The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. Interest rate swaps were entered into on April 13, 2017, January 27, 2020 and March 3, 2020 each with a respective notional amount of $25.0 million and were designated as a cash flow hedge of a Federal Home Loan Bank (“FHLB”) advance. In addition, interest rate swaps were entered into on June 4, 2019 and August 6, 2019, each with a respective notional amount of $50.0 million and were designated as a cash flow hedge of a Federal Home Loan Bank advance. The swaps were determined to be fully effective during the period presented and therefore no amount of ineffectiveness has been included in net income. Therefore, the aggregate fair value of the swaps is recorded in other assets (liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 5. Derivatives – (continued)

Summary information about the interest rate swaps designated as cash flow hedges as of September 30, 2020, December 31, 2019 and September 30, 2019 are presented in the following table.


	September 30,			December 31,			September 30,
	2020			2019			2019
	(dollars in thousands)
Notional amount	$	175,000		$	150,000		$	175,000
Weighted average pay rates		1.69	%		1.82	%		1.83	%
Weighted average receive rates		1.03	%		2.37	%		2.53	%
Weighted average maturity		1.1 years			1.5 years			1.5 years

Fair value	$	(2,728	)	$	(273	)	$	(380	)

Interest expense recorded on these swap transactions totaled approximately $631 thousand and $942 thousand during the three and nine months ended September 30, 2020, respectively, compared to $(204) thousand and $(563) thousand during the three and nine months ended September 30, 2019, respectively, and is reported as a component of interest expense on FHLB Advances.

Cash Flow Hedge

The following table presents the net losses recorded in other comprehensive income and the Consolidated Statements of Income relating to the cash flow derivative instruments for the following periods:

	Nine Months Ended September 30, 2020
	Amount of gain			Amount of (gain)		Amount of gain
	(loss) recognized			loss reclassified		recognized in other
	in OCI (Effective			from OCI to		Noninterest income
	Portion)			interest income		(Ineffective Portion)
	(dollars in thousands)
Interest rate contracts	$	(3,397	)	$	942	$	-

	Nine Months Ended September 30, 2019
	Amount of gain			Amount of gain			Amount of gain
	(loss) recognized			(loss) reclassified			recognized in other
	in OCI (Effective			from OCI to			Noninterest income
	Portion)			interest income			(Ineffective Portion)
	(dollars in thousands)
Interest rate contracts	$	(976	)	$	(563	)	$	-

The following table reflects the cash flow hedges included in the consolidated statements of condition as of September 30, 2020 and December 31, 2019:

	September 30, 2020					December 31, 2019
	Notional					Notional
	Amount		Fair Value			Amount		Fair Value
	(dollars in thousands)
Interest rate swaps related to FHLB advances included in assets	$	175,000	$	(2,728	)	$	150,000	$	(273)