Derivatives

3 Months Ended

Mar. 31, 2022

Derivatives [Abstract]

Derivatives

7 – DERIVATIVES

As part of its asset liability management activities, the Corporation utilizes an interest rate swap to help manage its interest rate risk position. The notional amount of an interest rate swap does not represent the amount exchanged by the parties. The exchange of cash flows is determined by reference to the notional amount and the other terms of the interest rate swap agreement.

The Bank entered into a five year interest rate swap with a notional amount totaling $50 million on January 17, 2019, which was designated as a cash flow hedge of certain Federal Home Loan Bank (“FHLB”) advances included in short term borrowings on the consolidated balance sheets. The swap was determined to be fully effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swap is recorded in other liabilities, with changes in fair value net of related income taxes recorded in OCI. The amount included in accumulated OCI would be reclassified to current earnings should the hedge no longer be considered effective. The Corporation expects the hedge to remain fully effective during the remaining term of the swap.

The following table summarizes information about the interest rate swap designated as a cash flow hedge.

	March 31, 2022	December 31, 2021
Notional amount	$50 million	$50 million
Weighted average fixed pay rate	2.62%	2.62%
Weighted average 3-month LIBOR receive rate	0.23%	0.13%
Weighted average maturity	1.80 Years	2.05 Years

Interest expense recorded on the swap transactions, which totaled $299,000 and $1.3 million for the three months ended March 31, 2022 and 2021, respectively, is recorded as a component of interest expense in the consolidated statements of income. Amounts reported in accumulated OCI related to swaps will be reclassified to interest expense as interest payments are made on the Bank’s variable-rate liabilities. During the three months ended March 31, 2022, the Corporation had $299,000 of reclassifications to interest expense. During the next 12 months, the Corporation estimates that $265,000 will be reclassified as an increase to interest expense.

The following table presents the net gains and losses recorded in the consolidated statements of income and the consolidated statements of comprehensive income relating to interest rate swaps.

	Three Months Ended
	March 31,
(in thousands)	2022		2021
Interest rate contracts:
Amount of gain recognized in OCI (effective portion)	$	1,248	$	300
Amount of loss reclassified from OCI to interest expense		299		1,314
Amount of loss recognized in other noninterest income (ineffective portion)		—		—

The following table reflects the amounts relating to the interest rate swap included in the consolidated balance sheets at the periods indicated.

	March 31, 2022						December 31, 2021
	Notional		Fair Value					Notional	Fair Value
(in thousands)	Amount		Asset		Liability			Amount	Asset		Liability
Included in other liabilities			$	—	$	203			$	—	$	1,750
Interest rate swap hedging FHLB advances	$	50,000					$	50,000

Credit Risk Related Contingent Features. The Bank’s agreement with its interest rate swap counterparty sets forth minimum collateral posting thresholds. If the termination value of the swap is a net asset position, the counterparty may be required to post collateral against its obligations to the Bank under the agreement. However, if the termination value of the swap is a net liability position, the Bank may be required to post collateral to the counterparty. At March 31, 2022, the Bank was in compliance with the collateral posting provisions of its counterparty. The total amount of collateral posted was approximately $3.5 million. If the Bank had breached any of these provisions at March 31, 2022, it could have been required to settle its obligations under the agreement at the termination value.