Derivatives

The Company enters into commercial loan interest rate swap agreements with commercial banking customers which are offset with a corresponding swap agreement with a third party financial institution ("counterparty"). The Company has agreements with its counterparties that contain provisions that provide that if the Company fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. These agreements also requires that the Company and the counterparty collateralize any fair value shortfalls that exceed $250,000 with eligible collateral, which includes cash and securities backed with the full faith and credit of the federal government. Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels. The Company pledged $261,000 and $216,000 in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements as of March 31, 2016 and December 31, 2015, respectively.

The Company had interest rate swaps with an aggregate notional amount of $20.7 million and $21.3 million at March 31, 2016 and December 31, 2015, respectively. At March 31, 2016, the notional amount of interest rate swaps is made up of two swaps totaling $10.4 million, a variable to fixed rate swap to commercial loan customers and two swaps totaling $10.4 million fixed to variable rate swap with a counterparty. Changes in fair value from these four interest rate swaps offset each other in the first quarter of 2016. The Company did not recognize any fee income related to interest rate swaps in the three month periods ending March 31, 2016 or 2015, respectively. Interest rate swap income is recorded in other income on the Consolidated Statements of Income.

The Company also uses derivatives to hedge the risk of changes in the fair values of interest rate lock commitments. The Company enters into commitments to originate residential mortgage loans, and it enters into forward delivery contracts to sell mortgage-backed securities to brokers/dealers at specific prices and dates in order to hedge the interest rate risk in its residential mortgage loan commitments. Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates. RML had commitments to originate mortgage loans held for sale totaling $83.8 million and $71.3 million at March 31, 2016 and December 31, 2015, respectively. Changes in the value of RML's interest rate derivatives are recorded in the mortgage banking income on the Consolidated Statements of Income.

The following table presents the fair value of derivatives not designated as hedging instruments at March 31, 2016 and December 31, 2015:



(In Thousands)	Asset Derivatives
		March 31, 2016		December 31, 2015
	Balance Sheet Location	Fair Value		Fair Value

Interest rate contracts	Other assets		$306		$125
Interest rate lock commitments	Other assets	1,858		1,514
Total			$2,164		$1,639



(In Thousands)	Liability Derivatives
		March 31, 2016		December 31, 2015
	Balance Sheet Location	Fair Value		Fair Value

Interest rate contracts	Other liabilities		$673		$216

The following table presents the net gains of derivatives not designated as hedging instruments for the three month periods ending March 31, 2016 and 2015, respectively:



(In Thousands)	Income Statement Location	March 31, 2016				March 31, 2015
Interest rate contracts	Mortgage banking income			($692	)			($418	)
Interest rate lock commitments	Mortgage banking income		324				1,072
Total				($368	)			$654

Our derivative transactions with counterparties under International Swaps and Derivative Association master agreements include "right of set-off" provisions. "Right of set-off" provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.

The following table summarizes the derivatives that have a right of offset as of March 31, 2016 and December 31, 2015, respectively:



March 31, 2016					Gross amounts not offset in the Statement of Financial Position
(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position		Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments		Collateral Posted		Net Amount
Asset Derivatives
Interest rate contracts	$306		$—	$306		$—		$—		$306

Liability Derivatives
Interest rate contracts	$673		$—	$673		$—	$261			$412

December 31, 2015					Gross amounts not offset in the Statement of Financial Position
(In Thousands)	Gross amounts of recognized assets and liabilities	Gross amounts offset in the Statement of Financial Position		Net amounts of assets and liabilities presented in the Statement of Financial Position	Financial Instruments		Collateral Posted		Net Amount
Asset Derivatives
Interest rate contracts	$125		$—	$125		$—		$—		$125

Liability Derivatives
Interest rate contracts	$216		$—	$216		$—		$216		$—