DERIVATIVES

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions with approved, reputable, independent counterparties with substantially matching terms. The agreements are considered standalone derivatives, and changes in the fair value of derivatives are reported in earnings as non-interest income.

Credit risk arises from the possible inability of counterparties to meet the terms of their contracts. The Company's exposure is limited to the replacement value of the contracts rather than the notional, principal or contract amounts. There are provisions in the agreements with the counterparties that allow for certain unsecured credit exposure up to an agreed threshold. Exposures in excess of the agreed thresholds are collateralized. In addition, the Company minimizes credit risk through credit approvals, limits, and monitoring procedures.

Commitments to fund certain mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of mortgage loans to third party investors are considered derivatives. It is the Company's practice to enter into forward commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into in order to economically hedge the effect of changes in interest rates resulting from its commitments to fund the loans. These mortgage banking derivatives are not designated in hedge relationships. Fair values were estimated based on changes in mortgage interest rates from the date of the commitments. Changes in the fair values of these mortgage-banking derivatives are included in mortgage banking activities.

The following table presents the notional amount and fair value of the Company's derivative instruments held or issued in connection with customer initiated and mortgage banking activities:



	March 31, 2020				December 31, 2019
(Dollars in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Included in other assets:
Customer-initiated and mortgage banking derivatives:
Customer-initiated derivatives	$	122,703	$	13,551	$	103,941	$	4,684
Forward contracts related to mortgage loans to be delivered for sale	2,000		5		6,018		34
Interest rate lock commitments	83,596		1,783		25,519		256
Total derivatives included in other assets	$	208,299	$	15,339	$	135,478	$	4,974
Included in other liabilities:
Customer-initiated and mortgage banking derivatives:
Customer-initiated derivatives	$	122,703	$	13,551	$	103,941	$	4,684
Forward contracts related to mortgage loans to be delivered for sale	74,686		1,566		20,633		33
Interest rate lock commitments	—		—		928		—
Total derivatives included in other liabilities	$	197,389	$	15,117	$	125,502	$	4,717

In the normal course of business, the Company may decide to settle a forward contract rather than fulfill the contract. Cash received or paid in this settlement manner is included in "Mortgage banking activities" in the consolidated statements of income and is considered a cost of executing a forward contract. The following table presents the gains (losses) related to derivative instruments reflecting the changes in fair value:



		Three months ended March 31,
(Dollars in thousands)	Location of Gain (Loss)	2020			2019
Forward contracts related to mortgage loans to be delivered for sale	Mortgage banking activities	$	(1,958	)	$	(174	)
Interest rate lock commitments	Mortgage banking activities	1,527			122
Total loss recognized in income		$	(431	)	$	(52	)

Balance Sheet Offsetting:

Certain financial instruments, including customer-initiated derivatives and interest rate swaps, may be eligible for offset in the consolidated balance sheets and/or subject to master netting arrangements or similar agreements. The Company is a party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes based on an accounting policy election. The table below presents information about the Company's financial instruments that are eligible for offset.



						Gross amounts not offset in the statements of financial position
(Dollars in thousands)	Gross amounts recognized		Gross amounts offset in the statements of financial condition	Net amounts presented in the statements of financial condition		Financial instruments	Collateral (received)/posted		Net amount
March 31, 2020
Offsetting derivative assets:
Customer initiated derivatives	$	13,551	—	$	13,551	—	—		$	13,551
Offsetting derivative liabilities:
Customer initiated derivatives	$	13,551	—	$	13,551	—	$	13,793	$	(242	)
December 31, 2019
Offsetting derivative assets:
Customer initiated derivatives	$	4,684	—	$	4,684	—	—		$	4,684
Offsetting derivative liabilities:
Customer initiated derivatives	$	4,684	—	$	4,684	—	$	4,375	$	309