Derivatives

The Company uses a derivative financial instrument, which qualifies as a cash flow hedge, to manage the risk of changes in future cash flows due to interest rate fluctuations. The hedged instrument is a $50.0 million three-month FHLB advance that will be renewed every three months at the fixed interest rate at that time. The agreement has a five-year term and stipulates that the counterparty will pay the Company interest at three-month LIBOR and the Company will pay fixed interest of 1.34% on the $50.0 million notional amount. The Company pays or receives the net interest amount quarterly and includes this amount as part of interest expense on the Consolidated Income Statement.

Quarterly, the effectiveness evaluation is based upon the fluctuation of the interest the Company pays to the FHLB for the hedge instrument as compared to the three-month LIBOR interest received from the counterparty. At June 30, 2019, the fair value of the cash flow hedge of $450,000 was reported with other assets. The tax effected amount of $356,000 was included in Accumulated Other Comprehensive Income. There were no amounts recorded in the Consolidated Income Statements for the quarters ended June 30, 2019 or 2018, related to ineffectiveness.

Fair value for this derivative instrument, which generally changes as a result of changes in the level of market interest rates, is estimated based on dealer quotes and secondary market sources.

The following table presents the fair value of this derivative instrument as of June 30, 2019 and December 31, 2018:



	Balance Sheet Location	Fair Value at June 30, 2019		Fair Value at December 31, 2018
	(In thousands)
Interest rate swap on FHLB debt designated as cash flow hedge	Other Assets	$	450	$	1,662

Total derivatives		$	450	$	1,662

The following table presents the effect of this derivative instrument on the Consolidated Statements of Comprehensive Income for the quarters ended June 30, 2019, and December 31, 2018:



	Balance Sheet Location	Amount Recognized in OCI for the three months ended June 30, 2019			Amount Recognized in OCI for the three months ended December 31, 2018
	(In thousands)
Interest rate swap on FHLB debt designated as cash flow hedge	Equity	$	(595	)	$	108