Derivative Financial Instruments

3 Months Ended

Mar. 31, 2012

Summary of Derivative Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivatives and Financial Instruments

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest rate swaps, caps, floors, collars, options or other financial instruments designed to hedge exposures to interest rate risk or for speculative purposes.

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

For the three months ended March 31, 2011, the interest rate swaps designated as a fair value hedge resulted in decreased interest expense of $225,000 on FHLB advances than would otherwise have been recognized for the liability. The fair value of the swaps at March 31, 2011 was recorded on the Consolidated Balance Sheets as an asset in the amount of $1.1 million.

Because the swaps were terminated in 2011, there were no net gains or losses recognized on the fair value swaps at March 31, 2012. However, net gains recognized on the fair value swaps at March 31, 2011 were $92,000.

Mortgage banking derivatives used in the ordinary course of business consist of mandatory forward sales contracts or forward contracts and rate lock loan commitments. The fair value of FNB's derivative instruments is primarily measured by obtaining pricing from broker-dealers recognized to be market participants. There are no mortgage banking derivatives at March 31, 2012.

The table below provides data about the amount of gains and losses related to derivative instruments designated as hedges included in “Other income” in the FNB's Consolidated Statements of Operations:

	Gain, Net of Tax
	Recognized in Income
(dollars in thousands)	As of		As of
	March 31, 2012		March 31, 2011
Derivatives designated as hedging instruments:
Interest rate swap contracts - FHLB advances	$	—	$	56

Discontinued Operations

On April 7, 2009, Dover irrevocably opted to elect the fair value option for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. This election allowed Dover to enter into a hedging arrangement for the purpose of limiting risk inherent in the closed but unlocked mortgage loan pipeline and loans held for sale portfolio.

The table below provides data about the amount of gains and losses recognized in income on derivative instruments not designated as hedging instruments:

(dollars in thousands)	Gain/(Loss) During Three Months Ended
	March 31, 2012		March 31, 2011
Derivatives not designated as hedging instruments:
Mortgage loan rate lock commitments (1)	$	—	$	55
Mortgage loan forward sales and MBS (1)	—		(44		)
Total	$	—	$	11
(1) Recognized in "Net loss from discontinued operations" in FNB's Consolidated Statements of Operations.

Dover originated certain residential mortgage loans with the intention of selling these loans. Between the time that Dover entered into an interest rate lock or a commitment to originate a residential mortgage loan with a potential borrower and the time the closed loan is sold, FNB was subject to variability in market prices related to these commitments. FNB believed that it was prudent to limit the variability of expected proceeds from the future sales of these loans by entering into forward sales commitments and commitments to deliver loans into a mortgage-backed security. The commitments to originate residential mortgage loans and the forward sales commitments were freestanding derivative instruments. They did not qualify for hedge accounting treatment so their fair value adjustments were recorded through the income statement in income from mortgage loan sales.