DERIVATIVES

6 Months Ended

Jun. 30, 2015

DERIVATIVES

DERIVATIVES

12. 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 as of June 30, 2015 and December 31, 2014 were designated as cash flow hedges of certain Federal Home Loan Bank advances. 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.

The following table presents summary information about the interest rate swaps designated as cash flow hedges as of June 30, 2015 and 2014 and December 31, 2014:

	Six Months Ended						Year Ended
(Dollars in thousands)	June 30, 2015			June 30, 2014			December 31, 2014
Notional amounts	$	75,000		$	75,000		$	75,000
Weighted average pay rates		1.66	%		1.39	%		1.39	%
Weighted average receive rates		0.28	%		0.23	%		0.24	%
Weighted average maturity		3.36 years			4.36 years			3.86 years
Unrealized losses	$	(1,332	)	$	(740	)	$	(943	)

Interest expense recorded on these swap transactions totaled $176,000 and $310,000 for the three and six months ended June 30, 2015, respectively and $118,000 and $233,000 for the six months ended June 30, 2014, respectively, and is reported as a component of interest expense on FHLB Advances.

The following table presents the net gains (losses) recorded, net of income tax, in accumulated other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the six months ended June 30, 2015 and June 30, 2014:

	2015
	Amount of gain			Amount of gain		Amount of gain (loss)
	(loss) recognized			(loss) reclassified		recognized in other
	in OCI			from OCI to		Non-interest income
(In thousands)	(Effective Portion)			interest income		(Ineffective Portion)
Interest rate contracts	$	(811	)	$	-	$	-

	2014
	Amount of gain			Amount of gain		Amount of gain (loss)
	(loss) recognized			(loss) reclassified		recognized in other
	in OCI			from OCI to		Non-interest income
(In thousands)	(Effective Portion)			interest income		(Ineffective Portion)
Interest rate contracts	$	(446	)	$	-	$	-

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

	June 30, 2015					December 31, 2014
	Notional		Fair			Notional		Fair
(In thousands)	Amount		Value			Amount		Value
Included in other assets (liabilities):
Interest rate swaps related to FHLB Advances	$	50,000	$	(917	)	$	40,000	$	(248	)
Forward starting interest rate swap related to repurchase agreements		-		-			10,000		(445	)
Forward starting interest rate swap related to FHLB advances		25,000		(415	)		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.

As of June 30, 2015 and December 31, 2014, the combined notional amounts of interest-rate swap agreements total $37.0 million and $11.2 million, respectively. These interest-rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in current period earnings.

The following table presents summary information about these interest rate swaps:

	Three Months Ended					Year Ended
(Dollars in thousands)	June 30, 2015			June 30, 2014		December 31, 2014
Notional amounts	$	37,029		$	-	$	11,175
Weighted average pay rates		3.24	%		-		3.28	%
Weighted average receive rates		3.24	%		-		3.28	%
Weighted average maturity		16.81 years			-		9.64 years
Fair value of combined interest rate swaps	$	-		$	-	$	-