Commitments and Contingencies

12 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

NOTE 16. Commitments and Contingencies

Branch Purchase and Assumption Agreement

     On June 22, 2011, First Financial announced First Federal signed a purchase and assumption agreement with Liberty Savings Bank, FSB (“Liberty”) to acquire the deposits and select loans associated with Liberty’s five bank branches in the Hilton Head, South Carolina market. Based on information available at signing, First Federal expects to acquire approximately $110 million in deposits and $27 million in loans. The transaction is subject to regulatory approval.

Loan commitments

     Commitments to extend credit are agreements to lend to borrowers as long as there is no violation of any condition established by the commitment letter. Commitments generally have fixed expiration dates or other termination clauses. The majority of the commitments will be funded within a twelve month period. First Federal evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the borrower. Collateral held varies but primarily consists of residential or income producing commercial properties. Outstanding commitments on loans not yet closed include commitments issued to correspondent lenders and are principally commitments for loans on single-family residential and commercial property. Outstanding undisbursed closed construction loans primarily consists of permanent residential construction and commercial property construction loans.

     The following table presents First Federal’s loan commitments as of September 30, 2011 and 2010, respectively.

	September 30,
(in thousands)	2011		2010
Commitment on loans not yet closed	$	54,291	$	49,134
Undisbursed closed construction loans		24,759		36,548
Undisbursed other closed loans		16,785		4,653

Standby letters of credit

     Standby letters of credit represent First Federal’s obligations to a third party contingent on the failure of its customer to perform under the terms of an underlying contract with the third party or obligate First Federal to stand as surety for the benefit of the third party. The underlying contract may entail either financial or non-financial obligations and may involve such things as the customer’s delivery of merchandise, completion of a construction contract, release of a lien, or repayment of an obligation. Under the terms of a standby letter, drafts will generally be drawn only when the underlying event fails to occur as intended. First Federal can seek recovery from the borrower for the amounts paid. In addition, some of these standby letters of credit are collateralized. Commitments under standby letters of credit are usually for one year or less. As of September 30, 2011 and 2010, there was no current liability associated with these standby letters of credit. The maximum potential amount of undiscounted future payments related to standby letters of credit was $603 thousand and $1.5 million at September 30, 2011 and September 30, 2010, respectively.

Derivative instruments

     First Federal utilizes derivatives as part of its risk management strategy in conducting its mortgage activities. These instruments may consist of financial forward and future contracts, when-issued securities and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. First Federal does not elect hedge accounting treatment for any of its derivative transactions; consequently, changes in fair value, both gains and losses, of the instrument are recorded in the Consolidated Statements of Operations in mortgage and other loan income.

          Derivative contracts related to MSRs are used to offset changes in fair value and are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between the parties, and are not a measure of financial risk. On September 30, 2011, First Federal had derivative financial instruments outstanding with notional amounts totaling $46.5 million compared to $55.5 million at September 30, 2010. The estimated net fair value of open contracts was a gain of $195 thousand and $221 thousand at September 30, 2011 and 2010, respectively.

          The following table presents First Federal’s obligation under forward commitments, the fair value of those obligations along with the fair value of derivative instruments associated with forward commitments.

	September 30,
(in thousands)	2011			2010
Forward commitments to deliver mortgage loans	$	79,917		$	84,740
Expected closures of forward commitments		59,698			54,628
Fair value of forward commitments		1,335			751
Off-balance sheet obligation		130,378			107,669
Fair value of the off balance sheet obligation		(31	)		680