Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 10 – Derivative Financial Instruments

As a part of managing interest rate risk, the Corporation entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated its 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 income.

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. As of March 31, 2023, $15.0 million notional amount remains.

The fair value of the interest rate swap contracts was $0.9 million and $1.1 million at March 31, 2023 and December 31, 2022, respectively.

For the three months ended March 31, 2023, the Corporation recorded an decrease in the value of the derivatives of $0.2 million and the related deferred tax of $0.1 million in net accumulated other comprehensive income 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 three months ended March 31, 2023. 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 March 31, 2023.

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the three month periods ended March 31, 2023 and 2022.

Derivative in Cash Flow Hedging Relationships
					Amount of gain or
					(loss) recognized in
	Amount of gain or		Amount of gain or		income or derivative
	(loss) recognized in		(loss) reclassified from		(ineffective portion
	OCI on derivative		accumulated OCI into		and amount excluded
	(effective portion),		income (effective		from effectiveness
(in thousands)	net of tax		portion) (a)		testing) (b)
Interest rate contracts:
Three months ended:
March 31, 2023	$	(138)	$	—	$	—
March 31, 2022		614		—		—

Notes:

(a) Reported as interest expense

(b) Reported as other income