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DERIVATIVE INSTRUMENTS | 9 Months Ended
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Sep. 30, 2017
DERIVATIVE INSTRUMENTS [Abstract] |
DERIVATIVE INSTRUMENTS | NOTE L: DERIVATIVE INSTRUMENTS The Company is party to derivative financial instruments in the normal course of its business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments have been limited to interest rate swap agreements, commitments to originate real estate loans held for sale and forward sales commitments. The Company does not hold or issue derivative financial instruments for trading or other speculative purposes. The Company enters into forward sales commitments for the future delivery of residential mortgage loans, and interest rate lock commitments to fund loans at a specified interest rate. The forward sales commitments are utilized to reduce interest rate risk associated with interest rate lock commitments and loans held for sale. Changes in the estimated fair value of the forward sales commitments and interest rate lock commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. At inception and during the life of the interest rate lock commitment, the Company includes the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of the interest rate lock commitments. These derivatives are recorded at fair value, which were immaterial at September 30, 2017. The effect of the changes to these derivatives for the three and nine months then ended was also immaterial. The Company acquired interest rate swaps from the Merchants acquisition with notional amounts with certain commercial customers which totaled $39.4 million at September 30, 2017. In order to minimize the Company’s risk, these customer derivatives (pay floating/receive fixed swaps) have been offset with essentially matching interest rate swaps (pay fixed/receive floating swaps) with the Company’s counterparty totaling $39.4 million. The weighted average receive rate of these interest rate swaps was 3.12%, the weighted average pay rate was 3.84% and the weighted average maturity was 6.7 years. The fair values of $0.9 million and $0.9 million were reflected in other assets and other liabilities, respectively, in the accompanying consolidated statement of condition at September 30, 2017. 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. The Company also acquired interest rate swaps from the Merchants acquisition with notional amounts totaling $7.0 million at September 30, 2017 that were designated as fair value hedges of certain fixed rate loans with municipalities. At September 30, 2017, the weighted average receive rate of these interest rate swaps was 2.13%, the weighted average pay rate was 3.11% and the weighted average maturity was 15.8 years. The fair value of $0.2 million at September 30, 2017, 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. The Company assessed its counterparty risk at September 30, 2017 and determined any credit risk inherent in our derivative contracts was not material. Information about the fair value of derivative financial instruments can be found in Note K to these consolidated financial statements.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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