Derivatives

Financial derivatives are reported at fair value in other assets or other liabilities. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative net investment hedge instrument as well as the offsetting gain or loss on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate tax-exempt callable securities available-for-sale. The hedging strategy on securities converts the fixed interest rates to LIBOR-based variable interest rates. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the call dates of the hedged securities. The Company has elected early adoption of ASU 2017-12, Derivatives and Hedging (Topic 815) - Targeted Improvements to Accounting for Hedging Activities, which allows such partial term hedge designations.

A summary of the Company's fair value hedge relationships for the periods presented are as follows (in thousands):




Liability derivatives	Balance Sheet Location	Weighted Average Remaining Maturity (In Years)	Weighted Average Pay Rate	Receive Rate	Notional Amount		Estimated Fair Value
September 30, 2019:
Interest rate swap agreements - securities	Other liabilities	8.45	3.09%	3 month LIBOR	$	36,000	$	(4,456	)
December 31, 2018:
Interest rate swap agreements - securities	Other liabilities	9.23	3.10%	3 month LIBOR	$	35,000	$	(1,174	)

The effects of the Company's fair value hedge relationships reported in interest income on tax-exempt available-for-sale securities

on the consolidated income statement were as follows (in thousands):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Interest income on tax-exempt securities	$	400		$	247		$	1,305		$	247
Effects of fair value hedge relationships	(62		)	(7		)	(132		)	(7		)
Reported interest income on tax-exempt securities	$	338		$	240		$	1,173		$	240

	Three Months Ended September 30,						Nine Months Ended September 30,
Gain (loss) on fair value hedging relationship	2019			2018			2019			2018
Interest rate swap agreements - securities:
Hedged items	$	1,045		7			$	3,282		7
Derivative designated as hedging instruments	(1,045		)	(7		)	(3,282		)	(7		)

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges (in thousands):



Line item on the balance sheet	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
September 30, 2019:
Securities available-for-sale	$	43,808	$	4,456
December 31, 2018:
Securities available-for-sale	$	39,730	$	1,174