DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2018

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS

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 December 31, 2018, the portfolio of interest rate swaps had a weighted average maturity of 7.7 years, a weighted average pay rate of 4.94% and a weighted average rate received of 5.10%.  At December 31, 2017, the portfolio of interest rate swaps had a weighted average maturity of 8.7 years, a weighted average pay rate of 4.94% and a weighted average rate received of 4.13%.

Stand-Alone Derivatives

The Company periodically enters into interest rate swaps with out borrowers and simultaneously enters into swaps with a counterparty with offsetting terms for the purpose of providing our borrowers long-term fixed rate loans.  Neither swap is designated as a hedge and both are marked to market through earnings.  At December 31, 2018, this portfolio of interest rate swaps had a weighted average maturity of 7.6 years, weighted average pay rate of 5.18% and a weighted rate received of 5.18%.  The Company had none of these swaps at December 31, 2017.

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 December 31, 2018, the interest rate cap had a term of 0.9 years and a cap rate of 4.50%.  At December 31, 2017, the interest rate cap had a term of 1.9 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 December 31, 2018 and December 31, 2017.

	December 31, 2018								December 31, 2017
	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	16,743	$	242		$	—		$	17,231	$	—	$	46
Total derivatives designated as hedging relationships		16,743		242			—			17,231		—		46
Derivatives not designated as hedging instruments:
Interest rate swaps		38,073	690			777				—		—		—
Interest rate caps/floors		2,264		1			—			2,574		1		—
Total derivatives not designated as hedging    instruments		40,337		691			777			2,574		1		—
Total	$	57,080		933			777		$	19,805		1		46
Cash collateral				(531	)		(541	)				—		(210	)
Netting adjustments				289			289					164		164
Net amount presented in balance sheet			$	691		$	525				$	165	$	—

The following table shows net gains or losses on derivatives and hedging activities for the years ended December 31, 2018, 2017 and 2016. 

	2018		2017			2016
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 swaps		202	—			—
Interest rate caps/floors	—			(1	)		(1	)
Total net gains (losses) related to derivatives not designated    as hedging instruments		202		(1	)		(1	)
Net gains (losses) on derivatives and hedging activities	$	202	$	(1	)	$	(1	)

The following table shows the recorded net gains or 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 years ended December 31, 2018, 2017 and 2016.

	December 31, 2018
	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	$	283	$	(283	)	$	—	$	(40	)
Total	$	283	$	(283	)	$	—	$	(40	)
	December 31, 2017
	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	$	12	$	(12	)	$	—	$	(137	)
Total	$	12	$	(12	)	$	—	$	(137	)
	December 31, 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	$	211	$	(211	)	$	—	$	(199	)
Total	$	211	$	(211	)	$	—	$	(199	)