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Derivative Instruments
 12 Months Ended
Dec. 31, 2019
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. With the exception of the interest rate floors (discussed below), 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)
2019
 
2018
Interest rate swaps
$
2,606,181

 
$
2,006,280

Interest rate floors
1,500,000

 
1,000,000

Interest rate caps
59,316

 
62,163

Credit risk participation agreements
316,225

 
143,460

Foreign exchange contracts
10,936

 
6,206

Mortgage loan commitments
13,755

 
14,544

Mortgage loan forward sale contracts
1,943

 
5,768

Forward TBA contracts
17,500

 
16,500

Total notional amount
$
4,525,856

 
$
3,254,921



The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail
product distribution, education, and retirement communities. These customer 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 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 instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

As of December 31, 2019, the Company has entered into three interest rate floors with a combined notional value of $1.5 billion, to hedge the risk of declining interest rates on certain floating rate commercial loans indexed to one month LIBOR. The first interest rate floor has a purchased strike rate of 2.25% and became effective on January 1, 2020 and matures on January 1, 2026. The second interest rate floor has a purchased strike rate of 2.50% and is effective on June 1, 2020 and matures on June 1, 2026. The third interest rate floor has a purchased strike rate of 2.00% and is effective December 15, 2020 and matures on December 15, 2026. The premiums paid for these floors totaled $31.3 million. As of December 31, 2019, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows is approximately 7.0 years. The interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of the interest rate floors are recorded in AOCI, net of the amortization of the premium paid, which is recorded against interest and fees on loans in the consolidated statements of income. As of December 31, 2019, net deferred gains on the interest rate floors totaled $40.4 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of December 31, 2019, it is expected that $4.1 million (pre-tax) of interest rate floor premium amortization will be reclassified from AOCI into earnings over the next twelve months.

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 21 on Commitments, Contingencies and Guarantees. In addition, 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.
    
Under its program to sell residential mortgage loans in the secondary market, the Company designates 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, 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 17 on Fair Value Measurements.

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been offset against the fair values of cleared swaps, such that at December 31, 2019 in the table below, the positive fair values of cleared swaps were reduced by $617 thousand and the negative fair values of cleared swaps were reduced by $28.5 million. At December 31, 2018, the positive fair values of cleared swaps were reduced by $8.1 million and the negative fair values of cleared swaps were reduced by $6.5 million.         
 
Asset Derivatives
 
Liability Derivatives
 
December 31
 
December 31
 
2019
 
2018
 
2019
 
2018
(In thousands)    
Fair Value
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
Interest rate floors
$
67,192

 
$
29,031

 
$
—

 
$
—

Total derivatives designated as hedging instruments
$
67,192

 
$
29,031

 
$
—

 
$
—

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
$
37,774

 
$
11,537

 
$
(9,916
)
 
$
(13,110
)
Interest rate caps
4

 
24

 
(4
)
 
(24
)
Credit risk participation agreements
140

 
47

 
(230
)
 
(93
)
Foreign exchange contracts
97

 
20

 
(32
)
 
(8
)
Mortgage loan commitments
459

 
536

 
—

 
—

Mortgage loan forward sale contracts
6

 
15

 
(2
)
 
(8
)
Forward TBA contracts
2

 
—

 
(35
)
 
(178
)
Total derivatives not designated as hedging instruments
$
38,482

 
$
12,179

 
$
(10,219
)
 
$
(13,421
)
Total
$
105,674

 
$
41,210

 
$
(10,219
)
 
$
(13,421
)


The pre-tax effects of derivative instruments on the consolidated statements of income are shown in the tables below.




Amount of Gain or (Loss) Recognized in OCI
 
Location of Gain (Loss) Reclassified from AOCI into Income
Amount of Gain (Loss) Reclassified from AOCI into Income
(In thousands)
Total
Included Component
Excluded Component
 
(In thousands)
Total
Included Component
Excluded Component
For the Year Ended December 31, 2019
Derivatives in cash flow hedging relationships:
Interest rate floors*
$
27,481

$
50,327

$
(22,846
)
 
Interest and fees on loans
$
(3,793
)
$
—

$
(3,793
)
Total
$
27,481

$
50,327

$
(22,846
)
 
Total
$
(3,793
)
$
—

$
(3,793
)
For the Year Ended December 31, 2018
Derivatives in cash flow hedging relationships:
Interest rate floors*
$
8,381

$
—

$
8,381

 
Interest and fees on loans
$
(760
)
$
—

$
(760
)
Total
$
8,381

$
—

$
8,381

 
Total
$
(760
)
$
—

$
(760
)
* No hedging relationship existed during 2017.




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)
 
2019
 
2018
 
2017
Derivative instruments:
 
 
 
 
 
 
Interest rate swaps
Other non-interest income
$
4,732

 
$
3,914

 
$
1,978

Interest rate caps
Other non-interest income
—

 
11

 
—

Credit risk participation agreements
Other non-interest income
(16
)
 
150

 
35

Foreign exchange contracts:
Other non-interest income
53

 
31

 
(80
)
Mortgage loan commitments
Loan fees and sales
(77
)
 
(45
)
 
231

Mortgage loan forward sale contracts
Loan fees and sales
(3
)
 
5

 
64

Forward TBA contracts
Loan fees and sales
(837
)
 
414

 
(648
)
Total
 
$
3,852

 
$
4,480

 
$
1,580



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 balances 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.

While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consist of marketable securities. By contract, these 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 or securities to its clearing agent. 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, 2019
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
105,147

$
—

$
105,147

$
(8,104
)
$
(59,525
)
$
37,518

Derivatives not subject to master netting agreements
527

—

527

 
 
 
Total derivatives
105,674

—

105,674

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
10,083

—

10,083

(8,104
)
(437
)
1,542

Derivatives not subject to master netting agreements
136

—

136

 
 
 
Total derivatives
10,219

—

10,219

 
 
 
December 31, 2018
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
40,613

$
—

$
40,613

$
(2,992
)
$
(26,174
)
$
11,447

Derivatives not subject to master netting agreements
597

—

597

 
 
 
Total derivatives
41,210

—

41,210

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
13,333

—

13,333

(2,992
)
(261
)
10,080

Derivatives not subject to master netting agreements
88

—

88

 
 
 
Total derivatives
13,421

—

13,421