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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments The fair value of derivative positions outstanding is included in accrued interest receivable and other assets and accrued interest payable and other liabilities in the accompanying consolidated balance sheets and in the net change in each of these financial statement line items in the accompanying consolidated statements of cash flows. Interest Rate Derivatives. We utilize interest rate swaps, caps and floors to mitigate exposure to interest rate risk and to facilitate the needs of our customers. Our objectives for utilizing these derivative instruments are described below: We have entered into certain interest rate swap contracts that are matched to specific fixed-rate commercial loans or leases that we have entered into with our customers. These contracts have been designated as hedging instruments to hedge the risk of changes in the fair value of the underlying commercial loan/lease due to changes in interest rates. The related contracts are structured so that the notional amounts reduce over time to generally match the expected amortization of the underlying loan/lease. We have entered into certain interest rate swap, cap and floor contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap, cap and/or floor with a customer while at the same time entering into an offsetting interest rate swap, cap and/or floor with a third-party financial institution. In connection with each swap transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third-party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate. Because we act as an intermediary for our customer, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations. The notional amounts and estimated fair values of interest rate derivative contracts outstanding at December 31, 2022 and 2021 are presented in the following table. The fair values of interest rate derivative contracts are estimated utilizing internal valuation methods with observable market data inputs, or as determined by the Chicago Mercantile Exchange (“CME”) for centrally cleared derivative contracts. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives' exposure rather than collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero as of December 31, 2022 and 2021.
| December 31, 2022 |  | December 31, 2021
| Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Derivatives designated as hedges of fair value: |  |  |  |  |  |  |
Financial institution counterparties: |  |  |  |  |  |  |
Loan/lease interest rate swaps - assets | $ | 1,614 |  |  | $ | 19 |  |  | $ | — |  |  | $ | — |
Loan/lease interest rate swaps - liabilities | — |  |  | — |  |  | 2,426 |  |  | (34) |
Non-hedging interest rate derivatives: |  |  |  |  |  |  |
Financial institution counterparties: |  |  |  |  |  |  |
Loan/lease interest rate swaps - assets | 1,165,812 |  |  | 70,416 |  |  | 247,592 |  |  | 1,207 |
Loan/lease interest rate swaps - liabilities | 78,798 |  |  | (1,102) |  |  | 928,756 |  |  | (19,142) |
Loan/lease interest rate caps - assets | 246,442 |  |  | 15,256 |  |  | 270,431 |  |  | 3,239 |
Customer counterparties: |  |  |  |  |  |  |
Loan/lease interest rate swaps - assets | 53,570 |  |  | 1,102 |  |  | 928,756 |  |  | 39,864 |
Loan/lease interest rate swaps - liabilities | 1,175,563 |  |  | (79,175) |  |  | 247,592 |  |  | (2,846) |
Loan/lease interest rate caps - liabilities | 246,442 |  |  | (15,256) |  |  | 270,431 |  |  | (3,239) |
The weighted-average rates paid and received for interest rate swaps outstanding at December 31, 2022 were as follows:
| Weighted-Average
| Interest Rate Paid |  | Interest Rate Received
Interest rate swaps: |  |  |
Fair value hedge loan/lease interest rate swaps | 1.58 | % |  | 4.12 | %
Non-hedging interest rate swaps - financial institution counterparties | 3.73 |  |  | 5.29 |
Non-hedging interest rate swaps - customer counterparties | 5.28 |  |  | 3.72 |
The weighted-average strike rate for outstanding interest rate caps was 3.26% at December 31, 2022. Commodity Derivatives. We enter into commodity swaps and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a commodity swap or option contract with a customer, we simultaneously enter into an offsetting contract with a third-party financial institution to mitigate the exposure to fluctuations in commodity prices. The notional amounts and estimated fair values of non-hedging commodity swap and option derivative positions outstanding are presented in the following table. We obtain dealer quotations and use internal valuation methods with observable market data inputs to value our commodity derivative positions.
|  | December 31, 2022 |  | December 31, 2021
| Notional Units |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Financial institution counterparties: |  |  |  |  |  |  |  |  |
Oil - assets | Barrels |  | 4,024 |  |  | $ | 27,082 |  |  | 4,809 |  |  | $ | 14,721 |
Oil - liabilities | Barrels |  | 6,068 |  |  | (53,579) |  |  | 7,032 |  |  | (73,594) |
Natural gas - assets | MMBTUs |  | 16,539 |  |  | 6,220 |  |  | 15,947 |  |  | 4,143 |
Natural gas - liabilities | MMBTUs |  | 15,682 |  |  | (19,138) |  |  | 29,446 |  |  | (21,249) |
Customer counterparties: |  |  |  |  |  |  |  |  |
Oil - assets | Barrels |  | 6,068 |  |  | 54,219 |  |  | 7,046 |  |  | 74,437 |
Oil - liabilities | Barrels |  | 4,024 |  |  | (26,551) |  |  | 4,796 |  |  | (14,294) |
Natural gas - assets | MMBTUs |  | 15,682 |  |  | 19,164 |  |  | 29,446 |  |  | 21,456 |
Natural gas - liabilities | MMBTUs |  | 16,539 |  |  | (6,124) |  |  | 15,947 |  |  | (4,124) |
Foreign Currency Derivatives. We enter into foreign currency forward and option contracts that are not designated as hedging instruments primarily to accommodate the business needs of our customers. Upon the origination of a foreign currency denominated transaction with a customer, we simultaneously enter into an offsetting contract with a third-party financial institution to negate the exposure to fluctuations in foreign currency exchange rates. We also utilize foreign currency forward contracts that are not designated as hedging instruments to mitigate the economic effect of fluctuations in foreign currency exchange rates on foreign currency holdings and certain short-term, non-U.S. dollar denominated loans. The notional amounts and fair values of open foreign currency forward contracts were as follows:
|  |  | December 31, 2022 |  | December 31, 2021
| Notional Currency |  | Notional Amount |  | Estimated Fair Value |  | Notional Amount |  | Estimated Fair Value
Financial institution counterparties: |  |  |  |  |  |  |  |  |
Forward/option contracts - assets | EUR |  | 875 |  | $ | 1 |  |  | 1,900 |  | $ | 29 |
Forward/option contracts - assets | CAD |  | — |  | — |  |  | 658 |  | — |
Forward/option contracts - liabilities | EUR |  | 875 |  | (10) |  |  | — |  | — |
Customer counterparties: |  |  |  |  |  |  |  |  |
Forward/option contracts - assets | EUR |  | 875 |  | 10 |  |  | — |  | — |
Forward/option contracts - assets | CAD |  | — |  | — |  |  | 658 |  | 4 |
Forward/option contracts - liabilities | EUR |  | 875 |  | (1) |  |  | 1,900 |  | (55) |
Gains, Losses and Derivative Cash Flows. For fair value hedges, the changes in the fair value of both the derivative hedging instrument and the hedged item are included in other non-interest income or other non-interest expense. The extent that such changes in fair value do not offset represents hedge ineffectiveness. Net cash flows from interest rate swaps on commercial loans/leases designated as hedging instruments in effective hedges of fair value are included in interest income on loans. For non-hedging derivative instruments, gains and losses due to changes in fair value and all cash flows are included in other non-interest income and other non-interest expense. Amounts included in the consolidated statements of income related to interest rate derivatives designated as hedges of fair value were as follows:
| 2022 |  | 2021 |  | 2020
Commercial loan/lease interest rate swaps: |  |  |  |  |
Amount of gain (loss) included in interest income on loans | $ | (7) |  |  | $ | (91) |  |  | $ | (111) |
Amount of (gain) loss included in other non-interest expense | 6 |  |  | 10 |  |  | 9 |
As stated above, we enter into non-hedge related derivative positions primarily to accommodate the business needs of our customers. Upon the origination of a derivative contract with a customer, we simultaneously enter into an offsetting derivative contract with a third-party financial institution. We recognize immediate income based upon the difference in the bid/ask spread of the underlying transactions with our customers and the third party. Because we act only as an intermediary for our customer, subsequent changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact our results of operations. Amounts included in the consolidated statements of income related to non-hedging interest rate, commodity, foreign currency and other derivative instruments are presented in the table below.
| 2022 |  | 2021 |  | 2020
Non-hedging interest rate derivatives: |  |  |  |  |
Other non-interest income | $ | 1,742 |  |  | $ | 4,285 |  |  | $ | 3,413 |
Other non-interest expense | — |  |  | (1) |  |  | 1 |
Non-hedging commodity derivatives: |  |  |  |  |
Other non-interest income | 2,297 |  |  | 4,052 |  |  | 1,768 |
Non-hedging foreign currency derivatives: |  |  |  |  |
Other non-interest income | 63 |  |  | 39 |  |  | 28 |
Non-hedging other derivatives: |  |  |  |  |
Other non-interest income | — |  |  | — |  |  | 5,992 |
During 2020, we sold certain non-hedge related, short-term put options on U.S. Treasury securities and realized gains totaling approximately $6.0 million in connection with the sales. The put options expired without being exercised. These gains are included in the table above as a component of non-hedging other derivatives. Counterparty Credit Risk. Derivative contracts involve the risk of dealing with both bank customers and institutional derivative counterparties and their ability to meet contractual terms. Institutional counterparties must have an investment grade credit rating and be approved by our Asset/Liability Management Committee. Our credit exposure on derivative contracts is limited to the net favorable value of all contracts by each counterparty. Credit exposure may be reduced by the amount of collateral pledged by the counterparty. There are no credit-risk-related contingent features associated with any of our derivative contracts. Certain derivative contracts with upstream financial institution counterparties may be terminated with respect to a party in the transaction, if such party does not have at least a minimum level rating assigned to either its senior unsecured long-term debt or its deposit obligations by certain third-party rating agencies. Our credit exposure relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with bank customers was approximately $43.6 million at December 31, 2022. This credit exposure is partly mitigated as transactions with customers are generally secured by the collateral, if any, securing the underlying transaction being hedged. Our credit exposure, net of collateral pledged, relating to interest rate swaps, commodity swaps/options and foreign currency forward contracts with upstream financial institution counterparties was approximately $2.9 million at December 31, 2022. This amount was primarily related to excess collateral we posted to counterparties. Collateral levels for upstream financial institution counterparties are monitored and adjusted as necessary. See Note 16 – Balance Sheet Offsetting and Repurchase Agreements for additional information regarding our credit exposure with upstream financial institution counterparties. At December 31, 2022, the aggregate fair value of securities we posted as collateral related to derivative contracts totaled $8.5 million. We also had $3.2 million in cash collateral related to derivative contracts on deposit with other financial institution counterparties at December 31, 2022.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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