Derivative Financial Instruments (Notes)

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

In November 2010 the Company entered into an interest rate swap designed to hedge the interest cash flows of its junior subordinated debentures. The swap became effective on March 15, 2011, which is the date on which the junior subordinated debentures switched from a fixed interest rate to a floating interest rate. The maturity date of the swap is March 15, 2018. The Company expects the hedge to be highly effective and it is being accounted for as a cash flow hedge. The unrealized gains and losses of the interest rate swap are being recorded in accumulated other comprehensive income until the interest payment due dates when the balance remaining in other comprehensive income will be removed and charged or credited to interest expense. The swap is designed to make fixed rate payments at 3.795% to the counterparty and receive floating rate payments at three month LIBOR plus 1.33% from the counterparty. Government sponsored entity securities with a fair value of $1.520 million and cash of $1.873 million were pledged as collateral on the swap at September 30, 2012. Government sponsored entity securities with a fair value of $1.505 million and cash of $1.861 million were pledged as collateral on the swap at December 31, 2011.

The Company enters into interest rate lock agreements related to mortgage loan originations with customers. The Company also enters into forward sale agreements with mortgage investors. The interest rate lock agreements, which are written options, and the forward sale agreements are free-standing derivatives and are carried at fair value on the consolidated statements of condition with changes in fair value being recorded in earnings for the period.

Note 14:  (Continued)

The following tables summarize the Company’s derivative positions:

	As of September 30, 2012
	Asset Derivatives					Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amount		Fair Value		Balance Sheet Classification	Notional Amount		Fair Value
Derivatives designated in cash flow hedging relationships:
Interest rate swap	Other assets	$	—	$	—	Other liabilities	$	30,000	$	2,653
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	18,184		106		Other liabilities	46,010		410
Written interest rate options (locks)	Other assets	30,792		756		Other liabilities	9,896		91
Total derivatives		$	48,976	$	862		$	85,906	$	3,154

	As of December 31, 2011
	Asset Derivatives					Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amount		Fair Value		Balance Sheet Classification	Notional Amount		Fair Value
Derivatives designated in cash flow hedging relationships:
Interest rate swap	Other assets	$	—	$	—	Other liabilities	$	30,000	$	1,834
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	22,220		135		Other liabilities	15,287		124
Written interest rate options (locks)	Other assets	4,225		134		Other liabilities	7,021		167
Total derivatives		$	26,445	$	269		$	52,308	$	2,125

Amounts included in the consolidated statements of operations and in other comprehensive income (OCI) in for the three and nine month periods ending on September 30 of 2012 and 2011 are summarized in the following tables:

	Three Months Ended September 30, 2012
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(457	)	Interest on junior subordinated debt	$	(153	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	(341	)
Written interest rate options (locks)	Mortgage banking income				667
Total					$	326

Note 14:  (Continued)

	Nine Months Ended September 30, 2012
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(1,269	)	Interest on junior subordinated debt	$	(450	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	(392	)
Written interest rate options (locks)	Mortgage banking income				863
Total					$	471

	Three Months Ended September 30, 2011
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(2,001	)	Interest on junior subordinated debt	$	(169	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	(28	)
Written interest rate options (locks)	Mortgage banking income				118
Total					$	90

	Nine Months Ended September 30, 2011
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(2,908	)	Interest on junior subordinated debt	$	(362	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	137
Written interest rate options (locks)	Mortgage banking income				94
Total					$	231

A net settlement payment of $156 thousand was made to the swap counterparty on September 17, 2012. A total of $455 thousand in settlement payments were made to the swap counterparty during the first nine months of 2012. The Company estimates that approximately $159 thousand will be recognized as a charge to interest expense during the remainder of 2012 related to the swap. The Company expects approximately $632 thousand related to future swap settlements to be recognized as a charge to interest expense over the next twelve months.