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 December 31, 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 for 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 2022, the Company entered into one $300.0 million receive fixed pay floating interest rate swap to reduce the Company's 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 December 31,
	Location	2022			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		4.77		%	0.20		%
Weighted average maturity, in years		1.71 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		7.32		%	N/A
Weighted average maturity, in years		6.10 yrs			N/A

Gross aggregate fair value of the swaps
Gross aggregate fair value of swap assets	Other assets	$	2,535		$	—
Gross aggregate fair value of swap liabilities	Other liabilities	$	32,367		$	958

Balances carried in AOCI
Unrealized gains (losses) on cash flow hedges, net of tax	AOCI	$	(20,985)		$	(685)

The Company expects to reclassify unrealized gains and losses from OCI to interest income and interest expense as shown in the following table, during the next 12 months (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 December 31, 2022.


	As of December 31, 2022
Unrealized gains (losses) in OCI expected to be recognized in income
Unrealized gains expected to be reclassified from OCI to interest income	$	372
Unrealized losses expected to be reclassified from OCI to interest expense	(648)
Net unrealized gains (losses) in OCI expected to be recognized in net interest income	$	(276)


	Years Ended December 31,
		2022		2021		2020
Unrealized gains (losses) on cash flow hedges
Net gain (loss) recognized in OCI, net of tax		$	(20,717)	$	736	$	(2,526)
(Gain) loss reclassified from OCI to interest income		395		—		—
(Gain) loss reclassified from OCI to interest expense		22		763		542
Net change in unrealized gains (losses) on cash flow hedges, net of tax		$	(20,300)	$	1,499	$	(1,984)

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 $576.9 million and $491.4 million at December 31, 2022, and 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.

Amounts and fair values of derivative assets and liabilities related to customer interest rate swaps, included in other assets and other liabilities in the Consolidated Balance Sheets, are summarized as follows (dollars in thousands):


	As of December 31, 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	$	48,728	$	370	$	528,183	$	39,685
Interest rate swaps – pay fixed, receive floating	528,183		39,685		48,728		370
Total derivatives not designated as hedging instruments	$	576,911	$	40,055	$	576,911	$	40,055


	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


		Years Ended December 31,
	Location		2022		2021		2020
Interest rate swaps
Pay floating, receive fixed	Noninterest expense		$	19,308	$	(12,587)	$	20,331
Pay fixed, receive floating	Noninterest expense		(19,308)		12,587		(20,331)
Net change in fair value of interest rate swaps			$	—	$	—	$	—

To manage 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 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 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 December 31, 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	$	1,517	$	16	$	19,384	$	206
Forward sales commitments	Other assets	83		1		1,884		10
Mortgage banking derivatives recorded in other assets		$	1,600	$	17	$	21,268	$	216

Derivatives with negative fair value
Interest rate lock commitments	Other liabilities	$	83	$	1	$	499	$	6
Forward sales commitments	Other liabilities	2,757		39		41,002		439
Mortgage banking derivatives recorded in other liabilities		$	2,840	$	40	$	41,501	$	445


		Years Ended December 31,
	Location		2022		2021		2020
Net gains (losses)
Interest rate lock commitments	Mortgage revenue		$	15	$	1,702	$	9,667
Forward sales commitments	Mortgage revenue		(38)		(4,045)		(18,329)
Net gains (losses)			$	(23)	$	(2,343)	$	(8,662)

In 2020 and 2021, the impact of the net gains or losses recognized in earnings on interest rate lock commitments and forward sales commitments was almost entirely offset by the recognition of a corresponding change in the fair value of loans held for sale. In 2022, the Company began carrying loans held for sale at LOCOM, so while the Company will continue to recognize gains or losses on these mortgage banking derivative instruments in earnings, any corresponding increase in the fair value of loans held for sale will not be recognized in earnings until the loans are sold, at which time the increase is factored into the calculated gain on sale. Decreases in the market value of loans held for sale will continue to be recognized in earnings at each measurement period.