Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Positions and Offsetting

Derivatives Designated as Hedging Instruments. Interest rate swaps allow the Company to change the fixed or variable nature of an interest rate without the exchange of the underlying notional amount. Certain pay fixed/receive variable interest rate swaps are designated as cash flow hedges to effectively convert variable-rate debt into fixed-rate debt, whereas certain receive fixed/pay variable interest rate swaps are designated as fair value hedges to effectively convert fixed-rate long-term debt into variable-rate debt. Certain purchased options are also designated as cash flow hedges. Purchased options allow the Company to limit the potential adverse impact of variable interest rates by establishing a cap rate or floor rate in exchange for an upfront premium. The purchased options designated as cash flow hedges represent interest rate caps where payment is received from the counterparty if interest rates rise above the cap rate, and interest rate floors where payment is received from the counterparty when interest rates fall below the floor rate.

Derivatives Not Designated as Hedging Instruments. The Company also enters into other derivative transactions to manage economic risks, but does not designate the instruments in hedge relationships. In addition, the Company enters into derivative contracts to accommodate customer needs. Derivative contracts with customers are offset with dealer counterparty transactions structured with matching terms to ensure minimal impact on earnings.

The following tables present the notional amounts and fair values, including accrued interest, of derivative positions:


	At March 31, 2024
	Asset Derivatives				Liability Derivatives
(In thousands)	Notional Amounts		Fair Value		Notional Amounts		Fair Value
Designated as hedging instruments:
Interest rate derivatives (1)	$	500,000	$	263	$	4,750,000	$	44,366
Not designated as hedging instruments:
Interest rate derivatives (1)	8,542,883		362,602		8,542,895		362,802
Mortgage banking derivatives (2)	1,463		15		—		—
Other (3)	364,396		662		744,777		225
Total not designated as hedging instruments	8,908,742		363,279		9,287,672		363,027
Gross derivative instruments, before netting	$	9,408,742	363,542		$	14,037,672	407,393
Less: Master netting agreements			61,395				61,395
Cash collateral received/paid			285,297				—
Total derivative instruments, after netting			$	16,850			$	345,998

	At December 31, 2023
	Asset Derivatives				Liability Derivatives
(In thousands)	Notional Amounts		Fair Value		Notional Amounts		Fair Value
Designated as hedging instruments:
Interest rate derivatives (1)	$	2,750,000	$	11,140	$	2,700,000	$	13,679
Not designated as hedging instruments:
Interest rate derivatives (1)	8,284,356		319,122		8,272,197		321,064
Mortgage banking derivatives (2)	2,798		37		—		—
Other (3)	340,553		337		731,055		1,067
Total not designated as hedging instruments	8,627,707		319,496		9,003,252		322,131
Gross derivative instruments, before netting	$	11,377,707	330,636		$	11,703,252	335,810
Less: Master netting agreements			55,949				55,949
Cash collateral received/paid			232,190				—
Total derivative instruments, after netting			$	42,497			$	279,861

(1)Balances related to clearing houses are presented as a single unit of account. In accordance with their rule books, clearing houses legally characterize variation margin payments as settlement of derivatives rather than collateral against derivative positions. Notional amounts of interest rate swaps cleared through clearing houses included $91.0 million and $113.8 million for asset derivatives at March 31, 2024, and December 31, 2023, respectively. The related fair values approximated zero. There were no interest rate swaps cleared through clearing houses for liability derivatives at both March 31, 2024, and December 31, 2023.

(2)Notional amounts related to residential loans excluded approved floating rate commitments of $1.7 million and $1.0 million at March 31, 2024, and December 31, 2023, respectively.

(3)Other derivatives include foreign currency forward contracts related to lending arrangements, a Visa equity swap transaction, and risk participation agreements. Notional amounts of risk participation agreements included $300.5 million and $299.2 million for asset derivatives and $707.6 million and $682.9 million for liability derivatives at March 31, 2024, and December 31, 2023, respectively, which had insignificant related fair values.

The following tables represent the off-setting derivative financial instruments that are subject to matter netting agreements:


	At March 31, 2024
(In thousands)	Gross Amount Recognized		Derivative Offset Amount		Cash Collateral Received/Paid		Net Amount Presented
Asset derivatives	$	346,853	$	61,395	$	285,297	$	161
Liability derivatives	61,395		61,395		—		—

	At December 31, 2023
(In thousands)	Gross Amount Recognized		Derivative Offset Amount		Cash Collateral Received/Paid		Net Amount Presented
Asset derivatives	$	289,778	$	55,949	$	232,190	$	1,639
Liability derivatives	55,949		55,949		—		—

Derivative Activity

The following table summarizes the income statement effect of derivatives designated as hedging instruments:


	Recognized In	Three months ended March 31,
(In thousands)	Net Interest Income	2024		2023
Fair value hedges:
Interest rate derivatives	Deposits interest expense	$	(1,320)	$	(10,235)
Hedged item	Deposits interest expense	—		10,427
Net recognized on fair value hedges (1)		$	1,320	$	(192)
Cash flow hedges:
Interest rate derivatives	Long-term debt interest expense	$	34	$	76
Interest rate derivatives	Interest and fees on loans and leases	(10,764)		(736)
Net recognized on cash flow hedges		$	(10,798)	$	(812)

(1)The Company de-designated its fair value hedging relationship on $400.0 million of deposits, which pertained to a portion of Ametros’ member deposits, in 2023. The $1.3 million basis adjustment included in the carrying amount of deposits at December 31, 2023, was amortized into interest expense in January 2024 upon the acquisition of Ametros.

Time-value premiums, which are amortized on a straight-line basis, are excluded from the assessment of hedge effectiveness for purchased options designated as cash flow hedges. The remaining unamortized balance of time-value premiums at March 31, 2024, was $0.3 million. Over the next twelve months, an estimated $30.4 million decrease to interest income will be reclassified from (AOCL) relating to cash flow hedge gain/loss. The maximum length of time over which forecasted transactions are hedged is 3.0 years. Additional information regarding cash flow hedge activity impacting (AOCL) and the related amounts reclassified to net income can be found within Note 8: Accumulated Other Comprehensive (Loss), Net of Tax.

The following table summarizes the income statement effect of derivatives not designated as hedging instruments:


	Recognized In	Three months ended March 31,
(In thousands)	Non-interest Income	2024		2023
Interest rate derivatives	Other income	$	1,290	$	(3,687)
Mortgage banking derivatives	Mortgage banking activities	(22)		(16)
Other	Other income	1,277		(735)
Total not designated as hedging instruments		$	2,545	$	(4,438)

Derivative Exposure. At March 31, 2024, the Company had $2.3 million in initial margin posted at clearing houses, and $290.3 million of cash collateral received included in Cash and due from banks on the accompanying Condensed Consolidated Balance Sheets. The Company regularly evaluates the credit risk of its derivative customers, taking into account the likelihood of default, net exposures, and remaining contractual life, among other related factors. Credit risk exposure is mitigated as transactions with customers are generally secured by the same collateral of the underlying transactions. The current net credit exposure relating to derivative contracts with customers was $16.7 million at March 31, 2024. In addition, the Company also monitors potential future exposure, representing its best estimate of exposure to remaining contractual maturity. The potential future exposure relating to derivative contracts with customers was $112.0 million at March 31, 2024. The Company has incorporated a credit valuation adjustment (contra-liability) to reflect non-performance risk in the fair value measurement of its derivatives, which totaled $7.5 million and $6.2 million at March 31, 2024, and December 31, 2023, respectively. Various factors impact changes in the valuation adjustment over time, such as changes in the credit spreads of the contracted parties, and changes in market rates and volatilities, which affect the total expected exposure of the derivative instruments.