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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2012
Derivative Financial Instruments [Abstract]  
DERIVATIVE FINANCIAL INSTRUMENTS
7. DERIVATIVE FINANCIAL INSTRUMENTS

The Bank is exposed to certain risks relating to its ongoing business operations and utilizes interest rate swap agreements (“swaps”) as part of its asset liability management strategy to help manage its interest rate risk position. As of March 31, 2012, the Bank entered into 80 interest-rate swap agreements with customers and 80 with a counterparty bank. The swaps are not designated as hedging instruments. The purpose of entering into offsetting derivatives not designated as a hedging instrument is to provide the Bank a variable-rate loan receivable and provide the customer the financial effects of a fixed-rate loan without creating volatility in the Bank’s earnings.

The structure of the swaps is as follows. The Bank enters into a swap with its customers to allow them to convert variable rate loans to fixed rate loans, and at the same time, the Bank enters into a swap with the counterparty bank to allow the Bank to pass on the interest-rate risk associated with fixed rate loans. The net effect of the transaction allows the Bank to receive interest on the loan from the customer at a variable rate based on LIBOR plus a spread. The changes in the fair value of the swaps primarily offset each other and therefore do not have a significant impact on the Company’s results of operations.

We believe our risk of loss associated with our counterparty borrowers related to interest rate swaps is mitigated as the loans with swaps are underwritten to take into account potential additional exposure.

 

As of March 31, 2012, the total notional amount of the Company’s swaps was $216.3 million. The location of the asset and liability and the amount of gain recognized as of and for the three months ended March 31, 2012 are presented as follows:

Fair Value of Derivative Instruments

 

                         
    Asset Derivatives     Liability Derivatives  
    March 31, 2012     March 31, 2012  
    (Dollars in thousands)  
    Balance Sheet Location   Fair Value     Balance Sheet
Location		   Fair Value  

Derivatives Not Designated as Hedging Instruments

                    
         

Interest rate swaps

   Other Assets   $ 18,753     Other Liabilities   $ 18,753  
       

 

 

        

 

 

  
         

Total derivatives

       $ 18,753         $ 18,753  
       

 

 

        

 

 

  

 

                         
   

 

  
    December 31, 2011     December 31, 2011  
         

Interest rate swaps

   Other Assets   $ 20,497     Other Liabilities   $ 20,497  
       

 

 

        

 

 

  
         

Total derivatives

       $ 20,497         $ 20,497  
       

 

 

        

 

 

  

The Effect of Derivative Instruments on the Consolidated Statements of Earnings for the Three

Months Ended March 31, 2012

(Dollars in thousands)

 

                     

Derivatives Not Designated as Hedging
Instruments

   Location of Gain Recognized in
Income on Derivative		   Amount of Gain
Recognized in Income
on Derivative		     March 31, 2011  
       

Interest rate swaps

   Other income   $ 503     $ 101  
       

 

 

    

 

 

  
       

Total

       $ 503     $ 101