Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

The Corporation may use interest-rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. Recorded amounts related to interest-rate swaps are included in other assets or liabilities. The Corporation’s credit exposure on interest rate swaps includes fair value and any collateral that is held by a third party. Changes in the fair value of derivative instruments designated as hedges of future cash flows are recognized in accumulated other comprehensive income until the underlying forecasted transactions occur, at which time the deferred gains and losses are recognized in earnings. For a qualifying fair value hedge, the gain or loss on the hedging instrument is recognized in earnings, and the change in fair value of the hedge item, to the extent attributable to the hedged risk, adjusts the carrying amount of the hedge item and is recognized in earnings.

Derivative loan commitments represent agreements for delayed delivery of financial instruments in which the buyer agrees to purchase and the seller agrees to deliver, at a specified future date, a specified instrument at a specified price or yield. The Corporation’s derivative loan commitments are commitments to sell loans secured by 1-to 4-family residential properties whose predominant risk characteristic is interest rate risk. The fair values of these derivative loan commitments are based upon the estimated amount the Corporation would receive or pay to terminate the contracts or agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.

On October 24, 2014, the Corporation entered into an amortizing interest rate swap classified as a cash flow hedge with a notional amount of $20.0 million to hedge a portion of the debt financing of a pool of 10-year maturity fixed rate loans with balances totaling $29.1 million, at time of the hedge, that were originated in 2013. A brokered money market demand account with a balance exceeding the amortizing interest rate swap balance is being used for the cash flow hedge. Under the terms of the swap agreement, the Corporation pays a fixed rate of 2.10% and receives a floating rate based on the one-monthLIBOR with a maturity date of November 1, 2022. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and on a recurring basis to determine that the derivative has been and is expected to continue to be highly effective in offsetting changes in cash flows of the hedged item. The Corporation expects that there will be no ineffectiveness over the life of the interest rate swap, and therefore anticipates no portion of the net loss in accumulated other comprehensive loss will be reclassified into interest expense. To the extent there is ineffectiveness, the Corporation would record the ineffectiveness in interest expense.

The Corporation pledges cash or securities to cover a portion of the negative fair value of the interest rate swap, as measured by the counterparty. At June 30, 2015, the notional amount of the cash flow hedge was $19.6 million, with a negative fair value of $202 thousand. The Corporation has pledged $250 thousand to the counterparty as collateral for the negative fair value.

The following table presents the notional amounts and fair values of derivatives not designated as hedging instruments recorded on the consolidated balance sheets at June 30, 2015 and December 31, 2014:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2015
Interest rate locks with customers	$	38,548	Other Assets	$	925		$	—
Forward loan sale commitments	43,575		Other Assets	137			—
Total	$	82,123		$	1,062		$	—
At December 31, 2014
Interest rate locks with customers	$	27,007	Other Assets	$	788		$	—
Forward loan sale commitments	30,537			—		Other Liabilities	112
Total	$	57,544		$	788		$	112

The following table presents the notional amounts and fair values of derivatives designated as hedging instruments recorded on the consolidated balance sheets at June 30, 2015 and December 31, 2014:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2015
Interest rate swap - cash flow hedge	$	19,610		$	—	Other Liabilities	$	202
Total	$	19,610		$	—		$	202
At December 31, 2014
Interest rate swap - cash flow hedge	$	19,945		$	—	Other Liabilities	$	241
Total	$	19,945		$	—		$	241

For the three and six months ended June 30, 2015 and 2014, the amounts included in the consolidated statements of income for derivatives not designated as hedging instruments are shown in the table below:

	Statement of Income Classification	Three Months Ended   June 30,						Six Months Ended   June 30,
(Dollars in thousands)		2015			2014			2015		2014
Interest rate locks with customers	Net gain on mortgage banking activities	$	(312	)	$	350		$	137	$	448
Forward loan sale commitments	Net loss on mortgage banking activities	305			(200		)	249		(213		)
Total		$	(7	)	$	150		$	386	$	235

For the three and six months ended June 30, 2015 and 2014, the amounts included in the consolidated statements of income for derivatives designated as hedging instruments are shown in the table below:

	Statement of Income Classification	Three Months Ended   June 30,					Six Months Ended   June 30,
(Dollars in thousands)		2015			2014		2015			2014
Interest rate swap—cash flow hedge—interest payments	Interest expense	$	95		—		$	191		—
Net loss		$	(95	)	$	—	$	(191	)	$	—

At June 30, 2015 and December 31, 2014, the amounts included in accumulated other comprehensive (loss) income for derivatives designated as hedging instruments are shown in the table below:

(Dollars in thousands)	Accumulated Other Comprehensive (Loss) Income	At June 30, 2015			At December 31, 2014
Interest rate swap—cash flow hedge	Fair value, net of taxes	$	(131	)	$	(157	)
Total		$	(131	)	$	(157	)