Note 12 - Derivative Financial Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 12 - Derivative Financial Instruments and Hedging Activities

As of March 31, 2013, the Company maintained four loan swaps accounted for as fair value hedges in accordance with ASC 815.  The aggregate original notional amount of these loan swaps was $10.6 million. These derivative instruments are used to protect the Company from interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans and are accounted for as fair value hedges. The derivative instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate is below the stated fixed rate of the loan for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR and the stated fixed rate. If LIBOR is above the stated rate for any given period during the term of the contract, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. These derivative instruments are carried at a fair market value of $(382) thousand and $(453) thousand at March 31, 2013 and December 31, 2012, respectively, and are included in other liabilities. The loans being hedged are also recorded at fair value. These fair value hedges had no indications of ineffectiveness for any of the periods presented. The Company recorded interest expense on these loan swaps of $67 thousand and $109 thousand in the three months ended March 31, 2013 and 2012, respectively.

The following table presents information on the individual loan swaps at March 31, 2013:

Original Notional Amount		Current Notional Amount		Termination Date	Fixed Rate			Floating Rate	Floating Rate Payer Spread
$	2,670	$	2,272	04/10/13		5.85	%	USD-LIBOR-BBA		2.38	%
	1,800		405	04/09/13		5.80	%	USD-LIBOR-BBA		2.33	%
	2,555		2,460	10/15/15		5.50	%	USD-LIBOR-BBA		2.88	%
	3,595		3,333	04/27/17		5.25	%	USD-LIBOR-BBA		2.73	%
$	10,620	$	8,470