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Derivative Instruments And Hedging Activities
9 Months Ended
Sep. 30, 2011
Derivative Instruments And Hedging Activities [Abstract] 
Derivative Instruments And Hedging Activities

NOTE 11. Derivative Instruments and Hedging Activities

 

Interest Rate Swaps

 

The Company uses interest rate swaps to reduce interest rate risk and to manage interest expense. By entering into these agreements, the Company converts floating rate debt into fixed rate debt, or alternatively, converts fixed rate debt into floating rate debt. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense. These interest rate swap agreements are derivative instruments that qualify for hedge accounting as discussed in Note 1. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of default by a counterparty, the risk in these transactions is the cost of replacing the agreements at current market rates.

 

On December 4, 2008, the Company entered into an interest rate swap agreement related to the outstanding trust preferred capital notes. The swap agreement became effective on December 1, 2008. The notional amount of the interest rate swap was $7,000,000 and has an expiration date of December 1, 2016. Under the terms of the agreement, the Company pays interest quarterly at a fixed rate of 2.85% and receives interest quarterly at a variable rate of three month LIBOR. The variable rate resets on each interest payment date.

 

The following table summarizes the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

 

 

September 30, 2011

  

December 31, 2010

 

Balance Sheet

  

Fair

 

Balance Sheet

  

Fair

 

Location

  

Value

  

Location

  

Value

 

(dollars in thousands)

Derivatives designated

              

as hedging instruments

              

under GAAP

              
               

      Interest rate swap contracts

Other Liabilities

  

 $           577

 

Other Liabilities

  

 $               169

 

The following tables present the effect of the derivative instrument on the Consolidated Balance Sheet at September 30, 2011 and 2010 and the Consolidated Statements of Income for the three and nine months ended September 30, 2011 and 2010:

  

   

Three Months Ended September 30,

   

Amount of Gain (Loss)

          
   

Recognized in OCI

     

Amount of Gain (Loss)

Derivatives in GAAP

 

on Derivative

 

Location of Gain (Loss)

  

Recognized in Income

Cash Flow Hedging

 

(Effective Portion)

  

Recognized in Income

  

(Ineffective Portion)

Relationships

  

2011

2010

  

(Ineffective Portion)

  

2011

2010

   

(dollars in thousands)

      

(dollars in thousands)

Interest rate swap

               

   contracts, net of tax

 $             (195)

 $             (161)

  

Not applicable

  

 $                   -

 $                   -

                 
                 
   

Nine Months Ended September 30,

             

 

   

Amount of Gain (Loss)

        
   

Recognized in OCI

     

Amount of Gain (Loss)

Derivatives in GAAP

 

on Derivative

 

Location of Gain (Loss)

  

Recognized in Income

Cash Flow Hedging

 

(Effective Portion)

  

Recognized in Income

  

(Ineffective Portion)

Relationships

  

2011

2010

  

(Ineffective Portion)

  

2011

2010

   

(dollars in thousands)

      

(dollars in thousands)

                 

Interest rate swap

               

   contracts, net of tax

 $             (270)

 $             (457)

  

Not applicable

  

 $                   -

 $                   -