Derivative Financial Instruments

9 Months Ended

Sep. 30, 2021

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 11 – Derivative Financial Instruments

As a part of managing interest rate risk, the Bank entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated these interest rate swap agreements as cash flow hedges under the guidance of ASC Subtopic 815-30, Derivatives and Hedging – Cash Flow Hedges. Cash flow hedges have the effective portion of changes in the fair value of the derivative, net of taxes, recorded in net accumulated other comprehensive loss.

In March 2016, the Corporation entered into four interest rate swap contracts totaling $30.0 million notional amount, hedging future cash flows associated with floating rate trust preferred debt. These contracts included a three year $5.0 million contract that matured on September 17, 2019, a five year $5.0 million contract that matured on March 17, 2021, a seven year $5.0 million contract that matures on March 17, 2023 and a 10 year $15.0 million contract that matures on March 17, 2026. As of September 30, 2021, $20.0 million notional amount remains.

The fair value of the interest rate swap contracts was $(727) thousand and $(1.3) million at September 30, 2021 and December 31, 2020, respectively.

For the nine months ended September 30, 2021, the Corporation recorded an increase in the value of the derivatives of $594 thousand and the related deferred tax of $62 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges. ASC Subtopic 815-30 requires the net accumulated other comprehensive loss to be reclassified to earnings if the hedge becomes ineffective or is terminated. There was no hedge ineffectiveness recorded for the six months ended September 30, 2021. The Corporation does not expect any material losses relating to these hedges to be reclassified into earnings within the next 12 months.

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of September 30, 2021.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the nine and three month periods ended September 30, 2021 and 2020.

Derivative in Cash Flow Hedging Relationships
					Amount of gain or
					(loss) recognized in
			Amount of gain or		income or derivative
	Amount of gain or		(loss) reclassified from		(ineffective portion
	(loss) recognized in		accumulated OCI into		and amount excluded
	OCI on derivative		income (effective		from effectiveness
(in thousands)	(effective portion)		portion) (a)		testing) (b)
Interest rate contracts:
Nine months ended:
September 30, 2021	$	450	$	—	$	—
September 30, 2020		(972)		—		—
Three months ended:
September 30, 2021	$	79	$	—	$	—
September 30, 2020		72		—		—

Notes:

(a) Reported as interest expense

(b) Reported as other income