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Derivative Instruments And Hedging Activities
 12 Months Ended
Dec. 31, 2012
Derivative Instruments And Hedging Activities [Abstract]  
Derivative Instruments And Hedging Activities

NOTE 14. Derivative Instruments and Hedging Activities

Interest Rate Swaps

The Company uses interest rate swaps to reduce interest rate risks 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. The estimated fair value was $(635) thousand at December 31, 2012 and $(580) thousand at December 31, 2011. 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 Company recognized interest expense of $170 thousand in 2012 and $180 thousand in 2011 related to this interest rate swap.

 

The following table summarizes the fair value of derivative instruments at December 31, 2012 and 2011:

  2012     2011  
  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 $ 635 Other Liabilities $ 580

 

The following tables present the effect of the derivative instrument on the Consolidated Balance Sheets at December 31, 2012 and 2011 and the Consolidated Statements of Income for December 31, 2012, 2011, and 2010:

    Year Ended December 31,
            Amount of Loss  
    Amount of Loss Location of Loss   Reclassified from  
    Recognized in OCI Reclassified from   Accumulated  
Derivatives in GAAP   on Derivative Accumulated OCI   OCI into Income  
Cash Flow Hedging   (Effective Portion) into Income   (Ineffective Portion)  
Relationships   2012 2011 (Ineffective Portion) 2012   2011 2010
    (dollars in thousands)     (dollars in thousands)  
 
Interest rate swap                
contracts, net of tax $ (36 ) $ (271 ) N/A $ - $ - $ -