Derivatives and Financial Instruments

12 Months Ended

Dec. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Financial Instruments

Derivatives and Financial Instruments

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, collars, options or other financial instruments designed to hedge exposures to interest rate risk or for speculative purposes.

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

In connection with its asset / liability management objectives, the Company during the first quarter of 2014 entered into two interest rate swaps on $40 million of FHLB advances, each swap having a $20 million notional amount, that convert the floating rate cash flow exposure on the FHLB advances to a fixed rate cash flow. The first swap converted a floating rate FHLB advance paying three month LIBOR plus 140 basis points to a fixed rate of 3.55%. The second swap converted a floating rate FHLB advance paying three month LIBOR plus 138 basis points to a fixed rate of 3.33%. As structured, the receive-variable, pay-fixed swaps are cash flow hedges that were highly effective during 2014 and 2015. The differences in cash flows in each period between the fixed rate interest payments that the Company makes and the variable rate interest payments received is currently reported in earnings. These interest rate swaps mature on June 15, 2020. The cash flows on interest rate swaps are included in the Consolidated Statements of Cash Flows as interest paid.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts or forward contracts and rate lock loan commitments. The fair value of our derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants.

The table below provides data about the amount of gains and losses related to derivative instruments designated as hedges included in the “Accumulated other comprehensive loss” section of “Shareholders’ Equity” on the COB’s Consolidated Balance Sheets.

	Gain (Loss), Net of Tax Recognized in Accumulated Other Comprehensive Loss (Effective Portion)
	As of
(dollars in thousands)	December 31, 2015			December 31, 2014
Derivatives designated as hedging instruments:
Interest rate swap contracts - FHLB advances	$	(466	)	$	(324	)

During 2012, we began originating residential mortgage loans for sale in the secondary market. We have established guidelines in originating, selling loans to Fannie Mae, and retaining or selling the loan servicing rights. The commitments to borrowers to originate residential mortgage loans and the forward sales commitments to investors are freestanding derivative instruments. As such, they do not qualify for hedge accounting treatment, and the fair value adjustments for these instruments is recorded through the Consolidated Statements of Operations in mortgage loan income. The fair market value of mortgage banking derivatives at December 31, 2015 was recorded in the consolidated balance sheet in Other Assets.

	Gain (Loss) Recognized
	For Twelve Months Ended
(dollars in thousands)	December 31, 2015			December 31, 2014		December 31, 2013
Derivatives not designated as hedging instruments:
Mortgage loan rate lock commitments	$	(1	)	$	2	4
Mortgage loan forward sales	(1		)	17		(218		)
Total	$	(2	)	$	19	$	(214	)