NOTES PAYABLE AND LONG-TERM DEBT

9 Months Ended

Sep. 30, 2020

Short-term debt and current portion of long-term debt consisted of the following as of September 30, 2020 and December 31, 2019:


($ in thousands)	September 30,		December 31,
	2020		2019


Current portion of installment note payable due in November with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor. Unsecured.	$	500	$	500


	$	500	$	500

Long-term debt consisted of the following as of September 30, 2020 and December 31, 2019:


($ in thousands)	September 30,		December 31,
	2020		2019






Promissory note with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor; maturity November 2023. Annual installment payments beginning November 2020. Unsecured.	$	1,500	$	1,500

Subordinated debentures issued on December 15, 2005 with floating rate interest equal to 3-Month LIBOR plus 375 basis points; net of $143,000 in debt issuance cost ($150,000 in 2019); maturity December 15, 2035. Interest payable quarterly. Redeemable prior to maturity. Unsecured.	9,136		9,129

Subordinated debentures issued on June 21, 2007 with floating rate interest equal to 3-Month LIBOR plus 340 basis points; net of $55,000 in debt issuance cost ($58,000 in 2019); maturity June 15, 2037. Interest payable quarterly. Redeemable prior to maturity. Unsecured.	3,038		3,035
	$	13,674	$	13,664

The Company has entered into various swap agreements related to the trust preferred securities. On February 26, 2020, the Company entered into a forward swap effective March 16, 2020, with a notional amount of $3,000,000 and designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate (LIBOR) associated with the subordinated debentures issued June 21, 2007. Quarterly, commencing June 15, 2020, under the terms of the forward swap, the Company pays interest at a fixed rate of 4.93% until March 15, 2030. On February 26, 2020, the Company entered into a forward swap with a notional amount of $9,000,000 effective March 16, 2020, which hedges against changes in cash flows following the termination of the fixed rate period. Quarterly, commencing June 15, 2020 under the terms of the forward swap, the Company pays interest at a fixed rate of 5.28% until March 15, 2030. On May 26, 2010, the Company entered into a forward swap with a

notional amount of $9,000,000 effective December 15, 2015, which hedges against changes in cash flows following the termination of the fixed rate period. Quarterly, commencing March 16, 2016 under the terms of the forward swap, the Company paid interest at a fixed rate of 8.49% until March 15, 2020.

The interest rate swaps have fair values of $200,000 (liability) and $599,000 (liability), respectively, for a total liability of $799,000 at September 30, 2020 ($65,000 at December 31, 2019). The swap liability is reported as a component of other liabilities on the condensed consolidated balance sheets. A net valuation loss of $580,000 (net of tax) is included in accumulated other comprehensive income related to the swap agreements at September 30, 2020. A net valuation gain of $134,000 (net of tax) was included in accumulated other comprehensive income related to the swap at December 31, 2019.

We use dollar offset at the hedge's inception and for each reporting period thereafter to assess whether the derivative used in a hedging transaction is expected to be, and has been, effective in offsetting changes in the fair value of the hedged item. Since inception, no portion of the hedged item has been deemed ineffective. For all hedges, we discontinue hedge accounting if it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge.

The Company’s interest rate swaps include provisions requiring the Company to post collateral when the derivative is in a net liability position. At September 30, 2020, the Company has securities on deposit with fair market values of $1,197,000 (all of which is posted as collateral). At December 31, 2019, the Company had securities on deposit with fair market values of $294,000 (all of which was posted as collateral). See Note 4 for additional information about the interest rate swaps.