Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.22.2.2
DERIVATIVES
9 Months Ended
Sep. 30, 2022
DERIVATIVES [Abstract]  
DERIVATIVES
NOTE 5 - DERIVATIVES

Derivatives not designated as hedges are not speculative and result from a service provided to certain commercial loan borrowers. The Company executes interest rate swaps with commercial banking customers desiring longer-term fixed rate loans, while simultaneously entering into interest rate swaps with a correspondent bank to offset the impact of the interest rate swaps with the commercial banking customers. The net result is the desired floating rate loans and a minimization of the risk exposure of the interest rate swap 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 commercial banking customer interest rate swaps and the offsetting interest rate swaps with the correspondent bank are recognized directly to earnings. Since they offset perfectly, there is no net impact to earnings.

The notional and fair value of derivative instruments as of September 30, 2022 and December 31, 2021 are reflected in the following table (dollars in thousands):

   
Notional Amount
 
Balance Sheet Location
 
Fair Value
 
September 30, 2022
             
Derivative assets
             
Interest rate swaps
 
$
63,650
 
Other Assets
 
$
6,920
 
                   
Derivative liabilities
                 
Interest rate swaps
   
63,650
 
Other Liabilities
   
6,920
 

   
Notional Amount
 
Balance Sheet Location
 
Fair Value
 
December 31, 2021
                 
Derivative assets
                 
Interest rate swaps
 
$
70,356
 
Other Assets
 
$
3,277
 
                   
Derivative liabilities
                 
Interest rate swaps
   
70,356
 
Other Liabilities
   
3,277
 

The fair value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $6.9 million and $3.3 million as of September 30, 2022 and December 31, 2021, respectively. Securities pledged as collateral totaling $3.5 million and $3.0 million were provided to the counterparty correspondent bank as of September 30, 2022 and December 31, 2021, respectively. These pledged securities were held at the correspondent bank.

Interest rate swaps entered into with commercial loan customers had notional amounts aggregating $63.7 million as of September 30, 2022 and $70.4 million at December 31, 2021. Associated credit exposure is generally mitigated by securing the interest rate swaps with the underlying collateral of the loan instrument that has been hedged.