Derivatives and Hedging Activities

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company executes loan level derivative products such as interest rate swap agreements with commercial banking customers to aid them in managing their interest rate risk. The interest rate swap contracts allow the commercial banking customers to convert floating rate loan payments to fixed rate loan payments. The Company concurrently enters into offsetting swaps with a third party financial institution, effectively minimizing its net risk exposure resulting from such transactions. The third party financial institution exchanges the customer's fixed rate loan payments for floating rate loan payments. As the interest rate swap agreements associated with this program do not meet hedge accounting requirements, changes in the fair value are recognized directly in earnings. Based on the Company's intended use for the loan level derivatives at inception, the Company designates the derivative as either an economic hedge of an asset or liability, or a hedging instrument subject to the hedge accounting provisions of FASB ASC Topic 815, "Derivatives and Hedging".

The Company utilizes risk participation agreements with other banks participating in commercial loan arrangements. Participating banks guarantee the performance on borrower-related interest rate swap contracts. Risk participation agreements

are derivative financial instruments and are recorded at fair value. These derivatives are not designated as hedges and therefore, changes in fair value are recorded directly through earnings at each reporting period.

Under a risk participation-out agreement, a derivative asset, the Company participates out a portion of the credit risk associated with the interest rate swap position executed with the commercial borrower, for a fee paid to the participating bank.

The Company uses interest rate futures that are designated and qualify as cash flow hedging instruments. Positions are marked to market as an unrealized gain or loss with off-setting entries recognized in Accumulated Other Comprehensive Income. Gains and losses are recognized on the income statement in the account of the hedged item during the period in which the derivative settles. The fair value of these hedges on June 30, 2020 was a net liability position of $6 thousand compared to no position in December 31, 2019.

The Company offers foreign exchange contracts to commercial borrowers to accommodate their business needs. These foreign exchange contracts do not qualify as hedges for accounting purposes. To mitigate the market and liquidity risk associated with these foreign exchange contracts, the Company enters into similar offsetting positions.

Asset derivatives and liability derivatives are included in other assets and accrued expenses and other liabilities on the unaudited consolidated balance sheets.

The following tables present the Company's customer related derivative positions for the periods indicated below for those derivatives not designated as hedging.



	Notional Amount Maturing
	Number of Positions	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	June 30, 2020
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	135	$	23,939	$	8,686	$	24,584	$	18,942	$	1,191,796	$	1,267,947	$	163,744
Pay fixed, receive variable	135	23,939		8,686		24,584		18,942		1,191,796		1,267,947		163,744
Risk participation-out agreements	43	13,495		—		7,077		—		251,624		272,196		2,641
Risk participation-in agreements	7	—		—		—		19,000		40,119		59,119		467

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	21	$	1,332	$	—	$	—	$	—	$	—	$	1,332	$	96
Sells foreign currency, buys U.S. currency	23	1,441		—		—		—		—		1,441		117



	Notional Amount Maturing
	Number of Positions	Less than 1 year		Less than 2 years		Less than 3 years		Less than 4 years		Thereafter		Total		Fair Value
	December 31, 2019
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	119	$	24,777	$	—	$	31,131	$	16,794	$	1,028,491	$	1,101,193	$	58,102
Pay fixed, receive variable	119	24,777		—		31,131		16,794		1,028,491		1,101,193		58,102
Risk participation-out agreements	40	13,967		—		—		7,143		214,583		235,693		1,229
Risk participation-in agreements	7	—		—		—		19,000		36,281		55,281		283

Foreign exchange contracts
Buys foreign currency, sells U.S. currency	16	$	1,125	$	—	$	—	$	—	$	—	$	1,125	$	54
Sells foreign currency, buys U.S. currency	18	1,230		—		—		—		—		1,230		53

Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral to dealer counterparties of $173.3 million and $86.5 million in the normal course of business as of June 30, 2020 and December 31, 2019, respectively. Dealer counterparties posted no collateral to the Company in the normal course of business as of June 30, 2020 and December 31, 2019.

The tables below present the offsetting of derivatives and amounts subject to master netting agreements not offset in the unaudited consolidated balance sheet at the dates indicated.



	At June 30, 2020
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments Pledged		Cash Collateral Pledged		Net Amount
	(In Thousands)
Asset derivatives
Loan level derivatives	$	165,756	$	—	$	165,756	$	—	$	—	$	165,756
Risk participation-out agreements	2,641		—		2,641		—		—		2,641
Foreign exchange contracts	117		—		117		—		—		117
Total	$	168,514	$	—	$	168,514	$	—	$	—	$	168,514

Liability derivatives
Loan level derivatives	$	165,756	$	—	$	165,756	$	162,140	$	11,210	$	(7,594	)
Risk participation-in agreements	467		—		467		—		—		467
Foreign exchange contracts	96		—		96		—		—		96
Total	$	166,319	$	—	$	166,319	$	162,140	$	11,210	$	(7,031	)



	At December 31, 2019
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position		Net Amounts Presented in the Statement of Financial Position		Gross Amounts Not Offset in the Statement of Financial Position				Net Amount
	Gross Amounts Recognized		Gross Amounts Offset in the Statement of Financial Position				Financial Instruments Pledged		Cash Collateral Pledged		Net Amount
	(In Thousands)
Asset derivatives
Loan level derivatives	$	59,365	$	—	$	59,365	$	—	$	11,900	$	47,465
Risk participation-out agreements	1,229		—		1,229		—		—		1,229
Foreign exchange contracts	54		—		54		—		—		54
Total	$	60,648	$	—	$	60,648	$	—	$	11,900	$	48,748

Liability derivatives
Loan level derivatives	$	59,365	$	—	$	59,365	$	86,521	$	—	$	(27,156	)
Risk participation-in agreements	283		—		283		—		—		283
Foreign exchange contracts	53		—		53		—		—		53
Total	$	59,701	$	—	$	59,701	$	86,521	$	—	$	(26,820	)

The Company has agreements with certain of its derivative counterparties that contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness or if the Company fails to maintain its status as a well-capitalized institution.