As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flow due to interest rate fluctuations, the Company entered into an interest rate swap agreement for a portion of its floating rate debt which matured on December 16, 2021. The agreement provided for the Company to receive interest from the counterparty at three months LIBOR and to pay interest to the counterparty at a weighted average fixed rate of 4.20% on a notional amount of $12.0 million. Under the agreement, the Company paid or received the net interest amount monthly, with the monthly settlements included in interest expense.

The Company assumed an additional interest rate swap agreement as the result of the LaPorte acquisition in July 2016 which matured on March 15, 2021. The agreement provided for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counterparty at a weighted average rate of 2.62% on a notional amount of $10.0 million. Under the agreement, the Company paid or received the net interest amount monthly, with the monthly settlements included in interest expense.

On July 20, 2018, the Company entered into an interest rate swap agreement for an additional portion of its floating rate debt. The agreement provides for the Company to receive interest from the counterparty at one month LIBOR and to pay interest to the counter party at a rate of 2.81% on a notional amount of $50.0 million at December 31, 2022 and 2021. Under the agreement, the Company pays or receives the net interest amount monthly, with the monthly settlements included in interest expense.

Management has designated the interest rate swap agreements as cash flow hedging instruments. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. At December 31, 2022, the Company’s cash flow hedge was effective and is not expected to have a significant impact on the Company’s net income over the next 12 months.

The following tables present a summary of interest rate swap derivatives designated as cash flow accounting hedges of variable rate liabilities used in the Company's asset/liability management activities at December 31, 2022 and 2021.

December 31, 2022

Weighted Average Rate

Cash Flow Hedges

Notional
Amount

Weighted Average Remaining Maturity (years)

Fair Value

Receive

Pay

Interest rate swaps

50,000

3.6 years

1,976

1 month LIBOR

2.81

December 31, 2021

Weighted Average Rate

Cash Flow Hedges

Notional
Amount

Weighted Average Remaining Maturity (years)

Fair Value

Receive

Pay

Interest rate swaps

50,000

4.6 years

(3,673)

1 month LIBOR

2.81

Fair value hedges are intended to reduce the interest rate risk associated with the underlying hedged item. The Company enters into fixed rate loan agreements as part of its lending policy. To mitigate the risk of changes in fair value based on fluctuations in interest rates, the Company has entered into interest rate swap agreements on individual loans, converting the fixed rate loans to a variable rate. The Company has also entered into interest rate swap agreements on individual security agreements, converting the fixed rate security to a variable rate. At December 31, 2022, the Company’s fair value hedges were effective and are not expected to have a significant impact on the Company’s net income over the next 12 months.

The change in fair value of both the hedge instruments and the underlying loan and security agreements are recorded as gains or losses in non–interest income. The fair value hedges are considered to be highly effective. The notional amounts of the loan and security agreements being hedged were $514.6 million at December 31, 2022 and $489.0 million at December 31, 2021.

The Company enters into non–hedging derivatives in the form of mortgage loan forward sale commitments with investors and commitments to originate mortgage loans as part of its mortgage banking business. At December 31, 2022, the Company’s fair values of these derivatives were recorded and over the next 12 months are not expected to have a significant impact on the Company’s net income.

The change in fair value of both the forward sale commitments and commitments to originate mortgage loans were recorded and the net gains or losses included in the Company’s gain on sale of loans.


	Asset Derivatives				Liability Derivatives
	December 31, 2022				December 31, 2022
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts – cash flow hedges	$	50,000	$	1,976	$	—	$	—
Total derivatives designated as hedging instruments	50,000		1,976		—		—
Derivatives not designated as hedging instruments
Interest rate contracts – fair value hedges	514,551		42,619		514,551		42,619
Mortgage loan contracts	—		—		13,800		50
Commitments to originate mortgage loans	12,179		284		—		—
Total derivatives not designated as hedging instruments	526,730		42,903		528,351		42,669
Total derivatives	$	576,730	$	44,879	$	528,351	$	42,669


	Asset Derivatives				Liability Derivatives
	December 31, 2021				December 31, 2021
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives designated as hedging instruments
Interest rate contracts – cash flow hedges	$	—	$	—	$	50,000	$	3,673
Total derivatives designated as hedging instruments	—		—		50,000		3,673
Derivatives not designated as hedging instruments
Interest rate contracts – fair value hedge	488,967		14,419		488,967		14,419
Mortgage loan contracts	—		—		43,630		238
Commitments to originate mortgage loans	32,584		1,037		—		—
Total derivatives not designated as hedging instruments	521,551		15,456		532,597		14,657
Total derivatives	$	521,551	$	15,456	$	582,597	$	18,330

The effect of the derivative instruments on the consolidated statement of comprehensive income (loss) for the 12–month periods ended December 31 is as follows:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative Years Ended December 31
	2022		2021		2020
Derivatives in cash flow hedging relationship
Interest rate contracts	$	4,463	$	3,610	$	(3,004)


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative Years Ended December 31
		2022		2021		2020
Derivative designated as hedging instruments
Interest rate contracts – cash flow hedges	Interest expense – Borrowings	$	(628)	$	(1,901)	$	(1,838)
Total		$	(628)	$	(1,901)	$	(1,838)


	Location of gain (loss) recognized on derivative	Amount of Gain (Loss) Recognized on Derivative Years Ended December 31
		2022		2021		2020
Derivative not designated as hedging instruments
Interest rate contracts – fair value hedge	Interest income – loans receivable	$	(39)	$	(372)	$	(223)
Interest rate contracts – fair value hedge	Interest income – investment securities	(99)		(267)		(183)
Mortgage loan contracts	Non–interest income – Gain on sale of loans	188		(238)		38
Commitments to originate mortgage loans	Non–interest income – Gain on sale of loans	(753)		(8)		781
Total		$	(703)	$	(885)	$	413