Derivative Financial Instruments

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Note 12 - Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Company enters into derivative financial instruments to manage risks related to differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments, as well as to manage changes in fair values of some assets which are marked at fair value through the consolidated statement of income on a recurring basis.

Cash Flow Hedges of Interest Rate Risk

The Company is a party to an interest rate swap agreement under which the Company receives interest at a variable rate and pays at a fixed rate. The derivative instrument represented by this swap agreement is designated as a cash flow hedge of the Company's forecasted variable cash flows under a variable-rate term borrowing agreement. During the term of the swap agreement, the effective portion of changes in the fair value of the derivative instrument are recorded in accumulated other comprehensive income and subsequently reclassified into earnings in the periods that the hedged forecasted variable-rate interest payments affected earnings. There was no ineffective portion of the change in fair value of the derivative recognized directly in earnings. The entire swap fair value will be reclassified into earnings before the expiration date of the swap agreement.

Derivatives Not Designated as Hedges

Customer interest rate derivative program

The Company offers certain derivatives products, primarily interest rate swaps, directly to qualified commercial banking customers to facilitate their risk management strategies. In some instances, the Company acts only as an intermediary, simultaneously entering into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions without significantly impacting its results of operations. Because the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and any offsetting derivatives are recognized directly in earnings as a component of noninterest income.

From time to time, the Company shares in credit risk on interest rate swap arrangements, by entering into risk participation agreements with syndication partners. These are accounted for at fair value and disclosed as risk participation derivatives.

Mortgage banking derivatives

The Company enters into certain derivative agreements as part of its mortgage banking and related risk management activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a mandatory delivery basis. The Company also economically hedges the value of MSRs by entering into a series of commitments to purchase mortgage-backed securities in the future.

Fair Values of Derivative Instruments on the Balance Sheet

The following tables disclose the fair value of derivative instruments in the Company's balance sheets at December 31, 2021, and December 31, 2020:


	Notional Amounts(1)				Fair Values
(Dollars in thousands) Derivatives designated as cash flow hedging instruments:	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Interest rate swaps included in other liabilities	$	21,000	$	21,000	$	(103)	$	(706)

Derivatives not designated as hedging instruments:
Interest rate swaps included in other assets	$	315,188	$	326,542	$	10,417	$	20,207
Interest rate swaps included in other liabilities	327,510		347,096		(10,762)		(21,321)
Risk participation derivatives included in accrued expenses and other liabilities on the consolidated balance sheets	63,374		63,374		(2)		(18)
Forward commitments to purchase mortgage-backed securities included in other liabilities	80,000		107,000		(627)		(317)
Forward commitments to sell residential mortgage loans included in other assets (liabilities)	52,000		107,200		1		(658)
Interest rate-lock commitments on residential mortgage loans included in other assets	36,694		79,554		1,041		3,487
	$	874,766	$	1,030,766	$	68	$	1,380

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(1)Notional or contractual amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets.

The weighted-average rates paid and received for interest rate swaps at the dates indicated were as follows:


	Weighted-Average Interest Rate
	December 31, 2021				December 31, 2020
Interest rate swaps:	Paid		Received		Paid		Received
Cash flow hedges	4.81	%	2.89	%	4.81	%	2.94	%
Non-hedging interest rate swaps - financial institution counterparties	4.32		2.68		4.18		2.48
Non-hedging interest rate swaps - customer counterparties	2.68		4.33		2.52		4.19

Gains and losses recognized on derivative instruments not designated as hedging instruments are as follows:


(Dollars in thousands)	Years Ended December 31,
Derivatives not designated as hedging instruments:		2021		2020		2019
Amount of (loss) gain recognized in mortgage banking revenue (1)		$	(3,118)	$	4,081	$	3,079
Amount of gain (loss) recognized in other non-interest income		816		(307)		(530)

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(1)Gains and losses on these instruments are largely offset by market fluctuations in mortgage servicing rights. See Note 9 - Mortgage Banking for more information on components of mortgage banking revenue.

Some interest rate swaps included in other assets were subject to a master netting arrangement with the counterparty in all years presented and could be offset against some amounts included in interest rate swaps included in other liabilities. The Company has chosen not to net these exposures in the consolidated balance sheets, and any impact of netting these amounts would not be significant.

At December 31, 2021 and 2020, the Company had cash collateral on deposit with swap counterparties totaling $16.5 million and $22.2 million, respectively. These amounts are included in interest-bearing deposits in banks in the consolidated balance sheets and are considered restricted cash until such time as the underlying swaps are settled.