Derivative Instruments

6 Months Ended

Jun. 30, 2014

Derivative Instrument Detail [Abstract]

Derivative Instruments

Derivative Instruments

The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. The largest group of notional amounts relate to interest rate swaps, which are discussed in more detail below. The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 6 on Guarantees. Through its International Department, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates.

(In thousands)	June 30, 2014		December 31, 2013
Interest rate swaps	$	658,926	$	596,933
Interest rate caps	8,736		9,736
Credit risk participation agreements	73,888		52,456
Foreign exchange contracts	46,435		81,207
Total notional amount	$	787,985	$	740,332

The Company’s interest rate risk management strategy includes the ability to modify the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. Interest rate swaps are used on a limited basis as part of this strategy. At June 30, 2014, the Company had entered into one interest rate swap with a notional amount of $6.2 million, included in the table above, which is designated as a fair value hedge of a specific fixed rate loan.

The Company’s other derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings. These instruments include interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by matching contracts purchased by the Company from other financial dealer institutions. Contracts with dealers that require central clearing (generally, transactions occurring after June 10, 2013) are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. The notional amount of these free-standing swaps at June 30, 2014 was $652.7 million.

Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or can require instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

The banking customer counterparties are engaged in a variety of businesses, including real estate, building materials, education, financial services, communications, consumer products, and manufacturing. At June 30, 2014, the largest loss exposures were in the groups related to real estate, education, and manufacturing. If the counterparties in these groups failed to perform, and if the underlying collateral proved to be of no value, the Company estimates that it would incur losses of $2.9 million (real estate and building materials), $2.8 million (education) and $1.2 million (manufacturing) at June 30, 2014.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 14 on Fair Value Measurements.

	Asset Derivatives					Liability Derivatives
	Balance Sheet	June 30, 2014		Dec. 31, 2013		Balance Sheet	June 30, 2014			Dec. 31, 2013
(In thousands)	Location	Fair Value				Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	Other assets	$	—	$	—	Other liabilities	$	(160	)	$	(300	)
Total derivatives designated as hedging instruments		$	—	$	—		$	(160	)	$	(300	)
Derivatives not designated as hedging instruments:
Interest rate swaps	Other assets	$	11,564	$	11,428	Other liabilities	$	(11,564	)	$	(11,429	)
Interest rate caps	Other assets	1		1		Other liabilities	(1		)	(1		)
Credit risk participation agreements	Other assets	4		4		Other liabilities	(192		)	(69		)
Foreign exchange contracts	Other assets	699		1,547		Other liabilities	(725		)	(1,530		)
Total derivatives not designated as hedging instruments		$	12,268	$	12,980		$	(12,482	)	$	(13,029	)
Total derivatives		$	12,268	$	12,980		$	(12,642	)	$	(13,329	)

The effects of derivative instruments on the consolidated statements of income are shown in the table below.

	Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
		For the Three Months Ended June 30					For the Six Months Ended June 30
(In thousands)		2014		2013			2014			2013
Derivatives in fair value hedging relationships:
Interest rate swaps	Interest and fees on loans	$	69	$	105		$	141		$	230
Total		$	69	$	105		$	141		$	230
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	366	$	155		$	811		$	294
Credit risk participation agreements	Other non-interest income	93		69			198			125
Foreign exchange contracts	Other non-interest income	128		(62		)	(42		)	85
Total		$	587	$	162		$	967		$	504