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Derivatives | 9 Months Ended
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Sep. 30, 2018
Derivatives [Abstract] |
Derivatives | 6. Derivatives On January 1, 2018, the Company adopted the provisions of Accounting Standards Update (ASU) 2017-12, “Derivatives and Hedging,” using the modified retrospective transition approach. As a result of adoption of the u pdate, the Company has made certain adjustments to its existing designation documentation for active hedging relationships to take advantage of sp ecific provisions of the update. Adoption of this guidance did not have a material impact on the Company’s financial condition or results of operations. Following is a discussion of the provisions of the guidance relevant to the Company: Ineffectiveness measurement and presentation The provisions of the update eliminate the concept of ineffectiveness from an accounting perspective. The guidance provides that, as long as a hedging instrument is designated and the results of the effectiveness testing support that the instrument qualifies for hedge accounting treatment, there will be no periodic measurement or recognition of ineffectiveness. Rather, the full impact of hedge gains and losses will be recognized in the period in which the hedged transactions impact the entity’s earnings. Presentation of r eclassifications from Accumulated Other Comprehensive Income The update provides that a mounts in Accumulated Other Comprehensive Income that are included in the assessment of effectiveness should be reclassified into earnings in the same period in which the hedged forecasted transactions impact earnings. As such, the Company will recognize all reclassifications out of Other Comprehensive Income in the same statement of income line item in which the earnings effect of the hedged item is presented. Changes to hedged risk The update also states that if the designated hedged risk changes during the life of the hedging relationship, an entity may continue to apply hedge accounting as long as the hedging instrument is highly effective at achieving offsetting cash flows attributable to the revised hedged risk. Regardless of the description of the hedged transactions contained in the initial designation documentation, the Company intends to utilize this provision in the updated guidance to the extent possible. Risk component hedging in fair value hedges The update allows an entity to make a one-time transition election regarding the fair value measurement methodology applied to fair value hedges in place at adoption. The Company did not elect either of the one-time transition options; rather, it will continue to measure the hedged items as documented in the initial hedge documentation. 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, currently related to select pools of variable rate loans and fixed rate brokered deposits. The Bank also enters into interest rate derivative agreements as a service to certain qualifying customers. The Bank manages a matched book with respect to these customer derivatives in order to minimize its net risk exposure resulting from such agreements. The Bank also enters into risk participation agreements under which it may either sell or buy credit risk associated with a customer’s performance under certain interest rate derivative contracts related to loans in which participation interests have been sold to or purchased from other banks. Fair Values of Derivative Instruments on the Balance Sheet The table below presents the notional or contractual amounts and fair values of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of September 30, 2018 and December 31, 2017. ﻿ ﻿
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﻿ |  |  |  |  | September 30, 2018 |  | December 31, 2017
﻿ |  |  |  |  |  |  | Derivative (1) |  |  |  | Derivative (1)
﻿(in thousands) |  | Type of Hedge |  |  | Notional or Contractual Amount |  | Assets |  | Liabilities |  | Notional or Contractual Amount |  | Assets |  | Liabilities
﻿Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate swaps |  | Cash Flow |  | $ | 875,000 |  | $ | — |  | $ | 23,131 |  | $ | 875,000 |  | $ | — |  | $ | 14,020
﻿Interest rate swaps |  | Fair Value |  |  | 483,110 |  |  | — |  |  | 3,408 |  |  | 483,110 |  |  | — |  |  | 2,475
﻿ |  |  |  |  | 1,358,110 |  |  | — |  |  | 26,539 |  |  | 1,358,110 |  |  | — |  |  | 16,495
﻿Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate swaps (2) |  | N/A |  |  | 1,223,626 |  |  | 28,397 |  |  | 28,239 |  |  | 1,144,789 |  |  | 15,408 |  |  | 15,857
﻿Risk participation agreements |  | N/A |  |  | 173,066 |  |  | 5 |  |  | 56 |  |  | 119,951 |  |  | 23 |  |  | 109
﻿Forward commitments to sell residential mortgage loans |  | N/A |  |  | 79,432 |  |  | 882 |  |  | 330 |  |  | 80,462 |  |  | 1,000 |  |  | 290
﻿Interest rate-lock commitments on residential mortgage loans |  | N/A |  |  | 55,502 |  |  | 227 |  |  | 784 |  |  | 53,724 |  |  | 186 |  |  | 782
﻿Foreign exchange forward contracts |  | N/A |  |  | 38,742 |  |  | 1,457 |  |  | 1,429 |  |  | 42,260 |  |  | 2,453 |  |  | 2,419
﻿ |  |  |  |  | 1,570,368 |  |  | 30,968 |  |  | 30,838 |  |  | 1,441,186 |  |  | 19,070 |  |  | 19,457
﻿Total derivatives |  |  |  | $ | 2,928,478 |  | $ | 30,968 |  | $ | 57,377 |  | $ | 2,799,296 |  | $ | 19,070 |  | $ | 35,952
﻿Less: netting adjustment (3) |  |  |  |  |  |  |  | (19,557) |  |  | (28,586) |  |  |  |  |  | (4,913) |  |  | (21,563)
﻿Total derivative assets/liabilities |  |  |  |  |  |  | $ | 11,411 |  | $ | 28,791 |  |  |  |  | $ | 14,157 |  | $ | 14,389
| (1) |  | Derivative assets and liabilities are reported at fair value in other assets or other liabilities, respectively, in the consolidated balance sheets.
| (2) |  | The notional amount represents both the customer accommodation agreements and offsetting agreements with unrelated financial institutions.
| (3) |  | Represents balance sheet netting of derivative assets and liabilities for variation margin collateral held or placed with the same central clearing counterparty. See offsetting assets and liabilities for further information.
﻿ ﻿ Cash Flow Hedges of Interest Rate Risk The Company is party to various interest rate swap agreements designated and qualify ing as cash flow hedges of the Company’s forec asted variable cash flows for pools of variable rate loans. For each agreement, the Company receives interest at a fixed rate and pays at a variable rate. During the nine months ended September 30, 2018, the Company terminated five of its shorter-term swap agreements with notional amounts totaling $450 million and entered into five longer-term agreements with notional amounts totaling $450 million. The Company paid termination fees of approximately $10.6 million to settle the interest rate swap liabilities, and the resulting accumulated other comprehensive loss is being amortized over the remaining maturities of the designated instruments. Amortization of other comprehensive loss on terminated cash flow hedges totaled $1.6 million and $4.1 million for the three and nine months ended September 30, 2018, respectively. The notional amounts of the swap agreements in place at September 30, 2018 expire as follows: $425 million in 20 22; $350 million in 202 3; and $100 million in 202 4. Fair Value Hedges of Interest Rate Risk The Company enters into interest rate swap agreements that modify the Company’s exposure to interest rate risk by effectively converting a portion of the Company’s brokered certificates of deposit from fixed rates to variable rates. The maturities and call features of these interest rate swaps match the features of the hedged deposits. As interest rates fall, the decline in the value of the certificates of deposit is offset by the increase in the value of the interest rate swaps. Conversely, as interest rates rise, the value of the underlying hedged deposits increases, but the value of the interest rate swaps decrease s, resu lting in no impact on earnings. Interest expense is adjusted by the difference between the fixed and floating rates for the period the swaps are in effect. Derivatives Not Designated as Hedges Customer interest rate derivative program The Bank enters into interest rate derivative agreements, primarily rate swaps, with commercial banking customers to facilitate their risk management strategies. The Bank enters into offsetting agreements with unrelated financial institutions, thereby mitigating its net risk exposure resulting from such transactions. 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 the offsetting derivatives are recognized directly in earnings. Risk participation agreements The Bank also enters into risk participation agreements under which it may either assume or sell credit risk associated with a borrower’s performance under certain interest rate derivative contracts. In those instances where the Bank has assumed credit risk, it is not a direct counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because it is a party to the related loan agreement with the borrower. In those instances in which the Bank has sold credit risk, it is the sole counterparty to the derivative contract with the borrower and has entered into the risk participation agreement because other banks participate in the related loan ag reement. The Bank manages its credit risk under risk participation agreements by monitoring the creditworthine ss of the borrower, based on the Bank’s normal credit review process. Mortgage banking derivatives The Bank also enters into certain deri vative agreements as part of its mortgage banking activities. These agreements include interest rate lock commitments on prospective residential mortgage loans and forward commitments to sell these loans to investors on a best efforts delivery basis. Customer foreign exchange forward contract derivatives The Bank enters into foreign exchange forward derivative agreements, primarily forward foreign currency contracts, with commercial ban king customers to facilitate their risk management strategies. The Bank manages its risk exposure from such transactions by entering into offsetting agreements with unrelated financial institutions. Because the foreign exchange forward contract derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. Effect of Derivative Instruments on the Statement of Income The effects of derivative instruments on the consolidated statements of income for the three and nine months ended September 30, 2018 and 2017 are presented in the table below. For the three and nine months ended September 30, 2018, the reduction of interest income attributable to cash flow hedges includes amor tization of accumulated other comprehensive loss that resulted from termination of five interest rate swap contracts. ﻿ ﻿
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﻿ |  |  | Three Months Ended |  | Nine Months Ended
﻿ |  |  | September 30, |  | September 30,
﻿Derivative Instruments: | Location of Gain (Loss) Recognized in the Statement of Income: |  |  | 2018 |  |  | 2017 |  |  | 2018 |  |  | 2017
﻿ Interest rate swaps - cash flow hedges | Interest income |  | $ | (1,276) |  | $ | (126) |  | $ | (2,841) |  | $ | (222)
﻿ Interest rate swaps - fair value hedges | Interest expense |  |  | (725) |  |  | 176 |  |  | (1,371) |  |  | 620
﻿ All other instruments | Other noninterest income |  |  | 1,363 |  |  | 1,339 |  |  | 4,474 |  |  | 4,484
﻿Total |  |  | $ | (638) |  | $ | 1,389 |  | $ | 262 |  | $ | 4,882
﻿ Credit Risk-R elated Contingent Features Certain of the Bank’s derivative instruments contain provisions allowing the financial institution counterparty to terminate the contracts in ce rtain circumstances, such as a downgrade of the Bank’s credit ratings below specified levels, a default by the Bank on its indebtedness, or the failure of the Bank to maintain specified minimum regulatory capital ratios or its regulatory status as a well-capitalized institution. These derivative agreements also contain provisions regarding the posting of collateral by each party. As of September 30, 2018, the Company was not in violation of any such provisions. Offsetting Assets and Liabilities The Bank’s derivative instruments with certain counterparties contain legally enforceable netting provisions that allow for net settlement of multiple transactions to a single amount, which may be positive, negative, or zero. Agreements with certain bilateral counterparties require both parties to maintain collateral in the event that the fair values of derivative instruments exceed established exposure thresholds. For centrally cleared derivatives, the Company is subject to initial margin posting and daily variation margin exchange with the central clearinghouses. Offsetting information in regards to all derivative assets and liabilities, including accrued interest, subject to these master netting agreements at September 30, 2018 and December 31, 2017 is presented in the following tables. ﻿ ﻿ ﻿
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﻿(in thousands) |  |  |  |  | Gross Amounts |  | Net Amounts |  | Gross Amounts Not Offset in the Statement of Income
﻿Description |  | Gross Amounts Recognized |  | Offset in the Statement of Income |  | Presented in the Statement of Income |  | Financial Instruments |  | Cash Collateral |  | Net Amount
﻿As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Derivative Assets |  | $ | 26,648 |  | $ | (19,897) |  | $ | 6,751 |  | $ | 309 |  | $ | — |  | $ | 6,442
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﻿Derivative Liabilities |  | $ | 26,437 |  | $ | (26,128) |  | $ | 309 |  | $ | 309 |  | $ | 2,263 |  | $ | (2,263)
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﻿(in thousands) |  |  |  |  | Gross Amounts |  | Net Amounts |  | Gross Amounts Not Offset in the Statement of Income
﻿Description |  | Gross Amounts Recognized |  | Offset in the Statement of Income |  | Presented in the Statement of Income |  | Financial Instruments |  | Cash Collateral |  | Net Amount
﻿As of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Derivative Assets |  | $ | 7,155 |  | $ | (5,007) |  | $ | 2,148 |  | $ | 2,148 |  | $ | — |  | $ | —
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﻿Derivative Liabilities |  | $ | 24,015 |  | $ | (20,077) |  | $ | 3,938 |  | $ | 2,148 |  | $ | 4,099 |  | $ | (2,309)
﻿ The Company has excess collateral compared to total exposure due to initial margin requirements for day-to-day rate volatility.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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