Derivative Instruments and Other Hedging Activities

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Other Hedging Activities

DERIVATIVE INSTRUMENTS AND OTHER HEDGING ACTIVITIES

The Company enters into derivative financial instruments to manage interest rate risk, exposures related to liquidity and credit risk, and to facilitate customer transactions. The primary types of derivatives utilized by the Company for its risk management strategies include interest rate swap agreements, interest rate collars, interest rate floors, interest rate lock commitments, forward sales commitments, written and purchased options, and credit derivatives. All derivative instruments are recognized on the consolidated balance sheets as other assets or other liabilities at fair value, regardless of whether a right of offset exists.

Cash flow hedge relationships mitigate exposure to the variability of future cash flows or other forecasted transactions. The Company enters into interest rate swap agreements in a cash flow hedge to convert forecasted variable interest payments to a fixed rate on its junior subordinated debt. In addition, the Company has entered into interest rate collars and interest rate floors and designated the instruments as cash flow hedges of the risk of fluctuations in interest rates, thereby reducing the Company's exposure to variability in cash flows from variable-rate loans.

For cash flow hedges, the effective and ineffective portions of the gain or loss related to the derivative instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. In applying hedge accounting for derivatives, the Company establishes and documents a method for assessing the effectiveness of the hedging derivative and a measurement approach for determining the ineffective aspect of the hedge upon the inception of the hedge.

For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

Information pertaining to outstanding derivative instruments was as follows:

	Derivative Assets - Fair Value				Derivative Liabilities - Fair Value
(in thousands)	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Interest rate contracts	$	41,200	$	18,967	$	11	$	—
Total derivatives designated as hedging instruments	$	41,200	$	18,967	$	11	$	—
Derivatives not designated as hedging instruments:
Interest rate contracts:
Customer swaps - upstream	$	18	$	9	$	10,510	$	5,055
Customer swaps - downstream	222,769		77,934		18		1,680
Forward sales contracts	1,987		420		10,656		986
Written and purchased options	17,364		6,755		1,849		3,899
Other contracts	187		66		754		179
Total derivatives not designated as hedging instruments	$	242,325	$	85,184	$	23,787	$	11,799
Total	$	283,525	$	104,151	$	23,798	$	11,799

	Derivative Assets - Notional Amount				Derivative Liabilities - Notional Amount
(in thousands)	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Derivatives designated as hedging instruments:
Interest rate contracts	$	800,000	$	800,000	$	108,500	$	108,500
Total derivatives designated as hedging instruments	$	800,000	$	800,000	$	108,500	$	108,500
Derivatives not designated as hedging instruments:
Interest rate contracts:
Customer swaps - upstream	$	48,215	$	430,808	$	2,855,442	$	2,237,542
Customer swaps - downstream	2,855,442		2,237,542		48,215		430,808
Forward sales contracts	196,388		44,011		463,108		230,998
Written and purchased options	699,162		268,590		136,043		121,981
Other contracts	114,755		108,008		251,173		183,243
Total derivatives not designated as hedging instruments	$	3,913,962	$	3,088,959	$	3,753,981	$	3,204,572
Total	$	4,713,962	$	3,888,959	$	3,862,481	$	3,313,072

The Company has entered into risk participation agreements with counterparties to transfer or assume credit exposures related to interest rate derivatives. The notional amounts of risk participation agreements sold were $251.2 million and $183.2 million at March 31, 2020 and December 31, 2019, respectively. Assuming all underlying third party customers referenced in the swap contracts defaulted at March 31, 2020 and December 31, 2019, the exposure from these agreements would not be material based on the fair value of the underlying swaps.

The Company is party to collateral agreements with certain derivative counterparties. Such agreements require that the Company maintain collateral based on the fair values of individual derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral.

At March 31, 2020 and December 31, 2019, the Company was required to post $226.8 million and $79.6 million, respectively, in variation margin payments for its derivative transactions, which is required to be netted against the fair value of the derivatives in other assets or other liabilities on the consolidated balance sheets. The Company does not anticipate additional assets will be required to be posted as collateral, nor does it believe additional assets would be required to settle its derivative instruments immediately if contingent features were triggered at March 31, 2020. The Company’s master netting agreements represent written, legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the master agreement and (2) in the event of default, provide the non-defaulting counterparty the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to promptly liquidate or set-off collateral posted by the defaulting counterparty. The Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement.

The following table reconciles the gross amounts presented in the consolidated balance sheets to the net amounts that would result in the event of offset.

	March 31, 2020
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet					Net
(in thousands)			Derivatives			Collateral
Derivatives subject to master netting arrangements
Derivative assets
Interest rate contracts designated as hedging instruments	$	41,200	$	—		$	—	$	41,200
Interest rate contracts not designated as hedging instruments	222,787		(9,490		)	—		213,297
Written and purchased options	1,602		—			—		1,602
Total derivative assets subject to master netting arrangements	$	265,589	$	(9,490	)	$	—	$	256,099
Derivative liabilities
Interest rate contracts designated as hedging instruments	$	11	$	—		$	—	$	11
Interest rate contracts not designated as hedging instruments	10,528		(9,490		)	—		1,038
Written and purchased options	1,602		—			—		1,602
Total derivative liabilities subject to master netting arrangements	$	12,141	$	(9,490	)	$	—	$	2,651

	December 31, 2019
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet					Net
(in thousands)			Derivatives			Collateral
Derivatives subject to master netting arrangements
Derivative assets
Interest rate contracts designated as hedging instruments	$	18,967	$	—		$	—	$	18,967
Interest rate contracts not designated as hedging instruments	77,943		(5,111		)	—		72,832
Written and purchased options	3,871		—			—		3,871
Total derivative assets subject to master netting arrangements	$	100,781	$	(5,111	)	$	—	$	95,670
Derivative liabilities
Interest rate contracts not designated as hedging instruments	$	6,735	$	(5,111	)	$	—	$	1,624
Written and purchased options	3,871		—			—		3,871
Total derivative liabilities subject to master netting arrangements	$	10,606	$	(5,111	)	$	—	$	5,495

During the three months ended March 31, 2020 and 2019, the Company did not reclassify into earnings any gain or loss as a result of the discontinuance of cash flow hedges because it was probable the original forecasted transaction would not occur by the end of the originally specified term.

At March 31, 2020, the Company did not expect to reclassify a material amount from accumulated other comprehensive income into interest income over the next twelve months for derivatives that will be settled.

At March 31, 2020 and 2019, and for the three months then ended, information pertaining to the effect of the hedging instruments on the consolidated financial statements was as follows:

		Amount of Gain (Loss) Recognized in OCI, net of taxes									Location of Gain (Loss) Reclassified from AOCI into Income	Amount of Gain (Loss) Reclassified from AOCI into Income, net of taxes									Location of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivatives (Amount Excluded from Effectiveness Testing)
		Total			Including Component			Excluding Component				Total			Including Component			Excluding Component				Total		Including Component		Excluding Component
(in thousands)		For the Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships		2020										2020										2020
	Interest rate contracts	$	10,441		$	10,628		$	(187	)	Interest expense	$	442		$	707		$	(265	)	Interest expense	$	—	$	—	$	—
		2019										2019										2019
	Interest rate contracts	$	(2,185	)	$	(3,098	)	$	913		Interest expense	$	(227	)	$	(69	)	$	(158	)	Interest expense	$	—	$	—	$	—

Information pertaining to the effect of derivatives not designated as hedging instruments on the consolidated financial statements as of March 31, was as follows:

	Location of Gain (Loss) Recognized in Income on Derivatives	Amount of Gain (Loss) Recognized in Income on Derivatives
		For the Three Months Ended March 31,
(in thousands)		2020			2019
Interest rate contracts (1)	Commission income	$	3,759		$	4,181
Foreign exchange contracts	Other income	—			5
Forward sales contracts	Mortgage income	(10,910		)	(3,209		)
Written and purchased options	Mortgage income	12,659			1,863
Other contracts	Other income	(454		)	(9		)
Total		$	5,054		$	2,831
(1) Includes fees associated with customer interest rate contracts