DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate, and market or liquidity risks. Derivative instruments are recognized as either assets or liabilities on the balance sheet and are measured at fair value. Subsequent changes in the fair value of derivatives are recognized in other comprehensive income for effective hedges, and changes in fair value are recognized in earnings for all other derivatives.

Interest Rate Swaps

In May 2013, the Company entered into a series of forward starting interest rate swaps on $75,000 of forecasted short-term FHLB advances to reduce its exposure to variability in interest payments attributable to changes in three-month LIBOR. Beginning on the respective effective date, these interest rate swaps will exchange the three-day LIBOR component of future variable rate interest on three-month FHLB advances, or other short-term borrowings, with fixed interest rates ranging from 1.65 to 1.72 percent.

In August 2014, the Company entered into another series of forward starting interest rate swaps on $100,000 of forecasted short-term FHLB advances to reduce its exposure to variability in interest payments attributable to changes in three-month LIBOR. Beginning on the respective effective date, these interest rate swaps will exchange the three-month LIBOR component of future variable rate interest on three-month FHLB advances, or other short-term borrowings, with fixed interest rates ranging from 2.44 to 2.88 percent. Each three-month FHLB advance, or other short-term borrowing, will be executed to correspond to the effective dates of the respective interest rate swaps and will continue to be rolled for the term of each respective swap.

In August 2014, the Company entered into two additional forward starting interest rate swaps on a total of $50,000 of forecasted brokered money market deposits to reduce its exposure to variability in interest payments attributable to changes in one-month LIBOR. Beginning on the respective effective date, these interest rate swaps will exchange one-month LIBOR, plus the applicable spread, with fixed interest rates. Both of these brokered money market accounts are expected to have at least $25,000 each on deposit with the Company from the effective date through the maturity of the interest rate swaps.

These interest rate swaps are expected to be highly effective and are accounted for as cash flow hedges with the change in fair value recognized in other comprehensive income ("OCI"). The purpose of these cash flow hedges is to reduce the Company's economic value of equity at risk in a rising interest rate environment. The following table summarizes key terms of each interest rate swap.

Interest Rate Swap	Notional Amount		Effective Start Date	Maturity Date	Pay Fixed Rate		Receive Floating Rate
Swap 1	$	25,000	April 6, 2015	April 5, 2020	1.650	%	3-Month LIBOR
Swap 2	25,000		May 5, 2015	May 5, 2020	1.683	%	3-Month LIBOR
Swap 3	25,000		June 5, 2015	June 5, 2020	1.720	%	3-Month LIBOR
Swap 4	25,000		August 5, 2015	August 5, 2020	2.440	%	3-Month LIBOR
Swap 5	25,000		February 5, 2016	February 5, 2021	2.703	%	3-Month LIBOR
Swap 6	50,000		August 5, 2016	August 5, 2021	2.882	%	3-Month LIBOR
Swap 7	25,000		October 1, 2014	August 31, 2017	1.197	%	1-Month LIBOR + 0.10%
Swap 8	25,000		October 16, 2014	August 16, 2018	1.596	%	1-Month LIBOR + 0.13%
	$	225,000

Interest Rate Caps

In May 2012, the Company purchased separate interest rate cap contracts on a $7,500 subordinated term loan and on $8,000 in junior subordinated debt previously issued to Crescent Financial Capital Trust I, an unconsolidated trust formed to issue trust preferred securities ("TRUPs"). In August 2014, the Company also purchased separate interest rate cap contracts on $25,000 in junior subordinated debt previously issued to Yadkin Valley Statutory Trust I and on $10,000 in junior subordinated debt previously issued to American Community Capital Trust. The underlying index for each debt instrument is three-month LIBOR. In the event that the underlying index rate exceeds the strike rate on the respective cap, the counterparty would pay the Company the difference between the underlying index and the strike rate.

These interest rate cap contracts are classified as effective cash flow hedges. Therefore, the changes in fair value of the caps are recognized in OCI. The purpose of these cash flow hedges is to reduce the Company's economic value of equity at risk in a rising interest rate environment. The following table summarizes key terms of each interest rate cap.

Interest Rate Cap	Notional Amount		Effective Start Date	Maturity Date	Strike Rate		Underlying Index of Cap	Variable Rate on Underlying Debt
Cap 1	$	7,500	July 1, 2012	July 1, 2017	0.47	%	3-Month LIBOR	3-Month LIBOR + 4.00%
Cap 2	8,000		July 7, 2012	July 7, 2017	0.47	%	3-Month LIBOR	3-Month LIBOR + 3.10%
Cap 3	25,000		September 15, 2014	September 15, 2019	1.82	%	3-Month LIBOR	3-Month LIBOR + 1.32%
Cap 4	10,000		September 30, 2014	September 30, 2019	1.85	%	3-Month LIBOR	3-Month LIBOR + 2.80%
	$	50,500

Mortgage Loan Commitments

The Company enters into interest rate lock commitments with customers and commitments to sell mortgages to investors under best-efforts contracts. The forward sale commitments are entered into with investors to manage the interest rate risk associated with the customer interest rate lock commitments, and both are considered derivative financial instruments. These derivative instruments are carried at fair value and do not qualify for hedge accounting. The fair value of the interest rate lock commitments is based on the value that can be generated when the underlying loan is sold on the secondary market and is included on the consolidated balance sheets in other assets and on the consolidated statements of operations in mortgage banking income. The fair value of the forward sale commitments is based on changes in the value of the commitment, principally because of changes in interest rates, and is included on the consolidated balance sheets in other assets or other liabilities and on the consolidated statements of operations in mortgage banking income.

The following table summarizes the balance sheet location and fair value amounts of derivative instruments grouped by the underlying hedged instrument.

		September 30, 2014				December 31, 2013
	Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value
FHLB advances:
Interest rate swaps	Other assets	$	75,000	$	2,098	$	75,000	$	3,962
Interest rate swaps	Other liabilities	100,000		175		—		—
Brokered money market deposits:
Interest rate swaps	Other assets	50,000		64		—		—
Subordinated term loan:
Interest rate cap	Other assets	7,500		160		7,500		193
TRUPs:
Interest rate caps	Other assets	43,000		1,448		8,000		208
Mortgage loan commitments:
Interest rate lock commitments	Other assets	29,178		447		17,654		354
Forward sale commitments	Other liabilities	60,718		48		—		—

The following table summarizes activity in accumulated other comprehensive income ("AOCI") related to cash flow hedges for the periods presented. All amounts are net of tax.

	Three months ended September 30,					Nine months ended September 30,
	2014		2013			2014			2013
AOCI before non-controlling interests, beginning of period	$	1,003	$	2,224		$	2,381		$	(267	)
Other comprehensive income (loss)	262		(315		)	(1,116		)	2,176
AOCI before non-controlling interests, end of period	1,265		1,909			1,265			1,909
Non-controlling interests	—		(608		)	—			(608		)
AOCI after non-controlling interests, end of period	$	1,265	$	1,301		$	1,265		$	1,301

The Company monitors the credit risk of the counterparties to the interest rate swaps and caps.