Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 9. Derivative Instruments and Hedging Activities

The Corporation may use interest-rate swap agreements to modify the 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 on 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 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 pays a fixed rate of 2.65% and receives a floating rate based on the three month LIBOR with a maturity date of January 7, 2019. At March 31, 2013, the Corporation has cash collateral pledged of $1.9 million for this cash flow hedge. The Corporation expects that there will be no ineffectiveness in the next twelve months.

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at March 31, 2013 and December 31, 2012:

			Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification		Fair Value		Balance Sheet Classification		Fair Value
At March 31, 2013
Interest rate locks with customers	$	53,318		Other Assets	$	1,485		—	$	—
Forward loan sale commitments		56,884		—		—		Other Liabilities		222
Total	$	110,202			$	1,485			$	222

			Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification		Fair Value		Balance Sheet Classification		Fair Value
At December 31, 2012
Interest rate locks with customers	$	51,768		Other Assets	$	1,547		—	$	—
Forward loan sale commitments		56,263		—		—		Other Liabilities		54
Total	$	108,031			$	1,547			$	54

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at March 31, 2013 and December 31, 2012:

			Derivative Assets				Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification		Fair Value		Balance Sheet Classification		Fair Value
At March 31, 2013
Interest rate swap—cash flow hedge	$	20,000		—	$	—		Other Liabilities	$	1,747
Total	$	20,000			$	—			$	1,747
At December 31, 2012
Interest rate swap—cash flow hedge	$	20,000		—	$	—		Other Liabilities	$	1,909
Total	$	20,000			$	—			$	1,909

For the three months ended March 31, 2013 and 2012, the amounts included in the consolidated statements of income for derivatives not designated as hedging instruments are shown in the table below:

			Three Months Ended March  31,
(Dollars in thousands)	Statement of Income Classification		2013			2012
Interest rate locks with customers		Net gain (loss) on mortgage banking activities	$	(62	)	$	222
Forward loan sale commitments		Net gain (loss) on mortgage banking activities		(168	)		373
Total			$	(230	)	$	595

For the three months ended March 31, 2013 and 2012, the amounts included in the consolidated statements of income for derivatives designated as hedging instruments are shown in the table below:

		Three Months Ended March  31,
(Dollars in thousands)	Statement of Income Classification	2013			2012
Interest rate swap—cash flow hedge—interest payments	Interest expense	$	115		$	108
Interest rate swap—cash flow hedge—ineffectiveness	Interest expense		—			—
Net loss		$	(115	)	$	(108	)

At March 31, 2013 and December 31, 2012, the amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments are shown in the table below:

(Dollars in thousands)	Accumulated other comprehensive (loss) income		At March 31, 2013			At December 31, 2012
Interest rate swap—cash flow hedge		Fair value, net of taxes	$	(1,136	)	$	(1,241	)
Total			$	(1,136	)	$	(1,241	)