Derivative Financial Instruments

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing frequency and underlying index characteristics of certain balance sheet assets and liabilities so the net interest margin is not, on a material basis, adversely affected by movements in interest rates. We do not use derivative instruments to hedge credit risk associated with debt we issued. As a result of interest rate fluctuations, hedged assets and liabilities will appreciate or depreciate in market value. Income or loss on the derivative instruments that are linked to the hedged assets and liabilities will generally offset the effect of this unrealized appreciation or depreciation for the period the item is being hedged. We view this strategy as a prudent management of interest rate sensitivity. Please refer to “Note 11 - Derivative Financial Instruments” in our 2014 Form 10-K for a full discussion of our risk management strategy.

Although we use derivatives to offset (or minimize) the risk of interest rate changes, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates, foreign exchange rates and market liquidity. Credit risk is the risk that a counterparty will not perform its obligations under a contract and it is limited to the loss of the fair value gain in a derivative that the counterparty owes us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, have no credit risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in derivative instruments by entering into transactions with highly rated counterparties that are reviewed regularly by our Credit Department. We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivative Association Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral arrangements generally are required as well. When we have more than one outstanding derivative transaction with the counterparty, and there exists legally enforceable netting provisions with the counterparty (i.e., a legal right to offset receivable and payable derivative contracts), the “net” mark-to-market exposure, less collateral the counterparty has posted to us, represents exposure with the counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At March 31, 2015 and December 31, 2014, we had a net positive exposure (derivative gain positions to us less collateral which has been posted by counterparties to us) related to derivatives of $60,826 and $60,784, respectively.

Summary of Derivative Financial Statement Impact

The following tables summarize the fair values and notional amounts of all derivative instruments at March 31, 2015 and December 31, 2014, and their impact on earnings and other comprehensive income for the three months ended March 31, 2015 and 2014.

Impact of Derivatives on the Consolidated Balance Sheet

		Cash Flow Hedges						Fair Value Hedges						Trading						Total
		March 31,			December 31,			March 31,			December 31,			March 31,			December 31,			March 31,			December 31,
		2015			2014			2015			2014			2015			2014			2015			2014
Fair Values(1)	Hedged Risk Exposure
Derivative Assets:(2)
Interest rate swaps	Interest rate	$	—		$	—		$	24,377		$	5,012		$	1,033		$	226		$	25,410		$	5,238
Derivative Liabilities:(2)
Interest rate swaps	Interest rate	(37,295		)	(21,435		)	(738		)	(5,883		)	(30		)	(1,370		)	(38,063		)	(28,688		)
Total net derivatives		$	(37,295	)	$	(21,435	)	$	23,639		$	(871	)	$	1,003		$	(1,144	)	$	(12,653	)	$	(23,450	)

     ___________

(1) Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.

(2) The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:

	Other Assets						Other Liabilities
	March 31,			December 31,			March 31,			December 31,
	2015			2014			2015			2014
Gross position	$	25,410		$	5,238		$	(38,063	)	$	(28,688	)
Impact of master netting agreement	(11,003		)	(4,045		)	11,003			4,045
Derivative values with impact of master netting agreements (as carried on balance sheet)	14,407			1,193			(27,060		)	(24,643		)
Cash collateral (held) pledged(1)	(3,283		)	(900		)	58,625			72,478
Net position	$	11,124		$	293		$	31,565		$	47,835

(1) Cash collateral amount calculations include outstanding accrued interest payable/receivable.

	Cash Flow				Fair Value				Trading				Total
	March 31,		December 31,		March 31,		December 31,		March 31,		December 31,		March 31,		December 31,
	2015		2014		2015		2014		2015		2014		2015		2014
Notional Values
Interest rate swaps	$	1,110,072	$	1,106,920	$	2,992,821	$	3,044,492	$	973,539	$	973,539	$	5,076,432	$	5,124,951

Impact of Derivatives on the Consolidated Statements of Income

	Three Months Ended
	March 31,
	2015			2014
Fair Value Hedges
Interest rate swaps:
Hedge ineffectiveness gains (losses) recorded in earnings	$	427		$	(122	)
Realized gains recorded in interest expense	7,491			5,672
Total	$	7,918		$	5,550
Cash Flow Hedges
Interest rate swaps:
Hedge ineffectiveness losses recorded in earnings	(304		)	—
Realized losses recorded in interest expense	(5,353		)	—
Total	$	(5,657	)	$	—
Trading
Interest rate swaps:
Interest reclassification	$	1,023		$	459
Change in fair value of future interest payments recorded in earnings	2,146			(1,101		)
Total(1)	3,169			(642		)
Total	$	5,430		$	4,908

________

(1) Amounts included in "gains (losses) on derivatives and hedging activities, net. in the consolidated statements of income".

Impact of Derivatives on the Statements of Changes in Stockholders' Equity

	Three Months Ended
	March 31,
	2015			2014
Amount of loss recognized in other comprehensive income	$	(21,042	)	$	—
Amount of loss reclassified in interest expense(1)	(5,353		)	—
Total change in other comprehensive income for unrealized losses on derivatives	$	(15,689	)	$	—

___________

⁽¹⁾ Amounts included in “realized gains (losses) recorded in interest expense” in the “Impact of Derivatives on the Consolidated Statements of Income” table.

Cash Collateral

Cash collateral held related to derivative exposure between us and our derivatives counterparties was $3,283 and $900 at March 31, 2015 and December 31, 2014, respectively. Collateral held is recorded in “Other Liabilities.” Cash collateral pledged related to derivative exposure between us and our derivatives counterparties was $58,625 and $72,478 at March 31, 2015 and December 31, 2014, respectively.