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Derivative Financial Instruments
3 Months Ended
Mar. 31, 2022
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments

Derivative Financial Instruments:

 

Interest Rate Swaps

 

The Company maintains an interest rate protection program for commercial loan customers. Under this program, the Company provides a variable rate loan while creating a fixed rate loan for the customer by the customer entering into an interest rate swap with terms that match the loan. The Company offsets its risk exposure by entering into an offsetting interest rate swap with an unaffiliated institution. The Company had interest rate swaps associated with commercial loans with a notional value of $74.9 million and fair value of $2.2 million in other assets and $2.2 million in other liabilities at March 31, 2022. At December 31, 2021 the Company had interest rate swaps associated with commercial loans with and a notional value of $86.1 million and fair value of $4.0 million in other assets and $4.0 million in other liabilities. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are not marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820.

 

There were no net gains or losses for interest rate swaps for the period ended March 31, 2022 or December 31, 2021.

 

Mortgage Banking Derivatives

 

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market are considered derivatives. These mortgage banking derivatives are not designated in hedge relationships.  The Company had approximately $13.6 million of interest rate lock commitments at March 31, 2022 and $25.7 million of interest rate lock commitments at December 31, 2021.

 

The net gains and losses on derivative instruments not designated as hedging instruments are included in mortgage banking income.  For the quarter ended March 31, 2022, losses of $286,000 were included in mortgage banking income for the interest rate lock commitments.  For the fiscal year ended December 31, 2021, gains of $423,000 were included in mortgage banking income for the interest rate lock commitments.