XML 34 R16.htm IDEA: XBRL DOCUMENT
v3.5.0.2

Derivatives and Hedging Activities | 6 Months Ended
--- | ---
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING ACTIVITIES | DERIVATIVE AND HEDGING ACTIVITIES The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally to manage the Company’s interest rate risk. Additionally, the Company enters into interest rate derivatives and foreign exchange contracts to accommodate the business requirements of its customers (“customer related positions”). The Company minimizes the market and liquidity risks of customer related positions by entering into similar offsetting positions with broker-dealers. Derivative instruments are carried at fair value in the Company’s financial statements. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies as a hedge for accounting purposes, and further, by the type of hedging relationship. The Company does not enter into proprietary trading positions for any derivatives. Interest Rate Positions The Company currently utilizes interest rate swap agreements as hedging instruments against interest rate risk associated with the Company’s borrowings. An interest rate swap is an agreement whereby one party agrees to pay a floating rate of interest on a notional principal amount in exchange for receiving a fixed rate of interest on the same notional amount, for a predetermined period of time, from a second party. The amounts relating to the notional principal amount are not actually exchanged. The maximum length of time over which the Company is currently hedging its exposure to the variability in future cash flows for forecasted transactions related to the payment of variable interest on existing financial instruments is five years. The following table reflects the Company’s derivative positions for the periods indicated below for interest rate swaps which qualify as cash flow hedges for accounting purposes:
June 30, 2016
Notional Amount |  | Trade Date |  | Effective Date |  | Maturity Date |  | Receive (Variable) Index |  | Current Rate Received |  | Pay Fixed Swap Rate |  | Fair Value
(Dollars in thousands)
$ | 25,000 |  |  | 16-Feb-06 |  | 28-Dec-06 |  | 28-Dec-16 |  | 3 Month LIBOR |  | 0.65 | % |  | 5.04 | % |  | $ | (547 | )
25,000 |  |  | 16-Feb-06 |  | 28-Dec-06 |  | 28-Dec-16 |  | 3 Month LIBOR |  | 0.65 | % |  | 5.04 | % |  | (547 | )
25,000 |  |  | 9-Dec-08 |  | 10-Dec-08 |  | 10-Dec-18 |  | 3 Month LIBOR |  | 0.66 | % |  | 2.94 | % |  | (1,345 | )
25,000 |  |  | 1-Apr-16 |  | 17-Jan-17 |  | 15-Dec-21 | (1) | 3 Month LIBOR |  | TBD |  |  | 1.36 | % |  | (375 | )
25,000 |  |  | 1-Apr-16 |  | 17-Jan-17 |  | 15-Dec-21 | (1) | 3 Month LIBOR |  | TBD |  |  | 1.36 | % |  | (374 | )
$ | 125,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (3,188 | )
December 31, 2015
Notional Amount |  | Trade Date |  | Effective Date |  | Maturity Date |  | Receive (Variable) Index |  | Current Rate Received |  | Pay Fixed Swap Rate |  | Fair Value
|  |  |  |  |  | (Dollars in thousands) |  |  |  |  |  |
$ | 25,000 |  |  | 16-Feb-06 |  | 28-Dec-06 |  | 28-Dec-16 |  | 3 Month LIBOR |  | 0.51 | % |  | 5.04 | % |  | $ | (1,054 | )
25,000 |  |  | 16-Feb-06 |  | 28-Dec-06 |  | 28-Dec-16 |  | 3 Month LIBOR |  | 0.51 | % |  | 5.04 | % |  | (1,055 | )
25,000 |  |  | 9-Dec-08 |  | 10-Dec-08 |  | 10-Dec-18 |  | 3 Month LIBOR |  | 0.49 | % |  | 2.94 | % |  | (1,164 | )
$ | 75,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (3,273 | )
(1) In April 2016, the Company entered into two forward starting swaps with notional amounts of $25.0 million each, with the intention of hedging $50.0 million of existing junior subordinated debentures, as the current hedges on this borrowing expire in December 2016. For derivative instruments that are designated and qualify as cash flow hedging instruments, the effective portion of the gains or losses is reported as a component of other comprehensive income ("OCI"), and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company expects approximately $1.6 million (pre-tax) to be reclassified to interest expense from OCI related to the Company’s cash flow hedges in the next twelve months. This reclassification is due to anticipated payments that will be made and/or received on the swaps based upon the forward curve as of June 30, 2016. The Company recognized $61,000 and $122,000 of net amortization income that was an offset to interest expense related to previously terminated swaps for the three and six month periods ended June 30, 2016 and 2015, respectively. The Company had no fair value hedges as of June 30, 2016 or December 31, 2015. Customer Related Positions Loan level derivatives, primarily interest rate swaps, offered to commercial borrowers through the Company’s loan level derivative program do not qualify as hedges for accounting purposes. The Company believes that its exposure to commercial customer derivatives is limited because these contracts are simultaneously matched at inception with an offsetting dealer transaction. The commercial customer derivative program allows the Company to retain variable-rate commercial loans while allowing the customer to synthetically fix the loan rate by entering into a variable-to-fixed interest rate swap. Foreign exchange contracts offered to commercial borrowers through the Company’s derivative program do not qualify as hedges for accounting purposes. The Company acts as a seller and buyer of foreign exchange contracts to accommodate its customers. To mitigate the market and liquidity risk associated with these derivatives, the Company enters into similar offsetting positions. The following table reflects the Company’s customer related derivative positions for the periods indicated below for those derivatives not designated as hedging:
|  |  | Notional Amount Maturing |  |
| Number of Positions (1) |  | Less than 1 year |  | Less than 2 years |  | Less than 3 years |  | Less than 4 years |  | Thereafter |  | Total |  | Fair Value
| June 30, 2016
| (Dollars in thousands)
Loan level swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receive fixed, pay variable | 194 |  |  | $ | 25,764 |  |  | $ | 36,089 |  |  | $ | 61,431 |  |  | $ | 77,242 |  |  | $ | 555,329 |  |  | $ | 755,855 |  |  | $ | 46,820 |
Pay fixed, receive variable | 179 |  |  | $ | 25,764 |  |  | $ | 36,089 |  |  | $ | 61,431 |  |  | $ | 77,242 |  |  | $ | 555,329 |  |  | $ | 755,855 |  |  | $ | (46,723 | )
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buys foreign currency, sells U.S. currency | 32 |  |  | $ | 54,095 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 54,095 |  |  | $ | 87 |
Buys U.S. currency, sells foreign currency | 32 |  |  | $ | 54,095 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 54,095 |  |  | $ | (72 | )
| December 31, 2015
| (Dollars in thousands)
Loan level swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receive fixed, pay variable | 171 |  |  | $ | 37,732 |  |  | $ | 34,424 |  |  | $ | 29,629 |  |  | $ | 77,041 |  |  | $ | 488,110 |  |  | $ | 666,936 |  |  | $ | 22,467 |
Pay fixed, receive variable | 165 |  |  | $ | 37,732 |  |  | $ | 34,424 |  |  | $ | 29,629 |  |  | $ | 77,041 |  |  | $ | 488,110 |  |  | $ | 666,936 |  |  | $ | (22,462 | )
Foreign exchange contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Buys foreign currency, sells U.S. currency | 21 |  |  | $ | 38,416 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 38,416 |  |  | $ | (354 | )
Buys U.S. currency, sells foreign currency | 21 |  |  | $ | 38,416 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 38,416 |  |  | $ | 382 |
(1) | The Company may enter into one dealer swap agreement which offsets multiple commercial borrower swap agreements.
Mortgage Derivatives Prior to closing and funding certain 1- 4 family residential mortgage loans, an interest rate lock commitment is generally extended to the borrower. During the period from commitment date to closing date, the Company is subject to the risk that market rates of interest may change. If market rates rise, investors generally will pay less to purchase such loans resulting in a reduction in the gain on sale of the loans or, possibly, a loss. In an effort to mitigate such risk, forward delivery sales commitments are executed, under which the Company agrees to deliver whole mortgage loans to various investors. These forward commitments carry a market price that has a strong inverse relationship to that of mortgage prices. Certain assumptions, including pull through rates and rate lock periods, are used in managing the existing and future hedges. The effectiveness of the economic hedges rely on the accuracy of these assumptions. The change in fair value on the interest rate lock commitments and forward delivery sale commitments are recorded in current period earnings as a component of mortgage banking income. In addition, the Company has elected the fair value option to carry loans held for sale at fair value. The change in fair value of loans held for sale is recorded in current period earnings as a component of mortgage banking income in accordance with the Company's fair value election. The change in fair value associated with loans held for sale was a decrease of $41,000 and an increase of $157,000 for the three month periods ended June 30, 2016 and 2015, respectively, and an increase of $13,000 and $184,000 for the six month periods ended June 30, 2016 and 2015, respectively. These amounts were offset in earnings by the change in the fair value of mortgage derivatives. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet at the periods indicated:
| Asset Derivatives |  | Liability Derivatives
|  |  | Fair Value at |  | Fair Value at |  |  |  | Fair Value at |  | Fair Value at
| Balance Sheet Location |  | June 30 2016 |  | December 31 2015 |  | Balance Sheet Location |  | June 30 2016 |  | December 31 2015
| (Dollars in thousands)
Derivatives designated as hedges |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives | Other assets |  | $ | — |  |  | $ | — |  |  | Other liabilities |  | $ | 3,188 |  |  | $ | 3,273 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |
Customer Related Positions |  |  |  |  |  |  |  |  |  |  |
Loan level derivatives | Other assets |  | $ | 46,820 |  |  | $ | 22,470 |  |  | Other liabilities |  | $ | 46,723 |  |  | $ | 22,465 |
Foreign exchange contracts | Other assets |  | 762 |  |  | 602 |  |  | Other liabilities |  | 747 |  |  | 574 |
Mortgage Derivatives |  |  |  |  |  |  |  |  |  |  |
Interest rate lock commitments | Other assets |  | 206 |  |  | 233 |  |  | Other liabilities |  | — |  |  | — |
Forward sales agreements | Other assets |  | 330 |  |  | — |  |  | Other liabilities |  | — |  |  | 1 |
|  |  | $ | 48,118 |  |  | $ | 23,305 |  |  |  |  | $ | 47,470 |  |  | $ | 23,040 |
Total |  |  | $ | 48,118 |  |  | $ | 23,305 |  |  |  |  | $ | 50,658 |  |  | $ | 26,313 |
The table below presents the effect of the Company’s derivative financial instruments included in OCI and current earnings for the periods indicated:
| Three Months Ended |  | Six Months Ended
| June 30 |  | June 30
| 2016 |  | 2015 |  | 2016 |  | 2015
| (Dollars in thousands)
Derivatives designated as hedges |  |  |  |  |  |  |
Gain (loss) in OCI on derivatives (effective portion), net of tax | $ | (144 | ) |  | $ | 382 |  |  | $ | (21 | ) |  | $ | 464 |
Loss reclassified from OCI into interest expense (effective portion) | $ | (640 | ) |  | $ | (709 | ) |  | $ | (1,301 | ) |  | $ | (1,415 | )
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing) |  |  |  |  |  |  |
Interest expense | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Other expense | — |  |  | — |  |  | — |  |  | — |
Total | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedges |  |  |  |  |  |  |
Changes in fair value of customer related positions |  |  |  |  |  |  |
Other income | $ | 41 |  |  | $ | (4 | ) |  | $ | 113 |  |  | $ | 17 |
Other expense | (18 | ) |  | (33 | ) |  | (34 | ) |  | (51 | )
Changes in fair value of mortgage derivatives |  |  |  |  |  |  |
Mortgage banking income | 190 |  |  | (299 | ) |  | $ | 304 |  |  | $ | (107 | )
Total | $ | 213 |  |  | $ | (336 | ) |  | $ | 383 |  |  | $ | (141 | )
By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company's credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. Institutional counterparties must have an investment grade credit rating and be approved by the Company's Board of Directors. As such, management believes the risk of incurring credit losses on derivative contracts with those counterparties is remote and losses, if any, would be immaterial. The Company had no exposure at June 30, 2016 and $272,000 in exposure relating to institutional counterparties at December 31, 2015. The Company’s exposure relating to customer counterparties was approximately $47.5 million and $23.2 million at June 30, 2016 and December 31, 2015, respectively. Credit exposure may be reduced by the amount of collateral pledged by the counterparty.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624163-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579240-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624177-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41641-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5579245-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624258-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708775-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5708773-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5618551-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5580258-113959 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=64837297&loc=SL5624181-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41638-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration