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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. Certain of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. The Corporation enters into derivative contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or the Corporation elects not to apply hedge accounting. Mortgage Banking Derivatives In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Interest Rate Derivatives - Non-Designated Hedges The Corporation enters into interest rate derivatives with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate derivatives with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate derivatives is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. As 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. In the third quarter of 2023, the Corporation recorded a $3.0 million reduction to other non-interest income to reflect market valuation movement in certain of the Corporation's legacy commercial customer back-to-back interest rate swap transactions resulting from the transition from LIBOR to SOFR. The Corporation's existing credit derivatives result from participation in interest rate derivatives provided by external lenders as part of loan participation arrangements and, therefore, are not used to manage interest rate risk in the Corporation's assets or liabilities. The Corporation is required to clear all eligible interest rate derivative contracts with a clearing agent and is subject to the regulations of the Commodity Futures Trading Commission. Cash Flow Hedges of Interest Rate Risk The Corporation's objectives in using interest rate derivatives are to reduce volatility in interest income and interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Corporation primarily uses interest rate derivatives as part of its interest rate risk management strategy. The Corporation enters into interest rate derivatives designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans and borrowings. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the unrealized gain or loss on the derivatives is recorded in AOCI and subsequently reclassified into interest income or interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are made on the Corporation's variable-rate loans and borrowings. During the next twelve months, the Corporation estimates that an additional $22.7 million of unrealized losses will be reclassified as a decrease to net interest income. In January 2023, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $1.0 billion. As the hedged transaction continues to be probable, the original unrealized loss of $70.6 million included in AOCI will be recognized as a reduction to interest income when the previously forecasted hedged item affects earnings in future periods. During the nine months ended September 30, 2023, $17.3 million of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the Corporation's consolidated statements of income. Foreign Exchange Contracts The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a specific date at a contractual price. The Corporation limits its foreign exchange exposure with customers by entering into contracts with institutional counterparties to mitigate its foreign exchange risk. The Corporation also holds certain amounts of Foreign Currency Nostro Accounts. The Corporation limits the total overnight net foreign currency open positions, which is defined as an aggregate of all outstanding contracts, to $0.5 million. The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
| September 30, 2023 |  | December 31, 2022
| Notional Amount |  | Asset (Liability) Fair Value |  | Notional Amount |  | Asset (Liability) Fair Value
| (dollars in thousands)
Interest Rate Locks with Customers |  |  |  |  |  |  |
Positive fair values | $ | 126,886 |  |  | $ | 373 |  |  | $ | 70,836 |  |  | $ | 182 |
Negative fair values | 4,359 |  |  | (39) |  |  | 4,939 |  |  | (51) |
Forward Commitments |  |  |  |  |  |  |
Positive fair values | 53,000 |  |  | 653 |  |  | — |  |  | — |
Negative fair values | — |  |  | — |  |  | 10,000 |  |  | (147) |
Interest Rate Derivatives with Customers |  |  |  |  |  |  |
Positive fair values | 121,589 |  |  | 635 |  |  | 171,317 |  |  | 3,337 |
Negative fair values | 4,254,247 |  |  | (367,905) |  |  | 3,802,480 |  |  | (280,401) |
Interest Rate Derivatives with Dealer Counterparties |  |  |  |  |  |  |
Positive fair values | 4,254,247 |  |  | 226,882 |  |  | 3,802,480 |  |  | 161,956 |
Negative fair values | 121,589 |  |  | (1,001) |  |  | 171,317 |  |  | (3,703) |
Interest Rate Derivatives used in Cash Flow Hedges |  |  |  |  |  |  |
Positive fair values | 700,000 |  |  | 239 |  |  | 600,000 |  |  | 1,321 |
Negative fair values | 2,300,000 |  |  | (3,584) |  |  | 1,000,000 |  |  | (12,163) |
Foreign Exchange Contracts with Customers |  |  |  |  |  |  |
Positive fair values | 30,841 |  |  | 980 |  |  | 11,123 |  |  | 571 |
Negative fair values | 13,994 |  |  | (400) |  |  | 3,672 |  |  | (85) |
Foreign Exchange Contracts with Correspondent Banks |  |  |  |  |  |  |
Positive fair values | 10,984 |  |  | 315 |  |  | 4,887 |  |  | 101 |
Negative fair values | 23,610 |  |  | (680) |  |  | 8,280 |  |  | (499) |
The following table presents the effect of fair value and cash flow hedge accounting on AOCI:
| Amount of Gain (Loss) Recognized in OCI on Derivative |  | Amount of Gain (Loss) Recognized in OCI Included Component |  | Amount of Gain (Loss) Recognized in OCI Excluded Component |  | Location of Gain (Loss) Recognized from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income Included Component |  | Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
| (dollars in thousands)
Derivatives in Cash Flow Hedging Relationships: |  |  |  |  |  |  |  |  |  |
Three months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
Interest Rate Products | $ | 4,691 |  |  | $ | 4,691 |  |  | $ | — |  |  | Net Interest Income |  | $ | (6,248) |  |  | $ | (6,248) |  |  | $ | — |
Three months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |
Interest Rate Products | (29,053) |  |  | (29,053) |  |  | — |  |  | Net Interest Income |  | (3,210) |  |  | (3,210) |  |  | — |
Nine months ended September 30, 2023 |  |  |  |  |  |  |  |  |  |
Interest Rate Products | 9,975 |  |  | 9,975 |  |  | — |  |  | Net Interest Income |  | (20,437) |  |  | (20,437) |  |  | — |
Nine months ended September 30, 2022 |  |  |  |  |  |  |  |  |  |
Interest Rate Products | (80,716) |  |  | (80,716) |  |  | — |  |  | Net Interest Income |  | (828) |  |  | (828) |  |  | — |
The following table presents the effect of fair value and cash flow hedge accounting on the income statement:
| Consolidated Statements of Income Classification
| Net Interest Income
| Three months ended September 30 |  |  | Nine months ended September 30
| 2023 |  | 2022 |  |  | 2023 |  | 2022
| (dollars in thousands)
Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded | $ | (6,248) |  |  | $ | (3,210) |  |  |  | $ | (20,437) |  |  | $ | (828) |
Interest contracts: |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from AOCI into income | (6,248) |  |  | (3,210) |  |  |  | (20,437) |  |  | (828) |
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring | — |  |  | — |  |  |  | — |  |  | — |
Amount of gain (loss) reclassified from AOCI into income - included component | (6,248) |  |  | (3,210) |  |  |  | (20,437) |  |  | (828) |
Amount of gain (loss) reclassified from AOCI into income - excluded component | — |  |  | — |  |  |  | — |  |  | — |
The following table presents a summary of the net fair value gains (losses) on derivative financial instruments:
| Consolidated Statements of Income Classification |  | Three months ended September 30 |  | Nine months ended September 30
|  |  | 2023 |  | 2022 |  | 2023 |  | 2022
|  |  | (dollars in thousands)
Mortgage banking derivatives(1) | Mortgage banking income |  | $ | 134 |  |  | $ | 1,403 |  |  | $ | 1,003 |  |  | $ | (307) |
Interest rate derivatives | Other income |  | (2,958) |  |  | — |  |  | (2,958) |  |  | — |
Foreign exchange contracts | Other income |  | (57) |  |  | (27) |  |  | 127 |  |  | 14 |
Net fair value gains/(losses) on derivative financial instruments |  | $ | (2,881) |  |  | $ | 1,376 |  |  | $ | (1,828) |  |  | $ | (293) |
(1) Includes interest rate locks with customers and forward commitments. Fair Value Option The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements as of the periods shown:
| September 30, 2023 |  | December 31, 2022
| (dollars in thousands)
Amortized cost(1) | $ | 20,206 |  |  | $ | 7,180 |
Fair value | 20,368 |  |  | 7,264 |
(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance. There were no gains related to changes in fair values of mortgage loans held for sale for the three months ended September 30, 2023 compared to losses of $0.5 million for the three months ended September 30, 2022. Gains related to changes in fair values of mortgage loans held for sale were $0.1 million for the nine months ended September 30, 2023 compared to losses of $1.1 million for the nine months ended September 30, 2022. Balance Sheet Offsetting The fair values of interest rate derivative agreements and foreign exchange contracts the Corporation enters into with customers and dealer counterparties may be eligible for offset on the consolidated balance sheets if they are subject to master netting arrangements or similar agreements. The Corporation has elected to net its financial assets and liabilities designated as cash flow hedges when offsetting is permitted. The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:
| Gross Amounts |  | Gross Amounts Not Offset |  |
| Recognized |  | on the Consolidated |  |
| on the |  | Balance Sheets |  |
| Consolidated |  | Financial |  | Cash |  | Net
| Balance Sheets |  | Instruments(1) |  | Collateral(2) |  | Amount
| (dollars in thousands)
September 30, 2023 |  |  |  |  |  |  |
Interest rate derivative assets | $ | 227,756 |  |  | $ | (4,636) |  |  | $ | — |  |  | $ | 223,120 |
Foreign exchange derivative assets with correspondent banks | 315 |  |  | (315) |  |  | — |  |  | — |
Total | $ | 228,071 |  |  | $ | (4,951) |  |  | $ | — |  |  | $ | 223,120 |
Interest rate derivative liabilities | $ | 372,490 |  |  | $ | (1,291) |  |  | $ | (141,485) |  |  | $ | 229,714 |
Foreign exchange derivative liabilities with correspondent banks | 680 |  |  | (315) |  |  | — |  |  | 365 |
Total | $ | 373,170 |  |  | $ | (1,606) |  |  | $ | (141,485) |  |  | $ | 230,079 |
December 31, 2022 |  |  |  |  |  |  |
Interest rate derivative assets | $ | 166,614 |  |  | $ | (8,071) |  |  | $ | — |  |  | $ | 158,543 |
Foreign exchange derivative assets with correspondent banks | 101 |  |  | (101) |  |  | — |  |  | — |
Total | $ | 166,715 |  |  | $ | (8,172) |  |  | $ | — |  |  | $ | 158,543 |
Interest rate derivative liabilities | $ | 296,267 |  |  | $ | (2,771) |  |  | $ | (127,638) |  |  | $ | 165,858 |
Foreign exchange derivative liabilities with correspondent banks | 499 |  |  | (101) |  |  | — |  |  | 398 |
Total | $ | 296,766 |  |  | $ | (2,872) |  |  | $ | (127,638) |  |  | $ | 166,256 |
(1) For interest rate derivative assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For interest rate derivative liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default. (2) Amounts represent cash collateral received from the counterparty or posted by the Corporation on interest rate derivative transactions and foreign exchange contracts with financial institution counterparties. Interest rate derivatives with customers are collateralized by the same collateral securing the underlying loans to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.

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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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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