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Derivative Financial Instruments and Repurchase Agreements
 9 Months Ended
Sep. 30, 2016
Derivative Financial Instruments and Repurchase Agreements [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS AND REPURCHASE AGREEMENTS

NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS AND REPURCHASE AGREEMENTS

 

Risk Management Objective of Using Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.

 

Non-designated Hedges

 

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously offset by interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2016 and December 31, 2015, the notional amount of customer-facing swaps was approximately $30.1 million and $17.6 million, respectively. The same amounts were offset with third party counterparties, as described above.

 

The Company has minimum collateral posting thresholds with its derivative counterparties. As of September 30, 2016 and December 31, 2015, the Company had posted cash as collateral in the amount of $1.6 million and $0.7 million, respectively.

 

The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2016 and December 31, 2015.

 

  Asset Derivatives Liability Derivatives
  September 30, 2016 September 30, 2016
($ in thousands) Balance Sheet Fair  Balance Sheet Fair 
  Location Value  Location Value 
Derivatives not designated as hedging instruments:          
Interest rate contracts Other Assets $1,396  Other Liabilities $1,396 

 

  Asset Derivatives Liability Derivatives
  December 31, 2015 December 31, 2015
($ in thousands) Balance Sheet Fair  Balance Sheet Fair 
  Location Value  Location Value 
Derivatives not designated as hedging instruments:          
Interest rate contracts Other Assets $490  Other Liabilities $490 

 

The Company’s derivative financial instruments had no net effect on the Income Statements for the three and nine months ended September 30, 2016 and 2015.

 

Securities Sold Under Repurchase Agreements

 

State Bank has retail repurchase agreements to facilitate cash management transactions with commercial customers. These obligations are secured by agency and mortgage-backed securities and such collateral is held by the Federal Home Loan Bank. The agreements mature within one month. These repurchase agreements are secured by agency securities and mortgage-backed securities with corresponding liabilities of $5.7 million and of $14.9 million. These securities have various maturity dates beyond 2017.