DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

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 March 31, 2020 and December 31, 2019 are as follows (in thousands):

					March 31, 2020				December 31, 2019
	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 derivative
Interest rate swap agreements - securities	Other liabilities	6.55	2.527%	3 month LIBOR	$	101,205	$	13,362	$	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 three months ended March 31, 2020 and 2019 were as follows (in thousands):

	Three Months Ended March 31,
Gain (loss) on fair value hedging relationship	2020		2019
Interest rate swap agreements - securities:
Hedged items	$	13,362	$	1,118
Derivative designated as hedging instruments	(13,362)		(1,118)

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at March 31, 2020:

	Carrying Amount of the Hedged Assets (in thousands)		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Line item on the balance sheet	March 31, 2020	December 31, 2019	March 31, 2020	December 31, 2019
Securities available-for-sale	$101,205	$101,205	$13,362	$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 March 31, 2020 and December 31, 2019 are as follows (in thousands):

					March 31, 2020			December 31, 2019
	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	Other liabilities	2.1	2.232%	1 month LIBOR	100,000	$	3,933	$	100,000	$	1,592

The effects of the Company's cash flow hedge relationships on the statement of comprehensive income (loss) during the three months ended March 31, 2020 and 2019 were as follows:

	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss)
	Three Months Ended March 31,
	2020		2019
Liability derivatives
Interest rate swap agreements	$	(1,729)	$	—

The cash flow hedges were determined to be highly effective during the periods presented and as a result qualify for hedge accounting treatment. The Company expects the hedges to continue to be highly effective and qualify for hedge accounting during the remaining terms of the swaps.