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Derivatives and Hedging Activities | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative 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 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. 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 recorded at fair value with changes in fair value recorded 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 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 primarily 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 income (expense) and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps and collars as part of its interest rate risk management strategy. As part of the Company’s overall asset and liability management strategy, in 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 and entered into four swaps, two of which were related to variable-rate loans and two that were related to variable-rate securities that were designated as cash flow hedges with a total notional amount of $850.0 million. The collars designated as cash flow hedges synthetically fix the interest income received by the Company when the interest index falls below a floor rate on a rate reset and when the interest index exceeds the cap rate on a rate reset. Each of the swaps designated as cash flow hedges synthetically fixes the interest income received by the Company. During the quarter, the Company voluntarily terminated three swaps, two of which were related to variable-rate loans and one related to variable-rate securities that were designated as cash flow hedges with a total notional amount of $550.0 million. The termination of the cash flow hedges resulted in a net loss of $0.2 million being captured in accumulated other comprehensive income, net of tax, and reclassified to interest income over the period the forecasted transactions affects earnings. The two interest rate collars and one remaining swap designated as cash flow hedges were effective with a total notional amount of $600.0 million. For derivatives that are 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 income 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 as interest income when interest payments on the Company’s hedged items are earned. During the next twelve months, based on implied forward curves, the Company estimates that $1.7 million will be reclassified to interest income. 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 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 or until the securities are sold. The Company accreted $0.4 million of the gain into interest income during the three months ended September 30, 2024. 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 consolidated balance sheets related to cumulative basis adjustment for fair value hedges for the periods indicated:
| September 30, 2024 |  | December 31, 2023
| 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 | $ | 194.3 |  | $ | 5.7 |  |  | $ | 193.3 |  | $ | 6.7 |
Non-designated Hedge Derivatives Derivative instruments not designated as accounting 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 economically 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 Great Western Bank, risk participation agreements under which it assumes credit risk associated with a borrower’s performance related to derivative contracts. The Company only entered into these credit risk participation agreements in instances in which the Company was 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 account for 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 consolidated balance sheets.
| September 30, 2024 |  | December 31, 2023
| Notional Amount | Consolidated Balance Sheet Location | Estimated Fair Value |  | Notional Amount | Consolidated Balance Sheet Location | Estimated Fair Value
Derivatives designated as accounting hedges: |  |  |  |  |  |  |
Interest rate swap contracts | $ | 300.0 |  |  | $ | 0.3 |  |  | $ | 550.0 |  |  | $ | 3.0 |
Derivatives not designated as accounting hedges: |  |  |  |  |  |  |
Interest rate swap contracts | 1,468.5 |  |  | 28.3 |  |  | 1,589.0 |  |  | 34.3 |
Interest rate lock commitments | 5.3 |  |  | — |  |  | 5.7 |  |  | 0.1 |
Derivative assets | $ | 1,773.8 |  | Other assets | $ | 28.6 |  |  | $ | 2,144.7 |  | Other assets | $ | 37.4 |
Derivatives designated as accounting hedges: |  |  |  |  |  |  |
Interest rate collars | $ | 300.0 |  |  | $ | 1.2 |  |  | $ | 300.0 |  |  | $ | 3.6 |
Interest rate swap contracts | — |  |  | — |  |  | 300.0 |  |  | 2.4 |
Derivatives not designated as accounting hedges: |  |  |  |  |  |  |
Interest rate swap contracts | 1,468.5 |  |  | 93.0 |  |  | 1,589.0 |  |  | 121.1 |
Risk participation agreements | 95.5 |  |  | — |  |  | 101.1 |  |  | 0.1 |
Forward loan sales contracts | 4.9 |  |  | — |  |  | 5.6 |  |  | 0.1 |
Derivative liabilities | $ | 1,868.9 |  | Accounts payable and accrued expenses | $ | 94.2 |  |  | $ | 2,295.7 |  | Accounts payable and accrued expenses | $ | 127.3 |
There was an unrealized fair value gain on cash flow hedging derivative instruments in accumulated other comprehensive income of $12.4 million and an unrealized fair value loss of $10.1 million during the three and the nine months ended September 30, 2024, respectively. There was an unrealized fair value loss on cash flow hedging derivative instruments in accumulated other comprehensive income of $13.1 million and $27.2 million during the three and the nine months ended September 30, 2023.
There was a loss of $3.1 million and $11.2 million reclassified from accumulated other comprehensive loss into the consolidated statements of income during the three and the nine months ended September 30, 2024 from the Company’s cash flow hedged derivative financial instruments, and a loss of $2.1 million and $4.1 million reclassified during the comparable 2023 periods. The table below presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2024 | 2023 |  |  | 2024 | 2023
| Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized in Income on Derivative |  | Location of Gain (Loss) Recognized in Income on Derivative | Amount of Gain (Loss) Recognized in Income on Derivative
Interest rate lock commitments | Mortgage banking revenues | $ | — |  | $ | 0.1 |  |  | Mortgage banking revenues | $ | — |  | $ | (0.1) |
The Company includes swap fee revenues in other service charges, commissions, and fees on the consolidated statements of income. The Company had no material swap fee revenues during the three and the nine months ended September 30, 2024 and 2023. The tables below present the gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of the dates indicated:
| September 30, 2024
| 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 and collar contracts | $ | 28.6 |  |  | $ | — |  |  | $ | 28.6 |  |  | $ | — |  |  | $ | 25.8 |  |  | $ | 2.8 |
Total derivatives | 28.6 |  |  | — |  |  | 28.6 |  |  | — |  |  | 25.8 |  |  | 2.8 |
Total assets | $ | 28.6 |  |  | $ | — |  |  | $ | 28.6 |  |  | $ | — |  |  | $ | 25.8 |  |  | $ | 2.8 |
(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 | $ | 94.2 |  |  | $ | — |  |  | $ | 94.2 |  |  | $ | — |  |  | $ | — |  |  | $ | 94.2 |
Total derivatives | 94.2 |  |  | — |  |  | 94.2 |  |  | — |  |  | — |  |  | 94.2 |
Repurchase agreements(2) | 557.2 |  |  | — |  |  | 557.2 |  |  | — |  |  | — |  |  | 557.2 |
Total liabilities | $ | 651.4 |  |  | $ | — |  |  | $ | 651.4 |  |  | $ | — |  |  | $ | — |  |  | $ | 651.4 |
(2) Repurchase agreements are fully collateralized by investment securities.
| December 31, 2023
| 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 and collar contracts | $ | 37.3 |  |  | $ | — |  |  | $ | 37.3 |  |  | $ | — |  |  | $ | 32.7 |  |  | $ | 4.6 |
Interest rate lock commitments | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
Total derivatives | 37.4 |  |  | — |  |  | 37.4 |  |  | — |  |  | 32.7 |  |  | 4.7 |
Total assets | $ | 37.4 |  |  | $ | — |  |  | $ | 37.4 |  |  | $ | — |  |  | $ | 32.7 |  |  | $ | 4.7 |
(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 | $ | 127.1 |  |  | $ | — |  |  | $ | 127.1 |  |  | $ | — |  |  | $ | — |  |  | $ | 127.1 |
Risk participation agreements | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
Forward loan sales contracts | 0.1 |  |  | — |  |  | 0.1 |  |  | — |  |  | — |  |  | 0.1 |
Total derivatives | 127.3 |  |  | — |  |  | 127.3 |  |  | — |  |  | — |  |  | 127.3 |
Repurchase agreements(2) | 782.7 |  |  | — |  |  | 782.7 |  |  | — |  |  | — |  |  | 782.7 |
Total liabilities | $ | 910.0 |  |  | $ | — |  |  | $ | 910.0 |  |  | $ | — |  |  | $ | — |  |  | $ | 910.0 |
(2) Repurchase agreements are fully collateralized by investment securities.
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 the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations. Similarly, the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required the Bank to maintain a specific capital level. If the Bank had breached any of these provisions at September 30, 2024 or December 31, 2023, it could have been required to settle its obligations under the agreements at the termination value. As of September 30, 2024, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was zero related to these agreements. As of September 30, 2024, 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, 2024, it could have been required to settle its obligations under the agreements at their termination value.

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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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