WILSON BANK HOLDING CO

Derivatives Designated as Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged asset or liability attributable to the hedged risk are recognized in current earnings. The gain or loss on the derivative instrument is presented on the same income statement line item as the earnings effect of the hedged item. The Company utilizes interest rate swaps designated as fair value hedges to mitigate the effect of changing interest rates on the fair values of fixed rate loans. The hedging strategy on loans converts the fixed interest rates to variable interest rates tied to the applicable reference rate. These derivatives are designated as partial term hedges of selected cash flows covering specified periods of time prior to the maturity dates of the hedged loans.

During the second quarter of 2020, the Company entered into one swap transaction with a notional amount of $30,000,000 pursuantto which the Company paid the counter-party a fixed interest rate and received a floating rate, which until August 31, 2023 equaled

1 month LIBOR. On September 1, 2023, the Company began receiving a daily compounded SOFR rate plus a spread adjustment in lieu of 1 month LIBOR as part of the LIBOR transition event. The derivative transaction was designated as a fair value hedge.

During the fourth quarter of 2023 the Company voluntarily terminated the interest rate swap as the market indicated that rates had peaked, further rate increases were unlikely, and the Company’s balance sheet could support the market’s current demand for fixed rate loans without the interest rate swap. The termination of the fair value hedge resulted in an unrealized gain totaling $3,747,000 which is being reclassified to increase interest income over the original term of the swap contract.

A summary of the Company's fair value hedge relationships as of December 31, 2023 and December 31, 2022 are as follows (in thousands):

The effects of fair value hedge relationships reported in interest income on loans on the consolidated statements of income for the twelve months ended December 31, 2023 and 2022 were as follows (in thousands):

The following amounts were recorded on the balance sheet related to cumulative basis adjustments for fair value hedges at December 31, 2023 and December 31, 2022 (in thousands):

The following table presents the net effects of derivative hedging instruments on the Company's consolidated statements of income for twelve months ended December 31, 2023 and 2022. The effects are presented as an increase to income before taxes in the relevant caption of the Company's consolidated statements of income.