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INTEREST RATE DERIVATIVES
9 Months Ended
Sep. 30, 2023
INTEREST RATE DERIVATIVES  
INTEREST RATE DERIVATIVES

NOTE 8 – INTEREST RATE DERIVATIVES

During 2021 and 2022, the Company entered into fourteen separate interest rate swap agreements with notional amounts totaling $800.0 million. Six of the interest rate swaps are two-year forward three-year term swaps (five-year total term) where cash settlements begin in October 2023, January 2024 or April 2024. Four of the interest rate swaps are two-

year forward two-year term swaps (four-year total term) where cash settlements begin in November 2023 or April 2024. Two of the interest rate swaps are a one-year forward two-year term swap (three-year total term) and a one-year forward three-year term swap (four-year term total) where cash settlements began in May 2023 or July 2023. The two remaining interest rate swaps are 3-year spot swaps where cash settlements began in June 2022 and December 2022. The swap agreements were designated as cash flow hedges of our deposit accounts that are indexed to the Federal Funds Effective rate. The swaps are determined to be highly effective since inception and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps amounted to an unrealized gain of $43.3 million and $26.7 million and an unrealized loss of $0 and $779,000 at September 30, 2023 and December 31, 2022, respectively. These unrealized gains and losses are recorded in Interest Rate Derivatives and Other Liabilities on the Consolidated Balance Sheets. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

During October 2021, the Company entered into an interest rate cap agreement with a notional amount of $50.0 million and a cap rate of 2.50%. This interest rate cap is a two-year forward three-year term (five-year total term) where cash settlements begin on November 2023. The interest rate cap was designated as a cash flow hedge of our deposit accounts that are indexed to the Federal Funds Effective rate. The rate cap premium paid by the Company at inception will be amortized on a straight line basis to deposit interest expense over the total term of the interest rate cap agreement. The fair value of the interest rate cap amounted to an unrealized gain of $3.2 million and $2.1 million at September 30, 2023 and December 31, 2022, respectively, and are recorded in Interest Rate Derivatives on the Consolidated Balance Sheets.

The Company is exposed to credit related losses in the event of the nonperformance by the counterparties to the interest rate swaps. The Company performs an initial credit evaluation and ongoing monitoring procedures for all counterparties and currently anticipates that all counterparties will be able to fully satisfy their obligation under the contracts. In addition, the Company may require collateral from counterparties in the form of cash deposits in the event that the fair value of the contracts are positive and such fair value for all positions with the counterparty exceeds the credit support thresholds specified by the underlying agreement. Conversely, the Company is required to post cash deposits as collateral in the event the fair value of the contracts are negative and are below the credit support thresholds. At September 30, 2023, there were no cash deposits pledged as collateral by the Company. At September 30, 2023, the Company had $40.0 million of restricted cash obtained from the counterparties as collateral for the significant unrealized gains on our interest rate derivatives.

Summary information for the interest rate swaps designated as cash flow hedges is as follows:

    

As of or for the

    

As of or for the

Nine Months Ended

Year Ended

(Dollars in thousands)

 

September 30, 2023

 

December 31, 2022

Notional Amounts

$

800,000

 

$

800,000

Weighted-average pay rate

2.28%

2.28%

Weighted-average receive rate

4.93%

1.68%

Weighted-average maturity

4.2 years

4.2 years

Weighted-average remaining maturity

2.6 years

3.4 years

Net interest income (expense)

$

2,384

$

(163)

Summary information for the interest rate caps designated as cash flow hedges is as follows:

    

As of or for the

    

As of or for the

Nine Months Ended

Year Ended

(Dollars in thousands)

 

September 30, 2023

 

December 31, 2022

Notional Amounts

$

50,000

 

$

50,000

Rate Cap Premiums

381

474

Cap Rate

2.50%

2.50%

Weighted-average maturity

5.0 years

5.0 years

Weighted-average remaining maturity

3.1 years

3.8 years

Net interest expense

$

(93)

$

(124)