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Derivatives and Hedging Activities
 3 Months Ended
Mar. 31, 2024
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, which are included in other assets and other liabilities on the consolidated balance sheet, as of the dates indicated:
March 31, 2024December 31, 2023
Notional Amount
Fair ValueNotional AmountFair Value
(in thousands)Derivative AssetDerivative LiabilityDerivative AssetDerivative Liability
Derivatives designated as hedging instruments:
Cash flow hedge of subordinated debt$100,000 $13,840 $— $100,000 $13,168 $— 
Cash flow hedges of trust preferred securities20,000 — — 20,000 — — 
Fair value hedges of AFS debt securities 649,520 — — 655,511 — — 
Fair value hedges of loans1,650,000 — — 150,000 — — 
Total2,419,520 13,840 — 925,511 13,168 — 
Derivatives not designated as hedging instruments:
Customer derivative positions1,173,714 1,358 77,635 1,177,275 3,461 68,384 
Dealer offsets to customer derivative positions1,173,714 25,588 1,337 1,197,364 23,061 4,597 
Risk participations89,811 1 6 90,597 1 8 
Mortgage banking - loan commitments67,260 1,630 — 48,452 1,089 — 
Mortgage banking - forward sales commitment105,251 89 180 81,671 20 658 
Bifurcated embedded derivatives51,935 10,696 — 51,935 9,552 — 
Dealer offsets to bifurcated embedded derivatives51,935 — 12,255 51,935 — 11,164 
Total2,713,620 39,362 91,413 2,699,229 37,184 84,811 
Total derivatives$5,133,140 $53,202 $91,413 $3,624,740 $50,352 $84,811 
Total gross derivative instruments$53,202 $91,413 $50,352 $84,811 
Less: Amounts subject to master netting agreements(1,444)(1,444)(4,683)(4,683)
Less: Cash collateral received/pledged(39,841)(12,593)(33,921)(11,330)
Net amount$11,917 $77,376 $11,748 $68,798 

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 
As of March 31, 2024 and December 31, 2023, 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. 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 caption as the hedged item over the term of the hedge. Over the next twelve months, United expects to reclassify $5.32 million of gains from AOCI into earnings related to these agreements.

Fair Value Hedges of Interest Rate Risk 
United uses interest rate derivatives to manage its exposure to changes in fair value attributable to changes in interest rates on certain of its fixed-rate financial instruments. 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. During the first quarter of 2024, United entered into additional fair value hedges on stated amounts of closed portfolios of loans using the portfolio layer method.
The table below presents the effect of derivatives in hedging relationships, all of which are interest rate contracts, on net interest income for the periods indicated. 
Affected Income Statement Line Item Increase/(Decrease) to Earnings
Three Months Ended March 31,
(in thousands)20242023
Fair value hedges:
AFS securities:
Amounts related to interest settlements on derivatives
$2,856 $— 
Gain recognized on derivative
9,462 — 
Loss recognized on hedged items
(9,798)— 
Net income recognized on AFS securities fair value hedges
Interest revenue- investment securities$2,520 $— 
Loans:
Amounts related to interest settlements on derivatives
1,298 — 
Gain recognized on derivatives
2,158 — 
Loss recognized on hedged items
(2,295)— 
Net income recognized on loan fair value hedges
Interest revenue - loans, including fees
1,161 — 
Cash flow hedges:
Long-term debt (1)
Interest expense- long term debt$1,440 $822 
 (1) Includes premium amortization expense excluded from the assessment of hedge effectiveness of $118,000 and $116,000 for the three months ended March 31, 2024 and 2023, respectively.

The table below presents the carrying amount of hedged items and cumulative fair value hedging basis adjustments for the periods presented. All fair value hedges of AFS debt securities and loans at March 31, 2024 and December 31, 2023 were designated under the portfolio layer method.

(in thousands)March 31, 2024December 31, 2023
Balance Sheet Location
Carrying Amount
Hedge Accounting Basis Adjustment
Hedged Portfolio Layer
Carrying Amount
Hedge Accounting Basis AdjustmentHedged Portfolio Layer
Debt securities AFS (1)
$783,148 $(14,471)$649,520 $789,908 $(4,673)$655,511 
Loans and leases held for investment5,408,116 (402)1,650,000 1,017,379 1,893 150,000 
(1) Carrying amount for AFS debt securities reflects amortized cost, which excludes the hedge accounting basis adjustment.

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.

United also has three interest rate swap contracts that are not designated as hedging instruments but are economic hedges of market-linked brokered certificates of deposit. The market-linked brokered certificates of deposit contain embedded derivatives that are bifurcated from the host instruments and are 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 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 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 other related fee income 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. 
Location of Gain (Loss) Recognized in Income on DerivativesAmount of Gain (Loss) Recognized in Income on Derivatives
Three Months Ended March 31,
(in thousands)20242023
Customer derivatives and dealer offsets Other noninterest income$(245)$367 
Bifurcated embedded derivatives and dealer offsetsOther noninterest income(192)(533)
Mortgage banking derivativesMortgage loan revenue901 1,227 
Risk participationsOther noninterest income2 (12)
  $466 $1,049 
 
Credit-Risk-Related Contingent Features 
United manages its credit exposure on derivatives 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 provide that 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 would require additional collateral if United’s credit rating were downgraded.