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Derivative Instruments

6 Months Ended

Jun. 30, 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 June 30, 2023 and December 31, 2022:


				June 30, 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		Other assets		$	2,069		$	200,000		$	—		$	—
Total derivatives designated as hedging instruments				$	2,069		$	200,000		$	—		$	—
Not designated as hedging instruments:
Asset Derivatives
Interest rate swaps		Other assets		$	6,049		$	42,716		$	6,277		$	43,430
Interest rate lock commitments		Other assets			523			34,602			121			10,462
Forward loan sales commitments		Other assets			71			4,193			7			351
To-be-announced mortgage backed securities		Other assets			210			68,750			—			—
Total asset derivatives not designated as hedging instruments				$	6,853		$	150,261		$	6,405		$	54,243
Liability Derivatives
Interest rate swaps		Accrued expenses and other liabilities		$	6,049		$	42,716		$	6,277		$	43,430
To-be-announced mortgage backed securities		Accrued expenses and other liabilities			—			—			26			25,750
Total liability derivatives not designated as hedging instruments				$	6,049		$	42,716		$	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 at June 30, 2023:


		June 30, 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		$	284,584		$	(2,073)
Total		$	284,584		$	(2,073)

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 and to be announced (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 and six months ended June 30, 2023 and 2022 was as follows:



(dollars in thousands)				Three months ended June 30,						Six months ended June 30,
Derivatives designated as hedging instruments		Consolidated Statements of Income Location		2023			2022			2023			2022
Interest rate swaps		Interest income		$	—		$	—		$	—		$	—
Total gain (loss) from derivatives designated as hedging instruments				$	—		$	—		$	—		$	—
Derivatives not designated as hedging instruments
Interest rate swaps		Other noninterest income		$	—		$	1		$	—		$	1
Interest rate lock commitments		Mortgage banking			89			563			429			(147)
Forward loan sales commitments		Mortgage banking			70			542			64			52
To-be-announced mortgage backed securities		Mortgage banking			302			1,246			129			3,749
Total gain (loss) from derivatives not designated as hedging instruments				$	461		$	2,352		$	622		$	3,655

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 June 30, 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.