Quarterly report pursuant to Section 13 or 15(d)

Note 13 - Derivative Financial Instruments

v3.20.1
Note 13 - Derivative Financial Instruments
3 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
Note
13
– Derivative Financial Instruments
   The Bancorp has certain interest rate derivative positions that are
not
designated as hedging instruments. Derivative assets and liabilities are recorded at fair value on the Consolidated Balance Sheet and do
not
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
not
materially different and do
not
significantly impact the Bancorp’s results of operations.
 
The Bancorp enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., interest rate lock commitment). The interest rate lock commitments are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC
815,
Derivatives and Hedging.
 
The following table shows the amounts of non-hedging derivative financial instruments:
 
March 31, 2020
 
   
Notational or
contractual
 
Asset derivatives
   
Liability derivatives
 
(Dollars in thousands)
 
amount
 
Statement of Financial Condition classification
 
Fair value
   
Statement of Financial Condition classification
   
Fair value
 
Interest rate swap contracts
  $
29,214
 
Other assets
  $
3,282
   
Other liabilties
    $
3,282
 
Loan commitments
   
52,163
 
Other assets
   
704
   
 N/A
     
-
 
Total
  $
81,377
 
 
  $
3,986
   
  
    $
3,282
 
 
December 31, 2019
 
   
Notational or contractual
 
Asset derivatives
   
Liability derivatives
 
(Dollars in thousands)
 
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
 
 
The following table shows the amounts included in the Statements of Income for non-hedging derivative financial instruments:
 
     
Three Months Ended
 
     
March 31,
 
(Dollars in thousands)
Statement of Income Classification
 
2020
   
2019
 
Interest rate swap contracts
Other income
  $
-
    $
220
 
Loan commitments
Other income
   
518
     
-
 
Total
  $
518
    $
220
 
 
The following table shows the offsetting of financial assets and derivative assets:
 
                           
Gross Amounts not Offset in the
         
                           
Statement of Financial Condition
         
   
Gross Amounts of
   
Gross Amounts Offset in the
   
Net Amounts of Assets Presented
     
 
   
Cash
     
 
 
(Dollars in thousands)
 
Recognized Assets
   
Statement of
Financial Condition
   
in the Statement of
Financial Condition
   
Financial Instruments
   
Collateral
Received
   
Net Amount
 
March 31, 2020
                                               
Interest rate swap contracts
  $
3,282
    $
-
    $
3,282
    $
-
    $
-
    $
3,282
 
Loan commitments
   
704
     
-
     
704
     
-
     
-
     
704
 
Total
  $
3,986
    $
-
    $
3,986
    $
-
    $
-
    $
3,986
 
 
                           
Gross Amounts not Offset in the
         
                           
Statement of Financial Condition
         
   
Gross Amounts of
   
Gross Amounts Offset in the
   
Net Amounts of Liabilities Presented
     
 
   
Cash
     
 
 
(Dollars in thousands)
 
Recognized Liabilities
   
Statement of
Financial Condition
   
in the Statement of
Financial Condition
   
Financial Instruments
   
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
 
 
The following table shows the offsetting of financial liabilities and derivative liabilities:
 
                           
Gross Amounts not Offset in the
         
                           
Statement of Financial Condition
         
   
Gross Amounts of
   
Gross Amounts Offset in the
   
Net Amounts of Liabilities Presented
     
 
   
Cash
     
 
 
(Dollars in thousands)
 
Recognized Liabilities
   
Statement of
Financial Condition
   
in the Statement of
Financial Condition
   
Financial Instruments
   
Collateral
Pledged
   
Net Amount
 
March 31, 2020
                                               
Interest rate swap contracts
  $
3,282
    $
-
    $
3,282
    $
-
    $
3,350
    $
(68
)
Total
  $
3,282
    $
-
    $
3,282
    $
-
    $
3,350
    $
(68
)
 
 
                           
Gross Amounts not Offset in the
         
                           
Statement of Financial Condition
         
   
Gross Amounts of
   
Gross Amounts Offset in the
   
Net Amounts of Liabilities Presented
     
 
   
Cash
     
 
 
(Dollars in thousands)
 
Recognized Liabilities
   
Statement of
Financial Condition
   
in the Statement of
Financial Condition
   
Financial Instruments
   
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
)