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Derivative financial instruments
12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative financial instruments

18.    Derivative financial instruments

As part of managing interest rate risk, the Company enters into interest rate swap agreements to modify the repricing characteristics of certain portions of the Company’s portfolios of earning assets and interest-bearing liabilities. The Company designates interest rate swap agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate swap agreements are generally entered into with counterparties that meet established credit standards and most contain master netting and collateral provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting and collateral provisions, the Company believes that the credit risk inherent in these contracts was not significant as of December 31, 2015.

The net effect of interest rate swap agreements was to increase net interest income by $44 million in 2015, $45 million in 2014 and $41 million in 2013. The average notional amounts of interest rate swap agreements impacting net interest income that were entered into for interest rate risk management purposes were $1.4 billion in each of 2015 and 2014, and $1.2 billion in 2013.

Information about interest rate swap agreements entered into for interest rate risk management purposes summarized by type of financial instrument the swap agreements were intended to hedge follows:

 

     Notional
Amount
     Average
Maturity
     Weighted-Average
Rate
    Estimated Fair
Value Gain
 
           Fixed     Variable    
     (In thousands)      (In years)                  (In thousands)  

December 31, 2015

            

Fair value hedges:

            

Fixed rate long-term borrowings(a)

   $ 1,400,000         1.7         4.42     1.39   $ 43,892   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

December 31, 2014

            

Fair value hedges:

            

Fixed rate long-term borrowings(a)

   $ 1,400,000         2.7         4.42     1.19   $ 73,251   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

 

(a) Under the terms of these agreements, the Company receives settlement amounts at a fixed rate and pays at a variable rate.

The notional amount of interest rate swap agreements entered into for risk management purposes that were outstanding at December 31, 2015 mature as follows:

 

     (In thousands)  

Year ending December 31:

  

2016

   $ 500,000   

2017

     400,000   

2018

     500,000   
  

 

 

 
   $ 1,400,000   
  

 

 

 

The Company utilizes commitments to sell residential and commercial real estate loans to hedge the exposure to changes in the fair value of real estate loans held for sale. Such commitments have generally been designated as fair value hedges. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in fair value of certain commitments to originate real estate loans for sale.

Derivative financial instruments used for trading account purposes included interest rate contracts, foreign exchange and other option contracts, foreign exchange forward and spot contracts, and financial futures. Interest rate contracts entered into for trading account purposes had notional values of $18.4 billion and $17.6 billion at December 31, 2015 and 2014, respectively. The notional amounts of foreign currency and other option and futures contracts entered into for trading account purposes aggregated $1.6 billion and $1.3 billion at December 31, 2015 and 2014, respectively.

Information about the fair values of derivative instruments in the Company’s consolidated balance sheet and consolidated statement of income follows:

 

    Asset Derivatives
Fair Value
December 31
    Liability Derivatives
Fair Value
December 31
 
    2015     2014     2015     2014  
    (In thousands)  

Derivatives designated and qualifying as hedging instruments

       

Fair value hedges:

       

Interest rate swap agreements(a)

  $ 43,892      $ 73,251      $      $   

Commitments to sell real estate loans(a)

    1,844        728        656        4,217   
 

 

 

   

 

 

   

 

 

   

 

 

 
    45,736        73,979        656        4,217   

Derivatives not designated and qualifying as hedging instruments

       

Mortgage-related commitments to originate real estate loans for sale(a)

    10,282        17,396        403        49   

Commitments to sell real estate loans(a)

    533        754        846        4,330   

Trading:

       

Interest rate contracts(b)

    203,517        215,614        153,723        173,513   

Foreign exchange and other option and futures contracts(b)

    8,569        31,112        7,022        29,950   
 

 

 

   

 

 

   

 

 

   

 

 

 
    222,901        264,876        161,994        207,842   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives

  $ 268,637      $ 338,855      $ 162,650      $ 212,059   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

 

(a) Asset derivatives are reported in other assets and liability derivatives are reported in other liabilities.

 

(b) Asset derivatives are reported in trading account assets and liability derivatives are reported in other liabilities.

 

    Amount of Gain (Loss) Recognized  
    Year Ended
December 31, 2015
    Year Ended
December 31, 2014
    Year Ended
December 31, 2013
 
    Derivative     Hedged
Item
    Derivative     Hedged
Item
    Derivative     Hedged
Item
 
    (In thousands)  

Derivatives in fair value hedging relationships

           

Interest rate swap agreements:

           

Fixed rate long-term borrowings(a)

  $ (29,359   $ 28,719      $ (29,624   $ 28,870      $ (40,304   $ 38,986   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives not designated as hedging instruments

           

Trading:

           

Interest rate contracts(b)

  $ 10,755        $ 3,398        $ 9,824     

Foreign exchange and other option and futures contracts(b)

    9,337          7,670          8,598     
 

 

 

     

 

 

     

 

 

   

Total

  $ 20,092        $ 11,068        $ 18,422     
 

 

 

     

 

 

     

 

 

   

 

 

(a) Reported as other revenues from operations.

 

(b) Reported as trading account and foreign exchange gains.

 

In addition, the Company also has commitments to sell and commitments to originate residential and commercial real estate loans that are considered derivatives. The Company designates certain of the commitments to sell real estate loans as fair value hedges of real estate loans held for sale. The Company also utilizes commitments to sell real estate loans to offset the exposure to changes in the fair value of certain commitments to originate real estate loans for sale. As a result of these activities, net unrealized pre-tax gains related to hedged loans held for sale, commitments to originate loans for sale and commitments to sell loans were approximately $18 million and $28 million at December 31, 2015 and 2014, respectively. Changes in unrealized gains and losses are included in mortgage banking revenues and, in general, are realized in subsequent periods as the related loans are sold and commitments satisfied.

The Company does not offset derivative asset and liability positions in its consolidated financial statements. The Company’s exposure to credit risk by entering into derivative contracts is mitigated through master netting agreements and collateral posting requirements. Master netting agreements covering interest rate and foreign exchange contracts with the same party include a right to set-off that becomes enforceable in the event of default, early termination or under other specific conditions.

The aggregate fair value of derivative financial instruments in a liability position, which are subject to enforceable master netting arrangements, was $59 million and $161 million at December 31, 2015 and 2014, respectively. After consideration of such netting arrangements, the net liability positions with counterparties aggregated $55 million and $103 million at December 31, 2015 and 2014, respectively. The Company was required to post collateral relating to those positions of $52 million and $90 million at December 31, 2015 and 2014, respectively. Certain of the Company’s derivative financial instruments contain provisions that require the Company to maintain specific credit ratings from credit rating agencies to avoid higher collateral posting requirements. If the Company’s debt ratings were to fall below specified ratings, the counterparties to the derivative financial instruments could demand immediate incremental collateralization on those instruments in a net liability position. The aggregate fair value of all derivative financial instruments with such credit risk-related contingent features in a net liability position on December 31, 2015 was $13 million, for which the Company had posted collateral of $6 million in the normal course of business. If the credit risk-related contingent features had been triggered on December 31, 2015, the maximum amount of additional collateral the Company would have been required to post with counterparties was $7 million.

The aggregate fair value of derivative financial instruments in an asset position, which are subject to enforceable master netting arrangements, was $23 million and $104 million at December 31, 2015 and 2014, respectively. After consideration of such netting arrangements, the net asset positions with counterparties aggregated $19 million and $46 million at December 31, 2015 and 2014, respectively. Counterparties posted collateral relating to those positions of $22 million and $46 million at December 31, 2015 and 2014, respectively. Trading account interest rate swap agreements entered into with customers are subject to the Company’s credit risk standards and often contain collateral provisions.

In addition to the derivative contracts noted above, the Company clears certain derivative transactions through a clearinghouse, rather than directly with counterparties. Those transactions cleared through a clearinghouse require initial margin collateral and additional collateral for contracts in a net liability position. The net fair values of derivative instruments cleared through clearinghouses was a net liability position of $50 million and $35 million at December 31, 2015 and 2014, respectively. Collateral posted with clearinghouses was $99 million and $61 million at December 31, 2015 and December 31, 2014, respectively.