DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2017

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 12: DERIVATIVE FINANCIAL INSTRUMENTS

We have interest rate swaps with notional amounts with certain commercial customers totaling $40.23 million at March 31, 2017 and $40.73 million at December 31, 2016.  In order to minimize our risk, these customer derivatives (pay floating/receive fixed swaps) have been offset with essentially matching interest rate swaps (pay fixed/receive floating swaps) with our counterparty totaling $40.23 million at March 31, 2017 and $40.73 million at December 31, 2016. At March 31, 2017, the weighted average receive rate of these interest rate swaps was 2.87%, the weighted average pay rate was 3.85% and the weighted average maturity was 7.3 years.  The fair values of $774 thousand and $774 thousand were reflected in other assets and other liabilities, respectively, in the accompanying consolidated balance sheets at March 31, 2017. At December 31, 2016, the weighted average receive rate of these interest rate swaps was 2.66%, the weighted average pay rate was 3.85% and the weighted average maturity was 7.5 years.  The fair values of $194 thousand and $194 thousand were reflected in other assets and other liabilities, respectively, in the accompanying consolidated balance sheets at December 31, 2016. Hedge accounting has not been applied for these derivatives.  Since the terms of the swaps with our customer and the other financial institution offset each other, with the only difference being counterparty credit risk, changes in the fair value of the underlying derivative contracts are not materially different and do not significantly impact our results of operations.

We have interest rate swaps with notional amounts totaling $7.48 million at March 31, 2017 and $7.48 million at December 31, 2016, that were designated as fair value hedges of certain fixed rate loans with municipalities. At March 31, 2017, the weighted average receive rate of these interest rate swaps was 2.30%, the weighted average pay rate was 3.11% and the weighted average maturity was 16.3 years. The fair value of $199 thousand at March 31, 2017, was reflected as a reduction to loans and an increase to other assets. At December 31, 2016 the weighted average receive rate of these interest rate swaps was 2.09%, the weighted average pay rate was 3.11% and the weighted average maturity was 16.5 years. The fair value of $228 thousand at December 31, 2016, was reflected as a reduction to loans and an increase to other assets. The ineffective portion of the interest swaps was immaterial and as such, amounts are not recognized in earnings.

We assessed our counterparty risk at March 31, 2017 and determined any credit risk inherent in our derivative contracts was insignificant. Information about the fair value of derivative financial instruments can be found in Note 7 to these consolidated financial statements.