XML 31 R19.htm IDEA: XBRL DOCUMENT v3.21.2
Derivative Instruments and Hedging Activities
 6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the ordinary course of business, the Company enters into derivative transactions as part of its overall interest rate risk management strategy. The significant accounting policies related to derivative instruments and hedging activities are presented in Note 1, "Summary of Significant Accounting Policies."
Cash Flow Hedges
As of June 30, 2021, the Company hedged $430.0 million of certain corporate variable rate loans using interest rate swaps through which the Company receives fixed amounts and pays variable amounts. The Company also hedged $25.0 million of borrowed funds using interest rate swaps through which the Company receives variable amounts and pays fixed amounts. These transactions allow the Company to add stability to net interest income and manage its exposure to interest rate movements.
The forward starting interest rate swaps totaling $25.0 million begin in January of 2023 and mature in January of 2026. The weighted-average fixed interest rate to be paid on these interest rate swaps that have not yet begun was 0.60% as of June 30, 2021. These derivative contracts are designated as cash flow hedges.
Cash Flow Hedges
(Dollar amounts in thousands)
As of
 June 30, 2021December 31, 2020
Gross notional amount outstanding$455,000 $455,000 
Derivative asset fair value in other assets(1)
1,410 3,707 
Derivative liability fair value in other liabilities(1)
— (1)
Weighted-average interest rate received2.18 %2.18 %
Weighted-average interest rate paid0.11 %0.15 %
Weighted-average maturity (in years)1.001.50
(1)Certain cash flow hedges are transacted through a clearinghouse ("centrally cleared") and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
Changes in the fair value of cash flow hedges are recorded in accumulated other comprehensive income (loss) on an after-tax basis and are subsequently reclassified to interest income or expense in the period that the forecasted hedged item impacts earnings. As of June 30, 2021, the Company estimates that $6.9 million will be reclassified from accumulated other comprehensive income (loss) as an increase to interest income over the next twelve months.
Other Derivative Instruments
The Company also enters into derivative transactions through capital market products with its commercial customers and simultaneously enters into an offsetting interest rate derivative transaction with third-parties. This transaction allows the Company's customers to effectively convert a variable rate loan into a fixed rate loan. Due to the offsetting nature of these transactions, the Company does not apply hedge accounting treatment. The Company's credit exposure on these derivative transactions results primarily from counterparty credit risk. The credit valuation adjustment ("CVA") is a fair value adjustment to the derivative to account for this risk. As of June 30, 2021 and December 31, 2020, the Company's credit exposure was fully secured by the underlying collateral on customer loans and mitigated through netting arrangements with third-parties; therefore, no CVA was recorded. Capital market products income related to commercial customer derivative instruments totaled $2.0 million and $4.0 million for the quarter and six months ended June 30, 2021, and were $694,000 and $5.4 million for the quarter and six months ended June 30, 2020.
Other Derivative Instruments
(Dollar amounts in thousands)
As of
 June 30, 2021December 31, 2020
Gross notional amount outstanding$4,674,616 $4,491,398 
Derivative asset fair value in other assets(1)
101,027 149,997 
Derivative liability fair value in other liabilities(1)
(33,528)(44,580)
Fair value of derivative(2)
34,527 46,018 
(1)Certain other derivative instruments are centrally cleared and their change in fair value is settled by the counterparties to the transaction, which results in no fair value.
(2)This amount represents the fair value if credit risk related contingent features were triggered.
The Company occasionally enters into risk participation agreements with counterparty banks to transfer or assume a portion of the credit risk related to customer transactions. The amounts of these instruments were not material for any periods presented. The Company had no other derivative instruments as of June 30, 2021 and December 31, 2020. The Company does not enter into derivative transactions for purely speculative purposes.
The following table presents the impact of derivative instruments on comprehensive income (loss) and the reclassification of gains (losses) from accumulated other comprehensive income (loss) to net interest income for the quarters and six months ended June 30, 2021 and 2020.
Cash Flow Hedge Accounting on AOCI
(Dollar amounts in thousands)
Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
2021202020212020
Gains (losses) recognized in other comprehensive income
Interest rate swaps in interest income$151 $5,951 $354 $27,955 
Interest rate swaps in interest expense(90)(1,276)(702)(13,685)
Reclassification of gains included in net income
Interest rate swaps in interest income$2,226 $2,624 $4,430 $3,069 
Interest rate swaps in interest expense— — — — 
The following table presents the impact of derivative instruments on net interest income for the quarters and six months ended June 30, 2021 and 2020.
Hedge Income
(Dollar amounts in thousands)
 Quarters Ended 
 June 30,		Six Months Ended 
 June 30,
 2021202020212020
Cash Flow Hedges
Interest rate swaps in interest income$2,226 $2,624 $4,430 $3,069 
Interest rate swaps in interest expense— — — — 
Total cash flow hedges $2,226 $2,624 $4,430 $3,069 
Credit Risk
Derivative instruments are inherently subject to credit risk, which represents the Company's risk of loss when the counterparty to a derivative contract fails to perform according to the terms of the agreement. Credit risk is managed by limiting and collateralizing the aggregate amount of net unrealized losses by transaction, monitoring the size and the maturity structure of the derivatives, and applying uniform credit standards. Company policy establishes limits on credit exposure to any single counterparty. In addition, the Company established bilateral collateral agreements with derivative counterparties that provide for exchanges of marketable securities or cash to collateralize either party's net losses above a stated minimum threshold. As of June 30, 2021 and December 31, 2020, these collateral agreements covered 100% of the fair value of the Company's outstanding derivatives. Derivative assets and liabilities are presented gross, rather than net, of pledged collateral amounts.
Certain derivative instruments are subject to master netting agreements with counterparties. The Company records these transactions at their gross fair values and does not offset derivative assets and liabilities in the Consolidated Statements of Financial Condition. The following table presents the fair value of the Company's derivatives and offsetting positions as of June 30, 2021 and December 31, 2020.
Fair Value of Offsetting Derivatives
(Dollar amounts in thousands)
As of June 30, 2021As of December 31, 2020
 AssetsLiabilitiesAssetsLiabilities
Gross amounts recognized$102,437 $33,528 $153,704 $44,581 
Less: amounts offset in the Consolidated Statements of
  Financial Condition		— — — — 
Net amount presented in the Consolidated Statements of
  Financial Condition(1)
102,437 33,528 153,704 44,581 
Gross amounts not offset in the Consolidated Statements of
  Financial Condition:
Offsetting derivative positions(3,467)(3,467)(5,239)(5,239)
Cash collateral pledged— (28,720)— (39,970)
Net credit exposure$98,970 $1,341 $148,465 $(628)
(1)Included in other assets or other liabilities in the Consolidated Statements of Financial Condition.
As of June 30, 2021 and December 31, 2020, the Company's derivative instruments generally contained provisions that require the Company's debt to remain above a certain credit rating by each of the major credit rating agencies or that the Company maintain certain capital levels. If the Company's debt were to fall below that credit rating or the Company's capital were to fall below the required levels, it would be in violation of those provisions, and the counterparties to the derivative instruments could terminate the swap transaction and demand cash settlement of the derivative instrument in an amount equal to the derivative liability fair value. As of June 30, 2021 and December 31, 2020 the Company was in compliance with these provisions.