Note 20 - Interest Rate Swaps

9 Months Ended

Sep. 30, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

(20) Interest Rate Swaps

Periodically, Bancorp enters into interest rate swap transactions with borrowers who desire to hedge exposure to rising interest rates, while at the same time entering into an offsetting interest rate swap, with substantially matching terms, with another approved independent counterparty. These are undesignated derivative instruments and are recognized on the balance sheet at fair value. Because of matching terms of offsetting contracts and collateral provisions mitigating any non-performance risk, changes in fair value subsequent to initial recognition have an insignificant effect on earnings. Exchanges of cash flows related to undesignated interest rate swap agreements were offsetting and therefore had no effect on Bancorp’s earnings or cash flows.

Interest rate swap agreements derive their value from underlying interest rates. These transactions involve both credit and market risk. Notional amounts are amounts on which calculations, payments and the value of the derivative are based. Notional amounts do not represent direct credit exposures. Direct credit exposure is limited to the net difference between the calculated amounts to be received and paid, if any. Bancorp is exposed to credit-related losses in the event of non-performance by counterparties to these agreements. Bancorp mitigates the credit risk of its financial contracts through credit approvals, collateral and monitoring procedures, and does not expect any counterparties to fail their obligations.

Bancorp had outstanding undesignated interest rate swap contracts as follows:

	Receiving				Paying
	September 30,		December 31,		September 30,		December 31,
(dollars in thousands)	2022		2021		2022		2021
Notional amount	$	140,360	$	123,983	$	140,360	$	123,983
Weighted average maturity (years)		7.1		7.2		7.1		7.2
Fair value	$	11,589	$	3,148	$	11,600	$	3,162