Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVES

v3.23.2
DERIVATIVES
6 Months Ended
Jun. 30, 2023
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 June 30, 2023 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 CME Term
 
SOFR (secured overnight financing rate).
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
Statement of Financial
Notional
Fair
Weighted Average
(Dollars in Thousands)
Condition Location
Amount
Value
 
Maturity (Years)
June 30, 2023
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
5,979
7.0
December 31, 2022
Interest rate swaps related to subordinated debt
Other Assets
$
30,000
$
6,195
7.5
The following table presents the net gains (losses) recorded in AOCI and the
 
consolidated statements of income related to the cash
flow derivative instruments (interest rate swaps related to subordinated
 
debt) for the three and six months ended June 30, 2023.
Amount of (Loss)
Amount of Gain
Gain Recognized
(Loss) Reclassified
(Dollars in Thousands)
Category
in AOCI
from AOCI to Income
Three months ended June 30, 2023
Interest expense
$
437
 
$
332
 
Three months ended June 30, 2022
Interest expense
867
 
26
 
Six months ended June 30, 2023
Interest expense
$
(161)
$
641
 
Six months ended June 30, 2022
Interest expense
2,237
 
(2)
The Company estimates there will be approximately $
1.4
 
million reclassified as a decrease to interest expense within the next 12
months.
The Company had a collateral liability of $
5.9
 
million and $
5.8
 
million at June 30, 2023 and December 31, 2022, respectively.