Derivative and Hedging Activities

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Hedging Activities

Derivative and Hedging Activities

The Corporation facilitates customer borrowing activity by providing various interest rate risk management solutions through its capital markets area. To date, all of the notional amounts of customer transactions have been matched with a mirror swap with another counterparty. The Corporation has used, and may again use in the future, derivative instruments to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded on its consolidated balance sheets from changes in interest rates. The predominant derivative and hedging activities include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, written options, purchased options, and certain mortgage banking activities. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, interest rate-related instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain mutually agreed upon threshold limits. The Corporation was required to pledge $6 million of investment securities as collateral at June 30, 2015, and pledged $11 million of investment securities as collateral at December 31, 2014. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as of June 10, 2013, the Corporation must clear all LIBOR interest rate swaps through a clearing house if it can be cleared. As such, the Corporation is required to pledge cash collateral for the margin. At June 30, 2015, the Corporation posted cash collateral for the margin of $20 million, compared to $15 million at December 31, 2014.

The Corporation’s derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. The fair value of the Corporation’s interest rate-related instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 14 for additional fair value information and disclosures.

The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments not designated as hedging instruments.

							Weighted Average
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Receive Rate(1)	Pay Rate(1)	Maturity
June 30, 2015
Interest rate-related instruments — customer and mirror	$	1,672,170	$	31,813		Trading assets	1.59%	1.59%	41 months
Interest rate-related instruments — customer and mirror	1,672,170		(33,907		)	Trading liabilities	1.59%	1.59%	41 months
Interest rate lock commitments (mortgage)	186,388		1,077			Other assets	--	--	---
Forward commitments (mortgage)	298,500		2,769			Other assets	--	--	---
Foreign currency exchange forwards	143,585		3,573			Trading assets	--	--	---
Foreign currency exchange forwards	104,958		(3,262		)	Trading liabilities	--	--	---
Purchased options (time deposit)	106,093		5,163			Other assets	--	--	---
Written options (time deposit)	106,093		(5,163		)	Other liabilities	--	--	---
December 31, 2014
Interest rate-related instruments — customer and mirror	$	1,636,480	$	33,023		Trading assets	1.60%	1.60%	42 months
Interest rate-related instruments — customer and mirror	1,636,480		(35,372		)	Trading liabilities	1.60%	1.60%	42 months
Interest rate lock commitments (mortgage)	126,379		1,947			Other assets	--	--	---
Forward commitments (mortgage)	234,500		(2,435		)	Other liabilities	--	--	---
Foreign currency exchange forwards	60,742		2,140			Trading assets	--	--	---
Foreign currency exchange forwards	56,573		(1,957		)	Trading liabilities	--	--	---
Purchased options (time deposit)	110,347		6,054			Other assets	--	--	---
Written options (time deposit)	110,347		(6,054		)	Other liabilities	--	--	---

⁽¹⁾  Reflects the weighted average receive rate and pay rate for the interest rate swap derivative financial instruments only.

The table below identifies the income statement category of the gains and losses recognized in income on the Corporation’s derivative instruments not designated as hedging instruments.

	Income Statement Category of Gain /(Loss) Recognized in Income	Gain /(Loss) Recognized in Income
		($ in Thousands)
Six Months Ended June 30, 2015
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	255
Interest rate lock commitments (mortgage)	Mortgage banking, net	(870		)
Forward commitments (mortgage)	Mortgage banking, net	5,204
Foreign currency exchange forwards	Capital market fees, net	128
Six Months Ended June 30, 2014
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(9	)
Interest rate lock commitments (mortgage)	Mortgage banking, net	1,634
Forward commitments (mortgage)	Mortgage banking, net	(2,959		)
Foreign currency exchange forwards	Capital market fees, net	70

Free standing derivatives

The Corporation enters into various derivative contracts which are designated as free standing derivative contracts. These derivative contracts are not designated against specific assets and liabilities on the balance sheet or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value on the consolidated balance sheets with changes in the fair value recorded as a component of Capital market fees, net, and typically include interest rate-related instruments (swaps and caps).

Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk. The Corporation’s market risk from unfavorable movements in interest rates related to these derivative contracts is generally economically hedged by concurrently entering into offsetting derivative contracts. The offsetting derivative contracts have identical notional values, terms and indices. See Note 12 for additional information and disclosures on balance sheet offsetting.

Mortgage derivatives

Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets with the changes in fair value recorded as a component of mortgage banking, net.

Foreign currency exchange derivatives

The Corporation provides foreign currency exchange services to customers, primarily forward contracts. Our customers enter into a foreign currency exchange forward with the Corporation as a means for them to mitigate exchange rate risk. The Corporation mitigates its risk by then entering into an offsetting foreign currency exchange derivative contract. Such foreign currency exchange contracts are carried at fair value on the consolidated balance sheets with changes in fair value recorded as a component of Capital market fees, net.

Written and purchased option derivatives (time deposit)

Historically, the Corporation had entered into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”), which the Corporation ceased offering in September 2013. The Power CD was a time deposit that provided the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation received a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated balance sheets.