INTEREST RATE SWAPS

9 Months Ended

Sep. 30, 2022

INTEREST RATE SWAPS

INTEREST RATE SWAPS

12. INTEREST RATE SWAPS

Non-hedge Interest Rate Swaps

The Bank enters into interest rate swaps to facilitate client transactions and meet their financing needs. Upon entering into these instruments to meet client needs, the Bank enters into offsetting positions in order to minimize the Bank’s interest rate risk. These swaps are derivatives, but are not designated as hedging instruments, and therefore changes in fair value are reported in current year earnings.

Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or client owes the Bank, and results in credit risk to the Bank. When the fair value of a derivative instrument contract is negative, the Bank owes the client or counterparty, and therefore, has no credit risk.

A summary of the Bank’s interest rate swaps related to clients is included in the following table:

		September 30, 2022				December 31, 2021
		Notional				Notional
(in thousands)	Bank Position	Amount		Fair Value		Amount		Fair Value
Interest rate swaps with Bank clients - Assets	Pay variable/receive fixed	$	—	$	—	$	107,502	$	5,786
Interest rate swaps with Bank clients - Liabilities	Pay variable/receive fixed		92,743		(7,121)		16,423		(298)
Interest rate swaps with Bank clients - Total	Pay variable/receive fixed	$	92,743	$	(7,121)	$	123,925	$	5,488
Offsetting interest rate swaps with institutional swap dealer	Pay fixed/receive variable		92,743		7,121		123,925		(5,488)
Total		$	185,486	$	—	$	247,850	$	—

The Bank is required to pledge securities as collateral when the Bank is in a net loss position for all swaps with dealer counterparties when such net loss positions exceed $250,000. The fair value of cash or investment securities pledged as collateral by the Bank to cover such net loss positions totaled $0 and $6.8 million as of September 30, 2022 and December 31, 2021.