The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets and borrowings.

The Company’s objectives in using interest rate derivatives are to add stability to interest income/expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps and floors as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. During 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets and issuances of debt.

The Company executed an interest rate swap to reduce its exposure to variability in the interest rate associated with floating-rate borrowings. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense/income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense/income as interest payments are made/received on the Company’s variable-rate debt/assets. During 2021 the Company estimates that an additional $50 will be reclassified as a decrease to interest income.

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of December 31, 2020, the Company had 73 interest rate swaps with an aggregate notional amount of $375,341 related to this program.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019.

(1)	Assets amount does not include accrued interest receivable of $235

(2)	Liabilities amount does not include accrued interest payable of $235

(3)	Notional amount of interest rate swaps at December 31, 2019 $172,096

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of fair value and cash flow hedge accounting on accumulated other comprehensive income (loss) as of December 31, 2020 and December 31, 2019.

Location of

Amount of

Gain or (Loss)

Amount of

Gain (Loss)

Loss

Recognized from

Gain (Loss)

Reclassified

Recognized in

Accumulated

Reclassified

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

Hedging

Derivative

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

December 31, 2020

Income

December 31, 2020

Derivatives in Cash Flow Hedging Relationships

Cash Flow Swap

Interest Expense

(40)

Interest Rate Floor (*)

(18)

(17)

(1)

Interest Income

134

150

(16)

Total

(1)

110

(16)

Location of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Gain

Recognized from

Loss

Reclassified

Recognized in

Accumulated

Reclassified

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

Hedging

Derivative

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

December 31, 2019

Income

December 31, 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

192

196

(4)

Interest Income

(16)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the consolidated statements of income and comprehensive income as of December 31, 2020 and December 31, 2019.


		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2020		2020		2019	2019
		Interest Income		Interest Expense		Interest Income	Interest Expense
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	134	$	(40)	$	26

The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	$	134	$	(40)	$	26

Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - included component	$	150			$	42
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(16)			$	(16)

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of the Company’s other derivative financial instruments on the consolidated statements of income and comprehensive income for the years ended December 31, 2020 and 2019.


		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Twelve Months Ended		Twelve Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	December 31, 2020		December 31, 2019

Interest Rate Swaps	Interest rate swap revenue	$	31	$	77


Fee Income	Interest rate swap revenue	$	2,290	$	1,713

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2020 and December 31, 2019. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the consolidated balance sheets.

Offsetting of Derivative Assets

as of December 31, 2020

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

Assets

Balance Sheet

Instruments

Received

Amount

Derivatives

15,371

Offsetting of Derivative Liabilities

as of December 31, 2020

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

Assets

Balance Sheet

Instruments

Received

Amount

Derivatives

14,099

Offsetting of Derivative Assets

as of December 31, 2019

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

Assets

Balance Sheet

Instruments

Received

Amount

Derivatives

5,672

Offsetting of Derivative Liabilities

as of December 31, 2019

Gross Amounts Not Offset in the Balance Sheet

Gross

Net Amounts

Amounts of

Gross Amounts

of Assets

Recognized

Offset in the

presented in the

Financial

Cash Collateral

Net

Assets

Balance Sheet

Instruments

Received

Amount

Derivatives

4,680

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of December 31, 2020, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $79. As of December 31, 2019, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $48. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $15,360 against its obligations under these agreements as of December 30, 2020, compared to having posted collateral of $4,140 with counterparties at December 31, 2019. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.