Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Note 11. Derivatives and Hedging Activities

The Company is exposed to certain risk relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. Interest rate swaps are entered into to manage interest rate risk associated with the Company’s forecasted variable rate borrowings. The Company recognizes interest rate swaps as either assets or liabilities at fair value in the statement of financial condition.

The interest rate swaps on variable rate borrowings were designated as cash flow hedges and were over-the-counter contracts. The contracts were entered into by the Company with counterparties and the specific agreement of terms were negotiated, including the forecasted notional amount, the interest rate, and the maturity date.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to the agreements. The Company controls the credit risk through monitoring procedures and does not expect the counterparties to fail on their obligations. The Company only conducts business with primary dealers as counterparties and believes that the credit risk inherent in these contracts was not significant.

The Company’s interest rate derivative financial instruments as of December 31, 2012 are as follows:

(Dollars in thousands)	Forecasted Notional  Amount		Variable Interest Rate 1	Fixed Interest Rate 1		Term 2
Interest rate swap	$	160,000	3 month LIBOR	3.378	%	Oct. 21, 2014 - Oct. 21, 2021
Interest rate swap	100,000		3 month LIBOR	2.498	%	Nov 30, 2015 - Nov. 30, 2022

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¹The Company pays the fixed interest rate and the counterparties pay the Company the variable interest rate.

² No cash will be exchanged prior to the term.

The hedging strategy converts the LIBOR based variable interest rate on forecasted borrowings to a fixed interest rate, thereby protecting the Company from floating interest rate variability.

Note 11. Derivatives and Hedging Activities (continued)

The following table summarizes the fair value of the Company’s interest rate derivative financial instruments:

		Fair Value
(Dollars in thousands)	Balance Sheet Location	December 31, 2012		December 31, 2011
Interest rate swap	Other liabilities	$	16,832	8,906

Pursuant to the interest rate swap agreements, the Company pledged collateral to the counterparties in the form of investment securities totaling $18,684,000 at December 31, 2012. There was $0 collateral pledged from the counterparties to the Company as of December 31, 2012. There is the possibility that the Company may need to pledge additional collateral in the future if there were further declines in the fair value.