XML 26 R14.htm IDEA: XBRL DOCUMENT
v3.4.0.3

Note 6 - Interest Rate Swap Derivatives | 3 Months Ended
--- | ---
Mar. 31, 2016
Interest Rate Swap [Member] |
Notes to Financial Statements |
Discussion of Hybrid Instruments and Embedded Derivatives [Text Block] | Note 6. Interest Rate Swap Derivatives The Company uses interest rate swap agreements to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company entered into forward starting interest rate swaps in April 2015 as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’s cost of funds. The notional amounts of the interest rate swaps do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. The interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from two counterparties in exchange for the Company making fixed payments beginning in April 2016. The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of ten months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments) and as such existing hedges are deemed forward starting swaps and no net settlements of cash flows is occurring. As of March 31, 2016, the Company had three forward starting interest rate swap transactions outstanding that had a notional amount of $250 million associated with the Company’s variable rate deposits. The net unrealized loss before income tax on the swaps was $8.8 million at March 31, 2016. The unrealized loss is due to the increase in spread between short and longer term interest rates between the date the forward starting swap was entered into and March 31, 2016. There were no interest rate swap derivative instruments as of March 31, 2015. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. The Company did not recognize any hedge ineffectiveness in earnings during the period ended March 31, 2016. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the quarter ended March 31, 2016, the Company did not have any reclassifications to interest expense. During the next twelve months, the Company estimates (based on existing interest rates) that $2.84 million will be reclassified as an increase in interest expense. The Company is exposed to credit risk in the event of nonperformance by the interest rate swap counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate swaps. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, “Derivatives and Hedging.” In addition, the interest rate swap agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits. The interest rate swap agreements detail: the requirement that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’s exposure; that if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; and that if the Company fails to maintain its status as a well/adequate capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of March 31, 2016, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our capital status) that were in a net liability position totaled $8.8 million. As of March 31, 2016, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $8.2 million against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2016, it could have been required to settle its obligations under the agreements at the termination value. The table below identifies the balance sheet category and fair values of the Company’s derivative instruments designated as cash flow hedges as of March 31, 2016. There were no derivative instruments as of March 31, 2015.
March 31, 2016 |  |  | Swap Number |  |  |  | Notional Amount |  |  |  | Fair Value |  |  | Balance Sheet Category |  | Receive Rate |  |  | Pay Rate |  |  | Maturity
(dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | (1 | ) |  | $ | 75,000 |  |  | $ | (2,068 | ) |  | Other Liabilities |  | 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points |  |  | 1.71 | % |  | March 31, 2020
Interest rate swap |  |  | (2 | ) |  |  | 100,000 |  |  |  | (3,802 | ) |  | Other Liabilities |  | Federal Funds Effective Rate +10 basis points |  |  | 1.74 | % |  | April 15, 2021
Interest rate swap |  |  | (3 | ) |  |  | 75,000 |  |  |  | (2,950 | ) |  | Other Liabilities |  | 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points |  |  | 1.92 | % |  | March 31, 2022
The table below presents the pre-tax net gains (losses) of the Company’s cash flow hedges for the three months ended March 31, 2016. Since all transactions are forward starting swaps all amounts are balance sheet related (Accumulated Other Comprehensive Income- “AOCI”), and no amounts were recorded in the income statement.
|  | Three Months Ended March 31, 2016 |
|  |  |  |  |  | Effective Portion |  |  | Ineffective Portion |
|  |  |  |  |  | Amount of Pre-tax gain (loss) |  |  | Reclassified from AOCI into income |  |  | Recognized in Income on Derivatives |
|  | Swap Number |  |  | Recognized in OCI |  |  | Category |  |  | Amount of Gain (Loss) |  |  | Category |  |  | Amount of Gain (Loss) |
(dollars in thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | (1 | ) |  | $ | (2,068 | ) |  |  |  |  |  | $ | - |  |  |  |  |  |  | $ | - |
Interest rate swap |  |  | (2 | ) |  |  | (3,802 | ) |  |  |  |  |  |  | - |  |  |  |  |  |  |  | - |
Interest rate swap |  |  | (3 | ) |  |  | (2,950 | ) |  |  |  |  |  |  | - |  |  |  |  |  |  |  | - |

X
- References No definition available. + Details
Name: | us-gaap_DisclosureTextBlockAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for hybrid instruments and embedded derivatives, including discussion of the process used in evaluating whether a hybrid instrument in the form of a share constitutes a debt or equity security, and on what basis an embedded derivative was deemed to be separable or inseparable from the host instrument. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 15 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35708913&loc=d3e50883-113970 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 15 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=35708913&loc=d3e50896-113970 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 15 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35708913&loc=d3e50876-113970 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 15 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6437212&loc=d3e50806-113969 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 15 -Section 25 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64798853&loc=d3e48542-113965 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13495-108611 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Hybrid Instrument -URI http://asc.fasb.org/extlink&oid=6514950 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Glossary Embedded Derivative -URI http://asc.fasb.org/extlink&oid=6511375 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)(1),(7)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DiscussionOfHybridInstrumentsAndEmbeddedDerivativesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- Details
Name: | us-gaap_DerivativeInstrumentRiskAxis=us-gaap_InterestRateSwapMember
Namespace Prefix: |
Data Type: | na
Balance Type: |
Period Type: |