DERIVATIVES |
9 Months Ended |
|---|---|
Sep. 30, 2011 | |
| 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 September 30, 2011, the Company was party
to two swaps with notional amounts totaling approximately $11.7
million with customers, and two swaps with notional amounts
totaling approximately $11.7 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 $734,000 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 recognized a decrease to interest expense of $1,000 related
to marking the cap to market for the three months ended September
30, 2011 and $98,000 of interest expense related to marking the cap
to market for the nine months ended September 30,
2011.
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 September 30, 2011 and December
31, 2010 were not material.
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