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INTEREST RATE SWAPS

6 Months Ended

Jun. 30, 2023

INTEREST RATE SWAPS

INTEREST RATE SWAPS

13. INTEREST RATE SWAPS

Non-hedge Interest Rate Swaps

The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.

A summary of the Bank’s interest rate swaps related to clients is included in the following table:


				June 30, 2023						December 31, 2022
				Notional						Notional
(in thousands)		Bank Position		Amount			Fair Value			Amount			Fair Value

Interest rate swaps with Bank clients - Assets		Pay variable/receive fixed		$	42,932		$	1,224		$	40,032		$	1,386
Interest rate swaps with Bank clients - Liabilities		Pay variable/receive fixed			100,126			(6,605)			91,636			(6,742)
Interest rate swaps with Bank clients - Total		Pay variable/receive fixed		$	143,058		$	(5,381)		$	131,668		$	(5,356)

Offsetting interest rate swaps with institutional swap dealer - Assets		Pay fixed/receive variable			100,126			6,605			91,636			6,742
Offsetting interest rate swaps with institutional swap dealer - Liabilities		Pay fixed/receive variable			42,932			(1,224)			40,032			(1,386)
Offsetting interest rate swaps with institutional swap dealer - Total		Pay fixed/receive variable		$	143,058		$	5,381		$	131,668		$	5,356

Total				$	286,116		$	—		$	263,336		$	—

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $4.9 million and $560,000 as of June 30, 2023 and December 31, 2022.