Derivative Financial Instruments

3 Months Ended

Mar. 31, 2013

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 $1.518 million and cash of $1.974 million were pledged as collateral on the swap at March 31, 2013. Government sponsored entity securities with a fair value of $1.520 million and cash of $1.973 million were pledged as collateral on the swap at December 31, 2012.

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 March 31, 2013
	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	$	2,396
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	12,384		173		Other liabilities	14,061		67
Written interest rate options (locks)	Other assets	5,814		105		Other liabilities	3,274		58
Total derivatives		$	18,198	$	278		$	47,335	$	2,521

	As of December 31, 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	$	2,484
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	21,925		168		Other liabilities	10,888		63
Written interest rate options (locks)	Other assets	8,641		149		Other liabilities	3,287		63
Total derivatives		$	30,566	$	317		$	44,175	$	2,610

Amounts included in the consolidated statements of operations and in other comprehensive income (OCI) in for the three month periods ending on March 31 of 2013 and 2012 are summarized in the following tables:

	Three Months Ended March 31, 2013
(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	$	(69	)	Interest on junior subordinated debt	$	(157	)
	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				$	355
Written interest rate options (locks)	Mortgage banking income				108
Total					$	463

Note 14:  (Continued)

	Three Months Ended March 31, 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	$	(40	)	Interest on junior subordinated debt	$	(146	)
	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				$	248
Written interest rate options (locks)	Mortgage banking income				(371		)
Total					$	(123	)

A net settlement payment of $157 thousand was made to the swap counterparty on March 15, 2013. The Company estimates that approximately $501 thousand will be recognized as a charge to interest expense during the remainder of 2013 related to the swap. The Company expects approximately $665 thousand related to future swap settlements to be recognized as a charge to interest expense over the next twelve months.

The interest rate swap is subject to a master netting arrangement. The Company does not net its derivative positions with related collateral positions.