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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES [Text Block] | NOTE 12 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES One of the market risks facing the Corporation is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of the Corporation’s assets or liabilities and will adversely affect the Corporation’s net interest income from its loan and investment portfolios. The overall objective of the Corporation’s interest rate risk management activities is to reduce the variability of earnings caused by changes in interest rates. The Corporation designates a derivative as a fair value hedge, cash flow hedge or economic undesignated hedge when it enters into the derivative contract. As of September 30, 2021 and December 31, 2020, all derivatives held by the Corporation were considered economic undesignated hedges. The Corporation records these undesignated hedges at fair value with the resulting gain or loss recognized in current earnings. The following summarizes the principal derivative activities used by the Corporation in managing interest rate risk: Interest rate cap agreements - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value of the interest rate cap increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates. Forward Contracts - Forward contracts are primarily sales of to-be-announced (“TBA”) MBS that will settle over the standard delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net settlement provision and no market mechanism to facilitate net settlement and that provide for delivery of a security within the time frame generally established by regulations or conventions in the market place or exchange in which the transaction is being executed. The forward sales are considered derivative instruments that need to be marked to market. The Corporation uses these securities to economically hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. The Corporation also reports as forward contracts the mandatory mortgage loan sales commitments that it enters into with GSEs that require or permit net settlement via a pair-off transaction or the payment of a pair-off fee. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income. Interest Rate Lock Commitments - Interest rate lock commitments are agreements under which the Corporation agrees to extend credit to a borrower under certain specified terms and conditions in which the interest rate and the maximum amount of the loan are set prior to funding. Under the agreement, the Corporation commits to lend funds to a potential borrower, generally on a fixed rate basis, regardless of whether interest rates change in the market. Interest rate swaps – The Corporation acquired interest rate swaps as a result of the acquisition of BSPR. An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreements acquired from BSPR consist of the Corporation offering borrower-facing derivative products using a “back-to-back” structure in which the borrower-facing derivative transaction is paired with an identical, offsetting transaction with an approved dealer-counterparty. By using a back-to-back trading structure, both the commercial borrower and the Corporation are largely insulated from market risk and volatility. The agreements set the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. The fair values of these swaps are recorded as components of other assets or accounts payable and other liabilities in the Corporation’s consolidated statement of financial condition. Changes in the fair value of interest rate swaps, which occur due to changes in interest rates, are recorded in the consolidated statements of income as a component of interest income on loans. To satisfy the needs of its customers, the Corporation may enter into non-hedging transactions. In these transactions, the Corporation generally participates as a buyer in one of the agreements and as a seller in the other agreement under the same terms and conditions. In addition, the Corporation enters into certain contracts with embedded derivatives that do not require separate accounting as these are clearly and closely related to the economic characteristics of the host contract. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging derivative instrument.
The following table summarizes the notional amounts of all derivative instruments as of the indicated dates:
|  |  | Notional Amounts (1)
|  |  | As of |  | As of
|  |  | September 30, |  | December 31,
|  |  | 2021 |  | 2020
(In thousands) |
Undesignated economic hedges: |  |  |  |  |
Interest rate contracts: |  |  |  |  |
| Interest rate swap agreements | $ | 13,409 |  | $ | 15,864
| Written interest rate cap agreements |  | 14,500 |  |  | 14,500
| Purchased interest rate cap agreements |  | 14,500 |  |  | 14,500
| Interest rate lock commitments |  | 14,390 |  |  | 19,931
Forward Contracts: |  |  |  |  |
| Sale of TBA GNMA MBS pools |  | 30,000 |  |  | 42,000
| Forward loan sales commitments |  | 9,409 |  |  | 19,998
| $ | 96,208 |  | $ | 126,793
(1) | Notional amounts are presented on a gross basis with no netting of offsetting exposure positions.
| The following table summarizes for derivative instruments their fair values and location in the consolidated statements of financial condition as of the indicated dates:
|  | Asset Derivatives |  | Liability Derivatives
|  | Statement of |  | September 30, |  | December 31, |  |  |  | September 30, |  | December 31,
|  | Financial |  | 2021 |  | 2020 |  |  |  | 2021 |  | 2020
|  | Condition Location |  | Fair Value |  | Fair Value |  | Statement of Financial Condition Location |  | Fair Value |  | Fair Value
(In thousands) |
Undesignated economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest rate swap agreements | Other assets |  | $ | 1,218 |  | $ | 1,622 |  | Accounts payable and other liabilities |  | $ | 1,213 |  | $ | 1,639
| Written interest rate cap agreements | Other assets |  |  | - |  |  | - |  | Accounts payable and other liabilities |  |  | 3 |  |  | 1
| Purchased interest rate cap agreements | Other assets |  |  | 3 |  |  | 1 |  | Accounts payable and other liabilities |  |  | - |  |  | -
| Interest rate lock commitments | Other assets |  |  | 485 |  |  | 737 |  | Accounts payable and other liabilities |  |  | - |  |  | -
Forward Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Sales of TBA GNMA MBS pools | Other assets |  |  | 44 |  |  | 102 |  | Accounts payable and other liabilities |  |  | 11 |  |  | 280
| Forward loan sales commitments | Other assets |  |  | 20 |  |  | 20 |  | Accounts payable and other liabilities |  |  | - |  |  | -
|  |  |  | $ | 1,770 |  | $ | 2,482 |  |  |  | $ | 1,227 |  | $ | 1,920
| The following table summarizes the effect of derivative instruments on the consolidated statements of income for the indicated periods:
|  |  |  | Gain or (Loss) |  | Gain or (Loss)
|  | Location of Unrealized Gain (Loss) |  | Quarter Ended |  | Nine-Month Period Ended
|  | on Derivative Recognized in |  | September 30, |  | September 30,
|  | Statement of Income |  | 2021 |  | 2020 |  | 2021 |  | 2020
(In thousands) |  |  |
UNDESIGNATED ECONOMIC HEDGES: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
| Interest rate swap agreements | Interest income - Loans |  | $ | 4 |  | $ | 18 |  | $ | 22 |  | $ | 18
| Interest rate lock commitments | Mortgage Banking Activities |  |  | (24) |  |  | 254 |  |  | (488) |  |  | 910
Forward contracts: |  |  |  |  |  |  |  |  |  |  |  |  |
| Sales of TBA GNMA MBS pools | Mortgage Banking Activities |  |  | 143 |  |  | 454 |  |  | 225 |  |  | 458
| Total gain (loss) on derivatives |  |  | $ | 123 |  | $ | 726 |  | $ | (241) |  | $ | 1,386
Derivative instruments are subject to market risk. As is the case with investment securities, the market value of derivative instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future impact of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectations for rates in the future. As of September 30, 2021, the Corporation had not entered into any derivative instrument containing credit-risk-related contingent features.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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