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DERIVATIVE FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2014
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS

(10) DERIVATIVE FINANCIAL INSTRUMENTS

The Company enters into oil and gas swaps and options contracts to accommodate the business needs of its customers. Upon the origination of an oil or gas swap or option contract with a customer, the Company simultaneously enters into an offsetting contract with a counterparty to mitigate the exposure to fluctuations in oil and gas prices. These derivatives are not designated as hedged instruments and are recorded on the Company’s consolidated balance sheet at fair value.

The Company utilizes dealer quotations and observable market data inputs to substantiate internal valuation models. The notional amounts and estimated fair values of oil and gas derivative positions outstanding are presented in the following table:

 

     June 30, 2014  

Oil and Natural Gas Swaps and Options

    Notional Units    Notional
Amount		     Estimated
Fair Value		  
     (Notional amounts and dollars in thousands)  

Oil

        

Derivative assets

    Barrels      452      $ 1,701   

Derivative liabilities

    Barrels      (452 )      (1,207 ) 

Natural Gas

        

Derivative assets

    MMBTUs      1,625        1,952   

Derivative liabilities

    MMBTUs      (1,625 )      (877 ) 

Total Fair Value

    Included in             

Derivative assets

    Other assets        3,653   

Derivative liabilities

    Other liabilities        2,084   

 

The following table is a summary of the Company’s recognized income related to the activity, which was included in other noninterest income:

 

     Three Months Ended
June 30,		      Six Months Ended
June 30,		  
     2014      2013      2014      2013  
     (Dollars in thousands)  

Derivative income

    $ 149       $ 130       $ 298       $ 238   

The Company’s credit exposure on oil and gas swaps and options varies based on the current market prices of oil and natural gas. Other than credit risk, changes in the fair value of customer positions will be offset by equal and opposite changes in the counterparty positions. The net positive fair value of the contracts is the profit derived from the activity and is unaffected by market price movements.

Customer credit exposure is managed by strict position limits and is primarily offset by first liens on production while the remainder is offset by cash. Counterparty credit exposure is managed by selecting highly rated counterparties (rated A- or better by Standard and Poor’s) and monitoring market information.

The following table is a summary of the Company’s net credit exposure relating to oil and gas swaps and options with bank customers:

 

     June 30, 2014  
     (Dollars in thousands)  

Credit exposure

    $ 3,499   

Balance Sheet Offsetting

Derivatives may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with upstream financial institution counterparties and bank customers are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset such financial instruments for financial reporting purposes.