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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities We 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 March 31, 2019, 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 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 $2 thousand and $3 thousand as of March 31, 2019 and December 31, 2018, respectively. Information on our interest rate swaps is shown in the derivative tables below:
| Asset Derivatives |  | Liability Derivatives
(in thousands) | March 31, 2019 | December 31, 2018 |  | March 31, 2019 | December 31, 2018
Fair value hedges: |  |  |  |  |
Interest rate contracts notional amount | $ | 3,760 |  | $ | 8,895 |  |  | $ | 13,914 |  | $ | 9,016 |
Interest rate contracts fair value 1 | $ | 60 |  | $ | 161 |  |  | $ | 631 |  | $ | 375 |
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 March 31, 2019 and December 31, 2018:
| Carrying Amounts of Hedged Assets |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans
(in thousands) | March 31, 2019 | December 31, 2018 |  | March 31, 2019 | December 31, 2018
Loans | $ | 18,041 |  | $ | 17,917 |  |  | $ | 368 |  | $ | 6 |
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) |  | March 31, 2019 | March 31, 2018
Interest and fees on loans 1 |  | $ | 20,695 |  | $ | 18,887 |
(Decrease) increase in value of designated interest rate swaps due to LIBOR interest rate movements |  | $ | (357 | ) | $ | 529 |
Payment on interest rate swaps |  | (12 | ) | (55 | )
Increase (decrease) in value of hedged loans |  | 362 |  | (576 | )
Decrease in value of yield maintenance agreement |  | (4 | ) | (4 | )
Net loss on fair value hedging relationships recognized in interest income |  | $ | (11 | ) | $ | (106 | )
1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded. 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
March 31, 2019 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 60 |  | $ | — |  | $ | 60 |  | $ | (60 | ) | $ | — |  | $ | — |
December 31, 2018 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 161 |  | $ | — |  | $ | 161 |  | $ | (161 | ) | $ | — |  | $ | — |
1 Amounts exclude accrued interest totaling less than $1 thousand at both March 31, 2019 and December 31, 2018.
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
March 31, 2019 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 631 |  | $ | — |  | $ | 631 |  | $ | (60 | ) | $ | (250 | ) | $ | 321 |
December 31, 2018 |  |  |  |  |  |
Derivatives by Counterparty: |  |  |  |  |  |
Counterparty A | $ | 375 |  | $ | — |  | $ | 375 |  | $ | (161 | ) | $ | — |  | $ | 214 |
2 Amounts exclude accrued interest totaling $3 thousand at both March 31, 2019 and December 31, 2018. For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2018 Form 10-K filed with the SEC on March 14, 2019.

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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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