XML 52 R29.htm IDEA: XBRL DOCUMENT v3.22.4
Derivative Instruments
 12 Months Ended
Dec. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 19 – Derivative Instruments

The Company uses derivative instruments to manage its exposure to market risks, including interest rate risk, and to assist customers with their risk management objectives. The Company designates certain derivatives as hedging instruments in a qualifying hedge accounting relationship, while other derivatives serve as economic hedges that do not qualify for hedge accounting.

Derivatives Designated as Hedging Instruments

Fair Value Hedges – The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates. The Company entered into pay-fixed and receive-floating interest rate swaps associated with certain fixed rate loans, primarily commercial real estate loans, to manage its exposure to changes in fair value on these instruments attributable to changes in the designated USD-SOFR-COMPOUND benchmark interest rate. These interest rate swaps are designated as fair value hedges using the last-of-layer method. The Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The fair value hedges are recorded as components of other assets and other liabilities in the Company’s consolidated statements of financial condition. The gain or loss on these derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income in the Company’s consolidated statements of income. At December 31, 2022 and December 31, 2021, interest rate swaps with an aggregate notional amount of $1.20 billion were designated as fair value hedges.

The following amounts were recorded on the consolidated statement of financial condition related to cumulative basis adjustment for fair value hedges as of the dates indicated:

Line Item in the Statement of Financial Position in Which the Hedged Item is IncludedCarrying Amount of the Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)December 31, 2022December 31, 2021December 31, 2022December 31, 2021
Loans held for investment(1)
$1,138,074 $1,194,702 $(61,926)$(5,298)
Total$1,138,074 $1,194,702 $(61,926)$(5,298)
______________________________
(1) These amounts were included in the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2022 and December 31, 2021, the amortized cost basis of the closed portfolios used in these hedging relationships was $3.35 billion and 3.61 billion, respectively; the cumulative basis adjustments associated with these hedging relationships was $(61.9) million and $(5.3) million, respectively; and the amounts of the designated hedged items were $1.20 billion and $1.20 billion, respectively.
Derivatives Not Designated as Hedging Instruments

Interest Rate Swap Contracts – From time to time, the Company enters into interest rate swap agreements with certain borrowers to assist them in mitigating their interest rate risk exposure associated with the loans they have with the Company. At the same time, the Company enters into identical offsetting interest rate swap agreements with another financial institution to mitigate the Company’s interest rate risk exposure associated with the swap agreements it enters into with its borrowers. The Company had over-the-counter derivative instruments and centrally-cleared derivative instruments with matched terms. The fair values of these agreements are determined through a third-party valuation model used by the Company’s swap advisory firm, which uses observable market data such as interest rates, prices of Eurodollar futures contracts, and market swap rates. The fair values of these swaps are recorded as components of other assets and other liabilities in the Company’s consolidated balance sheet. Changes in the fair value of these swaps, which occur due to changes in interest rates, are recorded in the Company’s income statement as a component of noninterest income.

Over-the-counter contracts are tailored to meet the needs of the counterparties involved and, therefore, generally contain a greater degree of credit risk and liquidity risk than centrally-cleared contracts, which have standardized terms. Although changes in the fair value of swap agreements between the Company and borrowers and the Company and other financial institutions offset each other, changes in the credit risk of these counterparties may result in a difference in the fair value of the swap agreements. Offsetting over-the-counter swap agreements the Company has with other financial institutions are collateralized with cash, and swap agreements with borrowers are secured by the collateral arrangements for the underlying loans these borrowers have with the Company. All interest rate swap agreements entered into by the Company are free-standing derivatives and are not designated as hedging instruments.

Foreign Exchange Contracts – The Company offers foreign exchange spot and forward contracts as accommodations to its customers to purchase and/or sell foreign currencies at a contractual price. In conjunction with these products the Company also enters into offsetting contracts with institutional counterparties to mitigate the Company’s foreign exchange exposure with its customers, or enters into bilateral collateral and master netting agreements with certain customer counterparties to manage its credit exposure. These contracts allow the Company to offer its customers foreign exchange products while minimizing its exposure to foreign exchange rate fluctuations. These foreign exchange contracts are not designated as hedging instruments and are recorded at fair value in other assets and other liabilities in the Company’s consolidated statements of financial condition. Changes in the fair value of these contracts are recorded in the Company’s consolidated statements of income as a component of noninterest income.


Equity Warrant Assets – The Company acquired equity warrant assets as a result of the acquisition of Opus. Opus received equity warrant assets through its lending activities, which were accounted for as loan origination fees. The warrants provide the Bank the right to purchase a specific number of equity shares of the underlying company’s equity at a certain price before expiration and contain net settlement terms qualifying as derivatives under ASC Topic 815. The Company no longer has loans associated with these borrowers. Changes in fair value are recognized as a component of noninterest income with a corresponding offset within other assets. The total fair value of the warrants held in private companies was $1.9 million in other assets as of December 31, 2022 and December 31, 2021. The two warrants expire on March 12, 2023 and July 28, 2025, respectively.
The following tables summarize the Company’s derivative instruments included in “other assets” and “other liabilities” in the consolidated statements of financial condition as of the dates indicated:
December 31, 2022
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$900,000 $63,710 $300,000 $72 
Total derivative designated as hedging instruments900,000 63,710 300,000 72 
Derivative instruments not designated as hedging instruments:
Foreign exchange contracts22 1 143 1 
Interest rate swap contracts112,124 12,524 112,124 12,525 
Equity warrants— 1,894 — — 
Total derivative not designated as hedging instruments112,146 14,419 112,267 12,526 
Total derivatives$1,012,146 $78,129 $412,267 $12,598 
Netting adjustments - cleared positions (1)
69,181 67 
Total derivatives in the Balance Sheet$8,948 $12,531 
______________________________
(1) Netting adjustments represents the variation margin payments that are considered legal settlements of derivative exposure and applied to net the fair value of the respective derivative contracts in accordance with the applicable accounting guidance on the settle-to-market rule for cleared derivatives.

December 31, 2021
Derivative AssetsDerivative Liabilities
(Dollars in thousands)NotionalFair ValueNotionalFair Value
Derivative instruments designated as hedging instruments:
Fair value hedge - interest rate swap contracts$1,100,000 $4,874 $100,000 $33 
Total derivative designated as hedging instruments1,100,000 4,874 100,000 33 
Derivative instruments not designated as hedging instruments:
Interest rate swap contracts132,056 5,226 132,056 5,230 
Equity warrants— 1,889 — — 
Total derivative not designated as hedging instruments132,056 7,115 132,056 5,230 
Total derivatives$1,232,056 $11,989 $232,056 $5,263 
The following table presents the effect of fair value hedge accounting on the consolidated statements of income:
For the Year Ended December 31,
(Dollars in thousands)Location of Gain (Loss) Recognized in Income on Derivative Instruments20222021
Gain (loss) on fair value hedging relationships:
Hedged items - loansInterest Income$(56,628)(5,298)
Interest rate swap contractsInterest Income68,322 4,383 
    
The following table summarizes the effect of the derivative financial instruments in the consolidated statements of income.
(Dollars in thousands)For the Year Ended December 31,
Derivative Not Designated as Hedging Instruments:Location of Gain Recognized in Income on Derivative Instruments202220212020
Foreign exchange contractsOther income$490 $82 $— 
Interest rate productsOther income4 9 297 
Other contractsOther income— — 197 
Equity warrantsOther income4 (24)(42)
Total$498 $(15)$452