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Derivative Instrument and Hedging Activities | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instrument and Hedging Activities | (8.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES Risk Management Objective of Using 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, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. Such derivatives were used to hedge the variable cash flows associated with short-term borrowings or brokered CDs. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The following table summarizes the terms of the Company’s outstanding interest rate swap agreements entered into to manage its exposure to the variability in future cash flows at September 30, 2024 (dollars in thousands):
Effective Date |  | Expiration Date |  | Notional Amount |  |  | Pay Fixed Rate
4/11/2022 |  | 4/11/2027 |  | $ | 50,000 |  |  | 0.787%
1/24/2023 |  | 1/24/2026 |  | $ | 30,000 |  |  | 3.669%
5/5/2023 |  | 5/5/2026 |  | $ | 25,000 |  |  | 3.4615%
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. During the next twelve months, the Company estimates that $1.7 million in accumulated other comprehensive loss related to derivatives will be reclassified as an increase to interest expense. Interest Rate Swaps The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Credit-risk-related Contingent Features The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. (8.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES (Continued) Mortgage Banking Derivatives The Company extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value. Fair Values of Derivative Instruments on the Balance Sheet The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of September 30, 2024 and December 31, 2023 (in thousands):
|  |  |  |  |  |  |  | Asset derivatives |  |  | Liability derivatives |
|  | Gross notional amount |  |  |  |  | Fair value |  |  |  |  | Fair value |
|  | September 30, 2024 |  |  | December 31, 2023 |  |  | Balance sheet line item |  | September 30, 2024 |  |  | December 31, 2023 |  |  | Balance sheet line item |  | September 30, 2024 |  |  | December 31, 2023 |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | $ | 105,000 |  |  | $ | 105,000 |  |  | Other assets |  | $ | 4,097 |  |  | $ | 5,939 |  |  | Other liabilities |  | $ | 31 |  |  | $ | — |
Total derivatives |  | $ | 105,000 |  |  | $ | 105,000 |  |  |  |  | $ | 4,097 |  |  | $ | 5,939 |  |  |  |  | $ | 31 |  |  | $ | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps (1) |  | $ | 1,130,680 |  |  | $ | 1,104,804 |  |  | Other assets |  | $ | 31,597 |  |  | $ | 37,517 |  |  | Other liabilities |  | $ | 31,600 |  |  | $ | 37,519 |
Credit contracts |  |  | 81,878 |  |  |  | 81,211 |  |  | Other assets |  |  | — |  |  |  | — |  |  | Other liabilities |  |  | — |  |  |  | — |
Mortgage banking |  |  | 16,376 |  |  |  | 5,292 |  |  | Other assets |  |  | 159 |  |  |  | 50 |  |  | Other liabilities |  |  | 14 |  |  |  | 2 |
Total derivatives |  | $ | 1,228,934 |  |  | $ | 1,191,307 |  |  |  |  | $ | 31,756 |  |  | $ | 37,567 |  |  |  |  | $ | 31,614 |  |  | $ | 37,521 |
(1) The Company was holding collateral of $28.3 million and $40.4 million against its net obligations under these contracts at September 30, 2024 and December 31, 2023, respectively. Effect of Derivative Instruments on the Income Statement The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three and nine months ended September 30, 2024 and 2023 (in thousands):
|  |  |  | Gain (loss) recognized in income |  |  | Gain (loss) recognized in income |
|  | Line item of gain (loss) |  | Three months ended September 30, |  |  | Nine months ended September 30, |
Undesignated derivatives |  | recognized in income |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Interest rate swaps |  | Income from derivative instruments, net |  | $ | 212 |  |  | $ | 93 |  |  | $ | 661 |  |  | $ | 1,219 |
Credit contracts |  | Income from derivative instruments, net |  |  | — |  |  |  | 58 |  |  |  | 5 |  |  |  | 109 |
Mortgage banking |  | Income from derivative instruments, net |  |  | — |  |  |  | 68 |  |  |  | 97 |  |  |  | 90 |
Total undesignated |  |  |  | $ | 212 |  |  | $ | 219 |  |  | $ | 763 |  |  | $ | 1,418 |

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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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