Derivatives

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Back-to-Back Swaps

The Company offers interest rate swaps when requested by customers to allow them to hedge the risk of rising interest rates on their variable rate loans. Upon entering into these swaps, the Company enters into offsetting positions with counterparties in order to minimize the interest rate risk. These back-to-back swaps qualify as freestanding financial derivatives with the fair values reported in Other Assets and Other Liabilities. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under the arrangements for financial statement presentation purposes. Gains and losses on these back-to-back swaps, which offset, are recorded through noninterest income. No net gains or losses have been recognized to date on these instruments. As of June 30, 2023, the interest rate swaps had an aggregate notional value of $457.2 million, with a fair value of $29.0 million recorded in Other Assets and Other Liabilities. As of December 31, 2022, the interest rate swaps had an aggregate notional value of $312.8 million, with a fair value of $23.1 million recorded in Other Assets and Other Liabilities. The weighted average maturity was 6.7 years at both June 30, 2023 and at December 31, 2022.

Interest Rate Floors Designated as Cash Flow Hedges

The Company has entered into interest rate floor contracts to mitigate exposure to the variability of future cash flows due to changes in interest rates on certain segments of its variable-rate loans. During 2020, the Company entered into two interest rate floor contracts, each with a notional amount of $150.0 million, maturing in October 2023 and November 2023, respectively. The Company considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to

changes in interest rates and has designated them as cash flow hedges. Therefore, changes in the fair value of these derivative instruments are recognized in other comprehensive income. Amortization of the premium paid on cash flow hedges is recognized in earnings over the term of the hedge in the same caption as the hedged item. As of June 30, 2023 and December 31, 2022, the interest rate floors had a nominal fair value. For the three and six months ended June 30, 2023, the Company recognized nominal amounts through other comprehensive income, and reclassified $0.2 million and $0.3 million, respectively, out of accumulated other comprehensive income and into interest income. For the three and six months ended June 30, 2022, the Company recognized a loss through other comprehensive income of $0.1 million and $0.2 million, respectively, and reclassified $0.1 million and $0.2 million, respectively, out of accumulated other comprehensive income and into interest income. During the next twelve months, the Company expects to reclassify $0.3 million from accumulated other comprehensive income into interest income related to these agreements.

Interest Rate Swaps Designated as Fair Value Hedges

During the three months ended June 30, 2023, the Company entered into two interest rate swap contracts to hedge the risk of changes in fair value of the AFS portfolio due to changes in the Secured Overnight Financing Rate (“SOFR”) interest rate. Each fair value hedge utilizes the portfolio layer method hedge designation type for a notional amount of $200 million, maturing April 2025. The Company considers these derivatives to be highly effective at offsetting changes in interest rates and will assess the effectiveness on a monthly basis. Therefore, changes in interest rates affecting the fair value of these derivative contracts are recognized in other comprehensive income. These derivative instruments are primarily for risk management purposes. As of June 30, 2023, the interest rate swaps had a notional value of $400 million with a fair value of $6.2 million. For the three months ended June 30, 2023, the Company recognized gains through other comprehensive income of $6.3 million, and reclassified $0.1 million out of accumulated other comprehensive income and into interest income.


(In thousands)	Notional Amount		Fair Value		Balance Sheet Category
At June 30, 2023
Back-to-back swaps	$	457,193	$	29,007	Other Assets and Other Liabilities
Interest rate floors	300,000		—		Other Assets
Fair value hedges	400,000		6,232		Other Assets

At December 31, 2022
Back-to-back swaps	$	312,808	$	23,140	Other Assets and Other Liabilities
Interest rate floors	300,000		2		Other Assets

The following table presents amounts recorded on the Consolidated Balance Sheet related to cumulative basis adjustments for fair value hedges.


	Carrying amount of the hedged items				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items

(In thousands)	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Available-for-sale securities 1	$	609,295	$	—	$	6,338	$	—
1 At June 30, 2023, and December 31, 2022, the amortized cost basis and unallocated basis adjustments used in hedging relationships was $718.2 million and $0, respectively. Refer to Note 3 for a reconciliation of the amortized cost and fair value of available-for-sale securities.