Note 6 - Derivative Instruments and Hedging Activities

3 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 6: Derivative Instruments and Hedging Activities

The Bank has entered into interest rate swap contracts in connection with its hedging of specific loans. As of December 31, 2012, the Bank has entered into interest rate swaps totaling approximately $4.5 million using a receive-variable swap to mitigate the exposure to changes in the fair value attributable to the benchmark interest rate (fixed rate) and the hedged items (loans receivable) from the effective date of the hedged instruments. As structured, the pay-fixed, receive-variable swap is evaluated as a fair value hedge and is considered highly effective. As a highly effective fair value designated hedge, the underlying hedged instrument is recorded on the balance sheet at fair value of $4.6 million with the periodic changes of the fair value reported in the consolidated statements of income.

For the three months ended December 31, 2012, the interest rate swaps designated as a fair value hedge resulted in a reduction to interest income of $13,000 on the related loans receivable. The fair value of the swaps at December 31, 2012 was recorded on the consolidated statements of financial condition as a liability of $10,104.

The fixed rate loans being hedged with an interest rate swap are structured to include a prepayment make-whole clause. The prepayment make-whole fee represents a reasonable estimate of the economic loss (if any) from the early prepayment, in part or in whole, of the loan.