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Derivative Financial Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2017
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. Our credit exposure, if any, on interest rate swap asset positions is limited to the fair 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 September 30, 2017, we had five interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, August 2037 and October 2037. All of our derivatives are accounted for as fair value hedges. The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans. Our interest rate swap payments are settled monthly with counterparties. Accrued interest on the swaps totaled $9 thousand and $13 thousand as of September 30, 2017 and December 31, 2016, respectively. Information on our derivatives follows:
| Asset derivatives |  | Liability derivatives
(in thousands) | September 30, 2017 | December 31, 2016 |  | September 30, 2017 | December 31, 2016
Fair value hedges: |  |  |  |  |
Interest rate contracts notional amount | $ | 4,070 |  | $ | 4,217 |  |  | $ | 14,984 |  | $ | 15,495 |
Interest rate contracts fair value 1 | $ | 38 |  | $ | 55 |  |  | $ | 909 |  | $ | 933 |
|  | Three months ended
(in thousands) |  | September 30, 2017 | September 30, 2016
Increase in value of designated interest rate swaps due to LIBOR interest rate movements recognized in interest income |  | $ | 25 |  | $ | 241 |
Payment on interest rate swaps recorded in interest income |  | $ | (76 | ) | $ | (132 | )
Decrease in value of hedged loans recognized in interest income |  | $ | (43 | ) | $ | (268 | )
Decrease in value of yield maintenance agreement recognized against interest income |  | $ | (4 | ) | $ | (67 | )
Net loss on derivatives recognized against interest income 2 |  | $ | (98 | ) | $ | (226 | )
|  |  |  | Nine months ended
(in thousands) |  | September 30, 2017 | September 30, 2016
Increase (decrease) in value of designated interest rate swaps due to LIBOR interest rate movements recognized in interest income |  | $ | 7 |  | $ | (825 | )
Payment on interest rate swaps recorded in interest income |  | $ | (261 | ) | $ | (445 | )
Increase in value of hedged loans recognized in interest income |  | $ | 35 |  | $ | 1,022 |
Decrease in value of yield maintenance agreement recognized against interest income |  | $ | (11 | ) | $ | (90 | )
Net loss on derivatives recognized against interest income 2 |  | $ | (230 | ) | $ | (338 | )
1 See Note 3, Fair Value of Assets and Liabilities, for valuation methodology. 2 Includes hedge ineffectiveness loss of $22 thousand and loss of $94 thousand for the quarters ended September 30, 2017 and September 30, 2016, respectively. Ineffectiveness gain of $31 thousand and gain of $107 thousand were recorded in interest income during the nine months ended September 30, 2017 and September 30, 2016, 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
September 30, 2017 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 38 |  | $ | — |  | $ | 38 |  | $ | (38 | ) | $ | — |  | $ | — |
December 31, 2016 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 55 |  | $ | — |  | $ | 55 |  | $ | (55 | ) | $ | — |  | $ | — |
1 Amounts exclude accrued interest totaling $1 thousand at both September 30, 2017 and December 31, 2016, 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
September 30, 2017 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 909 |  | $ | — |  | $ | 909 |  | $ | (38 | ) | $ | (871 | ) | $ | — |
December 31, 2016 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 933 |  | $ | — |  | $ | 933 |  | $ | (55 | ) | $ | (878 | ) | $ | — |
2 Amounts exclude accrued interest totaling $8 thousand and $12 thousand at September 30, 2017 and December 31, 2016, respectively. For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2016 Form 10-K filed with the SEC on March 14, 2017.

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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 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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