DERIVATIVES

3 Months Ended

Sep. 30, 2022

DERIVATIVES

DERIVATIVES

6.DERIVATIVES

In the normal course of servicing our commercial customers, the Company acts as an interest rate swap counterparty for certain commercial borrowers. The Company manages its exposure to such interest rate swaps by entering into corresponding and offsetting interest rate swaps with third parties that match the terms of the interest rate swap with the commercial borrowers. These positions directly offset each other and the Company’s exposure is the fair value of the derivatives due to potential changes in credit risk of our commercial borrowers and third parties.

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At September 30, 2022, the Company held derivatives not designated as hedging instruments, comprised of back-to-back interest rate swaps, with a total notional amount of $593.0 million, consisting of $296.5 million of interest rate swaps with commercial borrowers and $296.5 million of offsetting interest rate swaps with third-party counterparties on substantially the same terms. At June 30, 2022, the Company held derivatives not designated as hedging instruments, comprised of back-to-back interest rate swaps, with a total notional amount of $664.4 million, consisting of $332.2 million of interest rate swaps with commercial borrowers and $332.2 million of offsetting interest rate swaps with third-party counterparties on substantially the same terms.

The fair value of derivatives are classified as other assets and other liabilities on the consolidated statements of condition. The estimated fair value of derivatives not designated as hedging instruments are as follows (dollars in thousands):

	September 30, 2022
	Derivative		Derivative
	Assets		Liabilities
Gross interest rate swaps	$	23,051	$	23,051
Less: cash collateral applied		(21,780)		(6)
Net amount	$	1,271	$	23,045

	June 30, 2022
	Derivative		Derivative
	Assets		Liabilities
Gross interest rate swaps	$	14,194	$	14,194
Less: master netting arrangements		(1,375)		(1,375)
Less: cash collateral applied		(12,602)		(6)
Net amount	$	217	$	12,813

Under terms of the agreements with the third-party counterparties, the Company provides cash collateral to the counterparty for the initial trade. Subsequent to the trade, the margin is exchanged in either direction, based upon the estimated fair value of the underlying contracts. At September 30, 2022, the Company had received $21.8 million and deposited $6,000 as collateral for swap agreements with third-party counterparties. At June 30, 2022, the Company had received $12.6 million and deposited $6,000 as collateral for swap agreements with third-party counterparties.