Financial Derivatives

12 Months Ended

Dec. 31, 2024

Note 16. Financial Derivatives

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

Fair Value Hedges – The Corporation entered into certain interest rate swap contracts designated as fair value portfolio layer hedges of certain available-for-sale investment securities. The Corporation makes a fixed payment and receives a variable payment over the life of the contracts. The hedges were determined to be effective during all periods presented and are expected to be effective during the remaining term of the contracts. At December 31, 2024, the Corporation had posted cash collateral of $5.2 million to a counterparty, reported in interest-bearing deposits in other banks on the Consolidated Balance Sheet.

Derivatives Not Designated as Hedges – These derivatives result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities. Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain lenders which participate in loans.

The table below presents the fair value of the Corporation’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2024 and 2023:



		Fair Value of Derivative Instruments
		Derivative Liabilities
(Dollars in thousands)	As of December 31, 2024						As of December 31, 2023
		Notional amount	Balance Sheet Location		Fair Value		Notional amount	Balance Sheet Location		Fair Value
Derivatives designated as hedging instruments
Interest rate swaps	$	111,087	Other Assets	$	2,275	$	—	Other Assets	$	—
Total derivatives designated as hedging instruments				$	2,275				$	—

Derivatives not designated as hedging instruments
Other Contracts	$	6,064	Other Liabilities	$	—	$	6,268	Other Liabilities	$	2
Total derivatives not designated as hedging instruments				$	—				$	2

The table below presents the effect of the Corporation’s derivative financial instruments that are designated as hedging instruments on the Income Statement as of December 31, 2024 and 2023:



Effect of Derivatives Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)		Year Ended December 31
			2024		2023
Interest rate swaps	Investment income	$	212	$	-

The table below presents the effect of the Corporation’s derivative financial instruments that are not designated as hedging instruments on the Income Statement as of December 31, 2024 and 2023:



Effect of Derivatives Not Designated as Hedging Instruments on the Statement of Financial Performance
Derivatives Not Designated as Hedging Instruments under Subtopic 815-20	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivatives
(Dollars in thousands)		Year Ended December 31
			2024		2023
Other Contracts	Other income	$	1	$	1

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The table below presents the carrying amount of the derivative financial instruments as of December 31, 2024 and 2023:



	Carrying amount of the hedged items				Cumulative amount of fair value hedging instruments
(Dollars in thousands)	Year Ended December 31				Year Ended December 31
	2024		2023		2024		2023
Investment securities, AFS (1)	$	112,261	$	-	$	(2,300)	$	-

(1)The amounts represent the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedge period. At December 31, 2024, the fair value of the closed portfolio used in these hedging relationships was $2.3 million and the notional amount was $111.1 million.