Derivatives and Hedging Activities

The Company is 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 March 31, 2019 and December 31, 2018, the Company had no currency forward contracts in place with commercial banking customers. 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 March 31, 2019 the Company had interest rate swaps in place with four commercial banking customers hedged by offsetting interest rate swaps with third parties, with an aggregated notional amount of $68.7 million. 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, with an aggregated notional amount of $36.6 million. 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 swap are recognized directly in earnings.

At March 31, 2019 and December 31, 2018, the Company had 27 and 24 interest rate swaps with notional amounts of $385.0 million and $320.0 million, respectively, 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 payments over the life of the agreements without the exchange of the underlying notional amount.

For the three months ended March 31, 2019 and 2018, 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 in the consolidated statements of financial condition at March 31, 2019 and December 31, 2018:



	March 31, 2019
	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 as cash flow hedges	Other Assets	$	2,213	Other Liabilities	$	8,271
Total derivative instruments		$	2,213		$	8,271

12. Derivatives and Hedging Activities (continued)



	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 as cash flow hedges	Other Assets	$	1,342	Other Liabilities	$	3,944
Total derivative instruments		$	1,342		$	3,944

For the three months ended March 31, 2019 and 2018, losses of $67,000 and zero, respectively, were recorded for changes in fair value of interest rate swaps with third parties.

At March 31, 2019 and December 31, 2018, accrued interest was $14,000 and $65,000, 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 March 31, 2019, the termination value of derivatives in a net liability position, which includes accrued interest, was $6.1 million. The Company has collateral posting thresholds with certain derivative counterparties, and has posted collateral of $9.1 million against its obligations under these agreements.