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Derivatives and Hedging Activities
 12 Months Ended
Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities Derivatives and Hedging Activities
The table below presents the fair value of derivative financial instruments as of the dates indicated as well as their classification on the consolidated balance sheets (in thousands):
December 31, 2021December 31, 2020
Notional AmountFair ValueNotional AmountFair Value
Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
Derivatives designated as hedging instruments:
Cash flow hedge of subordinated debt$100,000 $6,389 $— $100,000 $3,378 $— 
Cash flow hedge of trust preferred securities20,000 — — 20,000 — — 
Fair value hedge of brokered CDs10,000 — — 20,000 — — 
Total130,000 6,389 — 140,000 3,378 — 
Derivatives not designated as hedging instruments:
Customer derivative positions1,206,145 28,656 10,663 1,329,271 72,508 17 
Dealer offsets to customer derivative positions1,230,885 974 9,232 1,329,271 1 24,614 
Risk participations69,385 16 7 48,843 28 12 
Mortgage banking - loan commitment110,897 3,450 — 253,243 10,751 — 
Mortgage banking - forward sales commitment201,419 67 202 325,145 — 1,964 
Bifurcated embedded derivatives51,935 2,928 — 51,935 — 1,449 
Dealer offsets to bifurcated embedded derivatives51,935 — 5,041 51,935 — 947 
Total2,922,601 36,091 25,145 3,389,643 83,288 29,003 
Total derivatives$3,052,601 $42,480 $25,145 $3,529,643 $86,666 $29,003 
Total gross derivative instruments$42,480 $25,145 $86,666 $29,003 
Less: Amounts subject to master netting agreements(694)(694)(114)(114)
Less: Cash collateral received/pledged(6,620)(14,148)(3,200)(27,092)
Net amount$35,166 $10,303 $83,352 $1,797 

United clears certain derivatives centrally through the CME. CME rules legally characterize variation margin payments for centrally cleared derivatives as settlements of the derivatives’ exposure rather than as collateral. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting purposes. Variation margin, as determined by the CME, is settled daily. As a result, derivative contracts that clear through the CME have an estimated fair value of zero.
Hedging Derivatives

Cash Flow Hedges of Interest Rate Risk
United enters into cash flow hedges to mitigate exposure to the variability of future cash flows or other forecasted transactions. At December 31, 2021 and 2020, United utilized interest rate caps and swaps to hedge the variability of cash flows due to changes in interest rates on certain of its variable-rate subordinated debt and trust preferred securities. United considers these derivatives to be highly effective at achieving offsetting changes in cash flows attributable to changes in interest rates. Therefore, changes in the fair value of these derivative instruments are recognized in OCI. Gains and losses related to changes in fair value are reclassified into earnings in the periods the hedged forecasted transactions occur. Losses representing amortization of the premium recorded on cash flow hedges, which is a component excluded from the assessment of effectiveness, are recognized in earnings on a straight-line basis in the same financial statement line as the hedged item over the term of the hedge. Over the next twelve months United expects to reclassify $523,000 of losses from AOCI into earnings related to these agreements.

During 2019 United amortized the remaining balance of losses on de-designated cash flow hedges from AOCI. This was the only effect of cash flow hedges on the consolidated statements of income for the year December 31, 2019. See Note 17 for further detail.
 
Fair Value Hedges of Interest Rate Risk
United is exposed to changes in the fair value of certain of its fixed-rate obligations due to changes in interest rates. United uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in interest rates. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. United includes the gain or loss on the hedged items in the same income statement line item as the offsetting loss or gain on the related derivatives.

At December 31, 2021 and 2020, United had interest rate swaps that were designated as fair value hedges of fixed-rate brokered time deposits. The swaps involved the receipt of fixed-rate amounts from a counterparty in exchange for United making variable rate payments over the life of the agreements.
 
In certain cases, the estate of deceased brokered certificate of deposit holders may put the certificate of deposit back to United at par upon the death of the holder. When these events occur (estate puts), a gain or loss is recognized for the difference between the fair value and the par amount of the deposits put back. The change in the fair value of brokered time deposits that are being hedged in fair value hedging relationships reported in the table below includes gains and losses from estate puts.

The table below presents the effect of derivatives in hedging relationships on the consolidated statements of income (in thousands).
Year Ended December 31,
202120202019
Total interest expense presented in the consolidated statements of income$(29,760)$(56,237)$(83,312)
Effect of hedging relationships on interest expense:
Net income (expense) recognized on fair value hedges210 281 (360)
Net expense recognized on cash flow hedges (1) (2)
(608)(359)— 
(1) Excludes 2019 amortization of losses related to de-designated cash flow hedges. See Note 17 for further detail.
(2) Includes $472,000 and $329,000 of premium amortization expense excluded from the assessment of hedge effectiveness for the years ended December 31, 2021 and 2020.
The table below presents the carrying amount of hedged fixed-rate brokered time deposits and cumulative fair value hedging adjustments included in the carrying amount of the hedged liability for the periods presented (in thousands).
December 31,
20212020
Balance Sheet LocationCarrying amount of Assets (Liabilities)Hedge Accounting Basis AdjustmentCarrying amount of Assets (Liabilities)Hedge Accounting Basis Adjustment
Deposits$(10,026)$(28)$(20,216)$(235)

Derivatives Not Designated as Hedging Instruments
Customer derivative positions include swaps, caps, and collars between United and certain commercial loan customers with offsetting positions to dealers under a back-to-back program. In addition, United occasionally enters into credit risk participation agreements with counterparty banks to accept or transfer a portion of the credit risk related to interest rate swaps. The agreements, which are typically executed in conjunction with a participation in a loan with the same customer, allow customers to execute an interest rate swap with one bank while allowing for the distribution of the credit risk among participating members.

United also has three interest rate swap contracts that are economic hedges of market-linked brokered certificates of deposit, but are not designated as hedging instruments. The market-linked brokered certificates of deposit contain embedded derivatives that are bifurcated from the host instruments and marked to market through earnings. The fair value marks on the market linked swaps and the bifurcated embedded derivatives tend to move in opposite directions with changes in 90-day LIBOR and therefore provide an economic hedge.

In addition, United originates certain residential mortgage loans with the intention of selling these loans. Between the time United enters into an interest-rate lock commitment to originate a residential mortgage loan that is to be held for sale and the time the loan is funded and eventually sold, United is subject to the risk of variability in market prices. United also enters into forward sale agreements to mitigate risk and to protect the expected gain on the eventual loan sale. The commitments to originate residential mortgage loans and forward loan sales commitments are freestanding derivative instruments. Fair value adjustments on these derivative instruments are recorded within mortgage loan gains and related fees in the consolidated statements of income.

The table below presents the gains and losses recognized in income on derivatives not designated as hedging instruments for the periods indicated (in thousands). 
 Income Statement LocationYear Ended December 31,
 202120202019
Customer derivatives and dealer offsetsOther noninterest income$3,302 $6,732 $2,878 
Bifurcated embedded derivatives and dealer offsetsOther noninterest income433 (63)212 
De-designated hedgesOther noninterest income— — (193)
Mortgage banking derivativesMortgage loan revenue(1,805)(7,873)(1,797)
Risk participationsOther noninterest income(90)(340)(3)
Total gains and losses $1,840 $(1,544)$1,097 
 
Credit-risk-related Contingent Features
United manages its credit exposure on derivative transactions by entering into a bilateral credit support agreement with each non-customer counterparty. The credit support agreements require collateralization of exposures beyond specified minimum threshold amounts. The details of these agreements, including the minimum thresholds, vary by counterparty.
 
United’s agreements with each of its derivative counterparties contain a provision where if either party defaults on any of its indebtedness, then it could also be declared in default on its derivative obligations. The agreements with derivative counterparties also include provisions that if not met, could result in United being declared in default. United has agreements with certain of its derivative counterparties that provide that if United fails to maintain its status as a well-capitalized institution or is subject to a prompt corrective action directive, the counterparty could terminate the derivative positions and United would be required to settle its obligations under the agreements. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if United’s credit rating were downgraded.