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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | DERIVATIVE FINANCIAL INSTRUMENTS Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s borrowings. The Company does not enter into derivative financial instruments for trading purposes. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. For hedges of variable-rate loans, interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts and the Company making variable rate payments. In the fourth quarter 2022, the Company executed a cash flow hedge to reduce a portion of variability in cash flows on the Company’s prime based loan portfolio. The interest rate swap has a notional value of $100.0 million, that effectively fixes the interest rate at 6.63% for the notional amount and has a maturity date of January 1, 2028. In January 2023, the Company entered into another hedge on the prime based loan portfolio with a notional value of $50.0 million, that effectively fixes the interest rate at 6.56% for the notional amount and has a maturity date of February 1, 2027. In addition, the Company executed a prime based interest rate collar in the fourth quarter 2022 with a notional amount of $100.0 million. The collar includes a cap of 8.14% and a floor of 5.25%. This transaction, commonly referred to as a zero cost collar, involves the Company selling an interest rate cap where payments will be made when the index exceeds the cap rate, and the purchase of a floor where payments will be received if the index falls below the floor. The collar matures on October 1, 2029. For hedges of the variable-rate liabilities, interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has executed a series of cash flow hedges to fix the effective interest rate for payments due on $62.0 million of junior subordinated debentures to a weighted-average-fixed rate o f 2.62%. Select terms of the hedges are as follows:
(in thousands) |  |  |  |
Notional |  | Fixed Rate |  | Maturity Date
$ | 15,465 |  |  | 2.60 | % |  | March 15, 2024
$ | 14,433 |  |  | 2.60 | % |  | March 30, 2024
$ | 18,558 |  |  | 2.64 | % |  | March 15, 2026
$ | 13,506 |  |  | 2.64 | % |  | March 17, 2026
The gain or loss on derivatives designated and qualified as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive income and subsequently reclassified into interest income or expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income or expense as interest payments are paid on the Company’s variable-rate loans and debt. During the next twelve months, the Company estimates an additional $1.4 million will be reclassified as a decrease to interest expense and $2.9 million will be reclassified as a decrease to interest income. Non-designated Hedges Derivatives not designated as hedges are not considered speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings as a component of other noninterest income. The table below presents the fair value of the Company’s derivative financial instruments:
| Notional Amount |  | Derivative Assets |  | Derivative Liabilities
(in thousands) | September 30, 2023 |  | December 31, 2022 |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2023 |  | December 31, 2022
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 211,962 |  |  | $ | 161,962 |  |  | $ | 2,181 |  |  | $ | 2,348 |  |  | $ | 4,971 |  |  | $ | 921 |
Interest rate collar | 100,000 |  |  | 100,000 |  |  | — |  |  | — |  |  | 1,559 |  |  | 48 |
Total |  |  |  |  | $ | 2,181 |  |  | $ | 2,348 |  |  | $ | 6,530 |  |  | $ | 969 |
Derivatives not Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 772,498 |  |  | $ | 687,902 |  |  | $ | 23,763 |  |  | $ | 20,610 |  |  | $ | 23,764 |  |  | $ | 20,612 |
The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments subject to offsetting. The gross amounts of assets or liabilities can be reconciled to the tabular disclosure of fair value. The fair value table above provides the location financial assets and liabilities are presented on the Balance Sheet.
As of September 30, 2023
|  |  | Gross Amounts Not Offset in the Statement of Financial Position |  |
(in thousands) | Gross Amounts Recognized |  | Gross Amounts Offset in the Statement of Financial Position |  | Net Amounts of Assets presented in the Statement of Financial Position |  | Financial Instruments |  | Fair Value Collateral Received/ Pledged |  | Net Amount
Assets: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 25,944 |  |  | $ | — |  |  | $ | 25,944 |  |  | $ | 6,538 |  |  | $ | 19,406 |  |  | $ | — |
Interest rate collar | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 28,735 |  |  | $ | — |  |  | $ | 28,735 |  |  | $ | 6,538 |  |  | $ | — |  |  | $ | 22,197 |
Interest rate collar | 1,559 |  |  | — |  |  | 1,559 |  |  | — |  |  | — |  |  | 1,559 |
Securities sold under agreements to repurchase | 133,312 |  |  | — |  |  | 133,312 |  |  | — |  |  | 133,312 |  |  | — |
As of December 31, 2022
|  |  | Gross Amounts Not Offset in the Statement of Financial Position |  |
(in thousands) | Gross Amounts Recognized |  | Gross Amounts Offset in the Statement of Financial Position |  | Net Amounts of Assets presented in the Statement of Financial Position |  | Financial Instruments |  | Fair Value Collateral Received/ Pledged |  | Net Amount
Assets: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 22,958 |  |  | $ | — |  |  | $ | 22,958 |  |  | $ | — |  |  | $ | 9,010 |  |  | $ | 13,948 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap | $ | 21,533 |  |  | $ | — |  |  | $ | 21,533 |  |  | $ | — |  |  | $ | — |  |  | $ | 21,533 |
Interest rate collar | 48 |  |  | — |  |  | 48 |  |  | — |  |  | — |  |  | 48 |
Securities sold under agreements to repurchase | 270,773 |  |  | — |  |  | 270,773 |  |  | — |  |  | 270,773 |  |  | — |
As of September 30, 2023, the fair value of derivatives in a net liability position was $24.5 million, which includes accrued interest but excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and posts collateral related to derivatives in a net liability position. Furthermore, the Company has received cash collateral from derivative counterparties on contracts in a net asset position as noted in the tables above.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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