During July 2022 and as part of its hedging strategy, the Company entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $200 million on its floating rate deposits. The facility, which was designated as a cash flow hedge, was discontinued on August 24, 2022, and a termination fee of $3.0 million was received by the Company. The fee is being accreted from other comprehensive income (loss), net of deferred taxes, into interest expense through the maturity date of the contract, or July 9, 2027.

On February 18, 2021, a $100.0 million pay-fixed interest rate swap facility designated as a cash flow hedge was discontinued and a termination fee of $945,000 was received by the Company. The fee is being accreted from other comprehensive income (loss), net of deferred taxes, into interest expense through the maturity date of the contract, or September 4, 2025.

For the nine months ended September 30, 2022, approximately $195,000 was reclassified out of accumulated other comprehensive income and recognized as a reduction of interest expense on discontinued hedges.

The Company also offers certain interest rate swap products directly to its qualified commercial banking customers. These financial instruments are not designated as hedging instruments. The interest rate swap derivative positions relate to transactions in which the Company enters into an interest rate swap with a customer, while at the same time entering into an offsetting interest rate swap with another financial institution. An interest rate swap transaction allows customers to effectively convert a variable rate loan to a fixed rate. In connection with each swap, the Company agrees to pay interest on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, the Company agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount.

For some of its loan participation facilities, the Company enters into Risk Participation Agreements (“RPAs”) with other banks in order to hedge or share a portion of the risk of borrower default related to the interest rate swap on a participated loan.

Because the Bank acts as an intermediary for its customer, changes in the fair value of the underlying derivative contracts are designed to offset each other and would not significantly impact the Company’s operating results except in certain situations where there is a significant deterioration in the customer’s credit worthiness or that of the counterparties. At September 30, 2022, no such deterioration was determined by management.

All derivatives are carried at fair value in either other assets or other liabilities in the accompanying consolidated balance sheets. At September 30, 2022, the Company's derivative assets and liabilities each totaled $18.5 million.

As of September 30, 2022 and December 31, 2021, cash of $730,000 was pledged as collateral for derivative financial instruments.

The following tables provide the outstanding notional balances and fair values of outstanding derivative positions at September 30, 2022 and December 31, 2021.


(Dollars in thousands)	Outstanding Notional Balance		Asset Derivative Fair Value		Liability Derivative Fair Value		Pay Rate (1)	Receive Rate (1)	Remaining Term (2)
September 30, 2022
Risk participation agreements purchased		10,900		—		—	—	4.87%		2.4
Risk participation agreements sold		29,576		—		7	—	5.54%		4.5
Commercial loan interest rate swaps:
Loan customer counterparty		161,551		—		11,507	—	4.75%		5.0
Financial institution counterparty		161,551		11,507			4.75%	—		5.0
Total derivatives	$	363,578	$	11,507	$	11,514


(Dollars in thousands)	Outstanding Notional Balance		Asset Derivative Fair Value		Liability Derivative Fair Value		Pay Rate (1)	Receive Rate (1)	Remaining Term (2)
December 31, 2021
Commercial loan interest rate swaps:
Loan customer counterparty		77,587		—		389		4.21%	7.6
Financial institution counterparty		77,587		389		—	4.21%		7.6
Total derivatives	$	155,174	$	389	$	389

(1) Weighted average rate.

(2) Weighted average life (in years).