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DERIVATIVES | 12 Months Ended
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Dec. 31, 2023
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 are reported in AOCI, net of tax, 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. Derivative financial instruments are subject to credit and counterparty risk, which is defined as the risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle transactions in accordance with the underlying contractual terms. Credit and counterparty risks associated with derivative financial instruments are similar to those relating to traditional financial instruments. The Company manages derivative credit and counterparty risk by evaluating the creditworthiness of each borrower or counterparty and requiring collateral where appropriate. 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, 2023, the Company was not party to any forward sale commitments on mortgage loans. At December 31, 2022, the Company was party to forward sale commitments on $1.1 million of mortgage loans. As of December 31, 2023, the Company had $1.8 million in interest rate lock commitments on mortgage loans. As of December 31, 2022, the Company did not have any outstanding interest rate lock commitments on mortgage loans. Risk Participation Agreements From time to time, the Company may enter 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 the Company 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. As of December 31, 2023 and 2022, the Company has entered into swaps agreements with its borrowers with a total notional amount of $51.1 million and $32.3 million, respectively, offset by swap agreements with third-party financial institutions with a total notional amount of $51.1 million and $32.3 million, respectively. As of December 31, 2023 and 2022, the Company pledged $9.6 million and $10.0 million, respectively, in cash as collateral for the back-to-back swap agreements. 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 December 31, 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 table presents the location of all assets and liabilities associated with our derivative instruments within the Company's consolidated balance sheet:
|  |  |  | Asset Derivatives |  | Liability Derivatives
Derivatives Not Designated as |  | Balance Sheet |  | Fair Value at |  | Fair Value at |  | Fair Value at |  | Fair Value at
Hedging Instruments |  | Location |  | December 31, 2023 |  | December 31, 2022 |  | December 31, 2023 |  | December 31, 2022
|  |  |  | (Dollars in thousands)
Interest rate lock and forward sale commitments |  | Other assets / other liabilities |  | $ | — |  |  | $ | 10 |  |  | $ | 34 |  |  | $ | 2 |
Back-to-back swap agreements |  | Other assets / other liabilities |  | 3,547 |  |  | 4,611 |  |  | 3,547 |  |  | 4,611 |
|  |  |  | Asset Derivatives |  | Liability Derivatives
Derivatives Designated as |  | Balance Sheet |  | Fair Value at |  | Fair Value at |  | Fair Value at |  | Fair Value at
Hedging Instruments |  | Location |  | December 31, 2023 |  | December 31, 2022 |  | December 31, 2023 |  | December 31, 2022
|  |  |  | (Dollars in thousands)
Interest rate swap |  | Other assets / other liabilities |  | $ | 6,440 |  |  | $ | 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 Relationship |  | Location of Gain (Loss) Recognized in Earnings on Derivatives |  | Amount of Gain (Loss) Recognized in Earnings on Derivatives
|  | (Dollars in thousands)
Year ended December 31, 2023 |  |  |  |
Interest rate lock and forward sale commitments |  | Mortgage banking income |  | $ | (42) |
Loans held for sale |  | Other income |  | 3 |
Risk participation agreements |  | Other service charges and fees |  | — |
Back-to-back swap agreements |  | Other service charges and fees |  | 71 |
Year ended December 31, 2022 |  |  |  |
Interest rate lock and forward sale commitments |  | Mortgage banking income |  | 8 |
Loans held for sale |  | Other income |  | (3) |
Risk participation agreements |  | Other service charges and fees |  | 16 |
Back-to-back swap agreements |  | Other service charges and fees |  | — |
Year ended December 31, 2021 |  |  |  |
Interest rate lock and forward sale commitments |  | Mortgage banking income |  | 98 |
Loans held for sale |  | Other income |  | — |
Risk participation agreements |  | Other service charges and fees |  | 32 |
Back-to-back swap agreements |  | Other service charges and fees |  | 600 |
Derivatives in Cash Flow Hedging Relationship |  | Location of Gain (Loss) Recognized in Earnings on Derivatives |  | Amount of Gain (Loss) Recognized in Earnings on Derivatives
|  | (Dollars in thousands)
Year ended December 31, 2023 |  |  |  |
Interest rate swap |  | Interest income |  | $ | (37) |
Year ended December 31, 2022 |  |  |  |
Interest rate swap |  | Interest income |  | $ | (340) |
Year ended December 31, 2021 |  |  |  |
Interest rate swap |  | Interest income |  | $ | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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