Annual report pursuant to Section 13 and 15(d)

Derivative Financial Instruments

v3.22.0.1
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2021
Derivative Instrument Detail [Abstract]  
Derivative Financial Instruments

NOTE 21. DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company offers a loan hedging program to certain loan customers. Through this program, the Company originates a variable rate loan with the customer. The Company and the customer will then enter into a fixed interest rate swap. Lastly, an identical offsetting swap is entered into by the Company with a correspondent bank. These “back-to-back” swap arrangements are intended to offset each other and allow the Company to book a variable rate loan, while providing the customer with a contract for fixed interest payments. In these arrangements, the Company’s net cash flow is equal to the interest income received from the variable rate loan originated with the customer. These customer swaps are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities. The changes in fair value is recognized in the income statement in other income and fees. The Company is required to hold cash as collateral for the swaps, total cash held as collateral for swaps was $1.3 million at December 31, 2021.

 

At December 31, 2021 interest rate swaps related to the Company’s loan hedging program that were outstanding is presented in the following table:

 

 

 

December 31, 2021

 

 

 

(Dollars in thousands)

 

Interest rate swaps on loans with customers

 

 

 

 

Notional amount

 

$

242,120

 

Weighted average remaining term (years)

 

 

5.81

 

Receive fixed rate (weighted average)

 

 

4.68

%

Pay variable rate (weighted average)

 

 

3.41

%

Estimated fair value

 

$

1,401

 

 

 

 

 

December 31, 2021

 

 

 

(Dollars in thousands)

 

Interest rate swaps on loans with correspondents

 

 

 

 

Notional amount

 

$

242,120

 

Weighted average remaining term (years)

 

 

5.81

 

Pay fixed rate (weighted average)

 

 

4.68

%

Receive variable rate (weighted average)

 

 

3.41

%

Estimated fair value

 

$

1,401

 

 

Interest rate swaps with correspondents are subject to a master netting agreement. The Company has elected to net interest rate swap positions on the consolidated balance sheet. The following table illustrates the potential affect of the Company’s derivative master netting arrangements, by type of financial instrument, on the Company’s balance sheet as of December 31, 2021 (dollars in thousands):  

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts of Financial Instruments Not Offset in the Balance Sheet

 

 

 

Gross Amounts Recognized

 

Amounts offset in the Balance Sheet

 

Net Amounts in the Balance  Sheet

 

Netting Adjustment Per Applicable Master Netting Agreements

 

Gross Amounts Recognized

 

Net Amount

 

Liability  Derivatives

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Rate Swaps

 

$

(1,918

)

$

517

 

$

(1,401

)

$

-

 

$

-

 

$

(1,401

)

 

 

On January 6, 2021, we entered into an $80.0 million 0.5515% pay-fixed receive-float forward starting interest rate swap in order to hedge our risk of variability in cash flows (future interest payments) attributable to changes in the 1-month Federal Funds benchmark interest rate from January 6, 2021 through January 6, 2026. At December 31, 2021, the fair value of the forward starting swap recorded in other assets on the Consolidated Balance Sheet was $1.7 million. The interest rate swap (the hedging instrument) was designated and qualifies under hedge accounting as a cash flow hedge. The hedge is highly effective, and any future changes in value will be recorded in Other Comprehensive Income until the time that the underlying cash flows (future interest payments) are recorded in the income statement. The hedge is expected to remain highly effective and effectiveness will be assessed periodically throughout the term of the hedge relationship.  At December 31, 2021, the Company recorded $1.4 million in Other Comprehensive Gain related to the interest rate swap. Any collateral requirement associated with the forward starting swap is included in the total collateral requirement discussed above related to correspondent interest rate swaps.