FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The notional amount of financial instruments whose contract amounts represent credit risk:

(dollars in thousands)	As of December 31,
	2013		2012
Commitments to extend credit	$	1,769,135	$	1,672,424
Commitments to fund mortgages	22,242		36,795
Commitments to sell mortgages to investors	15,349		51,125
Letters of credit	142,246		127,435

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The Company also obtains collateral, such as real estate or liens on their customer’s assets depending on the customer, for these types of commitments. The credit risk involved in issuing letters of credit is essentially the same as that involved in lending to customers, however, since the Company does not anticipate having to perform on material amounts of standby letters of credit, the risk is estimated to be substantially less than the contractual amount of commitments outstanding.  Fair values of letters of credit were not considered to be material as of December 31, 2013 and 2012.

The Company enters into interest rate lock commitments with its mortgage loan customers, a portion of which are intended for sale in the future. The portion of the commitments that are intended for sale in the future are derivatives and, as such, are reported on the consolidated balance sheet at their estimated fair value. To hedge the fair value risk associated with changing interest rates on these commitments, the Company enters into forward sale commitments to sell the closed loans to investors. These hedges are economic hedges and are not designated in hedging relationships. The forward sale commitments to investors are also derivatives and are recorded on the consolidated balance sheet at their estimated fair value.

Summary information regarding interest rate swap derivative positions which were not designed in hedging relationships are as follows:

(dollars in thousands)		Notional						Receive		Pay		Life
	Positions	Amount		Asset		Liability		Rate		Rate		(Years)
December 31, 2013
Receive fixed - pay floating interest rate swaps	148	$	502,833	$	15,906	$	5,718	4.58	%	2.31	%	5.96
Pay fixed - receive floating interest rate swaps	148	502,833		5,718		15,906		2.31	%	4.58	%	5.96
Net interest rate swaps		$	1,005,666	$	21,624	$	21,624	3.45	%	3.45	%	5.96
December 31, 2012
Receive fixed - pay floating interest rate swaps	131	$	424,863	$	28,252	$	—	4.67	%	2.34	%	6.36
Pay fixed - receive floating interest rate swaps	131	424,863		—		28,252		2.34	%	4.67	%	6.36
Net interest rate swaps		$	849,726	$	28,252	$	28,252	3.51	%	3.51	%	6.36

The Company enters into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps are considered derivatives but are not designated in hedging relationships. These instruments have interest rate and credit risk associated with them. In response, the Company enters into offsetting interest rate swaps with counterparties for interest rate risk management purposes. The counterparty swaps are also considered derivatives and are also not designated in hedging relationships. Changes in the fair value of the customer and counterparty swaps is recorded net in the consolidated statement of income. Because these amounts offset each other, there was no impact on other operating income in each of 2013, 2012, and 2011. For additional analysis of the fair value on interest rate swaps refer to Footnote 14 within this section.

12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK - Continued

The following summarizes the Company's derivative activity as of and for the year ended December 31, 2013, 2012, and 2011:

		Income Statement Effect
	Balance Sheet Effect at	for the Year Ended
Derivative Activity	December 31, 2013	December 31, 2013
Interest rate swaps:	Increase to other assets/liabilities of $21.6 million.	No net effect on other operating income from offsetting $6.6 million change.
Other derivatives:
Interest rate locks	Increase to other liabilities of less than $0.1 million.	Decrease to mortgage banking income of $0.1 million.
Forward sale commitments	Increase to other liabilities of $0.1 million.	Increase to mortgage banking income of $0.3 million.
		Income Statement Effect
	Balance Sheet Effect at	for the Year Ended
Derivative Activity	December 31, 2012	December 31, 2012
Interest rate swaps:	Increase to other assets/liabilities of $28.3 million.	No net effect on other operating income from offsetting $5.7 million change.
Other derivatives:
Interest rate locks	Increase to other assets of less than $0.1 million.	Decrease to mortgage banking income of $0.6 million.
Forward sale commitments	Increase to other liabilities of $0.4 million.	Increase to mortgage banking income of $0.5 million.
		Income Statement Effect
	Balance Sheet Effect at	for the Year Ended
Derivative Activity	December 31, 2011	December 31, 2011
Cash flow hedges:
Pay fixed - receive floating interest rate swaps	There was no impact due to the expiration of all cash flow hedges.	The ineffective portion is zero. Increase to interest expense of $1.9 million for net settlements.
Interest rate swaps:	Increase to other assets/liabilities of $22.6 million.	No net effect on other operating income from offsetting $2.2 million change.
Other derivatives:
Interest rate locks	Increase to other assets of $0.6 million.	Increase to mortgage banking income of $0.5 million.
Forward sale commitments	Increase to other liabilities of $0.9 million.	Decrease to mortgage banking income of $0.8 million.

The Company evaluates and establishes an estimated reserve for credit and other risks associated with off-balance-sheet positions based upon historical losses, expected performance under these arrangements and current trends in the economy. The Company did not recognize any expense in other operating expenses within the non-interest expense in the consolidated statement of income during 2013 for credit losses on off-balance-sheet exposure as compared to $0.1 million recorded in 2012 and $1.8 million in 2011. As of December 31, 2013 and 2012 the reserve for off-balance sheet exposure was $1.0 million and $1.6 million, respectively.

13. BALANCE SHEET OFFSETTING

Certain financial instrument related assets and liabilities may be eligible for offset on the consolidated balance sheet because they are subject to master netting agreements or similar agreements. However, the Company does not elect to offset such arrangements on the consolidated financial statements.

    The Company enters into interest rate swap agreements with customers and financial institution counterparties. For additional detail regarding interest rate swap agreements refer to Footnote 12 within this section. In the event of default on, or termination of, any one contract, both parties have the right to net settle multiple contracts. Also, certain interest rate swap agreements may require the Company to receive or pledge cash collateral based on the contract provisions.

The Company also enters into agreements to sell securities subject to an obligation to repurchase the same or similar securities, referred to as repurchase agreements on the consolidated balance sheet. Under these agreements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. The obligation to repurchase the securities is reflected as a liability in the Company’s consolidated balance sheet, while the securities underlying the repurchase agreements remain in the respective investment securities account, therefore there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities.

The following table presents information about financial instruments that are eligible for offset as of December 31, 2013 and December 31, 2012:

December 31, 2013
(dollars in thousands)
Assets	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet
Derivatives - Interest Rate Swaps	$	5,718	$	—	$	5,718
Liabilities
Derivatives - Interest Rate Swaps	15,906		—		15,906
Repurchase Agreements	50,000		—		50,000
Total Liabilities	$	65,906	$	—	$	65,906
December 31, 2012
(dollars in thousands)
Liabilities	Gross Amount		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet
Derivatives - Interest Rate Swaps	$	28,252	$	—	$	28,252
Repurchase Agreements	75,000		—		75,000
Total Liabilities	$	103,252	$	—	$	103,252

13. BALANCE SHEET OFFSETTING - Continued

The following table represents a reconciliation of the net amounts of interest rate swap derivative assets and liabilities presented in the balance sheet to the net amounts that would result in the event of offset, by counterparty, as of December 31, 2013 and December 31, 2012:

December 31, 2013
(dollars in thousands)			Gross Amounts Not Offset in the Balance Sheet
Assets	Net Amounts Presented in the Balance Sheet		Financial Instruments (o)			Cash Collateral (p)			Net Amount
Counterparty A	$	4,996	$	(4,996	)	$	—		$	—
All Other Counterparties	722		(328		)	(300		)	94
Total Assets	$	5,718	$	(5,324	)	$	(300	)	$	94
Liabilities
Counterparty A	$	13,111	$	(4,996	)	$	(8,545	)	$	(430	)
All Other Counterparties	2,795		(328		)	(1,960		)	507
Total Liabilities	$	15,906	$	(5,324	)	$	(10,505	)	$	77
December 31, 2012
(dollars in thousands)			Gross Amounts Not Offset in the Balance Sheet
Liabilities	Net Amounts Presented in the Balance Sheet		Financial Instruments (o)			Cash Collateral (p)			Net Amount
Counterparty A	$	28,252	$	—		$	(28,185	)	$	67
(o) For interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of default. For interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of default.
(p) Amounts represent cash collateral received or posted on interest rate swap transactions with financial institution counterparties.