Note 12 - Derivative Financial Instruments

6 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

12. Derivative Financial Instruments

At June 30, 2016 and December 31, 2015, the Company’s derivative financial instruments consist of interest rate swaps. The Company’s interest rate swaps are used for two purposes. The first purpose is to mitigate the Company’s exposure to rising interest rates on a portion ($18.0 million) of its floating rate junior subordinated debentures that have a contractual value of $61.9 million. The second purpose is to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans totaling $177.5 million and $146.9 million at June 30, 2016 and December 31, 2015, respectively.

At June 30, 2016 and December 31, 2015 derivatives with a combined notional amount of $36.3 million were not designated as hedges. At June 30, 2016 and December 31, 2015 derivatives with a combined notional amount of $159.2 million and $128.5 million were designated as fair value hedges. Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

The following table sets forth information regarding the Company’s derivative financial instruments at the periods indicated:

	June 30, 2016					December 31, 2015
	Notional Amount		Net Carrying Value (1)			Notional Amount		Net Carrying Value (1)
Interest rate swaps (hedge)	$	-	$	-		$	28,588	$	48
Interest rate swaps (hedge)		159,166		(9,981	)		99,955		(1,515	)
Interest rate swaps (non-hedge)		36,321		(6,220	)		36,321		(2,799	)
Total derivatives	$	195,487	$	(16,201	)	$	164,864	$	(4,266	)

(1) Derivatives in a net positive position are recorded as “Other assets” and derivatives in a net negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition. There were no unrealized losses at June 30, 2016 and December 31, 2015.

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the periods indicated:

	For the three months ended June 30,						For the six months ended June 30,
(In thousands)	2016			2015			2016			2015
Financial Derivatives:
Interest rate swaps (non-hedge)	$	(1,319	)	$	(2,125	)	$	(3,421	)	$	871
Interest rate swaps (hedge)		(375	)		(8	)		(415	)		(46	)
Net (loss) gain (1)	$	(1,694	)	$	(2,133	)	$	(3,836	)	$	825

(1) Net gains and losses are recorded as part of “Net gain/loss from fair value adjustments” in the Consolidated Statements of Income.

During the three months and six months ended June 30, 2016 and 2015, the Company did not record any hedge ineffectiveness.

The Company’s interest rate swaps are subject to master netting arrangements and are all with the same counterparty. The Company has not made a policy election to offset its derivative positions.

The Company did not have derivative assets presented in the Consolidated Statements of Condition at June 30, 2016.

The following tables present the effect of the master netting arrangements on the presentation of the derivative assets in the Consolidated Statements of Condition as of the dates indicated:

	December 31, 2015
							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Assets		Gross Amount Offset in the Statement of Condition		Net Amount of Assets Presented in the Statement of Condition		Financial Instruments		Cash Collateral Received		Net Amount
Interest rate swaps	$	48	$	-	$	48	$	48	$	-	$	-

The following tables present the effect the master netting arrangements had on the presentation of the derivative liabilities in the Consolidated Statements of Condition as of the dates indicated:

	June 30, 2016
							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Statement of Condition		Net Amount of Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
Interest rate swaps	$	16,201	$	-	$	16,201	$	-	$	16,201	$	-

	December 31, 2015
							Gross Amounts Not Offset in the Consolidated Statement of Condition
(In thousands)	Gross Amount of Recognized Liabilities		Gross Amount Offset in the Statement of Condition		Net Amount of Liabilities Presented in the Statement of Condition		Financial Instruments		Cash Collateral Pledged		Net Amount
Interest rate swaps	$	4,314	$	-	$	4,314	$	48	$	4,266	$	-