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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative 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 on 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 and collars as part of its interest rate risk management strategy. Interest rate swaps that were designated as cash flow hedges on the trust preferred securities 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. During 2021 and the first quarter of 2022, such derivatives were used to hedge the variable cash flows associated with the existing variable-rate borrowings (trust preferred securities). The trades that the Company had in place on its trust preferred securities matured during the first and second quarters of 2022. As part of the Company’s overall asset and liability management strategy, in August 2022 the Company entered into two interest rate collars related to variable-rate loans that were designated as cash flow hedges with a total notional amount of $300.0 million. The collars designated as cash flow hedges synthetically fixes the interest income received by the Company when the collar index falls below a floor rate on a rate reset during the term of the collar and when the collar index exceeds the cap rate on a rate reset during the term of the collar without exchange of the underlying notional amount. 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 (loss) 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 (loss) income related to derivatives will be reclassified as interest expense when interest payments are made on the Company’s variable-rate liabilities. During the next twelve months, the Company estimates that 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. During 2021, the Company entered into two forward starting, fixed interest rate fair value hedges associated with U.S. Treasury securities. During the second quarter of 2022, the Company terminated the $500.0 million, two-year forward starting, three-year pay-fixed interest rate swap, resulting in a $23.3 million gain. The gain associated with the $500.0 million interest rate swap was to be accreted into income through May 2026. However, the U.S. Treasury securities associated with the swap were sold during the third quarter of 2022. As such, the gain was accreted through August 2022 and then in September 2022 the remaining gain was recognized as income. During the third quarter of 2022, the Company terminated the $200.0 million, three-year forward starting, four-year pay fixed interest rate swap, resulting in a $8.5 million gain that will be accreted into income through July 2028. 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:
| September 30, 2022 |  | December 31, 2021
| 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 Hedge Derivatives 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. Risk Participation Agreements The Company acquired from GWB risk participation agreements under which it assumes credit risk associated with a borrower’s performance related to derivative contracts. The Company only enters into these credit risk participation agreements in instances in which the Company is also a party to the related loan participation agreements for such borrowers. The Company manages its credit risk under risk participation agreements by monitoring the creditworthiness of the borrower, based on its normal credit review process. The following table summarizes the fair values of our derivative instruments on a gross and net basis for the periods indicated. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet.
| September 30, 2022 |  | December 31, 2021
| 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 | 1,743.3 |  |  | 42.1 |  |  | 913.9 |  |  | 22.2 |
Interest rate lock commitments | — |  |  | — |  |  | 77.3 |  |  | 1.8 |
Forward loan sales contracts | 32.3 |  |  | 0.6 |  |  | — |  |  | — |
Derivative assets in the balance sheet | $ | 1,775.6 |  | Other Assets | $ | 42.7 |  |  | $ | 1,691.2 |  | Other Assets | $ | 28.1 |
Derivatives designated as hedges: |  |  |  |  |  |  |
Interest rate collars | $ | 300.0 |  |  | $ | 5.6 |  |  | $ | — |  |  | $ | — |
Interest rate swap contracts | — |  |  | — |  |  | 87.6 |  |  | 0.1 |
Derivatives not designated as hedges: |  |  |  |  |  |  |
Interest rate swap contracts | 1,743.3 |  |  | 163.7 |  |  | 913.9 |  |  | 18.1 |
Risk participation agreements | 107.2 |  |  | 0.1 |  |  | — |  |  | — |
Interest rate lock commitments | 25.9 |  |  | 0.5 |  |  | — |  |  | — |
Forward loan sales contracts | — |  |  | — |  |  | 102.4 |  |  | — |
Derivative liabilities in the balance sheet | $ | 2,176.4 |  | Accrued Expenses | $ | 169.9 |  |  | $ | 1,103.9 |  | Accrued Expenses | $ | 18.2 |
There was a $5.6 million unrealized fair value loss on derivative instruments in accumulated other comprehensive loss during the three and the nine months ended September 30, 2022. There were no material effects of derivative instruments in fair value or cash flow hedge accounting on accumulated other comprehensive (loss) income during the three and the nine months ended 2021. There were no material effects from the Company’s fair value or cash flow hedged derivative financial instruments on the income statement during the three and the nine months ended September 30, 2022 or 2021. 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:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 | 2021 |  |  | 2022 | 2021
| Location of (Loss) Gain Recognized in Income on Derivative | Amount of (Loss) Gain Recognized in Income on Derivative |  | Location of (Loss) Gain Recognized in Income on Derivative | Amount of (Loss) Gain Recognized in Income on Derivative
Interest rate lock commitments | Mortgage banking revenues | $ | (0.2) |  | $ | 1.3 |  |  | Mortgage banking revenues | $ | (1.7) |  | $ | 1.7 |
The Company recorded swap fee revenues of $2.5 million and $0.4 million for the three months ended September 30, 2022 and September 30, 2021, respectively, and $5.6 million and $1.6 million for the nine months ended September 30, 2022 and September 30, 2021, 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:
| September 30, 2022
| Gross Assets Recognized |  | Gross Assets Offset in the Balance Sheet |  | Net Assets in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Received (1) |  | Net Amount
Interest rate swap contracts | $ | 42.1 |  |  | $ | — |  |  | $ | 42.1 |  |  | $ | — |  |  | $ | 42.1 |  |  | $ | — |
Mortgage related derivatives | 0.6 |  |  | — |  |  | 0.6 |  |  | — |  |  | — |  |  | 0.6 |
Total derivatives | 42.7 |  |  | — |  |  | 42.7 |  |  | — |  |  | 42.1 |  |  | 0.6 |
Total assets | $ | 42.7 |  |  | $ | — |  |  | $ | 42.7 |  |  | $ | — |  |  | $ | 42.1 |  |  | $ | 0.6 |
(1) Netting adjustments represent the amounts recorded to convert derivatives assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the collateral cannot reduce the net derivative position below zero. Therefore, excess collateral, if any, is not reflected above.
| 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 and collar contracts | $ | 169.3 |  |  | $ | — |  |  | $ | 169.3 |  |  | $ | — |  |  | $ | 5.6 |  |  | $ | 163.7 |
Risk participation agreements | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
Mortgage related derivatives | 0.5 |  |  | — |  |  | 0.5 |  |  | — |  |  | — |  |  | 0.5 |
Total derivatives | 169.9 |  |  | — |  |  | 169.9 |  |  | — |  |  | 5.6 |  |  | 164.3 |
Repurchase agreements | 1,075.6 |  |  | — |  |  | 1,075.6 |  |  | — |  |  | 1,075.6 |  |  | — |
Total liabilities | $ | 1,245.5 |  |  | $ | — |  |  | $ | 1,245.5 |  |  | $ | — |  |  | $ | 1,081.2 |  |  | $ | 164.3 |
| 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 |
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 September 30, 2022, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was $5.6 million related to these agreements. As of September 30, 2022, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has not posted excess collateral. If the Company had breached any of these provisions at September 30, 2022, it could have been required to settle its obligations under the agreements at their termination value of $5.6 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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