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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Note 8 - 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 June 30, 2022, and December 31, 2021, as well as the effect of these derivative instruments on the Company's consolidated statements of income for the six months ended June 30, 2022 and 2021.
Notional Amounts(1)
Fair Values
(Dollars in thousands)
Derivatives designated as cash flow hedging instruments:
June 30, 2022December 31, 2021June 30, 2022December 31, 2021
Interest rate swaps included in other assets$10,500 $21,000 $690 $(103)
Derivatives not designated as hedging instruments:
Interest rate swaps included in other assets$314,471 $315,188 $15,724 $10,417 
Interest rate swaps included in other liabilities
302,596 327,510 (15,629)(10,762)
Risk participation derivatives included in accrued expenses and other liabilities on the consolidated balance sheets63,374 63,374 — (2)
Forward commitments to purchase mortgage-backed securities included in other liabilities25,000 80,000 (195)(627)
Forward commitments to sell residential mortgage loans included in other assets44,000 52,000 75 1 
Interest rate-lock commitments on residential mortgage loans included in other assets
37,497 36,694 839 1,041 
$786,938 $874,766 $814 $68 
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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 June 30, 2022, were as follows:
Weighted-Average Interest Rate
Interest rate swaps:PaidReceived
Cash flow hedges3.14 %2.96 %
Non-hedging interest rate swaps - financial institution counterparties4.26 3.45 
Non-hedging interest rate swaps - customer counterparties3.46 4.26 
Gains and losses recognized on derivative instruments not designated as hedging instruments are as follows:
(Dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Derivatives not designated as hedging instruments:2022202120222021
Amount of gain (loss) recognized in mortgage banking revenue (1)
$187 $(281)$(2,220)$(1,487)
Amount of gain recognized in other non-interest income154 27 440 334 
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(1)Gains and losses on these instruments are largely offset by market fluctuations in mortgage servicing rights. See Note 6 - 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 periods 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 June 30, 2022, and December 31, 2021, the Company had cash collateral on deposit with swap counterparties totaling $7.5 million and $16.5 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.