Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

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DERIVATIVES
 6 Months Ended
Jun. 30, 2012
DERIVATIVES

NOTE 7 - DERIVATIVES

 

During 2008, the Company entered into interest rate swaps (“swaps”) to facilitate customer transactions and meet customer financing needs. Upon entering into these swaps, the Company entered into offsetting positions with a regional correspondent bank in order to minimize the risk to the Company. As of June 30, 2012, the Company was party to two swaps with notional amounts totaling approximately $11.3 million with customers and two swaps with notional amounts totaling approximately $11.3 million with a regional correspondent bank. These swaps qualify as derivatives, but are not designated as hedging instruments. The Company has recorded the value of these swaps at $563,000 in offsetting entries in other assets and other liabilities.

 

During 2010, the Company entered into an interest rate cap with a notional value of $100 million. The cap has a strike rate of 2.00% and is indexed to the three month London Interbank Offered Rate (“LIBOR”). The cap does not qualify for hedge accounting treatment, and is marked to market, with changes in market value reflected in interest expense.

 

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a 30-day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The interest rate lock commitments related to loans that are originated for later sale are classified as derivatives. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of June 30, 2012 and December 31, 2011 were not material.