XML 25 R12.htm IDEA: XBRL DOCUMENT
v3.23.2

Derivative Financial Instruments | 6 Months Ended
--- | ---
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | NOTE 5 – Derivative Financial Instruments The Company utilizes derivative financial instruments primarily to manage its exposure to changes in interest rates. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value. The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses. The Company manages the interest rate and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS. These derivatives are free- standing derivatives and are not designated as instruments for hedge accounting. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge. The gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change. The Company entered into a pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $200.0 million in the second quarter of 2023. The Company is designating the fair value swap under the portfolio layer method (“PLM”). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value on the consolidated balance sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the consolidated balance sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk. The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of June 30, 2023 and December 31, 2022.
Schedule of carrying value of hedged asset and cumulative fair value hedging adjustment |  |  |  |  |  |
|  | June 30, 2023 |  |  | December 31, 2022 |
(dollars in thousands) |  |  | Carrying Amount |  |  |  | Hedged Asset |  |  |  | Carrying Amount |  |  |  | Hedged Asset |
Fixed Rate Asset1 |  |  | 202,750 |  |  |  | 2,750 |  |  |  | - |  |  |  | - |
1 | These amounts included the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of the assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of June 30, 2023, the amortized cost basis of the closed portfolio used in this hedging relationship was $741.4 million, the cumulative basis adjustment associated with this hedging relationship was $2.8 million, and the amount of the designated hedged item was $200.0 million.
The following table summarizes the Company’s outstanding financial derivative instruments at June 30, 2023 and December 31, 2022.
Schedule of outstanding financial derivative instruments |  |  |  |  |  |  |  |
|  |  |  |  |  |  | June 30, 2023 |
|  |  |  |  |  |  | Fair Value |
(dollars in thousands) |  | Notional |  |  | Balance Sheet Location |  | Asset/(Liability) |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Fair value swap Fair value swap [Member] |  | $ | 200,000 |  |  | Other assets |  | $ | 2,750 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Mortgage loan interest rate lock commitments |  |  | 24,630 |  |  | Other assets |  |  | 177 |
MBS forward sales commitments |  |  | 17,500 |  |  | Other assets |  |  | 59 |
Total derivative financial instruments |  | $ | 242,130 |  |  |  |  | $ | 2,986 |
Total derivative financial instruments [Member] |  |  |  |  |  |  |  |  |  |
Mortgage loan interest rate lock commitments [Member] |  |  |  |  |  |  |  |  | December 31, 2022 |
MBS forward sales commitments [Member] |  |  |  |  |  |  |  |  | Fair Value |
(dollars in thousands) |  |  | Notional |  |  | Balance Sheet Location |  |  | Asset/(Liability) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |
Mortgage loan interest rate lock commitments |  | $ | 6,793 |  |  | Other assets |  |  | 49 |
MBS forward sales commitments |  |  | 5,750 |  |  | Other assets |  |  | 27 |
Total derivative financial instruments |  | $ | 12,543 |  |  |  |  | $ | 76 |
Accrued interest receivable related to the interest rate swap as of June 30, 2023 totaled $248,000 and is excluded from the fair value presented in the table above. The Company assesses the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value. The effective portion of changes in fair value of derivatives designated as fair value hedges is recorded through interest income. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes. The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three and six months ended June 30, 2023 and June 30, 2022.
Schedule of summarize the effect of fair value hedging relationship recognized in consolidated statement of income |  | Three months ended June 30, |  |  | Six months ended June 30, |
(dollars in thousands) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Gain (loss) on fair value hedging relationship: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Hedged asset |  | $ | 2,750 |  |  |  | - |  |  |  | 2,750 |  |  |  | - |
Fair value derivative designated as hedging instrument |  |  | (2,784 | ) |  |  | - |  |  |  | (2,784 | ) |  |  | - |
Total gain (loss) recognized in interest income on loans |  | $ | (34 | ) |  |  | - |  |  |  | (34 | ) |  |  | - |

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