Note 21 - Derivatives

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE

2

1.

DERIVATIVES

During

March

of

2016,

we paid off the

$75.0

million Federal Home Loan Bank of San Francisco borrowing (the “hedged instrument”

) and terminated all of our interest rate swaps (active and forward starting). Prior to the time of termination, a

$2.3

million unrealized pretax loss on swaps was carried in

Other Liabilities

in our

Consolidated Balance Sheets

. At termination, we immediately reclassified the loss to noninterest expense.

For derivative financial instruments accounted for as hedging instruments, we formally designate and document, at incepti

on, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which the effectiveness of the hedge will be assessed. We formally assess both at inception and at each reporting period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposures. Any ineffective portion of the changes in cash flow of the instruments is recognized immediately into earnings.

ASC

815

-

10,

Derivatives and Hedging

(“ASC

815”

) requires companies to recognize all derivative instruments as assets or liabilities at fair value in the Consolidated Balance Sheets. In accordance with ASC

815,

we designated our interest rate swaps as cash flow hedges of certain active and forecasted variable rate Federal Home Loan Bank of San Francisco advances. Changes in the fair value of the hedging instrument, except any ineffective portion, were recorded in accumulated other comprehensive income (loss) until earnings were impacted by the hedged instrument.

No

components of our hedging instruments were excluded from the assessment of hedge effectiveness in hedging exposure to variability in cash flows.

Classification of the gain or loss in the

Consolidated Statements of Income

upon release from accumulated other comprehensive income (loss) is the same as that of the underlying exposure. We discontinue the use of hedge accounting prospectively when (

1

) the derivative instrument is

no

longer effective in offsetting changes in fair value or cash flows of the underlying hedged item; (

2

) the derivative instrument expires, is sold, terminated, or exercised; or (

3

) designating the derivative instrument as a hedge is

no

longer appropriate. When we discontinue hedge accounting because it is

no

longer probable that an anticipated transaction will occur in the originally expected period, or within an additional

two

-month period thereafter, changes to fair value that were recorded in accumulated other comprehensive income (loss) are recognized immediately in earnings

.

The following table summarizes the losses recorded during the

years ended

December 31, 2016

and

2015

and their locations within the

Consolidated

Statements of Income

.

(Amounts in thousands)
Description	Consolidated Statement of Operations	2016		2015
Interest rate swap (1)	Interest on term debt	$	396	$	1,435
Forward starting interest rate swap - terminated (2)	Other noninterest expense		2,325		—
Total		$	2,721	$	1,435

(

1

)

Losses represent tax effected amounts reclassified from accumulated other comprehensive income (loss) pertaining to net settlement recorded during the period on active interest rate swaps.

(

2

)

Losses represent tax effected amounts reclassified from accumulated other comprehensive income (loss) pertaining to the terminated active and forward starting interest rate swaps.

The following table summarizes the losses on all derivative instruments (active and forward starting) designated as cash flow hedges recorded in accumulated other comprehensive income

(loss) and reclassified into earnings during the years ended

December 31, 2016

and

2015.

(Amounts in thousands)	December 31,
Description	2016			2015
Interest rate swaps	$	(1,601	)	$	(843	)