The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The Company’s hedging strategies involving interest rate derivatives are classified as either cash flow hedges or fair value hedges, depending upon the rate characteristic of the hedged item.

In June 2023, the Company entered into three forward interest rate swap contracts on a pool of fixed rate indirect consumer loans. Each of the three hedge contracts has a $10.0 million notional amount. The interest rate swaps were designated as derivative instruments in fair value hedges with the objective of effectively converting a pool of fixed rate indirect consumer loans to a variable rate throughout the hedge durations in accordance with the portfolio layer method. Under the contractual arrangements, for each swap, the Company pays a fixed interest rate and receives a variable interest rate based on the Secured Overnight Financing Rate (SOFR), on the notional amounts, with monthly net settlements.

In February 2023, the Company voluntarily terminated four interest rate swap agreements each with notional amounts of $10.0 million, or an aggregate amount of $40.0 million. Two of the swaps were previously designated as cash flow hedges, while two were previously designated as fair value hedges. The termination of the cash flow hedges resulted in a net unrealized gain totaling $1.1 million. The unrealized gain was initially recorded in accumulated other comprehensive income, net of tax, and is being reclassified to reduce interest expense over the original terms of the swap contracts. The termination of the fair value hedges resulted in an unrealized gain totaling $1.0 million which is being reclassified to increase interest income over the original terms of the swap contracts.

In May 2022, the Company voluntarily terminated one interest rate swap agreement with a notional amount of $10.0 million. The swap was previously designated as a cash flow hedge. The termination resulted in a net unrealized gain of $0.3 million. The unrealized gain was initially recorded in accumulated other comprehensive income, net of tax, and is being reclassified to reduce interest expense over the original term of the swap contract.

The Company has elected to offset derivative fair value amounts under master netting agreements, given that all of the Company’s hedges are with the same counterparty.

The following table reflects the notional amount and fair value of derivative instruments included on the Company’s Consolidated Balance Sheets on a net basis as of December 31, 2023 and 2022.


	As of December 31, 2023					As of December 31, 2022
			Estimated Fair Value					Estimated Fair Value
	Notional Amount		Gain (Loss) (1)			Notional Amount		Gain (Loss) (1)
	(Dollars in Thousands)
Derivatives designated as hedging instruments:
Fair value hedges:
Interest rate swaps related to fixed rate commercial real estate loans	$	—	$	—		$	20,000	$	1,101
Interest rate swaps related to fixed rate indirect consumer loans		30,000		(119	)				—
Total fair value hedges				(119	)				1,101
Cash flow hedges:
Interest rate swaps related to variable-rate money market deposit accounts		—		—			20,000		1,205
Total cash flow hedges				—					1,205
Total hedges designated as hedging instruments, net			$	(119	)			$	2,306

(1) Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities in the consolidated balance sheets.

The following table presents the net effects of derivative hedging instruments on the Company’s Consolidated Statements of Operations for the years ended December 31, 2023 and 2022. The effects, which include the reclassification of unrealized gains on terminated swap contracts, are presented as either an increase or decrease to income before income taxes in the relevant caption of the Company’s Consolidated Statements of Operations.


	Location in the	Year Ended December 31,
	Consolidated Statements	2023		2022
	of Operations	(Dollars in Thousands)
Interest income	Interest and fees on loans	$	869	$	75
Interest expense	Interest on deposits		496		(5	)
Interest expense	Interest on short-term borrowings		144		56
	Net increase to income before income taxes	$	1,509	$	126