XML 34 R17.htm IDEA: XBRL DOCUMENT

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2023

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 8: Derivative Financial Instruments

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily 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 through 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 payments principally related to certain variable-rate assets.

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those 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 the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into IRLCs with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets.

The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized at December 31:

		2023								2022
		Notional				Fair				Notional				Fair
($ in thousands)		Amount				Value				Amount				Value
Asset Derivatives
Derivatives not designated as hedging instruments
Interest rate swaps associated with loans		$	68,381			$	3,638			$	66,477			$	5,538
IRLCs			7,466				45				-				-
Forward contracts			-				-				5,500				26
Total contracts		$	75,847			$	3,683			$	71,977			$	5,564

Liability Derivatives
Derivatives not designated as hedging instruments
Interest rate swaps associated with loans		$	68,381			$	(3,638	)		$	66,477			$	(5,538	)
IRLCs			-				-				3,268				(20	)
Forward contracts			10,750				(37	)			-				-
Total contracts		$	79,131			$	(3,675	)		$	69,745			$	(5,558	)

The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the twelve months ended December 31, 2023 and 2022.

				Amount of gain (loss)
($ in thousands)		Statement of income classification		2023				2022
Interest rate swap contracts		Other income		$	132			$	19
IRLCs		Gain on sale of mortgage loans & OMSR			65				(42	)
Forward contracts		Gain on sale of mortgage loans & OMSR			(63	)			57

The following table shows the offsetting of financial assets and derivative assets at December 31, 2023 and 2022.

		Gross amounts of				Gross amounts offset in the				Net amounts of assets presented in the				Gross amounts not offset in the consolidated balance sheet
($ in thousands)		recognized assets				consolidated balance sheet				consolidated balance sheet				Financial instruments				Cash collateral received				Net amount
December 31, 2023
Interest rate swaps		$	3,957			$	319			$	3,638			$	-			$	2,900			$	738

December 31, 2022
Interest rate swaps		$	5,540			$	2			$	5,538			$	-			$	4,480			$	1,058

The following table shows the offsetting of financial liabilities and derivative liabilities at December 31, 2023 and 2022.

		Gross amounts of				Gross amounts offset in the				Net amounts of liabilities presented in the				Gross amounts not offset in the consolidated balance sheet
($ in thousands)		recognized liabilities				consolidated balance sheet				consolidated balance sheet				Financial instruments				Cash collateral pledged				Net amount
December 31, 2023
Interest rate swaps		$	3,957			$	319			$	3,638			$	-			$	-			$	3,638

December 31, 2022
Interest rate swaps		$	5,540			$	2			$	5,538			$	-			$	-			$	5,538