Derivatives and Hedging

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives and Hedging

Derivatives and HedgingDerivatives not designated as hedges are not speculative and result from a service the Company provides to clients. The Company executes interest rate swaps with customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. The gains and losses are included in “other assets” on the Statements of Cash Flows.

During 2019, the Company changed an input associated with the fair market value related to derivatives not designated as hedges. The model utilized to calculate the non-performance risk, also known as the credit valuation adjustment, or CVA, was adjusted from a more conservative default methodology to a review of the historical defaults recognized by the Company. Management believes this change better aligns with the Company’s credit methodology and underwriting standards.

As of September 30, 2020 and December 31, 2019, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships:

	September 30, 2020			December 31, 2019
Product	Number of Instruments	Notional Amount		Number of Instruments	Notional Amount
	(Dollars in thousands)
Back-to-back swaps	60	$	545,559	56	$	380,050

The table below presents the fair value of the Company’s derivative financial instruments and their classification on the Balance Sheet as of September 30, 2020 and December 31, 2019:

	Asset Derivatives					Liability Derivatives
	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,
	Location	2020		2019		Location	2020		2019
	(Dollars in thousands)
Derivatives not designated as hedging instruments
Interest rate products	Other assets	$	27,873	$	9,838	Other liabilities	$	27,949	$	9,907

The effect of the Company’s derivative financial instruments that are not designated as hedging instruments are reported on the Consolidated Statements of Income as swap fee income, net. The effect of the Company’s derivative financial instruments gain (loss) are reported on the Consolidated Statements of Cash Flows within other assets and other liabilities.