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Derivatives | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Note 11 – Derivatives We use certain derivative instruments to meet the needs of customers, as well as to manage the interest rate risk associated with certain transactions. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value. Fair Value Hedges of Interest Rate Risk We are exposed to changes in the fair value of fixed rate mortgages included in a closed portfolio due to changes in benchmark interest rates. In 2023, we entered into five fixed portfolio layer method fair value swaps, designated as hedging instruments, to manage exposure to changes in fair value on fixed rate mortgages and certain fixed rate available for sale securities attributable to the designated interest rate. Four of the interest rate swaps are designated to hedge a closed portfolio of fixed rate mortgages and one of the interest rate swaps is designated to hedge a closed portfolio of fixed rate municipal bonds. The interest rate swaps involve the payment of fixed-rate amounts to a counterparty in exchange for us receiving variable-rate payments over the life of the agreements, without the exchange of the underlying notional amount. We designated the fair value swaps under the portfolio layer method. The total notional amount of the five swaps was $429.3 million as of September 30, 2024, one of which is amortizing and included a $20.7 million amortization adjustment to the notional amount at September 30, 2024. Under this method, the hedged items are designated as a hedged layer of closed portfolios of financial loans and municipal bonds that are anticipated to remain outstanding for the designated hedged periods. Adjustments are made to record the swaps at fair value, with changes in fair value recognized in interest income. The carrying values of the fair value swaps are also 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 assets and the cumulative fair value hedging adjustments included in the carrying value of the hedged assets as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024 |  | December 31, 2023
(Dollars in thousands) | Balance Sheet Location | Amortized Cost Basis | Hedged Asset | Basis Adjustment |  | Amortized Cost Basis | Hedged Asset | Basis Adjustment
Fixed rate mortgages | Loans receivable | $ | 469,103 |  | $ | 379,315 |  | $ | 4,422 |  |  | $ | 491,018 |  | $ | 390,297 |  | $ | 4,055 |
Fixed rate bonds | Investment securities available-for-sale | $ | 59,436 |  | $ | 50,000 |  | $ | 1,736 |  |  | $ | 59,270 |  | $ | 50,000 |  | $ | 1,570 |
Total hedged assets |  | $ | 528,539 |  | $ | 429,315 |  | $ | 6,158 |  |  | $ | 550,288 |  | $ | 440,297 |  | $ | 5,625 |
In October 2024, we discontinued a portfolio layer method fair value swap designated as a hedging instrument to hedge a closed portfolio of fixed rate mortgages. The hedge had a notional amount of $250.0 million and was in a liability position with a fair value of $2.8 million as of September 30, 2024. As part of the discontinuance, we incurred a $1.7 million fee that will be amortized over the life of the related loans. Derivatives Not Designated as Hedging Instruments Matched Interest Rate Swaps. We enter into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert floating-rate loan payments to fixed rate loan payments. When we enter into an interest rate swap contract with a commercial loan borrower, we simultaneously enter into a "mirror" swap contract with a third-party. The third-party exchanges the borrower's fixed-rate loan payments for floating-rate loan payments. These derivatives are not designated as hedges and changes in fair value are recognized in earnings. Because these derivatives have mirror-image contractual terms, the changes in fair value substantially offset each other through earnings. Fees earned in connection with the execution of derivatives related to this program are recognized in earnings through loan-related derivative income. The following tables summarize outstanding financial derivative instruments as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024
(Dollars in thousands) | Balance Sheet Location | Notional Amount | Fair Value of Asset (Liability) | Gain (Loss)
Fair value hedge of interest rate risk: |  |  |  |
Pay fixed rate swaps with counterparty | Accrued interest receivable and other assets | $ | 429,315 |  | $ | (6,617) |  | $ | (506) |
Not designated hedges of interest rate risk: |  |  |  |
Matched interest rate swaps with borrowers | Accrued interest receivable and other assets | 138,442 |  | 3,891 |  | 3,891 |
Matched interest rate swaps with counterparty | Accrued interest payable and other liabilities | 138,442 |  | (3,891) |  | (3,891) |
Total derivatives |  | $ | 706,199 |  | $ | (6,617) |  | $ | (506) |
|  | December 31, 2023
(Dollars in thousands) | Balance Sheet Location | Notional Amount | Fair Value of Asset (Liability) | Gain (Loss)
Fair value hedge of interest rate risk: |  |  |  |
Pay fixed rate swaps with counterparty | Accrued interest receivable and other assets | $ | 440,297 |  | $ | (6,111) |  | $ | (6,111) |
Not designated hedges of interest rate risk: |  |  |  |
Matched interest rate swaps with borrowers | Accrued interest receivable and other assets | 126,494 |  | 6,249 |  | 6,249 |
Matched interest rate swaps with counterparty | Accrued interest payable and other liabilities | 126,494 |  | (6,249) |  | (6,249) |
Total derivatives |  | $ | 693,285 |  | $ | (6,111) |  | $ | (6,111) |
Embedded Derivative In December 2022, we entered into an agreement to sell a portion of our shares of Interchecks Technologies, Inc., a former equity method investment that was subsequently reclassified to equity securities due to the decrease in the remaining ownership percentage. Based on the terms of the sale, we recognized the cash received at closing, as well as a receivable for the remaining installment payment, which is based on a future economic event and is accounted for and separately recorded as a derivative. The derivative instrument is included in accrued interest receivable and other assets on the consolidated balance sheet, while the gains and losses are included in noninterest income on the consolidated statement of income. The fair value of the embedded derivative was $0.6 million at September 30, 2024 and December 31, 2023, with no gain or loss for the nine months ended September 30, 2024 and a loss of $0.1 million for the nine months ended September 30, 2023.

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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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