Derivative and Hedging Activities

9 Months Ended

Sep. 30, 2016

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, commodity hedging, and foreign currency exchange solutions through its capital markets area. To date, all of the notional amounts of customer transactions have been matched with a mirror hedge with another counterparty. The Corporation has used, and may use again 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, commodity contracts, 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 and commodity-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 $38 million of investment securities as collateral at September 30, 2016, and pledged $9 million of investment securities as collateral at December 31, 2015. Federal regulations require the Corporation to 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 September 30, 2016, the Corporation posted cash collateral for the margin of $37 million, compared to $22 million at December 31, 2015.

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 13 for additional fair value information and disclosures.

Derivatives to Accommodate Customer Needs

The Corporation enters into various derivative contracts which are not designated as hedging instruments. Such derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate, foreign currency, and commodity price risks. 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), foreign currency exchange forwards, and commodity contracts. See Note 11 for additional information and disclosures on balance sheet offsetting.

Interest rate-related instruments: The Corporation provides interest rate risk management services to commercial customers, primarily interest rate swaps and caps. 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.

Foreign currency exchange forwards: The Corporation provides foreign currency risk management 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.

Commodity contracts: The Corporation provides commodity risk management services to commercial customers, exclusively oil and gas contracts. Commodity contracts are entered into primarily for the benefit of commercial customers seeking to manage their exposure to fluctuating commodity prices. The Corporation mitigates its risk by then entering into an offsetting commodity derivative contract. Commodity 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.

The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments to accommodate customer needs which are not designated as hedging instruments.

	September 30, 2016						December 31, 2015
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category
Interest rate-related instruments — customer and mirror	$	1,953,306	$	47,504		Trading assets	$	1,665,965	$	29,391		Trading assets
Interest rate-related instruments — customer and mirror	1,953,306		(49,887		)	Trading liabilities	1,665,965		(30,886		)	Trading liabilities
Foreign currency exchange forwards	77,732		1,063			Trading assets	72,976		1,532			Trading assets
Foreign currency exchange forwards	76,945		(1,014		)	Trading liabilities	65,649		(1,398		)	Trading liabilities
Commodity contracts	158,209		12,213			Trading assets	44,380		1,269			Trading assets
Commodity contracts	159,048		(11,400		)	Trading liabilities	44,256		(1,146		)	Trading liabilities

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.

Written and purchased options (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.

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

	September 30, 2016						December 31, 2015
($ in Thousands)	Notional Amount		Fair Value			Balance Sheet Category	Notional Amount		Fair Value			Balance Sheet Category
Interest rate lock commitments (mortgage)	$	520,932	$	3,726		Other assets	$	271,530	$	958		Other assets
Forward commitments (mortgage)	383,000		(1,868		)	Other liabilities	231,798		403			Other assets
Purchased options (time deposit)	81,004		2,455			Other assets	104,582		2,715			Other assets
Written options (time deposit)	81,004		(2,455		)	Other liabilities	104,582		(2,715		)	Other liabilities

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	For the Nine Months Ended September 30,
($ in Thousands)		2016			2015
Interest rate-related instruments — customer and mirror, net	Capital market fees, net	$	(888	)	$	85
Interest rate lock commitments (mortgage)	Mortgage banking, net	2,768			637
Forward commitments (mortgage)	Mortgage banking, net	(2,271		)	453
Foreign currency exchange forwards	Capital market fees, net	(85		)	16
Commodity contracts	Capital market fees, net	690			—