The Bancorp has certain interest rate derivative positions that are designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do take into account the effects of master netting agreements. Master netting agreements allow the Bancorp to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related collateral, where applicable. These derivative positions relate to transactions in which the Bancorp enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, the Bancorp agrees to pay interest to the client on a notional amount at a variable interest rate and receive interest from the client on the same notional amount at a fixed interest rate. At the same time, the Bancorp agrees to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows the client to effectively convert a variable rate loan to a fixed rate. Because the terms of the swaps with the customers and the other financial institutions offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are materially different and do significantly impact the Bancorp’s results of operations.

 

   As described in Note the Bancorp grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. Loan commitments generally have fixed expiration dates or other termination clauses and require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do necessarily represent future cash requirements.

 

The following table shows the amounts of non-hedging derivative financial instruments:

 

December 31, 2019
		Notational or			Asset derivatives						Liability derivatives
(Dollars in thousands)		contractual amount			Statement of Financial Condition classification		Fair value				Statement of Financial Condition classification				Fair value
Interest rate swap contracts		$	29,466		Other assets		$	1,358			Other liabilties				$	1,358
Loan commitments			12,822		Other assets			186			N/A					-
Total		$	42,288				$	1,544							$	1,358

 

December 31, 2018
		Notational or			Asset derivatives						Liability derivatives
(Dollars in thousands)		contractual amount			Statement of Financial Condition classification		Fair value				Statement of Financial Condition classification				Fair value
Interest rate swap contracts		$	8,649		Other assets		$	196			Other liabilities				$	196
Loan commitments			5,348		Other assets			-			N/A					-
Total		$	13,997				$	196							$	196

 

 

   The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:

 

			Year-ended
(Dollars in thousands)	Statement of Income Classification		2019				2018
Interest rate swap contracts	Other income		$	371			$	110
Loan commitments	Other income			186				-
Total			$	557			$	110

 

   The following table shows the offsetting of financial assets and derivative assets:

 

														Gross Amounts not Offset in the
						Gross Amounts				Net Amounts of Assets				Statement of Financial Condition
(Dollars in thousands)		Gross Amounts of Recognized Assets				Offset in the Statement of Financial Condition				Presented in the Statement of Financial Condition				Financial Instruments				Cash Collateral Received				Net Amount
December 31, 2019
Interest rate swap contracts		$	1,358			$	-			$	1,358			$	-			$	-			$	1,358
Loan commitments			186				-				186				-				-				186
Total		$	1,544			$	-			$	1,544			$	-			$	-			$	1,544

 

														Gross Amounts not Offset in the
						Gross Amounts				Net Amounts of Liabilities				Statement of Financial Condition
(Dollars in thousands)		Gross Amounts of Recognized Liabilities				Offset in the Statement of Financial Condition				Presented in the Statement of Financial Condition				Financial Instruments				Cash Collateral Received				Net Amount
December 31, 2018
Interest rate swap contracts		$	196			$	-			$	196			$	-			$	-			$	196
Loan commitments			-				-				-				-				-				-
Total		$	196			$	-			$	196			$	-			$	-			$	196

 

 

   The following table shows the offsetting of financial liabilities and derivative liabilities:

 

														Gross Amounts not Offset in the
						Gross Amounts				Net Amounts of Liabilities				Statement of Financial Condition
(Dollars in thousands)		Gross Amounts of Recognized Liabilities				Offset in the Statement of Financial Condition				Presented in the Statement of Financial Condition				Financial Instruments				Cash Collateral Pledged				Net Amount
December 31, 2019
Interest rate swap contracts		$	1,358			$	-			$	1,358			$	-			$	2,290			$	(932	)
Total		$	1,358			$	-			$	1,358			$	-			$	2,290			$	(932	)

 

														Gross Amounts not Offset in the
						Gross Amounts				Net Amounts of Liabilities				Statement of Financial Condition
(Dollars in thousands)		Gross Amounts of Recognized Liabilities				Offset in the Statement of Financial Condition				Presented in the Statement of Financial Condition				Financial Instruments				Cash Collateral Pledged				Net Amount
December 31, 2018
Interest rate swap contracts		$	196			$	-			$	196			$	-			$	-			$	196
Total		$	196			$	-			$	196			$	-			$	-			$	196