DERIVATIVES

9 Months Ended

Sep. 30, 2022

DERIVATIVES

DERIVATIVES

12. DERIVATIVES

The Company uses 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 swaps 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.

As of December 31, 2021, interest rate swaps with a notional amount totaling $40.0 million, were designated as cash flow hedges, of which $20.0 million were hedges of brokered deposits, and the other $20.0 million were hedges of  certain forecasted FHLB long-term advances. Based on updated funding need projections, including the proceeds from the sale of investment securities and continued core deposit growth, Juniata unwound two forward starting swaps at a gain of $1.2 million during the second quarter of 2022. The amounts previously recognized in accumulated other comprehensive income were reclassified to other non-interest income because it became probable that the forecasted hedged transactions would not occur. Also in the second quarter, an interest rate swap with a notional amount totaling $20.0 million was de-designated as a cash flow hedge on brokered deposits and designated instead, as a cash flow hedge on a short-term FHLB advance.

The remaining interest rate swap was determined to be fully effective during the periods presented, and as such, no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in either other assets or other liabilities on the Consolidated Statements of Condition, with changes in fair value recorded in other comprehensive income. The Company expects the hedge to remain fully effective during the remaining terms of the swap.

The following table reflects the notional amounts and fair values of derivatives recorded on the Consolidated Statements of Condition as of September 30, 2022 and December 31, 2021.

(Dollars in thousands)	September 30, 2022				December 31, 2021
			Fair				Fair
			Value				Value
	Notional		Asset		Notional		Asset
Derivatives designated as hedges:	Amount		(Liability)		Amount		(Liability)
Interest rate swap - pay fixed / receive floating on 3-month brokered deposit	$	—	$	—	$	20,000	$	52
Interest rate swap - pay fixed / receive floating on 3-month FHLB advance		20,000		419		—		—
Interest rate swaps - forward-starting on long-term FHLB advances		—		—		20,000		489

The effect of cash flow hedge accounting on accumulated other comprehensive income for the periods ended September 30, 2022 and December 31, 2021 are as follows:

(Dollars in thousands)	September 30, 2022
	Amount of Gain		Location of (Gain)	Amount of (Gain)
	(Loss) Recognized in		Loss Reclassified	Loss Reclassified
	OCI on Derivatives		from OCI into Income	from OCI into Income
Interest rate contract	$	(7)	Interest expense on short-term borrowings and repurchase agreements	$	(115)
Swap termination gain		1,202	Other non-interest income		(1,202)
Total	$	1,195		$	(1,317)

(Dollars in thousands)	December 31, 2021
	Amount of Gain		Location of (Gain)	Amount of (Gain)
	(Loss) Recognized in		Loss Reclassified	Loss Reclassified
	OCI on Derivatives		from OCI into Income	from OCI into Income
Interest rate contracts	$	538	Interest expense on short-term borrowings and repurchase agreements	$	60
Total	$	538		$	60

The effect of cash flow hedge accounting on the Consolidated Statements of Income for the three and nine months ended September 30, 2022 and 2021 is as follows:

Amount of Gain or Loss Recognized in Income on Cash Flow Hedging Relationships

	Income (Expense)				Income (Expense)
	Three Months Ended				Nine Months Ended
(Dollars in thousands)	September 30,				September 30,
	2022		2021		2022		2021
Effects of cash flow hedging:
Loss on cash flow hedging relationships:
Amount reclassified from AOCI into income	$	99	$	(17)	$	115	$	(43)
Amount reclassified from AOCI into income for swap termination		(13)		—		1,202		—
Total	$	86	$	(17)	$	1,317	$	(43)