Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Corporation uses derivatives to manage its exposure to certain market risk, including interest rate and foreign currency risks, and to assist customers with their risk management objectives. Certain of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. The Corporation enters into derivative contracts that are intended to economically hedge certain of its risks, even if hedge accounting does not apply or the Corporation elects not to apply hedge accounting.

In January 2023, the Corporation terminated interest rate derivatives designated as cash flow hedges with a combined notional amount of $1.0 billion. As the hedged transaction continues to be probable, the original unrealized loss of $70.6 million included in AOCI will be recognized as a reduction to interest income when the previously forecasted hedged item affects earnings in future periods. During the three months ended March 31, 2024, $7.0 million of these unrealized losses have been reclassified as a reduction of interest income on loans, including fees, on the Corporation's consolidated statements of income.

In the third quarter of 2023, the Corporation transitioned certain of the Corporation's legacy commercial customer back-to-back interest rate swap transactions from LIBOR to SOFR. For the three months ended March 31, 2024, the increase to other non-interest income to reflect market valuation movements from the transition from LIBOR to SOFR was $0.2 million. For the year ended December 31, 2023, the full-year reduction to other non-interest income related to the transition from LIBOR to SOFR was $1.9 million.

For additional information on our derivative accounting policies see Note 1 "Summary of Significant Accounting Policies" in our 2023 Annual Report on Form 10-K.

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:


	March 31, 2024				December 31, 2023
	Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value
	(dollars in thousands)
Interest Rate Locks with Customers
Positive fair values	$	164,041	$	763	$	119,558	$	460
Negative fair values	1,018		(4)		1,015		(2)

Forward Commitments
Positive fair values	48,250		11		—		—
Negative fair values	—		—		42,000		(854)

Interest Rate Derivatives with Customers
Positive fair values	622,369		8,264		824,659		22,656
Negative fair values	4,044,521		(272,875)		3,784,236		(222,530)

Interest Rate Derivatives with Dealer Counterparties(1)
Positive fair values	4,044,521		164,762		3,784,236		128,235
Negative fair values	622,369		(8,630)		824,659		(23,023)

Interest Rate Derivatives used in Cash Flow Hedges
Positive fair values	2,300,000		1,060		2,500,000		6,189
Negative fair values	950,000		(72)		750,000		—
Foreign Exchange Contracts with Customers
Positive fair values	16,861		396		4,159		40
Negative fair values	4,192		(179)		13,353		(446)

Foreign Exchange Contracts with Correspondent Banks
Positive fair values	5,656		222		15,969		532
Negative fair values	18,449		(304)		6,112		(31)

(1) Fair Values are net of a valuation allowance of $366.3 thousand as of March 31, 2024 and December 31, 2023.

The following table presents the effect of cash flow hedge accounting on AOCI:


	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
	(dollars in thousands)

Three months ended March 31, 2024
Interest Rate Products	$	(5,659)	$	(5,659)	$	—	Interest Income	$	(7,032)	$	(7,032)	$	—
Interest Rate Products	11,215		11,215		—		Interest Expense	2,020		2,020		—
Total	$	5,556	$	5,556	$	—		$	(5,012)	$	(5,012)	$	—

Three months ended March 31, 2023
Interest Rate Products	$	12,535	$	12,535	—		Interest Income	$	(7,157)	$	(7,157)	—
Total	$	12,535	$	12,535	—			$	(7,157)	$	(7,157)	—

During the next twelve months, the Corporation estimates that an additional $19.7 million of unrealized losses will be reclassified as a decrease to net interest income.

The following table presents the effect of fair value and cash flow hedge accounting on the income statement:




	Consolidated Statements of Income Classification
	2024				2023
	Interest Income		Interest Expense		Interest Income		Interest Expense
	(dollars in thousands)
Three months ended March 31
Total amounts of income line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	(7,032)	$	2,020	$	(7,157)	$	—


Interest contracts:
Amount of gain (loss) reclassified from AOCI into income	(7,032)		2,020		(7,157)		—
Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring	—		—		—		—
Amount of gain (loss) reclassified from AOCI into income - included component	(7,032)		2,020		(7,157)		—
Amount of gain (loss) reclassified from AOCI into income - excluded component	—		—		—		—

The following table presents a summary of the net fair value gains (losses) on derivative financial instruments:


	Consolidated Statements of Income Classification	Three months ended March 31
		2024		2023
		(dollars in thousands)
Mortgage banking derivatives(1)	Mortgage banking income	$	1,167	$	394

Interest rate derivatives	Other income	151		—

Foreign exchange contracts	Other income	39		91

Net fair value gains/(losses) on derivative financial instruments		$	1,357	$	485

(1) Includes interest rate locks with customers and forward commitments.

Fair Value Option

The Corporation has elected to measure mortgage loans held for sale at fair value. The following table presents a summary of mortgage loans held for sale and the impact of the fair value election on the consolidated financial statements:


	March 31, 2024		December 31, 2023
	(dollars in thousands)
Amortized cost(1)	$	10,434	$	14,792
Fair value	10,624		15,158

(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.

Losses related to changes in fair values of mortgage loans held for sale were $0.2 million for the three months ended March 31, 2024 compared to gain of $0.1 million for the three months ended March 31, 2023. The gains and losses are recorded on the consolidated income statements as adjustments to mortgage banking income.

Balance Sheet Offsetting

The fair values of interest rate derivative agreements and foreign exchange contracts the Corporation enters into with customers and dealer counterparties may be eligible for offset on the consolidated balance sheets if they are subject to master netting arrangements or similar agreements. The Corporation has elected to net its financial assets and liabilities designated as interest rate derivatives when offsetting is permitted. The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:


	Gross Amounts		Gross Amounts Not Offset
	Recognized		on the Consolidated
	on the		Balance Sheets
	Consolidated		Financial		Cash		Net
	Balance Sheets		Instruments(1)		Collateral(2)		Amount
	(dollars in thousands)
March 31, 2024
Interest rate derivative assets	$	174,086	$	(9,663)	$	—	$	164,423

Foreign exchange derivative assets with correspondent banks	222		(222)		—		—
Total	$	174,308	$	(9,885)	$	—	$	164,423

Interest rate derivative liabilities	$	281,577	$	(10,651)	$	(109,005)	$	161,921

Foreign exchange derivative liabilities with correspondent banks	304		(222)		—		82
Total	$	281,881	$	(10,873)	$	(109,005)	$	162,003

December 31, 2023
Interest rate derivative assets	$	157,080	$	(15,154)	$	—	$	141,926
Foreign exchange derivative assets with correspondent banks	532		(532)		—		—
Total	$	157,612	$	(15,686)	$	—	$	141,926

Interest rate derivative liabilities	$	245,553	$	(21,343)	$	(93,841)	$	130,369
Foreign exchange derivative liabilities with correspondent banks	31		(532)		—		(501)
Total	$	245,584	$	(21,875)	$	(93,841)	$	129,868

(1) For interest rate derivative assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default.

For interest rate derivative liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default.

(2) Amounts represent cash collateral received from the counterparty or posted by the Corporation on interest rate derivative transactions and foreign exchange

contracts with financial institution counterparties. Interest rate derivatives with customers are collateralized by the same collateral securing the underlying

loans to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.