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DERIVATIVE INSTRUMENTS
 9 Months Ended
Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments, which may include interest rate swaps and interest rate options, in connection with our risk-management activities. Our primary objective for using derivative financial instruments is to manage interest rate risk associated with our fixed-rate and variable-rate assets and liabilities.
Interest Rate Risk
We monitor our mix of fixed-rate and variable-rate assets and liabilities and may enter into interest rate swaps, forwards, and options to achieve a more desired mix of fixed-rate and variable-rate assets and liabilities. We execute these trades to modify our exposure to interest rate risk by converting certain fixed-rate instruments to a variable-rate and certain variable-rate instruments to a fixed-rate. We use a mix of both derivatives that qualify for hedge accounting treatment and economic hedges that do not qualify for hedge accounting treatment.
Derivatives qualifying for hedge accounting treatment can include receive-fixed swaps designated as fair value hedges of specific fixed-rate unsecured debt obligations, receive-fixed swaps designated as fair value hedges of specific fixed-rate FHLB advances and pay-fixed swaps designated as fair value hedges of securities within our available-for-sale portfolio. Other derivatives qualifying for hedge accounting consist of interest rate floor contracts designated as cash flow hedges of the expected future cash flows in the form of interest receipts on a portion of our commercial and commercial real estate loans.
We have the ability to execute economic hedges, which could consist of interest rate swaps, interest rate caps, forwards, and options to mitigate interest rate risk.
We also enter into interest rate lock commitments and forward commitments that are executed as part of our mortgage business that do not meet the accounting definition of a derivative, as well as interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by contracts simultaneously purchased by the Company from other financial dealer institutions with mirror-image terms. Because of the mirror-image terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in the fair value subsequent to initial recognition have a minimal effect on earnings.
Balance Sheet Presentation
The following table summarizes the fair value of derivative instruments reported on our consolidated balance sheet. The amounts are presented on a gross basis, are segregated by derivatives that are designated and qualifying as hedging instruments or those that are not, and are further segregated by type of contract within those two categories. Derivative assets and derivative liabilities are included in other assets and other liabilities, respectively on the consolidated balance sheet.
Notional amounts are reference amounts from which contractual obligations are derived and are not recorded on the balance sheet. In our view, derivative notional is not an accurate measure of our derivative exposure when viewed in isolation from other factors, such as market rate fluctuations and counterparty credit risk.
September 30, 2024December 31, 2023
Fair ValueFair Value
(dollars in thousands)AssetsLiabilitiesNotional amountAssetsLiabilitiesNotional amount
Derivatives designated as accounting hedges
Interest rate contracts
Fixed-rate mortgage-backed securities$— $1,915 $246,512 $— $1,324 $150,000 
Pools of commercial and commercial real estate loans— 3,551 200,000 — 6,654 200,000 
FHLB advances, brokered CDs and other borrowings— 1,086 75,000 — 465 50,000 
Total derivatives designated as accounting hedges$— $6,552 $521,512 $— $8,443 $400,000 
Derivatives not designated as accounting hedges
Interest rate contracts
Swaps$180 $180 $13,059 $310 $310 $13,832 
Interest rate lock commitments133 — 7,177 62 — 2,405 
Forward commitments to sell mortgage-backed securities— 93 12,750 — 83 5,000 
Total derivatives not designated as accounting hedges$313 $273 $32,986 $372 $393 $21,237 
The following table presents amounts recorded in the consolidated balance sheets related to cumulative basis adjustments for fair value hedges.
Carrying amount of the hedged itemsCumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items
(dollars in thousands)September 30, 2024December 31, 2023September 30, 2024December 31, 2023
Investment securities available for sale$260,843 $— $138 $— 
Statement of Income Presentation
The following table summarizes the location and amounts of gains and losses on derivative instruments not designated as accounting hedges reported in the consolidated statements of income.
Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2024202320242023
Gain (loss) recognized in earnings
Interest rate contracts$(70)$(23)$60 $116 
The following table summarizes the effect of derivative instruments in fair value hedging relationships on the consolidated statements of income.
Location of gain (loss) recognized in income on derivativeHedged itemDerivative designated as hedging instrument
(dollars in thousands)2024202320242023
Three Months Ended September 30,
Gain (loss) on fair value hedging relationships
Interest rate contracts
Fixed-rate mortgage-backed securitiesInterest income on investment securities$(138)$— $138 $— 
Nine Months Ended September 30,
Gain (loss) on fair value hedging relationships
Interest rate contracts
Fixed-rate mortgage-backed securitiesInterest income on investment securities$(138)$— $138 $— 
The following table summarizes the effect of derivative instruments in cash flow hedging relationships on the consolidated statements of income.
Location of gain (loss) recognized in income on derivativeGain (loss) reclassified from AOCI into income
(dollars in thousands)20242023
Three Months Ended September 30,
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Pools of commercial and commercial real estate loansInterest income on loans$(1,547)$(1,526)
FHLB advances, brokered CDs and other borrowingsInterest expense198 117 
Total gain (loss) on cash flow hedging relationships$(1,349)$(1,409)
Nine Months Ended September 30,
Gain (loss) on cash flow hedging relationships
Interest rate contracts
Pools of commercial and commercial real estate loansInterest income on loans$(4,642)$(4,024)
FHLB advances, brokered CDs and other borrowingsInterest expense773 223 
Total gain (loss) on cash flow hedging relationships$(3,869)$(3,801)
During the next 12 months, we estimate $2.7 million of losses will be reclassified into pretax earnings from derivatives designated as cash flow hedges.