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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities We have entered into interest rate swap agreements, primarily as an asset/liability management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates. These hedges allow us to offer long-term fixed rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar LIBOR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates. The fixed-rate payment features of the interest rate swap agreements are generally structured at inception to mirror substantially all of the provisions of the hedged loan agreements. These interest rate swaps, designated and qualified as fair value hedges, are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). One of our interest rate swap agreements qualifies for shortcut hedge accounting treatment. The change in fair value of the swap using the shortcut accounting treatment is recorded in other non-interest income, while the change in fair value of swaps using non-shortcut accounting is recorded in interest income. The unrealized gain or loss in fair value of the hedged fixed-rate loan due to LIBOR interest rate movements is recorded as an adjustment to the hedged loan and offset in other non-interest income (for shortcut accounting treatment) or interest income (for non-shortcut accounting treatment). From time to time, we make firm commitments to enter into long-term fixed-rate loans with borrowers backed by yield maintenance agreements and simultaneously enter into forward interest rate swap agreements with correspondent banks to mitigate the change in fair value of the yield maintenance agreement. Prior to loan funding, yield maintenance agreements with net settlement features that meet the definition of a derivative are considered as non-designated hedges and are carried on the consolidated statements of condition at their fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The offsetting changes in the fair value of the forward swap and the yield maintenance agreement are recorded in interest income. When the fixed-rate loans are originated, the forward swaps are designated to offset the change in fair value in the loans. Subsequent to the point of the swap designations, the related yield maintenance agreements are no longer considered derivatives. Their fair value at the designation date is recorded in other assets and is amortized using the effective yield method over the life of the respective designated loans. The net effect of the change in fair value of interest rate swaps, the amortization of the yield maintenance agreement and the change in the fair value of the hedged loans result in an insignificant amount of hedge ineffectiveness recognized in interest income. Our credit exposure, if any, on interest rate swaps is limited to the favorable value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements (generally when our derivative liability position is greater than $100 thousand or $250 thousand, depending upon the counterparty). Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. As of March 31, 2015, we have eight interest rate swap agreements, which are scheduled to mature in September 2018, June 2020, August 2020, June 2031, October 2031, July 2032, August 2037 and October 2037. All of our derivatives are accounted for as fair value hedges. Our interest rate swaps are settled monthly with counterparties. Accrued interest on the swaps totaled $40 thousand and $41 thousand as of March 31, 2015 and December 31, 2014, respectively. Information on our derivatives follows:
|  | Asset derivatives |  | Liability derivatives
(in thousands; 2015 unaudited) |  | March 31, 2015 |  | December 31, 2014 |  | March 31, 2015 |  | December 31, 2014
Fair value hedges: |  |  |  |  |  |  |  |
Interest rate contracts notional amount |  | $ | — |  |  | $ | 4,589 |  |  | $ | 30,992 |  |  | $ | 26,899 |
Interest rate contracts fair value 1 |  | $ | — |  |  | $ | 61 |  |  | $ | 2,481 |  |  | $ | 1,996 |
| Three months ended
(in thousands; unaudited) | March 31, 2015 |  |  | March 31, 2014
(Decrease) increase in value of designated interest rate swaps recognized in interest income | $ | (546 | ) |  |  | $ | 736 |
Payment on interest rate swaps recorded in interest income | (235 | ) |  |  | (253 | )
Increase (decrease) in value of hedged loans recognized in interest income | 571 |  |  |  | (531 | )
Decrease in value of yield maintenance agreement recognized against interest income | (14 | ) |  |  | (47 | )
Net loss on derivatives recognized against interest income 2 | $ | (224 | ) |  |  | $ | (95 | )
1 See Note 3 for valuation methodology. 2 Includes hedge ineffectiveness gain of $11 thousand and gain of $158 thousand for the quarters ended March 31, 2015 and March 31, 2014, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness. Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:
Offsetting of Financial Assets and Derivative Assets
(in thousands; 2015 unaudited) |  |  | Gross Amounts Not Offset in the Statements of Condition |
|  | Gross Amounts | Net Amounts |  |  |
| Gross Amounts | Offset in the | of Assets Presented |  |  |
| of Recognized | Statements of | in the Statements | Financial | Cash Collateral |
| Assets 1 | Condition | of Condition 1 | Instruments | Received | Net Amount
As of March 31, 2015 |  |  |  |  |  |
Derivatives by Counterparty |  |  |  |  |  |
Counterparty A | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Counterparty B | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
As of December 31, 2014 |  |  |  |  |  |
Derivatives by Counterparty |  |  |  |  |  |
Counterparty A | $ | 61 |  | $ | — |  | $ | 61 |  | $ | (61 | ) | $ | — |  | $ | — |
Counterparty B | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | 61 |  | $ | — |  | $ | 61 |  | $ | (61 | ) | $ | — |  | $ | — |
1 Amounts exclude accrued interest totaling zero and $1 thousand at March 31, 2015 and December 31, 2014, respectively.
Offsetting of Financial Liabilities and Derivative Liabilities
(in thousands; 2015 unaudited) |  |  | Gross Amounts Not Offset in the Statements of Condition |
|  | Gross Amounts | Net Amounts of |  |  |
| Gross Amounts | Offset in the | Liabilities Presented |  |  |
| of Recognized | Statements of | in the Statements of | Financial | Cash Collateral |
| Liabilities 2 | Condition | Condition 2 | Instruments | Pledged | Net Amount
As of March 31, 2015 |  |  |  |  |  |
Derivatives by Counterparty |  |  |  |  |  |
Counterparty A | $ | 2,107 |  | $ | — |  | $ | 2,107 |  | $ | — |  | $ | (2,107 | ) | $ | — |
Counterparty B | 374 |  | — |  | 374 |  | — |  | (374 | ) | — |
Total | $ | 2,481 |  | $ | — |  | $ | 2,481 |  | $ | — |  | $ | (2,481 | ) | $ | — |
As of December 31, 2014 |  |  |  |  |  |
Derivatives by Counterparty |  |  |  |  |  |
Counterparty A | $ | 1,616 |  | $ | — |  | $ | 1,616 |  | $ | (61 | ) | $ | (1,360 | ) | $ | 195 |
Counterparty B | 380 |  | — |  | 380 |  | — |  | (380 | ) | — |
Total | $ | 1,996 |  | $ | — |  | $ | 1,996 |  | $ | (61 | ) | $ | (1,740 | ) | $ | 195 |
2 Amounts exclude accrued interest totaling $40 thousand and $39 thousand at March 31, 2015 and December 31, 2014, respectively.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708773-113959 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5618551-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624258-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41638-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80748-113994 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5708775-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579245-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624181-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=35736893&loc=d3e80784-113994 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624177-113959 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5580258-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624171-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5624163-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=56946850&loc=SL5579240-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=56946850&loc=d3e41641-113959 + Details
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