Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

22. DERIVATIVE FINANCIAL INSTRUMENTS

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. As of December 31, 2011, the Bank entered into 68 interest-rate swap agreements with customers and 68 with a counterparty bank. The swaps are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and provide the customer the financial effects of a fixed-rate loan without creating volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into a swap with its customers to allow them to convert variable rate loans to fixed rate loans, and at the same time, the Bank enters into a swap with the counterparty bank to allow the Bank to pass on the interest-rate risk associated with fixed rate loans. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore do not have a significant impact on the Company’s results of operations.

As of December 31, 2011, the total notional amount of the Bank’s swaps was $188.5 million. The location of the asset and liability and the amount of gain recognized as of and for the year ended December 31, 2011 are presented as follows:

Fair Value of Derivative Instruments

	Asset Derivatives			Liability Derivatives
	December 31, 2011			December 31, 2011
	(Dollars in thousands)
Derivatives Not Designated as Hedging Instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate swaps	Other Assets	$	20,497	Other Liabilities	$	20,497
Total derivatives		$	20,497		$	20,497

The Effect of Derivative Instruments on the Consolidated Statements of Earnings

for the three years ended December 31, 2011

(Dollars in thousands)

Derivatives Not Designated as Hedging Instruments	Location of Gain Recognized in Income on Derivative	Amount of Gain Recognized in Income on Derivative
		2011		2010		2009
Interest rate swaps	Other income	$	356	$	1,045	$	275
Total		$	356	$	1,045	$	275