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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | NOTE 11 – DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES One of the market risks facing the Corporation is interest rate risk, which includes the risk that changes in interest rates will result in changes in the value of the Corporation’s assets or liabilities and will adversely affect the Corporation’s net interest income from its loan and investment portfolios. The overall objective of the Corporation’s interest rate risk management activities is to reduce the variability of earnings caused by chan ges in interest rates. The Corporation designates a derivative as a fair value hedge, cash flow hedge or economic undesignated hedge when it enters into the derivative contract. As of September 30, 2018 and December 31, 2017, all derivatives h eld by the Corporation were considered economic undesignated hedges. These undesignated hedges were recorded at fair value with the resulting gain or loss recognized in current earnings. The following summarizes the principal derivative activities used b y the Corporation in managing interest rate risk: Interest rate cap agreements - Interest rate cap agreements provide the right to receive cash if a reference interest rate rises above a contractual rate. The value increases as the reference interest rate rises. The Corporation enters into interest rate cap agreements for protection from rising interest rates. Forward contracts - F orward contracts are sales of to-be-announced (“TBA”) MBS that will settle over the standard delivery date and do not qualify as “regular way” security trades. Regular-way security trades are contracts that have no net settlement provision and no market mechanism to facilitate net settlement and that provide for delivery of a security within the time frame generally established by regulations or conventions in the market-place or exchange in which the transaction is being executed. The f orward sales are considered derivative instruments that need to be marked-to-market. These securities are used to economic ally hedge the FHA/VA residential mortgage loan securitizations of the mortgage-banking operations. Also reported as forward contracts are mandatory mortgage loan sales commitments entered into with GSEs that require or permit net settlement via a pair-off transaction or the payment of a pair-off fee. Unrealized gains (losses) are recognized as part of mortgage banking activities in the consolidated statements of income. To satisfy the needs of its customers, the Corporation may enter into non-hedging trans actions. I n these transactions, the Corporation generally participates as a buyer in one of the agreements and as a seller in the other agreement under the same terms and conditions. In addition, the Corporation enter s into certain contracts with embedded derivatives that do not require separate accounting as these are clearly and closely related to the economic characteristics of the host contract. When the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, it is bifurcated, carried at fair value, and designated as a trading or non-hedging derivative instrument.
The following table summarizes the notional amounts of all derivative instruments: |  |  |
|  | Notional Amounts (1)
|  | As of |  | As of
|  | September 30, |  | December 31,
|  | 2018 |  | 2017
(In thousands) |
Undesignated economic hedges: |  |  |  |  |
Interest rate contracts: |  |  |  |  |
Written interest rate cap agreements | $ | 89,510 |  | $ | 91,010
Purchased interest rate cap agreements |  | 89,510 |  |  | 91,010
Forward Contracts: |  |  |  |  |
Sale of TBA GNMA MBS pools |  | 28,000 |  |  | 26,000
Forward loan sales commitments |  | 5,005 |  |  | -
| $ | 212,025 |  | $ | 208,020
(1) | Notional amounts are presented on a gross basis with no netting of offsetting exposure positions. |  |  |
The following table summarizes for derivative instruments their fair values and location in the consolidated statements of financial condition:
| Asset Derivatives |  | Liability Derivatives
| Statement of |  | September 30, |  | December 31, |  |  |  | September 30, |  | December 31,
| Financial |  | 2018 |  | 2017 |  |  |  | 2018 |  | 2017
| Condition Location |  | Fair Value |  | Fair Value |  | Statement of Financial Condition Location |  | Fair Value |  | Fair Value
(In thousands) |
Undesignated economic hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Written interest rate cap agreements | Other assets |  | $ | - |  | $ | - |  | Accounts payable and other liabilities |  | $ | 815 |  | $ | 305
Purchased interest rate cap agreements | Other assets |  |  | 815 |  |  | 305 |  | Accounts payable and other liabilities |  |  | - |  |  | -
Forward Contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales of TBA GNMA MBS pools | Other assets |  |  | 116 |  |  | 7 |  | Accounts payable and other liabilities |  |  | 20 |  |  | 19
Forward loan sales commitments | Other assets |  |  | - |  |  | - |  | Accounts payable and other liabilities |  |  | - |  |  | -
|  |  | $ | 931 |  | $ | 312 |  |  |  | $ | 835 |  | $ | 324
The following table summarizes the effect of derivative instruments on the consolidated statements of income:
|  |  | (Loss) or Gain |  | (Loss) or Gain
| Location of (Loss) or Gain |  | Quarter Ended |  | Nine-Month Period Ended
| Recognized in Statement |  | September 30, |  | September 30,
| of Income on Derivatives |  | 2018 |  | 2017 |  | 2018 |  | 2017
|  |  | (In thousands)
UNDESIGNATED ECONOMIC HEDGES: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Written and purchased interest rate cap agreements | Interest income - Loans |  | $ | - |  | $ | (1) |  | $ | - |  | $ | (2)
Forward contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales of TBA GNMA MBS pools | Mortgage Banking Activities |  |  | - |  |  | - |  |  | - |  |  | -
Forward loan sales commitments | Mortgage Banking Activities |  |  | 211 |  |  | (34) |  |  | 108 |  |  | 274
Total (loss) gain on derivatives |  |  | $ | 211 |  | $ | (35) |  | $ | 108 |  | $ | 272
Derivative instruments are subject to market risk. As is the case with investment securities, the market value of derivative instruments is largely a function of the financial market’s expectations regarding the future direction of interest rates. Accordingly, current market values are not necessarily indicative of the future effect of derivative instruments on earnings. This will depend, for the most part, on the shape of the yield curve, and the level of interest rates, as well as the expectation s for rates in the future. As of September 30, 2018, the Corporation had not entered into any derivative instrument containing credit-risk-related contingent features.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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