Annual report pursuant to Section 13 and 15(d)

Note 17 - Derivative Financial Instruments

v3.21.1
Note 17 - Derivative Financial Instruments
12 Months Ended
Dec. 31, 2020
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 17Derivative 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:

 

December 31, 2020

         
   

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

  $ 72,707  

Other assets

  $ 3,638    

Other liabilties

    $ 3,638  

Interest rate lock commitments

    26,443  

Other assets

    374       N/A       -  

Total

  $ 99,150       $ 4,012             $ 3,638  

 

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  

Interest rate lock 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:

 

     

Year-ended

 

(Dollars in thousands)

Statement of Income Classification

 

2020

   

2019

 

Interest rate swap contracts

Fees and service charges

  $ 800     $ 371  

Interest rate lock commitments

Gain on sale of loans held-for-sale, net

    187       186  

Total

  $ 987     $ 557  

 

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 Collateral

         

(Dollars in thousands)

 

Recognized Assets

   

Statement of Financial Condition

   

in the Statement of Financial Condition

   

Financial Instruments

   

Received

   

Net Amount

 

December 31, 2020

                                               

Interest rate swap contracts

  $ 3,638     $ -     $ 3,638     $ -     $ -     $ 3,638  

Interest rate lock commitments

    374       -       374       -       -       374  

Total

  $ 4,012     $ -     $ 4,012     $ -     $ -     $ 4,012  

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         
   

Gross Amounts of

   

Gross Amounts Offset in the

   

Net Amounts of Liabilities Presented

           

Cash Collateral

         

(Dollars in thousands)

 

Recognized Liabilities

   

Statement of Financial Condition

   

in the Statement of Financial Condition

   

Financial Instruments

   

Received

   

Net Amount

 

December 31, 2019

                                               

Interest rate swap contracts

  $ 1,358     $ -     $ 1,358     $ -     $ -     $ 1,358  

Interest rate lock 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 Collateral

         

(Dollars in thousands)

 

Recognized Liabilities

   

Statement of Financial Condition

   

in the Statement of Financial Condition

   

Financial Instruments

   

Pledged

   

Net Amount

 

December 31, 2020

                                               

Interest rate swap contracts

  $ 3,638     $ -     $ 3,638     $ -     $ 3,930     $ (292 )

Total

  $ 3,638     $ -     $ 3,638     $ -     $ 3,930     $ (292 )

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         
   

Gross Amounts of

   

Gross Amounts Offset in the

   

Net Amounts of Liabilities Presented

           

Cash Collateral

         

(Dollars in thousands)

 

Recognized Liabilities

   

Statement of Financial Condition

   

in the Statement of Financial Condition

   

Financial Instruments

   

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 )