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Derivative Instruments and Hedge Activities | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedge Activities | Note 21—Derivative Instruments and Hedge Activities As required by ASC 815, the Company records all derivatives on the Consolidated Statements of Financial Condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. The following tables present the fair value of the Company’s derivative financial instruments and classification on the Consolidated Statements of Financial Condition as of December 31, 2024 and 2023:
|  | 2024 |  |  | 2023 |
|  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |
|  | Notional Amount |  |  | Other Assets |  |  | Other Liabilities |  |  | Notional Amount |  |  | Other Assets |  |  | Other Liabilities |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps designated as cash flow hedges |  | $ | 650,000 |  |  | $ | 26,529 |  |  | $ | (52 | ) |  | $ | 650,000 |  |  | $ | 37,475 |  |  | $ | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other interest rate derivatives |  |  | 851,742 |  |  |  | 17,865 |  |  |  | (17,721 | ) |  |  | 706,126 |  |  |  | 19,447 |  |  |  | (19,345 | )
Other credit derivatives |  |  | 17,146 |  |  |  | 7 |  |  |  | (12 | ) |  |  | 3,602 |  |  |  | 1 |  |  |  | — |
Total derivatives |  | $ | 1,518,888 |  |  | $ | 44,401 |  |  | $ | (17,785 | ) |  | $ | 1,359,728 |  |  | $ | 56,923 |  |  | $ | (19,345 | )
As of the effective time of the transaction reported in Note 3—Acquisition of a Business, Byline acquired and assumed two types of derivative instruments. Interest rate swap agreements previously designated as cash flow hedges of certain junior subordinated debentures issued to capital trusts had notional amounts of $42.0 million and had a fair value of $3.5 million included in accrued interest receivable and other assets. In July 2023, the Company terminated the interest rate swap agreements that resulted in a net gain of $6,000. Other interest rate swap agreements not designated as hedging instruments had notional amounts of $67.7 million and fair values of $6.2 million reported in accrued interest receivable and other assets and accrued interest payable and other liabilities. Interest rate swaps designated as cash flow hedges—Cash flow hedges of interest payments associated with certain financial instruments had notional amounts totaling $650.0 million as of December 31, 2024 and 2023. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value of the derivatives hedging instrument with the fair value of the designated hedged transactions. As of December 31, 2024, the cash flow hedges aggregating $650.0 million in notional amounts are comprised of $450.0 million pay-fixed interest rate swaps associated with certain deposits and other borrowings, and $200.0 million receive-fixed interest rate swaps associated with certain variable rate loans. As of December 31, 2024, pay-fixed interest rate swaps are comprised of six effective hedges and the receive-fixed interest rate swaps are comprised of four effective hedges. On January 16, 2025, the Company entered into a $50.0 million forward starting receive-fixed interest rate swap associated with certain variable rate loans with an effective date of March 2026. Note 21—Derivative Instruments and Hedge Activities (continued) For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivatives is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest income or expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest income or expense as interest payments are made on the hedged instruments. Interest recorded on these swap transactions included $18.4 million, $15.3 million, and $1.0 million of interest income recorded during the years ended December 31, 2024, 2023, and 2022, respectively, and is reported as a component of interest expense on deposits and other borrowings. As of December 31, 2024, the Company estimates $13.6 million of the net unrealized gain to be reclassified as a net decrease to interest expense during the next twelve months. Accumulated other comprehensive income (loss) also includes the amortization of the remaining balance related to terminated interest rate swaps designated as cash flow hedges, which are over the original life of the cash flow hedge. In March 2023, the Company terminated interest rate swaps designated as cash flow hedges totaling $100.0 million, of which $50.0 million became effective in May 2023 and $50.0 million became effective in June 2023. The transaction resulted in a gain of $4.2 million, net of tax, which was the clean value at termination date and began amortizing as a decrease to interest expense on the effective dates. The remaining unamortized balance was $2.9 million and $3.7 million as of December 31, 2024 and 2023, respectively. The following table reflects the cash flow hedges as of December 31, 2024:
Notional amounts |  | $ | 650,000 |
Derivative assets fair value |  |  | 26,529 |
Derivative liabilities fair value |  |  | (52 | )
Weighted average remaining maturity |  | 2.0 years |
Receive rates are determined at the time the swaps become effective. As of December 31, 2024, the weighted average pay rates of the effective pay-fixed hedges for $450.0 million were 1.04% and the weighted average receive rates were 3.46%. As of December 31, 2024, the weighted average pay rates of the receive-fixed interest rate swaps of $200.0 million were 7.65% and the weighted average receive rates were 7.30%. The following table reflects the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Operations relating to the cash flow derivative instruments for the years ended December 31, 2024, 2023, and 2022:
|  | 2024 |
|  | Amount of Gain Recognized in OCI |  |  | Amount of Net Gain Reclassified from OCI to Income as an Increase to Net Interest Income |  |  | Amount of Gain (Loss) Recognized in Other Non-Interest Income |
Interest rate swaps |  | $ | 6,535 |  |  | $ | 18,387 |  |  | $ | — |
|  | 2023 |
|  | Amount of Gain Recognized in OCI |  |  | Amount of Net Gain Reclassified from OCI to Income as an Increase to Net Interest Income |  |  | Amount of Gain (Loss) Recognized in Other Non-Interest Income |
Interest rate swaps |  | $ | 9,605 |  |  | $ | 15,336 |  |  | $ | — |
|  | 2022 |
|  | Amount of Gain Recognized in OCI |  |  | Amount of Net Gain Reclassified from OCI to Income as an Increase to Net Interest Income |  |  | Amount of Gain (Loss) Recognized in Other Non-Interest Income |
Interest rate swaps |  | $ | 43,977 |  |  | $ | 1,022 |  |  | $ | — |
Note 21—Derivative Instruments and Hedge Activities (continued) Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. Other interest rate derivatives—The total combined notional amount wa s $851.7 million as of December 31, 2024, with maturities ranging from March 2025 to March 2033. The fair values of the interest rate d erivative agreements are reflected in other assets and other liabilities with corresponding gains or losses reflected in non-interest income. During the years ended December 31, 2024, 2023, and 2022, there were $1.3 million, $617,000, and $2.0 million of transaction fees, respectively, included in other non-interest income, related to these derivative instruments. These instruments are inherently subject to market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the Company’s risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process. The credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s loan underwriting process. The Company’s loan underwriting process also approves the Bank’s swap counterparty used to mirror the borrowers’ swap. The Company has a bilateral agreement with each swap counterparty that provides that fluctuations in derivative values are to be fully collateralized with either cash or securities. The following table reflects other interest rate derivatives as of December 31, 2024:
Notional amounts |  | $ | 851,742 |
Derivative assets fair value |  |  | 17,865 |
Derivative liabilities fair value |  |  | 17,721 |
Weighted average pay rates |  |  | 4.91 | %
Weighted average receive rates |  |  | 5.97 | %
Weighted average remaining maturity |  | 3.8 years |
Other credit derivatives—The Company has entered into risk participation agreements with counterparty banks to assume or sell a portion of the credit risk related to borrower transactions. As of December 31, 2024, the total notional amount of risk participated in was $10.4 million and the notional amount of risk participated out was $6.8 million. As of December 31, 2023, the total notional amount of risk participated in was $1.2 million and the notional amount of risk participated out was $2.4 million. The credit risk related to the other credit derivatives assumed by the Company is managed through the Company’s loan underwriting process. Additionally, the Company enters into foreign currency contracts to manage foreign exchange risk associated with certain customer foreign currency transactions. These transactions were not material to the consolidated financial statements as of December 31, 2024 and 2023. The fair values of the credit derivatives is reflected in accrued interest receivable and other assets and accrued interest payable and other liabilities with corresponding gains or losses reflected in non-interest income or other comprehensive income. The Company has agreements with its derivative counterparties that contain a cross-default provision under which if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company also has agreements with certain derivative counterparties that contain a provision where if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations resulted in a net asset position. The following table reflects amounts included in non-interest income in the Consolidated Statements of Operations relating to derivative instruments that are not designated in a hedging relationship for the years ended December 31, 2024, 2023, and 2022:
|  | 2024 |  |  | 2023 |  |  | 2022 |
Other interest rate derivatives |  | $ | (42 | ) |  | $ | (174 | ) |  | $ | 702 |
Other credit derivatives |  |  | (18 | ) |  |  | - |  |  |  | 5 |
Total |  | $ | (60 | ) |  | $ | (174 | ) |  | $ | 707 |
The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative asset and liabilities on the Consolidated Statements of Financial Condition. The table below summarizes the Company’s interest rate derivatives and offsetting positions as of December 31, 2024 and 2023: Note 21—Derivative Instruments and Hedge Activities (continued)
|  | 2024 |  |  | 2023 |
|  | Derivative Assets Fair Value |  |  | Derivative Liabilities Fair Value |  |  | Derivative Assets Fair Value |  |  | Derivative Liabilities Fair Value |
Gross amounts recognized |  | $ | 44,401 |  |  | $ | (17,785 | ) |  | $ | 56,923 |  |  | $ | (19,345 | )
Less: Amounts offset in the Consolidated Statements of Financial Condition |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net amount presented in the Consolidated Statements of Financial Condition |  | $ | 44,401 |  |  | $ | (17,785 | ) |  | $ | 56,923 |  |  | $ | (19,345 | )
Gross amounts not offset in the Consolidated Statements of Financial Condition |  |  |  |  |  |  |  |  |  |  |  |
Offsetting derivative positions |  |  | (415 | ) |  |  | 415 |  |  |  | (925 | ) |  |  | 925 |
Collateral posted |  |  | (42,770 | ) |  |  | — |  |  |  | (54,930 | ) |  |  | — |
Net credit exposure |  | $ | 1,216 |  |  | $ | (17,370 | ) |  | $ | 1,068 |  |  | $ | (18,420 | )
As of December 31, 2024, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $17.8 million. If the Company had breached any of these provisions at December 31, 2024, it could have been required to settle its obligations under the agreements at their termination value less offsetting positions of $415,000. For purposes of this disclosure, the amount of posted collateral by the Company and counterparties is limited to the amount offsetting the derivative asset and derivative liability.

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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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