DERIVATIVES

6 Months Ended

Jun. 30, 2024

DERIVATIVES

DERIVATIVES

13. DERIVATIVES

The Company may enter into derivative financial instruments as part of its asset liability management strategy to help manage its interest rate risk position and to meet the needs of customers.

Derivatives Designated as Hedging Instruments

The Company had no derivatives designated as cash flow hedges as of June 30, 2024 and December 31, 2023. In April 2023, the Company’s remaining interest rate swap with a notional amount of $20.0 million designated as a cash flow hedge on a short-term FHLB advance matured. Changes in the fair value of the swap were recorded in other comprehensive income. The interest rate swap was determined to be fully effective during the 2023 period and, as such, no amount of ineffectiveness was included in net income.

The effect of cash flow hedge accounting on accumulated other comprehensive income for the period ended December 31, 2023 was as follows:

(Dollars in thousands)	December 31, 2023
	Amount of Gain		Location of Gain	Amount of Gain
	Recognized in		Reclassified	Reclassified from
	OCI on Derivatives		from OCI into Income	OCI into Income
Interest rate contract	$	2	Interest expense on short-term borrowings and repurchase agreements	$	(269)
Total	$	2		$	(269)

The gain recognized into income for the cash flow hedging relationship on the Consolidated Statements of Income for the three and six months ended June 30, 2023 was $55,000 and $269,000, respectively.

Derivatives Not Designated as Hedging Instruments

Juniata entered into risk participation agreements with financial institution counterparties for interest rate swaps related to loans in which Juniata is a participant. The risk participation agreements provide credit protection to the financial institution should the borrower fail to perform on its interest rate derivative contract with the financial institution. These risk participation agreements are recorded within other liabilities on the Consolidated Statement of Financial Condition at their estimated fair value. At June 30, 2024, the estimated fair value of the risk participation agreements was $35,000. Changes to the fair value of the risk participation agreements are included in fees derived from loan activity in the Consolidated Statement of Income. For the three and six months ended June 30, 2024, income of $4,000 and $21,000, respectively, was recorded.

Juniata acts as an interest rate swap counterparty for one commercial borrower, which is accounted for at fair value. Juniata manages its exposure to such interest rate swaps by entering corresponding and offsetting interest rate swaps with a third party that mirrors the terms of the swap with the commercial borrower. This position, referred to as a “back-to-back swap”, directly offsets itself, and Juniata’s exposure is the fair value of the derivative due to changes in credit risk of the commercial borrower and third party. The back-to-back swap is recorded within other assets and other liabilities on the Consolidated Statement of Financial Condition at the estimated fair value. At June 30, 2024, the estimated fair value of the back-to-back swap was $25,000.