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Derivative Financial Instruments | 6 Months Ended
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Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets. Non-designated Hedges The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. Additionally, the Company enters into forward contracts for the future delivery of mortgage loans to third-party investors and enters into Interest Rate Lock Commitments (“IRLCs”) with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts that are entered into, economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. The IRLCs and forward contracts are not designated as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in accrued income and other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in accrued expenses and other liabilities in the consolidated balance sheets. The table below presents the notional amount and fair value of the Company’s interest rate swaps, IRLCs and forward contracts utilized as of June 30, 2021 and December 31, 2020.
|  | June 30, 2021 |  |  | December 31, 2020 |
|  | Notional |  |  | Fair |  |  | Notional |  |  | Fair |
($ in thousands) |  | Amount |  |  | Value |  |  | Amount |  |  | Value |
Asset Derivatives |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps associated with loans |  | $ | 87,884 |  |  | $ | 5,445 |  |  | $ | 87,687 |  |  | $ | 7,962 |
IRLCs |  |  | 43,655 |  |  |  | 120 |  |  |  | 46,130 |  |  |  | 278 |
Total contracts |  | $ | 131,539 |  |  | $ | 5,565 |  |  | $ | 133,817 |  |  | $ | 8,240 |
Liability Derivatives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps associated with loans |  | $ | 87,884 |  |  | $ | (5,445 | ) |  | $ | 87,687 |  |  | $ | (7,962 | )
Forward contracts |  |  | 50,000 |  |  |  | (108 | ) |  |  | 50,000 |  |  |  | (265 | )
Total contracts |  | $ | 137,884 |  |  | $ | (5,553 | ) |  | $ | 137,687 |  |  | $ | (8,227 | )
The fair value of interest rate swaps were estimated using a discounted cash flow method that incorporates current market interest rates as of the balance sheet date. Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date. The following table presents the amounts included in the consolidated statements of income for non-hedging derivative financial instruments for the six months ended June 30, 2021 and 2020.
|  |  |  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
($ in thousands) |  | Statement of income classification |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Interest rate swap contracts |  | Other income |  | $ | - |  |  | $ | 48 |  |  | $ | 133 |  |  | $ | 228 |
Interest rate swap contracts |  | Other expense |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
IRLCs |  | Gain on sale of mortgage loans & OMSR |  |  | 534 |  |  |  | (334 | ) |  |  | (158 | ) |  |  | 337 |
Forward contracts |  | Gain on sale of mortgage loans & OMSR |  |  | (605 | ) |  |  | 693 |  |  |  | 157 |  |  |  | (360 | )
The following table shows the offsetting of financial assets and derivative assets at June 30, 2021 and December 31, 2020.
|  |  |  |  | Gross amounts |  |  | Net amounts of assets |  |  | Gross amounts not offset in the consolidated balance sheet |  |  |  |
($ in thousands) |  | Gross amounts of recognized assets |  |  | offset in the consolidated balance sheet |  |  | presented in the consolidated balance sheet |  |  | Financial instruments |  |  | Cash collateral received |  |  | Net amount |
June 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 5,445 |  |  | $ | - |  |  | $ | 5,445 |  |  | $ | - |  |  | $ | - |  |  | $ | 5,445 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 7,962 |  |  | $ | - |  |  | $ | 7,962 |  |  | $ | - |  |  | $ | - |  |  | $ | 7,962 |
The following table shows the offsetting of financial liabilities and derivative liabilities at June 30, 2021 and December 31, 2020.
|  |  |  |  | Gross amounts |  |  | Net amounts of liabilities |  |  | Gross amounts not offset in the consolidated balance sheet |  |  |  |
($ in thousands) |  | Gross amounts of recognized liabilities |  |  | offset in the consolidated balance sheet |  |  | presented in the consolidated balance sheet |  |  | Financial instruments |  |  | Cash collateral pledged |  |  | Net amount |
June 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 5,445 |  |  | $ | - |  |  | $ | 5,445 |  |  | $ | 1,155 |  |  | $ | 5,740 |  |  | $ | (1,450 | )
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 7,962 |  |  | $ | - |  |  | $ | 7,962 |  |  | $ | - |  |  | $ | 8,896 |  |  | $ | (934 | )

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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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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