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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2013
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

Note 15 – Derivative Financial Instruments

As a part of managing interest rate risk, the Bank entered into interest rate swap agreements to modify the re-pricing characteristics of certain interest-bearing liabilities. The Corporation has designated these interest rate swap agreements as cash flow hedges under the guidance of ASC Subtopic 815-30, Derivatives and Hedging – Cash Flow Hedges. Cash flow hedges have the effective portion of changes in the fair value of the derivative, net of taxes, recorded in net accumulated other comprehensive income. 

In July 2009, the Corporation entered into three interest rate swap contracts totaling $20.0 million notional amount, hedging future cash flows associated with floating rate trust preferred debt.  As of September 30, 2013, swap contracts totaling $15.0 million notional amount remained, as the three-year $5.0 million contract matured on June 15, 2012.  The five-year $10 million contract matures June 17, 2014 and the seven-year $5 million contract matures June 17, 2016.  The fair value of the interest rate swap contracts was ($548) thousand at September 30, 2013 and ($849) thousand at December 31, 2012 and was reported in Other Liabilities on the Consolidated Statement of Financial Condition.  Cash in the amount of $1.4 million was posted as collateral as of September 30, 2013. 

For the nine months ended September 30, 2013, the Corporation recorded an increase in the value of the derivatives of $301 thousand and the related deferred tax benefit of $121 thousand in net accumulated other comprehensive loss to reflect the effective portion of cash flow hedges.  ASC Subtopic 815-30 requires this amount to be reclassified to earnings if the hedge becomes ineffective or is terminated.  There was no hedge ineffectiveness recorded for the nine months ending September 30, 2013.  The Corporation does not expect any losses relating to these hedges to be reclassified into earnings within the next 12 months.

Interest rate swap agreements are entered into with counterparties that meet established credit standards and the Corporation believes that the credit risk inherent in these contracts is not significant as of September 30, 2013.

 

The table below discloses the impact of derivative financial instruments on the Corporation’s Consolidated Financial Statements for the nine- and three- months ended September 30, 2013 and 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain or

 

 

 

 

 

(loss) recognized in

Derivative in Cash Flow Hedging

 

 

Amount of gain or

income on derivative

Relationships

Amount of gain

(loss) reclassified from

(ineffective portion

 

recognized in OCI

accumulated OCI into

and amount excluded

 

on derivative

income

from effectiveness

(In thousands)

(effective portion)

(effective portion) (a)

testing) (b)

Interest rate contracts:

 

 

 

 

 

 

Nine months ended:

 

 

 

 

 

 

September 30, 2013

$
180 

$
0 

$
0 

September 30, 2012

 
53 

 
0 

 
0 

Three months ended:

 

 

 

 

 

 

September 30, 2013

$
42 

$
0 

$
0 

September 30, 2012

 
9 

 
0 

 
0 

 

Notes:

(a)

Reported as interest expense

Reported as other income