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DERIVATIVES
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
8. DERIVATIVES
 
The Company utilizes various designated and undesignated derivative financial instruments to reduce our exposure to movements in interest rates. All derivatives are measured at fair value on the Company's consolidated balance sheet. In each reporting period, we record the derivative instruments in other assets or other liabilities depending on whether the derivatives are in an asset or liability position. For derivative instruments that are designated as hedging instruments, the effective portion of the changes in the fair value of the derivative in AOCI, net of tax, is recorded until earnings are affected by the variability of cash flows of the hedged transaction. The portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness is immediately recognized in current period earnings. For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivative are included in current period earnings. In 2022, the Company entered into a forward starting interest rate swap designated as a fair value hedge of certain municipal securities. The Company had no derivative instruments designated as hedging instruments as of December 31, 2021.

Interest Rate Lock and Forward Sale Commitments

The Company enters into interest rate lock commitments on certain mortgage loans that are intended to be sold. To manage interest rate risk on interest rate lock commitments, the Company also enters into forward loan sale commitments. The interest rate lock and forward loan sale commitments are accounted for as undesignated derivatives and are recorded at their respective fair values in other assets or other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce our exposure to movements in interest rates. At December 31, 2022 and 2021, the Company was party to forward sale commitments on $1.1 million and $3.5 million of mortgage loans, respectively. As of December 31, 2022 and 2021, the Company did not have any outstanding interest rate lock commitments on mortgage loans.

Risk Participation Agreements

In the first and fourth quarters of 2020, the Company entered into credit risk participation agreements ("RPA") with financial institution counterparties for interest rate swaps related to loans in which the Company participates. The risk participation agreements entered into by us as a participant bank provide credit protection to the financial institution counterparties should the borrowers fail to perform on their interest rate derivative contracts with the financial institutions.

Back-to-Back Swap Agreements

The Company established a program whereby it originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an equal and offsetting swap with a highly rated third-party financial institution. These "back-to-back swap agreements" are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. These back-to-back swap agreements are free-standing derivatives and are recorded at fair value in other assets or other liabilities on the Company's consolidated balance sheet, with changes recorded in current period earnings. The Company did not enter into any swap agreements with its borrowers and third party financial institutions during the year ended December 31, 2022. During the year ended December 31, 2021, the Company entered into swap agreements with its borrowers with a total notional amount of $33.1 million, offset by swap agreements with third party financial institutions with a total notional amount of $33.1 million. As of December 31, 2022, the Company pledged $10.0 million in cash as collateral for the back-to-back swap agreements.

Interest Rate Swaps

During the first quarter of 2022, we entered into a forward starting interest rate swap, with an effective date of March 31, 2024. This transaction had a notional amount totaling $115.5 million as of December 31, 2022, and was designated as a fair value hedge of certain municipal debt securities. The Company will pay the counterparty a fixed rate of 2.095% and will receive a floating rate based on the Federal Funds effective rate. The fair value hedge has a maturity date of March 31, 2029. The interest rate swap is carried on the Company’s consolidated balance sheet at its fair value in other assets (when the fair value is positive) or in other liabilities (when the fair value is negative). The changes in the fair value of the interest rate swap are recorded in interest income. The unrealized gains or losses due to changes in fair value of the hedged debt securities due to changes in benchmark interest rates are recorded as an adjustment to the hedged debt securities and offset in the same interest income line item.
The following table presents the location of all assets and liabilities associated with our derivative instruments within the Company's consolidated balance sheet: 
  Asset DerivativesLiability Derivatives
Derivatives Not Designated asBalance SheetFair Value atFair Value atFair Value atFair Value at
Hedging InstrumentsLocationDecember 31, 2022December 31, 2021December 31, 2022December 31, 2021
  (Dollars in thousands)
Interest rate lock and forward sale commitmentsOther assets / other liabilities$10 $5 $2 $20 
Risk participation agreementsOther assets / other liabilities— — — 16 
Back-to-back swap agreementsOther assets / other liabilities4,611 435 4,611 435 

Asset DerivativesLiability Derivatives
Derivatives Designated asBalance SheetFair Value atFair Value atFair Value atFair Value at
Hedging InstrumentsLocationDecember 31, 2022December 31, 2021December 31, 2022December 31, 2021
(Dollars in thousands)
Interest rate swapOther assets / other liabilities$5,986 $— $— $— 
The following table presents the impact of derivative instruments and their location within the Company's consolidated statements of income for the periods presented: 
Derivatives Not in Cash Flow Hedging RelationshipLocation of Gain (Loss) Recognized in Earnings on DerivativesAmount of Gain (Loss) Recognized in Earnings on Derivatives
 (Dollars in thousands)
Year ended December 31, 2022  
Interest rate lock and forward sale commitmentsMortgage banking income$8 
Loans held for saleOther income(3)
Risk participation agreementsOther service charges and fees16 
   
Year ended December 31, 2021  
Interest rate lock and forward sale commitmentsMortgage banking income98 
Risk participation agreementsOther service charges and fees32 
Back-to-back swap agreementsOther service charges and fees600 
Year ended December 31, 2020  
Interest rate lock and forward sale commitmentsMortgage banking income(76)
Risk participation agreementsOther service charges and fees1,323 

Derivatives in Cash Flow Hedging RelationshipLocation of Gain (Loss) Recognized in Earnings on DerivativesAmount of Gain (Loss) Recognized in Earnings on Derivatives
(Dollars in thousands)
Year ended December 31, 2022
Interest rate swapInterest income$(340)