The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its assets and liabilities and the use of derivative financial instruments.

The Company uses interest rate swaptions to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives designated as cash flow hedges is to protect itself against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows related to interest payments on a forecasted issuance of debt. To accomplish this objective, the Company has entered into swaptions to hedge the risk of changes in its cash flows, i.e. interest payments, attributable to changes in the designated benchmark interest rate being hedged, above the purchased swaption fixed rate, for the period from hedge inception to the Borrowings issuance window.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, changes in the fair value of the derivative are initially reported in accumulated other comprehensive loss (outside of earnings), net of tax, and subsequently reclassified to earnings in the same period during which the hedged transaction affects earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election.

Amounts reported in accumulated other comprehensive loss related to designated cash flow hedge derivatives will be reclassified to interest expense. During the next 12 months, the Company estimates that an additional $616 thousand will be reclassified as an increase to interest expense.

Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company entered into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts in exchange for a fee. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities.

The Company is exposed to credit risk in the event of nonperformance by the interest rate swap counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty.

The designated interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; and 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Historically, as part of its mortgage banking activities, the Bank entered into interest rate lock commitments, which were commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank then locked in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs ("best efforts") or committed to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Certain loans that were under interest rate lock commitments were covered under forward sales contracts of MBS. Forward sales contracts of MBS were recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors were considered derivatives. The market value of interest rate lock commitments and best efforts contracts were not readily ascertainable with precision because they were not actively traded in stand-alone markets. The Bank determined the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which was impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded.

Certain additional risks arose from these forward delivery contracts in that the counterparties to the contracts may not have been able to meet the terms of the contracts. The Bank did not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs included the risk that, if the Bank did not close the loans subject to interest rate risk lock commitments, it would still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this have been required, the Bank could have incurred significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.


	December 31, 2023					December 31, 2022
(dollars in thousands)	Notional Amount		Fair Value		Balance Sheet Category	Notional Amount		Fair Value		Balance Sheet Category
Derivatives in an asset position:
Derivatives designated as hedging instruments:
Interest rate product	$	300,000	$	374	Other Assets	$	—	$	—	Other Assets

Derivatives not designated as hedging instruments:
Interest rate product	651,429		30,288		Other Assets	396,024		31,039		Other Assets
Credit risk participation agreements	49,480		3		Other Liabilities	—		—		Other Assets
Mortgage banking derivatives	—		—		Other Assets	6,963		93		Other Assets
	700,909		30,291			402,987		31,132
Total derivatives in an asset position	$	1,000,909	$	30,665		$	402,987	$	31,132

Derivatives in a liability position:
Derivatives not designated as hedging instruments:
Interest rate product	$	654,757	$	30,555	Other Liabilities	$	396,024	$	30,065	Other Liabilities
Credit risk participation agreements	—		—		Other Liabilities	25,902		2		Other Liabilities
	$	654,757	30,555			$	421,926	30,067
Gross amounts not offset in the consolidated balance sheets:
Cash and other collateral (1)			—					—
Net derivatives in a liability position			$	30,555				$	30,067

(1)Collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consist of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.


The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
	Amount of Gain (Loss) Recognized in OCI						Location of Gain (Loss) Recognized from Accumulated Other Comprehensive Income into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
(dollars in thousands)	Total		Included Component		Excluded Component			Total		Included Component		Excluded Component
Year ended December 31, 2023:
Derivatives in cash flow hedging relationships:
Interest rate products	$	(256)	$	—	$	(256)	Interest expense	$	(14)	$	—	$	(14)

Year ended December 31, 2022:
Derivatives in cash flow hedging relationships:
Interest rate products	$	—	$	—	$	—	Interest expense	$	—	$	—	$	—

Year ended December 31, 2021:
Derivatives in cash flow hedging relationships:
Interest rate products	$	—	$	—	$	—	Interest expense	$	(516)	$	(516)	$	—


The Effect of Cash Flow Hedge Accounting on the Consolidated Statements of Income
	Year Ended December 31,
	2023		2022		2021
(dollars in thousands)	Interest Expense		Interest Expense		Interest Expense
Total amounts of expense line items presented in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded	$	(14)	$	—	$	(516)

The effect of cash flow hedging:
Gain (loss) on cash flow hedging relationships:
Interest rate products:
Amount of gain (loss) reclassified from accumulated other comprehensive income into income	$	(14)	$	—	$	(516)

Amount of gain (loss) reclassified from accumulated other comprehensive income into income - included component	$	—	$	—	$	(516)
Amount of gain (loss) reclassified from accumulated other comprehensive income into income - excluded component	$	(14)	$	—	$	—


Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income
(dollars in thousands)	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
		Year Ended December 31,
		2023		2022		2021
Derivatives Not Designated as Hedging Instruments under ASC 815-20:
Interest rate products	Other income / (expense)	$	2,712	$	3,057	$	2,797
Mortgage banking derivatives	Other income	—		671		636

Total		$	2,712	$	3,728	$	3,433

International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally presents such financial instruments gross for financial reporting purposes.