XML 59 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Corporation manages its exposure to certain interest rate and foreign currency price risks through the use of derivatives. None of the Corporation's outstanding derivative contracts are designated as hedges and they are not entered into for speculative purposes. Derivative instruments are carried at fair value, with changes in fair values recognized directly in earnings as components of non-interest income and non-interest expense on the Corporation's consolidated statements of income.
Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional derivative counterparties. The Corporation manages credit risk through its credit approval processes, monitoring procedures and obtaining adequate collateral, when appropriate.
Mortgage Banking Derivatives
In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans or interest rate locks at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Gross derivative assets and liabilities are recorded within other assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair values during the period recorded within mortgage banking income on the consolidated statements of income.
Interest Rate Swaps
The Corporation executes interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. These interest rate swaps are derivative financial instruments that are recorded at their fair values within other assets and liabilities on the consolidated balance sheets. Changes in fair values during the period are recorded within other expense on the consolidated statements of income.
Foreign Exchange Contracts
The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a future date at a contractual price. The Corporation offsets its foreign exchange contract exposure with customers by entering into contracts with third-party correspondent financial institutions to mitigate its exposure to fluctuations in foreign currency exchange rates. The Corporation also holds certain amounts of foreign currency with international correspondent banks. At any given time, the total net foreign currency open position, which includes all outstanding contracts and foreign account balances, is less than $500,000. Gross derivative assets and liabilities are recorded within other assets and other liabilities, respectively, on the consolidated balance sheets, with changes in fair values during the period recorded within other service charges and fees on the consolidated statements of income.
The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
 
March 31, 2013
 
December 31, 2012
 
Notional
Amount
 
Asset
(Liability)
Fair Value
 
Notional
Amount
 
Asset
(Liability)
Fair Value
 
(in thousands)
Interest Rate Locks with Customers
 
 
 
 
 
 
 
Positive fair values
$
232,548

 
$
4,412

 
$
314,416

 
$
6,912

Negative fair values
16,306

 
(193
)
 
9,714

 
(155
)
Net interest rate locks with customers

 
4,219

 

 
6,757

Forward Commitments
 
 
 
 
 
 
 
Positive fair values
14,792

 
396

 
79,152

 
707

Negative fair values
229,351

 
(176
)
 
236,500

 
(915
)
Net forward commitments
 
 
220

 
 
 
(208
)
Interest Rate Swaps
 
 
 
 
 
 
 
Interest rate swaps with customers
146,789

 
6,682

 
130,841

 
7,090

Interest rate swaps with counterparties
146,789

 
(6,682
)
 
130,841

 
(7,090
)
Foreign Exchange Contracts with Customers
 
 
 
 
 
 
 
Positive fair values
17,645

 
399

 
1,941

 
137

Negative fair values
9,626

 
(150
)
 
10,199

 
(348
)
Net foreign exchange contracts with customers
 
 
249

 
 
 
(211
)
Foreign Exchange Contracts with Correspondent Banks
 
 
 
 
 
 
 
Positive fair values
42,386

 
1,422

 
60,106

 
1,064

Negative fair values
32,907

 
(1,061
)
 
37,557

 
(1,121
)
Net foreign exchange contracts with correspondent banks
 
 
361

 
 
 
(57
)
Net derivative fair value asset
 
 
$
5,049

 
 
 
$
6,281



The following table presents a summary of the fair value gains and losses on derivative financial instruments for the three months ended March 31:
 
2013
 
2012
 
(in thousands)
Interest rate locks with customers
$
(2,538
)
 
$
809

Forward commitments
428

 
3,346

Interest rate swaps with customers
(408
)
 
525

Interest rate swaps with counterparties
408

 
(525
)
Foreign exchange contracts with customers
460

 
(1,050
)
Foreign exchange contracts with correspondent banks
418

 
1,551

Net fair value gains (losses) on derivative financial instruments
$
(1,232
)
 
$
4,656