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Derivatives
12 Months Ended
Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as interest rate exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line items “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.” See Note 1, “Basis of presentation,” for additional information on the Company’s accounting policies related to derivative instruments and hedging activities.
Derivatives designated as fair value hedges
The Company enters into fair value hedging relationships using interest rates swaps to mitigate the Company’s exposure to losses in market value as interest rates change. Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate swaps that relate to pricing of specific balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date. The critical terms of the interest rate swaps match the terms of the corresponding hedged items. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Any initial and ongoing assessment of expected hedge effectiveness is based on regression analysis.
December 31, 2023December 31, 2022
Remaining Maturity (In Years)Receive Fixed RatePay Floating RateNotional AmountEstimated fair valueNotional AmountEstimated fair value
Derivatives included in other
   liabilities:
  Interest rate swap
       agreement- fixed rate
       money market deposits
0.641.50%SOFR75,000 (1,686)75,000 (3,693)
  Interest rate swap
       agreement- fixed rate
       money market deposits
0.641.50%SOFR125,000 (2,811)125,000 (6,154)
  Interest rate swap
       agreement- subordinated
       debt
0.171.46%SOFR100,000 (673)100,000 (3,830)
     Total0.491.48%$300,000 $(5,170)$300,000 $(13,677)
The following discloses the amount of expense included in interest expense on borrowings and deposits, related to these fair value hedging instruments:
Years Ended December 31,
20232022
Designated fair value hedge:
     Interest expense on deposits$(7,176)$(717)
     Interest expense on borrowings(3,630)(395)
       Total$(10,806)$(1,112)
The following amounts were recorded on the balance sheet related to cumulative adjustments of fair value hedges as of the dates presented:
Carrying Amount of the Hedged ItemCumulative Decrease in Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Item
Line item on the balance sheetDecember 31, 2023December 31, 2022December 31, 2023December 31, 2022
Money market and savings deposits$198,143 $196,520 
(1)
$(4,497)$(9,847)
Borrowings98,715 95,171 
(2)
(673)(3,830)
      Total$296,858 $291,691 $(5,170)$(13,677)
(1) The carrying value also includes an unaccreted purchase accounting fair value premium of $2,640 and $6,367 as of December 31, 2023 and 2022, respectively.
(2) The carrying value also includes unamortized subordinated debt issuance costs of $612 and $999 as of December 31, 2023 and 2022, respectively.
Derivatives designated as cash flow hedges
The Company enters into cash flow hedging relationships using interest rate swaps to mitigate the exposure to the variability in future cash flows or other forecast transactions associated with its floating rate assets and liabilities. The Company uses interest rate swap agreements to hedge the repricing characteristics of its floating rate subordinated debt. All components of each derivative instrument’s gain or loss are included in the assessment of hedge effectiveness. Any initial and ongoing assessment of expected hedge effectiveness is based on regression analysis. The ongoing periodic measures of hedge ineffectiveness are based on the expected change in cash flows of the hedged item caused by changes in the benchmark interest rate.
The following presents a summary of the Company's designated cash flow hedges as of the dates presented:
December 31, 2023December 31, 2022
Notional AmountEstimated fair valueBalance sheet locationEstimated fair valueBalance sheet location
Interest rate swap agreements-
   subordinated debt
$30,000 $579 Other assets$1,255 Other assets
The Company's consolidated statements of income included income of $985 for the year ended December 31, 2023 and expense of $93 and $577 for the years ended December 31, 2022 and 2021, respectively, in interest expense on borrowings related to these cash flow hedges. The cash flow hedges were highly effective during the periods presented and as a result qualified for hedge accounting treatment. As such, no amounts were reclassified from accumulated other comprehensive loss into earnings as a result of hedge ineffectiveness during any period presented.
The following discloses the amount included in other comprehensive (loss) income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented:
Years Ended December 31,
202320222021
Amount of (loss) gain recognized in other comprehensive (loss) income, net of
   tax (benefit) expense of $(176), $532 and $293
$(500)$1,508 $831 
Derivatives not designated as hedging instruments
Derivatives not designated under hedge accounting rules include those that are entered into as either economic hedges as part of the Company’s overall risk management strategy or to facilitate client needs. Economic hedges are those that are not designated as a fair value or cash flow hedge for accounting purposes but are necessary to economically manage the risk exposure associated with the assets and liabilities of the Company.
The Company enters into derivative instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.
The Company enters into interest rate-lock commitments on residential loan commitments that will be held for resale. These are considered derivative instruments with no hedge accounting designation, and the interest rate exposure on these commitments is economically hedged primarily with forward contracts. Gains and losses arising from changes in the valuation of the interest rate-lock commitments and forward commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” in the consolidated statements of income.
The Company also enters into forwards, futures and option contracts to economically hedge the change in fair value of mortgage servicing rights. Gains and losses associated with these instruments are included in earnings and are reflected under the line item “Mortgage banking income” in the consolidated statements of income.
The following tables provide details on the Company’s non-designated derivative financial instruments as of the dates presented:
December 31, 2023
Notional AmountAssetLiability
  Interest rate contracts$569,865 $32,179 $32,184 
  Forward commitments159,000 — 861 
  Interest rate-lock commitments69,217 1,203 — 
  Futures contracts254,000 777 — 
    Total$1,052,082 $34,159 $33,045 
 December 31, 2022
 Notional AmountAssetLiability
  Interest rate contracts$560,310 $45,775 $45,762 
  Forward commitments207,000 306 — 
  Interest rate-lock commitments118,313 1,433 — 
  Futures contracts494,300 — 3,790 
    Total$1,379,923 $47,514 $49,552 
(Losses) gains included in the consolidated statements of income related to the Company’s non-designated derivative financial instruments were as follows:
Years Ended December 31,
 2023 2022 2021 
Included in mortgage banking income:
  Interest rate lock commitments$(230)$(5,764)$(27,194)
  Forward commitments953 55,804 25,661 
  Futures contracts(3,366)(36,381)(7,949)
  Option contracts(1,125)36 — 
    Total$(3,768)$13,695 $(9,482)
Netting of Derivative Instruments
Certain financial instruments, including derivatives, may be eligible for offset on the consolidated balance sheets when the “right of offset” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements, however the Company has not elected to offset such financial instruments on the consolidated balance sheets. The following table presents the Company's gross derivative positions as recognized on the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:
Gross amounts not offset on the consolidated balance sheets
Gross amounts recognizedGross amounts offset on the consolidated balance sheetsNet amounts presented on the consolidated balance sheetsFinancial instrumentsFinancial collateral pledgedNet Amount
December 31, 2023
Derivative financial assets$31,468 $— $31,468 $6,502 $— $24,966 
Derivative financial liabilities$11,330 $— $11,330 $6,502 $4,828 $— 
December 31, 2022
Derivative financial assets$44,273 $— $44,273 $14,229 $— $30,044 
Derivative financial liabilities$20,251 $— $20,251 $14,229 $6,022 $— 
Collateral Requirements
Most derivative contracts with customers are secured by collateral. Additionally, in accordance with the interest rate agreements with derivative counterparties, the Company may be required to post collateral with these derivative counterparties. As of December 31, 2023 and 2022, the Company had collateral posted of $14,042 and $23,325, respectively, against its obligations under these agreements. Cash pledged as collateral on derivative contracts is recorded in “Other assets” on the consolidated balance sheets.