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Derivative Instruments And Hedging Activities
 9 Months Ended
Sep. 30, 2013
General Discussion of 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 $7.0 million 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, 2013 and December 31, 2012:
 
September 30, 2013
 
December 31, 2012
 
Balance Sheet
Location
 
Fair
Value
 
Balance Sheet
Location
 
Fair
Value
 
(dollars in thousands)
Derivatives designated as hedging instruments under GAAP
 
 
 
 
 
 
 
Interest rate swap contracts
Other Liabilities
 
$
470

 
Other Liabilities
 
$
635



The following tables present the effect of the derivative instrument on the Consolidated Balance Sheet at September 30, 2013 and 2012 and the Consolidated Statements of Income for the three and nine months ended September 30, 2013 and 2012:
 
Three Months Ended
 
September 30,
Derivatives in GAAP
Cash Flow Hedging
Relationships
Amount of Gain  (Loss)
Recognized in OCI
on Derivative
(Effective Portion)
 
Location of Gain  (Loss)
Recognized in Income
(Ineffective Portion)
 
Amount of Gain  (Loss)
Recognized in Income
(Ineffective Portion)
2013
 
2012
 
 
2013
 
2012
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Interest rate swap contracts, net of tax
$
1

 
$
(26
)
 
Not applicable
 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended
  
September 30,
Derivatives in GAAP
Cash Flow Hedging
Relationships
Amount of Gain  (Loss)
Recognized in OCI
on Derivative
(Effective Portion)
 
Location of Gain  (Loss)
Recognized in Income
(Ineffective Portion)
 
Amount of Gain  (Loss)
Recognized in Income
(Ineffective Portion)
2013
2012
 
 
2013
 
2012
 
(dollars in thousands)
 
 
 
(dollars in thousands)
Interest rate swap contracts, net of tax
$
109

 
$
(61
)
 
Not applicable
 
$
—

 
$
—