Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Hedging Activities

Derivative and Hedging Activities

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 borrowers in a loan related transaction and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of March 31, 2015 and December 31, 2014 (in thousands):

	As of March 31, 2015
	Asset Derivatives			Liability Derivatives
	Consolidated Statements of Financial Condition	Fair Value		Consolidated Statements of Financial Condition	Fair Value
Derivatives not designated as a hedging instruments:
Interest rate products	Other assets	$	3,208	Other liabilities	$	3,285
Credit contracts	Other assets	8			—
Total derivatives not designated as hedging instruments		$	3,216		$	3,285

	As of December 31, 2014
	Asset Derivatives			Liability Derivatives
	Consolidated Statements of Financial Condition	Fair Value		Consolidated Statements of Financial Condition	Fair Value
Derivatives not designated as a hedging instruments:
Interest rate products	Other assets	$	2,040	Other liabilities	$	2,052
Credit contracts	Other assets	6			—
Total derivatives not designated as hedging instruments		$	2,046		$	2,052

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 third quarter of 2014. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting 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. At March 31, 2015, the Company had eleven interest rate swaps with an aggregate notional amount of $110.7 million, compared with nine interest rate swaps with an aggregate notional amount of $94.9 million at December 31, 2014.

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the quarter ended March 31, 2015 (in thousands).

		Gain (loss) recognized in Income on derivatives
	Consolidated Statements of Income	Three months ended March 31, 2015
Derivatives not designated as a hedging instruments:
Interest rate products	Other income	$	(65	)
Credit contracts	Other income	1
Total		$	(64	)

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

The Company also has agreements with certain of its derivative counterparties that contain a provision that if the Company fails to maintain its status as a well / adequate capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2015, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $3,338,000. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $2,980,000 against its obligations under these agreements. If the Company had breached any of these provisions at March 31, 2015, it could have been required to settle its obligations under the agreements at the termination value. At March 31, 2015, there were no breaches of any provisions of the Company's derivative agreements with its counterparties.