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Financial Derivative Instruments | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Derivative Instruments | Financial Derivative Instruments The Bank uses derivative financial instruments for risk management purposes and not for trading or speculative purposes. As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant effect on net interest income. The Bank recognizes its derivative instruments in the consolidated balance sheets at fair value. On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in OCI. Any ineffective portion is recorded in earnings. The Bank discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate. The details of the Bank's swap agreements are as follows:
|  |  |  |  | September 30, 2023 | December 31, 2022 | September 30, 2022
Effective Date | Maturity Date | Variable Index Received | Fixed Rate Paid | Presentation on Consolidated Balance Sheets | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value
Cash Flow Hedges
04/27/2022 | 10/27/2023 | USD-SOFR-COMPOUND | 2.498% | Other Assets | $ | 10,000,000 |  | $ | 20,000 |  | $ | 10,000,000 |  | $ | 187,000 |  | $ | 10,000,000 |  | $ | 179,000 |
04/27/2022 | 01/27/2024 | USD-SOFR-COMPOUND | 2.576% | Other Assets | 10,000,000 |  | 92,000 |  | 10,000,000 |  | 233,000 |  | 10,000,000 |  | 212,000 |
04/27/2022 | 04/27/2024 | USD-SOFR-COMPOUND | 2.619% | Other Assets | 10,000,000 |  | 159,000 |  | 10,000,000 |  | 269,000 |  | 10,000,000 |  | 242,000 |
01/10/2023 | 01/01/2026 | USD-SOFR-OIS COMPOUND | 3.836% | Other Assets | 75,000,000 |  | 1,513,000 |  | — |  | — |  | — |  | — |
|  |  |  |  | $ | 105,000,000 |  | $ | 1,784,000 |  | $ | 30,000,000 |  | $ | 689,000 |  | $ | 30,000,000 |  | $ | 633,000 |
Fair Value Hedges
03/08/2023 | 03/01/2026 | USD-SOFR-OIS COMPOUND | 4.712% | Other Assets | $ | 40,000,000 |  | $ | 63,000 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
03/08/2023 | 03/01/2027 | USD-SOFR-OIS COMPOUND | 4.402% | Other Assets | 30,000,000 |  | 120,000 |  | — |  | — |  | — |  | — |
03/08/2023 | 03/01/2028 | USD-SOFR-OIS COMPOUND | 4.189% | Other Assets | 30,000,000 |  | 250,000 |  | — |  | — |  | — |  | — |
07/12/2023 | 08/01/2025 | USD-SOFR-OIS COMPOUND | 4.703% | Other Assets | 50,000,000 |  | 272,000 |  | — |  | — |  | — |  | — |
|  |  |  |  | $ | 150,000,000 |  | $ | 705,000 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Total swap agreements | $ | 255,000,000 |  | $ | 2,489,000 |  | $ | 30,000,000 |  | $ | 689,000 |  | $ | 30,000,000 |  | $ | 633,000 |
The Company would reclassify unrealized gains or losses accounted for within AOCI into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate for cash flow hedges, or would amortize the gain or loss over the remaining life of the hedged instrument for fair value hedges. Amounts paid or received under the swaps are reported in interest income or interest expense in the consolidated statements of income, and reflected in net income in the consolidated statements of cash flows. Customer loan derivatives The Bank will enter into interest rate swaps with qualified commercial customers. Through these arrangements, the Bank is able to provide a means for a loan customer to obtain a long-term fixed rate, while it simultaneously contracts with an approved, highly-rated, third-party financial institution as counterparty to swap the fixed rate for a variable rate. Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheets. At September 30, 2023 and 2022, and December 31, 2022, there were six customer loan swap arrangements in place, detailed below:
|  | September 30, 2023 | December 31, 2022 | September 30, 2022
| Presentation on Consolidated Balance Sheet | Number of Positions | Notional Amount | Fair Value | Number of Positions | Notional Amount | Fair Value | Number of Positions | Notional Amount | Fair Value
Pay Fixed, Receive Variable | Other Assets | 6 | $ | 36,572,000 |  | $ | 6,031,000 |  | 6 | $ | 37,411,000 |  | $ | 4,910,000 |  | 6 |  | $ | 38,628,000 |  | $ | 5,365,000 |
|  | 6 | 36,572,000 |  | 6,031,000 |  | 6 | 37,411,000 |  | 4,910,000 |  | 6 |  | 38,628,000 |  | 5,365,000 |
Receive Fixed, Pay Variable | Other Liabilities | 6 | 36,572,000 |  | (6,031,000) |  | 6 | 37,411,000 |  | (4,910,000) |  | 6 |  | 38,628,000 |  | (5,365,000) |
|  | 6 | 36,572,000 |  | (6,031,000) |  | 6 | 37,411,000 |  | (4,910,000) |  | 6 |  | 38,628,000 |  | (5,365,000) |
Total |  | 12 | $ | 73,144,000 |  | $ | — |  | 12 | $ | 74,822,000 |  | $ | — |  | 12 |  | $ | 77,256,000 |  | $ | — |
Derivative collateral The Bank has entered into a master netting arrangement with its counterparty and settles payments with the counterparty as necessary. The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested. At September 30, 2023, there was no collateral posted on its swap contracts or required amount to be pledged. Cessation of LIBOR The Company adopted SOFR as its replacement reference rate index for each of the customer loan interest rate swap contracts that were tied to a LIBOR tenor. The six contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 1, 2031, July 1, 2035, October 1, 2035 and October 1, 2039. The necessary actions to amend these legacy contracts to incorporate the new replacement reference rate index were completed in the second quarter 2023.

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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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