DERIVATIVES

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

NOTE 19 – DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. 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 derivatives not designated as hedges, the gain or loss is recognized in current earnings.

Derivatives Designated as Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain 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 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.

During 2019, the Company entered into 16 swap transactions with a notional amount of $101,205 designated as fair value hedges. These derivatives are intended to protect against the effects of changing interest rates on the fair values of fixed rate securities.

A summary of the Company's fair value hedge relationships as of December 31, 2019 are as follows (in thousands):

						December 31, 2019				December 31, 2018
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate		Receive Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Liability derivatives
Interest rate swap agreements - securities	Other Liabilities	7.32	2.53	%	3 month LIBOR	$	101,205	$	4,954	$	—	$	—

The effects of fair value hedge relationships reported in interest income on securities on the consolidated statements of income for the twelve months ended December 31, 2019 and 2018 were as follows (in thousands):

		Amount of Gain Recognized in Income
	Location of Gain on Hedged Item	Twelve months ended December 31,
		2019		2018
Liability derivatives
Interest rate swap agreements - securities	Interest Income	$	4,954	$	—
		Amount of Loss Recognized in Income
	Location of Loss on Derivative	Twelve months ended December 31,
		2019		2018
Liability derivatives
Interest rate swap agreements - securities	Interest Income	$	(4,954)	$	—

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2019:

	Carrying Amount of the Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Line item on the balance sheet
Securities available-for-sale	$	101,205	$	—	$	4,954	$	—

Derivatives Designated as Cash Flow Hedges

For derivative instruments that are designated and qualify as a cash flow hedge, the aggregate fair value of the derivative instrument is recorded in other assets or other liabilities with any gain or loss related to changes in fair value recorded in accumulated other comprehensive income, net of tax. The gain or loss is reclassified into earnings in the same period during which the hedged asset or liability affects earnings and is presented in the same income statement line item as the earnings effect of the hedged asset or liability. The Company uses cash flow hedge relationships in an effort to manage future interest rate exposure. The hedging strategy converts the LIBOR-based variable interest rate on forecasted borrowings to a fixed interest rate and is used in an effort to protect the Company from floating interest rate variability. A summary of the Company's cash flow hedge relationships as of December 31, 2019 are as follows (in thousands):

						December 31, 2019				December 31, 2018
	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate		Receive Rate	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Liability derivatives
Interest rate swap agreements	Deposits	2.34	2.23	%	1 month LIBOR	$	100,000	$	1,592	$	—	$	—

There were no cash flow hedge relationships as of December 31, 2018.

The effects of the Company's cash flow hedge relationships on the statement of comprehensive income (loss) during the twelve months ended December 31, 2019 and 2018 were as follows:

	Amount of Gain (Loss) Recognized in Other Comprehensive Income
	Twelve months ended December 31,
	2019		2018
Interest rate swap agreements	$	(1,176)	$	—

The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. If a hedge was deemed to be ineffective, the amount included in accumulated other comprehensive (loss) income would be reclassified into a line item within the statement of income that impacts operating results. The hedge would no longer be considered effective if a portion of the hedge becomes ineffective, the item hedged is no longer in existence or the Company discontinues hedge accounting. The Company expects the hedges to continue to be highly effective and qualify for hedge accounting during the remaining terms of the swaps.

Mortgage Banking Derivatives

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company’s practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated as hedge relationships. At year-end 2019, the Company had approximately $48,999 of interest rate lock commitments and approximately $62,824 of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by a derivative asset and liability of $225 and $73, respectively, at December 31, 2019. At year-end 2018, the Company had approximately $28,731 of interest rate lock commitments and approximately $31,519 of forward commitments for the future delivery of residential mortgage loans. The fair value of these mortgage banking derivatives was reflected by a derivative asset and liability of $206 and $129, respectively, at December 31, 2018. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair values of these mortgage-banking derivatives are included in mortgage banking revenue.

The net gains (losses) relating to free-standing derivative instruments used for risk management is summarized below:

	2019		2018		2017
Forward contracts related to mortgage loans held for sale and interest rate contracts	$	56	$	94	$	32
Interest rate contracts for customers	19		31		(54)

The following table reflects the amount and fair value of mortgage banking derivatives included in the consolidated balance sheet as of December 31, 2019 and 2018:

	2019				2018
	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets (liabilities):
Interest rate contracts for customers	$	48,999	$	225	$	28,731	$	206
Forward contracts related to mortgage loans held for sale	$	62,824	$	(73)	$	31,519	$	(129)