Derivatives

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Note 11.Derivatives

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative net investment hedge instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate tax-exempt callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. The Company has elected early adoption of ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, which allows such partial term hedge designations.

A summary of the Company’s fair value hedge relationships for the periods presented are as follows (dollars in thousands):

		Weighted
		Average
	Balance	Remaining	Weighted
	Sheet	Maturity	Average		Receive	Notional		Estimated
Liability derivatives	Location	(In Years)	Pay Rate		Rate	Amount		Fair Value
September 30, 2020:
Interest rate swap agreements - securities	Other liabilities	7.38	3.08	%	3 month LIBOR	$	36,000	$	(6,791)
December 31, 2019:
Interest rate swap agreements - securities	Other liabilities	8.20	3.09	%	3 month LIBOR	$	36,000	$	(3,446)

The effects of the Company’s fair value hedge relationships reported in interest income on tax-exempt available-for-sale securities on the consolidated income statement were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Interest income on tax-exempt securities	$	565	$	400	$	1,586	$	1,305
Effects of fair value hedge relationships		(201)		(62)		(522)		(132)
Reported interest income on tax-exempt securities	$	364	$	338	$	1,064	$	1,173

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Gain (loss) on fair value hedging relationship	2020		2019		2020		2019
Interest rate swap agreements - securities:
Hedged items	$	299	$	(1,045)	$	(3,345)	$	(3,282)
Derivative designated as hedging instruments	$	(299)	$	1,045	$	3,345	$	3,282

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges (in thousands):

			Cumulative Amount of Fair
			Value Hedging Adjustment
	Carrying Amount		Included in Other Comprehensive
Line item on the balance sheet	of the Hedged Assets		Income
September 30, 2020:
Securities available-for-sale	$	43,643	$	(2,145)
December 31, 2019:
Securities available-for-sale	$	42,710	$	3,446