Derivatives

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives:

The Company utilizes derivative financial instruments as part of its ongoing efforts to manage its interest rate risk exposure as well as the exposure for its customers. Derivative financial instruments are included in the consolidated balance sheets line item “Other assets” or “Other liabilities” at fair value in accordance with ASC 815, “Derivatives and Hedging.”

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate-lock commitments). Under such commitments, interest rates for mortgage loans are typically locked in for between 45 to 90 days with the customer. These interest rate lock commitments are recorded at fair value in the Company’s consolidated balance sheets. The Company also enters into best effort or mandatory delivery forward commitments to sell residential mortgage loans to secondary market investors. Gains and losses arising from changes in the valuation of the rate-lock commitments and forward commitments are recognized currently in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.

The Company enters into forward commitments, futures and options contracts that are not designated as hedging instruments as economic hedges to offset the changes in fair value of Mortgage servicing rights. Gains and losses associated with these instruments are included in earnings and are reflected under the line item “Mortgage banking income” on the consolidated statements of income.

Additionally, the Company enters into derivative instruments that are not designated as hedging instruments to help its commercial customers manage their exposure to interest rate fluctuations. To mitigate the interest rate risk associated with customer contracts, the Company enters into an offsetting derivative contract. The Company manages its credit risk, or potential risk of default by its commercial customers through credit limit approval and monitoring procedures.

The Company also maintains two interest rate swap agreements with notional amounts totaling $30,000 used to hedge interest rate exposure on outstanding subordinated debentures included in long-term debt totaling $30,930. Under these agreements, the Company receives a variable rate of interest equal to 3-month LIBOR and pays a weighted average fixed rate of interest of 2.08%. Upon the cessation of LIBOR in June 2023, the rate will convert to SOFR plus an adjustment in accordance with market standards. The interest rate swap contracts, which mature in June of 2024, are designated as cash flow hedges with the objective of reducing the variability in cash flows resulting from changes in interest rates. As of December 31, 2021 and 2020, the fair value of these contracts resulted in liability balances of $785 and $1,909, respectively.

In July 2017, the Company entered into three interest rate swap contracts to hedge the variability of cash flows associated with the Company’s FHLB borrowings. These swaps were canceled during the year ended December 31, 2018, locking in a tax-adjusted gain of $1,564 in other comprehensive income to be accreted over the terms of the underlying contracts. The advances associated with the legacy cash flow hedge matured during the year ended December 31, 2020, and the Company elected not to renew them. As such, during the year ended December 31, 2020, the remaining unamortized gain was reclassified from accumulated other comprehensive income to earnings.

The following tables provide details on the Company’s derivative financial instruments as of the dates presented:

	December 31, 2021
	Notional Amount		Asset		Liability
Not designated as hedging:
Interest rate contracts	$	600,048	$	19,265	$	19,138
Forward commitments	1,180,000		—		1,077
Interest rate-lock commitments	487,396		7,197		—
Futures contracts	429,000		922		—
Total	$	2,696,444	$	27,384	$	20,215

	December 31, 2020
	Notional Amount		Asset		Liability
Not designated as hedging:
Interest rate contracts	$	606,878	$	34,547	$	34,317
Forward commitments	1,358,328		—		11,633
Interest rate-lock commitments	1,191,621		34,391		—
Futures contracts	375,400		—		383
Total	$	3,532,227	$	68,938	$	46,333

	December 31, 2021
	Notional Amount		Asset		Liability
Designated as hedging:
Interest rate swaps	$	30,000	$	—	$	785

	December 31, 2020
	Notional Amount		Asset		Liability
Designated as hedging:
Interest rate swaps	$	30,000	$	—	$	1,909

Gains (losses) included in the consolidated statements of income related to the Company’s derivative financial instruments were as follows:

	Year Ended December 31,
	2021		2020		2019
Not designated as hedging instruments (included in mortgage banking income):
Interest rate lock commitments	$	(27,194)	$	27,339	$	(2,112)
Forward commitments	25,661		(73,033)		12,170
Futures contracts	(7,949)		8,151		(6,723)
Option contracts	—		—		(47)
Total	$	(9,482)	$	(37,543)	$	3,288

	Year Ended December 31,
	2021		2020		2019
Designated as hedging:
Amount of gain reclassified from other comprehensive       income and recognized in interest expense on       borrowings, net of tax expenses of $0, $337 and $170	$	—	$	955	$	481
Loss included in interest expense on borrowings	(577)		(353)		115
Total	$	(577)	$	602	$	596

The following discloses the amount included in other comprehensive income, net of tax, for derivative instruments designated as cash flow hedges for the periods presented: 

	Year Ended December 31,
	2021		2020		2019
Designated as hedging:
Amount of gain (loss) recognized in other comprehensive      income, net of tax expense (benefit) $293, $(363) and $(322)	$	831	$	(1,031)	$	(914)

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheets when the “right of offset” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement. Certain of the Company’s derivative instruments are subject to master netting agreements, however the Company has not elected to offset such financial instruments in the consolidated balance sheets. The following table presents the Company's gross derivative positions as recognized in the consolidated balance sheets as well as the net derivative positions, including collateral pledged to the extent the application of such collateral did not reduce the net derivative liability position below zero, had the Company elected to offset those instruments subject to an enforceable master netting agreement:

	Offsetting Derivative Assets				Offsetting Derivative Liabilities
	December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Gross amounts recognized	$	4,990	$	3,863	$	15,733	$	34,051
Gross amounts offset in the consolidated balance sheets	—		—		—		—
Net amounts presented in the consolidated balance sheets	4,990		3,863		15,733		34,051
Gross amounts not offset in the consolidated balance sheets
Less: financial instruments	4,297		857		4,297		857
Less: financial collateral pledged	—		—		11,436		33,194
Net amounts	$	693	$	3,006	$	—	$	—

Most derivative contracts with clients are secured by collateral. Additionally, in accordance with the interest rate agreements with derivatives dealers, the Company may be required to post margin to these counterparties. At December 31, 2021 and 2020, the Company had minimum collateral posting thresholds with certain derivative counterparties and had collateral posted of $57,868 and $57,985, respectively, against its obligations under these agreements. Cash pledged as collateral on derivative contracts is recorded in other assets on the consolidated balance sheets.