Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

In the normal course of business, the Company is exposed to certain risk arising from both its business operations and economic conditions. As an element of its risk management strategies, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. To accommodate customers, the Company may enter into interest rate swaps with certain commercial loan customers, with offsetting positions to dealers under a back-to-back swap program.

At December 31, 2023, the Company's derivative financial instruments consist entirely of customer back-to-back interest rate swaps which are not designated as hedges. Under this program, the Company executes interest rate swaps with commercial banking customers to facilitate their risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program are not designated as hedging instruments, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company's derivative instruments are carried at fair value and included in "Other assets" for derivatives with positive fair values and "Other liabilities" for derivatives with negative fair values on the consolidated balance sheets.

The table below presents the fair value of Company’s derivative financial instruments as of the date indicated.

	As of December 31, 2023
			Fair Value
($ in thousands)	Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives not designated as hedging instruments:
Customer interest rate contracts	$	13,000	$	295	—
Offsetting counterparty interest rate contracts	13,000		—		349
Total derivatives not designated as hedging instruments			$	295	349

The table below presents the gains and losses recognized in income related to derivative financial instruments that are not designated as hedging instruments. Gains and losses on interest rate swap undesignated hedges are included in "Other gains, net" on the consolidated statements of income for the date indicated.

	Gains (Losses)
($ in thousands)	Year Ended December 31, 2023
Customer interest rate swaps and counterparty offsets	$	(54)
Total	$	(54)

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2023. The Company’s interest rate swaps are subject to master netting arrangements between the Company and its counterparties, however, the Company has not made a policy election

to offset its derivative positions. The interest rate swaps with borrowers are cross collateralized with the underlying loan and, therefore, there is no posted collateral. Interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount and receive collateral for agreements in a net asset position.

As of December 31, 2023	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheet	Net Amounts of Assets presented in the Consolidated Balance Sheets	Gross Amounts Not Offset in the Consolidated Balance Sheets
					Financial Instruments	Cash Collateral Received	Net Amount
Interest rate swaps	$	295	—	295	—	—	295
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets	Net Amounts of Liabilities presented in the Consolidated Balance Sheets	Gross Amounts Not Offset in the Consolidated Balance Sheets
					Financial Instruments	Cash Collateral Posted	Net Amount
Interest rate swaps	$	349	—	349	—	330	19

The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments which were immaterial at December 31, 2023 and 2022.

Credit-risk-related Contingent Features

The Company's agreements with its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in the Company being declared in default on its derivative obligations, including if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. The Company has provisions in its derivative counterparty agreement providing that if the Company fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The Company manages its credit exposure on derivative transactions by entering into a bilateral credit support agreement with each non-customer counterparty. The credit support agreement requires collateralization of exposure beyond specified minimum threshold amounts. As of December 31, 2023, the fair value of derivatives in a net liability position, including accrued interest, was $349 thousand. As of December 31, 2023, the Company has minimum collateral posting thresholds with its derivative counterparty and has posted collateral of $330 thousand.