XML 53 R24.htm IDEA: XBRL DOCUMENT v3.19.3
Derivatives
 9 Months Ended
Sep. 30, 2019
Derivative [Line Items]  
Derivative Instruments and Hedging Activities Disclosure [Text Block] Derivatives

Park uses certain derivative instruments to meet the needs of its clients while managing the interest rate risk associated with certain transactions. Park does not use derivatives for speculative purposes. A summary of derivative instruments utilized by Park follows.

Interest Rate Swaps
Park utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position and as a means to meet the financing, interest rate and other risk management needs of qualifying commercial banking customers. The notional amount of the interest rate swaps does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Borrowing Derivatives: Interest rate swaps with notional amounts totaling $25.0 million as of September 30, 2019 were designated as cash flow hedges of certain FHLB advances. There were no interest rate swaps of FHLB advances as of December 31, 2018.

Loan Derivatives: In conjunction with the Carolina Alliance acquisition, Park acquired interest rate swaps related to certain commercial loans. These interest rate swaps were simultaneously hedged by offsetting interest rate swaps that Carolina Alliance executed with a third party, such that Carolina Alliance minimized its net interest rate risk exposure resulting from such transactions. These interest rate swaps had a notional amount totaling $36.0 million as of September 30, 2019. There were no interest rate swaps of commercial loans as of December 31, 2018.

All of the Company's interest rate swaps were determined to be fully effective during the three and nine months ended September 30, 2019. As such, no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets and other liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive loss would be reclassified to current earnings should the hedges no longer be considered effective. Park expects the hedges to remain fully effective during the remaining respective terms of the swaps.

Summary information about Park's interest rate swaps as of September 30, 2019 follows:

 
 
September 30, 2019
(In thousands, except weighted average data)
 
Borrowing Derivatives
 
Loan Derivatives
Notional amounts
 
$
25,000

 
$
35,961

Weighted average pay rates
 
2.595
%
 
4.692
%
Weighted average receive rates
 
2.303
%
 
4.692
%
Weighted average maturity (years)
 
2.7

 
10.4

Unrealized losses
 
$
704

 
$
—



Interest expense recorded on swap transactions totaled $16,000 and $7,000 for the three-month and nine-month periods ended September 30, 2019. No interest income or expense related to swap transactions was recorded during the three-month and nine-month periods ended September 30, 2018.

Interest Rate Swaps

The following table presents the net gains (losses), net of income taxes, recorded in AOCI and the consolidated condensed statements of income related to interest rate swaps for the three-month and nine-month periods ended September 30, 2019.

 
 
Three Months Ended
September 30, 2019
(In thousands)
 
Amount of Gain (Loss) Recognized in OCI (Effective Portion)
Amount of Gain (Loss) Reclassified from OCI to Interest Income
Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts
 
$
(49
)
$
—

$
—



 
 
Nine Months Ended
September 30, 2019
(In thousands)
 
Amount of Gain (Loss) Recognized in OCI (Effective Portion)
Amount of Gain (Loss) Reclassified from OCI to Interest Income
Amount of Gain (Loss) Recognized in Other Non-interest Income (Ineffective Portion)
Interest rate contracts
 
$
(556
)
$
—

$
—



The following table reflects the interest rate swaps included in the consolidated condensed balance sheets as of September 30, 2019.

(In thousands)
 
September 30, 2019
 
Notional Amount
 
Fair Value
Included in other assets:
 
 
 
 
Borrowing derivatives - interest rate swaps related to FHLB advances
 
$
—

 
$
—

Loan derivatives - instruments associated with loans
 
 
 
 
 Matched interest rate swaps with borrower
 
35,163

 
2,503

 Matched interest rate swaps with counterparty
 
798

 
3

   Total included in other assets
 
$
35,961

 
$
2,506

 
 
 
 
 
Included in other liabilities:
 
 
 
 
Borrowing derivatives - interest rate swaps related to FHLB advances
 
$
25,000

 
$
(704
)
Loan derivatives - instruments associated with loans
 
 
 
 
 Matched interest rate swaps with borrower
 
798

 
(3
)
 Matched interest rate swaps with counterparty
 
35,163

 
(2,503
)
    Total included in other liabilities
 
$
60,961

 
$
(3,210
)

Mortgage Banking Derivatives
Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are accounted for as free standing derivatives. In order to hedge the change in interest rates resulting from its commitments to fund the loans, the Company enters into forward commitments for the future delivery of mortgage loans when interest rate locks are entered into. These mortgage banking derivatives are not designated in hedge relationships. The fair value of the interest rate lock is recorded at the time the commitment to fund the mortgage loan is executed and is adjusted for the expected exercise of the commitment before the loan is funded. Fair values of these mortgage banking derivatives are estimated based on changes in mortgage interest rates from the date the interest on the loan is locked. Changes in the fair values of these derivatives are included in "Other service income" in the Condensed Consolidated Statements of Income.

At September 30, 2019 and December 31, 2018, Park had $28.8 million and $5.8 million, respectively, of interest rate lock commitments. The fair value of these mortgage banking derivatives was reflected by a derivative asset of $422,000 and $87,000 at September 30, 2019 and December 31, 2018, respectively.

Other Derivatives
In connection with the sale of Park’s Class B Visa shares during 2009, Park entered into a swap agreement with the purchaser of the shares. The swap agreement adjusts for dilution in the conversion ratio of Class B Visa shares resulting from certain Visa litigation. At September 30, 2019, the fair value of the swap liability of $226,000 was an estimate of the exposure based upon probability-weighted potential Visa litigation losses.