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.

 

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 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	)