The Company uses interest rate swaps to reduce interest rate risk and to manage net interest income. Interest differentials paid or received under the swap agreements are reflected as adjustments to interest income. These interest rate swap agreements include both cash flow and fair value hedge derivative instruments that qualify for hedge accounting. The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss. In the event of default by a counter party, the risk in these transactions is the cost of replacing the agreements at current market rates.

The Company entered into an interest rate swap agreement on July 1, 2010 to manage the interest rate exposure on its Junior Subordinated Debt due 2036. By entering into this agreement, the Company converted a floating rate liability into a fixed rate liability through the maturity date of September 15, 2020. Under the terms of the agreement, the Company receives interest quarterly at the rate equivalent to three-month LIBOR plus 1.70% repricing every three months on the same date as the Company’s Junior Subordinated Debt and pays interest monthly at the fixed rate of 3.21%. In addition, on June 24, 2016, the Company entered into a forward interest rate swap agreement to convert the floating rate liability on the same Junior Subordinated Debt to fixed from 2020 to 2031. Interest expense on these interest rate swaps was $87,000, $31,000 and $43,000 for the years ended December 31, 2020, 2019 and 2018, respectively. There was no cash flow hedge ineffectiveness identified during 2020, 2019 and 2018. These swaps are designated as cash flow hedges and changes in the fair value are recorded as an adjustment through other comprehensive income.

The Company entered into two swap agreements to manage the interest rate risk related to two commercial loans on February 11, 2015 and April 7, 2015. The agreements allow the Company to convert fixed rate assets to floating rate assets through 2022 and 2025. The Company receives interest monthly at the rate equivalent to one-month LIBOR plus a spread repricing on the same date as the loans and pays interest at fixed rates. Interest expense recognized on the interest rate swaps was $54,000 for the year ended December 31, 2020 and interest income of $26,000 and $5,000 for the years ended December 31, 2019 and 2018. These swaps are designated as fair value hedges and changes in fair value are recorded in current earnings. On July 28, 2020, one of these swap agreements with a notional/contract amount of $1.2 million terminated, resulting in a termination fee of $89,200.

Cash collateral held at other banks for these swaps was $1.1 million and $730,000 at December 31, 2020 and 2019, respectively. Collateral is dependent on the market valuation of the underlying hedges.

The follow table summarizes the Company’s derivative instruments as of December 31, 2020 and 2019:

(In thousands)

December 31, 2020

Derivatives designated as hedging instruments

Notional/Contract Amount

Fair Value

Balance Sheet Location

Expiration Date

Interest rate forward swap - cash flow

4,000

(442

)

Other Liabilities

6/15/2031

Interest rate swap - fair value

4,150

(76

)

Other Liabilities

2/12/2022

(In thousands)	December 31, 2019
Derivatives designated as hedging instruments	Notional/Contract Amount		Fair Value			Fair Value Balance Sheet Location	Expiration Date
Interest rate swap - cash flow	$	4,000	$	(41	)	Other Liabilities	9/15/2020
Interest rate forward swap - cash flow		4,000		(59	)	Other Liabilities	6/15/2031
Interest rate swap - fair value		1,167		(17	)	Other Liabilities	4/9/2025
Interest rate swap - fair value		4,230		(23	)	Other Liabilities	2/12/2022