Derivative Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments

Derivative Instruments

NOTE 17 Derivative Instruments

The following table presents the total notional amounts and gross fair values of the Company’s derivatives as of March 31, 2023 and December 31, 2022:

		March 31, 2023				December 31, 2022
		Fair		Notional		Fair		Notional
(dollars in thousands)		Value		Amount		Value		Amount
Designated as hedging instruments:	Consolidated Balance Sheet Location
Fair value hedges:
Interest rate swaps	Accrued expenses and other liabilities	$	1,725	$	200,000	$	—	$	—
Total derivatives designated as hedging instruments		$	1,725	$	200,000	$	—	$	—
Not designated as hedging instruments:
Asset Derivatives
Interest rate swaps	Other assets	$	5,346	$	43,073	$	6,277	$	43,430
Interest rate lock commitments	Other assets		358		19,180		121		10,462
Forward loan sales commitments	Other assets		1		280		7		351
Total asset derivatives not designated as hedging instruments		$	5,705	$	62,533	$	6,405	$	54,243
Liability Derivatives
Interest rate swaps	Accrued expenses and other liabilities	$	5,346	$	43,073	$	6,277	$	43,430
To-be-announced mortgage backed securities	Accrued expenses and other liabilities		105		38,000		26		25,750
Total liability derivatives not designated as hedging instruments		$	5,451	$	81,073	$	6,303	$	69,180

Derivatives Designated as Hedging Instruments

The Company uses derivative instruments to hedge its exposure to economic risks, including interest rate, liquidity and credit risk. Certain hedging relationships are formally designated and qualify for hedge accounting under GAAP as fair value hedges.

Fair value hedges: Derivatives are designated as fair value hedges to limit the Company’s exposure to changes in the fair value of assets or liabilities due to movements in interest rates. During the first quarter of 2023, the Company entered into an interest rate swap, with an effective date of February 10, 2023. This transaction was designated a fair value hedge of certain mortgage-backed investment securities. The Company will pay the counterparty a fixed rate of 4.019% and will receive a floating rate based on the Secured Overnight Financing Rate. The fair value hedge has a maturity date of February 10, 2026. The interest rate swap is carried on the Company’s consolidated balance sheet at its fair value in other assets (when the fair value is positive) or in accrued expenses and other liabilities (when the fair value is negative). The changes in the fair value of the interest rate swap are recorded in interest income. The unrealized gains or losses due to changes in fair value of the hedged debt securities due to changes in benchmark interest rates are recorded as an adjustment to the hedged debt securities and offset in the same interest income line items.

The following table shows the carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships:

	March 31, 2023
			Cumulative Fair
			Value Hedging
			Adjustment in the
	Carrying Amount		Carrying Amount of
	of Hedge Assets/		Hedged Assets/
	Liabilities		Liabilities
(dollars in thousands)
Mortgage-backed securities
Residential agency	$	297,038	$	1,723
Total	$	297,038	$	1,723

Derivatives Not Designated as Hedging Instruments

Interest rate swaps: The Company periodically enters into commercial loan interest rate swap agreements in order to provide commercial loan customers with the ability to convert from variable to fixed interest rates. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a customer, while simultaneously entering into an offsetting interest rate swap with an institutional counterparty.

Interest rate lock commitments, forward loan sales commitments & TBA mortgage backed securities: The Company enters into forward delivery contracts to sell mortgage loans at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments.

The gain (loss) recognized on derivative instruments for the three months ended March 31, 2023 and 2022 was as follows:

(dollars in thousands)	Consolidated Statements	Three months ended March 31,
Derivatives designated as hedging instruments	of Income Location	2023		2022
Interest rate swaps	Interest income	$	(2)	$	—
Total gain (loss) from derivatives designated as hedging instruments		$	(2)	$	—
Derivatives not designated as hedging instruments
Interest rate swaps	Other noninterest income	$	—	$	—
Interest rate lock commitments	Mortgage banking		340		(710)
Forward loan sales commitments	Mortgage banking		(6)		(490)
To-be-announced mortgage backed securities	Mortgage banking		(173)		2,503
Total gain (loss) from derivatives not designated as hedging instruments		$	161	$	1,303

The Company has third party agreements that require a minimum dollar transfer amount upon a margin call. These requirements are dependent on certain specified credit measures. The amount of collateral posted with third parties was $290 thousand at March 31, 2023 and $309 thousand at December 31, 2022. The amount of collateral posted with third parties was deemed to be sufficient as of those dates to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures.