DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2011

DERIVATIVE INSTRUMENTS [Abstract]

DERIVATIVE INSTRUMENTS

NOTE L:  DERIVATIVE INSTRUMENTS

The Company is party to derivative financial instruments in the normal course of its business to meet the financing needs of its customers and to manage its own exposure to fluctuations in interest rates.  These financial instruments have been limited to interest rate swap agreements, commitments to originate real estate loans held for sale, and forward sales commitments.  The Company does not hold or issue derivative financial instruments for trading or other speculative purposes.

The Company enters into forward sales commitments for the future delivery of residential mortgage loans, and interest rate lock commitments to fund loans at a specified interest rate.  The forward sales commitments are utilized to reduce interest rate risk associated with interest rate lock commitments and loans held for sale.  Changes in the estimated fair value of the forward sales commitments and interest rate lock commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.  At inception and during the life of the interest rate lock commitment, the Company includes the expected net future cash flows related to the associated servicing of the loan as part of the fair value measurement of the interest rate lock commitments.  These derivatives are recorded at fair value.

The Company utilizes interest rate swap agreements as part of the management of interest rate risk to modify the repricing characteristics of certain of its borrowings.  The interest rate swap has been designated as a qualifying cash flow hedge.  See further details of interest rate swap agreements in Note G.

The following table presents the Company's derivative financial instruments, their estimated fair values, and balance sheet location as of September 30, 2011:

	Liability Derivatives
(000's omitted)	Location	Notional	Fair Value
Derivatives designated as hedging instruments:
Interest rate swap agreement	Other liabilities	$75,000	$769
Total derivatives			$769

The following table presents the Company's derivative financial instruments and the location of the net gain or loss recognized in the statement of income for the three and nine months ended September 30, 2011:

		Loss recognized in the Statement of Income
(000's omitted)	Location	Three Months Ending September 30, 2011	Nine Months Ending September 30, 2011
Interest rate swap agreement	Interest on subordinated debt held by unconsolidated subsidiary trusts	($865)	($2,554)
Interest rate lock commitments	Mortgage banking and other services	(142)	(58)
Forward sales commitments	Mortgage banking and other services	0	(322)
Total		($1,007)	($2,934)

The amount of gain recognized during the three and nine months ended September 30, 2011 in other comprehensive income related to the interest rate swap accounted for as a hedging instrument was approximately $871,000 and $2,463,000, respectively.  The amount of loss reclassified from accumulated other comprehensive income into income (effective portion) amounted to approximately $865,000 and $2,554,000 for the three and nine months ended September 30, 2011, respectively, and is located in interest expense on subordinated debt held by unconsolidated trusts.