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Derivative Financial Instruments | 12 Months Ended
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Dec. 31, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Note 17. Derivative Financial Instruments The notional amount and fair value of the Company’s derivative financial instruments as of December 31, 2021, and December 31, 2020, were as follows:
|  | December 31, 2021 |  |  | December 31, 2020 |
(dollars in thousands) |  | Notional Amount |  |  | Fair Value |  |  | Notional Amount |  |  | Fair Value |
Interest Rate Lock Commitments |  | $ | 45,857 |  |  | $ | 1,084 |  |  | $ | 102,881 |  |  | $ | 4,947 |
Forward Commitments |  |  | 58,523 |  |  |  | (35 | ) |  |  | 158,759 |  |  |  | (740 | )
Interest Rate Swap Agreements |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Receive Fixed/Pay Variable Swaps |  |  | 1,400,322 |  |  |  | 28,742 |  |  |  | 1,362,778 |  |  |  | 90,130 |
Pay Fixed/Receive Variable Swaps |  |  | 1,400,322 |  |  |  | (5,922 | ) |  |  | 1,362,778 |  |  |  | (17,197 | )
Foreign Exchange Contracts |  |  | 102,548 |  |  |  | (674 | ) |  |  | 90,587 |  |  |  | 866 |
Conversion Rate Swap Agreement |  |  | 131,672 |  |  |  | — |  |  |  | 133,286 |  |  |  | — |
The following table presents the Company’s derivative financial instruments, their fair values, and their location in the consolidated statements of condition as of December 31, 2021, and December 31, 2020:
|  | December 31, 2021 |  |  | December 31, 2020 |
Derivative Financial Instruments Not Designated as Hedging Instruments 1 (dollars in thousands) |  | Asset Derivatives |  |  | Liability Derivatives |  |  | Asset Derivatives |  |  | Liability Derivatives |
Interest Rate Lock Commitments |  | $ | 1,084 |  |  | $ | — |  |  | $ | 4,947 |  |  | $ | — |
Forward Commitments |  |  | 17 |  |  |  | 52 |  |  |  | — |  |  |  | 740 |
Interest Rate Swap Agreements |  |  | 40,733 |  |  |  | 17,913 |  |  |  | 90,342 |  |  |  | 17,409 |
Foreign Exchange Contracts |  |  | 177 |  |  |  | 851 |  |  |  | 878 |  |  |  | 12 |
Total |  | $ | 42,011 |  |  | $ | 18,816 |  |  | $ | 96,167 |  |  | $ | 18,161 |
1 | Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the consolidated statements of condition.
The following table presents the Company’s derivative financial instruments and the amount and location of the net gains or losses recognized in the consolidated statements of income for the years ended December 31, 2021, December 31, 2020, and December 31, 2019:
|  | Location of Net Gains |  | Year Ended December 31, |
Derivative Financial Instruments Not Designated as Hedging Instruments (dollars in thousands) |  | (Losses) Recognized in the Statements of Income |  | 2021 |  |  | 2020 |  |  | 2019 |
Interest Rate Lock Commitments |  | Mortgage Banking |  | $ | 8,771 |  |  | $ | 22,348 |  |  | $ | 12,185 |
Forward Commitments |  | Mortgage Banking |  |  | 1,580 |  |  |  | (4,274 | ) |  |  | (2,340 | )
Interest Rate Swap Agreements |  | Other Noninterest Income |  |  | 6,579 |  |  |  | 15,468 |  |  |  | 7,172 |
Foreign Exchange Contracts |  | Other Noninterest Income |  |  | 1,462 |  |  |  | 1,940 |  |  |  | 2,891 |
Conversion Rate Swap Agreement |  | Investment Securities Gains (Losses), Net |  |  | — |  |  |  | — |  |  |  | (453 | )
Total |  |  |  | $ | 18,392 |  |  | $ | 35,482 |  |  | $ | 19,455 |
Management has received authorization from the Bank’s Board of Directors to use derivative financial instruments as an end-user in connection with the Bank’s risk management activities and to accommodate the needs of the Bank’s customers. As with any financial instrument, derivative financial instruments have inherent risks. Market risk is defined as the risk of adverse financial impact due to fluctuations in interest rates, foreign exchange rates, and equity prices. Market risks associated with derivative financial instruments are balanced with the expected returns to enhance earnings performance and shareholder value, while limiting the volatility of each. The Company uses various processes to monitor its overall market risk exposure, including sensitivity analysis, value-at-risk calculations, and other methodologies. Derivative financial instruments are also subject to credit and counterparty risk, which is defined as the risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle transactions in accordance with the underlying contractual terms. Credit and counterparty risks associated with derivative financial instruments are similar to those relating to traditional financial instruments. The Company manages derivative credit and counterparty risk by evaluating the creditworthiness of each borrower or counterparty, adhering to the same credit approval process used for commercial lending activities. As of December 31, 2021, and December 31, 2020, the Company did not designate any derivative financial instruments as formal hedging relationships. The Company’s free-standing derivative financial instruments are required to be carried at their fair value on the Company’s consolidated statements of condition. These financial instruments have been limited to interest rate lock commitments (“IRLCs”), forward commitments, interest rate swap agreements, foreign exchange contracts, and conversion rate swap agreements. Interest Rate Lock Commitments/Forward Commitments The Company enters into IRLCs for residential mortgage loans which commit us to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose the Company to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. To mitigate this risk, the Company utilizes forward commitments as economic hedges against the potential decreases in the values of the loans held for sale. IRLCs and forward commitments are free-standing derivatives which are carried at fair value with changes recorded in the mortgage banking component of noninterest income in the Company’s consolidated statements of income. Interest Rate Swap Agreements The Company enters into swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. The Company mitigates the interest rate risk of entering into these agreements by entering into equal and offsetting interest rate swap agreements with highly rated third party financial institutions. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated statements of condition (asset positions are included in other assets and liability positions are included in other liabilities). Fair value changes are recorded in other noninterest income in the Company’s consolidated statements of income. The Company is party to master netting arrangements with its financial institution counterparties; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Collateral, usually in the form of marketable securities, is posted by the party (i.e., the Company or the financial institution counterparty) with net liability positions in accordance with contract thresholds. The Company had a net liability positions with its financial institution counterparties totaling $5.9 million and $17.2 million as of December 31, 2021, and December 31, 2020, respectively. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in value of the derivative. Effective 2017, these payments, commonly referred to as variation margin, will be recorded as settlements of the derivatives’ mark-to-market exposure rather than collateral against the exposures. This rule change effectively results in any centrally cleared derivative having a fair value that approximates zero on a daily basis. Substantially all of the Company’s swap agreements originated after the rule change are centrally cleared. The uncleared swap agreements executed with third party financial institutions will remain subject to the collateral requirements and credit-risk-related contingent features described in the previous paragraphs, and therefore, are not subject to the variation margin rule change. Likewise, the swap agreements executed with the Company’s commercial banking customers will remain uncleared and will also not be subject to the variation margin rule change. See Note 19 to the Consolidated Financial Statements for more information on the interest rate swap agreements. Foreign Exchange Contracts The Company utilizes foreign exchange contracts to offset risks related to transactions executed on behalf of customers. The foreign exchange contracts are free-standing derivatives which are carried at fair value with changes included in other noninterest income in the Company’s consolidated statements of income. Conversion Rate Swap Agreements As certain sales of Visa Class B restricted shares were completed, the Company entered into a conversion rate swap agreement with the buyer that requires payment to the buyer in the event Visa further reduces the conversion rate of Class B into Class A unrestricted common shares. In the event of Visa increasing the conversion rate, the buyer would be required to make payment to the Company. As of December 31, 2021, and December 31, 2020, the conversion rate swap agreements were valued at zero (i.e., no contingent liability recorded) as further reductions to the conversion rate were deemed neither probable nor reasonably estimable by management. See Note 3 Investment Securities for more information.

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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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