DERIVATIVES AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2016

DERIVATIVES AND HEDGING ACTIVITIES [Abstract]

DERIVATIVES AND HEDGING ACTIVITIES

11. DERIVATIVES AND HEDGING ACTIVITIES

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three and nine months ended September 30, 2016, such derivatives were used to hedge the variability in cash flows associated with wholesale borrowings.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and six months ended September 30, 2016, the Company’s did not record any hedge ineffectiveness. The Company did not have any derivatives outstanding prior to the quarter ended June 30, 2016.

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are paid on the Company’s liabilities.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statement of Financial Condition:

	At September 30, 2016
	Count		Notional Amount		Fair Value Assets		Fair Value Liabilities
Derivatives designated as hedging instruments Interest Rate Products		4	$	90,000	$	-	$	249
Total derivatives designated as hedging instruments		4	$	90,000	$	-	$	249

Weighted average pay rates		1.24	%
Weighted average receive rates		0.81	%
Weighted average maturity	5.57 years

The table below presents the effect of the Company’s derivative financial instruments as the amount of gain or (loss) on the Consolidated Statements of Income as of September 30, 2016:

	At or for the Three Months Ended September 30, 2016
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Effective Portion)		Amount of Gain or (Loss) Reclassified from Other Comprehensive Income into Interest Expense (Effective Portion)			Amount of Gain or (Loss) Recognized in Other Non-Interest Expense (Ineffective Portion)
Interest Rate Products	$	717	$	(9	)	$	-

	At or for the Nine Months Ended September 30, 2016
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income (Effective Portion)			Amount of Gain or (Loss) Reclassified from Other Comprehensive Income into Interest Expense (Effective Portion)		Amount of Gain or (Loss) Recognized in Other Non-Interest Expense (Ineffective Portion)
Interest Rate Products	$	(281	)	$	32	$	-

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2016. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Statements of Financial Condition.

Offsetting of Derivative Liabilities as of September 30, 2016:

			Gross Amounts		Net Amounts of Assets		Gross Amounts Not Offset in the Statements of Financial Condition
	Gross Amounts of Recognized Liabilities		Offset in the Statements of Financial Condition		presented in the Statements of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amount
Counterparty A	$	249	$	-	$	249	$	-	$	-	$	249

The Company’s  agreements with each of its derivative counterparties state that if the Company defaults on any of its indebtedness, it could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

The Company’s agreements with certain of its derivative counterparties state that if the Bank fails to maintain its status as a well-capitalized institution, the Bank could be required to terminate its derivative positions with the counterparty.

As of September 30, 2016, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $220. If the Company had breached any of the above provisions at September 30, 2016, it could have been required to settle its obligations under the agreements at the termination value and would have been required to pay any additional amounts due in excess of amounts previously posted as collateral with the respective counterparty. There were no provisions breached for the period ended September 30, 2016.