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Derivative Financial Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2018
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 interest rate risk 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, 2018, 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 designated hedging instruments and 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 $4 thousand and $8 thousand as of September 30, 2018 and December 31, 2017, respectively. The following table presents the notional amount and fair value of our derivatives designated as hedging instruments:
| Derivative Assets |  | Derivative Liabilities
(in thousands) | September 30, 2018 | December 31, 2017 |  | September 30, 2018 | December 31, 2017
Fair value hedges: |  |  |  |  |
Interest rate contracts notional amount | $ | 8,988 |  | $ | 4,019 |  |  | $ | 9,156 |  | $ | 14,810 |
Interest rate contracts fair value1 | $ | 436 |  | $ | 74 |  |  | $ | 163 |  | $ | 740 |
1 See Note 3, Fair Value of Assets and Liabilities, for valuation methodology. The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of September 30, 2018:
(in thousands) | Carrying Amounts of Hedged Assets |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans |
Loans | $ | 17,651 |  | $ | (493 | )
The following table presents the net gains (losses) recognized in interest income on loans on the consolidated statements of comprehensive income related to our derivatives designated as fair value hedges:
|  | Three months ended
(in thousands) |  | September 30, 2018 | September 30, 2017
Increase in value of designated interest rate swaps |  | $ | 222 |  | $ | 25 |
Payment on interest rate swaps |  | $ | (32 | ) | $ | (76 | )
Decrease in value of hedged loans |  | $ | (231 | ) | $ | (43 | )
Decrease in value of yield maintenance agreement |  | $ | (4 | ) | $ | (4 | )
Net loss on fair value hedging relationships recognized in interest income |  | $ | (45 | ) | $ | (98 | )
|  |  |  | Nine months ended
(in thousands) |  | September 30, 2018 | September 30, 2017
Increase in value of designated interest rate swaps |  | $ | 939 |  | $ | 7 |
Payment on interest rate swaps |  | $ | (127 | ) | $ | (261 | )
(Decrease) increase in value of hedged loans |  | $ | (924 | ) | $ | 35 |
Decrease in value of yield maintenance agreement |  | $ | (11 | ) | $ | (11 | )
Net loss on fair value hedging relationships recognized against interest income |  | $ | (123 | ) | $ | (230 | )
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. The following table shows information on financial instruments that are eligible for offset in the consolidated statements of condition.
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) | Assets1 | Condition | of Condition1 | Instruments | Received | Net Amount
September 30, 2018 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 436 |  | $ | — |  | $ | 436 |  | $ | (163 | ) | $ | — |  | $ | 273 |
December 31, 2017 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 74 |  | $ | — |  | $ | 74 |  | $ | (74 | ) | $ | — |  | $ | — |
1 Amounts exclude accrued interest totaling less than $1 thousand at both September 30, 2018 and December 31, 2017.
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) | Liabilities2 | Condition | of Condition2 | Instruments | Pledged | Net Amount
September 30, 2018 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 163 |  | $ | — |  | $ | 163 |  | $ | (163 | ) |  |  | $ | — |
December 31, 2017 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 740 |  | $ | — |  | $ | 740 |  | $ | (74 | ) | $ | (666 | ) | $ | — |
2 Amounts exclude accrued interest totaling $3 thousand and $8 thousand at September 30, 2018 and December 31, 2017, 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 2017 Form 10-K filed with the SEC on March 14, 2018.

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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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