Derivatives

The Company uses derivative financial instruments in the form of interest rate swap agreements, which qualify as cash flow hedges, to manage the risk of changes in future cash flows due to interest rate fluctuations. The hedged items have a total notional amount of $75.0 million, and consist of rolling one-month or three-month FHLB advances that are renewed at the fixed interest rate at each renewal date. The hedging instruments have four to five years terms and stipulate that the counterparty will pay the Company interest at one-month or three-month LIBOR and the Company will pay fixed interest of 1.34% on a $50.0 million notional amount, 1.44% on a $15.0 million notional amount, and 1.585% on a $10.0 million notional amount. The Company pays or receives the net interest amount quarterly based on the respective hedge agreement and includes this amount as part of FHLB advances 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 debt as compared to the one-month or three-month LIBOR interest received from the counterparty. At December 31, 2019, the $426,000 fair value of the cash flow hedges was reported with other assets. The tax effected amount of $336,000 was included in Accumulated Other Comprehensive Income. There were no amounts recorded in the Consolidated Income Statements for the years ended December 31, 2019 or 2018, related to ineffectiveness.

Fair value for these derivative instruments, 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 derivative instruments as of December 31, 2019 and 2018:



	Balance Sheet Location	2019 Fair Value		2018 Fair Value
	(In thousands)
Interest rate swaps on FHLB debt designated as cash flow hedges	Other assets	$	426	$	1,662
Total derivatives		$	426	$	1,662

The following table presents the net unrealized gains (losses) on derivative instruments included on the Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018:



	Balance Sheet Location	2019 Amount of Loss Recognized In OCI			2018 Amount of Gain Recognized In OCI
	(In thousands)
Interest rate swaps on FHLB debt designated as cash flow hedge	Equity	$	(977	)	$	108