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DERIVATIVE FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2012
Derivative Instrument Detail [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE G – DERIVATIVE FINANCIAL INSTRUMENTS

 

Risk Management Objective of Using Derivatives

 

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks primarily through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to certain variable-rate assets.

 

Non-designated Hedges

 

The Company does not use derivatives for trading or speculative purposes. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of June 30, 2012, the notional amount of customer-facing swaps was approximately $4.44 million. This amount is offset with third party counterparties, as described above.

 

Fair Values of Derivative Instruments on the Balance Sheet

 

The table below presents the fair value of the Company’s derivative financial instruments, as well as their classification on the Balance Sheet, as of June 30, 2012 and December 31, 2011. ($’s in thousands)

 

  Asset Derivatives     Liability Derivatives   
  June 30, 2012     December 31, 2011     June 30, 2012       December 31, 2011  
    Balance Sheet       Fair       Balance Sheet       Fair       Balance Sheet       Fair       Balance Sheet     Fair  
    Location       Value       Location       Value       Location       Value       Location     Value  
Derivatives not designated as hedging instruments:                                                                
Interest rate contracts    Other Assets     $   149     Other Assets      $  -      Other Liabilities     $   149             $ -   

 

Effect of Derivative Instruments on the Income Statement

 

The Company’s derivative financial instruments had no net effect on the Income Statements for the three and six months ended June 30, 2012.