Derivative Instruments

9 Months Ended

Sep. 30, 2011

Derivative Instruments

Derivative Instruments

Note 9:      Derivative Instruments

The Company has commitments outstanding to extend credit on residential mortgages that have not closed prior to the end of the period. As the Company enters into commitments to originate these loans, it also enters into commitments to sell the loans in the secondary market on a best-efforts basis. The Company acquires such commitments to reduce interest rate risk on mortgage loans in the process of origination and mortgage loans held for sale. These commitments to originate or sell loans on a best efforts basis are considered derivative instruments under ASC 815. This standard requires the Company to recognize all derivative instruments in the balance sheet and to measure those instruments at fair value. As a result of measuring the fair value of the commitments to originate loans, the Company recorded an increase of $22,000 in other assets, a decrease in other liabilities of $15,000 and an increase in other income of $37,000 for the three month period ended September 30, 2011. The Company recorded an increase in other assets of $21,000, a decrease in other liabilities of $9,000, and an increase in other income of $30,000 for the nine month period ended September 30, 2011.

Additionally, the Company has commitments to sell loans that have closed prior to the end of the period on a best efforts basis. Due to the mark to market adjustment on commitments to sell loans held for sale the Company recorded a decrease in other assets of $54,000, an increase in other liabilities of $1,000 and a decrease in other income of $55,000 for the three month period ended September 30, 2011. The Company recorded a decrease in other assets of $294,000, an increase in other liabilities of $1,000 and a decrease in other income of $295,000 for the nine month period ended September 30, 2011.

Total mortgage loans in the process of origination amounted to $3,911,000 at September 30, 2011. Related forward commitments to sell mortgage loans amounted to approximately $4,303,000 at September 30, 2011.

The balance of derivative instruments related to commitments to originate and sell loans at September 30, 2011, is disclosed in Note 11, Disclosures About Fair Value of Assets and Liabilities.