Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 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.

On October 24, 2014, the Corporation entered into an amortizing cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year maturity fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account totaling $25.0 million is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate based on the one-monthLIBOR with a maturity date of November 1, 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. The Corporation expects that there will be no ineffectiveness in 2015, and therefore anticipates no portion of the net loss in accumulated other comprehensive loss will be reclassified to interest expense within the next twelve months.

The Corporation pledges cash or securities to cover a portion of the negative fair value of the interest rate swap, as measured by the counterparty. At December 31. 2014, the notional amount of the cash flow hedge was $19.9 million, with a negative fair value of $241 thousand. The Corporation has pledged $300 thousand to the counteryparty as collateral for the negative fair value.

On December 23, 2008, the Corporation entered into a cash flow hedge with a notional amount of $20.0 million that had the effect of converting the variable rates on Trust Preferred Securities to a fixed rate. Under the terms of the swap agreement, the Corporation paid a fixed rate of 2.65% and received a floating rate based on the three-monthLIBOR with a maturity date of January 7, 2019. During May 2013, the Corporation terminated the swap in conjunction with the submission of a redemption notice to the trustee to redeem the Trust Preferred Securities on July 7, 2013, pursuant to the optional redemption provisions provided in the documents governing the Trust Preferred Securities. See Note 13, “Borrowings” for additional information.

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

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2014
Interest rate locks with customers	$	27,007	Other assets	$	788		$	—
Forward loan sale commitments	30,537			—		Other liabilities	112
Total	$	57,544		$	788		$	112
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		$	—

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at December 31, 2014 and 2013:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At December 31, 2014
Interest rate swap - cash flow hedge	$	19,945		$	—	Other liabilities	$	241
Total	$	19,945		$	—		$	241
At December 31, 2013
Interest rate swap - cash flow hedge	$	—		$	—		$	—
Total	$	—		$	—		$	—

The following table presents amounts included in the consolidated statements of income for derivatives not designated as hedging instruments for the periods indicated:

	Statement of Income Classification	For the Years Ended December 31,
(Dollars in thousands)		2014			2013			2012
Interest rate locks with customers	Net gain (loss) on mortgage banking activities	$	467		$	(1,226	)	$	467
Forward loan sale commitments	Net (loss) gain on mortgage banking activities	(137		)	79			248
Total		$	330		$	(1,147	)	$	715

The following table presents amounts included in the consolidated statements of income for derivatives designated as hedging instruments for the periods indicated:

	Statement of Income Classification	For the Years Ended December 31,
(Dollars in thousands)		2014			2013			2012
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	66			124			448
Interest rate swap—cash flow hedge—ineffectiveness	Interest expense	—			—			—
Net loss		$	(66	)	$	(1,990	)	$	(448	)

The following table presents amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments for the periods indicated:

	Accumulated Other Comprehensive (Loss) Income	For the Years Ended December 31,
(Dollars in thousands)		2014			2013		2012
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(157	)	$	—	$	(1,241	)
Total		$	(157	)	$	—	$	(1,241	)