Derivatives and Hedging Activities

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities

Derivatives and Hedging Activities

The Company utilizes loan level derivatives which consist of interest-rate contracts (swaps, caps and floors), and risk participation agreements as part of the Company's interest-rate risk management strategy for certain assets and liabilities and not for speculative purposes. 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".

Interest-rate swap, cap and floor agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company did not have derivative fair value hedges or derivative cash flow hedges as of December 31, 2019 or 2018.

Derivatives not designated as hedges are not speculative, but rather, result from a service the Company provides to certain customers for a fee. 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.

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. The risk participation-out agreements have grown in tandem with the Company's increase in derivative activity.

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. Under a risk participation-in agreement, a derivative liability, the Company assumes, or participates in, a portion of the credit risk associated with the interest rate swap position with the commercial borrower, for a fee received from the other bank.

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, respectively on the consolidated balance sheets.

The following tables presents 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
	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

	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, 2018
	(Dollars In Thousands)
Loan level derivatives
Receive fixed, pay variable	86	$	1,931	$	26,419	$	—	$	31,762	$	654,388	$	714,500	$	6,081
Pay fixed, receive variable	86	1,931		26,419		—		31,762		654,388		714,500		6,081
Risk participation-out agreements	26	—		14,892		—		—		85,639		100,531		344
Risk participation-in agreements	5	—		—		—		—		35,838		35,838		84
Foreign exchange contracts
Buys foreign currency, sells U.S. currency	22	$	6,573	$	—	$	—	$	—	$	—	$	6,573	$	123
Sells foreign currency, buys U.S. currency	37	6,582		—		—		—		—		6,582		131

Changes in the fair value are recognized directly in the Company's consolidated statements of income and are included in other non-interest income in the consolidated statements of income. The table below presents the net gain (loss) recognized in income due to changes in the fair value for the year ended December 31, 2019 and 2018.

	Year Ended December 31,
	2019			2018
	(In Thousands)
Net gain recognized in income on:
Net risk participation agreements	686			205
Foreign exchange contracts	(7		)	1
Total	$	679		$	206

By using derivative financial instruments, the Company exposes itself to credit risk which is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy and by limiting the amount of exposure to each counterparty by either cross collateralizing the underlying hedged loan or through bilateral posting of collateral to cover exposure. As the swaps are subject to master netting agreements, the Company had limited exposure relating to loan level derivatives with institutional counterparties as of December 31, 2019 and 2018. The estimated net credit risk exposure for derivative financial instruments was zero as of December 31, 2019, and 2018.

Certain derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. The Company posted collateral of $86.5 million and $5.9 million in the normal course of business as of December 31, 2019 and 2018, respectively.

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

	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
							Financial Instruments Pledged		Cash Collateral Pledged
	(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	)

	At December 31, 2018
	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
							Financial Instruments Pledged		Cash Collateral Pledged
	(In Thousands)
Asset derivatives
Loan level derivatives	$	22,013	$	—	$	22,013	$	—	$	50	$	21,963
Risk participation-out agreements	344		—		344		—		—		344
Foreign exchange contracts	131		—		131		—		—		131
Total	$	22,488	$	—	$	22,488	$	—	$	50	$	22,438
Liability derivatives
Loan level derivatives	$	22,013	$	—	$	22,013	$	5,877	$	—	$	16,136
Risk participation-in agreements	84		—		84		—		—		84
Foreign exchange contracts	123		—		123		—		—		123
Total	$	22,220	$	—	$	22,220	$	5,877	$	—	$	16,343

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.