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Interest Rate Derivatives | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Interest Rate Derivatives | Note 11: Interest Rate Derivatives The Company is exposed to certain risks from both its business operations and changes in economic conditions. As part of managing interest rate risk, the Company enters into standardized interest rate derivative contracts (designated as hedging agreements) to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate hedging agreements are entered into with counterparties that meet the Company's established credit standards and the agreements contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not material at March 31, 2023. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no material derivative contracts not designated as hedging agreements at March 31, 2023 or December 31, 2022. As a result of interest rate fluctuations, fixed-rate assets and liabilities will appreciate or depreciate in fair value. When effectively hedged, this appreciation or depreciation will generally be offset by changes in the fair value of derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as a fair value hedge. In a fair value hedge, the fair value of the derivative (the interest rate hedging agreement) and changes in the fair value of the hedged item are recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized in current earnings. The difference between changes in the fair value of the interest rate hedging agreements and the hedged items represents hedge ineffectiveness and is recorded as an adjustment to the interest income or interest expense of the respective hedged item. Cash flows related to floating rate assets and liabilities will fluctuate with changes in underlying rate indices. When effectively hedged, the increases or decreases in cash flows related to the floating-rate asset or liability will generally be offset by changes in cash flows of the derivative instruments designated as a hedge. This strategy is referred to as a cash flow hedge. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The ineffective portion of the derivative’s gain or loss on cash flow hedges is accounted for similar to that associated with fair value hedges. Among the array of interest rate hedging contracts, potentially available to the Company, are interest rate swap and interest rate cap (or floor) contracts. The Company uses interest rate swaps, cap or floor contracts as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each contractual period in which the index interest rate exceeds the contractually agreed upon strike price rate. The purchaser of a cap contract will continue to benefit from any rise in interest rates above the strike price. Similarly, an interest rate floor is a derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price. The purchaser of a floor contract will continue to benefit from any decrease in interest rates below the strike price. The Company records various hedges in the consolidated statements of condition at fair value. The Company’s accounting treatment for these derivative instruments is based on the instruments hedge designation determined at the inception of each derivative instrument's contractual term. The following tables show the Company’s outstanding fair value hedges at March 31, 2023 and December 31, 2022:
(In thousands) |  | Carrying Amount of the Hedged Assets at March 31, 2023 |  |  | Cumulative Amount of Fair Value Hedging Gains Included in the Carrying Amount of the Hedged Assets at March 31, 2023 |  |  | Carrying Amount of the Hedged Assets at December 31, 2022 |  |  | Cumulative Amount of Fair Value Hedging Gains Included in The Carrying Amount of the Hedged Assets at December 31, 2022 |
Line item on the balance sheet in which the hedged item is included: |  |  |  |  |  |  |
Available-for-sale securities (1) |  | $ | 56,017 |  |  | $ | 5,237 |  |  | $ | 68,741 |  |  | $ | 8,240 |
Loans receivable (2) |  | $ | 36,701 |  |  | $ | 1,178 |  |  | $ | 37,196 |  |  | $ | 1,477 |
(1) These amounts represent the amortized cost basis of specifically identified municipal securities designated as the underlying assets for the hedging relationship. The notional amount of the designated hedged item was $56.0 million and $68.7 million at March 31, 2023 and December 31, 2022, respectively. The fair value of the derivative resulted in a net asset position of $5.2 million and $8.2 million recorded by the Company in other assets at March 31, 2023 and December 31, 2022. (2) These amounts include the amortized cost of a specific loan pool designated as the underlying asset for the hedging relationship in which the hedged item is the underlying asset's amortized cost (last layer) projected to be remaining at the end of the contractual term of the hedging instrument. The amount of the designated hedged item was $36.7 million and $37.2 million as of March 31, 2023 and December 31, 2022, respectively. At March 31, 2023, the fair value of the derivative resulted in a net asset position of $1.2 million recorded by the Company in other assets. The hedging contracts noted above, accounted for as fair value hedges, increased the yield on investment securities and loans by 0.18% and 0.09%, respectively, in the three months ended March 31, 2023. The hedging contracts noted above, accounted for as fair value hedges, decreased the yield on investment securities and loans by 0.02% and 0.02%, respectively, in the three months ended March 31, 2022. The hedge transactions increased the net income effects of the Bank's fair value and cash flow hedges for the three months ended March 31, 2023 and March 31, 2022, respectively, along with the net fair value position of the hedges at March 31, 2023 and March 31, 2022, respectively.
Fair Value Hedges |  |  |  |  |  |  |  |
Three Months Ended March 31, 2023 |
Hedge Category | Average Notional Balance |  | Period Ending Notional Balance |  | Net Cash Received (Paid) Recorded In Net Income |  | Fair Value Receivable (Payable) at Quarter End |
Investments | $ | 57,028 |  | $ | 52,120 |  | $ | 340 |  | $ | 5,237 |
Loans |  | 20,700 |  |  | 20,700 |  |  | 205 |  |  | 1,178 |
Total | $ | 77,728 |  | $ | 72,820 |  | $ | 545 |  | $ | 6,415 |
Three Months Ended March 31, 2022 |
Hedge Category | Average Notional Balance |  | Ending Notional Balance |  | Net Cash Received (Paid) Recorded In Net Income |  | Fair Value Receivable (Payable) at Quarter End |
Investments | $ | 55,793 |  | $ | 58,865 |  | $ | (33 | ) | $ | 4,229 |
Loans |  | 20,700 |  |  | 20,700 |  |  | (31 | ) |  | 892 |
Total | $ | 76,493 |  | $ | 79,565 |  | $ | (64 | ) | $ | 5,121 |
Cash Flow Hedges |  |  |  |  |  |  |  |
Three Months Ended March 31, 2023 |
Hedge Category | Average Notional Balance |  | Ending Notional Balance |  | Net Cash Received (Paid) Recorded In Net Income |  | Fair Value Receivable (Payable) at Quarter End |
Borrowed Funds | $ | 53,333 |  | $ | 70,000 |  | $ | 336 |  | $ | (99 | )
Three Months Ended March 31, 2022 |
Hedge Category | Average Notional Balance |  | Ending Notional Balance |  | Net Cash Received (Paid) Recorded In Net Income |  | Fair Value Receivable (Payable) at Quarter End |
Borrowed Funds | $ | 80,000 |  | $ | 80,000 |  | $ | (128 | ) | $ | 778 |
The following table shows the pre-tax gains and losses of the Company’s derivatives designated as cash flow hedges in OCI at March 31, 2023 and December 31, 2022:
(In thousands) |  |  |  | March 31, 2023 |  |  | December 31, 2022 |
Cash flow hedges: |  |  |  |  |  |
Fair market value adjustment interest rate swap |  | $ | (99 | ) |  | $ | 519 |
Total (loss) gain in comprehensive income |  | $ | (99 | ) |  | $ | 519 |
The hedging contracts noted above, accounted for as cash flow hedges, decreased the interest expense associated with MMDA accounts by 0.51% in the three months ended March 31, 2023 and increased the interest expense associated with MMDA accounts by 0.20% in the three months ended March 31, 2022. The amounts of hedge ineffectiveness, recognized at March 31, 2023 and December 31, 2022 for cash flow hedges were not material to the Company’s consolidated results of operations. A portion of, or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge, no longer be considered effective. Management believes that the hedges will remain fully effective during the remaining term of the respective hedging contracts. The changes in the fair values of the interest rate hedging agreements primarily result from the effects of changing index interest rates and the reduction of the time each quarter between the measurement date and the contractual maturity date of the hedging instrument. The Company manages its potential credit exposure on interest rate swap transactions by entering into bilateral credit support agreements with each contractual counterparty. These agreements require collateralization of credit exposures beyond specified minimum threshold amounts.

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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://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
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