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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 | Note 11. Derivative Financial Instruments The Company uses derivative instruments to manage its exposure to market risks, including interest rate risk, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, while other derivatives serve as economic hedges that do not qualify for hedge accounting. The notional amount and fair value of the Company’s derivative financial instruments as of September 30, 2024, and December 31, 2023 were as follows:
|  | September 30, 2024 |  |  | December 31, 2023 |
(dollars in thousands) |  | Notional Amount |  |  | Fair Value |  |  | Notional Amount |  |  | Fair Value |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Swap Agreements 1 |  | $ | 2,800,000 |  |  | $ | (40,563 | ) |  | $ | 3,000,000 |  |  | $ | (48,672 | )
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Lock Commitments |  |  | 9,149 |  |  |  | 152 |  |  |  | 5,899 |  |  |  | 148 |
Forward Commitments |  |  | 12,635 |  |  |  | 3 |  |  |  | 8,583 |  |  |  | (105 | )
Interest Rate Swap Agreements |  |  |  |  |  |  |  |  |  |  |  |
Receive Fixed/Pay Variable Swaps |  |  | 2,066,209 |  |  |  | (76,476 | ) |  |  | 2,067,624 |  |  |  | (114,701 | )
Pay Fixed/Receive Variable Swaps |  |  | 2,066,209 |  |  |  | 76,324 |  |  |  | 2,067,624 |  |  |  | 114,542 |
Foreign Exchange Contracts |  |  | 224 |  |  |  | (2 | ) |  |  | 745 |  |  |  | — |
Conversion Rate Swap Agreements 2 |  |  | 85,114 |  |  | NA |  |  |  | 155,196 |  |  | NA |
Makewhole Agreements 3 |  |  | 58,317 |  |  | NA |  |  |  | — |  |  | NA |
1 As of September 30, 2024, the amounts presented in the table above excluded forward starting swaps with a notional value of $300 million and a fair value of ($0.1) million. These swaps are scheduled to begin between August 2025 and March 2026 upon maturity of currently active swaps with a notional value of $300 million. 2 The conversion rate swap agreements we re valued at zero as further reductions to the conversion rate were not reasonably estimable. 3 The makewhole agreements were valued at zero as the like lihood of a payment required to the counterparty were not reasonably estimable. The following table presents the Company’s derivative financial instruments, their fair values, and their location in the unaudited consolidated statements of condition as of September 30, 2024 and December 31, 2023:
|  | September 30, 2024 |  |  | December 31, 2023 |
|  | Asset |  |  | Liability |  |  | Asset |  |  | Liability |
(dollars in thousands) |  | Derivatives 1 |  |  | Derivatives 1 |  |  | Derivatives 1 |  |  | Derivatives 1 |
Interest Rate Swap Agreements |  |  |  |  |  |  |  |  |  |  |  |
Not designated as hedging instruments |  | $ | 114,914 |  |  | $ | 115,066 |  |  | $ | 143,593 |  |  | $ | 143,752 |
Designated as hedging instruments |  |  | (40,679 | ) |  |  | — |  |  |  | (48,672 | ) |  |  | — |
|  |  | 74,235 |  |  |  | 115,066 |  |  |  | 94,921 |  |  |  | 143,752 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Lock Commitments |  |  | 158 |  |  |  | 6 |  |  |  | 148 |  |  |  | — |
Forward Commitments |  |  | 21 |  |  |  | 18 |  |  |  | — |  |  |  | 105 |
Foreign Exchange Contracts |  |  | — |  |  |  | 2 |  |  |  | — |  |  |  | — |
Total Derivatives |  | $ | 74,414 |  |  | $ | 115,092 |  |  | $ | 95,069 |  |  | $ | 143,857 |
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the unaudited consolidated statements of condition. The Company’s free-standing derivative financial instruments are carried at fair value on the Company’s unaudited 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 unaudited consolidated statements of income for the three and nine months ended September 30, 2024 and 2023:
|  | Location of |  |  |  |  |  |  |  |  |  |  |  |
|  | Net Gains (Losses) |  | Three Months Ended |  |  | Nine Months Ended |
|  | Recognized in the |  | September 30, |  |  | September 30, |
(dollars in thousands) |  | Statements of Income |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |
Recognized on Interest Rate Swap Agreements |  | Interest Income on Investment Securities Available-for-Sale |  | $ | (22,380 | ) |  | $ | 4,954 |  |  | $ | (2,405 | ) |  | $ | 4,954 |
Recognized on Hedged Item |  | Interest Income on Investment Securities Available-for-Sale |  |  | 22,435 |  |  |  | (5,035 | ) |  |  | 2,288 |  |  |  | (5,035 | )
Recognized on Interest Rate Swap Agreements |  | Interest and Fees on Loans and Leases |  |  | (31,458 | ) |  |  | 2,828 |  |  |  | (4,634 | ) |  |  | 3,262 |
Recognized on Hedged Item |  | Interest and Fees on Loans and Leases |  |  | 31,781 |  |  |  | (2,885 | ) |  |  | 4,721 |  |  |  | (3,321 | )
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest Rate Lock Commitments |  | Mortgage Banking |  |  | 506 |  |  |  | 75 |  |  |  | 751 |  |  |  | 553 |
Forward Commitments |  | Mortgage Banking |  |  | (137 | ) |  |  | 199 |  |  |  | 79 |  |  |  | 260 |
Interest Rate Swap Agreements |  | Other Noninterest Income |  |  | (47 | ) |  |  | 21 |  |  |  | 6 |  |  |  | 3 |
Foreign Exchange Contracts |  | Other Noninterest Income |  |  | 1,109 |  |  |  | 816 |  |  |  | 3,349 |  |  |  | 2,460 |
Conversion Rate Swap Agreement |  | Investment Securities Gains (Losses), Net |  |  | — |  |  |  | (798 | ) |  |  | — |  |  |  | (1,362 | )
Total |  |  |  | $ | 1,809 |  |  | $ | 175 |  |  | $ | 4,155 |  |  | $ | 1,774 |
The following amounts were recorded on the unaudited consolidated statements of condition related to the cumulative basis adjustment for fair value hedges as of September 30, 2024 and December 31, 2023:
Derivative Financial Instruments |  |  |  |  |  |  |  |  |
Designated as Hedging Instruments |  |  |  |  |  |  |  |  |
Line Item in the Unaudited Consolidated Statements of Condition | Carrying Amount of the Hedged Assets |  |  | Cumulative Amount of Fair Value Hedging Adjustment Included In the Carrying Amount of the Hedged Assets |
(dollars in thousands) | September 30, 2024 |  | December 31, 2023 |  |  | September 30, 2024 |  | December 31, 2023 |
Investment Securities, Available-for-Sale 1 | $ | 1,622,548 |  | $ | 1,320,260 |  |  | $ | 22,548 |  | $ | 20,260 |
Loans and Leases 2 |  | 1,517,866 |  |  | 1,728,386 |  |  |  | 17,866 |  |  | 28,386 |
1 These amounts were included in the fair value o f closed portfolios of investment securities, AFS used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. As of September 30, 2024 and December 31, 2023, the fair value of the closed portfolios used in these hedging relationships was $1.7 billion and $1.8 billion, respectively. 2 These amounts were included in the amortized cost basis of closed portfolios of loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. As of September 30, 2024 and December 31, 2023 the amortized cost basis of the closed portfolios used in these hedging relationships was $3.0 billion and $3.2 billion, respectively. Derivatives Not Designated as Hedging Instruments Interest Rate Swap Agreements The Company enters into interest rate swap agreements to facilitate the risk management strategies of a small number of commercial banking customers. The Company mitigates the 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 unaudited consolidated statements of condition (asset positions are included in other assets and liability positions are included in other liabilities). 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 cash 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 net asset positions with its financial institution counterparties totalin g $76.3 million and $114.5 million as of September 30, 2024 and December 31, 2023, respectively. 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 ratio of Class B into Class A unrestricted common shares. In the event of Visa increasing the conversion ratio, the buyer would be required to make payment to the Company. As of September 30, 2024 and December 31, 2023, the conversion rate swap agreement was valued at zero (i.e., no contingent liability recorded) as further reductions to the conversion ratio were deemed not reasonably estimable by management. Makewhole Agreements In May 2024, the Company entered into makewhole agreements with certain buyers of its Visa Class B restricted shares that reduces the payments that would be required pursuant to the conversion rate swap agreement described above, but would require payment to the buyer in the event Visa requires additional legal reserves to settle ongoing litigation. As of September 30, 2024, the makewhole agreements were valued at zero (i.e., no contingent liability recorded) as the likelihood of the Company being required to make a payment to the buyer is not reasonably estimable by management. Derivatives Designated as Hedging Instruments Fair Value Hedges The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company entered into pay-fixed and receive-floating interest rate swaps to manage its exposure to changes in fair value of its AFS investment securities and fixed rate loans. These interest rate swaps are designated as fair value hedges using the portfolio layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s unaudited consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s unaudited consolidated statements of income.

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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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