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Derivative Instruments | 9 Months Ended
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Sep. 30, 2022
Derivative Instrument Detail [Abstract] |
Derivative Instruments | Derivative Instruments The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. At September 30, 2022, the Company’s derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.
(In thousands) | September 30, 2022 | December 31, 2021
Interest rate swaps | $ | 1,980,368 |  | $ | 2,229,419 |
Interest rate floors | 500,000 |  | — |
Interest rate caps | 152,784 |  | 152,058 |
Credit risk participation agreements | 536,188 |  | 485,633 |
Foreign exchange contracts | 7,435 |  | 5,119 |
Mortgage loan commitments | 984 |  | 21,787 |
Mortgage loan forward sale contracts | 669 |  | 1,165 |
Forward TBA contracts | 1,000 |  | 21,000 |
Total notional amount | $ | 3,179,428 |  | $ | 2,916,181 |
The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements. During the third quarter of 2022, the Company entered into an interest rate floor contract of $500.0 million to hedge the risk of declining interest rates on certain floating rate commercial loans. The premium paid for this floor totaled $16.8 million and is forward starting beginning on January 1, 2024. The interest rate floor matures on January 1, 2030. The interest rate floor qualified and was designated as a cash flow hedge and was assessed for effectiveness using regression analysis. The change in the fair value of the interest rate floor is recorded in AOCI, net of the amortization of the premium paid, which is recorded against fees on loans in the consolidated statements of income. As of September 30, 2022, net deferred losses on the interest rate floor totaled $3.5 million (pre-tax) and was recorded in AOCI in the consolidated balance sheet. As of September 30, 2022, over the next twelve months, it is expected that $2.3 million (pre-tax), representing the floor premium amortization, will be reclassified from AOCI into earnings. During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of September 30, 2022, the total realized gains on the monetized cash flow hedges remaining in AOCI was $81.0 million (pre-tax), which will be reclassified into interest income over the next 4.2 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at September 30, 2022 that is expected to be reclassified into income within the next 12 months is $23.9 million. The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates. Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements in the 2021 Annual Report on Form 10-K. The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at September 30, 2022 in the table below, the positive fair values of cleared swaps were reduced by $30.7 million. At December 31, 2021, positive fair values of cleared swaps were reduced by $587 thousand and the negative fair values of cleared swaps were reduced by $29.7 million.
| Asset Derivatives |  | Liability Derivatives
| Sept. 30, 2022 | Dec. 31, 2021 |  | Sept. 30, 2022 | Dec. 31, 2021
(In thousands) | Fair Value |  | Fair Value
Derivatives designated as hedging instruments: |  |  |  |  |
Interest rate floors | $ | 13,385 |  | $ | — |  |  | $ | — |  | $ | — |
Total derivatives designated as hedging instruments | $ | 13,385 |  | $ | — |  |  | $ | — |  | $ | — |
Derivative instruments not designated as hedging instruments: |  |  |  |
Interest rate swaps | $ | 22,256 |  | $ | 40,752 |  |  | $ | (52,989) |  | $ | (11,606) |
Interest rate caps | 2,524 |  | 147 |  |  | (2,524) |  | (147) |
Credit risk participation agreements | 36 |  | 84 |  |  | (94) |  | (277) |
Foreign exchange contracts | 191 |  | 77 |  |  | (156) |  | (45) |
Mortgage loan commitments | 5 |  | 764 |  |  | (5) |  | — |
Mortgage loan forward sale contracts | 5 |  | 5 |  |  | — |  | (1) |
Forward TBA contracts | 58 |  | 13 |  |  | — |  | (25) |
Total derivatives not designated as hedging instruments | $ | 25,075 |  | $ | 41,842 |  |  | $ | (55,768) |  | $ | (12,101) |
Total | $ | 38,460 |  | $ | 41,842 |  |  | $ | (55,768) |  | $ | (12,101) |
The pre-tax effects of derivative instruments on the consolidated statements of income and consolidated statements of comprehensive income are shown in the tables below.
| Amount of Gain or (Loss) Recognized in OCI |  | Location of Gain (Loss) Reclassified from AOCI into Income | Amount of Gain (Loss) Reclassified from AOCI into Income
(In thousands) | Total | Included Component | Excluded Component |  |  | Total | Included Component | Excluded Component
For the Three Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors | $ | (3,464) |  | $ | — |  | $ | (3,464) |  |  | Interest and fees on loans | $ | (6,118) |  | $ | (7,745) |  | $ | 1,627 |
Total | $ | (3,464) |  | $ | — |  | $ | (3,464) |  |  | Total | $ | (6,118) |  | $ | (7,745) |  | $ | 1,627 |
For the Nine Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors | $ | (3,464) |  | $ | — |  | $ | (3,464) |  |  | Interest and fees on loans | $ | (18,322) |  | $ | (22,998) |  | $ | 4,676 |
Total | $ | (3,464) |  | $ | — |  | $ | (3,464) |  |  | Total | $ | (18,322) |  | $ | (22,998) |  | $ | 4,676 |
For the Three Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate floors | $ | — |  | $ | — |  | $ | — |  |  | Interest and fees on loans | $ | (6,141) |  | $ | (7,691) |  | $ | 1,550 |
Total | $ | — |  | $ | — |  | $ | — |  |  | Total | $ | (6,141) |  | $ | (7,691) |  | $ | 1,550 |
For the Nine Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate floors | $ | — |  | $ | — |  | $ | — |  |  | Interest and fees on loans | $ | (18,024) |  | $ | (22,623) |  | $ | 4,599 |
Total | $ | — |  | $ | — |  | $ | — |  |  | Total | $ | (18,024) |  | $ | (22,623) |  | $ | 4,599 |
| Location of Gain or (Loss) Recognized in Consolidated Statements of Income | Amount of Gain or (Loss) Recognized in Income on Derivatives
|  | For the Three Months Ended September 30 |  | For the Nine Months Ended September 30
(In thousands) |  | 2022 | 2021 |  | 2022 | 2021
Derivative instruments: |  |  |  |  |  |
Interest rate swaps | Other non-interest income | $ | 88 |  | $ | 24 |  |  | $ | 1,770 |  | $ | 1,974 |
Interest rate caps | Other non-interest income | — |  | — |  |  | 16 |  | 15 |
Credit risk participation agreements | Other non-interest income | 122 |  | 47 |  |  | 30 |  | 27 |
Foreign exchange contracts | Other non-interest income | 3 |  | (22) |  |  | 3 |  | 62 |
Mortgage loan commitments | Loan fees and sales | (230) |  | (309) |  |  | (764) |  | (1,716) |
Mortgage loan forward sale contracts | Loan fees and sales | 5 |  | (10) |  |  | 1 |  | 18 |
Forward TBA contracts | Loan fees and sales | 117 |  | (184) |  |  | 1,783 |  | 1,676 |
Total |  | $ | 105 |  | $ | (454) |  |  | $ | 2,839 |  | $ | 2,056 |
The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.
|  |  |  | Gross Amounts Not Offset in the Balance Sheet |
(In thousands) | Gross Amount Recognized | Gross Amounts Offset in the Balance Sheet | Net Amounts Presented in the Balance Sheet | Financial Instruments Available for Offset | Collateral Received/ Pledged | Net Amount
September 30, 2022 |  |  |  |  |  |
Assets: |  |  |  |  |  |
Derivatives subject to master netting agreements | $ | 38,357 |  | $ | — |  | $ | 38,357 |  | $ | (113) |  | $ | (35,763) |  | $ | 2,481 |
Derivatives not subject to master netting agreements | 103 |  | — |  | 103 |  |  |  |
Total derivatives | $ | 38,460 |  | $ | — |  | $ | 38,460 |  |  |  |
Liabilities: |  |  |  |  |  |
Derivatives subject to master netting agreements | $ | 55,681 |  | $ | — |  | $ | 55,681 |  | $ | (113) |  | $ | — |  | $ | 55,568 |
Derivatives not subject to master netting agreements | 87 |  | — |  | 87 |  |  |  |
Total derivatives | $ | 55,768 |  | $ | — |  | $ | 55,768 |  |  |  |
December 31, 2021 |  |  |  |  |  |
Assets: |  |  |  |  |  |
Derivatives subject to master netting agreements | $ | 40,970 |  | $ | — |  | $ | 40,970 |  | $ | (347) |  | $ | — |  | $ | 40,623 |
Derivatives not subject to master netting agreements | 872 |  | — |  | 872 |  |  |  |
Total derivatives | $ | 41,842 |  | $ | — |  | $ | 41,842 |  |  |  |
Liabilities: |  |  |  |  |  |
Derivatives subject to master netting agreements | $ | 12,019 |  | $ | — |  | $ | 12,019 |  | $ | (347) |  | $ | (10,146) |  | $ | 1,526 |
Derivatives not subject to master netting agreements | 82 |  | — |  | 82 |  |  |  |
Total derivatives | $ | 12,101 |  | $ | — |  | $ | 12,101 |  |  |  |

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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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