17. DERIVATIVE FINANCIAL INSTRUMENTS

In order to accommodate the borrowing needs of certain commercial customers, the Company entered into interest rate swap or cap agreements with those customers. These interest rate derivative contracts effectively allow our customers to convert a variable rate loan to a fixed rate. In order to offset the exposure and manage interest rate risk, at the time an agreement was entered into with a customer, the Company entered into an interest rate swap or cap with a correspondent bank counterparty with offsetting terms. These derivative instruments are not designated as accounting hedges and changes in the net fair value are recognized in noninterest income or expense. Because we act as an intermediary for our customers, changes in the fair value of the underlying derivative contracts substantially offset each other and do not have a material impact on our results of operations. The fair value amounts are included in other assets and other liabilities.

The following is a summary of the interest rate swaps outstanding as of the dates set forth:

September 30, 2017

Notional Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

(Dollars in thousands)

Non-hedging derivative instruments:

Customer interest rate swap:

receive fixed/pay floating

179,387

2.19 - 5.72%

LIBOR 1 month + 0.000% - 4.250%

Wtd. Avg.

3.0 years

269

Correspondent interest rate swap:

pay fixed/receive floating

179,387

2.19 - 5.72%

LIBOR 1 month + 0.000% - 4.250%

Wtd. Avg.

3.0 years

(308)

December 31, 2016

Notional
Amount

Fixed Rate

Floating Rate

Maturity

Fair Value

(Dollars in thousands)

Non-hedging derivative instruments:

Customer interest rate swap:

receive fixed/pay floating

185,637

2.19 - 5.72%

LIBOR 1 month + 0% - 4.25%

Wtd. Avg.

3.4 years

609

Correspondent interest rate swap:

pay fixed/receive floating

185,637

2.19 - 5.72%

LIBOR 1 month + 0% - 4.25%

Wtd. Avg.

3.4 years

(691)

The estimated fair values of non-hedging derivative instruments are reflected within Company’s consolidated balance sheet (included in other assets and other liabilities). The notional amounts and estimated fair values of the non-hedging derivative instruments by classification as the dates set forth were as follows:


	September 30, 2017						December 31, 2016
			Estimated Fair Value						Estimated Fair Value
	Notional Amount		Asset Derivative		Liability Derivative		Notional Amount		Fair Value		Liability Derivative

	(Dollars in thousands)
Non-hedging interest rate derivatives:
Financial institution counterparty:
Interest rate swaps	$	179,387	$	735	$	1,044	$	185,637	$	698	$	1,389
Interest rate caps and collars		37,682		44		-		16,482		5		-
Commercial customer counterparty:
Interest rate swaps		179,387		997		728		185,637		1,307		698
Interest rate caps and collars		37,682		-		43		16,482		-		5
Gross derivatives				1,776		1,815				2,010		2,092
Offsetting derivatives assets/liabilities				(802)		(802)				(698)		(698)
Net derivatives included in the consolidated balance sheets			$	974	$	1,013			$	1,312	$	1,394

The strike rate for the outstanding caps was 6.00% at both September 30, 2017 and December 31, 2016. The rates for the outstanding interest rate collars were 4.55% and 5.80% at September 30, 2017. There were no interest rate collars outstanding at December 31, 2016.