DERIVATIVES

9 Months Ended

Sep. 30, 2020

Derivatives [Abstract]

Derivatives

NOTE 5 – DERIVATIVES

The Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s subordinated debt.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $30 million at September 30, 2020 were designed as a cash flow hedge for subordinated debt. Under the swap arrangement, the Company will pay a fixed interest rate of 2.50% and receive a variable interest rate based on three-month LIBOR plus a weighted average margin of 1.83%.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (“AOCI”) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate subordinated debt.

The following table reflects the cash flow hedges included in the consolidated statements of financial condition at September 30, 2020

		Notional		Fair	Balance Sheet	Weighted Average
(Dollars in Thousands)		Amount		Value	Location	Maturity (Years)
Interest rate swaps related to subordinated debt	$	30,000	$	48	Other Assets	9.8

The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the consolidated statements of income related to the cash flow derivative instruments (interest rate swaps related to subordinated debt) for the three and nine months ended September 30, 2020.

	Amount of Gain				Amount of Gain
	(Loss) Recognized				(Loss) Reclassified
(Dollars in Thousands)	in AOCI		Category		from AOCI to Income
Three months ended September 30, 2020	$	129		Interest Expense	$	(28)
Nine months ended September 30, 2020		21		Interest Expense		(31)

The Company estimates there will be approximately $0.1 million reclassified as an increase to interest expense within the next 12 months.

At September 30, 2020, the Company had no collateral posted related to these agreements.