The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments, principally to manage the Corporation’s interest rate risk. Additionally, the Corporation enters into interest rate derivatives to accommodate the business requirements of its customers. All derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value.

Interest rate risk management agreements, such as swaps, caps, floors, and collars, are used from time to time as part of the Corporation’s interest rate risk management strategy. Interest rate swaps are agreements in which the Corporation and another party agree to exchange interest payments (e.g., fixed-rate for variable-rate payments or variable-rate for fixed-rate payments) computed on a notional principal amount. Interest rate caps and floors represent options purchased by the Corporation to manage the interest rate paid throughout the term of the option contract. An interest rate collar is a derivative instrument that represents simultaneously buying an interest rate cap and selling an interest rate floor. The credit risk associated with these transactions is the risk of default by the counterparty. To minimize this risk, the Corporation enters into interest rate agreements only with highly rated counterparties that management believes to be creditworthy. The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of the potential loss exposure.

As of December 31, 2024 and 2023, the Corporation had interest rate swap contracts that were designated as cash flow hedges. In addition, at December 31, 2024, the Corporation had an interest rate collar that was designated as a cash flow hedge. These cash flow hedges were executed to hedge the interest rate risk associated with short-term borrowings. The changes in fair value of these derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) and subsequently reclassified to earnings when gains or losses are realized (i.e., in the same period during which the hedged transactions affect earnings.)

The Corporation also had an interest rate swap contract that was designated as a cash flow hedge to hedge the interest rate risk associated with a pool of variable rate commercial loans. On March 31, 2023, the Corporation terminated this interest rate swap contract and the derivative liability was derecognized. The loss on this interest rate swap included in the AOCL component of shareholders’ equity was updated to its termination date fair value of $26.5 million, or $20.1 million after tax. This loss is being amortized into earnings as a reduction of interest income on a straight-line basis over the remaining life of the original interest rate swap term, or through May 1, 2026. At December 31, 2024, the remaining unamortized balance of the loss included in the AOCL component of shareholders’ equity was $11.4 million, or $8.5 million after tax.

As of December 31, 2024, the Corporation had interest rate swap contracts that were designated as fair value hedges. The fair value hedges were executed to hedge the interest rate risk associated with a closed-pool of fixed-rate residential real estate loans (the “hedged item”). The hedged item is measured at fair value through a basis adjustment recognized on the balance sheet. The changes in fair value of derivatives designated as fair value hedges, as well as the offsetting changes in fair value of the hedged item are recognized in earnings.

The Corporation enters into interest rate swap and interest rate cap contracts to help commercial loan borrowers manage their interest rate risk. These interest rate swap contracts allow borrowers to convert variable-rate loan payments to fixed-rate loan payments, while interest rate cap contracts allow borrowers to limit their interest rate exposure in a rising rate environment. When the Corporation enters into an interest rate derivative contract with a commercial loan borrower, it simultaneously enters into a “mirror” interest rate contract with a third party. For interest rate swaps, the third party exchanges the client’s fixed-rate loan payments for variable-rate loan payments. The Corporation’s credit policies with respect to interest rate contracts with commercial borrowers are similar to those used for loans. The Corporation retains the risk that is associated with the potential failure of counterparties and the risk inherent in originating loans. The interest rate contracts with counterparties are generally subject to bilateral collateralization terms. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

The Corporation has entered into risk participation agreements with other banks in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. These derivatives are not designated as hedges and therefore, changes in fair value are recognized in earnings.

Under a risk participation-out agreement, a derivative asset, the Corporation participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower for a fee paid to the participating bank. Under a risk participation-in agreement, a derivative liability, the Corporation assumes, or participates in, a portion of the

Interest rate lock commitments are extended to borrowers and relate to the origination of mortgage loans held for sale. To mitigate the interest rate risk and pricing risk associated with rate locks and mortgage loans that are originated and intended for sale, the Corporation enters into forward sale commitments. Forward sale commitments are contracts for delayed delivery or net settlement of the underlying instrument, such as a residential mortgage loan, where the seller agrees to deliver on a specified future date, either a specified instrument at a specified price or yield or the net cash equivalent of an underlying instrument. Both interest rate lock commitments and forward sale commitments are derivative financial instruments, but do not meet criteria for hedge accounting and therefore, the changes in fair value of these commitments are recognized in earnings.


(Dollars in thousands)	December 31, 2024			December 31, 2023
		Fair Value			Fair Value
	Notional Amounts	Derivative Assets	Derivative Liabilities	Notional Amounts	Derivative Assets	Derivative Liabilities
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:

Interest rate swaps (1)	$120,000	$1,529	$229	$120,000	$802	$1,119
Interest rate collar	50,000	—	30	—	—	—

Derivatives Designated as Fair Value Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps	100,000	1,477	—	—	—	—
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate contracts with customers	886,912	2,468	51,372	938,872	6,594	52,102
Mirror interest rate contracts with counterparties	886,912	51,176	2,529	938,872	51,859	6,757
Risk participation agreements	343,935	29	—	321,055	66	1

Mortgage loan commitments:
Interest rate lock commitments	20,238	248	—	20,980	504	1
Forward sale commitments	52,100	163	291	50,117	18	711
Gross amounts		57,090	54,451		59,843	60,691
Less: amounts offset (2)		2,788	2,788		7,877	7,877
Derivative balances, net of offset		54,302	51,663		51,966	52,814
Less: collateral pledged (3)		—	—		—	—
Net amounts		$54,302	$51,663		$51,966	$52,814

(1)The fair value of derivative assets includes accrued interest receivable of $120 thousand and $239 thousand, respectively, at December 31, 2024 and 2023. There was no accrued interest payable included in the fair value of derivative liabilities at December 31, 2024 and December 31, 2023.

(Dollars in thousands)

December 31, 2024

December 31, 2023

Balance Sheet Location

Carrying Value of Hedged Item (1)

Cumulative Basis Adjustment

Carrying Value of Hedged Item

Cumulative Basis Adjustment

Residential real estate loans

$98,519

($1,481)

$—

(1)Represents the carrying value of the hedged item associated with fair value hedges on a closed-pool of fixed-rate residential real estate loans that are expected to be outstanding for the designated hedged periods. The amortized cost balance of the closed-pool of residential real estate loans used in the fair value hedges was $733.2 million at December 31, 2024.


(Dollars in thousands)	Amounts Recognized in Other Comprehensive Income (Loss), Net of Tax
Years ended December 31,	2024	2023	2022
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:

Interest rate swaps	$7,703	$7,026	($18,632)
Interest rate collar	(22)	—	—

Total	$7,681	$7,026	($18,632)


(Dollars in thousands)		Amount of Gain (Loss) Recognized in the Consolidated Statements of Income (Loss)
Years ended December 31,	Statement of Income Location	2024	2023	2022
Derivatives Designated as Cash Flow Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps	Interest income: Interest and fees on loans	($8,605)	($9,228)	($2,758)
Interest rate swaps	Interest expense: FHLB advances	1,775	1,665	(70)

Derivatives Designated as Fair Value Hedging Instruments:
Interest rate risk management contracts:
Interest rate swaps	Interest income: Interest and fees on loans	1,477	—	—
Hedged item	Interest income: Interest and fees on loans	(1,481)	—	—
Derivatives not Designated as Hedging Instruments:
Loan related derivative contracts:
Interest rate contracts with customers	Loan related derivative income	(28,561)	(1,408)	(92,730)
Mirror interest rate contracts with counterparties	Loan related derivative income	28,963	3,211	94,759
Risk participation agreements	Loan related derivative income	65	(413)	727

Mortgage loan commitments:
Interest rate lock commitments	Mortgage banking revenues	(256)	363	(1,116)
Forward sale commitments	Mortgage banking revenues	514	61	4,530
Total		($6,109)	($5,749)	$3,342