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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 is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities through the use of derivative financial instruments. Cash Flow Hedges of Interest Rate Risk The Company historically utilized interest rate swaptions, accounted for as cash flow hedges, to protect itself against adverse fluctuations in interest rates on a forecasted issuance of debt. During the quarter ended March 31, 2024, the Company terminated its interest rate swaption contracts and discontinued the associated hedging relationship. The amount in accumulated other comprehensive loss related to the swaption contracts is being amortized over the remainder of the hedged transaction. The Company expects to reclassify the remaining $57 thousand out of accumulated other comprehensive loss over the next two quarters as a reduction of interest expense. Interest Rate Products Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net market risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. At September 30, 2024, the Company had posted $10.2 million of cash collateral with other financial institutions and held $9.2 million of cash collateral on behalf of other financial institutions. The Company entered into credit risk participation agreements ("RPAs") with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower's performance related to interest rate derivative contracts in exchange for a fee. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers' credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Credit-Risk-Related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure; 2) 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; 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. The table below identifies the balance sheet category and fair value of the Company's derivative instruments as of September 30, 2024 and December 31, 2023. The Company has a minimum collateral posting threshold with its derivative counterparty. If the Company had breached any provisions under the agreement at September 30, 2024, it could have been required to settle its obligations under the agreement at the termination value.
|  | September 30, 2024 |  | December 31, 2023
(dollars in thousands) |  | Notional Amount |  | Fair Value |  | Balance Sheet Category |  | Notional Amount |  | Fair Value |  | Balance Sheet Category
Derivatives in an asset position: |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate product |  | $ | — |  |  | $ | — |  |  | Other assets |  | $ | 300,000 |  |  | $ | 374 |  |  | Other assets
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate product |  | 755,156 |  |  | 31,984 |  |  | Other assets |  | 651,429 |  |  | 30,288 |  |  | Other assets
Credit risk participation agreements |  | 49,480 |  |  | 1 |  |  | Other liabilities |  | 49,480 |  |  | 3 |  |  | Other liabilities
Total |  | 804,636 |  |  | 31,985 |  |  |  |  | 700,909 |  |  | 30,291 |  |  |
Total derivatives in an asset position: |  | $ | 804,636 |  |  | $ | 31,985 |  |  |  |  | $ | 1,000,909 |  |  | $ | 30,665 |  |  |
Derivatives in a liability position: |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate product |  | $ | 755,156 |  |  | $ | 30,588 |  |  | Other liabilities |  | $ | 654,757 |  |  | $ | 30,555 |  |  | Other liabilities
The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023:
The Effect of Derivatives Not Designated as Hedging Instruments on the Consolidated Statements of Operations
|  |  |  | Amount of Gain (Loss) Recognized in Income on Derivatives
|  | Location of Gain (Loss) Recognized in Income on Derivatives |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(dollars in thousands) |  |  | 2024 |  | 2023 |  | 2024 |  | 2023
Interest rate products |  | Other income / (other expense) |  | $ | 843 |  |  | $ | 3,027 |  |  | $ | 1,321 |  |  | $ | 3,735 |

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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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