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Derivative Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES Derivatives Not Designated as Hedging Instruments Interest Rate Contracts with Customers Interest rate swaps with customers are contracts in which a series of cash flows (fixed and variable) are exchanged over a prescribed period. The notional amounts on which the interest payments are based are not exchanged. These derivative positions relate to transactions in which we enter into an interest rate swap with a commercial customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each transaction, we agree to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed rate. At the same time, we agree to pay another financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our customer to effectively convert a variable rate loan to a fixed rate loan with us receiving a variable rate. These agreements could have floors or caps on the contracted interest rates. Interest rate swaps with customers are considered derivatives but are not accounted for using hedge accounting. As such, changes in the estimated fair value of the derivatives are recorded in current earnings and included in other noninterest income in the Condensed Consolidated Statements of Comprehensive Income (Loss). Interest Rate Lock Commitments and Forward Sale Contracts In the normal course of business, we sell originated mortgage loans into the secondary mortgage loan market. We also offer interest rate lock commitments to potential borrowers. The commitments are generally for a period of 60 days and guarantee a specified interest rate for a loan if underwriting standards are met, but the commitment does not obligate the potential borrower to close on the loan. Accordingly, some commitments expire prior to becoming loans. We may encounter pricing risks if interest rates increase significantly before the loan can be closed and sold. We may utilize forward sale contracts in order to mitigate this pricing risk. Whenever a customer desires these products, a mortgage originator quotes a secondary market rate guaranteed for that day by the investor. The rate lock is executed between the mortgagee and us and in turn a forward sale contract may be executed between us and the investor. Both the rate lock commitment and the corresponding forward sale contract for each customer are considered derivatives but are not accounted for using hedge accounting. As such, changes in estimated fair value of the derivatives during the commitment period are recorded in current earnings and included in mortgage banking in the Condensed Consolidated Statements of Comprehensive Income (Loss). Derivatives Designated as Hedging Instruments Cash Flow Hedges of Interest Rate Risk As part of our interest rate risk management strategy, we use interest rate swaps to add stability to interest income and to manage exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for making variable rate payments over the life of the agreements without exchange of the underlying notional amount. During the three months ended March 31, 2022, we entered into four interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing variable-rate assets. These contacts each have a notional value of $50.0 million and extend out over the next five years. For designated derivatives that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest income as interest payments are received on variable rate assets. During the next twelve months, we estimate that an additional $0.6 million will be reclassified as an increase to interest income. The following table indicates the amounts representing the value of derivative assets and derivative liabilities for the dates presented:
| Derivative Assets (Included in Other Assets) |  | Derivative Liabilities (Included in Other Liabilities) |  |
| March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021 |  |
(dollars in thousands) | Notional Amount | Fair Value |  | Notional Amount | Fair Value |  | Notional Amount | Fair Value |  | Notional Amount | Fair Value |  |
Derivatives Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts - cash flow hedge | $ | 50,000 |  | $ | 135 |  |  |  | $ | — |  |  | $ | 150,000 |  | $ | 2,600 |  |  |  | $ | — |  |  |
Total Derivatives Designated as Hedging Instruments |  | $ | 135 |  |  |  | $ | — |  |  |  | $ | 2,600 |  |  |  | $ | — |  |  |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts - commercial customers | $ | 1,034,249 |  | $ | 29,056 |  |  | $ | 1,017,178 |  | $ | 33,528 |  |  | $ | 1,034,249 |  | $ | 29,092 |  |  | $ | 1,017,178 |  | $ | 33,361 |  |  |
Interest rate lock commitments - mortgage loans | 13,901 |  | 185 |  |  | 12,148 |  | 401 |  |  | — |  | — |  |  |  | — |  |  |
Forward sales contracts - mortgage loans | 13,503 |  | 192 |  |  | 8,436 |  | 4 |  |  | — |  | — |  |  |  | — |  |  |
Total Derivatives Not Designated as Hedging Instruments |  | $ | 29,433 |  |  |  | $ | 33,933 |  |  |  | $ | 29,092 |  |  |  | $ | 33,361 |  |  |
Total Derivatives |  | $ | 29,568 |  |  |  | $ | 33,933 |  |  |  | $ | 31,692 |  |  |  | $ | 33,631 |  |  |
The following table indicates the gross amounts of interest rate swap derivative assets and derivative liabilities, the amounts offset and the carrying values in the Consolidated Balance Sheets at March 31, 2022:
| Derivatives (included in Other Assets) |  | Derivatives (included in Other Liabilities)
(dollars in thousands) | March 31, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
Gross amounts recognized | $ | 34,957 |  |  | $ | 37,289 |  |  | $ | 37,402 |  |  | $ | 37,392 |
Gross amounts offset | (5,766) |  |  | (3,761) |  |  | (5,710) |  |  | (3,761) |
Net amounts presented in the Consolidated Balance Sheets | 29,191 |  |  | 33,528 |  |  | 31,692 |  |  | 33,631 |
Cash collateral received/pledged(1) | (23,501) |  |  | — |  |  | — |  |  | (33,631) |
Net Amount | $ | 5,690 |  |  | $ | 33,528 |  |  | $ | 31,692 |  |  | $ | — |
(1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.
The following table presents the effect of the cash flow hedges on OCI and on the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021.
| Amount of Gain or (Loss) Recognized in Other Comprehensive Income |  | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Income
(dollars in thousands) | March 31, 2022 |  | March 31, 2021 |  | March 31, 2022 |  | March 31, 2021
Derivatives in Cash Flow Hedging Relationships: |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts - cash flow hedge |  | $ | (2,601) |  |  |  | $ | — |  |  |  | $ | 137 |  |  |  | $ | — |
Total |  | $ | (2,601) |  |  |  | $ | — |  |  |  | $ | 137 |  |  |  | $ | — |
The following table indicates the gain or loss recognized in income on derivatives for the periods presented:
| Three Months Ended March 31, |  |  |
(dollars in thousands) | 2022 |  | 2021 |  |  |  |  |
Derivatives not Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap contracts—commercial customers |  | $ | 68 |  |  |  | $ | 310 |  |  |  |  |  |  |  |
Interest rate lock commitments—mortgage loans |  | (217) |  |  |  | (1,759) |  |  |  |  |  |  |  |
Forward sale contracts—mortgage loans |  | 188 |  |  |  | 979 |  |  |  |  |  |  |  |
Total Derivatives Gain/(Loss) |  | $ | 39 |  |  |  | $ | (470) |  |  |  |  |  |  |  |

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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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