Derivative Instruments

The Company enters into derivative transactions principally to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities on future cash flows. As of September 30, 2018 and December 31, 2017, the Company has derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps and floors used for interest rate management purposes and derivatives executed with commercial banking customers to facilitate their interest rate management strategies. For the majority of these instruments the Company acts as an intermediary for its customers. Changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company's results of operations. The Company also has an interest rate swap that serves as a fair value hedge for changes in long term fixed interest rates related to commercial real estate loans. Hedge ineffectiveness is assessed quarterly and any ineffectiveness is recorded as non-interest expense. For the three and nine months ended September 30, 2018 and 2017, hedge ineffectiveness was less than $0.1 million and the change in fair value was less than $0.1 million, for each respective period.

The following table summarizes the notional and fair value of these derivative instruments (in thousands):



	September 30, 2018				December 31, 2017
	Notional Amount		Fair Value		Notional Amount		Fair Value

Non-hedging interest rate derivatives:
Customer counterparties:
Loan interest rate swap - assets	$	45,959	$	668	$	225,480	$	4,877
Loan interest rate swap - liabilities	458,602		26,163		314,450		9,513
Financial institution counterparties:
Loan interest rate swap - assets	464,569		26,389		320,949		9,591
Loan interest rate swap - liabilities	45,959		668		218,924		4,877

Derivatives designated as hedges of fair value:
Financial institution counterparties:
Loan interest rate swap - assets	3,733		131		4,326		34

The following table summarizes the change in fair value of these derivative instruments (in thousands):



	Three months ended September 30,					Nine months ended September 30,
	2018		2017			2018		2017
Change in fair value non-hedging interest rate derivatives:
Other expense	$	25	$	6		$	147	$	30

Change in fair value hedging interest rate derivatives:
Other income (expense)	—		(3		)	2		6

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company's derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association ("ISDA") master agreements which include "right of setoff" provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes. Information about financial instruments that are eligible for offset in the consolidated balance sheet as of September 30, 2018 is presented in the following tables (in thousands):

Gross Amounts

Not Offset in the

Balance Sheet

Total

of Gross

Amounts

Not Offset in

the Statement

of Financial

Position

Netting

Including

Gross

Net Amounts

Adjustment

Applicable

Amounts

of Assets

per

Netting

Gross

Offset in the

Presented in

Applicable

Agreement

Amounts of

Statement of

the Statement

Master

Fair Value

and Fair

Recognized

Financial

of Financial

Netting

of Financial

Value of

Description

Assets

Position

Arrangements

Collateral

Net Amount

(a)

(b)

(c)=(a)-(b)

(d)

(c)-(d) *

Non-hedging derivative assets:

Interest rate swap agreements - customer counterparties

668

—

668

—

668

—

Interest rate swap agreements - financial institution counterparties

26,389

—

26,389

—

26,389

Hedging derivative assets:

Interest rate swap agreements - financial institution counterparties

131

—

131

—



Non-hedging derivative liabilities:
Interest rate swap agreements - customer counterparties	26,163	—	26,163	—	26,163	26,163	—
Interest rate swap agreements - financial institution counterparties	668	—	668	—	13,256	13,256	—

*	For instances where the fair value of financial collateral meets or exceeds the amounts presented in the Consolidated Balance Sheets, no value is displayed to represent full collateralization.