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DERIVATIVE FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE FINANCIAL INSTRUMENTS | 13. DERIVATIVE FINANCIAL INSTRUMENTS Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both economic conditions and its business operations. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core 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. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. The Company does not use derivative financial instruments for proprietary or speculative trading. Fair Values of Derivative Instruments The table below presents the fair value of derivative financial instruments as well as their location on the unaudited Consolidated Statements of Financial Condition as of September 30, 2024.
| Fair Values of Derivative Instruments
(Dollars in thousands) |  | Count |  | Notional |  | Balance Sheet Location |  | Derivatives (Fair Value)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  | 18 |  | $ | 1,500,000 |  |  | Other assets |  | $ | 32,323 |
Total |  |  |  | $ | 1,500,000 |  |  |  |  | $ | 32,323 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  |  |  | $ | 2,875,981 |  |  | Other assets |  | $ | 131,543 |
Interest rate swaps |  |  |  | 2,875,981 |  |  | Other liabilities |  | (131,543) |
Interest rate lock commitments with customers |  |  |  | 67,991 |  |  | Other assets |  | 1,071 |
Interest rate lock commitments with customers |  |  |  | 390 |  |  | Other liabilities |  | (2) |
Forward sale commitments |  |  |  | 14,548 |  |  | Other assets |  | 42 |
Forward sale commitments |  |  |  | 58,479 |  |  | Other liabilities |  | (258) |
FX forwards |  |  |  | 34,636 |  |  | Other assets |  | 1,360 |
FX forwards |  |  |  | 33,204 |  |  | Other liabilities |  | (1,217) |
Risk participation agreements sold |  |  |  | 102,449 |  |  | Other liabilities |  | (112) |
Risk participation agreements purchased |  |  |  | 89,053 |  |  | Other assets |  | 56 |
Financial derivatives related to sales of certain Visa Class B shares |  |  |  | 55,358 |  |  | Other liabilities |  | (8,173) |
Total derivatives |  |  |  | $ | 7,708,070 |  |  |  |  | $ | 25,090 |
The table below presents the fair value of derivative financial instruments as well as their location on the unaudited Consolidated Statements of Financial Condition as of December 31, 2023.
| Fair Values of Derivative Instruments
(Dollars in thousands) |  | Count |  | Notional |  | Balance Sheet Location |  | Derivatives (Fair Value)
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  | 9 |  | $ | 750,000 |  |  | Other assets |  | $ | 15,578 |
Total |  |  |  | $ | 750,000 |  |  |  |  | $ | 15,578 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  |  |  | $ | 2,428,306 |  |  | Other assets |  | $ | 136,924 |
Interest rate swaps |  |  |  | 2,383,443 |  |  | Other liabilities |  | (136,924) |
Interest rate lock commitments with customers |  |  |  | 34,651 |  |  | Other assets |  | 637 |
Forward sale commitments |  |  |  | 1,000 |  |  | Other assets |  | 1 |
Forward sale commitments |  |  |  | 37,348 |  |  | Other liabilities |  | (283) |
FX forwards |  |  |  | 15,812 |  |  | Other assets |  | 429 |
FX forwards |  |  |  | 13,064 |  |  | Other liabilities |  | (409) |
Risk participation agreements sold |  |  |  | 103,648 |  |  | Other liabilities |  | (3) |
Risk participation agreements purchased |  |  |  | 116,804 |  |  | Other assets |  | 78 |
Financial derivatives related to sales of certain Visa Class B shares |  |  |  | 113,177 |  |  | Other liabilities |  | (14,023) |
Total derivatives |  |  |  | $ | 5,997,253 |  |  |  |  | $ | 2,005 |
Effect of Derivative Instruments on the Income Statement The table below presents the effect of the derivative financial instruments on the unaudited Consolidated Statements of Income for the three and nine months ended September 30, 2024 and September 30, 2023.
|  | Amount of Loss Recognized in OCI on Derivative (Effective Portion) |  | Amount of Loss Recognized in OCI on Derivative (Effective Portion) |  | Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
(Dollars in thousands) |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
Derivatives in Cash Flow Hedging Relationships |  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
Interest rate options |  | $ | 10,722 |  |  | $ | (1,608) |  |  | $ | 3,702 |  |  | $ | (2,752) |  |  | Interest income
Total |  | $ | 10,722 |  |  | $ | (1,608) |  |  | $ | 3,702 |  |  | $ | (2,752) |  |  |
|  | Amount of Gain (Loss) Recognized in Income |  | Amount of Gain (Loss) Recognized in Income |  | Location of Gain (Loss) Recognized in Income
(Dollars in thousands) |  | Three Months Ended September 30, |  | Nine Months Ended September 30, |  |
Derivatives not designated as hedging instruments |  | 2024 |  | 2023 |  | 2024 |  | 2023 |  |
Interest rate swaps and options |  | $ | 2,774 |  |  | $ | 3,427 |  |  | $ | 7,928 |  |  | $ | 7,397 |  |  | Other income
Interest rate lock commitments with customers |  | 143 |  |  | (171) |  |  | 399 |  |  | 116 |  |  | Mortgage banking activities, net
Forward sale commitments |  | (977) |  |  | 595 |  |  | (733) |  |  | $ | 660 |  |  | Mortgage banking activities, net
FX forwards |  | 91 |  |  | 97 |  |  | 370 |  |  | 126 |  |  | Other income
Risk participation agreements |  | (62) |  |  | (317) |  |  | (97) |  |  | (330) |  |  | Other income
Total |  | $ | 1,969 |  |  | $ | 3,631 |  |  | $ | 7,867 |  |  | $ | 7,969 |  |  |
Derivatives Designated as Hedging Instruments: Cash Flow Hedges of Interest Rate Risk The Company's objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate options, including floors, caps, collars, or swaps as part of its interest rate risk management strategy. Interest rate options designated as cash flow hedges involve the receipt of fixed amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has agreements with certain derivative counterparties that contain a provision under which, if it 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 also has agreements with certain derivative counterparties that contain a provision where if it fails to maintain its status as a well-capitalized or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of September 30, 2024, the Company had 18 interest rate floors purchased at an aggregate premium of $29.7 million with an aggregate notional amount of $1.5 billion to hedge variable cash flows associated with a variable rate loan pool through the third quarter of 2027. Changes to the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings in the period that the hedged forecast transaction affects earnings. If the Company determines that a cash flow hedge is no longer highly effective, future changes in the fair value of the hedging instrument would be reported in earnings. As of September 30, 2024, the Company determined the cash flow hedges remain highly effective. During the three and nine months ended September 30, 2024, $1.3 million and $3.1 million, respectively, of amortization expense on the premium was reclassified into interest income compared to $0.4 million and $0.6 million during the three and nine months ended September 30, 2023, respectively. The Company does not expect any unrealized gains or losses related to cash flow hedges to be reclassified into earnings in the next twelve months. Derivatives Not Designated as Hedging Instruments: Customer Derivatives – Interest Rate Swaps The Company enters into interest rate swaps with commercial loan customers wishing to manage interest rate risk. The Company then enters into corresponding swap agreements with swap dealer counterparties to economically hedge the exposure arising from these contracts. The interest rate swaps with both the customers and third parties are not designated as hedges under ASC 815, Derivatives and Hedging (ASC 815) and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC 820. As of September 30, 2024, there were no fair value adjustments related to credit quality. Derivative Financial Instruments from Mortgage Banking Activities Derivative financial instruments related to mortgage banking activities are recorded at fair value and are not designated as accounting hedges. This includes commitments to originate certain fixed-rate residential mortgage loans to customers, also referred to as interest rate lock commitments. The Company may also enter into forward sale commitments to sell loans to investors at a fixed price at a future date and trade asset-backed securities to mitigate interest rate risk. Foreign Exchange Forward Contracts The Company enters into foreign exchange forward contracts (FX forwards) with customers to exchange one currency for another on an agreed date in the future at an agreed exchange rate. The Corporation then enters into corresponding FX forwards with swap dealer counterparties to economically hedge its exposure on the exchange rate component of the customer agreements. The FX forwards with both the customers and third parties are not designated as hedges under ASC 815 and are marked to market through earnings. Exposure to gains and losses on these contracts increase or decrease over their respective lives as currency exchange and interest rates fluctuate. As the FX forwards are structured to offset each other, changes to the underlying term structure of currency exchange rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC 820. As of September 30, 2024, there were no fair value adjustments related to credit quality. Risk Participation Agreements The Company may enter into a risk participation agreement (RPA) with another institution as a means to assume a portion of the credit risk associated with a loan structure which includes a derivative instrument, in exchange for fee income commensurate with the risk assumed. This type of derivative is referred to as an “RPA sold.” In addition, in an effort to reduce the credit risk associated with an interest rate swap agreement with a borrower for whom the Corporation has provided a loan structured with a derivative, the Corporation may purchase an RPA from an institution participating in the facility in exchange for a fee commensurate with the risk shared. This type of derivative is referred to as an “RPA purchased.” Swap Guarantees The Company entered into agreements with one unrelated financial institution whereby that financial institution entered into interest rate derivative contracts (interest rate swap transactions) directly with customers referred to them by the Company. Under the terms of the agreements, the financial institution has recourse to us for any exposure created under each swap transaction, only in the event that the customer defaults on the swap agreement and the agreement is in a paying position to the third-party financial institution. This is a customary arrangement that allows us to provide access to interest rate swap transactions for our customers without creating the swap ourselves. These swap guarantees are accounted for as credit derivatives. At September 30, 2024 and December 31, 2023, there were 161 and 188 variable-rate to fixed-rate swap transactions between the third-party financial institutions and the Company's customers, respectively. The initial notional aggregate amount was approximately $0.7 billion at September 30, 2024 and December 31, 2023. At September 30, 2024, the swap transactions remaining maturities ranged from under 1 year to 11 years. At September 30, 2024, one of these customer swaps was in a paying position to third parties for less than $0.1 million, with our swap guarantees having a fair value of $6.0 million. At December 31, 2023, none of these customer swaps were in a paying position to third parties, with the Company's swap guarantees having a fair value of $7.3 million. For both periods, none of the Company's customers were in default of the swap agreements. Credit-risk-related Contingent Features The Company has agreements with certain derivative counterparties that contain a provision under which, if it 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 minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $3.7 million in cash against its obligations under these agreements which meets or exceeds the minimum collateral posting requirements. 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 the 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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