Derivatives

6 Months Ended

Jun. 30, 2011

Derivatives [Abstract]

DERIVATIVES

NOTE 12. DERIVATIVES

As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements or other derivatives to mitigate the interest rate risk inherent in certain assets and liabilities. Presently, the Company does not use derivatives for trading or speculative purposes.

The primary underlying risk exposure of the derivative instruments is the timing and level of changes in interest rates counter to management’s expectations. Furthermore, interest rate swap agreements involve the risk of dealing with institutional counterparties and their ability to adhere to contractual terms. The agreements are entered into with counterparties that meet established credit standards and contain master netting and collateral provisions protecting the at-risk party. Oversight of the Derivatives and Hedging Program is the responsibility of the Asset/Liability Management Committee (ALCO) of the Company’s Board of Directors.

The following table summarizes the notional amount, effective dates and maturity dates of the forward starting interest rate contracts the Company had outstanding with counterparties as of December 31, 2010. The Company did not carry any derivatives as of June 30, 2011. The total of $75.0 million represents interest rate swaps designated as cash flow hedges.

(Dollars in thousands)
Description	Notional Amount		Effective Date	Maturity
Forward starting interest rate swap	$	75,000	March 1, 2012	September 1, 2012
Forward starting interest rate swap	$	75,000	September 4, 2012	September 1, 2013
Forward starting interest rate swap	$	75,000	September 3, 2013	September 1, 2014
Forward starting interest rate swap	$	75,000	September 2, 2014	September 1, 2015
Forward starting interest rate swap	$	75,000	September 1, 2015	March 1, 2017

Pursuant to the interest rate swap agreements, the Company pledged collateral to counterparties in the form of securities totaling $4.0 million with an amortized cost of $4.0 million and a fair value of $3.9 million as of December 31, 2010. No collateral was posted from counterparties to the Company as of December 31, 2010.

The following table summarizes the type of derivative and their location on the consolidated balance sheet and the fair values of such derivatives as of December 31, 2010. See Note 9 in these consolidated financial statements for further detail on the valuation of the Company’s interest rate swaps.

(Dollars in thousands)
Underlying		Balance Sheet
Risk Exposure	Description	Location	Fair Value			Maturity
Asset Derivatives
Interest rate contract	Forward starting interest rate swaps	Other assets	$	(22	)	September 1, 2012
Interest rate contract	Forward starting interest rate swaps	Other assets	$	198		September 1, 2013
Interest rate contract	Forward starting interest rate swaps	Other assets	$	443		September 1, 2014
Interest rate contract	Forward starting interest rate swaps	Other assets	$	611		September 1, 2015
Interest rate contract	Forward starting interest rate swaps	Other assets	$	1,111		March 1, 2017
		Total	$	2,341

On February 4, 2011, ALCO terminated the Company’s forward starting swap positions and realized $3.0 million in cash from the counterparty, equal to the carrying amount of the derivative at the date of termination. Concurrent with the termination of the hedge contract, management removed the cash flow hedge designation.

ALCO terminated the forward starting swaps due to continuing uncertainty regarding future economic conditions including the corresponding uncertainty on the timing and extent of future changes in the three month Libor rate index. The $3.0 million in cash received from the counterparty related to the cash flow hedge reflects gains to be reclassified into earnings. Although the hedge designation was removed, management believes the forecasted transaction to be probable. Accordingly, the net gains will be reclassified from other comprehensive income to earnings as a credit to interest expense in the same periods during which the hedged forecasted transaction will affect earnings.

As of June 30, 2011, the Company estimates that $118 thousand of existing net gains reported in accumulated other comprehensive income will be reclassified into earnings within the next twelve months.