XML 60 R18.htm IDEA: XBRL DOCUMENT v3.22.0.1
DERIVATIVES
 12 Months Ended
Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
9. DERIVATIVES
 
We utilize various designated and undesignated derivative financial instruments to reduce our exposure to movements in interest rates including interest rate swaps, interest rate lock commitments and forward sale commitments. We measure all derivatives at fair value on our consolidated balance sheet. At each reporting period, we record the derivative instruments in other assets or other liabilities depending on whether the derivatives are in an asset or liability position. For derivative instruments that are designated as hedging instruments, we record the effective portion of the changes in the fair value of the derivative in AOCI, net of tax, until earnings are affected by the variability of cash flows of the hedged transaction. We immediately recognize the portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness in current period earnings. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivative are included in current period earnings. We had no derivative instruments designated as hedging instruments as of December 31, 2021 and December 31, 2020.
 
Interest Rate Lock and Forward Sale Commitments
 
We enter into interest rate lock commitments on certain mortgage loans that are intended to be sold. To manage interest rate risk on interest rate lock commitments, we also enter into forward loan sale commitments. The interest rate lock and forward loan sale commitments are accounted for as undesignated derivatives and are recorded at their respective fair values in other assets or other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce our exposure to movements in interest rates. At December 31, 2021, we were a party to forward sale commitments on $3.5 million of mortgage loans. As of December 31, 2021, we did not have any outstanding interest rate lock commitments on mortgage
loans. At December 31, 2020, we were a party to interest rate lock and forward sale commitments on $0.7 million and $16.6 million of mortgage loans, respectively.

Risk Participation Agreements

In the first and fourth quarters of 2020, the Company entered into credit risk participation agreements ("RPA") with financial institution counterparties for interest rate swaps related to loans in which we participate. The risk participation agreements entered into by us a participant bank provide credit protection to the financial institution counterparties should the borrowers fail to perform on their interest rate derivative contracts with the financial institutions.

Back-to-Back Swap Agreements

The Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an equal and offsetting swap with a highly rated third-party financial institution. These "back-to-back swap agreements" are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. These back-to-back swap agreements are free-standing derivatives and are recorded at fair value on our consolidated balance sheet in other assets or other liabilities, with changes recorded in current period earnings. During the year ended December 31, 2021, the Company entered into swap agreements with its borrowers with a total notional amount of $33.1 million, offset by swap agreements with third party financial institutions with a total notional amount of $33.1 million. As of December 31, 2021, the Company pledged $0.3 million in cash as collateral for the back-to-back swap agreements.

The following table presents the location of all assets and liabilities associated with our derivative instruments within the consolidated balance sheet: 
  Asset DerivativesLiability Derivatives
Derivatives Not Designated asBalance SheetFair Value atFair Value atFair Value atFair Value at
Hedging InstrumentsLocationDecember 31, 2021December 31, 2020December 31, 2021December 31, 2020
  (Dollars in thousands)
Interest rate lock commitments, forward sale commitments, risk participation agreements, and back-to-back swap agreementsOther assets / other liabilities$5 $18 $20 $163 
 
The following table presents the impact of derivative instruments and their location within the consolidated statements of income for the periods presented: 
Derivatives Not in Cash Flow Hedging RelationshipLocation of Gain (Loss) Recognized in Earnings on DerivativesAmount of Gain (Loss) Recognized in Earnings on Derivatives
 (Dollars in thousands)
Year ended December 31, 2021  
Interest rate lock and forward sale commitmentsMortgage banking income$98 
Risk participation agreementsOther service charges and fees32 
Back-to-back swap agreementsOther service charges and fees600 
   
Year ended December 31, 2020  
Interest rate lock and forward sale commitmentsMortgage banking income(76)
Risk participation agreementsOther service charges and fees1,323 
Year ended December 31, 2019  
Interest rate lock and forward sale commitmentsMortgage banking income63