Derivatives and Hedging Activities

The Company is a party to interest rate derivatives that may be designated as hedging instruments. 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 FHLB advances. These contracts are simultaneously hedged with short-term FHLB advances.

Currency Forward Contracts. At December 31, 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. This currency forward contract did 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 December 31, 2018 the Company had interest rate swaps in place with three commercial banking customers hedged by offsetting interest rate swaps with third parties. The aggregated notional amount of the interest rate swaps at December 31, 2018 was $36.6 million. At December 31, 2017, the Company did not have any interest rate swaps with commercial banking customers. These derivatives are not designated as hedges and are not speculative. These interest rate swaps do not meet hedge accounting requirements. Changes in the fair value of both the customer swap and offsetting third party swaps are recognized directly in earnings.

The Company had 24 interest rate swaps at December 31, 2018 with a notional amount of $320.0 million hedging certain FHLB advances. At December 31, 2017, the Company had two interest rate swaps with a notional amount of $20.0 million hedging certain FHLB advances. These interest rate swaps 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 years ended December 31, 2018, September 30, 2017 and 2016, and the three months ended December 31, 2017, the Company did not record any hedge ineffectiveness associated with these contracts.

(19) Derivatives and Hedging Activities (continued)

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Statements of Financial Condition at December 31, 2018 and 2017:



	December 31, 2018
	Asset Derivative			Liability Derivative
	Consolidated Statements of Financial Condition	Fair value		Consolidated Statements of Financial Condition	Fair value
		(In thousands)			(In thousands)
Derivatives:
Interest rate products-designated	Other Assets	$	865	Other Liabilities	$	3,467
Total derivative instruments		$	865		$	3,467

	December 31, 2017
	Asset Derivative			Liability Derivative
	Consolidated Statements of Financial Condition	Fair value		Consolidated Statements of Financial Condition	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 year ended December 31, 2018, a loss of approximately $52,000 was recorded for changes in fair value of interest rate swaps with third parties. For the years ended September 30, 2017 and 2016, and the three months ended December 31, 2017, no gains or losses were recorded for these transactions.

At December 31, 2018 and 2017, accrued interest was $65,000 and $7,000, 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.

At December 31, 2018, the termination value of derivatives in a net liability position, which includes accrued interest, was $2.6 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $2.6 million against its obligations under these agreements. If the Company had breached any of these provisions at December 31, 2018, it could have been required to settle its obligations under the agreements at the termination value.