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Derivatives | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives Derivatives swaps related to community banking activities The Company enters into commercial loan interest rate swap agreements with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution (“counterparty”). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a “well-capitalized” institution under regulatory guidelines, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also require that the Company and the counterparty collateralize any fair value shortfalls that exceed $250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $552,000 as of September 30, 2023 and $553,000 as of December 31, 2022, in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements. The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $219.8 million and $226.2 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023, the notional amount of interest rate swaps is made up of 20 variable to fixed rate swaps to commercial loan customers totaling $109.9 million, and 20 fixed to variable rate swaps with a counterparty totaling $109.9 million. Changes in fair value from these 20 interest rate swaps offset each other in the first nine months of 2023. The Company recognized no fee income related to interest rate swaps in the three-month periods ending September 30, 2023 and 2022, respectively, and $61,000 and $90,000 in fee income related to interest rate swaps in the nine-month periods ending September 30, 2023 and 2022, respectively. Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income. None of these interest rate swaps are designated as hedging instruments. The Company has an interest rate swap to hedge the variability in cash flows arising out of its junior subordinated debentures, which is floating rate debt, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument. The interest rate swap effectively fixes the Company's interest payments on the $10.0 million of junior subordinated debentures held under Northrim Statutory Trust 2 at 3.72% through its maturity date. As of September 30, 2023, the floating rate that the dealer pays is equal to the three month Secured Overnight Financing Rate, also known as SOFR, plus 1.63% which reprices quarterly on the payment date. This rate was 7.04% as of September 30, 2023. The Company pledged $130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of September 30, 2023 and $130,000 as of December 31, 2022. Changes in the fair value of this interest rate swap are reported in other comprehensive income on the Consolidated Statements of Income. The unrealized gain, net of tax on this interest rate swap was $1.5 million as of September 30, 2023 and the unrealized gain, net of tax was $1.0 million as of December 31, 2022. Derivatives related to home mortgage banking activities The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans at specific rates; the value of these commitments are detailed in the table below as “interest rate lock commitments”. The Company also hedges the interest rate risk associated with its residential mortgage loan commitments, which are referred to as "retail interest rate contracts" in the table below. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. RML had commitments to originate mortgage loans held for sale totaling $50.1 million and $29.1 million at September 30, 2023 and December 31, 2022, respectively. Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income. None of these derivatives are designated as hedging instruments. The following table presents the fair value of derivatives not designated as hedging instruments at September 30, 2023 and December 31, 2022:
(In Thousands) | Asset Derivatives
|  | September 30, 2023 | December 31, 2022
| Balance Sheet Location | Fair Value | Fair Value
Interest rate swaps | Other assets | $15,797 |  | $12,725 |
Interest rate lock commitments | Other assets | 518 |  | 440 |
Retail interest rate contracts | Other assets | 145 |  | — |
Total |  | $16,460 |  | $13,165 |
(In Thousands) | Liability Derivatives
|  | September 30, 2023 | December 31, 2022
| Balance Sheet Location | Fair Value | Fair Value
Interest rate swaps | Other liabilities | $15,797 |  | $12,725 |
Retail interest rate contracts | Other liabilities | — |  | 3 |
Total |  | $15,797 |  | $12,728 |
The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below:
|  | Three Months Ended September 30, | Nine Months Ended September 30,
(In Thousands) | Income Statement Location | 2023 | 2022 | 2023 | 2022
Retail interest rate contracts | Mortgage banking income | $84 |  | $1,347 |  | $375 |  | $4,297 |
Interest rate lock commitments | Mortgage banking income | (312) |  | (1,365) |  | 46 |  | (1,016) |
Total |  | ($228) |  | ($18) |  | $421 |  | $3,281 |
Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. The following table summarizes the derivatives that have a right of offset as of September 30, 2023 and December 31, 2022:
September 30, 2023 |  |  |  | Gross amounts not offset in the Statement of Financial Position
(In Thousands) | Gross amounts of recognized assets and liabilities | Gross amounts offset in the Statement of Financial Position | Net amounts of assets and liabilities presented in the Statement of Financial Position | Financial Instruments | Collateral Posted | Net Amount
Asset Derivatives |  |  |  |  |  |
Interest rate swaps | $15,797 | $— |  | $15,797 | $— |  | $— |  | $15,797 |
Retail interest rate contracts | 145 |  | — |  | 145 |  | — |  | — |  | 145 |
Liability Derivatives |  |  |  |  |  |
Interest rate swaps | $15,797 | $— |  | $15,797 | $— |  | $15,797 | $— |
December 31, 2022 |  |  |  | Gross amounts not offset in the Statement of Financial Position
(In Thousands) | Gross amounts of recognized assets and liabilities | Gross amounts offset in the Statement of Financial Position | Net amounts of assets and liabilities presented in the Statement of Financial Position | Financial Instruments | Collateral Posted | Net Amount
Asset Derivatives |  |  |  |  |  |
Interest rate swaps | $12,725 | $— |  | $12,725 | $— |  | $— |  | $12,725 |
Liability Derivatives |  |  |  |  |  |
Interest rate swaps | $12,725 | $— |  | $12,725 | $— |  | $12,725 | $— |
Retail interest rate contracts | 3 |  | — |  | 3 |  | — |  | — |  | 3 |

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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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