Derivative Instruments

(In Thousands)

The Company utilizes derivative financial instruments, including interest rate contracts such as swaps, caps and/or floors, as part of its ongoing efforts to mitigate its interest rate risk exposure and to facilitate the needs of its customers. 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 these customer contracts, the Company enters into an offsetting derivative contract position. The Company manages its credit risk, or potential risk of default by its commercial customers, through credit limit approval and monitoring procedures. At December 31, 2017, the Company had notional amounts of $216,741 on interest rate contracts with corporate customers and $216,741 in offsetting interest rate contracts with other financial institutions to mitigate the Company’s rate exposure on its corporate customers’ contracts.

In June 2014, the Company entered into two forward interest rate swap contracts on floating rate liabilities at the Bank level with notional amounts of $15,000 each. The interest rate swap contracts are accounted for as cash flow hedges with the objective of protecting against any interest rate volatility on future FHLB borrowings for a four-year and five-year period beginning June 1, 2018 and December 3, 2018 and ending June 2022 and June 2023, respectively. Under these contracts, Renasant Bank will pay a fixed interest rate of interest, and will receive a variable interest rate based on the three-month LIBOR plus a pre-determined spread, with quarterly net settlements.

In March and April 2012, the Company entered into two interest rate swap agreements effective March 30, 2014 and March 17, 2014, respectively. Under these swap agreements, the Company receives a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pays a fixed rate of interest. The agreements, which both terminate in March 2022, are accounted for as cash flow hedges to reduce the variability in cash flows resulting from changes in interest rates on $32,000 of the Company’s junior subordinated debentures.

In connection with its acquisition of First M&F, the Company assumed an interest rate swap designed to convert floating rate interest payments into fixed rate payments. Based on the terms of the agreement, which terminates in March 2018, the Company will receive a variable rate of interest based on the three-month LIBOR plus a pre-determined spread and pay a fixed rate of interest. The interest rate swap is accounted for as a cash flow hedge to reduce the variability in cash flows resulting from changes in interest rates on $30,000 of the junior subordinated debentures assumed in the acquisition of First M&F.

The Company enters into interest rate lock commitments with its customers to mitigate the interest rate risk associated with the commitments to fund fixed-rate residential mortgage loans. The notional amount of commitments to fund fixed-rate mortgage loans was $131,000 and $120,050 at December 31, 2017 and 2016, respectively. The Company also enters into forward commitments to sell residential mortgage loans to secondary market investors. The notional amount of commitments to sell residential mortgage loans to secondary market investors was $199,000 and $257,000 at December 31, 2017 and 2016, respectively.

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



		Fair Value
	Balance Sheet	December 31,
	Location	2017		2016
Derivative assets:
Not designated as hedging instruments:
Interest rate contracts	Other Assets	$	3,171	$	1,985
Interest rate lock commitments	Other Assets	2,756		2,643
Forward commitments	Other Assets	50		4,480
Totals		$	5,977	$	9,108
Derivative liabilities:
Designated as hedging instruments:
Interest rate swap	Other Liabilities	$	2,536	$	3,410
Totals		$	2,536	$	3,410
Not designated as hedging instruments:
Interest rate contracts	Other Liabilities	$	3,171	$	1,985
Interest rate lock commitments	Other Liabilities	4		246
Forward commitments	Other Liabilities	328		269
Totals		$	3,503	$	2,500

Gains (losses) included in the Consolidated Statements of Income related to the Company’s derivative financial instruments were as follows, as of the dates presented:



	Year Ended December 31,
	2017			2016			2015
Derivatives not designated as hedging instruments:
Interest rate contracts:
Included in interest income on loans	$	3,981		$	2,402		$	2,200
Interest rate lock commitments:
Included in mortgage banking income	356			(2,111		)	(530		)
Forward commitments
Included in mortgage banking income	(4,489		)	4,275			(1,917		)
Total	$	(152	)	$	4,566		$	(247	)

For the Company’s derivatives designated as cash flow hedges, changes in fair value of the cash flow hedges are, to the extent that the hedging relationship is effective, recorded as other comprehensive income and are subsequently recognized in earnings at the same time that the hedged item is recognized in earnings. The ineffective portions of the changes in fair value of the hedging instruments are immediately recognized in earnings. The assessment of the effectiveness of the hedging relationship is evaluated under the hypothetical derivative method. There were no ineffective portions for the years ended December 31, 2017, 2016 and 2015. The impact on other comprehensive income for the years ended December 31, 2017, 2016, and 2015, can be seen at Note 19, “Other Comprehensive Income.”

Offsetting

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet when the “right of setoff” 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 as of the dates presented:



	Offsetting Derivative Assets				Offsetting Derivative Liabilities
	December 31, 2017		December 31, 2016		December 31, 2017		December 31, 2016
Gross amounts recognized	$	717	$	4,778	$	5,303	$	4,893
Gross amounts offset in the consolidated balance sheets	—		—		—		—
Net amounts presented in the consolidated balance sheets	717		4,778		5,303		4,893
Gross amounts not offset in the consolidated balance sheets
Financial instruments	717		567		717		567
Financial collateral pledged	—		—		4,357		4,326
Net amounts	$	—	$	4,211	$	229	$	—