XML 25 R18.htm IDEA: XBRL DOCUMENT
v3.24.3

Derivative Financial Instruments | 9 Months Ended
--- | ---
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 9. DERIVATIVE FINANCIAL INSTRUMENTS Derivatives Not Designated as Hedging Instruments The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset/liability management strategy to help manage its interest rate risk position. As of September 30, 2024, the Bank has entered into 115 interest-rate swap agreements with customers with a notional amount totaling $364.5 million. The Bank then entered into identical offsetting swaps with counterparties. The swap agreements are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and to provide the customer the financial effects of a fixed-rate loan without creating significant volatility in the Bank’s earnings. The structure of the swaps is as follows. The Bank enters into an interest rate swap with its customers in which the Bank pays the customer a variable rate and the customer pays the Bank a fixed rate, therefore allowing customers to convert variable rate loans to fixed rate loans. At the same time, the Bank enters into a swap with a counterparty bank in which the Bank pays the counterparty a fixed rate and the counterparty in return pays the Bank a variable rate. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on SOFR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore should not have a significant impact on the Company’s results of operations, although the Company does incur credit and counterparty risk with respect to performance on the swap agreements by the Bank’s customer and counterparty, respectively. These instruments contain language outlining collateral pledging requirements for each counterparty, in which collateral must be posted if market value exceeds certain agreed upon threshold limits. Cash or securities are pledged as collateral. Our interest rate swap derivatives are subject to a master netting arrangement with our counterparties. No ne of our derivative assets and liabilities are offset in the Company’s condensed consolidated balance sheet. We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure, although there can be no assurances in this regard since the performance of our swaps is subject to market and counterparty risk. Derivatives Designated as Hedging Instruments Fair Value Hedges To manage interest rate risk on our AFS securities portfolio, we have entered into pay-fixed, receive-floating interest rate swap contracts to hedge against exposure to changes in the fair value of such securities resulting from changes in interest rates. We designate these interest rate swap contracts as fair value hedges that qualify for hedge accounting under ASC 815, Derivatives and Hedging. We elected to account for the fair value hedges using the portfolio layer method in accordance with ASU 2022-01. We record the interest rate swaps in the line items "accrued interest receivable and other assets" and "other liabilities" on our consolidated balance sheet. For qualifying fair value hedges, both the changes in the fair value of the derivative and the portion of the fair value adjustments associated with the portfolio layer attributable to the hedged risk are recognized into earnings as they occur. Derivative amounts impacting earnings are recognized consistent with the classification of the hedged item in the line item "investment securities available for sale" as part of interest income, a component of consolidated net income. In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $15.0 milli on and were reflected as a liability at September 30, 2024. Cash Flow Hedges To manage our interest rate risk associated with brokered CDs, FHLB advances or other fixed rate advances for specified periods, the Company enters into interest rate derivative contracts that are designated as qualifying cash flow hedges to hedge the exposure to variability in expected future cash flows attributable to changes in a contractually specified interest rates. During the first quarter of 2024, $300 million of 3-month term brokered CDs were issued and cash flow hedging transactions were also executed in which $300 million notional pay-fixed interest rate swaps were consummated with maturities of three years, wherein the Company pays a weighted average fixed rate of approximately 4.2% and receives daily SOFR. To qualify for hedge accounting, a formal assessment is prepared to determine whether the hedging relationship, both at inception and on an ongoing basis, is expected to be highly effective in achieving offsetting cash flows attributable to the hedged risk during the term of the hedge if a cash flow hedge. At inception a statistical regression analysis is prepared to determine hedge effectiveness. At each reporting period thereafter, a statistical regression or qualitative analysis is performed to determine hedge effectiveness. If it is determined that hedge effectiveness has not been or will not continue to be highly effective, then hedge accounting ceases and any gain or loss in AOCI is recognized in earnings immediately. The cash flow hedges are recorded at fair value in other assets and other liabilities on the consolidated balance sheets with changes in fair value recorded in AOCI, net of tax. All related cash flows are reported in the operating activities section of the consolidated statement of cash flows. Amounts recorded to AOCI are reclassified into earnings in the same period in which the hedged asset or liability affects earnings and are presented in the same income statement line item as the earnings effect of the hedged asset or liability. Balance Sheet Classification of Derivative Financial Instruments As of September 30, 2024 and December 31, 2023, the notional amount, the location of the asset and liability, and their respective fair values, are summarized in the tables below.
|  | September 30, 2024 |
|  | Asset Derivatives |  |  | Liability Derivatives |
|  | Notional |  |  | Balance Sheet Location |  | Fair Value |  |  | Notional |  |  | Balance Sheet Location |  | Fair Value |
|  | (Dollars in thousands) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 381,468 |  |  | Other assets |  | $ | 364 |  |  | $ | 381,468 |  |  | Other liabilities |  | $ | 364 |
Total |  |  |  |  |  |  | $ | 364 |  |  |  |  |  |  |  | $ | 364 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value hedges: interest rate swaps |  | $ | 1,000,000 |  |  | Other assets |  | $ | — |  |  |  |  |  | Other liabilities |  | $ | 14,959 |
Cash flow hedges: interest rate swaps |  |  |  |  | Other assets |  |  | — |  |  | $ | 300,000 |  |  | Other liabilities |  |  | 5,329 |
Total |  |  |  |  |  |  | $ | — |  |  |  |  |  |  |  | $ | 20,288 |
|  | December 31, 2023 |
|  | Asset Derivatives |  |  | Liability Derivatives |
|  | Notional |  |  | Balance Sheet Location |  | Fair Value |  |  | Notional |  |  | Balance Sheet Location |  | Fair Value |
|  | (Dollars in thousands) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 394,359 |  |  | Other assets |  | $ | 112 |  |  | $ | 394,359 |  |  | Other liabilities |  | $ | 112 |
Total |  |  |  |  |  |  | $ | 112 |  |  |  |  |  |  |  | $ | 112 |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value hedges: interest rate swaps |  | $ | 1,000,000 |  |  | Other assets |  | $ | — |  |  |  |  |  | Other liabilities |  | $ | 6,938 |
Total |  |  |  |  |  |  | $ | — |  |  |  |  |  |  |  | $ | 6,938 |
The Effect of Derivative Financial Instruments on the Condensed Consolidated Statements of Earnings The following table summarizes the effect of derivative financial instruments on the condensed consolidated statements of earnings for the periods presented.
|  | Location of Gain Recognized in Income on Derivative Instruments |  | Amount of Gain Recognized in Income on Derivative Instruments |
|  |  |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  |  |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Derivatives Not Designated as Hedging Instruments: |  |  |  | (Dollars in thousands) |
Interest rate swaps |  | Other income |  | $ | 105 |  |  | $ | — |  |  | $ | 105 |  |  | $ | — |
Total |  |  |  | $ | 105 |  |  | $ | — |  |  | $ | 105 |  |  | $ | — |
|  | Location of Gain Recognized in Income on Derivative Instruments |  | Amount of Gains (Losses) Recognized in Interest Income on Derivative Instruments |  |  | OCI Impact on Derivatives-Gains (Losses) recorded in OCI |
|  |  |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |  |  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  |  |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  |  |  | (Dollars in thousands) |  |  | (Dollars in thousands) |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value hedges: interest rate swaps |  | Interest income |  | $ | 4,286 |  |  | $ | 3,790 |  |  | $ | 12,070 |  |  | $ | 4,236 |  |  | $ | (20,430 | ) |  | $ | 9,708 |  |  | $ | (5,671 | ) |  | $ | 17,554 |
Cash flow hedges: interest rate swaps |  | Interest expense |  |  | 892 |  |  |  | — |  |  |  | 1,988 |  |  |  | — |  |  |  | (4,869 | ) |  |  | — |  |  |  | (3,754 | ) |  |  | — |
Total |  |  |  | $ | 5,178 |  |  | $ | 3,790 |  |  | $ | 14,058 |  |  | $ | 4,236 |  |  | $ | (25,299 | ) |  | $ | 9,708 |  |  | $ | (9,425 | ) |  | $ | 17,554 |

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration