The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. Additionally, the Company enters into derivative financial instruments, including interest rate lock commitments issued to residential loan customers for loans that will be held for sale, forward sales commitments to sell residential mortgage loans to investors, and interest rate swaps with customers and other third parties. See “Note 11: Fair Value Measurements” for further discussion of the fair value measurement of such derivatives.

The Company entered into derivative instruments designated as cash flow hedges. For a derivative instrument that is designated and qualifies as a cash flow hedge, the change in fair value of the derivative instrument is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Changes in fair value of components excluded from the assessment of effectiveness are recognized in current earnings.

Interest rate swaps with notional amounts totaling $350.0 million as of September 30, 2022, and $50.0 million as of December 31, 2021, were designated as cash flow hedges. The Company entered into one $50.0 million interest rate swap to hedge the risks of variability in cash flows (future interest payments) attributable to changes in the contractually specified 3-month LIBOR benchmark interest rate on the Company’s junior subordinated debt owed to unconsolidated trusts (Debt Swap). In addition, during the first quarter of 2022, the Company entered into one $300.0 million receive fixed pay floating interest rate swap to reduce our asset sensitivity (Loan Swap). We added duration to our loan portfolio by fixing a portion of our floating prime based loans. Interest rates had risen above their historical lows allowing us to lock in a portion of our loan portfolio to reduce asset sensitivity while creating a more stable margin in a volatile rate market. These hedges were determined to be highly effective during the period, and the Company expects its hedges to remain highly effective during the remaining terms of the swaps. Changes in fair value were recorded net of tax in OCI.


		As of
	Location	September 30, 2022			December 31, 2021
Debt Swap
Notional amount		$	50,000		$	50,000
Weighted average fixed pay rates		1.79		%	1.79		%
Weighted average variable 3-month LIBOR receive rates		3.29		%	0.20		%
Weighted average maturity, in years		1.96 yrs			2.71 yrs

Loan Swap
Notional amount		$	300,000		N/A
Weighted average fixed receive rates		4.81		%	N/A
Weighted average variable Prime pay rates		5.80		%	N/A
Weighted average maturity, in years		6.35 yrs			N/A

Gross aggregate fair value of the swaps
Gross aggregate fair value of swap assets	Other assets	$	2,486		$	—
Gross aggregate fair value of swap liabilities	Other liabilities	$	34,515		$	958

Balances carried in AOCI
Unrealized gains (losses) on cash flow hedges, net of tax	AOCI	$	(22,770)		$	(685)

The Company expects to reclassify unrealized gains and losses from OCI to interest income and interest expense as shown in the following table (dollars in thousands). Amounts actually recognized could differ from these expectations due to changes in interest rates, hedge de-designations, and the addition of other hedges subsequent to September 30, 2022.


	As of
	September 30, 2022
Unrealized gains (losses) in OCI expected to be recognized in income
Unrealized gains expected to be reclassified from OCI to interest income	$	190
Unrealized losses expected to be reclassified from OCI to interest expense	(247)
Net unrealized gains (losses) in OCI expected to be recognized in net interest income	$	(57)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Unrealized gains (losses) on cash flow hedges
Gain (loss) recognized in OCI, net of tax	$	(10,192)	$	(5)	$	(21,587)	$	336
(Gain) loss reclassified from OCI to interest expense, net of tax	266		206		(498)		611
Net change in unrealized gains (losses) on cash flow hedges	$	(9,926)	$	201	$	(22,085)	$	947

The Company may offer derivative contracts to its customers in connection with their risk management needs. The Company manages the risk associated with these contracts by entering into equal and offsetting derivative agreements with a third-party dealer. These contracts support variable rate, commercial loan relationships totaling $547.9 million and $491.4 million as of September 30, 2022, and December 31, 2021, respectively. These derivatives generally worked together as an economic interest rate hedge, but the Company did not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.


	As of September 30, 2022
	Derivative Asset				Derivative Liability
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
Interest rate swaps – pay floating, receive fixed	$	4,668	$	46	$	543,207	$	42,001
Interest rate swaps – pay fixed, receive floating	543,207		42,001		4,668		46
Total derivatives not designated as hedging instruments	$	547,875	$	42,047	$	547,875	$	42,047


	As of December 31, 2021
	Derivative Asset				Derivative Liability
	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives not designated as hedging instruments
Interest rate swaps – pay floating, receive fixed	$	404,572	$	17,839	$	86,784	$	2,259
Interest rate swaps – pay fixed, receive floating	86,784		2,259		404,572		17,839
Total derivatives not designated as hedging instruments	$	491,356	$	20,098	$	491,356	$	20,098


		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2022		2021		2022		2021
Interest rate swaps
Pay floating, receive fixed	Noninterest expense	$	18,317	$	(2,024)	$	21,792	$	(11,355)
Pay fixed, receive floating	Noninterest expense	(18,317)		2,024		(21,792)		11,355
Net change in fair value of interest rate swaps		$	—	$	—	$	—	$	—

To manage the credit risk exposure related to a customer-facing swap, the Company entered into two risk participation agreements in conjunction with loan participation arrangements with other financial institutions. The risk participation agreements mature in 2026 and 2028, and are summarized as follows (dollars in thousands):

Interest rate lock commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities in the unaudited Consolidated Balance Sheets, with changes in the fair values of the corresponding derivative financial assets or liabilities recorded as either a charge or credit to current earnings during the period in which the changes occurred.

The Company economically hedges mortgage loans held for sale and interest rate lock commitments issued to its residential loan customers related to loans that will be held for sale by obtaining corresponding forward sales commitments with an investor to sell the loans at an agreed-upon price at the time the interest rate locks are issued to the customers. Forward sales commitments that meet the definition of derivative financial instruments under ASC Topic 815 “Derivatives and Hedging” are carried at their fair values in other assets or other liabilities in the unaudited Consolidated Balance Sheets. While such forward sales commitments generally served as an economic hedge to mortgage loans held for sale and interest rate lock commitments, the Company did not designate them for hedge accounting treatment. Changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred.


		As of September 30, 2022				As of December 31, 2021
	Location	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivatives with positive fair value
Interest rate lock commitments	Other assets	$	3,434	$	42	$	19,384	$	206
Forward sales commitments	Other assets	4,107		134		1,884		10
Mortgage banking derivatives recorded in other assets		$	7,541	$	176	$	21,268	$	216

Derivatives with negative fair value
Interest rate lock commitments	Other liabilities	$	408	$	4	$	499	$	6
Forward sales commitments	Other liabilities	4,342		52		41,002		439
Mortgage banking derivatives recorded in other liabilities		$	4,750	$	56	$	41,501	$	445


		Three Months Ended September 30,				Nine Months Ended September 30,
	Location	2022		2021		2022		2021
Net gains (losses)
Interest rate lock commitments	Mortgage revenue	$	(111)	$	537	$	38	$	1,502
Forward sales commitments	Mortgage revenue	295		(1,438)		82		(3,616)
Net gains (losses)		$	184	$	(901)	$	120	$	(2,114)