9. DERIVATIVES

Cash Flow Hedges of Interest Rate Risk

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest rate swaps with notional amounts totaling $75.0 million and $50.0 million as of December 31, 2014 and 2013, respectively, were designated as cash flow hedges of certain Federal Home Loan Bank advances and repurchase agreements. The swaps were determined to be fully effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets/(other liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

Summary information about the interest rate swaps designated as a cash flow hedge as of December 31 is as follows:

(Dollars in thousands)	2014			2013
Notional amounts	$	75,000		$	50,000
Weighted average pay rates	1.39		%	1.39		%
Weighted average receive rates	0.24		%	0.24		%
Weighted average maturity	3.86 years			4.56 years
Unrealized (losses)	$	(943	)	$	(164	)

Interest expense recorded on these swap transactions totaled $470,000 and $271,000 during 2014 and 2013, respectively, and is reported as a component of interest expense on FHLB Advances.

The following tables present the net gains (losses), net of income tax, recorded in accumulated other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the twelve months ended December 31:

	2014
(In thousands)	Amount of (loss) recognized in OCI (Effective Portion)			Amount of (loss) reclassified from OCI to interest income		Amount of (loss) recognized in other non- interest income (Ineffective Portion)
Interest rate contracts	$	(569	)	$	—	$	—

	2013
(In thousands)	Amount of (loss) recognized in OCI (Effective Portion)			Amount of (loss) reclassified from OCI to interest income		Amount of (loss) recognized in other non- interest income (Ineffective Portion)
Interest rate contracts	$	(99	)	$	—	$	—

The following table reflects the cash flow hedge included in the Consolidated Balance Sheets:

As of December 31,	2014					2013
(In thousands)	Notional Amount		Fair Value			Notional Amount		Fair Value
Included in other asset/(liabilities):
Interest rate swaps related to FHLB advances	$	40,000	$	(248	)	$	40,000	$	(122	)
Forward starting interest rate swap related to repurchase agreements	10,000		(445		)	10,000		(42		)
Forward starting interest rate swap related to FHLB advances	25,000		(250		)	—		—

Non-Designated Hedges

Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. The Company executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk exposure resulting from such transactions.

On August 21, 2014, the Company entered into four interest-rate swap agreements with a combined notional amount of $11.2 million. These interest-rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current year earnings.

The following table presents summary information about these interest rate swaps as of December 31:

(Dollars in thousands)	2014
Notional amounts	$	11,175
Weighted average pay rates	3.28		%
Weighted average receive rates	3.28		%
Weighted average maturity	9.64 years
Fair value of combined interest rate swaps	$	—