Derivatives and Hedging Activities

9 Months Ended

Sep. 30, 2013

Derivatives and Hedging Activities

Note 8 - Derivatives and Hedging Activities

In December 2012, the Corporation entered into a forward-starting interest rate swap to hedge the cash flows of a $15 million floating-rate FHLB borrowing. The interest rate swap involves the exchange of the Corporation’s floating rate interest payments on the underlying principal amount. This swap was designated, and qualified, for cash-flow hedge accounting. The term of the swap begins November 30, 2015 and ends November 28, 2022. For derivative instruments that are designated and qualify as hedging instruments, the effective portion of gains or losses is reported as a component of other comprehensive income, and is subsequently reclassified into earnings as an adjustment to interest expense in the periods in which the hedged forecasted transaction affects earnings.

The following table details the Corporation’s derivative positions as of the balance sheet dates indicated:

As of September 30, 2013:

(dollars in thousands)

Current

Fair Value of

Notional Amount

Trade Date

Effective Date

Maturity Date

Receive (Variable) Index

Projected Receive Rate

Pay Fixed Swap Rate

Derivative Position

$

15,000

12/13/2012

11/30/2015

11/28/2022

US 3-Month LIBOR

3.301

%

2.376

%

$

889

As of December 31, 2012:

(dollars in thousands)

Current

Fair Value of

Notional Amount

Trade Date

Effective Date

Maturity Date

Receive (Variable) Index

Projected Receive Rate

Pay Fixed Swap Rate

Derivative Position

$

15,000

12/13/2012

11/30/2015

11/28/2022

US 3-Month LIBOR

2.338

%

2.376

%

$

(36

)

For the three and nine months ended September 30, 2013, there have been no reclassifications of the interest-rate swap’s fair value from other comprehensive income to earnings. The Corporation held no derivatives during the three and nine months ended September 30, 2012.