XML 28 R18.htm IDEA: XBRL DOCUMENT v3.23.3
Derivatives
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives 
 
The Bank may use derivatives to hedge the risk of changes in the fair values of interest rate lock commitments, residential mortgage loans held for sale, and MSRs. None of the Company's derivatives are designated as hedging instruments. Rather, they are accounted for as free-standing derivatives, or economic hedges, with changes in the fair value of the derivatives reported in income. The Company primarily utilizes forward interest rate contracts in its derivative risk management strategy. 
The Bank enters into forward delivery contracts to sell residential mortgage loans or mortgage-backed securities to broker-dealers at specific prices and dates in order to hedge the interest rate risk in its portfolio of mortgage loans held for sale and its residential mortgage interest rate lock commitments. Credit risk associated with forward contracts is limited to the replacement cost of those forward contracts in a gain position. There were no counterparty default losses on forward contracts in the three and nine months ended September 30, 2023 and 2022. Market risk with respect to forward contracts arises principally from changes in the value of contractual positions due to changes in interest rates. The Bank limits its exposure to market risk by monitoring differences between commitments to customers and forward contracts with broker-dealers. In the event the Company has forward delivery contract commitments in excess of available mortgage loans, the Company completes the transaction by either paying or receiving a fee to or from the broker-dealer equal to the increase or decrease in the market value of the forward contract. At September 30, 2023 and December 31, 2022, the Bank had commitments to originate mortgage loans held for sale totaling $34.8 million and $56.1 million, respectively, and forward sales commitments of $49.2 million and $104.0 million, respectively, which are used to hedge both on-balance sheet and off-balance sheet exposures. 

The Bank purchases interest rate futures and forward settling mortgage-backed securities to hedge the interest rate risk of MSRs. As of September 30, 2023, the Bank had $133.0 million notional of interest rate futures contracts and $6.0 million of mortgage-backed securities related to this program. The Bank had cash collateral posting requirements for margins with its futures and mortgage-back securities counterparties and was required to post collateral against its obligations under these agreements of $4.2 million as of September 30, 2023.
 
The Bank executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting the interest rate swaps that the Bank executes with a third party, such that the Bank minimizes its net risk exposure. As of September 30, 2023, the Bank had 1,304 interest rate swaps with an aggregate notional amount of $9.0 billion related to this program. As of December 31, 2022, the Bank had 922 interest rate swaps with an aggregate notional amount of $7.3 billion related to this program.

As of September 30, 2023 and December 31, 2022, the termination value of interest rate swaps in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $401.5 million and $270.0 million, respectively. The Bank has collateral posting requirements for initial margins with its clearing members and clearing houses and has been required to post collateral against its obligations under these agreements of $82.1 million and $89.5 million as of September 30, 2023 and December 31, 2022, respectively.

The Bank's clearable interest rate swap derivatives are cleared through the Chicago Mercantile Exchange and London Clearing House. These clearing houses characterize the variation margin payments, for certain derivative contracts that are referred to as settled-to-market, as settlements of the derivative's mark-to-market exposure and not collateral. The Company accounts for the variation margin as an adjustment to cash collateral, as well as a corresponding adjustment to the derivative asset and liability. As of September 30, 2023 and December 31, 2022, the variation margin adjustments consisted of positive adjustments of $261.7 million and $209.5 million, respectively.

Since the end of 2021, the Bank has solely executed swaps indexed to Term SOFR, which are not clearable. As such, at September 30, 2023 and December 31, 2022, there were 228 and 71 customer swaps, respectively, that were offset via a swap executed on a bilateral basis with a counterparty bank. There is no initial margin posted for bilateral swaps, but cash collateral equivalent to variation margin is exchanged to cover the mark-to-market exposure on a daily basis. As of September 30, 2023 and December 31, 2022, the Bank held a total of $149.7 million and $51.9 million, respectively, of counterparty bank cash as collateral on these bilateral positions.

The Bank also executes foreign currency hedges as a service for customers. These foreign currency hedges are then offset with hedges with other third-party banks to limit the Bank's risk exposure.
The Bank's derivative assets are included in other assets, while the derivative liabilities are included in other liabilities. The following table summarizes the types of derivatives, separately by assets and liabilities, and the fair values of such derivatives as of the dates presented:  
(in thousands)Asset DerivativesLiability Derivatives
Derivatives not designated as hedging instrumentSeptember 30, 2023December 31, 2022September 30, 2023December 31, 2022
Interest rate lock commitments$— $50 $427 $18 
Interest rate futures— — 1,630 392 
Interest rate forward sales commitments441 512 13 601 
Interest rate swaps— 14,657 401,515 270,009 
Foreign currency derivatives328 225 236 185 
Total derivative assets and liabilities$769 $15,444 $403,821 $271,205 
 
As a result of rising interest rates, the Company’s bilateral interest rate swaps were in a net asset position, however, the collateral netted against that asset position, leaving the swaps in a net liability position.

The gains and losses on the Company's mortgage banking derivatives are included in mortgage banking revenue. The gains and losses on the Company's interest rate swaps and foreign currency derivatives are included in other income. The following table summarizes the types of derivatives and the gains (losses) recorded during the periods indicated:  
(in thousands)Three Months EndedNine Months Ended
Derivatives not designated as hedging instrumentSeptember 30, 2023September 30, 2022September 30, 2023September 30, 2022
Interest rate lock commitments$(376)$(2,149)$(459)$(6,907)
Interest rate futures(4,733)(14,128)(9,719)(14,128)
Interest rate forward sales commitments1,008 10,017 790 49,468 
Interest rate swaps5,700 4,194 3,445 18,578 
Foreign currency derivatives43 779 (36)2,283 
Total derivative gains (losses)$1,642 $(1,287)$(5,979)$49,294