Derivative Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

(In Thousands)

The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. The Company also from time to time enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with these customer contracts, the Company enters into an offsetting derivative contract position. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At June 30, 2013, the Company had notional amounts of $80,408 on interest rate contracts with corporate customers and $80,408 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts and certain fixed-rate loans.

In March and April 2012, the Company entered into two interest rate swap agreements effective March 30, 2014 and March 17, 2014, respectively. Beginning on the respective effective date, the Company will receive a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pay a fixed rate of interest. The agreements, which both terminate in March 2022, are accounted for as cash flow hedges to reduce the variability in cash flows resulting from changes in interest rates on $32,000 of the Company’s junior subordinated debentures.

In May 2010, the Company terminated two interest rate swaps, each designated as a cash flow hedge, designed to convert the variable interest rate on an aggregate of $75,000 of loans to a fixed rate. As of the termination date, there were $1,679 of deferred gains related to the swaps, which are being amortized into interest income over the designated hedging periods ending in August 2012 and August 2013, respectively. Deferred gains amortized into net interest income were $80 and $152 for the three months ended June 30, 2013 and 2012, respectively, and $165 and $304 for the six months endedJune 30, 2013 and 2012, respectively.

The Company enters into interest rate lock commitments with its customers to mitigate the interest rate risk associated with the commitments to fund fixed-rate residential mortgage loans. The notional amount of commitments to fund fixed-rate mortgage loans was $112,070 and $72,757 at June 30, 2013 and December 31, 2012, respectively. The Company also enters into forward commitments to sell residential mortgage loans to secondary market investors. The notional amount of commitments to sell residential mortgage loans to secondary market investors was $167,000 and $100,000 at June 30, 2013 and December 31, 2012, respectively.

The following table provides details on the Company’s derivative financial instruments as of the dates presented:

		Fair Value
	Balance Sheet Location	June 30, 2013		December 31, 2012
Derivative assets:
Designated as hedging instruments:
Interest rate swap	Other Assets	$	10	$	—
Totals		$	10	$	—
Not designated as hedging instruments:
Interest rate contracts	Other Assets	$	1,824	$	3,083
Interest rate lock commitments	Other Assets	76		1,571
Forward commitments	Other Assets	$	4,599	$	—
Totals		$	6,499	$	4,654
Derivative liabilities:
Designated as hedging instruments:
Interest rate swap	Other Liabilities	$	232	$	2,164
Totals		$	232	$	2,164
Not designated as hedging instruments:
Interest rate contracts	Other Liabilities	$	1,826	$	3,152
Interest rate lock commitments	Other Liabilities	606		—
Forward commitments	Other Liabilities	—		198
Totals		$	2,432	$	3,350

Gains (losses) included in the Consolidated Statements of Income related to the Company’s derivative financial instruments were as follows as of the periods presented:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
Derivatives designated as hedging instruments:
Interest rate swaps (terminated May 2010):
Included in interest income on loans	$	80		$	152		$	165		$	304
Total	$	80		$	152		$	165		$	304
Derivatives not designated as hedging instruments:
Interest rate contracts:
Included in interest income on loans	$	801		$	549		$	1,600		$	883
Included in other noninterest expense	(25		)	23			67			34
Interest rate lock commitments:
Included in gains on sales of mortgage loans held for sale	(2,284		)	923			(2,101		)	522
Forward commitments
Included in gains on sales of mortgage loans held for sale	4,678			(888		)	4,876			(943		)
Total	$	3,170		$	607		$	4,442		$	496

Offsetting

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet when the "right of setoff" exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company's derivative instruments are subject to master netting agreements; however, the Company has not elected to offset such financial instruments in the consolidated balance sheets. The following table presents the Company's gross derivative positions as recognized in the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:

	Offsetting Derivative Assets				Offsetting Derivative Liabilities
	June 30, 2013		December 31, 2012		June 30, 2013		December 31, 2012
Gross amounts recognized	$	6,509	$	4,654	$	2,664	$	5,514
Gross amounts offset in the consolidated balance sheets	—		—		—		—
Net amounts presented in the consolidated balance sheets	6,509		4,654		2,664		5,514
Gross amounts not offset in the consolidated balance sheets
Financial instruments	849		—		849		—
Financial collateral pledged	—		—		237		4,950
Net amounts	$	5,660	$	4,654	$	1,578	$	564