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DERIVATIVES AND HEDGING | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING | DERIVATIVES AND HEDGING The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company 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. Derivatives Designated as Hedging Instruments - Cash Flow Hedges of Interest Rate Risk Interest Rate Contracts The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company 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 the Company making fixed rate payments or the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable-rate payments over the life of the agreements without exchange of the underlying notional amount. For the three and nine months ended September 30, 2021 and 2020, such derivatives were used to hedge the variable cash flows associated with existing variable-rate assets or liabilities or forecasted issuances of debt. For derivatives designated and 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 expense or interest income in the same period(s) during which the hedged transaction affects earnings. Amounts reported in AOCI related to derivatives will be reclassified to interest expense or interest income as interest payments are made or received on the Company’s variable-rate liabilities or assets. The Company estimates that an additional $2.1 million will be reclassified as an increase to interest expense and an additional $1.6 million will be reclassified as an increase to interest income over the next 12 months. Derivatives not Designated as Hedges Customer Loan Swaps Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. Fixed Rate Mortgage Interest Rate Lock Commitments As part of the origination process of a residential loan, the Company may enter into rate lock agreements with its borrower, which is considered an interest rate lock commitment. If the Company intends to sell the loan upon origination, it will account for the interest rate lock commitment as a derivative. Forward Delivery Commitments The Company typically enters into a forward delivery commitment with a secondary market investor, which has been approved by the Company within its normal governance process, at the onset of the loan origination process. The Company may enter into these arrangements with the secondary market investors on a "best effort" or "mandatory delivery" basis. The Company's normal practice is typically to enter into these arrangements on a "best effort" basis. The Company enters into these arrangements with the secondary market investors to manage its interest rate exposure. The Company accounts for the forward delivery commitment as a derivative upon origination of a loan identified as held for sale. The following table presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated statements of condition as of the dates indicated:
|  | Derivative Assets |  | Derivative Liabilities
(In thousands) |  | Notional Amount |  | Location |  | Fair Value |  | Notional Amount |  | Location |  | Fair Value
September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts(1) |  | $ | 160,000 |  |  | Other assets |  | $ | 6,849 |  |  | $ | 83,000 |  |  | Accrued interest and other liabilities |  | $ | 8,597 |
Total derivatives designated as hedging instruments |  |  |  |  |  | $ | 6,849 |  |  |  |  |  |  | $ | 8,597 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps(1) |  | $ | 347,921 |  |  | Other assets |  | $ | 24,045 |  |  | $ | 347,921 |  |  | Accrued interest and other liabilities |  | $ | 24,045 |
Fixed Rate mortgage interest rate lock commitments |  | 35,720 |  |  | Other assets |  | 498 |  |  | 15,302 |  |  | Accrued interest and other liabilities |  | 116 |
Forward delivery commitments |  | 8,492 |  |  | Other assets |  | 215 |  |  | 2,297 |  |  | Accrued interest and other liabilities |  | 22 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | $ | 24,758 |  |  |  |  |  |  | $ | 24,183 |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 110,000 |  |  | Other assets |  | $ | 5,731 |  |  | $ | 143,000 |  |  | Accrued interest and other liabilities |  | $ | 11,625 |
Total derivatives designated as hedging instruments |  |  |  |  |  | $ | 5,731 |  |  |  |  |  |  | $ | 11,625 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Customer loan swaps |  | $ | 376,290 |  |  | Other assets |  | $ | 39,627 |  |  | $ | 376,290 |  |  | Accrued interest and other liabilities |  | $ | 39,627 |
Fixed rate mortgage interest rate lock commitments |  | 58,574 |  |  | Other assets |  | 608 |  |  | 28,346 |  |  | Accrued interest and other liabilities |  | 248 |
Forward delivery commitments |  | 24,951 |  |  | Other assets |  | 311 |  |  | 15,548 |  |  | Accrued interest and other liabilities |  | 196 |
Total derivatives not designated as hedging instruments |  |  |  |  |  | $ | 40,546 |  |  |  |  |  |  | $ | 40,071 |
(1) Reported fair values include accrued interest receivable and payable. The table below presents the effect of cash flow hedge accounting, before tax, on AOCI for the periods indicated:
(Dollars in thousands) |  | Amount of Gain (Loss) Recognized in OCI on Derivative |  | Amount of Gain (Loss) Recognized in OCI Included Component |  | Amount of Gain (Loss) Recognized in OCI Excluded Component | Location of Gain (Loss) Recognized from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income |  | Amount of Gain (Loss) Reclassified from AOCI into Income Included Component |  | Amount of Gain (Loss) Reclassified from AOCI into Income Excluded Component
Derivatives in Cash Flow Hedge Relationships: |  |  |  |  |  |  |  |  |  |  |  |  |
For the Three Months Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 48 |  |  | $ | 48 |  |  | $ | — |  | Interest and fees on loans |  | $ | 410 |  |  | $ | 410 |  |  | $ | — |
Interest rate contracts |  | 190 |  |  | 190 |  |  | — |  | Interest on deposits |  | (170) |  |  | (170) |  |  | — |
Interest rate contracts |  | 228 |  |  | 228 |  |  | — |  | Interest on subordinated debentures |  | (369) |  |  | (369) |  |  | — |
Total |  | $ | 466 |  |  | $ | 466 |  |  | $ | — |  |  |  | $ | (129) |  |  | $ | (129) |  |  | $ | — |
For the Nine Months Ended September 30, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (688) |  |  | $ | (688) |  |  | $ | — |  | Interest and fees on loans |  | $ | 1,205 |  |  | $ | 1,205 |  |  | $ | — |
Interest rate contracts |  | 2,142 |  |  | 2,142 |  |  | — |  | Interest on deposits |  | (490) |  |  | (490) |  |  | — |
Interest rate contracts |  | 2,201 |  |  | 2,201 |  |  | — |  | Interest on subordinated debentures |  | (1,222) |  |  | (1,222) |  |  | — |
Total |  | $ | 3,655 |  |  | $ | 3,655 |  |  | $ | — |  |  |  | $ | (507) |  |  | $ | (507) |  |  | $ | — |
For the Three Months Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | (81) |  |  | $ | (81) |  |  | $ | — |  | Interest and fees on loans |  | $ | 311 |  |  | $ | 311 |  |  | $ | — |
Interest rate contracts |  | 140 |  |  | 140 |  |  | — |  | Interest on deposits |  | — |  |  | — |  |  | — |
Interest rate contracts |  | 197 |  |  | 197 |  |  | — |  | Interest on borrowings |  | (74) |  |  | (74) |  |  | — |
Interest rate contracts |  | 432 |  |  | 432 |  |  | — |  | Interest on subordinated debentures |  | (405) |  |  | (405) |  |  | — |
Total |  | $ | 688 |  |  | $ | 688 |  |  | $ | — |  |  |  | $ | (168) |  |  | $ | (168) |  |  | $ | — |
For the Nine Months Ended September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | $ | 5,844 |  |  | $ | 5,844 |  |  | $ | — |  | Interest and fees on loans |  | $ | 610 |  |  | $ | 610 |  |  | $ | — |
Interest rate contracts |  | (838) |  |  | (838) |  |  | — |  | Interest on deposits |  | (26) |  |  | (26) |  |  | — |
Interest rate contracts |  | (922) |  |  | (922) |  |  | — |  | Interest on borrowings |  | (22) |  |  | (22) |  |  | — |
Interest rate contracts |  | (4,502) |  |  | (4,502) |  |  | — |  | Interest on subordinated debentures |  | (942) |  |  | (942) |  |  | — |
Total |  | $ | (418) |  |  | $ | (418) |  |  | $ | — |  |  |  | $ | (380) |  |  | $ | (380) |  |  | $ | — |
The table below presents the effect of cash flow hedge accounting on the consolidated statements of income for the periods indicated:
|  | Location and Amount of Gain (Loss) Recognized in Income
|  | Three Months Ended September 30,
|  | 2021 |  | 2020
(Dollars in thousands) |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded |  | $ | 31,185 |  |  | $ | 1,973 |  |  | $ | 122 |  |  | $ | 538 |  |  | $ | 33,025 |  |  | $ | 2,899 |  |  | $ | 394 |  |  | $ | 893 |
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income |  | $ | 410 |  |  | $ | (170) |  |  | $ | — |  |  | $ | (369) |  |  | $ | 311 |  |  | $ | — |  |  | $ | (74) |  |  | $ | (405) |
Amount of gain (loss) reclassified from AOCI into income - included component |  | $ | 410 |  |  | $ | (170) |  |  | $ | — |  |  | $ | (369) |  |  | $ | 311 |  |  | $ | — |  |  | $ | (74) |  |  | $ | (405) |
Amount of gain (loss) reclassified from AOCI into income - excluded component |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
|  | Location and Amount of Gain (Loss) Recognized in Income
|  | Nine Months Ended September 30,
|  | 2021 |  | 2020
(Dollars in thousands) |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures |  | Interest and fees on loans |  | Interest on deposits |  | Interest on borrowings |  | Interest on subordinated debentures
Total presented on the consolidated statements of income in which the effects of cash flow hedges are recorded |  | $ | 92,610 |  |  | $ | 5,957 |  |  | $ | 454 |  |  | $ | 1,983 |  |  | $ | 100,190 |  |  | $ | 12,953 |  |  | $ | 1,591 |  |  | $ | 2,668 |
Gain (loss) on cash flow hedging relationships
Interest rate contracts:
Amount of gain (loss) reclassified from AOCI into income |  | $ | 1,205 |  |  | $ | (490) |  |  | $ | — |  |  | $ | (1,222) |  |  | $ | 610 |  |  | $ | (26) |  |  | $ | (22) |  |  | $ | (942) |
Amount of gain (loss) reclassified from AOCI into income - included component |  | $ | 1,205 |  |  | $ | (490) |  |  | $ | — |  |  | $ | (1,222) |  |  | $ | 610 |  |  | $ | (26) |  |  | $ | (22) |  |  | $ | (942) |
Amount of gain (loss) reclassified from AOCI into income - excluded component |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
The table below presents the effect of the Company's derivative financial instruments that are not designated as hedging instruments on the consolidated statements of income for the periods indicated:
|  | Location of Gain Recognized in Income |  | Amount of Gain (Loss) Recognized in Income
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(Dollars in thousands) |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
Fixed rate mortgage interest rate lock commitments |  | Mortgage banking income, net |  | $ | (434) |  |  | $ | (386) |  |  | $ | 22 |  |  | $ | 110 |
Forward delivery commitments |  | Mortgage banking income, net |  | 65 |  |  | 123 |  |  | 78 |  |  | (33) |
Total |  |  |  | $ | (369) |  |  | $ | (263) |  |  | $ | 100 |  |  | $ | 77 |
Credit Risk-Related Contingent Features By using derivatives, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit approvals, limits, monitoring procedures, and obtaining collateral, where appropriate. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. The Company has agreements with its derivative counterparties that contain a provision where 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. In addition, the Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well- capitalized institution, then the counterparty could terminate the derivative position(s) and the Company could be required to settle its obligations under the agreements. As of September 30, 2021 and December 31, 2020, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk, related to these agreements was $31.1 million and $50.5 million, respectively. As of September 30, 2021 and December 31, 2020, the Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted cash collateral of $33.0 million and $57.5 million, respectively. If the Company had breached any of these provisions at September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at their termination value of $31.1 million and $50.5 million, respectively.

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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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