposits to variable with notional values totaling $200,000 and market values totaling $(4,497) recorded in other liabilities on the consolidated balance sheets. Additionally at December 31, 2023, the Company had an interest rate swap designated as a fair value hedge on subordinated debt with a notional value of $100,000 and market value of $(673) recorded in other liabilities on the consolidated balance sheets. At September 30, 2024, the Company did not have any interest rate swaps that were designated as fair value hedges. During the nine months ended September 30, 2024, the Company terminated interest rate swaps that were designated as fair value hedges on fixed rate money market deposits as well as a swap agreement designated as a fair value hedge covering subordinated debt that matured. For the terminated swaps, notional values totaled $200,000 and market values totaled $(4,588) at termination. The remaining fair value adjustment on the terminated hedging relationships was amortized into interest expense over the respective contract terms of the original hedges. At September 30, 2024, there was no remaining fair value adjustment on the terminated swaps. For the matured swap, the notional value totaled $100,000 prior to maturity. The swap involved the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreement. The following discloses the amount of expense included in interest expense on deposits and borrowings, related to the Company's fair value hedging instruments:
|  | Three Months Ended September 30, | Nine Months Ended September 30,
|  | 2024 |  | 2023 | 2024 |  | 2023
Designated fair value hedge: |  |  |  |  |  |  |
Interest expense on deposits |  | $ | — |  |  | $ | (1,927) |  | $ | — |  |  | $ | (5,204) |
Interest expense on borrowings |  | — |  |  | (977) |  | (645) |  |  | (2,631) |
Total |  | $ | — |  |  | $ | (2,904) |  | $ | (645) |  |  | $ | (7,835) |
During the three and nine months ended September 30, 2024, amortization expense totaling $993 and $4,588, respectively, related to the terminated fair value hedges was recognized as an increase to interest expense on deposits. As of September 30, 2024, there is no remaining fair value adjustment related to the terminated fair value hedges included in money market and savings deposits on the consolidated balance sheets. The following amounts were recorded on the balance sheet related to cumulative adjustments of fair value hedges as of December 31, 2023:
|  |  | December 31, 2023
Line item on the balance sheet |  |  | Carrying amount of the hedged item |  | Cumulative decrease in fair value hedging adjustment included in the carrying amount of the hedged item
Money market and savings deposits |  |  | $ | 198,143 |  | (1) | $ | (4,497) |
Borrowings |  |  | 98,715 |  | (2) | (673) |
Total |  |  | $ | 296,858 |  |  | $ | (5,170) |
(1) The carrying value also includes an unaccreted purchase accounting fair value premium of $2,640 as of December 31, 2023. (2) The carrying value also includes unamortized subordinated debt issuance costs of $612 as of December 31, 2023. Derivatives designated as cash flow hedges The Company enters into cash flow hedging relationships using interest rate swaps to mitigate the exposure to the variability in future cash flows or other forecast transactions associated with its floating rate assets and liabilities. The Company uses interest rate swap agreements to hedge the repricing characteristics of its floating rate subordinated debt. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Any initial and ongoing assessment of expected hedge effectiveness is based on regression analysis. The ongoing periodic measures of hedge ineffectiveness are based on the expected change in cash flows of the hedged item caused by changes in the benchmark interest rate. At December 31, 2023, the Company had interest rate swaps designated as cash flow hedges on subordinated debt with notional values totaling $30,000 and market values totaling $579 recorded in other assets on the consolidated balance sheets. At September 30, 2024, the Company did not have any interest rate swaps that were designated as cash flow hedges. During the nine months ended September 30, 2024, the interest rate swaps that were designated as cash flow hedges covering subordinated debt with notional amounts of $30,000 matured. The Company’s consolidated statements of income included a loss of $5 and a gain of $517 for the three and nine months ended September 30, 2024, respectively, and gains of $267 and $696 for three and nine months ended September 30, 2023, respectively, in interest expense on borrowings related to these cash flow hedges. The cash flow hedges were highly effective during the periods presented and as a result qualified for hedge accounting treatment. As such, no amounts were reclassified from accumulated other comprehensive loss into earnings as a result of hedge ineffectiveness during any period presented. The following discloses the amount included in other comprehensive income (loss), net of tax, for derivative instruments designated as cash flow hedges for the periods presented:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023 |
Amount of loss recognized in other comprehensive income (loss), net of tax benefit of $21, $35, $151 and $99 |  | $ | (59) |  |  | $ | (101) |  |  | $ | (428) |  |  | $ | (281) |  |
Derivatives not designated as hedging instruments Derivatives not designated under hedge accounting rules include those that are entered into as either economic hedges as part of the Company’s overall risk management strategy or to facilitate client needs. Economic hedges are those that are not designated as a fair value or cash flow hedge for accounting purposes but are necessary to economically manage the risk exposure associated with the assets and liabilities of the Company. The Company enters into derivative instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures. The Company enters into interest rate-lock commitments on residential loan commitments that will be held for resale. These are considered derivative instruments with no hedge accounting designation, and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Gains and losses arising from changes in the valuation of the interest rate-lock commitments are recognized currently in earnings and are reflected under the line-item mortgage banking income in the consolidated statements of income. The Company also enters into forwards, futures and option contracts to economically hedge the change in fair value of mortgage servicing rights. Gains and losses associated with these instruments are included in earnings and are reflected under the line-item mortgage banking income in the consolidated statements of income. The following tables provide details on the Company’s non-designated derivative financial instruments as of the dates presented:
|  | September 30, 2024 |
|  | Notional Amount |  | Asset |  | Liability |
Interest rate contracts |  | $ | 542,155 |  |  | $ | 24,725 |  |  | $ | 24,763 |  |
Forward commitments |  | 240,000 |  |  | — |  |  | 393 |  |
Interest rate-lock commitments |  | 105,714 |  |  | 1,398 |  |  | — |  |
Futures contracts |  | 263,500 |  |  | — |  |  | 1,334 |  |
Total |  | $ | 1,151,369 |  |  | $ | 26,123 |  |  | $ | 26,490 |  |
|  | December 31, 2023
|  | Notional Amount |  | Asset |  | Liability
Interest rate contracts |  | $ | 569,865 |  |  | $ | 32,179 |  |  | $ | 32,184 |
Forward commitments |  | 159,000 |  |  | — |  |  | 861 |
Interest rate-lock commitments |  | 69,217 |  |  | 1,203 |  |  | — |
Futures contracts |  | 254,000 |  |  | 777 |  |  | — |
Total |  | $ | 1,052,082 |  |  | $ | 34,159 |  |  | $ | 33,045 |
Gains (losses) included in the consolidated statements of income related to the Company’s non-designated derivative financial instruments were as follows:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |  |
Included in mortgage banking income: |  |  |  |  |  |  |  |  |
Interest rate lock commitments |  | $ | 18 |  |  | $ | (537) |  |  | $ | 194 |  |  | $ | (358) |  |
Forward commitments |  | (1,549) |  |  | 1,418 |  |  | (1,115) |  |  | 2,154 |  |
Futures contracts |  | 3,612 |  |  | (7,009) |  |  | (787) |  |  | (7,593) |  |
Option contracts |  | — |  |  | — |  |  | — |  |  | (1,125) |  |
Total |  | $ | 2,081 |  |  | $ | (6,128) |  |  | $ | (1,708) |  |  | $ | (6,922) |  |
Netting of Derivative Instruments Certain financial instruments, including derivatives, may be eligible for offset on the consolidated balance sheets when the “right of offset” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements, however the Company has not elected to offset such financial instruments on the consolidated balance sheets. The following table presents the Company’s gross derivative positions as recognized on the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:
|  |  |  |  |  |  |  | Gross amounts not offset on the consolidated balance sheets |  |
|  | Gross amounts recognized |  | Gross amounts offset on the consolidated balance sheets |  | Net amounts presented on the consolidated balance sheets |  | Financial instruments |  | Financial collateral pledged |  | Net Amount
September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial assets |  | $ | 21,372 |  |  | $ | — |  |  | $ | 21,372 |  |  | $ | 3,452 |  |  | $ | — |  |  | $ | 17,920 |
Derivative financial liabilities |  | $ | 9,721 |  |  | $ | — |  |  | $ | 9,721 |  |  | $ | 3,452 |  |  | $ | 6,269 |  |  | $ | — |
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Derivative financial assets |  | $ | 31,468 |  |  | $ | — |  |  | $ | 31,468 |  |  | $ | 6,502 |  |  | $ | — |  |  | $ | 24,966 |
Derivative financial liabilities |  | $ | 11,330 |  |  | $ | — |  |  | $ | 11,330 |  |  | $ | 6,502 |  |  | $ | 4,828 |  |  | $ | — |
Collateral Requirements Most derivative contracts with customers are secured by collateral. Additionally, in accordance with the interest rate agreements with derivative counterparties, the Company may be required to post collateral with these derivative counterparties. As of September 30, 2024 and December 31, 2023, the Company had collateral posted of $21,791 and $14,042, respectively, against its obligations under these agreements. Cash pledged as collateral on derivative contracts is recorded in other assets on the consolidated balance sheets.

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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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