Quarterly report pursuant to Section 13 or 15(d)

Note 13 - Derivative Financial Instruments

v3.23.3
Note 13 - Derivative Financial Instruments
9 Months Ended
Sep. 30, 2023
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 13 Derivative Financial Instruments

 

The Bancorp uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities. 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:

 

September 30, 2023

         
 

Asset derivatives

   

Liability derivatives

 

(Dollars in thousands)

Statement of Financial Condition classification

 

Fair value

   

Statement of Financial Condition classification

   

Fair value

 

Interest rate swap contracts

Other assets

  $ 9,834    

Other liabilties

    $ 9,834  

Interest rate lock commitments

Other assets

    51       N/A       -  

Total

  $ 9,885             $ 9,834  

 

December 31, 2022

         
 

Asset derivatives

   

Liability derivatives

 

(Dollars in thousands)

Statement of Financial Condition classification

 

Fair value

   

Statement of Financial Condition classification

   

Fair value

 

Interest rate swap contracts

Other assets

  $ 8,972    

Other liabilties

    $ 8,972  

Interest rate lock commitments

Other assets

    38       N/A       -  

Total

  $ 9,010             $ 8,972  

 

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

 

     

Three Months Ended

 
     

September 30,

 

(Dollars in thousands)

Statement of Income Classification

 

2023

   

2022

 

Interest rate swap contracts

Fees and service charges

  $ (37 )   $ 3  

Interest rate lock commitments

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

    (36 )     (42 )

Total

  $ (73 )   $ (39 )

 

 

     

Nine Months Ended

 
     

September 30,

 

(Dollars in thousands)

Statement of Income Classification

 

2023

   

2022

 

Interest rate swap contracts

Fees and service charges

  $ 328     $ 3  

Interest rate lock commitments

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

    12       (110 )

Total

  $ 340     $ (107 )

 

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

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         

(Dollars in thousands)

 

Gross Amounts of Recognized Assets

   


Gross Amounts Offset in the Statement of Financial Condition

   


Net Amounts of Assets Presented
in the Statement of Financial Condition

   

Financial Instruments

   

Cash Collateral Received

   

Net Amount

 

September 30, 2023

                                               

Interest rate swap contracts

  $ 9,834     $ -     $ 9,834     $ -     $ 5,470     $ 4,364  

Interest rate lock commitments

    51       -       51       -       -       51  

Total

  $ 9,885     $ -     $ 9,885     $ -     $ 5,470     $ 4,415  

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         

(Dollars in thousands)

 

Gross Amounts of Recognized Liabilities

   

Gross Amounts Offset in the Statement of Financial Condition

   

Net Amounts of Liabilities Presented
in the Statement of Financial Condition

   

Financial Instruments

   

Cash Collateral Received

   

Net Amount

 

December 31, 2022

                                               

Interest rate swap contracts

  $ 8,972     $ -     $ 8,972     $ -     $ -     $ 8,972  

Interest rate lock commitments

    38       -       38       -       -       38  

Total

  $ 9,010     $ -     $ 9,010     $ -     $ -     $ 9,010  

 

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

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         

(Dollars in thousands)

 

Gross Amounts of Recognized Liabilities

   

Gross Amounts Offset in the Statement of Financial Condition

   

Net Amounts of Liabilities Presented in the Statement of Financial Condition

   

Financial Instruments

   

Cash Collateral Pledged

   

Net Amount

 

September 30, 2023

                                               

Interest rate swap contracts

  $ 9,834     $ -     $ 9,834     $ -     $ -     $ 9,834  

Total

  $ 9,834     $ -     $ 9,834     $ -     $ -     $ 9,834  

 

                           

Gross Amounts not Offset in the

         
                           

Statement of Financial Condition

         

(Dollars in thousands)

 

Gross Amounts of Recognized Liabilities

   

Gross Amounts Offset in the Statement of Financial Condition

   

Net Amounts of Liabilities Presented in the Statement of Financial Condition

   

Financial Instruments

   

Cash Collateral Pledged

   

Net Amount

 

December 31, 2022

                                               

Interest rate swap contracts

  $ 8,972     $ -     $ 8,972     $ -     $ 3,930     $ 5,042  

Total

  $ 8,972     $ -     $ 8,972     $ -     $ 3,930     $ 5,042