17.

Derivative Financial Instruments and Hedging Activities

At June 30, 2011 and December 31, 2010, the Company's only derivative instruments related to residential mortgage lending activities. The Company originates certain residential loans with the intention of selling these loans. Between the time the Company enters into an interest rate lock commitment to originate a residential loan with a potential borrower and the time the closed loan is sold, the Company is subject to variability in market prices related to these commitments. The Company also enters into forward sale agreements of "to be issued" loans. The commitments to originate residential loans and forward sales commitments are freestanding derivative instruments and are recorded on the Consolidated Balance Sheets at fair value. They do not qualify for hedge accounting treatment. Fair value adjustments are recorded within Mortgage-banking in the Consolidated Statements of Income (Loss).

At June 30, 2011, commitments to originate conforming loans totaled $3.0 million. At June 30, 2011, these derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $41 thousand. At December 31, 2010, commitments to originate conforming loans totaled $12.2 million. At December 31, 2010, these derivative loan commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $103 thousand and negative fair values, included with Other liabilities in the Consolidated Balance Sheets, totaling $40 thousand. The net change in derivative loan commitment fair values during the three months ended June 30, 2011 and 2010 resulted in net derivative loan commitment expense of $82 thousand and income of $157 thousand, respectively. The net change in derivative loan commitment fair values during the six months ended June 30, 2011 and 2010 resulted in net derivative loan commitment expense of $23 thousand and income of $209 thousand, respectively.

Forward sales commitments totaled $3.0 million at June 30, 2011. At June 30, 2011, forward sales commitments had positive fair values, included within Other assets in the Consolidated Balance Sheets, totaling $17 thousand and negative fair values, included within Other liabilities in the Consolidated Balance Sheets, totaling $1 thousand. Forward sales commitments totaled $19.6 million at December 31, 2010. At December 31, 2010, forward sales commitments had positive fair values, included with Other assets in the Consolidated Balance Sheets, totaling $175 thousand and negative fair values, included within Other liabilities in the Consolidated Balance Sheets, totaling $96 thousand. The net change in forward sales commitment fair values during the three months ended June 30, 2011 and 2010, resulted in income of $11 thousand and a loss of $255 thousand, respectively. The net change in forward sales commitment fair values during the six months ended June 30, 2011 and 2010, resulted in a loss of $64 thousand and $331 thousand, respectively.