DERIVATIVE INSTRUMENTS

12 Months Ended

Dec. 31, 2013

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, 2013 and 2012:

				Derivatives in Other Assets			Derivatives in Other Liabilities
	Notional Amount			Fair Value Gain (Loss)			Fair Value Loss
	2013		2012	2013	2012		2013	2012
	(dollars expressed in thousands)
Derivative Instruments Not Designated as Hedging Instruments:
Customer interest rate swap agreements	$	—	12,149	—	87		—	(87	)
Interest rate lock commitments	14,237		59,932	217	1,837		—	—
Forward commitments to sell mortgage-backed securities	29,100		107,700	296	(305	)	—	—
Total	$	43,337	179,781	513	1,619		—	(87	)

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.

The Company also recorded net losses on derivative instruments, which are included in noninterest income in the statements of operations, of $40,000 and $193,000 for the years ended December 31, 2012 and 2011, respectively. The net losses were attributable to changes in the fair value and the net interest differential on interest rate swap agreements previously designated as cash flow hedges on junior subordinated debentures.

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 customer interest rate swap agreements at December 31, 2012 was $12.1 million. There were no remaining customer interest rate swap agreements at December 31, 2013.

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 2014. 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 $217,000 and $1.8 million at December 31, 2013 and 2012, 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 gain of $296,000 and an unrealized loss of $305,000 at December 31, 2013 and 2012, 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 December 31, 2013, 2012 and 2011 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
		2013			2012		2011
		(dollars expressed in thousands)
Interest rate swap agreements	Other noninterest income	$	—		(43	)	(194	)
Customer interest rate swap agreements	Other noninterest income	—			3		1
Interest rate lock commitments	Gain on loans sold and held for sale	(1,620		)	456		1,105
Forward commitments to sell mortgage-backed securities	Gain on loans sold and held for sale	601			424		(2,267	)