Interest Rate Swaps

9 Months Ended

Sep. 30, 2023

11. Interest Rate Swaps

The Company enters into interest rate swaps that allow our commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate into a fixed-rate. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third parties are not designated as hedges under FASB ASC 815 and are not marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented. At September 30, 2023 and December 31, 2022, based upon the swap contract values, the company pledged cash in the amount of $350,000 as collateral for its interest rate swaps with a third-party financial institution. The fair value of the swaps as of September 30, 2023 and December 31, 2022 was $1,631,000 and $1,464,000, respectively.

Summary information regarding these derivatives is presented below


(Amounts in thousands)
	Notional Amount								Fair Value
		September 30, 2023		December 31, 2022		Interest Rate Paid		Interest Rate Received		September 30, 2023		December 31, 2022
Customer interest rate swap

Maturing November, 2030	$	6,238	$	6,513	Term SOFR + Margin			Fixed	$	993	$	889
Maturing December, 2030		4,100		4,297	Term SOFR + Margin			Fixed		638		575

Total	$	10,338	$	10,810					$	1,631	$	1,464


Third party interest rate swap

Maturing November, 2030	$	6,238	$	6,513		Fixed	Term SOFR + Margin		$	993	$	889
Maturing December, 2030		4,100		4,297		Fixed	Term SOFR + Margin			638		575

Total	$	10,338	$	10,810					$	1,631	$	1,464

The following table presents the fair values of derivative instruments in the Consolidated Balance Sheet.


	(Amounts in thousands)
	Assets			Liabilities
	Balance Sheet Location		Fair Value	Balance Sheet Location		Fair Value
September 30, 2023
Interest rate derivatives	Other assets	$	1,631	Other liabilities	$	1,631

December 31, 2022
Interest rate derivatives	Other assets		1,464	Other liabilities		1,464