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Derivative Instruments
 6 Months Ended
Jun. 30, 2023
Derivative Instrument Detail [Abstract]  
Derivative Instruments Derivative Instruments
The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. With the exception of the interest rate floors (discussed below), the Company's derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.


(In thousands)
June 30, 2023December 31, 2022
Interest rate swaps$2,161,392 $1,981,821 
Interest rate floors1,500,000 1,000,000 
Interest rate caps152,784 152,784 
Credit risk participation agreements580,358 579,925 
Foreign exchange contracts14,590 27,991 
 Mortgage loan commitments
3,268 — 
Forward TBA contracts4,000 — 
Total notional amount$4,416,392 $3,742,521 

The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings.

Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

As of June 30, 2023, the Company holds three interest rate floors with a combined notional value of $1.5 billion to hedge the risk of declining interest rates on certain floating rate commercial loans. The first floor was purchased during the third quarter of 2022, has a purchased strike rate of 2.50%, is forward-starting beginning on January 1, 2024 and matures on January 1, 2030. In the event that the index rate falls below zero, the maximum rate spread the Company can earn on the notional amount is limited to 2.50%. The second floor was purchased during the fourth quarter of 2022, has a purchased strike rate of 3.00%, is forward-starting beginning on April 1, 2024 and matures on April 1, 2030. In the event that the index rate falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.00%. The third floor was purchased during the first quarter of 2023, has a purchased strike rate of 3.50%, is forward-starting beginning on July 1, 2024 and matures on July 1, 2030. In the event that the index rate falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.50%. The premium paid for these floors totaled $61.7 million. As of June 30, 2023, the maximum length of time over which the Company is hedging its exposure to lower rates is approximately 6.5 years. These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income. As of June 30, 2023, net deferred losses on the interest rate floors totaled $8.0 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of June 30, 2023, it is expected that $7.4 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months.

During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of June 30, 2023, the total realized gains on the monetized cash flow hedges remaining in AOCI was $63.1 million (pre-tax), which will be reclassified into interest income over the next 3.5 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at June 30, 2023 that is expected to be reclassified into income within the next 12 months is $23.0 million.
The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts with customers to purchase or deliver specific foreign currencies at specific future dates.

Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. In late 2022, the Company temporarily paused sales of these loans and halted entering into the forward contracts, as lower demand for mortgage loans coupled with volatility in the TBA market made it difficult to effectively hedge the Company's mortgage loan production. The Company resumed sales during the first quarter of 2023.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 15 on Fair Value Measurements.

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at June 30, 2023 in the table below, the positive fair values of cleared swaps were reduced by $878 thousand. At December 31, 2022, positive fair values of cleared swaps were reduced by $27.8 million.

 Asset DerivativesLiability Derivatives
June 30, 2023Dec. 31, 2022June 30, 2023Dec. 31, 2022
(In thousands)    
  Fair Value  Fair Value
Derivatives designated as hedging instruments:
   Interest rate floors$53,748 $33,371 $— $— 
Total derivatives designated as hedging instruments$53,748 $33,371 $— $— 
Derivative instruments not designated as hedging instruments:
   Interest rate swaps$48,492 $23,894 $(49,370)$(51,742)
   Interest rate caps2,182 2,705 (2,182)(2,705)
   Credit risk participation agreements35 34 (88)(119)
   Foreign exchange contracts399 488 (358)(418)
   Mortgage loan commitments58 — — — 
   Forward TBA contracts22 — — — 
Total derivatives not designated as hedging instruments$51,188 $27,121 $(51,998)$(54,984)
Total$104,936 $60,492 $(51,998)$(54,984)
The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness measurement. Those initial premiums are amortized over the periods between the premium payment month and the contract maturity month. The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge effectiveness measurement) are shown in the table below.



Amount of Gain or (Loss) Recognized in OCI
Location of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
(In thousands)TotalIncluded ComponentExcluded ComponentTotalIncluded ComponentExcluded Component
For the Three Months Ended June 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors$(14,748)$— $(14,748)Interest and fees on loans$4,165 $7,455 $(3,290)
Total$(14,748)$— $(14,748)Total$4,165 $7,455 $(3,290)
For the Six Months Ended June 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors$(5,523)$— $(5,523)Interest and fees on loans$8,550 $14,899 $(6,349)
Total$(5,523)$— $(5,523)Total$8,550 $14,899 $(6,349)
For the Three Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors$— $— $— Interest and fees on loans$6,154 $7,687 $(1,533)
Total$— $— $— Total$6,154 $7,687 $(1,533)
For the Six Months Ended June 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors$— $— $— Interest and fees on loans$12,204 $15,253 $(3,049)
Total$— $— $— Total$12,204 $15,253 $(3,049)

The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in the table below.



Location of Gain or (Loss) Recognized in Consolidated Statements of Income Amount of Gain or (Loss) Recognized in Income on Derivatives

For the Three Months Ended June 30For the Six Months Ended June 30
(In thousands)2023202220232022
Derivative instruments:
  Interest rate swapsOther non-interest income$1,873 $870 $2,496 $1,682 
  Interest rate capsOther non-interest income— — — 16 
  Credit risk participation agreementsOther non-interest income3 (82)(16)(92)
  Foreign exchange contractsOther non-interest income(9)14 (29)— 
  Mortgage loan commitmentsLoan fees and sales(19)(49)58 (534)
  Mortgage loan forward sale contractsLoan fees and sales1 (4)— (4)
  Forward TBA contractsLoan fees and sales49 423 50 1,666 
Total$1,898 $1,172 $2,559 $2,734 

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after
netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.

Gross Amounts Not Offset in the Balance Sheet
(In thousands)Gross Amount RecognizedGross Amounts Offset in the Balance SheetNet Amounts Presented in the Balance SheetFinancial Instruments Available for OffsetCollateral
Received/
Pledged		Net Amount
June 30, 2023
Assets:
Derivatives subject to master netting agreements
$104,855 $— $104,855 $(746)$(100,290)$3,819 
Derivatives not subject to master netting agreements
81 — 81 
Total derivatives$104,936 $— $104,936 
Liabilities:
Derivatives subject to master netting agreements
$51,584 $— $51,584 $(746)$— $50,838 
Derivatives not subject to master netting agreements
414 — 414 
Total derivatives$51,998 $— $51,998 
December 31, 2022
Assets:
Derivatives subject to master netting agreements
$60,270 $— $60,270 $(1,007)$(56,816)$2,447 
Derivatives not subject to master netting agreements
222 — 222 
Total derivatives$60,492 $— $60,492 
Liabilities:
Derivatives subject to master netting agreements
$54,609 $— $54,609 $(1,007)$— $53,602 
Derivatives not subject to master netting agreements
375 — 375 
Total derivatives$54,984 $— $54,984