XML 43 R24.htm IDEA: XBRL DOCUMENT
v3.22.4

DERIVATIVE FINANCIAL INSTRUMENTS | 12 Months Ended
--- | ---
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to certain risk 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 as risk management tools by the Company 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 and are not used for trading or speculative purposes. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company, however, discontinues cash flow hedge accounting if it is probable the forecasted hedged transactions will not occur in the initially identified time period due to circumstances, such as the impact of the COVID-19 pandemic. Upon discontinuance, the associated gains and losses deferred in AOCI are reclassified immediately into earnings and subsequent changes in the fair value of the cash flow hedge are recognized in earnings. For the year ended December 31, 2022, the Company entered into two interest rate swaps designated as hedging instruments with a total notional value of $100.0 million for the purpose of hedging the variable cash flows of selected AFS securities or loans. For the year ended December 31, 2021, the Company had zero interest rate swaps designated as a hedging instrument as the Company terminated its interest rate derivative of $50.0 million that was designated as a cash flow hedge of interest-rate risk associated with overnight borrowings due to the unprecedented nature and impact of the COVID-19 pandemic, and reclassified $398 thousand of the realized losses from AOCI to current earnings because the hedged forecasted transaction was determined to be no longer probable of occurring. The Company enters into interest rate swaps that allow its commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. In addition, the Company may enter into interest rate caps that allow its commercial loan customers to gain protection against significant interest rate increases and provide a limit on the variable interest rate. The Company then enters into a corresponding swap or cap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps and interest rate caps with both the customers and third parties are not designated as hedges and are marked through earnings. At December 31, 2022, the Company had 26 customer and 26 corresponding third-party broker interest rate derivatives not designated as a hedging instrument with an aggregate notional amount of $268.8 million. The Company had $75.8 million of such derivative instruments at December 31, 2021. The Company entered into 14 new interest rate swaps with its commercial loan customers and recognized swap fee income of $2.5 million for the year ended December 31, 2022 compared to swap fee income of $240 thousand from three new interest rate swaps with its commercial loan customers for the year ended December 31, 2021, which are included in noninterest income in the consolidated statements of income. In addition, the Company entered into one new interest rate cap with a commercial loan customer and recognized fee income of $14 thousand for the year ended December 31, 2022, which is included in noninterest income in the consolidated statements of income. The Company did not enter into any interest rate cap agreements for the year ended December 31, 2021. At December 31, 2022 and 2021, the Company provided cash collateral of $5.4 million and $260 thousand with a counterparty for these derivatives, respectively. At December 31, 2022 and 2021, the Company received cash collateral of $8.5 million and $490 thousand from a counterparty for these derivatives, respectively. The Company also may enter into risk participation agreements with a financial institution counterparty for an interest rate derivative contract related to a loan in which the Company is a participant or the agent bank. The risk participation agreement provides credit protection to the agent bank should the borrower fail to perform on its interest rate derivative contracts with the agent bank. The Company manages its credit risk on the risk participation agreement by monitoring the creditworthiness of the borrower, which is based on the same credit review process as though the Company had entered into the derivative instruments directly with the borrower. The notional amount of such risk participation agreement reflects the Company’s pro-rata share of the derivative instrument, consistent with its share of the related participated loan. At December 31, 2022 and 2021, the Company had risk participation agreements with sold protection with a notional value of $29.0 million and $15.9 million, respectively. In addition, the Company had a risk participation with purchased protection with a notional value of $4.9 million at December 31, 2022. The Company did not enter into any risk participation agreements for the year ended December 31, 2021. The Company received an upfront fee of $140 thousand upon entry into two new risk participation agreements for the year ended December 31, 2022 compared to $53 thousand upon entry into one new risk participation with sold protection for the year ended December 31, 2021, which is included in noninterest income in the consolidated statements of income. As a part of its normal residential mortgage operations, the Company will enter into an interest rate lock commitment with a potential borrower. The Company may enter into a corresponding commitment to an investor to sell that loan at a specific price shortly after origination. In accordance with FASB ASC 820, adjustments are recorded through earnings to account for the net change in fair value of these transactions for the held for sale pipeline. In accordance with FASB ASC 820, adjustments are recorded through earnings to account for the net change in fair value of these held for sale loans. The fair value of held for sale loans can vary based on the interest rate locked with the customer and the current market interest rate at the balance sheet date. The following table summarizes the notional values and fair value of the Company's derivative instruments at December 31, 2022 and 2021:
| December 31, 2022 |  | December 31, 2021
| Notional Amount |  | Balance Sheet Location |  | Fair Value |  | Notional Amount |  | Balance Sheet Location |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps - balance sheet hedge | $ | 100,000 |  |  | Other liabilities |  | $ | (973) |  |  | $ | — |  |  | Not applicable |  | $ | — |
Total derivatives designated as hedging instruments |  |  |  |  | $ | (973) |  |  |  |  |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 128,385 |  |  | Other assets |  | $ | 10,437 |  |  | $ | 37,915 |  |  | Other assets |  | $ | 764 |
Interest rate swaps | 128,385 |  |  | Other liabilities |  | (10,262) |  |  | 37,915 |  |  | Other liabilities |  | (758) |
Purchased Options – Rate Cap | 6,000 |  |  | Other assets |  | 29 |  |  | — |  |  | Not applicable |  | — |
Written Options – Rate Cap | 6,000 |  |  | Other liabilities |  | (29) |  |  | — |  |  | Not applicable |  | — |
Risk participations - sold credit protection | 29,019 |  |  | Other liabilities |  | (69) |  |  | 15,855 |  |  | Other liabilities |  | (2) |
Risk participations - purchased credit protection | 4,941 |  |  | Other assets |  | 16 |  |  | — |  |  | Not applicable |  | — |
Interest rate lock commitments with customers | 1,356 |  |  | Other assets |  | 35 |  |  | 16,604 |  |  | Other assets |  | 353 |
Forward sale commitments | 3,483 |  |  | Other assets |  | 140 |  |  | 8,665 |  |  | Other assets |  | 52 |
Total derivatives not designated as hedging instruments |  |  |  |  | $ | 297 |  |  |  |  |  |  | $ | 409 |
The following tables summarize the effect of the Company's derivative financial instruments on OCI and net income at December 31, 2022 and 2021:
|  |  | Amount of (Loss) Gain Recognized in OCI on Derivative
|  |  |  |  | 2022 |  | 2021
Derivatives in cash flow hedging relationships: |  |  |  |  |  |
Interest rate products |  |  |  |  | $ | (972) |  |  | $ | 473 |
Total |  |  |  |  | $ | (972) |  |  | $ | 473 |
|  |  | Amount of Loss Reclassified from AOCI into Income |  | Location of Loss Recognized from AOCI into Income
|  |  |  |  | 2022 |  | 2021 |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |  |
Interest rate products |  |  |  |  | $ | — |  |  | $ | (757) |  |  | Interest income(1) / Interest expense(2)
Total |  |  |  |  | $ | — |  |  | $ | (757) |  |  |
(1) For interest rate swaps designated as cash flow hedges entered into for the year ended December 31, 2022, the amount of loss reclassified from AOCI will be recorded to other income in the unaudited condensed consolidated statements of income. (2) For the year ended December 31, 2021, the Company terminated its interest rate swap designated as a hedging instrument with a notional value of $50.0 million. The Company recorded a $514 thousand loss in other operating expenses in the consolidated statements of income.
|  |  | Amount of Gain (Loss) Recognized in Income |  | Location of Gain (Loss) Recognized in Income
|  |  |  |  | 2022 |  | 2021 |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate products |  |  |  |  | $ | 30 |  |  | $ | 41 |  |  | Other operating expenses
Risk participation agreements |  |  |  |  | 88 |  |  | (2) |  |  | Other operating expenses
Interest rate lock commitments with customers |  |  |  |  | (318) |  |  | (320) |  |  | Mortgage banking activities
Forward sale commitments |  |  |  |  | 88 |  |  | 113 |  |  | Mortgage banking activities
Total |  |  |  |  | $ | (113) |  |  | $ | (168) |  |  |
The following table is a summary of components for interest rate swap designated as cash flow hedges at December 31, 2022 and 2021. At December 31, 2022, the Company had two interest rate derivatives designated as cash flow hedges with a total notional of $100.0 million. During the year ended December 31, 2021, the Company terminated its remaining interest rate derivative of $50.0 million.
| December 31, 2022 |  | December 31, 2021
Weighted average pay rate | 3.81 | % |  | — | %
Weighted average receive rate | 3.81 | % |  | — | %
Weighted average maturity in years | 1.2 |  | 0.0

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration