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Derivatives and Hedging Activities | 12 Months Ended
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Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | DERIVATIVES AND HEDGING ACTIVITIES The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through the management of its business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. The Company enters into derivative financial instruments, such as interest rate swap contracts to manage or hedge exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates and interest rate exposures. The Company does not enter into interest rate swap agreements for trading or speculative purposes. 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. The forward loan sales contracts are marked to market through earnings and are not designated as accounting hedges during the interest rate lock commitment period and through the duration of the forward loan sales contracts. 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 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. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. 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. The Company expects the hedge to remain highly effective during the remaining term of the interest rate swap. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate liabilities. During the next twelve months, the Company estimates no material amounts will be reclassified as an increase to interest expense. Fair Value Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. On June 17, 2021, the Company invested $500.0 million in five-year U.S. Treasuries at 87 basis points, while simultaneously entering into a two-year forward starting, three-year pay-fixed interest rate swap on $500.0 million notional. Beginning on June 30, 2023, the Company will begin receiving effective federal funds, and will pay 1.19% interest on such funds. The interest rate swap was designated as a fair value hedge. On August 2, 2021, the Company invested $200.0 million in seven-year U.S. Treasuries at 99 basis points, while simultaneously entering into a three-year forward starting, four-year pay-fixed interest rate swap on $200.0 million notional amount. Beginning on August 31, 2024, the Company will begin receiving effective federal funds, and will pay 1.22% interest on such funds. The interest rate swap was designated as a fair value hedge. The Company assesses the hedge effectiveness both at the onset of the hedge and at regular intervals throughout the life of the derivatives. The Company has determined at the onset of the hedge that the derivative instruments will be highly effective hedges throughout the term of the contracts, any portion of derivative instruments subsequently determined to be ineffective will be recognized in earnings. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income. The following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges for the periods indicated:
| December 31, 2021 |  | December 31, 2020
| Carrying Amount of the Hedged Assets/(Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment |  | Carrying Amount of the Hedged Assets/(Liabilities) | Cumulative Amount of Fair Value Hedging Adjustment
Available-for-sale securities | $ | 695.6 |  | $ | (4.4) |  |  | $ | — |  | $ | — |
Non-designated Hedges Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. The table below presents the fair value of the Company’s derivative financial instruments and classification on the balance sheet for the periods indicated:
| December 31, 2021 |  | December 31, 2020
| Notional Amount | Balance Sheet Location | Estimated Fair Value |  | Notional Amount | Balance Sheet Location | Estimated Fair Value
Derivatives designated as hedges: |  |  |  |  |  |  |
Interest rate swap contracts | $ | 700.0 |  |  | $ | 4.1 |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Interest rate swap contracts | 913.9 |  |  | 22.2 |  |  | 799.7 |  |  | 52.0 |
Interest rate lock commitments | 77.3 |  |  | 1.8 |  |  | 101.9 |  |  | 3.3 |
Derivative assets in the balance sheet | $ | 1,691.2 |  | Other Assets | $ | 28.1 |  |  | $ | 901.6 |  | Other Assets | $ | 55.3 |
Derivatives designated as hedges: |  |  |  |  |  |  |
Interest rate swap contracts | $ | 87.6 |  |  | $ | 0.1 |  |  | $ | 87.6 |  |  | $ | 0.2 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Interest rate swap contracts | 913.9 |  |  | 18.1 |  |  | 799.7 |  |  | 16.6 |
Forward loan sales contracts | 102.4 |  |  | — |  |  | 126.8 |  |  | 1.1 |
Derivative liabilities in the balance sheet | $ | 1,103.9 |  | Accrued Expenses | $ | 18.2 |  |  | $ | 1,014.1 |  | Accrued Expenses | $ | 17.9 |
There were no material effects of derivative instruments in fair value or cash flow hedge accounting on accumulated other comprehensive income during the periods ended December 31, 2021 or 2020.
There were no material effects from the Company’s fair value or cash flow hedged derivative financial instruments on the income statement during the periods ended December 31, 2021 or 2020.
The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the income statement for the periods indicated:
|  | December 31,
|  | 2021 | 2020
| Location of Gain or (Loss) Recognized in Income on Derivative | Amount of Gain or (Loss) Recognized in Income on Derivative
Interest rate lock commitments | Mortgage banking revenues | $ | (0.5) |  | $ | 1.2 |
The Company recorded fee revenues of $3.1 million and $7.7 million for the periods ended December 31, 2021 and December 31, 2020, respectively. The Company includes swap fee revenues in other service charges, commissions, and fees. The tables below present the gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of the periods indicated:
| December 31, 2021
| Gross Assets Recognized |  | Gross Assets Offset in the Balance Sheet |  | Net Assets in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
Interest rate swap contracts | $ | 26.3 |  |  | $ | — |  |  | $ | 26.3 |  |  | $ | — |  |  | $ | 8.0 |  |  | $ | 18.3 |
Mortgage related derivatives | 1.8 |  |  | — |  |  | 1.8 |  |  | — |  |  | — |  |  | 1.8 |
Total derivatives | 28.1 |  |  | — |  |  | 28.1 |  |  | — |  |  | 8.0 |  |  | 20.1 |
Total assets | $ | 28.1 |  |  | $ | — |  |  | $ | 28.1 |  |  | $ | — |  |  | $ | 8.0 |  |  | $ | 20.1 |
| Gross Liabilities Recognized |  | Gross Liabilities Offset in the Balance Sheet |  | Net Liabilities in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Posted |  | Net Amount
Interest rate swap contracts | $ | 18.2 |  |  | $ | — |  |  | $ | 18.2 |  |  | $ | — |  |  | $ | — |  |  | $ | 18.2 |
Total derivatives | 18.2 |  |  | — |  |  | 18.2 |  |  | — |  |  | — |  |  | 18.2 |
Repurchase agreements | 1,051.1 |  |  | — |  |  | 1,051.1 |  |  | — |  |  | 1,051.1 |  |  | — |
Total liabilities | $ | 1,069.3 |  |  | $ | — |  |  | $ | 1,069.3 |  |  | $ | — |  |  | $ | 1,051.1 |  |  | $ | 18.2 |
| December 31, 2020
| Gross Assets Recognized |  | Gross Assets Offset in the Balance Sheet |  | Net Assets in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
Interest rate swap contracts | $ | 52.0 |  |  | $ | — |  |  | $ | 52.0 |  |  | $ | — |  |  | $ | 17.2 |  |  | $ | 34.8 |
Mortgage related derivatives | 3.3 |  |  | — |  |  | 3.3 |  |  | — |  |  | — |  |  | 3.3 |
Total derivatives | 55.3 |  |  | — |  |  | 55.3 |  |  | — |  |  | 17.2 |  |  | 38.1 |
Total assets | $ | 55.3 |  |  | $ | — |  |  | $ | 55.3 |  |  | $ | — |  |  | $ | 17.2 |  |  | $ | 38.1 |
| Gross Liabilities Recognized |  | Gross Liabilities Offset in the Balance Sheet |  | Net Liabilities in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Posted |  | Net Amount
Interest rate swap contracts | $ | 16.8 |  |  | $ | — |  |  | $ | 16.8 |  |  | $ | — |  |  | $ | — |  |  | $ | 16.8 |
Mortgage related derivatives | 1.1 |  |  | — |  |  | 1.1 |  |  | — |  |  | — |  |  | 1.1 |
Total derivatives | 17.9 |  |  | — |  |  | 17.9 |  |  | — |  |  | — |  |  | 17.9 |
Repurchase agreements | 1,091.4 |  |  | — |  |  | 1,091.4 |  |  | — |  |  | 1,091.4 |  |  | — |
Total liabilities | $ | 1,109.3 |  |  | $ | — |  |  | $ | 1,109.3 |  |  | $ | — |  |  | $ | 1,091.4 |  |  | $ | 17.9 |
Credit-risk-related Contingent Feature The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well / adequately capitalized institution, then in certain instances the Company could be required to post additional capital and in certain instances the counterparty would have the right to terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of December 31, 2021, the fair value of derivatives in a net liability position includes accrued interest but excludes any adjustment for nonperformance risk, which was $7.8 million related to these agreements. As of December 31, 2021, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted excess collateral of $0.2 million. If the Company had breached any of these provisions at December 31, 2021, it could have been required to settle its obligations under the agreements at their termination value of $7.8 million.

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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 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 http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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