DERIVATIVE INSTRUMENTS AND OFFSETTING ASSETS AND LIABILITIES

6 Months Ended

Jun. 30, 2017

DERIVATIVE INSTRUMENTS AND OFFSETTING ASSETS AND LIABILITIES [Abstract]

DERIVATIVE INSTRUMENTS AND OFFSETTING ASSETS AND LIABILITIES

NOTE 13 – DERIVATIVE INSTRUMENTS AND OFFSETTING ASSETS AND LIABILITIES

The derivatives held by the Company include commitments to fund fixed-rate mortgage loans to customers and forward commitments to sell individual fixed-rate mortgage loans.  The Company’s objective in obtaining the forward commitments is to mitigate the interest rate risk associated with the commitments to fund the fixed-rate mortgage loans.  Both the commitments to fund fixed-rate mortgage loans and the forward commitments to sell individual fixed-rate mortgage loans are reported at fair value, with adjustments being recorded in current period earnings, and are not accounted for as hedges.  At June 30, 2017, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $239.0 million with a carrying value and fair value reflecting a gain of approximately $673,000.  At June 30, 2016, the notional amount of forward commitments to sell individual fixed-rate mortgage loans was $314.7 million with a carrying value and fair value reflecting a loss of $3.6 million.  At June 30, 2017, the notional amount of commitments to fund individual fixed-rate mortgage loans was $153.6 million with a carrying value and fair value reflecting a gain of $4.0 million.  At June 30, 2016, the notional amount of commitments to fund individual fixed-rate mortgage loans was $253.0 million with a carrying value and fair value reflecting a gain of $8.8 million. 

The Company also enters into derivative financial instruments in the form of interest rate swaps to meet the financing, interest rate and equity risk management needs of its customers.  Upon entering into these interest rate swaps to meet customer needs, the Company enters into offsetting positions to minimize interest rate and equity risk to the Company.  These derivative financial instruments are reported at fair value with any resulting gain or loss recorded in current period earnings.  These instruments and their offsetting positions are recorded in other assets and other liabilities on the consolidated balance sheets.  As of June 30, 2017, the notional amount of customer related derivative financial instruments was $336.3 million with an average maturity of 27 months, an average interest receive rate of 3.4% and an average interest pay rate of 5.7%.  As of June 30, 2016, the notional amount of customer related derivative financial instruments was $326.9 million with an average maturity of 37 months, an average interest receive rate of 2.7% and an average interest pay rate of 5.6%.

Additionally, the Bank utilizes securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. The Bank monitors collateral levels on a continuous basis and may be required to provide additional collateral based on the fair value of the underlying securities.  Securities sold under agreement to repurchase were $399.8 million and $415.9 million at June 30, 2017 and 2016, respectively.

Certain financial instruments, such as derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar agreements. The Bank’s derivative transactions with upstream financial institution counterparties are generally executed under International Swaps and Derivative Association  master agreements which include “right of set-off” provisions. In such cases, there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis.  Nonetheless, the Bank does not generally offset such financial instruments for financial reporting purposes.

The following tables present components of financial instruments eligible for offsetting for the periods indicated:

	June 30, 2017
				Gross Amounts Not Offset
				in the Consolidated
				Balance Sheet
					Financial
	Gross Amount	Gross Amount	Net Amount	Financial	Collateral	Net
	Recognized	Offset	Recognized	Instruments	Pledged	Amount
	(In thousands)
Financial assets:
Derivatives:
Forward commitments	$                4,617	$                      -	$               4,617	$                  -	$                  -	$              4,617
Loan/lease interest rate swaps	5,287	-	5,287	-	-	5,287
Total financial assets	$                9,904	$                      -	$               9,904	$                  -	$                  -	$              9,904
	.
Financial liabilities:
Derivatives:
Forward commitments	$                   301	$                      -	$                  301	$                  -	$                  -	$                 301
Loan/lease interest rate swaps	5,287	-	5,287	-	(5,287)	-
Repurchase arrangements	399,815	-	399,815	(399,815)	-	-
Total financial liabilities	$            405,403	$                      -	$           405,403	$     (399,815)	$         (5,287)	$                 301

	December 31, 2016
				Gross Amounts Not Offset
				in the Consolidated
				Balance Sheet
					Financial
	Gross Amount	Gross Amount	Net Amount	Financial	Collateral	Net
	Recognized	Offset	Recognized	Instruments	Pledged	Amount
	(In thousands)
Financial assets:
Derivatives:
Forward commitments	$                6,701	$                      -	$               6,701	$                  -	$                  -	$              6,701
Loan/lease interest rate swaps	9,175	-	9,175	-	-	9,175
Total financial assets	$              15,876	$                      -	$             15,876	$                  -	$                  -	$            15,876
Financial liabilities:
Derivatives:
Forward commitments	$                   448	$                      -	$                  448	$                  -	$                  -	$                 448
Loan/lease interest rate swaps	9,175	-	9,175	-	(9,175)	-
Repurchase arrangements	454,002	-	454,002	(454,002)	-	-
Total financial liabilities	$            463,625	$                      -	$           463,625	$     (454,002)	$         (9,175)	$                 448

	June 30, 2016
				Gross Amounts Not Offset
				in the Consolidated
				Balance Sheet
					Financial
	Gross Amount	Gross Amount	Net Amount	Financial	Collateral	Net
	Recognized	Offset	Recognized	Instruments	Pledged	Amount
	(In thousands)
Financial assets:
Derivatives:
Forward commitments	$                8,840	$                      -	$               8,840	$                  -	$                  -	$              8,840
Loan/lease interest rate swaps	16,612	-	16,612	-	-	16,612
Total financial assets	$              25,452	$                      -	$             25,452	$                  -	$                  -	$            25,452
Financial liabilities:
Derivatives:
Forward commitments	$                3,569	$                      -	$               3,569	$                  -	$                  -	$              3,569
Loan/lease interest rate swaps	16,854	-	16,854	-	(16,854)	-
Repurchase arrangements	415,949	-	415,949	(415,949)	-	-
Total financial liabilities	$            436,372	$                      -	$           436,372	$     (415,949)	$       (16,854)	$              3,569