Derivative Financial Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | 17. Derivative Financial Instruments Cash Flow Hedges During March 2023 and as part of its risk management strategy to hedge against the risk of variability in its monthly cash flows attributable to changes in the contractually specified rate of Fed Funds on variable rate forecasted fundings, the Company entered into a five-year pay-fixed interest rate swap agreement with a notional amount of $200 million. The facility is scheduled to mature on March 31, 2028. The instrument is designated as a cash flow hedge, and changes in fair values are recognized in other comprehensive income. 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 gain on the terminated hedge of $3.0 million was recognized by the Company. The gain 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 gain on the terminated hedge of $945,000 was recognized by the Company. The gain 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 three months ended March 31, 2023, approximately $206,000 was reclassified out of accumulated other comprehensive loss and recognized as a reduction of interest expense on discontinued hedges. Fair Value 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. 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 March 31, 2023, no such deterioration was determined by management. 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. All derivatives are carried at fair value in either other assets or other liabilities in the accompanying consolidated balance sheets. At March 31, 2023, the Company's derivative assets and liabilities totaled $8.8 million and $7.3 million, respectively. As of each March 31, 2023 and December 31, 2022, 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 March 31, 2023 and December 31, 2022.
(1) Weighted average rate. (2) Weighted average life (in years). |