DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2022

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and its sources of funding these assets.  The Company will periodically enter into interest rate swaps or interest rate caps/floors to manage certain interest rate risk exposure.

Interest Rate Swaps Designated as Fair Value Hedges

The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate loans.  These transactions are designated as fair value hedges.  In this type of transaction, the Company typically receives from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (“LIBOR”) plus a spread to this index and pays a fixed-rate cash flow equal to the customer loan rate.  At June 30, 2022, the portfolio of interest rate swaps had a weighted average maturity of 9.03 years, a weighted average pay rate of 4.54% and a weighted average rate received of 3.01%.  At December 31, 2021, the portfolio of interest rate swaps had a weighted average maturity of 8.8 years, a weighted average pay rate of 4.63% and a weighted average rate received of 3.11%.

Interest Rate Swaps Designated as Cash Flow Hedges

The Company has entered into cash flow hedges to hedge future cash flows related to subordinated notes interest expense and prime rate adjustable rate loans interest income.  These agreements are designated as cash flow hedges and are marked to market through other comprehensive income.

	June 30, 2022								December 31, 2021
	Weighted average Maturity in years		Weighted average pay rate			Weighted average rate received			Weighted average Maturity in years		Weighted average pay rate			Weighted average rate received
Subordinated note hedges		13.2		2.81	%		1.80	%		13.7		2.81	%		1.92	%
Fixed rate loan hedges		1.8		4.00			5.60			—		—			—
Total cash flow hedges		2.3		3.94	%		5.42	%		13.7		2.81	%		1.92	%

Stand-Alone Derivatives

The Company periodically enters into interest rate swaps with our borrowers and simultaneously enters into swaps with a counterparty with offsetting terms for the purpose of providing our borrowers long-term fixed rate loans, in addition to stand alone interest-rate swaps designed to offset the economic impact of fixed rate loans.  Neither swap is designated as a hedge, and both are marked to market through earnings.  At June 30, 2022, this portfolio of interest rate swaps had a weighted average maturity of 8.4 years, weighted average pay rate of 4.74% and a weighted average rate received of 4.67%.  At December 31, 2021, this portfolio of interest rate swaps had a weighted average maturity of 8.2 years, weighted average pay rate of 4.35% and weighted average rate received of 4.16%.

Reconciliation of Derivative Fair Values and Gains/(Losses)

The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows received or paid.  The notional amount of derivatives serves as a level of involvement in various types of derivatives.  The notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is significantly smaller.

The following table shows the notional balances and fair values (including net accrued interest) of the derivatives outstanding by derivative type at June 30, 2022, and December 31, 2021.

	June 30, 2022								December 31, 2021
	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	22,107	$	1,694		$	—		$	26,663	$	—	$	369
Derivatives designated as cash flow hedges:
Interest rate swaps		157,500		1,733			1,549			7,500		602		—
Total derivatives designated as hedging relationships		179,607		3,427			1,549			34,163		602		369
Derivatives not designated as hedging instruments:
Interest rate swaps		150,375		2,379			2,098			150,780		4,419		5,184
Total derivatives not designated as hedging    instruments		150,375		2,379			2,098			150,780		4,419		5,184
Total	$	329,982		5,806			3,647		$	184,943		5,021		5,553
Cash collateral				—			2,162					—		(8,441	)
Netting adjustments				(2,112	)		(2,112	)				2,994		2,994
Net amount presented in Balance Sheet			$	3,694		$	3,697				$	8,015	$	106

 The table below lists designated and qualifying hedged items in fair value hedges at June 30, 2022, and December 31, 2021.

	June 30, 2022							December 31, 2021
	Carrying Amount		Hedging Fair Value Adjustment			Fair Value Adjustments on Discontinued Hedges		Carrying Amount		Hedging Fair Value Adjustment		Fair Value Adjustments on Discontinued Hedges
Commercial real estate loans	$	20,270	$	(1,764	)	$	—	$	26,661	$	213	$	—
Total	$	20,270	$	(1,764	)	$	—	$	26,661	$	213	$	—

The Company reports hedging derivative gains (losses) as adjustments to loan interest income along with the related net interest settlements and the derivative gains (losses) and net interest settlements for economic derivatives are reported in other income. For the three and six month periods ended June 30, 2022 and 2021, the Company recorded net gains (losses) on derivatives and hedging activities.

	Three Months Ended June 30,					Six Months  Ended June 30,
	2022		2021			2022		2021
Derivatives designated as hedging instruments:
Interest rate swaps	$	64	$	—		$	102	$	—
Total net gain (loss) related to derivatives designated as hedging instruments		64		—			102		—
Derivatives designated as cash flow hedges:
Interest rate swaps		—		—			—		—
Total net gain (loss) related to derivatives designated as cash flow hedges		—		—			—		—
Total net gains (losses) related to hedging relationships		64		—			102		—
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps		467		(105	)		1,142		245
Total net gains (losses) related to derivatives not    designated as hedging instruments		467		(105	)		1,142		245
Net gains (losses) on derivatives and hedging activities	$	531	$	(105	)	$	1,244	$	245

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the three month periods ended June 30, 2022 and 2021.

	June 30, 2022
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	683	$	(619	)	$	64	$	629
Total	$	683	$	(619	)	$	64	$	629

	June 30, 2021
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	33	$	(33	)	$	—	$	(28	)
Total	$	33	$	(33	)	$	—	$	(28	)

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the six month periods ended June 30, 2022 and 2021.

	June 30, 2022
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	2,079	$	(1,977	)	$	102	$	472
Total	$	2,079	$	(1,977	)	$	102	$	472

	June 30, 2021
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Gain/(Loss)		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(171	)	$	171	$	—	$	(56	)
Total	$	(171	)	$	171	$	—	$	(56	)