Derivative Financial Instruments |
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Derivative Financial Instruments | 20. Derivative Financial Instruments At December 31, 2023 and 2022, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for three purposes: 1) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans and securities totaling $902.5 million and $273.6 million at December 31, 2023 and December 31, 2022, respectively; 2) to facilitate risk management strategies for our loan customers with $721.0 million of swaps outstanding, which include $360.5 million with customers and $360.5 million with bank counterparties at December 31, 2023 and $221.2 million of swaps outstanding, which include $110.6 million with customers and $110.6 million with bank counterparties at December 31, 2022; and 3) to mitigate exposure to rising interest rates on certain short-term advances, brokered deposits and municipal deposits totaling $826.8 million and $871.5 million at December 31, 2023 and December 31, 2022, respectively. At December 31, 2023, the Company has outstanding portfolio layer hedges on a closed portfolio of AFS securities with a notional amount of $200.0 million and a closed portfolio of loans with a notional amount of $500.0 million. At December 31, 2023 and 2022, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges. At December 31, 2023 and 2022, derivatives with a combined notional amount of $722.0 million and $221.2 million, respectively, were not designated as hedges. At December 31, 2023 and 2022, derivatives with a combined notional amount of $902.5 million and $273.6 million were designated as fair value hedges. At December 31, 2023 and 2022, derivatives with a combined notional amount of $825.8 million and $871.5 million, respectively, were designated as cash flow hedges. For cash flow hedges, the changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the years ended December 31, 2023 and 2022, $25.4 million and $0.3 million in reduced expense, respectively was reclassified from accumulated other comprehensive income (loss) to interest expense. The estimated amount to be reclassified in next 12 months out of accumulated other comprehensive income (loss) into earnings is $19.7 million. During the years ended December 31, 2023 and 2021, the Company did not terminate any cash flow hedges. During the year ended December 31, 2022, the Company terminated 4 cash flow hedges with a combined notional value of $170.8 million, resulting in a net gain of $6.0 million. This income is being amortized over the remaining original terms of the cash flow hedges resulting in income recognized totaling $4.7 million and $0.7 million for the years ended December 31, 2023 and 2022, respectively, which is recorded in deposits and other interest expense in the Consolidated Statements of Income. Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain (loss) from fair value adjustments” in the Consolidated Statements of Income. The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:
(1) Derivatives in a positive position are recorded as “Other assets” and derivatives in a negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition. The following table presents information regarding the Company’s fair value hedged items for the periods indicated:
(1) Carrying amount represents the amortized cost. At December 31, 2023, the amortized cost of the portfolio layer method closed portfolio was $2.6 billion, of which $500 million was designated as hedged. The cumulative amount of basis adjustments was $0.9 million. (2) Carrying amount represents the fair value. December 31, 2023, the fair value of the portfolio layer method closed portfolio was $283.2 million, of which $200 million was designated as hedged. The cumulative amount of basis adjustments was $2.3 million. The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the periods indicated:
The Company’s interest rate swaps are subject to master netting arrangements between the Company and its three designated counterparties. The Company has not made a policy election to offset its derivative positions. The interest rate swaps with borrowers are cross collateralized with the underlying loan and, therefore, there is no posted collateral. Interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount and receive collateral for agreements in a net asset position. The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Condition as of the dates indicated:
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