INTEREST RATE SWAPS

3 Months Ended

Mar. 31, 2015

INTEREST RATE SWAPS

INTEREST RATE SWAPS

8.INTEREST RATE SWAPS

The Bank entered into two interest rate swap agreements during 2013 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 London Interbank Offered Rate (“LIBOR”) or the overall changes in cash flows on certain money market deposit accounts tied to one-month LIBOR.  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.

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 liabilities 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.

The following table reflects summary information about swaps designated as cash flow hedges as of March 31, 2015 and December 31, 2014:

(in thousands)	March 31, 2015			December 31, 2014
Notional amount (receive rate tied to 3-month LIBOR)	$	10,000		$	10,000
Notional amount (receive rate tied to 1-month LIBOR)	10,000			10,000
Total notional amount	$	20,000		$	20,000
Weighted average pay rate	2.25		%	2.25		%
Weighted average receive rate	0.22		%	0.21		%
Weighted average remaining maturity in years	6			6
Unrealized loss	$	(783	)	$	(488	)
Fair value of security pledged as collateral	$	1,015		$	734

The following table reflects the total interest expense recorded on these swap transactions in the consolidated statements of income during the three months ended March 31, 2015 and 2014:

	Three Months Ended
	March,
(in thousands)	2015		2014
Interest expense on deposits related to money market swap transaction	$	49	$	49
Interest expense on FHLB advances related to FHLB swap transaction	52		51
Total interest expense on swap transactions	$	101	$	100

The following tables present the net losses recorded in accumulated OCI and the consolidated statements of income relating to the swaps for the three months ended March 31, 2015 and 2014:

Three Months Ended March 31, 2015 (in thousands)	Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)			Gain (Loss) Reclassified from Accumulated Other Comprehensive Income on Derivative (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Cash flow hedges - interest rate swaps	$	(396	)	$	(101	)	$	—

Three Months Ended March 31, 2014 (in thousands)	Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)			Gain (Loss) Reclassified from Accumulated Other Comprehensive Income on Derivative (Effective Portion)			Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Cash flow hedges - interest rate swaps	$	(339	)	$	(100	)	$	—

The following table reflects the cash flow hedges included in the consolidated balance sheet as of March 31, 2015 and December 31, 2014:

	Notional Amount		Fair Value		Notional Amount		Fair Value
(in thousands)	March 31, 2015				December 31, 2014
Fair value included in other liabilities:
Cash flow hedges - interest rate swaps	$	20,000	$	783	$	20,000	$	488

The estimated net amount of the existing losses that are reported in accumulated OCI at March 31, 2015 that is expected to be reclassified into earnings within the next twelve months is $427,000.