DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE G – DERIVATIVE FINANCIAL INSTRUMENTS

The Company may, at times, use derivative financial instruments to manage its interest rate risk. These instruments carry varying degrees of credit, interest rate, and market or liquidity risks. Derivative instruments are recognized as either assets or liabilities in the consolidated financial statements and are measured at fair value. Subsequent changes in the derivatives’ fair values are recognized in earnings unless specific hedge accounting criteria are met. The Predecessor Company entered into certain interest rate swap agreements as described below.

In August 2003, $8.0 million in trust preferred securities (“TRUPs”) were issued through Crescent Financial Capital Trust I (the “Trust”). The Trust invested the total proceeds from the sale of its TRUPs in junior subordinated deferrable interest debentures issued by the Company, which fully and unconditionally guarantees the TRUPs. The junior subordinated debentures were adjusted to estimated fair value in purchase accounting with the Piedmont Investment, and at June 30, 2012, their carrying value was $5.5 million. The TRUPs pay cumulative cash distributions quarterly at an annual contract rate, reset quarterly, equal to three-month LIBOR plus 3.10%.

In June 2009, the Predecessor Company entered into derivative financial instruments which swapped the variable rate payments for fixed payments. These instruments consisted of a three-year and four-year swap, each for one-half of the notional amount of the TRUPs for fixed rates of 5.49% and 5.97%, respectively. Due to the deferral of interest payments on the TRUPs, the associated interest rate swaps no longer qualify for cash flow hedge accounting and are therefore marked to fair value through earnings.

On September 26, 2008, the Bank entered into an unsecured subordinated term loan agreement in the amount of $7.5 million. The agreement requires the Bank to make quarterly payments of interest at an annual contract rate, reset quarterly, equal to three-month LIBOR plus 4.00%. The subordinated term loan was adjusted to estimated fair value in purchase accounting with the Piedmont Investment, and at June 30, 2012, its carrying value was $6.8 million.

In June 2009, the Bank entered into derivative financial instruments which swapped the variable rate payments for fixed payments. These instruments consisted of a three-year and four-year swap, each for one-half of the notional amount of the subordinated debt for fixed rates of 6.39% and 6.87%, respectively. At the Piedmont Investment, these swaps were no longer designated as qualifying for hedge accounting and therefore mark them to fair value through earnings.

The following tables disclose the location and fair value amounts of derivative instruments in the consolidated balance sheets:

				Estimated Fair Value
	Balance Sheet	Notional		June 30,			December 31,
	Location	Amount		2012			2011
Trust preferred securities:
Interest rate swap	Other liabilities	$	4,000,000	$	(2,133	)	$	(38,275	)
Interest rate swap	Other liabilities		4,000,000		(98,616	)		(134,029	)
Subordinated term loan agreements:
Interest rate swap	Other liabilities		3,750,000		(600	)		(34,160	)
Interest rate swap	Other liabilities		3,750,000		(90,517	)		(123,650	)
		$	15,500,000	$	(191,866	)	$	(330,114	)

The following table discloses activity in accumulated other comprehensive income (“OCI”) related to the interest rate swaps for the six months ended June 30, 2012 and 2011:

	Successor		Predecessor
	Company		Company
	Six Months		Six Months
	Ended		Ended
	June 30, 2012		June 30, 2011
Accumulated OCI resulting from interest rate swaps at beginning of period, net of tax	$	-	$	(355,818	)
Other comprehensive loss recognized, net of tax		-		45,578
Accumulated OCI resulting from interest rate swaps at end of period, net of tax	$	-	$	(310,240	)