INTEREST RATE SWAPS

12 Months Ended

Dec. 31, 2013

INTEREST RATE SWAPS

INTEREST RATE SWAPS

7. INTEREST RATE SWAPS

During the fourth quarter of 2013, the Bank entered into two interest rate swap agreements as part of its interest rate risk management strategy. The Bank designated the swaps as cash flow hedges intended to reduce the variability in cash flows attributable to either FHLB advances tied to the three-month LIBOR or the overall changes in cash flows on certain money market deposit accounts.  The counterparty for both swaps met the Bank’s credit standards and the Bank believes that the credit risk inherent in the swap contracts is not significant. At December 31, 2013, the Bank had no cash pledged as collateral for these swaps.

The swaps were determined to be fully effective during all periods presented; therefore, no amount of ineffectiveness was included in net income. The aggregate fair value of the swaps is recorded in other assets with changes in fair value recorded in OCI. The amount included in accumulated OCI would be reclassified to current earnings should the hedge no longer be considered effective. The Bank expects the hedges to remain fully effective during the remaining term of the swaps.

Summary information about swaps designated as cash flow hedges as of December 31, 2013 follows:

December 31, 2013 (dollars in thousands)
Notional amount	$	20,000
Weighted average pay rate	2.25		%
Weighted average receive rate	0.21		%
Weighted average maturity in years	7
Unrealized gain	$	170

Interest expense recorded on these swap transactions totaled $23,000 during 2013, with $16,000 reported as a component of interest expense on deposits and $7,000 reported as interest expense on FHLB Advances.

The following table presents the net gains recorded in accumulated OCI and the consolidated statements of income relating to the swaps for the year ended December 31, 2013:

December 31, 2013 (in thousands)	Amount of Gain Recognized in Other Comprehensive Income on Derivative (Effective Portion)		Amount of Gain Reclassified from Accumulated Other Comprehensive Income on Derivative (Effective Portion)		Amount of Gain Recognized in Income on Derivative (Ineffective Portion)
Cash flow hedges - interest rate swaps	$	111	$	—	$	—

The following table reflects the cash flow hedges included in the consolidated balance sheet as of December 31, 2013:

December 31, 2013 (in thousands)	Notional Amount		Fair Value
Included in other assets:
Cash flow hedges - interest rate swaps	$	20,000	$	170