Derivatives

12 Months Ended

Dec. 31, 2012

Derivatives [Abstract]

DERIVATIVES

20. DERIVATIVES

Home Savings utilizes interest rate cap agreements as part of its asset/liability management strategy to help manage its interest rate risk position. Home Savings entered into an interest rate cap agreement in October 2011 with an outside counterparty. Home Savings receives proceeds from the counterparty if interest rates exceed the cap rate computed based on the underlying notional amounts. The notional amount of the interest rate caps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate cap agreements. The interest rate caps are carried as freestanding derivatives, considered an economic hedge classified as an other asset with a carrying value of $436,000 with changes in fair value of approximately $1.5 million reported in current earnings through other noninterest income.

Summary information about the interest rate caps not designated hedges as of December 31, 2012 and 2011 is as follows:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Notional amounts	$	100,000		$	100,000
Weighted average strike rate, based on three-month LIBOR		1.50	%		1.50	%
Weighted average maturity		5.0 years			5.0 years
Fair value of combined interest rate caps	$	436		$	1,933

Home Savings had no interest rate caps as of December 31, 2010.

The following table presents net gains/(losses) recorded in noninterest income relating to instruments not designated as hedges:

	December 31, 2012			December 31, 2011
	(Dollars in thousands)
Interest rate caps	$	(1,497	)	$	(528	)

The following table reflects the fair value and location in the consolidated statement of financial condition of interest rate caps:

Included in other assets:

	December 31, 2012		December 31, 2011
	(Dollars in thousands)
Freestanding derivative assets not designated as hedges:
Interest rate caps	$	436	$	1,933

Home Savings is subject to counterparty risk. Counterparty risk is the risk to Home Savings that the counterparty will not live up to its contractual obligations. The ability of Home Savings to realize the benefit of the derivative contracts is dependent on the creditworthiness of the counterparty, which Home Savings expects will perform in accordance with the terms of the contracts.