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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities | Derivatives and Hedging Activities For asset and liability management purposes, the Company enters into interest rate swap contracts to hedge against changes in forecasted cash flows due to interest rate exposures. Interest rate swaps are contracts in which a series of interest payments are exchanged over a prescribed period. The notional amount upon which the interest payments are based is not exchanged. The amount exchanged is determined by reference to the notional amount and the other terms of the individual agreements. The swap agreements are derivative instruments and convert a portion of the Company’s forecasted variable rate debt to a fixed rate (i.e., cash flow hedge) over the payment term of the interest rate swap. The effective portion of the gain or loss on cash flow hedging instruments is initially reported as a component of other comprehensive income and subsequently reclassified into earnings in the same period during which the transaction affects earnings. The ineffective portion of the gain or loss on derivative instruments, if any, is recognized in earnings. The Company does not enter into interest rate swap agreements for trading or speculative purposes. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. On May 1, 2020, the Company entered into three interest rate swap contracts that were designated as cash flow hedges. The contracts included a notional amount of $46.4 million, $36.1 million, and $5.1 million. The Company pays a fixed interest rate of 0.40%, 0.34%, and 0.40%, respectively, and the counterparty pays to the Company a variable interest rate equal to the three-month LIBOR under the terms of the interest rate swap contracts. No cash was exchanged until the effective date, which began on May 1, 2020 and ends on April 1, 2022, March 15, 2022, and March 30, 2022, respectively. The Company designated the interest payments related to the trust preferred securities as the cash flow hedge. The hedge was fully effective during the current period. As such, no amount of hedge ineffectiveness was included in the Company's income statement for the three and nine months ended September 30, 2020. The Company expects the hedge to remain highly effective during the remaining term of the interest rate swap. The Company also enters into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which the Company enters into an interest rate swap with a client while at the same time entering into an offsetting interest rate swap with a third-party financial institution. Because the Company acts as an intermediary for the client, changes in the fair value of the underlying derivative contracts for the most part offset each other and do not significantly impact the Company’s results of operations. In the normal course of business, the Company enters into interest rate lock commitments to finance residential mortgage loans that are not designated as accounting hedges. These commitments, which contain fixed expiration dates, offer the borrower an interest rate guarantee, provided the loan meets underwriting guidelines and closes within the timeframe established by the Company. Interest rate risk arises on these commitments and subsequently closed loans if interest rates change between the time of the interest rate lock and the delivery of the loan to the investor. Loan commitments related to residential mortgage loans intended to be sold are considered derivatives and are marked to market through earnings. In addition to the effects of the change in market interest rate, the fair value measurement of the derivative also contemplates the expected cash flows to be received from the counterparty from the future sale of the loan. The Company sells residential mortgage loans on either a best efforts or mandatory delivery basis. The Company mitigates the effect of the interest rate risk inherent in providing interest rate lock commitments by entering into forward loan sales contracts. During the interest rate lock commitment period, these forward loan sales contracts are marked to market through earnings and are not designated as accounting hedges. Exclusive of the fair value component associated with the projected cash flows from the loan delivery to the investor, the changes in fair value related to movements in market rates of the interest rate lock commitments and the forward loan sales contracts generally move in opposite directions, and the net impact of changes in these valuations on net income during the loan commitment period is generally inconsequential. When the loan is funded to the borrower, the interest rate lock commitment derivative expires, and the Company records a loan held for sale. The forward loan sales contract acts as a hedge against the variability in cash to be received from the loan sale. The changes in measurement of the estimated fair values of the interest rate lock commitments and forward loan sales contracts are included in mortgage banking revenues in the accompanying consolidated statements of income. The notional amounts and estimated fair values of the Company’s derivatives are presented in the following table. Fair value estimates are obtained from third parties and are based on pricing models.
| September 30, 2020 |  | December 31, 2019
| Notional Amount | Estimated Fair Value |  | Notional Amount | Estimated Fair Value
Derivative Assets (included in other assets on the consolidated balance sheets):
Non-hedging interest rate derivatives: |  |  |  |  |
Interest rate swap contracts | $ | 754.3 |  | $ | 61.3 |  |  | $ | 503.2 |  | $ | 21.9 |
Interest rate lock commitments | 186.9 |  | 7.0 |  |  | 67.8 |  | 1.3 |
Total derivative assets | $ | 941.2 |  | $ | 68.3 |  |  | $ | 571.0 |  | $ | 23.2 |
Derivative Liabilities (included in accounts payable and accrued expenses on the consolidated balance sheets):
Derivatives designated as hedges: |  |  |  |  |
Interest rate swap contracts | $ | 87.6 |  | $ | 0.2 |  |  | $ | — |  | $ | — |
Non-hedging interest rate derivatives: |  |  |  |  |
Interest rate swap contracts | 754.3 |  | 61.3 |  |  | 503.2 |  | 21.9 |
Forward loan sales contracts | 237.0 |  | 1.6 |  |  | 128.0 |  | 0.3 |
Total derivative liabilities | $ | 1,078.9 |  | $ | 63.1 |  |  | $ | 631.2 |  | $ | 22.2 |
There were no material effects of derivative instruments in cash flow hedging relationships on the consolidated statements of income for the three and nine months ended September 30, 2020.
Derivative assets and liabilities are recorded at fair value on the balance sheet and do not take into account the effects of master netting arrangements. Master netting arrangements allow the Company to settle all contracts held with a single counterparty on a net basis and to offset net contract position with related collateral where applicable. The following tables illustrate the potential effect of the Company’s master netting arrangements, by type of financial instrument, on the Company’s consolidated balance sheets for the periods indicated:
| September 30, 2020
| Gross Amounts Recognized |  | Gross Amounts Offset in the Balance Sheet |  | Net Amounts in the Balance Sheet |  | Financial Instruments |  | Fair Value of Financial Collateral in the Balance Sheet |  | Net Amount
Financial Assets
Interest rate swap contracts | $ | 61.3 |  |  | $ | — |  |  | $ | 61.3 |  |  | $ | — |  |  | $ | 28.7 |  |  | $ | 32.6 |
Mortgage related derivatives | 7.0 |  |  | — |  |  | 7.0 |  |  | — |  |  | — |  |  | 7.0 |
Total derivatives | 68.3 |  |  | — |  |  | 68.3 |  |  | — |  |  | 28.7 |  |  | 39.6 |
Total assets | $ | 68.3 |  |  | $ | — |  |  | $ | 68.3 |  |  | $ | — |  |  | $ | 28.7 |  |  | $ | 39.6 |
Financial Liabilities
Interest rate swap contracts | $ | 61.5 |  |  | $ | — |  |  | $ | 61.5 |  |  | $ | — |  |  | $ | — |  |  | $ | 61.5 |
Mortgage related derivatives | 1.6 |  |  | — |  |  | 1.6 |  |  | — |  |  | — |  |  | 1.6 |
Total derivatives | 63.1 |  |  | — |  |  | 63.1 |  |  | — |  |  | — |  |  | 63.1 |
Repurchase agreements | 820.3 |  |  |  |  | 820.3 |  |  | — |  |  | 820.3 |  |  | — |
Total liabilities | $ | 883.4 |  |  | $ | — |  |  | $ | 883.4 |  |  | $ | — |  |  | $ | 820.3 |  |  | $ | 63.1 |
| December 31, 2019
| Gross Amounts Recognized |  | Gross Amounts Offset in the Balance Sheet |  | Net Amounts in the Balance Sheet |  | Financial Instruments |  | Fair Value of Financial Collateral in the Balance Sheet |  | Net Amount
Financial Assets
Interest rate swap contracts | $ | 21.9 |  |  | $ | — |  |  | $ | 21.9 |  |  | $ | 0.1 |  |  | $ | 18.0 |  |  | $ | 3.8 |
Mortgage related derivatives | 1.3 |  |  | — |  |  | 1.3 |  |  | — |  |  | — |  |  | 1.3 |
Total derivatives | 23.2 |  |  | — |  |  | 23.2 |  |  | 0.1 |  |  | 18.0 |  |  | 5.1 |
Total assets | $ | 23.2 |  |  | $ | — |  |  | $ | 23.2 |  |  | $ | 0.1 |  |  | $ | 18.0 |  |  | $ | 5.1 |
Financial Liabilities
Interest rate swap contracts | $ | 21.9 |  |  | $ | — |  |  | $ | 21.9 |  |  | $ | 0.1 |  |  | $ | — |  |  | $ | 21.8 |
Mortgage related derivatives | 0.3 |  |  | — |  |  | 0.3 |  |  | — |  |  | — |  |  | 0.3 |
Total derivatives | 22.2 |  |  | — |  |  | 22.2 |  |  | 0.1 |  |  | — |  |  | 22.1 |
Repurchase agreements | 697.6 |  |  | — |  |  | 697.6 |  |  | — |  |  | 697.6 |  |  | — |
Total liabilities | $ | 719.8 |  |  | $ | — |  |  | $ | 719.8 |  |  | $ | 0.1 |  |  | $ | 697.6 |  |  | $ | 22.1 |
The following table presents the pre-tax gains or losses related to derivative contracts that were recorded in other non-interest income in the Company’s statements of income for the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2020 | 2019 |  | 2020 | 2019
Derivatives designated as hedges: |  |  |  |  |
Amount of gain recognized in other comprehensive income (effective portion) | $ | — |  | $ | — |  |  | $ | 0.2 |  | $ | — |
Reclassification adjustment for derivatives net (gains) losses included in income | — |  | — |  |  | 0.2 |  | — |
Non-hedging interest rate derivatives: |  |  |  |  |
Amount of net fee income recognized in other non-interest income | $ | 3.7 |  | $ | 0.5 |  |  | 6.4 |  | 1.8 |
Amount of net (losses) gains recognized in mortgage banking revenues | (0.6) |  | 0.4 |  |  | 4.4 |  | 1.5 |

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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 http://asc.fasb.org/topic&trid=2229140 + Details
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