|6 Months Ended|
Jun. 30, 2020
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, 2020 were designed as a cash flow hedge for subordinated debt. 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 June 30, 2020
The Company estimates there will be approximately $0.1 million reclassified as an increase to interest expense within the next 12 months.
At June 30, 2020, the Company has not posted any collateral related to these agreements.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef