Financial Derivative Instruments

12 Months Ended

Dec. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Bank uses derivative financial instruments for risk management purposes and not for trading or speculative purposes. As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant effect on net interest income.

The Bank recognizes its derivative instruments in the consolidated balance sheets at fair value. On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in OCI. Any ineffective portion is recorded in earnings. The Bank discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.

The details of the interest rate swap agreements are as follows:


					December 31, 2024				December 31, 2023
Effective Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Presentation on Consolidated Balance Sheets	Notional Amount		Fair Value		Notional Amount		Fair Value
Cash Flow Hedges
4/27/2022	1/27/2024	USD-SOFR-COMPOUND	2.576%	Other Assets	$	—	$	—	$	10,000,000	$	22,000
4/27/2022	4/27/2024	USD-SOFR-COMPOUND	2.619%	Other Assets	—		—		10,000,000		86,000
01/10/2023	01/01/2026	USD-SOFR-OIS COMPOUND	3.836%	Other Assets	75,000,000		198,000		75,000,000		272,000
					$	75,000,000	$	198,000	$	95,000,000	$	380,000
Fair Value Hedges
03/08/2023	03/01/2026	USD-SOFR-OIS COMPOUND	4.712%	Other Liabilities	$	40,000,000	$	(270,000)	$	40,000,000	$	(581,000)
03/08/2023	03/01/2027	USD-SOFR-OIS COMPOUND	4.402%	Other Liabilities	30,000,000		(216,000)		30,000,000		(598,000)
03/08/2023	03/01/2028	USD-SOFR-OIS COMPOUND	4.189%	Other Liabilities	30,000,000		(137,000)		30,000,000		(678,000)
07/12/2023	08/01/2025	USD-SOFR-OIS COMPOUND	4.703%	Other Liabilities	50,000,000		(135,000)		50,000,000		(292,000)
					$	150,000,000	$	(758,000)	$	150,000,000	$	(2,149,000)
Total swap agreements					$	225,000,000	$	(560,000)	$	245,000,000	$	(1,769,000)

The Company would reclassify unrealized gains or losses accounted for within AOCI into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate for cash flow hedges, or would amortize the gain or loss over the remaining life of the hedged instrument for fair value hedges. Amounts paid or received under the swaps are reported in interest income or interest expense in the consolidated statements of income, and reflected in net income in the consolidated statements of cash flows.

Customer loan derivatives

The Bank will enter into interest rate swaps with qualified commercial customers. Through these arrangements, the Bank is able to provide a means for a loan customer to obtain a long-term fixed rate, while it simultaneously contracts with an approved, highly-rated, third-party financial institution as counterparty to swap the fixed rate for a variable rate. Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheets.

At December 31, 2024 there were ten customer loan swap arrangements in place. This compares to seven customer loan swap arrangements in place at December 31, 2023. The details of the Bank's customer loan swap arrangements are detailed below:


		December 31, 2024					December 31, 2023
	Presentation on Consolidated Balance Sheets	Number of Positions	Notional Amount		Fair Value		Number of Positions	Notional Amount		Fair Value
Pay Fixed, Receive Variable	Other Assets	8	$	43,415,000	$	4,772,000	6	$	36,286,000	$	4,259,000
Pay Fixed, Receive Variable	Other Liabilities	2	4,342,000		(87,000)		1	5,048,000		(89,000)
Total		10	47,757,000		4,685,000		7	41,334,000		4,170,000
Receive Fixed, Pay Variable	Other Assets	2	4,342,000		87,000		1	5,048,000		89,000
Receive Fixed, Pay Variable	Other Liabilities	8	43,415,000		(4,772,000)		6	36,286,000		(4,259,000)
Total		10	47,757,000		(4,685,000)		7	41,334,000		(4,170,000)
Total		20	$	95,514,000	$	—	14	$	82,668,000	$	—

Derivative collateral

The Company has entered into a master netting arrangement with its counterparty and settles payments with the counterparty as necessary. The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position, as requested. At December 31, 2024, there was no collateral posted on its swap contracts or required amount to be pledged.