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DERIVATIVES
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES
7. DERIVATIVES

The Company utilizes various designated and undesignated derivative financial instruments to reduce its exposure to movements in interest rates. The Company measures all derivatives at fair value on its consolidated balance sheet. In each reporting period, the Company records 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 cash flow hedging instruments, the Company records the effective portion of the changes in the fair value of the derivative in accumulated other comprehensive income (loss) ("AOCI"), net of tax, until earnings are affected by the variability of cash flows of the hedged transaction. The Company immediately recognizes the portion of the gain or loss in the fair value of the derivative that represents hedge ineffectiveness 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.

Interest Rate Lock and Forward Sale Commitments

The Company has previously, and, in the future, may enter 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 may also enter 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 and other liabilities, with changes in fair value recorded in current period earnings. These instruments serve to reduce the Company's exposure to movements in interest rates. The Company was not party to any interest rate lock commitments at September 30, 2023 and December 31, 2022. The Company was not party to any forward sale commitments September 30, 2023, but was party to forward sale commitments on $1.1 million of mortgage loans at December 31, 2022.
Risk Participation Agreements

The Company has previously, and, in the future, may enter into credit risk participation agreements ("RPA") with financial institution counterparties for interest rate swaps related to loans in which its participates. The RPAs entered into by us and 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. The Company was party to RPAs with notional amounts totaling $36.2 million and $36.8 million at September 30, 2023 and December 31, 2022, respectively.

Back-to-Back Swap Agreements

The Company has 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 recorded at fair value on our consolidated balance sheet in other assets or other liabilities. The Company had swap agreements with its borrowers with total notional amounts of $35.3 million and $32.3 million at September 30, 2023 and December 31, 2022, respectively, offset by swap agreements with third party financial institutions with the same total notional amounts. The Company held $15.6 million and $10.0 million in counter-party collateral related to the back-to-back swap agreements at September 30, 2023 and December 31, 2022, respectively.

Interest Rate Swaps

During the first quarter of 2022, the Company 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 September 30, 2023, 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 tables present the location of all assets and liabilities associated with our derivative instruments within the consolidated balance sheets as of the dates presented:

Derivative Financial Instruments Not Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationSeptember 30,
2023		December 31,
2022		September 30,
2023		December 31,
2022
Interest rate lock and forward sale commitmentsOther assets / other liabilities$— $10 $— $2 
Back-to-back swap agreementsOther assets / other liabilities5,043 4,611 5,043 4,611 
Derivative Financial Instruments Designated as Hedging InstrumentsAsset DerivativesLiability Derivatives
Fair Value atFair Value at
(dollars in thousands)Balance Sheet LocationSeptember 30,
2023		December 31,
2022		September 30,
2023		December 31,
2022
Interest rate swapOther assets / other liabilities$10,135 $5,986 $— $— 
The following tables present the impact of derivative instruments and their location within the consolidated statements of income for the periods presented:

Derivative Financial Instruments
Not Designated as Hedging Instruments		Location of Gain (Loss)
Recognized in
Earnings on Derivatives		Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Three Months Ended September 30, 2023  
Interest rate lock and forward sale commitmentsMortgage banking income$(16)
Loans held for saleOther income4 
Back-to-back swap agreementsOther service charges and fees36 
Three Months Ended September 30, 2022 
Interest rate lock and forward sale commitmentsMortgage banking income55 
Loans held for saleOther income(66)

Derivative Financial Instruments
Not Designated as Hedging Instruments		Location of Gain (Loss)
Recognized in
Earnings on Derivatives		Amount of Gain (Loss)
Recognized in
Earnings on Derivatives
(dollars in thousands)
Nine Months Ended September 30, 2023 
Interest rate lock and forward sale commitmentsMortgage banking income$(8)
Loans held for saleOther income3 
Back-to-back swap agreementsOther service charges and fees71 
Nine Months Ended September 30, 2022 
Interest rate lock and forward sale commitmentsMortgage banking income55 
Loans held for saleOther income(67)
Risk participation agreementsOther service charges and fees16 

Derivative Financial Instruments
Designated as Hedging Instruments		Location of Loss
Recognized in
Earnings on Derivatives		Amount of Loss
Recognized in
Earnings on Derivatives
(dollars in thousands)
Three Months Ended September 30, 2023
Interest rate swapInterest income$(121)
Three Months Ended September 30, 2022
Interest rate swapInterest income(169)

Derivative Financial Instruments
Designated as Hedging Instruments		Location of Loss
Recognized in
Earnings on Derivatives		Amount of Loss
Recognized in
Earnings on Derivatives
(dollars in thousands)
Nine Months Ended September 30, 2023
Interest rate swapInterest income$(180)
Nine Months Ended September 30, 2022
Interest rate swapInterest income(326)