DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2011

DERIVATIVE INSTRUMENTS

NOTE 11 – DERIVATIVE INSTRUMENTS

The Company has entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. Interest rate swap contracts involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument contract is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument contract is negative, the Company owes the customer or counterparty and therefore, has no credit risk.  Fair values of the swaps are carried as both gross assets and gross liabilities in the condensed consolidated statements of condition.  The notional value of commercial loan swaps outstanding was $57 million with a fair value of $1.2 million as of June 30, 2011 compared to $49 million with a fair value of $1.1 million as of December 31, 2010.  Since each position is netted these amounts represent both a gross asset and a gross liability on the condensed consolidated statements of condition. The offsetting nature of the swaps results in a neutral effect on the Company’s operations.