DERIVATIVES

9 Months Ended

Sep. 30, 2023

DERIVATIVES

DERIVATIVES

NOTE 13 — DERIVATIVES

The Company enters into interest rate swap derivative contracts (“interest rate swaps”) as a part of its asset liability management strategy to help manage its interest rate risk position. At September 30, 2023, these interest rate swaps have a notional amount of $700.0 million and contractual maturities ranging from August 1, 2025 to September 23, 2025. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The interest rate swaps were designated as cash flow hedges of certain deposit liabilities and borrowings of the Company. The hedges were

determined to be highly effective during the three and nine months ended September 30, 2023. The Company expects the hedges to remain highly effective during the remaining term of the interest rate swap.

In addition, the Company periodically enters into certain commercial loan interest rate swap agreements to provide commercial loan customers the ability to convert from variable to fixed interest rates. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to a swap agreement. This swap agreement effectively converts the customer’s variable rate loan into a fixed rate loan. The Company then enters into a corresponding swap agreement with a third party to offset its exposure on the variable and fixed components of the customer agreement. As the interest rate swap agreements with the customers and third parties are not designated as hedges, the instruments are marked to market in earnings. At September 30, 2023, the interest rate swaps have a notional amount of $69.0 million and a contractual maturity of August 15, 2028.

In 2020, the Company entered into an interest rate cap derivative contract (“interest rate cap”) as a part of its asset liability management strategy to help manage its interest rate risk position. The interest rate cap had a notional amount of $300.0 million and a contractual maturity of March 1, 2025. The notional amount of the interest rate cap does not represent the amount exchanged by the parties. The amount exchanged was determined by reference to the notional amount and the other terms of the interest rate cap. The interest rate subject to the cap was 30-day LIBOR.

The interest rate cap was designated as a cash flow hedge of certain deposit liabilities of the Company. The hedge was determined to be highly effective during 2022 until it was terminated in the third quarter of 2022. The unrecognized value of $12.7 million at termination will be released from Accumulated Other Comprehensive Income and recorded as a credit to Licensing fees expense through March 2025.

The following tables reflect the derivatives recorded on the balance sheet (in thousands):

			Fair Value
		Notional		Other		Other
		Amount		Assets		Liabilities
At September 30, 2023
Derivatives designated as hedges:
Interest rate swaps related to customer deposits and borrowings	$	700,000	$	6,505	$	—
Derivatives not designated as hedges:
Interest rate swaps	$	69,000	$	55	$	55
At December 31, 2022
Derivatives designated as hedges:
Interest rate cap related to customer deposits	$	—	$	—	$	—

The effect of cash flow hedge accounting on accumulated other comprehensive income is as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest rate swaps and caps related to customer deposits and borrowings
Amount of gain (loss) recognized in OCI, net of tax	$	509	$	(190)	$	4,517	$	7,574
Amount of gain (loss) reclassified from OCI into income	$	1,200	$	782	$	3,653	$	782
Location of gain (loss) reclassified from OCI into income		Licensing fees		N/A		Licensing fees		N/A

N/A - not applicable