Derivatives

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

Lakeland is a party to interest rate derivatives that are not designated as hedging instruments. Lakeland executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that Lakeland executes with a third-party financial institution, such that Lakeland minimizes its net risk exposure resulting from such transactions. Because the interest rate swaps do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating, probability of default and loss given default for all counterparties. Lakeland had $4.5 million and $55.1 million in investment securities available for sale pledged for collateral on its interest rate swaps with financial institutions at September 30, 2022 and December 31, 2021, respectively.

In June 2016, the Company entered into two cash flow hedges in order to hedge the variable cash outflows associated with its subordinated debentures. The notional value of these hedges was $30.0 million. The Company’s objectives in using cash flow hedges were to add stability to interest expense and to manage its exposure to interest rate movements. The Company used interest rate swaps designated as cash flow hedges which involved the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In these particular hedges, the Company was paying a third party an average of 1.10% in exchange for a payment at the 3 month LIBOR rate. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. On June 30, 2021, $20.0 million in notional value of the swaps matured and on August 1, 2021, the remaining $10.0 million matured. The Company reclassified $8,000 of accumulated other comprehensive loss into interest expense for the third quarter of 2021 and $142,000 first nine months of 2021. Amounts reported in accumulated other comprehensive income related to derivatives were reclassified to interest expense as interest payments are made on the Company’s debt.

The following table presents summary information regarding these derivatives for the periods presented (dollars in thousands):

September 30, 2022	Notional Amount		Average Maturity (Years)	Weighted Average Fixed Rate		Weighted Average Variable Rate	Fair  Value
Classified in Other Assets:
Third Party interest rate swaps	$	963,994	7.5	3.67	%	1 Mo. LIBOR + 1.98	$	105,098
Classified in Other Liabilities:
Customer interest rate swaps	$	963,994	7.5	3.67	%	1 Mo. LIBOR + 1.98	$	(105,098)

December 31, 2021	Notional  Amount		Average Maturity  (Years)	Weighted  Average Fixed Rate		Weighted Average Variable Rate	Fair  Value
Classified in Other Assets:
Third Party interest rate swaps	$	326,941	7.7	3.14	%	1 Mo. LIBOR + 2.32	$	9,847
Customer interest rate swaps	607,688		8.2	3.97	%	1 Mo. LIBOR + 1.87	33,952
Classified in Other Liabilities:
Customer interest rate swaps	$	326,941	7.7	3.14	%	1 Mo. LIBOR + 2.32	(9,847)
Third party interest rate swaps	607,688		8.2	3.97	%	1 Mo. LIBOR + 1.87	(33,952)