DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE 4 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to interest-rate risk primarily from the effect of interest rate changes on its interest-earning assets and its sources of funding these assets.  The Company will periodically enter into interest rate swaps or interest rate caps/floors to manage certain interest rate risk exposure.

Interest Rate Swaps Designated as Fair Value Hedges:

The Company periodically enters into interest rate swaps to hedge the fair value of certain commercial real estate loans.  These transactions are designated as fair value hedges.  In this type of transaction, the Company typically receives from the counterparty a variable-rate cash flow based on the one-month London Interbank Offered Rate (“LIBOR”) plus a spread to this index and pays a fixed-rate cash flow equal to the customer loan rate.  At September 30, 2016, the portfolio of interest rate swaps had a weighted average maturity of 7.8 years, a weighted average pay rate of 5.03% and a weighted average rate received of 3.77%.  At December 31, 2015, the portfolio of interest rate swaps had a weighted average maturity of 10.0 years, a weighted average pay rate of 4.45% and a weighted average rate received of 2.37%.

Stand-Alone Derivatives:

In 2009, the Company purchased an interest rate cap derivative to assist with interest rate risk management.  This derivative is not designated as a hedging instrument but rather as a stand-alone derivative.  At September 30, 2016, the interest rate cap had a term of 3.1 years and a cap rate of 4.50%. At December 31, 2015, the interest rate cap had a term of 3.9 years and a cap rate of 4.50%.

Reconciliation of Derivative Fair Values and Gains/(Losses):

The notional amount of a derivative contract is a factor in determining periodic interest payments or cash flows received or paid.  The notional amount of derivatives serves as a level of involvement in various types of derivatives.  The notional amount does not represent the Company’s overall exposure to credit or market risk, generally, the exposure is significantly smaller.

The following table shows the notional balances and fair values (including net accrued interest) of the derivatives outstanding by derivative type at September 30, 2016 and December 31, 2015:

	September 30, 2016							December 31, 2015
	Notional Amount		Derivative Assets		Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	20,501	$	—	$	1,003		$	12,284	$	—	$	246
Total derivatives designated as hedging relationships		20,501		—		1,003			12,284		—		246
Derivatives not designated as hedging instruments:
Interest rate caps/floors		2,935		1		—			3,140		2		—
Total derivatives not designated as hedging    instruments		2,935		1		—			3,140		2		—
Total	$	23,436		1		1,003		$	15,424		2		246
Cash collateral				—		(1,160	)				—		(270	)
Netting adjustments				157		157					24		24
Net amount presented in Balance Sheet			$	158	$	—				$	26	$	—

For the three-month and nine-month periods ended September 30, 2016 and 2015, the Company recorded net gains/(losses) on derivatives and hedging activities:

	Three months ended					Nine months ended
	September 30, 2016		September 30, 2015			September 30, 2016			September 30, 2015
Derivatives designated as hedging instruments:
Interest rate swaps	$	—	$	—		$	—		$	—
Total net gain (loss) related to fair value hedge    ineffectiveness		—		—			—			—
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate caps/floors		1		(3	)		(1	)		(9	)
Total net gains (losses) related to derivatives not    designated as hedging instruments		1		(3	)		(1	)		(9	)
Net gains (losses) on derivatives and hedging activities	$	1	$	(3	)	$	(1	)	$	(9	)

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the three-month periods ended September 30, 2016 and 2015.

	September 30, 2016
	Gain/(Loss) on Derivatives		Gain/(Loss) on Hedged Items			Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	100	$	(100	)	$	—	$	(50	)
Total	$	100	$	(100	)	$	—	$	(50	)

	September 30, 2015
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(342	)	$	342	$	—	$	(37	)
Total	$	(342	)	$	342	$	—	$	(37	)

The following table shows the recorded net gains (losses) on derivatives and the related hedged items in fair value hedging relationships and the impact of those derivatives on the Company’s net interest income for the nine-month periods ended September 30, 2016 and 2015.

	September 30, 2016
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(750	)	$	750	$	—	$	(136	)
Total	$	(750	)	$	750	$	—	$	(136	)

	September 30, 2015
	Gain/(Loss) on Derivatives			Gain/(Loss) on Hedged Items		Net Fair Value Hedge Ineffectiveness		Effect of Derivatives on Net Interest Income
Commercial real estate loans	$	(357	)	$	357	$	—	$	(47	)
Total	$	(357	)	$	357	$	—	$	(47	)