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Derivative Instruments and Hedge Activities | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedge Activities | Note 16—Derivative Instruments and Hedge Activities As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. The Company records derivative assets and derivative liabilities on the Consolidated Statements of Financial Condition within accrued interest receivable and other assets and accrued interest payable and other liabilities, respectively. The following tables present the fair value of the Company’s derivative financial instruments and classification on the Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020:
|  | September 30, 2021 |  |  | December 31, 2020 |
|  |  |  |  | Fair Value |  |  |  |  |  | Fair Value |
|  | Notional Amount |  |  | Other Assets |  |  | Other Liabilities |  |  | Notional Amount |  |  | Other Assets |  |  | Other Liabilities |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps designated as cash flow hedges |  |  | 400,000 |  |  | $ | 1,799 |  |  | $ | (192 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other interest rate derivatives |  |  | 458,698 |  |  |  | 11,664 |  |  |  | (12,148 | ) |  |  | 383,410 |  |  |  | 17,149 |  |  |  | (18,116 | )
Other credit derivatives |  |  | 7,788 |  |  |  | — |  |  |  | (8 | ) |  |  | 8,437 |  |  |  | — |  |  |  | (17 | )
Total derivatives |  | $ | 866,486 |  |  | $ | 13,463 |  |  | $ | (12,348 | ) |  | $ | 391,847 |  |  | $ | 17,149 |  |  | $ | (18,133 | )
Interest rate swaps designated as cash flow hedges—Cash flow hedges of interest payments associated with certain other borrowings had notional amounts totaling $400.0 million as of September 30, 2021. There were no cash flow hedges outstanding at December 31, 2020. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value of the derivatives hedging instrument with the fair value of the designated hedged transactions. As of September 30, 2021, the cash flow hedges aggregating $400.0 million in notional amounts are comprised of five forward starting pay fixed interest rate swaps, of which one for $100.0 million is effective in March 2022; one for $50.0 million is effective in September 2022; two totaling $200.0 million are effective in March 2023; and one for $50.0 million is effective May 2023. Included in other comprehensive income is the remaining balance related to previously terminated interest rate swaps designated as cash flow hedges of $253,000 as of September 30, 2021 and $304,000 as of December 31, 2020. These are amortized over the original life of the cash flow hedge. Interest recorded on these swap transactions was $29,000 and $22,000 during the three months ended September 30, 2021, and 2020, respectively, and is reported as a component of interest expense on other borrowings. Interest recorded on these swap transactions was $71,000 and $64,000 during the nine months ended September 30, 2021, and 2020, respectively, and is reported as a component of interest expense on other borrowings. As of September 30, 2021, the Company estimates $868,000 of the unrealized loss to be reclassified as an increase to interest expense during the next twelve months. The following table reflects the cash flow hedges as of September 30, 2021:
Notional amounts |  | $ | 400,000 |
Derivative assets fair value |  |  | 1,799 |
Derivative liabilities fair value |  |  | 192 |
Weighted average maturity |  | 5.2 years |
The weighted average pay rates of the forward swaps are 0.98% and weighted average receive rates will be determined at the time the forward swaps become effective. The following table reflects the net gains (losses) recorded in accumulated other comprehensive income (loss) and the Consolidated Statements of Operations relating to the cash flow derivative instruments for the nine months ended:
|  | September 30, 2021 |  |  | September 30, 2020 |
|  | Amount of Loss Recognized in OCI |  |  | Amount of Loss Reclassified from OCI to Income as an Increase to Interest Expense |  |  | Amount of Gain (Loss) Recognized in Other Non-Interest Income |  |  | Amount of Loss Recognized in OCI |  |  | Amount of Loss Reclassified from OCI to Income as an Increase to Interest Expense |  |  | Amount of Gain (Loss) Recognized in Other Non-Interest Income |
Interest rate swaps |  | $ | 1,606 |  |  | $ | (71 | ) |  | $ | — |  |  | $ | — |  |  | $ | (64 | ) |  | $ | — |
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. Other interest rate derivatives—The total combined notional amount was $458.7 million as of September 30, 2021 with maturities ranging from January 2022 to September 2031. The fair values of the interest rate derivative agreements are reflected in other assets and other liabilities with corresponding gains or losses reflected in non-interest income. During the three months ended September 30, 2021 and 2020, there were $134,000 and $41,000 of net transaction fees, respectively, included in other non-interest income, related to these derivative instruments. During the nine months ended September 30, 2021 and 2020, there were $840,000 and $700,000 of net transaction fees, respectively, included in other non-interest income, related to these derivative instruments. These instruments are inherently subject to market risk and credit risk. Market risk is associated with changes in interest rates and credit risk relates to the Company’s risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Market and credit risks are managed and monitored as part of the Company’s overall asset-liability management process. The credit risk related to derivatives entered into with certain qualified borrowers is managed through the Company’s loan underwriting process. The Company’s loan underwriting process also approves the Bank’s swap counterparty used to mirror the borrowers’ swap. The Company has a bilateral agreement with each swap counterparty that provides that fluctuations in derivative values are to be fully collateralized with either cash or securities. The following table reflects other interest rate derivatives as of September 30, 2021:
Notional amounts |  | $ | 458,698 |
Derivative assets fair value |  |  | 11,664 |
Derivative liabilities fair value |  |  | 12,148 |
Weighted average pay rates |  |  | 4.23 | %
Weighted average receive rates |  |  | 3.03 | %
Weighted average maturity |  | 5.6 years |
Other credit derivatives— The Company has entered into risk participation agreements with counterparty banks to assume a portion of the credit risk related to borrower transactions. The credit risk related to these other credit derivatives is managed through the Company’s loan underwriting process. The total notional amount was $7.8 million and $8.4 million as of September 30, 2021 and December 31, 2020, respectively. The fair value of the other credit derivatives are reflected in other liabilities with corresponding gains or losses reflected in non-interest income. The Company has agreements with its derivative counterparties that contain a cross-default provision under which if the Company 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 the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations resulted in a net asset position. The following table reflects amounts included in non-interest income in the Consolidated Statements of Operations relating to derivative instruments that are not designated in a hedging relationship for the nine months ended September 30, 2021 and 2020:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Other interest rate derivatives |  | $ | 98 |  |  | $ | 113 |  |  | $ | 482 |  |  | $ | (627 | )
Other credit derivatives |  |  | 2 |  |  |  | 3 |  |  |  | 9 |  |  |  | (8 | )
Total |  | $ | 100 |  |  | $ | 116 |  |  | $ | 491 |  |  | $ | (635 | )
The Company records interest rate derivatives subject to master netting agreements at their gross value and does not offset derivative asset and liabilities on the Consolidated Statements of Financial Condition. The table below summarizes the Company’s interest rate derivatives and offsetting positions as of:
|  | September 30, 2021 |  |  | December 31, 2020 |
|  | Derivative Assets Fair Value |  |  | Derivative Liabilities Fair Value |  |  | Derivative Assets Fair Value |  |  | Derivative Liabilities Fair Value |
Gross amounts recognized |  | $ | 13,463 |  |  | $ | (12,348 | ) |  | $ | 17,149 |  |  | $ | (18,133 | )
Less: Amounts offset in the Consolidated Statements of Financial Condition |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net amount presented in the Consolidated Statements of Financial Condition |  | $ | 13,463 |  |  | $ | (12,348 | ) |  | $ | 17,149 |  |  | $ | (18,133 | )
Gross amounts not offset in the Consolidated Statements of Financial Condition |  |  |  |  |  |  |  |  |  |  |  |
Offsetting derivative positions |  |  | (1,814 | ) |  |  | 1,814 |  |  |  | — |  |  |  | — |
Collateral posted |  |  | (11,649 | ) |  |  | 9,740 |  |  |  | (17,149 | ) |  |  | 18,133 |
Net credit exposure |  | $ | — |  |  | $ | (794 | ) |  | $ | — |  |  | $ | — |
As of September 30, 2021, 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 $12.3 million. The Company has posted $9.7 million collateral related to these agreements as of September 30, 2021. If the Company had breached any of these provisions at September 30, 2021, it could have been required to settle its obligations under the agreements at their termination value less offsetting positions of $1.8 million. For purposes of this disclosure, the amount of posted collateral by the Company and counterparties is limited to the amount offsetting the derivative asset and derivative liability.

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- References No definition available. + Details
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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 + Details
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