In September 2023, the Company began utilizing forward starting interest rate swap derivative instruments designated as cash flow hedges to manage the exposure to interest rate volatility related to its forecasted issuances of fixed-rate debt through its securitization process. The Company’s risk management objective is to hedge the risk of variability in its interest payment cash flows attributable to changes in the benchmark Secured Overnight Financing Rate ("SOFR") between the time the fixed rate mortgages are originated and the fixed rate debt is issued. As of December 31, 2023, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed four years.

The gains or losses on the derivative instruments that are designated and qualify as cash flow hedges are reported as a component of AOCI. Beginning in the period in which the forecasted debt is issued and the related derivative instruments are terminated, the accumulated gains or losses associated with the terminated derivatives are then reclassified into interest expense as a yield adjustment over the term of the related debt. For the year ended December 31, 2023, $50 thousand gain on terminated derivative instruments was reclassified from AOCI to interest expense. As of December 31, 2023, the Company had $1.2 million in after-tax net unrealized loss associated with cash flow hedging instruments recorded in AOCI. As of December 31, 2023, the Company expects to reclassify an estimated $0.3 million of after-tax net unrealized losses on derivative instruments designated as cash flow hedges from AOCI into earnings over the next 12 months.

The following table presents the fair value of the Company’s derivative financial instruments on a gross basis, as well as its classification on the Company’s consolidated balance sheets as of December 31, 2023:

         
        December 31, 2023

        (in thousands)

        Fair Value (1)

        Derivatives designated as hedging instruments:

        Balance Sheet Location

        Notional Amount

        Derivative Assets

        Derivative Liabilities

        Cash flow hedges:

Forward starting payer interest rate swaps

Derivative liability

166,000

—

(3,665

)

The counterparty to the financial derivatives that the Company enters into is a major institution. The Company is exposed to credit-related losses in the event of non-performance by the counterparty. This credit risk is generally limited to the unrealized gains in such contracts, less collateral held, should the counterparty fail to perform as contracted.