Derivative Financial Instruments

9 Months Ended

Sep. 30, 2014

Derivative Financial Instruments [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 5 – DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, 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’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.

Non-designated Hedges

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2014 and December 31, 2013, the notional amount of customer-facing swaps was approximately $12.9 million and $13.5 million, respectively. This amount is offset with third party counterparties, as described above.

The Company has minimum collateral posting thresholds with its derivative counterparties. As of September 30, 2014 and December 31, 2013, the Company had posted cash as collateral in the amount of $0.2 million and $0.2 million, respectively.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2014 and December 31, 2013.

	Asset Derivatives			Liability Derivatives
($ in thousands)	Sep. 30, 2014			Sep. 30, 2014
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
Derivatives not designated as hedging instruments:
Interest rate contracts	Other Assets	$	221	Other Liabilities	$	221

	Asset Derivatives			Liability Derivatives
	December 31, 2013			December 31, 2013
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
Derivatives not designated as hedging instruments:
Interest rate contracts	Other Assets	$	257	Other Liabilities	$	257

Effect of Derivative Instruments on the Income Statement

The Company’s derivative financial instruments had no net effect on the Income Statements for the three and nine months ended September 30, 2014 and 2013.