Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Cash Flow Hedges

Interest Rate Cap Derivatives. The Company has purchased interest rate caps designated as cash flow hedges with notional amounts totaling $130,500,000 on its variable rate subordinated debentures and were determined to be fully effective during the three months ended March 31, 2024. The interest rate caps require receipt of variable amounts from the counterparty when interest rates rise above the strike price in the contracts. The strike prices in the five year term contracts range from 1.5 percent to 2 percent. The variable rate is based on 90 days of compounded overnight SOFR plus a spread of 0.26161 percent. At March 31, 2024 and December 31, 2023, the interest rate caps had a fair value of $4,345,000 and $4,990,000, respectively, and were reported as other assets on the Company’s statements of financial condition. Amortization recorded on the interest rate caps totaled $42,000 for the three months ended March 31, 2024 and 2023, respectively, and was reported as a component of interest expense on subordinated debentures.

The effect of cash flow hedge accounting on OCI for the periods ending March 31, 2024 and 2023 was as follows:


	Three Months ended
(Dollars in thousands)	March 31, 2024		March 31, 2023
Amount of gain recognized in OCI	$	657	(36)
Amount of gain reclassified from OCI to net income	1,260		974

Fair Value Hedges

Interest Rate Swap Agreements. During 2023, the Company entered into fair value hedges for a closed pool of fixed rate debt securities. The instruments are designated as fair value hedges as the changes in the fair value of the interest rate swap are expected to offset changes in the fair value of the hedged item attributable to changes in the compounded overnight SOFR rate, the designated benchmark interest rate. These derivative contracts involve the receipt of floating rate interest from a counterparty in exchange for the Company making fixed-rate payments over the life of the contract, without the exchange of the underlying notional value.

The following tables present the notional and estimated fair value amount of derivative positions outstanding:


	March 31, 2024
							Weighted Average
(Dollars in thousands)	Notional Amount		Asset Derivative		Liability Derivative		Remaining Maturity	Receive Rate	Pay Rate
Interest rate swap - securities	$	1,500,000	$	1,067	$	2,279	1.9 years	SOFR	4.63	%


	December 31, 2023
							Weighted Average
(Dollars in thousands)	Notional Amount		Asset Derivative		Liability Derivative		Remaining Maturity	Receive Rate	Pay Rate
Interest rate swap - securities	$	1,500,000	$	—	$	17,988	2.1 years	SOFR	4.63	%

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges:


(Dollars in thousands)	Amortized cost of the Hedged Assets				Amortized Cost of Fair Value Hedging Increase (Decrease) Included in the Carrying Amount of the Hedged Assets
Line item on the balance sheet	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Investment securities available-for-sale	$	3,678,606	$	3,807,239	$	1,212	$	17,988

The effects of the fair value hedge relationships on the income statement were as follows:


		Three Months Ended
(Dollars in thousands)	Location of Gain (Loss)	March 31, 2024		March 31, 2023
Interest rate swap	Interest income on investment securities	$	3,078	$	—
AFS debt securities	Interest income on investment securities	(3,078)		—

Residential Real Estate Derivatives

The Company enters into residential real estate derivatives for commitments (“interest rate locks”) to fund certain residential real estate loans to be sold into the secondary market. At March 31, 2024 and December 31, 2023, loan commitments with interest rate lock commitments totaled $58,076,000 and $22,738,000, respectively. At March 31, 2024 and December 31, 2023, the fair value of the related derivatives on the interest rate lock commitments was $1,032,000 and $604,000, respectively, and was included in other assets with corresponding changes recorded in gain on sale of loans. The Company enters into free-standing derivatives to mitigate interest rate risk for most residential real estate loans to be sold. These derivatives include forward commitments to sell to-be-announced (“TBA”) securities which are used to economically hedge the interest rate risk associated with such loans and unfunded commitments. At March 31, 2024 and December 31, 2023, TBA commitments were $34,250,000 and $22,000,000, respectively. At March 31, 2024 and December 31, 2023, the fair value of the related derivatives on the TBA securities was $124,000 and $350,000, respectively, and was included in other liabilities with corresponding changes recorded in gain on sale of loans. The Company does not enter into a commitment to sell these loans to an investor until the loan is funded and is ready to be delivered to the investor. Due to the forward sales commitments being short-term in nature, the corresponding derivatives are not significant. For all other residential real estate loans to be sold, the Company enters into “best efforts” forward sales commitments for the future delivery of loans to third party investors when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. Forward sales commitments on a “best efforts” basis are not designated in hedge relationships until the loan is funded.