Derivative and Hedging Activities

3 Months Ended

Mar. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Hedging Activities

Derivative and Hedging Activities

The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.

The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

During 2015, the company entered into LIBOR-based interest rate swaps with the objective of limiting the variability of interest payment cash flows resulting from changes in the benchmark interest rate LIBOR. These interest rate swaps are designated as cash flow hedges involving the receipt of fixed-rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of the derivatives is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of a financial instrument’s change in fair value is immediately recognized in earnings.

During the next twelve months, the Company estimates that an additional $2.2 million will be reclassified as an increase to interest income from amounts reported in accumulated comprehensive income. During the three months endedMarch 31, 2016, no derivative position was designated as cash flow hedges as they were discontinued and none of the gains and losses reported in other comprehensive income were reclassified into earnings as a result of discontinuance of cash flow hedges.

The Company also enters into forward loan sales contracts, which are derived from loans held for sale, or in the Company’s pipeline, to enable those borrowers to manage their exposure to interest rate fluctuations. The forward loan sales derivative contracts are not designated as hedging instruments and all changes in fair value are recognized in non-interest income or non-interest expense during the period of change. For the three months ended March 31, 2016, the Company recorded $24 thousand in non-interest income and $1 thousand in non-interest expense as a result of changes in fair value of derivatives. For the three months ended March 31, 2015, the company recorded $5 thousand in non-interest income and $47 thousand in non-interest expense as a result of changes in fair value of derivatives.

The Company’s derivative instrument contracts at fair value as well as their classification on the Company's balance sheet is presented below:

(Dollars in thousands)			March 31, 2016				December 31, 2015
	Number of instruments	Balance Sheet Location	Fair Value		Notional Amount		Fair Value		Notional Amount
Asset derivatives
Derivatives designated as hedging instruments
Interest rate swap	4	Other assets	$	5,667	$	235,000	$	893	$	165,000
Derivatives not designated as hedging instruments
Forward loan sales contracts	29	Other assets	16		6,316		40		6,967
Total asset derivatives			$	5,683	$	241,316	$	933	$	171,967
Liability derivatives
Derivatives designated as hedging instruments
Interest rate swap	—	Other liabilities	$	—	$	—	$	108	$	70,000
Derivatives not designated as hedging instruments
Forward loan sales contracts	6	Other liabilities	3		1,368		2		1,213
Total liability derivatives			$	3	$	1,368	$	110	$	71,213

The table below presents the effect of the Company's derivative financial instruments on the Consolidated Statements of Income for the three months ended March 31, 2016:

(Dollars in thousands)	Three Months Ended March 31, 2016
Derivatives in Cash Flow Hedging Relationship	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative (Effective Portion)		Location of Gain Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain Reclassified from Accumulated OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap	$	5,526	Interest income	$	644	N/A	$	—

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company's derivatives as of March 31, 2016:

							Gross Amounts Not Offset in the Balance Sheets
(Dollars in thousands)	Gross Amount of Recognized Assets		Gross Amount Offset in the Balance Sheets		Net Amount of Assets Presented in the Balance Sheets		Financial Instruments		Cash Collateral Received		Net Amount
Offsetting of derivative assets:
Interest rate swap	$	5,667	$	—	$	5,667	$	—	$	5,061	$	606
Total	$	5,667	$	—	$	5,667	$	—	$	5,061	$	606
Offsetting of derivative liabilities:
Interest rate swap	$	—	$	—	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	—	$	—	$	—

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness or fails to maintain its status as a well capitalized institution, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

As of March 31, 2016, there were no derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements. The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures and agreements that specify collateral levels to be maintained by the Company and the counterparties. These collateral levels are based on the credit rating of the counterparties.