Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Note 11. 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 December 23, 2008, the Corporation entered into a cash flow hedge with a notional amount of $20.0 million that had the effect of converting the variable rates on Trust Preferred Securities to a fixed rate. Under the terms of the swap agreement, the Corporation paid a fixed rate of 2.65% and received a floating rate based on the three-month LIBOR with a maturity date of January 7, 2019. During May 2013, the Corporation terminated the swap in conjunction with the submission of a redemption notice to the trustee to redeem the Trust Preferred Securities on July 7, 2013, pursuant to the optional redemption provisions provided in the documents governing the Trust Preferred Securities. See Note 8 – Trust Preferred Securities for additional information.

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, 2013 and December 31, 2012:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2013
Interest rate locks with customers	$	38,348	—	$	—	Other Liabilities	$	64
Forward loan sale commitments		42,001	Other Assets		772	—		—
Total	$	80,349		$	772		$	64
At December 31, 2012
Interest rate locks with customers	$	51,768	Other Assets	$	1,547	—	$	—
Forward loan sale commitments		56,263	—		—	Other Liabilities		54
Total	$	108,031		$	1,547		$	54

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, 2013 and December 31, 2012:

			Derivative Assets			Derivative Liabilities
(Dollars in thousands)	Notional Amount		Balance Sheet Classification	Fair Value		Balance Sheet Classification	Fair Value
At June 30, 2013
Interest rate swap–cash flow hedge	$	—	—	$	—	Other Liabilities	$	—
Total	$	—		$	—		$	—
At December 31, 2012
Interest rate swap–cash flow hedge	$	20,000	—	$	—	Other Liabilities	$	1,909
Total	$	20,000		$	—		$	1,909

For the three and six months ended June 30, 2013 and 2012, the amounts included in the consolidated statements of income for derivatives not designated as hedging instruments are shown in the table below:

		Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	Statement of Income Classification	2013			2012			2013			2012
Interest rate locks with customers	Net (loss) gain on mortgage banking activities	$	(1,549	)	$	725		$	(1,611	)	$	947
Forward loan sale commitments	Net gain (loss) on mortgage banking activities		994			(483	)		826			(110	)
Total		$	(555	)	$	242		$	(785	)	$	837

For the three and six months ended June 30, 2013 and 2012, the amounts included in the consolidated statements of income for derivatives designated as hedging instruments are shown in the table below:

		Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	Statement of Income Classification	2013			2012		2013			2012
Interest rate swap–cash flow hedge–loss on termination	Net loss on termination of interest rate swap	$	(1,866	)	$	—	$	(1,866	)	$	—
Interest rate swap–cash flow hedge–interest payments	Interest expense		9			110		124			218
Interest rate swap–cash flow hedge–ineffectiveness	Interest expense		—			—		—			—
Net loss		$	(1,857	)	$	110	$	(1,742	)	$	218

At June 30, 2013 and December 31, 2012, 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, 2013		At December 31, 2012
Interest rate swap–cash flow hedge	Fair value, net of taxes	$	—	$	(1,241	)
Total		$	—	$	(1,241	)