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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

X

- 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://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//815/tableOfContent

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X

- References

No definition available.

+ Details

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