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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | 12. DERIVATIVE FINANCIAL INSTRUMENTS The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of certain balance sheet assets and liabilities. In the normal course of business, the Company also uses derivative financial instruments to add stability to interest income or expense and to manage its exposure to movements in interest rates. The Company does not use derivatives for trading or speculative purposes and only enters into transactions that have a qualifying hedge relationship. The Company’s hedging strategies involving interest rate derivatives are classified as either cash flow hedges or fair value hedges, depending upon the rate characteristic of the hedged item. The Company had previously utilized pay-fixed interest rate swaps designated as either cash flow hedges or fair value hedges. In response to market conditions, during the three months ended March 31, 2023, the Company voluntarily terminated its remaining four interest rate swap agreements with a total notional amount of $40.0 million. In addition, during the year ended December 31, 2022, the Company voluntarily terminated one interest rate swap designated as a cash flow hedge with a notional amount of $10.0 million. Hedges Terminated in 2023 Two of the swaps terminated during the three months ended March 31, 2023 were designated as cash flow hedges, while two were designated as fair value hedges. The termination of the cash flow hedges resulted in a net unrealized gain totaling $1.1 million. The unrealized gain was initially recorded in accumulated other comprehensive income and is being reclassified to reduce interest expense over the original terms of the swap contracts. The termination of the fair value hedges resulted in an unrealized gain totaling $1.0 million which is being reclassified to interest income over the original terms of the swap contracts. Hedge Terminated in 2022 The cash flow hedge terminated during the year ended December 31, 2022, resulted in a net unrealized gain of $0.3 million. The unrealized gain was initially recorded in accumulated other comprehensive income and is being reclassified to reduce interest expense over the original term of the swap contract. Presentation As of March 31, 2023, there were no assets or liabilities recorded in the Company’s interim condensed consolidated balance sheet associated with derivative contracts. The table below reflects the notional amount and fair value of derivative instruments included on the Company’s consolidated balance sheets on a net basis as of December 31, 2022.
|  | As of December 31, 2022 |
|  | Notional |  |  | Estimated Fair Value |
|  | Amount |  |  | Gain (Loss) (1) |
|  | (Dollars in Thousands) |
Derivatives designated as hedging instruments: |  |  |  |  |  |
Fair value hedges: |  |  |  |  |  |
Interest rate swaps related to fixed rate commercial real estate loans |  | $ | 20,000 |  |  | $ | 1,101 |
Total fair value hedges |  |  |  |  |  | 1,101 |
Cash flow hedges: |  |  |  |  |  |
Interest rate swaps related to variable-rate money market deposit accounts |  |  | 20,000 |  |  |  | 1,205 |
Interest rate swaps related to FHLB advances |  |  | — |  |  |  | — |
Total cash flow hedges |  |  |  |  |  | 1,205 |
Total hedges designated as hedging instruments, net |  |  |  |  | $ | 2,306 |
(1) Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities in the consolidated balance sheets. Prior to termination, the Company utilized the last-of-layer method with respect to its interest rate swaps designated as fair value hedges. This approach allowed the Company to designate as the hedged item a stated amount of the assets that are not expected to be affected by prepayments, defaults and other factors affecting the timing and amount of cash flows. Relative to the identified pools of loans, this represents the last dollar amount of the designated commercial loans, which is equivalent to the notional amounts of the derivative instruments. The following table presents the net effects of derivative hedging instruments on the Company’s interim condensed consolidated statements of operations for the three-months ended March 31, 2023 and 2022. The effects, which include the reclassification of unrealized gains on terminated swap contracts, are presented as either an increase or decrease to income before income taxes in the relevant caption of the Company’s interim condensed consolidated statements of operations.
Location in the Condensed |  | Three Months Ended |
Consolidated Statements of Operations |  | March 31, 2023 |  |  | March 31, 2022 |
|  |  |  | (Dollars in Thousands) |
Interest income |  | Interest and fees on loans |  | $ | 168 |  |  | $ | (59 | )
Interest expense |  | Interest on deposits |  |  | 36 |  |  |  | (30 | )
Interest expense |  | Interest on short-term borrowings |  |  | 136 |  |  |  | (79 | )
|  | Net increase (decrease) to income before income taxes |  | $ | 340 |  |  | $ | (168 | )

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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