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Derivative Financial Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments and Hedging Activities Derivative Financial Instruments and Hedging Activities
We entered into interest rate swap agreements, primarily as an asset/liability 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, 2020, 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 of our derivatives 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 $13 thousand at June 30, 2020 and $6 thousand at December 31, 2019. Information on our derivatives follows:
Asset DerivativesLiability Derivatives
(in thousands)June 30,
2020		December 31, 2019June 30,
2020		December 31, 2019
Fair value hedges:
Interest rate contracts notional amount$—  $—  $16,466  $16,956  
Interest rate contracts fair value1
$—  $—  $2,682  $1,178  
1 See Note 3, Fair Value of Assets and Liabilities, for valuation methodology.

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, 2020 and December 31, 2019.
Carrying Amounts of Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Loans
(in thousands)
June 30, 2020December 31, 2019June 30, 2020December 31, 2019
Loans$18,938  $17,900  $2,473  $944  
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 endedSix months ended
(in thousands)June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Interest and fees on loans 1
$21,217  $20,988  $42,104  $41,683  
Decrease in value of designated interest rate swaps due to LIBOR interest rate movements$(63) $(547) $(1,504) $(904) 
Payment on interest rate swaps(96) (14) (146) (26) 
Increase in value of hedged loans59  573  1,529  935  
Decrease in value of yield maintenance agreement(3) (3) (6) (7) 
Net (losses) gains on fair value hedging relationships recognized in interest income $(103) $9  $(127) $(2) 
1 Represents the income line item in the statement of comprehensive income in which the effects of fair value hedges are recorded.

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.

Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:
Offsetting of Financial Assets and Derivative Assets
Gross AmountsNet Amounts ofGross Amounts Not Offset in
Gross AmountsOffset in theAssets Presentedthe Statements of Condition
of RecognizedStatements ofin the StatementsFinancialCash Collateral
(in thousands)
AssetsConditionof ConditionInstrumentsReceivedNet Amount
June 30, 2020
Derivatives by Counterparty:
Counterparty A$—  $—  $—  $—  $—  $—  
Total$—  $—  $—  $—  $—  $—  
December 31, 2019
Derivatives by Counterparty:
Counterparty A$—  $—  $—  $—  $—  $—  
Total$—  $—  $—  $—  $—  $—  
Offsetting of Financial Liabilities and Derivative Liabilities
Gross AmountsNet Amounts ofGross Amounts Not Offset in
Gross AmountsOffset in theLiabilities Presentedthe Statements of Condition
of RecognizedStatements ofin the StatementsFinancialCash Collateral
(in thousands)
Liabilities1
Condition
of Condition1
InstrumentsPledgedNet Amount
June 30, 2020
Derivatives by Counterparty:
Counterparty A$2,682  $—  $2,682  $—  $(2,682) $—  
Total$2,682  $—  $2,682  $—  $(2,682) $—  
December 31, 2019
Derivatives by Counterparty:
Counterparty A$1,178  $—  $1,178  $—  $(1,178) $—  
Total$1,178  $—  $1,178  $—  $(1,178) $—  
1 Amounts exclude accrued interest on swaps.

For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2019 Form 10-K filed with the SEC on March 13, 2020.