We entered into interest rate swap agreements, primarily as an interest rate risk management strategy, in order to mitigate the changes in the fair value of specified long-term fixed-rate loans (or firm commitments to enter into long-term fixed-rate loans) caused by changes in interest rates. These hedges allow us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments

to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar LIBOR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates.

Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values.

As of June 30, 2019, we had five interest rate swap agreements, which are scheduled to mature in June 2031, October 2031, July 2032, August 2037 and October 2037. All are accounted for as fair value hedges. The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans. Our interest rate swap payments are settled monthly with counterparties. Accrued interest on the swaps totaled $3 thousand at both June 30, 2019 and December 31, 2018. Information on our interest rate swaps is shown in the derivative tables below:



	Asset Derivatives				Liability Derivatives
(in thousands)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Fair value hedges:
Interest rate contracts notional amount	$	—	$	8,895	$	17,437	$	9,016
Interest rate contracts fair value¹	$	—	$	161	$	1,118	$	375

The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of June 30, 2019 and December 31, 2018:



	Carrying Amounts of Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans
(in thousands)	June 30, 2019		December 31, 2018		June 30, 2019		December 31, 2018
Loans	$	18,378	$	17,917	$	941	$	6

The following table presents the net gains (losses) recognized in interest income on loans on the consolidated statements of comprehensive income related to our derivatives designated as fair value hedges:



	Three months ended						Six months ended
(in thousands)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Interest and fees on loans ¹	$	20,988		$	19,624		$	41,683		$	38,511
(Decrease) increase in value of designated interest rate swaps due to LIBOR interest rate movements	$	(547	)	$	187		$	(904	)	$	716
Payment on interest rate swaps	(14		)	(40		)	(26		)	(95		)
Increase (decrease) in value of hedged loans	573			(116		)	935			(693		)
Decrease in value of yield maintenance agreement	(3		)	(3		)	(7		)	(7		)
Net gains (losses) on fair value hedging relationships recognized in interest income	$	9		$	28		$	(2	)	$	(79	)

Our derivative transactions with counterparties are under International Swaps and Derivative Association (“ISDA”) master agreements that include “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes.



Offsetting of Financial Assets and Derivative Assets
			Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
	Gross Amounts		Offset in the		Assets Presented		the Statements of Condition
	of Recognized		Statements of		in the Statements		Financial			Cash Collateral
(in thousands)	Assets¹		Condition		of Condition¹		Instruments			Received		Net Amount
June 30, 2019
Derivatives by Counterparty:
Counterparty A	$	—	$	—	$	—	$	—		$	—	$	—
Total	$	—	$	—	$	—	$	—		$	—	$	—
December 31, 2018
Derivatives by Counterparty:
Counterparty A	$	161	$	—	$	161	$	(161	)	$	—	$	—
Total	$	161	$	—	$	161	$	(161	)	$	—	$	—



Offsetting of Financial Liabilities and Derivative Liabilities
			Gross Amounts		Net Amounts of		Gross Amounts Not Offset in
	Gross Amounts		Offset in the		Liabilities Presented		the Statements of Condition
	of Recognized		Statements of		in the Statements		Financial			Cash Collateral
(in thousands)	Liabilities²		Condition		of Condition²		Instruments			Pledged			Net Amount
June 30, 2019
Derivatives by Counterparty:
Counterparty A	$	1,118	$	—	$	1,118	$	—		$	(990	)	$	128
Total	$	1,118	$	—	$	1,118	$	—		$	(990	)	$	128
December 31, 2018
Derivatives by Counterparty:
Counterparty A	$	375	$	—	$	375	$	(161	)	$	—		$	214
Total	$	375	$	—	$	375	$	(161	)	$	—		$	214

For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2018 Form 10-K filed with the SEC on March 14, 2019.