Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

9. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks 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. The Company’s existing interest rate derivatives result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk of the Company’s assets or liabilities. The Company has entered into an offsetting position for each of these derivative instruments with a matching instrument from another financial institution in order to minimize its net risk exposure resulting from such transactions.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as of March 31, 2013 and December 31, 2012. The Company’s derivative asset and derivative liability are located within Other assets and Other liabilities, respectively, on the Company’s Consolidated Balance Sheet.

This table provides a summary of the fair value of the Company’s derivative assets and liabilities as of March 31, 2013 and December 31, 2012(in thousands):

	Asset Derivatives				Liability Derivatives
Fair value	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Derivatives not designated as hedging instruments Interest Rate Products	$	2,870	$	3,503	$	2,886	$	3,625
Total	$	2,870	$	3,503	$	2,886	$	3,625

Non-designated Hedges

None of the Company’s derivatives are designated in qualifying hedging relationships. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers, which the Company implemented during the first quarter of 2010. 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 March 31, 2013, the Company had twenty interest rate swaps with an aggregate notional amount of $193.8 million related to this program. During the three months ended March 31, 2013 and 2012, the Company recognized net gains of $106 thousand and net losses of $43 thousand, respectively, related to changes in the fair value of these swaps.

Effect of Derivative Instruments on the Income Statement

This table provides a summary of the amount of gain (loss) recognized in other non-interest expense in the Consolidated Statements of Income related to the Company’s derivative asset and liability as of March 31, 2013 and March 31, 2012 (in thousands):

	Amount of Gain (Loss) Recognized For the Three Months Ended
	March 31, 2013		March 31, 2012
Derivatives not designated as hedging instruments
Interest rate products	$	106	$	(43	)
Total	$	106	$	(43	)

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where 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.

As of March 31, 2013 the termination value of derivatives in a net liability position, which includes accrued interest, related to these agreements was $3.0 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has not yet reached its minimum collateral posting threshold under these agreements. If the Company had breached any of these provisions at March 31, 2013, it could have been required to settle its obligations under the agreements at the termination value.