Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The Corporation may use interest-rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk. The fair values of these derivative loan commitments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at September 30, 2014 and December 31, 2013:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At September 30, 2014
Interest rate locks with customers	$	25,926	Other Assets	$	660		$	—
Forward loan sale commitments	28,195			—		Other Liabilities	90
Total	$	54,121		$	660		$	90
At December 31, 2013
Interest rate locks with customers	$	15,176	Other Assets	$	321		$	—
Forward loan sale commitments	17,425		Other Assets	25			—
Total	$	32,601		$	346		$	—

There were no derivatives designated as hedging instruments recorded on the consolidated balance sheets at September 30, 2014 and December 31, 2013.

For the three and nine months ended September 30, 2014 and 2013, the amounts included in the consolidated statements of income for derivatives not designated as hedging instruments are shown in the table below:

	Statement of Income Classification	Three Months Ended   September 30,						Nine Months Ended   September 30,
(Dollars in thousands)		2014			2013			2014			2013
Interest rate locks with customers	Net loss (gain) on mortgage banking activities	$	(109	)	$	913		$	339		$	(698	)
Forward loan sale commitments	Net gain (loss) on mortgage banking activities	99			(1,133		)	(114		)	(307		)
Total		$	(10	)	$	(220	)	$	225		$	(1,005	)

For the three and nine months ended September 30, 2014 and 2013, the amounts included in the consolidated statements of income for derivatives designated as hedging instruments are shown in the table below:

	Statement of Income Classification	Three Months Ended   September 30,				Nine Months Ended   September 30,
(Dollars in thousands)		2014		2013		2014		2013
Interest rate swap—cash flow hedge—loss on termination	Net loss on termination of interest rate swap	$	—	$	—	$	—	$	(1,866	)
Interest rate swap—cash flow hedge—interest payments	Interest expense	—		—		—		124
Interest rate swap—cash flow hedge—ineffectiveness	Interest expense	—		—		—		—
Net loss		$	—	$	—	$	—	$	(1,990	)