Derivatives |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives | Note 9 – Derivatives The Company enters into interest rate swap agreements to facilitate the risk management strategies to accommodate the needs of its banking customers. The Company mitigates the risk of entering into these interest rate swap agreements by entering into equal and offsetting swap agreements with highly-rated third-party financial institutions. These back-to-back interest rate swap agreements are free-standing derivatives and are recorded at fair value in the consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities). The following tables present the notional and fair value of interest rate swap agreements recorded as other assets and other liabilities on the Company’s consolidated balance sheets as of the dates stated.
The Company entered into various cash flow hedges as defined by ASC 815-20, Derivatives and Hedging. The objective of these interest rate swap agreements was to hedge the risk of variability in the Company’s cash flows attributable to changes in the 3-month LIBOR index rate component of forecasted three-month fixed rate funding advances from the FHLB. The hedging objective was to reduce the interest rate risk associated with the Company’s fixed rate advances from the designation date and through the maturity date. The identified hedge layers are presented in the following table (in thousands). Each hedge layer has a variable receive leg of 3-month LIBOR and a pay fixed leg of 1.80%.
At the time the hedges identified in the table above expire, new hedges will begin. These new hedges are summarized in the following table (in thousands). Each hedge layer has a variable receive leg of 3-month LIBOR and a pay fixed leg ranging from 0.92% to 0.95%.
Beginning in 2020, the Company entered into three additional hedges summarized in the following table (in thousands). Each hedge layer has a variable receive leg of 3-month LIBOR and a pay fixed leg ranging from 0.83% to 0.86%.
The Company has the intent and ability to fund the 3-month rate advances during the term of these cash flow hedges. Interest rate swap assets and liabilities were $5.8 million and $1.2 million, respectively, as of September 30, 2021, and $1.7 million and $2.7 million, respectively, as of December 31, 2020. The Company had cash collateral with the counterparties of $6.0 million included within other assets on the consolidated balance sheets as of September 30, 2021 and December 31, 2020.
The Bank also participates in a “mandatory” delivery program for its government guaranteed and conventional mortgage loans held for sale. Under the mandatory delivery program, loans with interest rate locks are paired with the sale of a to-be-announced mortgage-backed security bearing similar attributes. Under the mandatory delivery program, the Bank commits to deliver loans to an investor at an agreed upon price after the close of such loans. This differs from a “best efforts” delivery, which sets the sale price with the investor on a loan-by-loan basis when each loan is locked. The Bank had entered into $93.7 million and $154.3 million of rate lock commitments with borrowers, net of expected fallout, as of September 30, 2021 and December 31, 2020, respectively, and $144.5 million and $97.1 million of closed loan inventory waiting for sale, which were hedged by $241.6 million and $225.0 million in forward to-be-announced mortgage-backed securities as of September 30, 2021 and December 31, 2020, respectively. Mortgage derivative assets totaled $3.5 million and $5.3 million as of September 30, 2021 and December 31, 2020, respectively, and mortgage derivative liabilities, which are included in other liabilities on the consolidated balance sheets, were $0 and $1.6 million as of September 30, 2021 and December 31, 2020, respectively. |