Derivative Financial Instruments

9 Months Ended

Sep. 30, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

18. Derivative Financial Instruments

The Company is exposed to interest rate risk relating to its ongoing business operations. In connection with its asset/liability management objectives, the Company has entered into interest rate swaps.

During the fourth quarter 2009 and first quarter 2010, the Bank entered into four interest rate swaps totaling $45.0 million, using a receive-fixed swap to mitigate the exposure to changes in the fair value attributable to the benchmark interest rate (3-month LIBOR) of the hedged items (FHLB advances) from the effective date to the maturity date of the hedged instruments. As structured, the pay-variable, receive-fixed swaps are evaluated as fair value hedges and are considered highly effective. As highly effective hedges, all fair value designated hedges and the underlying hedged instrument are recorded on the balance sheet at fair value with the periodic changes of the fair value reported in the income statement.

For the three- and nine-month periods ended September 30, 2011, the interest rate swaps designated as a fair value hedge resulted in decreased interest expense of $174,800 and $629,100, respectively, on FHLB advances than would otherwise have been recognized for the liability. The fair value of the swaps at September 30, 2011 was recorded on the Consolidated Balance Sheets as an asset in the amount of $809,900.

During the third quarter of 2011, the Bank terminated a $15.0 million interest swap at a gain of $946,500. This swap was used to hedge a FHLB advance that was terminated concurrently at a loss of $2.0 million. The gain on the swap and loss on the hedged item were netted in noninterest expense in the Consolidated Statements of Operations. The Bank is now under no additional obligations related to either this swap or the terminated FHLB advance.

Net gains recognized on the fair value swaps were $932,700 at September 30, 2011 and $162,500 at September 30, 2010.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts (forward contracts) and rate lock loan commitments. The fair value of the Company's derivative instruments is measured primarily by obtaining pricing from broker-dealers recognized to be market participants. These operations discontinued in March 2011.

The table below provides data about the carrying values of derivative instruments:

	As of September 30, 2011						As of December 31, 2010
	Assets		(Liabilities)				Assets		(Liabilities)
(dollars in thousands)	Carrying		Carrying		Derivative Net Carrying		Carrying		Carrying			Derivative Net Carrying
	Value		Value		Value		Value		Value			Value
Derivatives designated as hedging instruments:
Interest rate swap contracts—FHLB advances (1)	$	810	$	—	$	810	$	1,415	$	—		$	1,415
Derivatives not designated as hedging instruments:
Mortgage loan rate lock commitments (2)	$	—	$	—	$	—	$	—	$	(55	)	$	(55	)
Mortgage loan forward sales and MBS (3)		—		—		—		44		—			44

(1) Included in "Other assets" on the Company's Consolidated Balance Sheets.

(2) Included in "Liabilities from discontinued operations" on the Company's Consolidated Balance Sheets.

(3) Included in "Assets from discontinued operations" on the Company's Consolidated Balance Sheets.

The following tables provide data about the amount of gains and losses related to derivative instruments designated as hedges included in Other income in the Company's Consolidated Statements of Operations:

	Gain, Net of Tax
	Recognized in Income
(dollars in thousands)	As of		As of
	September 30, 2011		September 30, 2010
Derivatives designated as hedging instruments:
Interest rate swap contracts—FHLB advances	$	565	$	99

(dollars in thousands)	Gain/(Loss) During Nine Months Ended
	September 30, 2011			September 30, 2010
Derivatives not designated as hedging instruments:
Mortgage loan rate lock commitments (1)	$	55		$	223
Mortgage loan forward sales and MBS (1)		(44	)		(306	)
Total	$	11		$	(83	)