DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company utilizes derivative instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities. The following table summarizes derivative instruments held by the Company, their notional amount, estimated fair values and their location in the consolidated balance sheets at December 31, 2012 and 2011:

				Derivatives in Other Assets				Derivatives in Other Liabilities
	Notional Amount			Fair Value Gain (Loss)				Fair Value Loss
	2012		2011	2012		2011		2012		2011
	(dollars expressed in thousands)
Derivative Instruments not Designated as Hedging Instruments:
Interest rate swap agreements	$	—	50,000	—		—		—		(807	)
Customer interest rate swap agreements	12,149		47,240	87		370		(87	)	(307	)
Interest rate lock commitments	59,932		38,985	1,837		1,381		—		—
Forward commitments to sell mortgage-backed securities	107,700		58,800	(305	)	(729	)	—		—
Total	$	179,781	195,025	1,619		1,022		(87	)	(1,114	)

The notional amounts of derivative instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of the Company’s credit exposure through its use of these instruments. Credit exposure on interest rate swaps, which represents the loss the Company would incur in the event the counterparties failed completely to perform according to the terms of the derivative instruments and the collateral held to support the credit exposure was of no value, is limited to the net fair value and related accrued interest receivable reduced by the amount of collateral pledged by the counterparty. The Company had not pledged any assets as collateral in connection with its interest rate swap agreements at December 31, 2012 and 2011. Collateral requirements are monitored on a daily basis and adjusted as necessary.

For the year ended December 31, 2010, the Company realized net interest income of $5.7 million on its derivative instruments. The Company also recorded net losses on derivative instruments, which are included in noninterest income in the statements of operations, of $40,000, $193,000 and $2.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Interest Rate Swap Agreements. The Company entered into certain interest rate swap agreements with the objective of stabilizing the long-term cost of capital and cash flow and, accordingly, net interest expense on junior subordinated debentures to the respective call dates of certain junior subordinated debentures. The terms of the swap agreements provided for the Company to pay and receive interest on a quarterly basis. The amount receivable and payable by the Company under these swap agreements was $36,000 and $72,000, respectively, at December 31, 2011.

The maturity dates, notional amounts, interest rates paid and received and fair value of the Company’s interest rate swap agreements as of December 31, 2011 were as follows:

Maturity Date	Notional Amount		Interest Rate Paid		Interest Rate Received		Fair Value
	(dollars expressed in thousands)
December 31, 2011:
March 30, 2012	$	25,000	4.71	%	2.19	%	$	(159	)
December 15, 2012	25,000		5.57		2.80		(648		)
	$	50,000	5.14		2.50		$	(807	)

Customer Interest Rate Swap Agreements. First Bank offers interest rate swap agreements to certain customers to assist in hedging their risks of adverse changes in interest rates. First Bank serves as an intermediary between its customers and the financial markets. Each interest rate swap agreement between First Bank and its customers is offset by an interest rate swap agreement between First Bank and various counterparties. These interest rate swap agreements do not qualify for hedge accounting treatment. Changes in the fair value of customer interest rate swap agreements are recognized in noninterest income on a monthly basis. Each customer contract is paired with an offsetting contract, and as such, there is no significant impact to net income (loss). The notional amount of these interest rate swap agreement contracts at December 31, 2012 and 2011 was $12.1 million and $47.2 million, respectively.

Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities. Derivative instruments issued by the Company consist of interest rate lock commitments to originate fixed-rate loans to be sold. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities, which expire in March 2013. The fair value of the interest rate lock commitments, which is included in other assets in the consolidated balance sheets, was an unrealized gain of $1.8 million and $1.4 million at December 31, 2012 and 2011, respectively. The fair value of the forward contracts to sell mortgage-backed securities, which is included in other assets in the consolidated balance sheets, was an unrealized loss of $305,000 and $729,000 at December 31, 2012 and 2011, respectively. Changes in the fair value of interest rate lock commitments and forward commitments to sell mortgage-backed securities are recognized in noninterest income on a monthly basis.

The following table summarizes amounts included in the consolidated statements of operations for the years ended December 31, 2012, 2011 and 2010 related to interest rate swap agreements designated as cash flow hedges:

Derivative Instruments Designated as Hedging Instruments:	2012		2011	2010
	(dollars expressed in thousands)
Interest Rate Swap Agreements - Loans:
Interest and fees on loans	$	—	—	5,745

The Company previously had interest rate swap agreements designated as cash flow hedges with a contractual maturity date of September 20, 2010. These interest rate swap agreements were terminated in December 2008, and as a result, the unrealized gain at the date of termination of $20.8 million was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates through September 2010. The amount of the pre-tax gain amortized as an increase to interest and fees on loans was $5.7 million for the year ended December 31, 2010.

The following table summarizes amounts included in the consolidated statements of operations for the years December 31, 2012, 2011 and 2010 related to non-hedging derivative instruments:

Derivative Instruments Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Operations on Derivatives	Amount of Gain (Loss) Recognized in Operations on Derivatives
		2012			2011		2010
		(dollars expressed in thousands)
Interest rate swap agreements – subordinated debentures	Other noninterest income	$	(43	)	(194	)	(2,929	)
Customer interest rate swap agreements	Other noninterest income	3			1		4
Interest rate lock commitments	Gain on loans sold and held for sale	456			1,105		(93	)
Forward commitments to sell mortgage-backed securities	Gain on loans sold and held for sale	424			(2,267	)	891