11. DERIVATIVES

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 swaps 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 Designated as Cash Flow Hedges: Interest rate swaps with a notional amount of $230.0 million and $180.0 million as of June 30, 2018 and December 31, 2017, respectively, were designated as cash flow hedges of certain interest-bearing deposits and were determined to be fully effective during the six months ended June 30, 2018. As such, no amount of ineffectiveness has been included in net income during the three and six months ended June 30, 2018. Therefore, the aggregate fair value of the swaps is recorded in other assets/liabilities with changes in fair value recorded in other comprehensive income. The amount included in accumulated other comprehensive income 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 terms of the swaps.

The following table presents information about the interest rate swaps designated as cash flow hedges as of June 30, 2018 and December 31, 2017:

(Dollars in thousands)	June 30, 2018			December 31, 2017
Notional amount	$	230,000		$	180,000
Weighted average pay rate		1.84	%		1.64	%
Weighted average receive rate		1.81	%		1.33	%
Weighted average maturity		3.15	years		2.25	years
Unrealized gain, net	$	2,680		$	1,394

Number of contracts		11			9

Net interest income recorded on these swap transactions totaled $33 thousand and $13 thousand for the three and six months ended June 30, 2018, respectively, and is reported as a component of interest expense. Net interest expense recorded on these swap transactions totaled $251 thousand and $613 for the three and six months ended June 30, 2017, respectively, and is reported as a component of interest expense.

Cash Flow Hedges

The following table presents the net gain recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended June 30, 2018 (after tax):

Amount of

Gain/(Loss)

Amount of

Recognized in

Gain/(Loss)

Other

Recognized

Reclassified

Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

582

—

During the first quarter of 2018, the Company recognized an unrealized after-tax gain of $220 thousand in accumulated other comprehensive income/(loss) related to the termination of two interest rate swaps designated as cash flow hedges. The gain will be amortized into earnings over the remaining life of the terminated swaps. The Company recognized pre-tax interest income of $31 thousand for the three months ended June 30, 2018 related to the amortization of the gain on the terminated interest rate swaps designated as cash flow hedges.

The following table presents the net (loss) recorded in accumulated other comprehensive (loss)/income and the consolidated financial statements relating to the cash flow derivative instruments for the three months ended June 30, 2017 (after tax):

Amount of

Gain/(Loss)

Amount of

Recognized in

Gain/(Loss)

Other

Recognized

Reclassified

Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

(38

)

—

The following table presents the net gain recorded in accumulated other comprehensive income/(loss) and the consolidated financial statements relating to the cash flow derivative instruments for the six months ended June 30, 2018 (after tax):

Amount of

Gain/(Loss)

Amount of

Recognized in

Gain/(Loss)

Other

Recognized

Reclassified

Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

1,083

—

The Company recognized pre-tax interest income of $62 thousand for the six months ended June 30, 2018 related to the amortization of the gain on the terminated interest rate swaps designated as cash flow hedges.

Amount of

Gain/(Loss)

Amount of

Recognized in

Gain/(Loss)

Other

Recognized

Reclassified

Non-Interest

In OCI

From OCI to

Expense

(In thousands)

(Effective Portion)

Interest Expense

(Ineffective Portion)

Interest rate contracts

474

—

The following tables reflect the cash flow hedges included in the financial statements as of June 30, 2018 and December 31, 2017:

	June 30, 2018
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing deposits	$	230,000	$	2,680
Total included in other assets	$	230,000	$	2,680

	December 31, 2017
	Notional		Fair
(In thousands)	Amount		Value
Interest rate swaps related to interest-bearing demand brokered deposits	$	180,000	$	1,394
Total included in other assets	$	180,000	$	1,394

Derivatives Not Designated as Accounting Hedges: The Company offers facility specific/loan level swaps to its customers and offsets its exposure from such contracts by entering into mirror image swaps with a financial institution / swap counterparty (loan level / back to back swap program). The customer accommodations and any offsetting swaps are treated as non-hedging derivative instruments which do not qualify for hedge accounting (“standalone derivatives”). The notional amount of the swaps 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 contracts. The fair value of the swaps is recorded as both an asset and a liability, in other assets and other liabilities, respectively, in equal amounts for these transactions.

Information about these swaps is as follows:

(Dollars in thousands)	June 30, 2018			December 31, 2017
Notional amount	$	376,338		$	317,363
Fair value	$	9,992		$	3,131
Weighted average pay rates		4.22	%		4.11	%
Weighted average receive rates		4.00	%		3.43	%
Weighted average maturity		7.5	years		7.6	years

Number of contracts		50			42