XML 30 R18.htm IDEA: XBRL DOCUMENT
v3.10.0.1

Derivative Instruments and Hedging Activities | 3 Months Ended
--- | ---
Mar. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Risk Management Objectives of Using Derivatives Customers is exposed to certain risks arising from both its business operations and economic conditions. Customers manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and durations of its assets and liabilities. Specifically, Customers enters into derivative financial instruments to manage 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. Customers' derivative financial instruments are used to manage differences in the amount, timing, and duration of Customers' known or expected cash receipts and its known or expected cash payments principally related to certain borrowings. Customers also has interest-rate derivatives resulting from a service provided to certain qualifying customers, and therefore, they are not used to manage Customers' interest-rate risk in assets or liabilities. Customers manages a matched book with respect to its derivative instruments used in this customer service in order to minimize its net risk exposure resulting from such transactions. Cash Flow Hedges of Interest Rate Risk Customers' objectives in using interest-rate derivatives are to add stability to interest expense and to manage exposure to interest-rate movements. To accomplish this objective, Customers primarily uses interest rate swaps as part of its interest-rate-risk management strategy. Interest-rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for Customers making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To date, such derivatives were used to hedge the variable cash flows associated with the forecasted issuances of debt. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on Customers' variable-rate debt. Customers expects to reclassify $0.8 million from accumulated other comprehensive income as a reduction to interest expense during the next 12 months. Customers is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 27 months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments). At March 31, 2018, Customers had eleven outstanding interest rate derivatives with notional amounts totaling $960.0 million that were designated as cash flow hedges of interest rate risk. At December 31, 2017, Customers had nine outstanding interest rate derivatives with notional amounts totaling $550.0 million that were designated as cash flow hedges of interest rate risk. The outstanding cash flow hedges at March 31, 2018 expire between April 2018 and July 2021. Derivatives Not Designated as Hedging Instruments Customers executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies (typically the loan customers will swap a floating-rate loan for a fixed-rate loan). The customer interest rate swaps are simultaneously offset by interest rate swaps that Customers executes with a third party in order to minimize interest rate risk exposure resulting from such transactions. Because the interest rate swaps associated with this program do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third-party market swaps are recognized directly in earnings. At March 31, 2018, Customers had 84 interest rate swaps with an aggregate notional amount of $813.7 million related to this program. At December 31, 2017, Customers had 76 interest rate swaps with an aggregate notional amount of $800.5 million related to this program. Customers enters into residential mortgage loan commitments in connection with its consumer mortgage banking activities to fund mortgage loans at specified rates and times in the future. These commitments are short-term in nature and generally expire in 30 to 60 days. The residential mortgage loan commitments that relate to the origination of mortgage loans that will be held for sale are considered derivative instruments under the applicable accounting guidance and are reported at fair value, with changes in fair value recorded directly in earnings. At March 31, 2018 and December 31, 2017, Customers had an outstanding notional balance of residential mortgage loan commitments of $3.6 million and $2.7 million, respectively. Customers has also purchased and sold credit derivatives to either hedge or participate in the performance risk associated with some of its counterparties. These derivatives are not designated as hedging instruments and are reported at fair value, with changes in fair value recorded directly in earnings. At March 31, 2018 and December 31, 2017, Customers had outstanding notional balances of credit derivatives of $80.0 million and $80.5 million, respectively. Fair Value of Derivative Instruments on the Balance Sheet The following tables present the fair value of Customers' derivative financial instruments as well as their presentation on the balance sheet as of March 31, 2018 and December 31, 2017.
|  | March 31, 2018
|  | Derivative Assets |  | Derivative Liabilities
|  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
(amounts in thousands) |  |  |  |  |  |  |  |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 1,224 |  |  | Other liabilities |  | $ | 545 |
Total |  |  |  | $ | 1,224 |  |  |  |  | $ | 545 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 12,235 |  |  | Other liabilities |  | $ | 12,104 |
Credit contracts |  | Other assets |  | 64 |  |  | Other liabilities |  | 24 |
Residential mortgage loan commitments |  | Other assets |  | 83 |  |  | Other liabilities |  | — |
Total |  |  |  | $ | 12,382 |  |  |  |  | $ | 12,128 |
|  | December 31, 2017
|  | Derivative Assets |  | Derivative Liabilities
|  | Balance Sheet |  |  |  | Balance Sheet |  |
|  | Location |  | Fair Value |  | Location |  | Fair Value
(amounts in thousands) |  |  |  |  |  |  |  |
Derivatives designated as cash flow hedges: |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 816 |  |  | Other liabilities |  | $ | 1,140 |
Total |  |  |  | $ | 816 |  |  |  |  | $ | 1,140 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |
Interest rate swaps |  | Other assets |  | $ | 8,776 |  |  | Other liabilities |  | $ | 8,897 |
Credit contracts |  | Other assets |  | 100 |  |  | Other liabilities |  | 37 |
Residential mortgage loan commitments |  | Other assets |  | 60 |  |  | Other liabilities |  | — |
Total |  |  |  | $ | 8,936 |  |  |  |  | $ | 8,934 |
Effect of Derivative Instruments on Comprehensive Income The following tables present the effect of Customers' derivative financial instruments on comprehensive income for the three months ended March 31, 2018 and 2017.
| Three Months Ended March 31, 2018
| Income Statement Location |  | Amount of Income (Loss) Recognized in Earnings
(amounts in thousands) |  |  |
Derivatives not designated as hedging instruments: |  |  |
Interest rate swaps | Other non-interest income |  | $ | 385 |
Credit contracts | Other non-interest income |  | (23 | )
Residential mortgage loan commitments | Mortgage banking income |  | 23 |
Total |  |  | $ | 385 |
| Three Months Ended March 31, 2017
| Income Statement Location |  | Amount of Income (Loss) Recognized in Earnings
(amounts in thousands) |  |  |
Derivatives not designated as hedging instruments: |  |  |
Interest rate swaps | Other non-interest income |  | $ | 483 |
Credit contracts | Other non-interest income |  | — |
Residential mortgage loan commitments | Mortgage banking income |  | 50 |
Total |  |  | $ | 533 |
| Three Months Ended March 31, 2018
| Amount of Gain Recognized in OCI on Derivatives (1) |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Loss Reclassified from Accumulated OCI into Income
(amounts in thousands) |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |
Interest rate swaps | $ | 646 |  |  | Interest expense |  | $ | (131 | )
| Three Months Ended March 31, 2017
| Amount of Gain Recognized in OCI on Derivatives (1) |  | Location of Gain (Loss) Reclassified from Accumulated OCI into Income |  | Amount of Loss Reclassified from Accumulated OCI into Income
(amounts in thousands) |  |  |  |  |
Derivatives in cash flow hedging relationships: |  |  |  |  |
Interest rate swaps | $ | 201 |  |  | Interest expense |  | $ | (827 | )
(1) Amounts presented are net of taxes. See NOTE 5 - CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME for total effect on other comprehensive income from derivatives designated as cash flow hedges for the periods presented.
Credit-risk-related Contingent Features By entering into derivative contracts, Customers is exposed to credit risk. The credit risk associated with derivatives executed with customers is the same as that involved in extending the related loans and is subject to the same standard credit policies. To mitigate the credit-risk exposure to major derivative dealer counterparties, Customers only enters into agreements with those counterparties that maintain credit ratings of high quality. Agreements with major derivative dealer counterparties contain provisions whereby default on any of Customers' indebtedness would be considered a default on its derivative obligations. Customers also has entered into agreements that contain provisions under which the counterparty could require Customers to settle its obligations if Customers fails to maintain its status as a well/adequately capitalized institution. As of March 31, 2018, the fair value of derivatives in a net liability position (which includes accrued interest but excludes any adjustment for nonperformance-risk) related to these agreements was $0.2 million. In addition, Customers has minimum collateral posting thresholds with certain of these counterparties and at March 31, 2018 had posted $0.4 million of cash as collateral. Customers records cash posted as collateral as a reduction in the outstanding balance of cash and cash equivalents and an increase in the balance of other assets. Disclosures about Offsetting Assets and Liabilities The following tables present derivative instruments that are subject to enforceable master netting arrangements. Customers' interest rate swaps with institutional counterparties are subject to master netting arrangements and are included in the table below. Interest rate swaps with commercial banking customers and residential mortgage loan commitments are not subject to master netting arrangements and are excluded from the table below. Customers has not made a policy election to offset its derivative positions. Offsetting of Financial Assets and Derivative Assets At March 31, 2018
| Gross Amount of Recognized Assets |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Assets Presented in the Consolidated Balance Sheet |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  | Net Amount
| Financial Instruments |  | Cash Collateral Received |
(amounts in thousands) |  |  |  |  |  |  |  |  |  |  |
Description |  |  |  |  |  |  |  |  |  |  |
Interest rate swap derivatives with institutional counterparties | $ | 11,716 |  |  | $ | — |  |  | $ | 11,716 |  |  | $ | — |  |  | $ | 9,240 |  |  | $ | 2,476 |
Offsetting of Financial Liabilities and Derivative Liabilities At March 31, 2018
| Gross Amount of Recognized Liabilities |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  |
| Financial Instruments |  | Cash Collateral Pledged |  | Net Amount
(amounts in thousands) |  |  |  |  |  |  |  |  |  |  |
Description |  |  |  |  |  |  |  |  |  |  |
Interest rate swap derivatives with institutional counterparties | $ | 2,405 |  |  | $ | — |  |  | $ | 2,405 |  |  | $ | — |  |  | $ | 352 |  |  | $ | 2,053 |
Offsetting of Financial Assets and Derivative Assets At December 31, 2017
| Gross Amount of Recognized Assets |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Assets Presented in the Consolidated Balance Sheet |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  | Net Amount
| Financial Instruments |  | Cash Collateral Received |
(amounts in thousands) |  |  |  |  |  |  |  |  |  |  |
Description |  |  |  |  |  |  |  |  |  |  |
Interest rate swap derivatives with institutional counterparties | $ | 5,930 |  |  | $ | — |  |  | $ | 5,930 |  |  | $ | — |  |  | $ | 5,070 |  |  | $ | 860 |
Offsetting of Financial Liabilities and Derivative Liabilities At December 31, 2017
| Gross Amount of Recognized Liabilities |  | Gross Amounts Offset in the Consolidated Balance Sheet |  | Net Amounts of Liabilities Presented in the Consolidated Balance Sheet |  | Gross Amounts Not Offset in the Consolidated Balance Sheet |  | Net Amount
| Financial Instruments |  | Cash Collateral Pledged |
(amounts in thousands) |  |  |  |  |  |  |  |  |  |  |
Description |  |  |  |  |  |  |  |  |  |  |
Interest rate swap derivatives with institutional counterparties | $ | 5,058 |  |  | $ | — |  |  | $ | 5,058 |  |  | $ | — |  |  | $ | 4,872 |  |  | $ | 186 |

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration