Derivative Instruments

12 Months Ended

Dec. 31, 2015

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 Company's derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.

	December 31
(In thousands)	2015		2014
Interest rate swaps	$	1,020,310	$	647,709
Interest rate caps	66,118		53,587
Credit risk participation agreements	62,456		75,943
Foreign exchange contracts	15,535		19,791
Mortgage loan commitments	8,605		—
Mortgage loan forward sale contracts	642		—
Forward TBA contracts	11,000		—
Total notional amount	$	1,184,666	$	797,030

The largest group of notional amounts relate to 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 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.

Many of the Company’s interest rate swap arrangements 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 to interest rate swaps are engaged in a variety of businesses, including real estate,manufacturing, retail product distribution, education, and retirement communities. At December 31, 2015, the largest loss exposures were in the groups related to real estate, retirement communities, and education. If the counterparties in these groups failed to perform, and if the underlying collateral proved to be of no value, the Company would incur losses of $5.5 million (real estate), $1.4 million (retirement communities), and $1.3 million (education), based on estimated amounts at December 31, 2015.

The Company’s foreign exchange activity involves the purchase and sale of forward foreign exchange contracts, which are commitments to purchase or deliver a specified amount of foreign currency at a specific future date. This activity enables customers involved in international business to hedge their exposure to foreign currency exchange rate fluctuations. The Company minimizes its related exposure arising from these customer transactions with offsetting contracts for the same currency and time frame. In addition, the Company uses foreign exchange contracts, to a limited extent, for trading purposes, including taking proprietary positions. Risk arises from changes in the currency exchange rate and from the potential for counterparty nonperformance. These risks are controlled by adherence to a foreign exchange trading policy which contains control limits on currency amounts, open positions, maturities and losses, and procedures for approvals, record-keeping, monitoring and reporting. Hedge accounting has not been applied to these foreign exchange activities.

Credit risk participation agreements arise when the Company contracts, as a guarantor or beneficiary, with other financial institutions to share credit risk associated with certain interest rate swaps. The Company’s risks and responsibilities as guarantor are further discussed in Note 20 on Commitments, Contingencies and Guarantees.    

In 2015, the Company initiated a program of secondary market sales of residential mortgage loans and has designated certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date.

The fair values of the Company’s derivative instruments are shown in the table below. Information about the valuation methods used to measure fair value is provided in Note 16 on Fair Value Measurements. Derivatives instruments with a positive fair value (asset derivatives) are reported in other assets in the consolidated balance sheets while derivative instruments with a negative fair value (liability derivatives) are reported in other liabilities in the consolidated balance sheets.

	Asset Derivatives				Liability Derivatives
	December 31				December 31
	2015		2014		2015			2014
(In thousands)	Fair Value				Fair Value
Derivative instruments:
Interest rate swaps	$	11,993	$	10,144	$	(11,993	)	$	(10,166	)
Interest rate caps	73		62		(73		)	(62		)
Credit risk participation agreements	1		3		(195		)	(226		)
Foreign exchange contracts	437		248		(430		)	(494		)
Mortgage loan commitments	263		—		—			—
Mortgage loan forward sale contracts	—		—		—			—
Forward TBA contracts	4		—		(38		)	—
Total	$	12,771	$	10,457	$	(12,729	)	$	(10,948	)

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 Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		For the Years Ended December 31
(In thousands)		2015		2014			2013
Derivative instruments:
Interest rate swaps	Other non-interest income	$	4,309	$	1,674		$	1,140
Interest rate caps	Other non-interest income	32		33			—
Credit risk participation agreements	Other non-interest income	57		122			234
Foreign exchange contracts:	Other non-interest income	253		(263		)	81
Mortgage loan commitments	Loan fees and sales	263		—			—
Mortgage loan forward sale contracts	Loan fees and sales	—		—			—
Forward TBA contracts	Loan fees and sales	82		—			—
Total		$	4,996	$	1,566		$	1,455

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balance of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

The Company is party to master netting arrangements with most of its swap derivative counterparties; however, the Company does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral, usually in the form of marketable securities, is exchanged between the Company and dealer bank counterparties and is generally subject to thresholds and transfer minimums. By contract, it may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash and securities to its clearing agency. At December 31, 2015, the Company had a net liability position with dealer bank and clearing agency counterparties totaling $11.9 million, and had posted securities with a fair value of $2.4 million and cash totaling $17.9 million. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.

							Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset			Collateral Received/Pledged			Net Amount
December 31, 2015
Assets:
Derivatives subject to master netting agreements	$	12,071	$	—	$	12,071	$	(94	)	$	—		$	11,977
Derivatives not subject to master netting agreements	700		—		700
Total derivatives	12,771		—		12,771
Liabilities:
Derivatives subject to master netting agreements	12,299		—		12,299		(94		)	(10,927		)	1,278
Derivatives not subject to master netting agreements	430		—		430
Total derivatives	12,729		—		12,729
December 31, 2014
Assets:
Derivatives subject to master netting agreements	$	10,209	$	—	$	10,209	$	(251	)	$	—		$	9,958
Derivatives not subject to master netting agreements	248		—		248
Total derivatives	10,457		—		10,457
Liabilities:
Derivatives subject to master netting agreements	10,454		—		10,454		(251		)	(8,738		)	1,465
Derivatives not subject to master netting agreements	494		—		494
Total derivatives	10,948		—		10,948