Derivative Financial Instruments

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks 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 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.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. During 2024, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. The Company had no fair value hedges nor derivatives not designated as hedges as of September 30, 2024.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income ("OCI") and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next 12 months, the Company estimates that an additional $279 thousand will be reclassified as a reduction to interest expense.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of September 30, 2024:

	Derivative Assets					Derivative Liabilities
($ in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Notional Amount		Balance Sheet Location	Fair Value
As of September 30, 2024
Derivatives designated as hedging instruments:
Interest rate products	$	—	Other assets	$	—	$	75,000	Other liabilities	$	1,486
Total derivatives designated as hedging instruments				$	—				$	1,486

As of December 31, 2023, the Company had no derivative financial instruments.

The table below presents the effect of cash flow hedge accounting on accumulated OCI for the three and nine months ended September 30, 2024:

Derivatives in Subtopic 815-20 Hedging Relationships ($ in thousands)	Amount of Gain (Loss) Recognized in OCI on Derivative		Amount of Gain (Loss) Recognized in OCI Included Component		Amount of Gain (Loss) Recognized in OCI Excluded Component		Location of Gain (Loss) Recognized from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Included Component		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income Excluded Component
Three Months Ended September 30, 2024
Derivatives in cash flow hedging relationships:
Interest rate products	$	(1,131)	$	(1,131)	$	—	Interest expense	$	152	$	152	$	—
Total	$	(1,131)	$	(1,131)	$	—		$	152	$	152	$	—
Nine Months Ended September 30, 2024
Derivatives in cash flow hedging relationships:
Interest rate products	$	(1,385)	$	(1,385)	$	—	Interest expense	$	233	$	233	$	—
Total	$	(1,385)	$	(1,385)	$	—		$	233	$	233	$	—

The Company had no derivative instruments that affect accumulated OCI for the three and nine months ended September 30, 2023.

The table below presents the effect of the Company’s derivative financial instruments on the Statement of Income for the three and nine months ended September 30, 2024:

	Three Months Ended September 30, 2024		Nine Months Ended September 30, 2024
($ in thousands)	Interest Expense		Interest Expense
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded	$	152	$	233
The effects of cash flow hedging:
Gain (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of loss reclassified from accumulated OCI into income	$	152	$	233
Amount of gain (loss) reclassified from accumulated OCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—
Amount of loss reclassified from accumulated OCI into income - included component	152		233
Amount of gain (loss) reclassified from accumulated OCI into income - excluded component	—		—

The Company had no derivative instruments that affect statement of income for the three and nine months ended September 30, 2023.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2024. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Balance Sheet:

Offsetting of Derivative Assets

Gross Amounts of Recognized Assets

Gross Amounts Offset in the Balance Sheet

Net Amounts of Assets presented in the Balance Sheet

Gross Amounts Not Offset in the Balance Sheet

($ in thousands)

Financial Instruments

Cash Collateral Received

Net Amount

As of September 30, 2024

Derivatives

$

—

$

—

$

—

$

—

$

—

$

—

Total

$

—

$

—

$

—

$

—

$

—

$

—

Offsetting of Derivative Liabilities
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Balance Sheet		Net Amounts of Liabilities presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet
($ in thousands)							Financial Instruments		Cash Collateral Posted		Net Amount
As of September 30, 2024
Derivatives	$	1,486	$	—	$	1,486	$	—	$	1,486	$	—
Total	$	1,486	$	—	$	1,486	$	—	$	1,486	$	—

As of December 31, 2023, the Company had no derivative financial instruments.