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Derivatives
 9 Months Ended
Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
DERIVATIVES

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 are recorded in accumulated other comprehensive income and are 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 variable cash outflows associated with four FHLB borrowings totaling $26.0 million.  The Company entered into an interest rate swap agreement to hedge its $12.5 million variable rate (3 Mo Libor +1.44%) junior subordinated debt issued by Sussex Capital Trust II, a non-consolidated wholly-owned subsidiary of the Company, for 10 years at a fixed rate of 3.10%.  The ineffective portion of the change in fair value of the derivatives are recognized directly in earnings. The Company implemented this program during the quarter ended March 31, 2016.

During the three and nine months ended September 30, 2016 the Company did not record any hedge ineffectiveness.


The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition at September 30, 2016:

September 30, 2016

Notional/
Contract
Amount
 
Fair
Value
 
Balance
Sheet
Location
 
Expiration
Date
(Dollars in thousands)
 

 
 

 
 
 
 
Derivatives designated as hedging instruments
Interest rate swaps by effective date:
 

 
 
 
 
 
 
March 15, 2016
$
12,500

 
$
(278
)
 
Other Liabilities
 
2026-03-15
December 15, 2016
5,000

 
(223
)
 
Other Liabilities
 
2026-12-15
June 15, 2017
6,000

 
(280
)
 
Other Liabilities
 
2027-06-15
December 15, 2017
10,000

 
(373
)
 
Other Liabilities
 
2027-12-15
December 15, 2017
5,000

 
(205
)
 
Other Liabilities
 
2027-12-15

 

 
 

 
 
 
 
Total
$
38,500

 
$
(1,359
)
 
 
 
 


The table below presents the Company’s derivative financial instruments that are designated as cash flow hedgers of interest rate risk and their effect on the Company’s Consolidated Statements of Financial Conditions during the three months ended September 30, 2016:
໿

Three Months Ended September 30, 2016

Amount of Gain
Recognized in OCI
on
Derivatives, net of
Tax
(Effective Portion)
 
Location of Gain
(Loss) Recognized in
Income of
Derivatives
(Ineffective Portion)
 
Amount of Gain (Loss)
Recognized in Income of
Derivatives
(Ineffective Portion)
(Dollars in thousands)
 

 
 
 
 

Derivatives in cash flow hedges
Interest rate swaps by effective
date:
 

 
 
 
 

March 15, 2016
$
66

 
Not applicable
 
$
—

December 15, 2016
16

 
Not applicable
 
—

June 15, 2017
14

 
Not applicable
 
—

December 15, 2017
12

 
Not applicable
 
—

December 15, 2017
6

 
Not applicable
 
—


 
 
 
 
 

Total
$
114

 
 
 
$
—














The table below presents the Company’s derivative financial instruments that are designated as cash flow hedgers of interest rate risk and their effect on the Company’s Consolidated Statements of Financial Conditions during the nine months ended September 30, 2016:
໿

Nine Months Ended September 30, 2016

Amount of Loss
Recognized in OCI
on
Derivatives, net of
Tax
(Effective Portion)
 
Location of Gain
(Loss) Recognized in
Income of
Derivatives
(Ineffective Portion)
 
Amount of Gain (Loss)
Recognized in Income of
Derivatives
(Ineffective Portion)
(Dollars in thousands)
 

 
 
 
 

Derivatives in cash flow hedges
Interest rate swaps by effective
date:
 

 
 
 
 

March 15, 2016
$
(166
)
 
Not applicable
 
$
—

December 15, 2016
(134
)
 
Not applicable
 
—

June 15, 2017
(168
)
 
Not applicable
 
—

December 15, 2017
(224
)
 
Not applicable
 
—

December 15, 2017
(123
)
 
Not applicable
 
—


 

 
 
 
 

Total
$
(815
)
 
 
 
$
—