We use certain derivative instruments to meet the needs of customers, as well as to manage the interest rate risk associated with certain transactions. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value.

In 2023, we entered into five portfolio layer method fair value swaps, designated as hedging instruments, to manage exposure to changes in fair value on fixed rate mortgages and certain fixed rate available for sale securities attributable to the designated interest rate. Four of the interest rate swaps were designated to hedge a closed portfolio of fixed rate mortgages and one of the interest rate swaps was designated to hedge a closed portfolio of fixed rate municipal bonds. The interest rate swaps involve the

payment of fixed-rate amounts to a counterparty in exchange for us receiving variable-rate payments over the life of the agreements, without the exchange of the underlying notional amount.

In October 2024, we discontinued a portfolio layer method fair value swap designated as a hedging instrument to hedge a closed portfolio of fixed rate mortgages. The hedge, which had a notional amount of $250.0 million, was fully dedesignated, and we paid the counterparty $2.1 million to terminate the swap. We recorded a $0.5 million loss in 2023 and $1.7 million remained on the balance sheet at the time of discontinuance as a basis adjustment to the loans that were part of the hedged portfolio, which will be amortized over the life of the underlying hedged items. As of March 31, 2025, the basis adjustment remaining on the hedged portfolio was $1.6 million. We recorded a $0.1 million gain on the derivative as a result of the discontinuance in 2024.

In January 2025, we discontinued a portfolio layer method fair value swap designated as a hedging instrument to hedge a closed portfolio of fixed rate mortgages. The hedge, which had a notional amount of $30.0 million, was fully dedesignated, and we were paid a nominal fee by the counterparty to terminate the swap. The amount that remained on the balance sheet as a basis adjustment to the loans that were part of the hedged portfolio was not material and was recognized in interest income during the period ended March 31, 2025.

In January 2025, we discontinued the portfolio layer method fair value swap designated as a hedging instrument to hedge a closed portfolio of fixed rate municipal bonds. The hedge, which had a notional amount of $50.0 million, was fully dedesignated, and we paid the counterparty $0.5 million to terminate the swap. A basis adjustment to the hedged securities portfolio of $0.5 million remained on the balance sheet at the time of discontinuance, which will be amortized over the life of the underlying hedged items. As of March 31, 2025, the basis adjustment remaining on the hedged portfolio was $0.4 million.

The remaining active fair value swaps are designated under the portfolio layer method. The notional amount of the two active swaps was $92.8 million as of March 31, 2025, one of which is amortizing and included a $27.2 million amortization adjustment to the notional amount at March 31, 2025. Under this method, the hedged items are designated as a hedged layer of closed portfolios of financial loans that are anticipated to remain outstanding for the designated hedged periods. Adjustments are made to record the swaps at fair value, with changes in fair value recognized in interest income. The carrying values of the fair value swaps are also adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk.

The following table, which includes active fair value hedged items and discontinued fair value hedged items on which a basis adjustment still remains, represents the carrying value of the portfolio layer method hedged assets and the cumulative fair value hedging adjustments included in the carrying value of the hedged assets as of March 31, 2025 and December 31, 2024:


		March 31, 2025
(Dollars in thousands)	Balance Sheet Location	Amortized Cost Basis of Closed Portfolio		Carrying Amount of Hedged Asset		Basis Adjustment - Active Hedges		Basis Adjustment - Discontinued Hedges
Fixed rate mortgages	Loans receivable	$	433,519	$	342,827	$	543	$	1,556
Fixed rate bonds	Investment securities available-for-sale	$	58,141	$	50,000	$	—	$	441
Total hedged assets		$	491,660	$	392,827	$	543	$	1,997


		December 31, 2024
(Dollars in thousands)	Balance Sheet Location	Amortized Cost Basis of Closed Portfolio		Carrying Amount of Hedged Asset		Basis Adjustment - Active Hedges		Basis Adjustment - Discontinued Hedges
Fixed rate mortgages	Loans receivable	$	443,830	$	375,993	$	(505)	$	1,593
Fixed rate bonds	Investment securities available-for-sale	$	58,318	$	50,000	$	618	$	—
Total hedged assets		$	502,148	$	425,993	$	113	$	1,593

Matched Interest Rate Swaps. We enter into interest rate swap contracts to help commercial loan borrowers manage their interest rate risk. The interest rate swap contracts with commercial loan borrowers allow them to convert floating-rate loan payments to fixed rate loan payments. When we enter into an interest rate swap contract with a commercial loan borrower, we simultaneously enter into a "mirror" swap contract with a third-party. The third-party exchanges the borrower's fixed-rate loan payments for floating-rate loan payments. These derivatives are not designated as hedges and changes in fair value are recognized in earnings. Because these derivatives have mirror-image contractual terms, the changes in fair value substantially offset each other through earnings. Fees earned in connection with the execution of derivatives related to this program are recognized in earnings through loan-related derivative income.


		March 31, 2025
(Dollars in thousands)	Balance Sheet Location	Notional Amount		Fair Value of Asset (Liability)		Gain (Loss)
Fair value hedge of interest rate risk:
Pay fixed rate swaps with counterparty	Accrued interest receivable and other assets	$	92,827	$	(543)	$	(431)

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	132,325		4,349		4,349
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	132,325		(4,349)		(4,349)

Total derivatives		$	357,477	$	(543)	$	(431)


		December 31, 2024
(Dollars in thousands)	Balance Sheet Location	Notional Amount		Fair Value of Asset (Liability)		Gain (Loss)
Fair value hedge of interest rate risk:
Pay fixed rate swaps with counterparty	Accrued interest receivable and other assets	$	175,993	$	(112)	$	5,998

Not designated hedges of interest rate risk:
Matched interest rate swaps with borrowers	Accrued interest receivable and other assets	133,942		5,913		5,913
Matched interest rate swaps with counterparty	Accrued interest payable and other liabilities	133,942		(5,913)		(5,913)

Total derivatives		$	443,877	$	(112)	$	5,998

In 2022, we entered into an agreement to sell a portion of our shares of Interchecks Technologies, Inc., a former equity method investment that was subsequently reclassified to equity securities due to the decrease in the remaining ownership percentage. Based on the terms of the sale, we recognized the cash received at closing, as well as a receivable for the remaining installment payment, which is based on a future economic event and is accounted for and separately recorded as a derivative. The derivative instrument is included in accrued interest receivable and other assets on the consolidated balance sheet, while the gains and losses are included in noninterest income on the consolidated statement of income. The fair value of the embedded derivative was $0.6 million at March 31, 2025 and December 31, 2024, with no gain or loss for the three months ended March 31, 2025 and March 31, 2024.