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Derivative Financial Instruments and Hedging Activities | 6 Months Ended
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Jun. 30, 2016
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). 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. 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 agreements 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. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. As of June 30, 2016, we had six interest rate swap agreements, which are scheduled to mature in August 2020, June 2031, October 2031, July 2032, August 2037 and October 2037. All of our derivatives are accounted for as fair value hedges. In April 2016, one interest rate swap scheduled to mature in June 2020 was terminated as the hedged loan was paid off. A prepayment fee was collected from the borrower to settle our interest rate swap liability, resulting in no net gain or loss on the termination of the swap and loan payoff. Our interest rate swaps are settled monthly with counterparties. Accrued interest on the swaps totaled $16 thousand and $28 thousand as of June 30, 2016 and December 31, 2015, respectively. Information on our derivatives follows:
|  | Asset derivatives |  | Liability derivatives
(in thousands) |  | June 30, 2016 |  | December 31, 2015 |  | June 30, 2016 |  | December 31, 2015
Fair value hedges: |  |  |  |  |  |  |  |
Interest rate contracts notional amount |  | $ | — |  |  | $ | 4,407 |  |  | $ | 22,527 |  |  | $ | 22,187 |
Interest rate contracts fair value 1 |  | $ | — |  |  | $ | 3 |  |  | $ | 2,721 |  |  | $ | 1,658 |
| Three months ended
(in thousands) | June 30, 2016 | June 30, 2015
(Decrease) increase in value of designated interest rate swaps recognized in interest income | $ | (190 | ) | $ | 966 |
Payment on interest rate swaps recorded in interest income | (138 | ) | (233 | )
Increase (decrease) in value of hedged loans recognized in interest income | 240 |  | (1,023 | )
Decrease in value of yield maintenance agreement recognized against interest income | (11 | ) | (13 | )
Net loss on derivatives recognized against interest income 2 | $ | (99 | ) | $ | (303 | )
| Six months ended
(in thousands) | June 30, 2016 | June 30, 2015
(Decrease) increase in value of designated interest rate swaps recognized in interest income | $ | (1,066 | ) | $ | 420 |
Payment on interest rate swaps recorded in interest income | (313 | ) | (469 | )
Increase (decrease) in value of hedged loans recognized in interest income | 1,290 |  | (451 | )
Decrease in value of yield maintenance agreement recognized against interest income | (23 | ) | (27 | )
Net loss on derivatives recognized against interest income 2 | $ | (112 | ) | $ | (527 | )
1 See Note 3 for valuation methodology. 2 Includes hedge ineffectiveness gain of $39 thousand and loss of $70 thousand for the quarters ended June 30, 2016 and June 30, 2015, respectively. Ineffectiveness gain of $201 thousand and loss of $58 thousand was recorded in interest income during the six months ended June 30, 2016 and June 30, 2015, respectively. Changes in value of swaps were included in the assessment of hedge effectiveness. Hedge ineffectiveness is the measure of the extent to which the change in the fair value of the hedging instruments does not exactly offset the change in the fair value of the hedged items from period to period. 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
|  | Gross Amounts | Net Amounts of | Gross Amounts Not Offset in |
| Gross Amounts | Offset in the | Assets Presented | the Statements of Condition |
| of Recognized | Statements of | in the Statements | Financial | Cash Collateral |
(in thousands) | Assets 1 | Condition | of Condition 1 | Instruments | Received | Net Amount
June 30, 2016 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
None | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
December 31, 2015 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 3 |  | $ | — |  | $ | 3 |  | $ | (3 | ) | $ | — |  | $ | — |
1 Amounts exclude accrued interest totaling zero and $1 thousand at June 30, 2016 and December 31, 2015, respectively.
Offsetting of Financial Liabilities and Derivative Liabilities |
|  | Gross Amounts | Net Amounts of | Gross Amounts Not Offset in |  |
| Gross Amounts | Offset in the | Liabilities Presented | the Statements of Condition |  |
| of Recognized | Statements of | in the Statements | Financial | Cash Collateral |  |
(in thousands) | Liabilities 2 | Condition | of Condition 2 | Instruments | Pledged | Net Amount |
June 30, 2016 |  |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |  |
Counterparty A | $ | 2,721 |  | $ | — |  | $ | 2,721 |  | $ | — |  | $ | (2,390 | ) | $ | 331 |  | 3
December 31, 2015 |  |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |  |
Counterparty A | $ | 1,390 |  | $ | — |  | $ | 1,390 |  | $ | (3 | ) | $ | (1,387 | ) | $ | — |  |
Counterparty B | 268 |  | — |  | 268 |  | — |  | (268 | ) | — |  |
Total | $ | 1,658 |  | $ | — |  | $ | 1,658 |  | $ | (3 | ) | $ | (1,655 | ) | $ | — |  |
2 Amounts exclude accrued interest totaling $16 thousand and $27 thousand at June 30, 2016 and December 31, 2015, respectively. 3 The under-collateralized position was covered subsequent to June 30, 2016.

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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 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 2: 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 3: 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 4: 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 5: 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 6: 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 7: 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 8: 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 Reference 9: 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 10: 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 11: 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 12: 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 13: 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 14: 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 15: 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 16: 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 17: 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 18: 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 19: 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 + Details
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