Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2015

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Company uses interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converts floating rate debt into fixed rate debt, or alternatively, converts fixed rate debt into floating rate debt. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense. These interest rate swap agreements are derivative instruments that qualify for hedge accounting as discussed in Note 1. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

On December 4, 2008, the Company entered into an interest rate swap agreement related to the outstanding trust preferred capital notes. The swap agreement became effective on December 1, 2008. The notional amount of the interest rate swap was $7.0 million and has an expiration date of December 1, 2016. Under the terms of the agreement, the Company pays interest quarterly at a fixed rate of 2.85% and receives interest quarterly at a variable rate of three month LIBOR. The variable rate resets on each interest payment date. This agreement was designated as a cash-flow hedge at inception of the contract until the redemption of the trust preferred capital notes on July 29, 2015. As a result of the redemption, the derivative contract is no longer classified as a cash flow hedge and is currently recorded in the balance sheet at its fair value with changes in fair value recorded in Other operating income in the Consolidated Statements of Income.

The following table summarizes the fair value of derivative instruments at December 31, 2015 and December 31, 2014:

	2015			2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(dollars in thousands)
Derivatives designated as hedging instruments under GAAP
Interest rate swap contracts	Other Liabilities	$	—	Other Liabilities	$	289
Derivatives not designated as hedging instruments under GAAP
Interest rate swap contracts	Other Liabilities	$	149	Other Liabilities	$	—

The following tables present the effect of the derivative instrument on the Consolidated Balance Sheets at December 31, 2015 and 2014 and the Consolidated Statements of Income for December 31, 2015, 2014, and 2013:

	Year Ended
	December 31,
Derivatives in GAAP Cash Flow Hedging Relationships	Amount of Gain  (Loss) Recognized in OCI on Derivative (Effective Portion)				Location of Gain  (Loss) Recognized in Income (Ineffective Portion)	Amount of Gain  (Loss) Recognized in Income (Ineffective Portion)
	2015		2014			2015		2014		2013
	(dollars in thousands)					(dollars in thousands)
Interest rate swap contracts, net of tax	$	—	$	96	Not applicable	$	—	$	—	—

The balance of the interest rate swap liability was $237 thousand at the time of the redemption of the Company's trust preferred debt on July 29, 2015. The total amount recorded in accumulated other comprehensive income at that date was reclassified to earnings due to the derecognition of the cash flow hedge. Subsequent to the redemption of the debt and reclassification, the interest rate swap derivative was adjusted to its fair value resulting in a $88 thousand gain recorded in Other operating income in the Consolidated Statements of Income for the twelve months ended December 31, 2015.