Derivatives and Hedging

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivatives and Hedging Activities

For asset and liability management purposes, the Company has entered into an interest rate swap contract to hedge against changes in forecasted cash flows due to interest rate exposures. The swap agreement is a derivative instrument and converts a portion of the Company’s forecasted variable rate debt to a fixed rate (i.e., cash flow hedge) over the payment term of the interest rate swap. The effective portion of the gain or loss on cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period during which the transaction affects earnings. The ineffective portion of the gain or loss on derivative instruments, if any, is recognized in earnings. The Company does not enter into interest rate swap agreements for trading or speculative purposes.

The Company also enters into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with a third party financial institution. Because the Company acts as an intermediary for the customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company's results of operations.

In the normal course of business, the Company enters into interest rate lock commitments to finance residential mortgage loans that are not designated as accounting hedges. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Loan commitments related to residential mortgage loans intended to be sold are considered derivatives and are marked to market through earnings. In addition to the effects of the change in market interest rate, the fair value measurement of the derivative also contemplates the expected cash flows to be received from the counterparty from the future sale of the loan.

The Company sells residential mortgage loans on either a best efforts or mandatory delivery basis. The Company mitigates the effect of the interest rate risk inherent in providing interest rate lock commitments by entering into forward loan sales contracts. During the interest rate lock commitment period, these forward loan sales contracts are marked to market through earnings and are not designated as accounting hedges. Exclusive of the fair value component associated with the projected cash flows from the loan delivery to the investor, the changes in fair value related to movements in market rates of the interest rate lock commitments and the forward loan sales contracts generally move in opposite directions, and the net impact of changes in these valuations on net income during the loan commitment period is generally inconsequential. When the loan is funded to the borrower, the interest rate lock commitment derivative expires and the Company records a loan held for sale. The forward loan sales contract acts as a hedge against the variability in cash to be received from the loan sale. The changes in measurement of the estimated fair values of the interest rate lock commitments and forward loan sales contracts are included in mortgage banking revenues in the accompanying consolidated statements of income.

The notional amounts and estimated fair values of the Company's derivatives are presented in the following table. Fair value estimates are obtained from third parties and are based on pricing models.

	March 31, 2017				December 31, 2016
	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Derivative Assets (included in other assets):
Derivatives designated as hedges:
Interest rate swap contracts	$	100,000	$	16	$	—	$	—
Non-hedging interest rate derivatives:
Interest rate swap contracts	53,188		1,295		53,593		1,332
Interest rate lock commitments	61,915		1,712		73,422		1,131
Forward loan sales contracts	—		—		126,836		286
Total derivative assets	$	215,103	$	3,023	$	253,851	$	2,749
Derivative Liabilities (included in accounts payable and accrued expenses):
Derivatives designated as hedges:
Interest rate swap contracts	$	—	$	—	$	100,000	$	33
Non-hedging interest rate derivatives:
Interest rate swap contracts	53,188		1,283		53,593		1,281
Forward loan sales contracts	84,004		405		—		—
Total derivative liabilities	$	137,192	$	1,688	$	153,593	$	1,314

On September 22, 2015, the Company entered into an interest rate swap contract with a notional amount of $100,000 that was designated as a cash flow hedge. Under the terms of the interest rate swap contract, the Company pays a fixed interest rate of 1.94% and the counterparty pays to the Company a variable interest rate equal to the three-month LIBOR. No cash is exchanged until the effective date, which begins on September 15, 2017 and ends on September 15, 2020. The Company designated the interest payments related to Federal Home Loan Bank borrowings as the cash flow hedge. The hedge was fully effective during the current period. As such, no amount of ineffectiveness was included in the Company's income statement for the three months ended March 31, 2017. The Company expects the hedge to remain highly effective during the remaining term of the interest rate swap.

The following table presents the pre-tax gains or losses related to derivative contracts that were recorded in accumulated other comprehensive income and other non-interest income in the Company's statements of income for the periods indicated:

	Three Months Ended March 31,
	2017			2016
Derivatives designated as hedges:
Amount of gain (loss) recognized in other comprehensive income (effective portion)	$	49		$	(2,197	)
Non-hedging interest rate derivatives:
Amount of loss recognized in other non-interest income	(39		)	(29		)
Amount of net fee expense recognized in other non-interest income	(42		)	—
Amount of net gains (losses) recognized in mortgage banking revenues	(109		)	695