XML 27 R16.htm IDEA: XBRL DOCUMENT v3.20.2
DERIVATIVES
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
8. DERIVATIVES

We utilize various designated and undesignated derivative financial instruments to reduce our exposure to movements in interest rates including interest rate lock commitments and forward sale commitments. We measure all derivatives at fair value on our consolidated balance sheet. In each reporting period, we record the derivative instruments in other assets or other liabilities depending on whether the derivatives are in an asset or liability position. For derivative instruments that are designated as cash flow hedging instruments, we record the effective portion of the changes in the fair value of the derivative in AOCI, net of tax, until earnings are affected by the variability of cash flows of the hedged transaction. We immediately recognize the portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness in current period earnings. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivative
are included in current period earnings. At September 30, 2020 and December 31, 2019, we were not party to any derivatives designated as part of a fair value or cash flow hedge.  

Interest Rate Lock and Forward Sale Commitments

We enter into interest rate lock commitments on certain mortgage loans that are intended to be sold. To manage interest rate risk on interest rate lock commitments, we also enter into forward loan sale commitments. The interest rate locks and forward loan sale commitments are accounted for as undesignated derivatives and are recorded at their respective fair values in other assets or other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce our exposure to movements in interest rates. At September 30, 2020, we were a party to interest rate lock and forward sale commitments on $2.9 million and $19.3 million of mortgage loans, respectively.

The following table presents the location of all assets and liabilities associated with our derivative instruments within the consolidated balance sheets:

Derivatives Financial Instruments Not Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationSeptember 30,
2020		December 31,
2019		September 30,
2020		December 31,
2019
Interest rate lock and forward sale commitmentsOther assets / other liabilities$111 $8 $127 $28 

Risk Participation Agreement

In the first quarter of 2020, the Company entered into a credit risk participation agreement ("RPA") with a financial institution counterparty for an interest rate swap related to a loan in which we participate. The risk participation agreement entered into by us as a participant bank provides credit protection to the financial institution counterparty should the borrower fail to perform on its interest rate derivative contract with that financial institution.

The following table presents the impact of derivative instruments and their location within the consolidated statements of income:
 
Derivatives Financial Instruments
Not Designated as Hedging Instruments		Location of Gain (Loss)
Recognized in
Earnings on Derivatives		Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Three Months Ended September 30, 2020  
Interest rate lock and forward sale commitmentsMortgage banking income$109 
Risk participation agreementOther service charges and fees(54)
Three Months Ended September 30, 2019 
Interest rate lock and forward sale commitmentsMortgage banking income110 
Loans held for saleOther income(1)
  
Nine Months Ended September 30, 2020 
Interest rate lock and forward sale commitmentsMortgage banking income59 
Risk participation agreementOther service charges and fees1,234 
  
Nine Months Ended September 30, 2019 
Interest rate lock and forward sale commitmentsMortgage banking income131 
Loans held for saleOther income(1)