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.

Currency Forward Contracts. At September 30, 2018, the Company had no currency forward contracts 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 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 September 30, 2018, the Company had an interest rate swap in place with a commercial banking customer with a notional amount of $16.0 million. The interest rate swap is simultaneously hedged by an offsetting interest rate swap that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swap does not meet hedge accounting requirements, the changes in the fair value of both the customer and third party swap contracts are recognized directly in earnings. At December 31, 2017 the Company did not have any interest rate swaps with commercial banking customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.

At September 30, 2018 and December 31, 2017, the Company had 21 and two interest rate swaps with a notional amount of $275.0 million and $20 million respectively to reduce the Company's exposure to volatility in short-term interest rates associated with its Federal Home Loan Bank advances. These interest rate swaps meet the hedge accounting requirements. Accordingly, the effective portion of changes in the fair value of the derivatives are recorded in accumulated other comprehensive income (loss) until earnings are affected by the variability in cash flows of the designated hedged item. The ineffective portion of changes in the fair value of these derivatives are recorded in earnings. Interest rate swaps designated as cash flow hedges involve the receipt of variable interest amounts from the swap counter-party in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount.

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

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



	September 30, 2018
	Asset Derivative			Liability Derivative
	Consolidated Balance Sheet	Fair value		Consolidated Balance Sheet	Fair Value
		(In thousands)			(In thousands)
Derivatives:
Interest rate products - designated	Other Assets	$	2,409	Other Liabilities	$	—
Interest rate products - non-designated	Other Assets	216		Other Liabilities	230
Total derivative instruments		$	2,625		$	230

	December 31, 2017
	Asset Derivative			Liability Derivative
	Consolidated Balance Sheet	Fair value		Consolidated Balance Sheet	Fair Value
		(In thousands)			(In thousands)
Derivatives:
Interest rate products - designated	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 nine months ended September 30, 2018 the loss amount recognized in non-interest income was $14 thousand related to the change in fair value of the non-designated interest rate products. No gains or losses were recorded in the consolidated statements of operations for the three and nine months ended September 30, 2017.

Fee income related to the interest rate swap executed with a commercial banking customer totaled $164 thousand for the three and nine months ended September 30, 2018. No fee income was recorded for the three and nine months ended September 30, 2017.

At September 30, 2018 and December 31, 2017, the fair value of derivatives was in a net asset position. At September 30, 2018 and December 31, 2017, accrued interest was $123 thousand and $7 thousand, respectively.

The Company has agreements with counterparties 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.