Note 11 - Derivative Financial Instruments

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

11. Derivative Financial Instruments

At

March

31,

2017

and

December

31,

2016,

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

$267.4

million and

$235.4

million at

March

31,

2017

and

December

31,

2016,

respectively.

At

March

31,

2017

and

December

31,

2016

derivatives with a combined notional amount of

$

36.3

million were not designated as hedges. At

March

31,

2017

and

December

31,

2016

derivatives with a combined notional amount of

$249.1

million and

$217.1

million were designated as fair value hedges. Changes in the fair value of all interest rate swaps and hedged items are reflected in “Net 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:

	March 31, 2017					December 31, 2016
	Notional Amount		Net Carrying Value (1)			Notional Amount		Net Carrying Value (1)
Interest rate swaps (hedge)	$	221,591	$	6,833		$	182,177	$	6,350
Interest rate swaps (hedge)		27,472		(544	)		34,916		(658	)
Interest rate swaps (non-hedge)		36,321		(2,496	)		36,321		(2,728	)
Total derivatives	$	285,384	$	3,793		$	253,414	$	2,964

(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 March 31, 2017 and December 31, 2016.

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 March 31,
(In thousands)	2017			2016
Financial Derivatives:
Interest rate swaps (non-hedge)	$	232		$	(2,102	)
Interest rate swaps (hedge)		(66	)		(40	)
Net gain (loss) (1) (2)	$	166		$	(2,142	)

(1)	Net gains and losses are recorded as part of “Net loss from fair value adjustments” in the Consolidated Statements of Income.
(2)	The net gain (loss) presented in the above table does not include net losses of $0.5 million and net gains of $1.2 million for the three months ended March 31, 2017 and 2016, respectively, from the change in the fair value of financial assets and liabilities carried at fair value under the fair value option.

The Company’s interest rate swaps are subject to

two

master netting arrangements between the Company and its

two

designated counterparties. The Company has not made a policy election to offset its derivative positions.

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

	March 31, 2017
							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	$	6,833	$	-	$	6,833	$	-	$	3,793	$	3,040

							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	$	3,040	$	-	$	3,040	$	-	$	-	$	3,040

	December 31, 2016
							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	$	6,350	$	-	$	6,350	$	-	$	2,964	$	3,386

							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	$	3,386	$	-	$	3,386	$	-	$	-	$	3,386