Derivatives and Hedging Activities

The Company offers currency forward contracts and interest rate swap contracts to certain commercial banking customers to manage their risk of exposure and risk management strategies. These contracts are simultaneously hedged by offsetting contracts with a third party, such that the Company would minimize its net risk exposure resulting from these transactions. In addition, the Company executes interest rate swaps with third parties to in order to hedge the interest expense of short-term Federal Home Loan Bank Advances. These contracts are simultaneously hedged with short-term Federal Home Loan Bank Advances.

Currency Forward Contracts. At June 30, 2018, the Company had no currency forward contacts in place with commercial banking customers. At December 31, 2017, the Company had a currency forward contract in place with a commercial banking customer with a notional amount of $1.6 million. An offsetting currency forward contract with a third party was also in place at December 31, 2017. The currency forward contracts associated with this program do not meet hedge accounting requirements. Changes in the fair value of both the customer currency forward contract and the offsetting third party contract are recognized directly in earnings. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial banking customers and are not used to manage interest rate risk in the Company's assets or liabilities.

Interest Rate Swaps. At June 30, 2018 and December 31, 2017, the Company did not have any interest rate swaps with commercial banking customers.

The Company had 14 interest rate swaps in place at June 30, 2018 with offsetting Federal Home Loan Bank advances with a notional amount of $190.0 million. At December 31, 2017, the Company had two interest rate swaps in place with offsetting Federal Home Loan Bank Advances with a notional amount of $20.0 million. The interest rate swaps associated with the program meet the hedge accounting requirements. The effective portion of changes in the fair value of the derivatives designated that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss). The ineffective portion of changes in the fair value of the derivatives designated that qualify as cash flow hedges are recorded in earnings. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counter-party in exchange for the Company making fixed-rate payment payments over the life of the agreements without the exchange of the underlying notional amount.

For the three and six months ended June 30, 2018 and 2017, the Company did not record any hedge ineffectiveness associated with these contracts.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets at June 30, 2018 and December 31, 2017:



	June 30, 2018
	Asset Derivative			Liability Derivative
	Consolidated Balance Sheet	Fair value		Consolidated Balance Sheet	Fair Value
		(In thousands)			(In thousands)
Derivatives:
Interest rate swap - cash flow hedge	Other Assets	$	965	Other Liabilities	$	—
Total derivative instruments		$	965

	December 31, 2017
	Asset Derivative			Liability Derivative
	Consolidated Balance Sheet	Fair value		Consolidated Balance Sheet	Fair Value
		(In thousands)			(In thousands)
Derivatives:
Interest rate swap - cash flow hedge	Other Assets	287		Other Liabilities	$	—
Currency forward contract - non-designated hedge	Other Assets	203		Other Liabilities	203
Total derivative instruments		$	490		$	203

For the three and six months ended June 30, 2018 and 2017, no gains or losses were recorded in the consolidated statements of operations.

The Company has agreements with counter-parties that contain a provision that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of its derivative obligations.

At June 30, 2018 and December 31, 2017, the fair value of derivatives was in a net asset position. At June 30, 2018 and December 31, 2017, accrued interest was $45 thousand and $7 thousand, respectively.