DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2015

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 ("OCI") for effective hedges, and changes in fair value are recognized in earnings for all other derivatives.

Interest Rate Swaps

In 2013 and 2014, the Company entered into six different forward starting interest rate swaps on a total of $175,000 of forecasted three-month FHLB advances to reduce its exposure to variability in interest payments attributable to changes in three-month LIBOR. Beginning on the respective effective dates, these interest rate swaps will exchange the three-month LIBOR component of interest on the FHLB advances with fixed interest rates. Each three-month FHLB advance will be executed to correspond to the effective dates of the respective interest rate swaps and will continue to be rolled for the full term of each 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, which is the underlying index of the brokered money market deposits. Beginning on the respective effective dates, these interest rate swaps began to exchange one-month LIBOR, plus the applicable spread, with fixed interest rates. The brokered money market accounts are expected to maintain at least $50,000 on deposit with the Company through the maturity of the interest rate swaps.

In March 2015, the Company restructured certain of its derivative positions by terminating four interest rate swaps prior to their effective start dates and entering into two new forward starting interest rate swaps on a total of $50,000 of forecasted three-month FHLB advances. Beginning on the respective effective dates, these interest rate swaps will exchange the three-month LIBOR component of interest on the FHLB advances with fixed interest rates of 2.540 and 2.576 percent. Each three-month FHLB advance will be executed to correspond to the effective dates of the respective interest rate swaps and will continue to be rolled for the full term of each swap.

The interest rate swaps outstanding as of June 30, 2015 are expected to be highly effective and are accounted for as cash flow hedges with the change in fair value recognized in OCI. The purpose of these cash flow hedges is to reduce the Company's earnings and economic value at risk in a rising interest rate environment. The following table summarizes key terms of each active interest rate swap.

Interest Rate Swap	Notional Amount		Effective Start Date	Maturity Date	Pay Fixed Rate		Receive Floating Rate
Swap 1	$	25,000	October 1, 2014	August 31, 2017	1.197	%	1-Month LIBOR + 0.10%
Swap 2	25,000		October 16, 2014	August 16, 2018	1.596		1-Month LIBOR + 0.13%
Swap 3	25,000		February 5, 2016	February 5, 2021	2.703		3-Month LIBOR
Swap 4	50,000		August 5, 2016	August 5, 2021	2.882		3-Month LIBOR
Swap 5	25,000		October 5, 2017	October 5, 2027	2.540		3-Month LIBOR
Swap 6	25,000		March 5, 2018	March 5, 2028	2.576		3-Month LIBOR
	$	175,000

For the terminated interest rate swaps, the changes in value that were recorded in accumulated other comprehensive income ("AOCI") before termination will be amortized to yield over the period the forecasted hedged transactions impact earnings. The forecasted hedged transactions remain probable of occurring. The following table summarizes information regarding the four terminated interest rate swaps.

Terminated Interest Rate Swap	Notional Amount		Original Effective Start Date	Original Maturity Date	Date Terminated	Termination Fee Paid
Terminated Swap 1	$	25,000	April 6, 2015	April 5, 2020	March 27, 2015	$	123
Terminated Swap 2	25,000		May 5, 2015	May 5, 2020	March 27, 2015	122
Terminated Swap 3	25,000		June 5, 2015	June 5, 2020	March 27, 2015	121
Terminated Swap 4	25,000		August 5, 2015	August 5, 2020	March 27, 2015	921
	$	100,000				$	1,288

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 earnings and economic value 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. 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.

		June 30, 2015				December 31, 2014
	Balance Sheet Location	Notional Amount		Fair Value		Notional Amount		Fair Value
FHLB advances:
Interest rate swaps	Other assets	$	50,000	$	1,954	$	75,000	$	795
Interest rate swaps	Other liabilities	75,000		2,201		100,000		2,249
Brokered money market deposits:
Interest rate swaps	Other liabilities	50,000		406		50,000		200
Subordinated term loan:
Interest rate cap	Other assets	7,500		72		7,500		128
TRUPs:
Interest rate caps	Other assets	43,000		774		43,000		1,104
Mortgage loan commitments:
Interest rate lock commitments	Other assets	29,510		483		23,274		342
Forward sale commitments	Other liabilities	56,035		73		34,727		49

The Company only transacts with derivative counterparties with strong credit standings and requires liquid collateral to secure credit exposure.