Derivative Instruments

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 16 — Derivative Instruments

In September 2023, the Company began utilizing forward starting interest rate swap derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility related to its forecasted issuances of fixed-rate debt through its securitization process. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark SOFR between the time the fixed rate mortgages are originated and the fixed rate debt is issued. As of June 30, 2024, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed four years.

The gains or losses on the derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the quarter and year-to-date ended June 30, 2024, $105 thousand after-tax net loss and $8 thousand after-tax net income on terminated derivative instruments was reclassified from AOCI to interest expense. There were no derivative instruments for the quarter and year-to-date ended June 30, 2023. As of June 30, 2024, the Company had $2.8 million in after-tax net unrealized gain associated with cash flow hedging instruments recorded in AOCI. As of June 30, 2024, the Company expects to reclassify an estimated $0.6 million of after-tax net unrealized gain on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following table presents the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s consolidated balance sheets as of June 30, 2024 and December 31, 2023:


		June 30, 2024
Derivatives designated as hedging instruments:	Balance Sheet Location	Notional Amount		Fair Value (1)
Cash flow hedges:		(In thousands)
Forward starting payer interest rate swaps	Derivative liability	$	162,500	$	374


		December 31, 2023
Derivatives designated as hedging instruments:	Balance Sheet Location	Notional Amount		Fair Value (1)
Cash flow hedges:		(In thousands)
Forward starting payer interest rate swaps	Derivative liability	$	166,000	$	3,655

(1)

Fair value reported is exclusive of collateral held and pledged. As of June 30, 2024 and December 31, 2023, collateral held related to derivative exposure between the Company and its derivative counterparty were $1.5 million and $4.2 million, respectively, and is recorded in other receivables.

The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.