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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities Our hedging policy allows the use of interest rate derivative instruments to manage our exposure to interest rate risk or hedge specified assets and liabilities. These instruments may include interest rate swaps and interest rate caps and floors. All derivative instruments are carried on the balance sheet at their estimated fair value and are recorded in other assets or other liabilities, as appropriate. Derivative instruments may be designated as cash flow hedges of variable rate assets or liabilities, cash flow hedges of forecasted transactions, fair value hedges of a recognized asset or liability or as non-hedging instruments. Gains and losses on derivative instruments designated as cash flow hedges are recorded in AOCI to the extent they are effective. If the hedge is effective, the amount recorded in other comprehensive income is reclassified to earnings in the same periods that the hedged cash flows impact earnings. The ineffective portion of changes in fair value is reported in current earnings. Gains and losses on derivative instruments designated as fair value hedges, as well as the change in fair value on the hedged item, are recorded in interest income in the consolidated statements of income. Gains and losses due to changes in fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the hedged item. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. We have entered into certain interest rate swap contracts on specific variable rate agreements and fixed rate short-term pay agreements with third-parties. These interest rate swap contracts were designated as hedging instruments in cash flow hedges under ASC Topic 815. The objective of the interest rate swap contracts is to manage the expected future cash flows on $575.0 million of Bank liabilities. The cash flows from the swap contracts are expected to be effective in hedging the variability in future cash flows attributable to fluctuations in the underlying LIBOR interest rate. In accordance with ASC Topic 815, if a hedging item is terminated prior to maturity for a cash settlement, the existing gain or loss within AOCI will continue to be reclassified into earnings during the period or periods in which the hedged forecasted transaction affects earnings unless it is probable the forecasted transaction will not occur by the end of the originally specified time period. These transactions are reevaluated on a monthly basis to determine if the hedged forecasted transactions are still probable of occurring. If at a subsequent evaluation, it is determined that the transactions will not occur, any related gains or losses recorded in AOCI are immediately recognized in earnings. From time to time, we may enter into certain interest rate swaps, cap and floor contracts that are not designated as hedging instruments. These interest rate derivative contracts relate to transactions in which we enter into an interest rate swap, cap or floor with a customer while concurrently entering into an offsetting interest rate swap, cap or floor with a third party financial institution. We agree to pay interest to the customer on a notional amount at a variable rate and receive interest from the customer on a similar notional amount at a fixed interest rate. At the same time, we agree to pay a third party financial institution the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These interest rate derivative contracts allow our customers to effectively convert a variable rate loan to a fixed rate loan. The changes in the fair value of the underlying derivative contracts primarily offset each other and do not significantly impact our results of operations. We recognized swap fee income associated with these derivative contracts immediately based upon the difference in the bid/ask spread of the underlying transactions with the customer and the third party financial institution. The swap fee income is included in other noninterest income in our consolidated statements of income. At March 31, 2022, net derivative asset included $21.5 million of cash collateral received from counterparties under master netting agreements. At December 31, 2021, net derivative liabilities included $12.8 million, of cash collateral held by counterparties subject to master netting agreements. The notional amounts of the derivative instruments represent the contractual cash flows pertaining to the underlying agreements. These amounts are not exchanged and are not reflected in the consolidated balance sheets. The fair value of the interest rate swaps are presented at net in other assets and other liabilities when a right of offset exists, based on transactions with a single counterparty that are subject to a legally enforceable master netting agreement. The following tables present the notional and estimated fair value amount of derivative positions outstanding (in thousands):
|  | March 31, 2022 |  | December 31, 2021 |  |  |
|  |  |  | Estimated Fair Value |  |  |  | Estimated Fair Value |  |  |
|  | Notional Amount (1) |  | Asset Derivative |  | Liability Derivative |  | Notional Amount (1) |  | Asset Derivative |  | Liability Derivative |  |  |
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps-Cash Flow Hedge-Financial institution counterparties |  | $ | 575,000 |  |  | $ | 21,174 |  |  | $ | 898 |  |  | $ | 605,000 |  |  | $ | 4,274 |  |  | $ | 5,866 |  |  |  |
Derivatives designated as non-hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Swaps-Financial institution counterparties |  | 233,226 |  |  | 4,003 |  |  | 2,781 |  |  | 214,379 |  |  | 545 |  |  | 13,412 |  |  |  |
Swaps-Customer counterparties |  | 233,226 |  |  | 2,781 |  |  | 4,003 |  |  | 214,379 |  |  | 13,412 |  |  | 545 |  |  |  |
Gross derivatives |  |  |  | 27,958 |  |  | 7,682 |  |  |  |  | 18,231 |  |  | 19,823 |  |  |  |
Offsetting derivative assets/liabilities |  |  |  | (3,679) |  |  | (3,679) |  |  |  |  | (4,819) |  |  | (4,819) |  |  |  |
Cash collateral received/posted |  |  |  | (21,498) |  |  | — |  |  |  |  | — |  |  | (12,810) |  |  |  |
Net derivatives included in the consolidated balance sheets (2) |  |  |  | $ | 2,781 |  |  | $ | 4,003 |  |  |  |  | $ | 13,412 |  |  | $ | 2,194 |  |  |  |
(1) Notional amounts, which represent the extent of involvement in the derivatives market, are used to determine the contractual cash flows required in accordance with the terms of the agreement. These amounts are typically not exchanged, significantly exceed amounts subject to credit or market risk and are not reflected in the consolidated balance sheets. (2) Net derivative assets are included in other assets and net derivative liabilities are included in other liabilities on the consolidated balance sheets. Included in the fair value of net derivative assets and net derivative liabilities are credit valuation adjustments reflecting counterparty credit risk and our credit risk. We had no credit exposure related to interest rate swaps with financial institutions and $2.8 million related to interest rate swaps with customers at March 31, 2022. We had no credit exposure related to interest rate swaps with financial institutions and $13.4 million related to interest rate swaps with customers at December 31, 2021. The credit risk associated with customer transactions is partially mitigated as these are generally secured by the non-cash collateral securing the underlying transaction being hedged. The summarized expected weighted average remaining maturity of the notional amount of interest rate swaps and the weighted average interest rates associated with the amounts expected to be received or paid on interest rate swap agreements are presented below (dollars in thousands). Variable rates received on fixed pay swaps are based on one-month or three-month LIBOR rates in effect at March 31, 2022 and December 31, 2021:
|  | March 31, 2022 |  | December 31, 2021
|  |  |  | Weighted Average |  |  |  | Weighted Average
|  | Notional Amount |  | Remaining Maturity (in years) |  | Receive Rate |  | Pay Rate |  | Notional Amount |  | Remaining Maturity (in years) |  | Receive Rate |  | Pay Rate
Swaps-Cash Flow hedge |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial institution counterparties |  | $ | 575,000 |  |  | 3.1 |  | 0.54 | % |  | 0.83 | % |  | $ | 605,000 |  |  | 3.2 |  | 0.13 | % |  | 1.10 | %
Swaps-Non-hedging |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial institution counterparties |  | 233,226 |  |  | 9.6 |  | 0.93 | % |  | 2.69 | % |  | 214,379 |  |  | 10.3 |  | 0.47 | % |  | 2.42 | %
Customer counterparties |  | 233,226 |  |  | 9.6 |  | 2.69 | % |  | 0.93 | % |  | 214,379 |  |  | 10.3 |  | 2.42 | % |  | 0.47 | %

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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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