XML 44 R19.htm IDEA: XBRL DOCUMENT v3.3.1.900
Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments

Risk Management Strategy
We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce 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 liabilities so any adverse impacts related to movements in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged liabilities will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments that are linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk.
Although we use derivatives to reduce 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 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 less collateral held or plus collateral posted. When the fair value of a derivative contract less collateral held or plus collateral posted is negative, we owe the counterparty and, therefore, we 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 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 held or plus collateral posted, represents exposure with the counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At December 31, 2015 and 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 $50.1 million and $60.8 million, respectively.

Accounting for Derivative Instruments
The accounting for derivative instruments requires that every derivative instrument, including certain derivative instruments embedded in other contracts, be recorded on the balance sheet as either an asset or liability measured at fair value. Our derivative instruments are classified and accounted for by us as fair value hedges and cash flow hedges.

Fair Value Hedges
We generally use fair value hedges to offset the exposure to changes in fair value of a recognized fixed-rate liability. We enter into interest rate swaps to economically convert fixed-rate debt into variable rate debt. For fair value hedges, we generally consider all components of the derivative’s gain and/or loss when assessing hedge effectiveness and generally hedge changes in fair values due to interest rates.

Cash Flow Hedges
We use cash flow hedges to hedge the exposure to variability in cash flows of floating rate deposits. This strategy is used primarily to minimize the exposure to volatility in cash flows from future changes in interest rates. Gains and losses on the effective portion of a qualifying hedge are recorded in accumulated other comprehensive income and ineffectiveness is recorded immediately to earnings. In assessing hedge effectiveness, generally all components of each derivative’s gains or losses are included in the assessment. We hedge exposure to changes in cash flows due to changes in interest rates or total changes in cash flow.
Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable rate deposits. During the next twelve months, we estimate that $15.0 million will be reclassified as an increase to interest expense.

Trading Activities
When derivative instruments do not qualify for hedge accounting treatment, they are accounted for at fair value with all changes in fair value recorded through earnings. All our derivative instruments entered into after December 31, 2013, with a maturity of less than 3 years, are economically hedging risk but do not receive hedge accounting treatment. Trading derivatives also include any hedges that originally received hedge accounting treatment, but lost hedge accounting treatment due to failed effectiveness testing, as well as the activity of certain derivatives  prior to them receiving hedge accounting treatment.

Summary of Derivative Financial Statement Impact
The following tables summarize the fair values and notional amounts of all derivative instruments at December 31, 2015 and 2014, and their impact on other comprehensive income and earnings for the years ended December 31, 2015, 2014 and 2013.

Impact of Derivatives on the Consolidated Balance Sheet
 
 
 
 
Cash Flow Hedges
 
Fair Value Hedges
 
Trading
 
Total
 
 
 
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 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
 
$
—

 
$
—

 
$
15,231

 
$
5,012

 
$
83

 
$
226

 
$
15,314

 
$
5,238

 
Derivative Liabilities:(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest rate
 
(27,512
)
 
(21,435
)
 
(2,339
)
 
(5,883
)
 
(646
)
 
(1,370
)
 
(30,497
)
 
(28,688
)
 
Total net derivatives
 
 
 
$
(27,512
)
 
$
(21,435
)
 
$
12,892

 
$
(871
)
 
$
(563
)
 
$
(1,144
)
 
$
(15,183
)
 
$
(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
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
2015
 
2014
 
2015
 
2014
Gross position
 
$
15,314

 
$
5,238

 
$
(30,497
)
 
$
(28,688
)
Impact of master netting agreement
 
(9,278
)
 
(4,045
)
 
9,278

 
4,045

Derivative values with impact of master netting agreements (as carried on balance sheet)
 
6,036

 
1,193

 
(21,219
)
 
(24,643
)
Cash collateral (held) pledged(1)
 
(1,070
)
 
(900
)
 
54,845

 
72,478

Net position
 
$
4,966

 
$
293

 
$
33,626

 
$
47,835


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


 
 
 
Cash Flow
 
Fair Value
 
Trading
 
Total
 
 
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
December 31,
 
 
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
 
2015
 
2014
Notional Values
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
 
$
1,109,933

 
$
1,106,920

 
$
3,080,167

 
$
3,044,492

 
$
1,305,757

 
$
973,539

 
$
5,495,857

 
$
5,124,951




Impact of Derivatives on the Consolidated Statements of Income

 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
 
 
 
 
 
 
 
Fair Value Hedges
 
 
 
 
 
 
Interest rate swaps:
Hedge ineffectiveness gains (losses) recorded in earnings
 
$
2,695

 
$
1,718

 
$
(558
)
Realized gains recorded in interest expense
 
29,940

 
20,958

 
28,668

Total
 
$
32,635

 
$
22,676

 
$
28,110

 
 
 
 
 
 
 
Cash Flow Hedges
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
Hedge ineffectiveness losses recorded in earnings
 
$
(1,427
)
 
$
(520
)
 
$
—

Realized losses recorded in interest expense
 
(21,475
)
 
(9,070
)
 
—

Total
 
$
(22,902
)
 
$
(9,590
)
 
$
—

 
 
 
 
 
 
 
Trading
 
 
 
 
 
 
Interest rate swaps:
 
 
 
 
 
 
Interest reclassification
 
$
3,451

 
$
(2,250
)
 
$
1,285

Change in fair value of future interest payments recorded in earnings
 
581

 
(2,944
)
 
(87
)
Total(1) 
 
4,032

 
(5,194
)
 
1,198

Total
 
$
13,765

 
$
7,892

 
$
29,308

    
(1)
Amounts included in "gains (losses) on derivatives and hedging activities, net."


Impact of Derivatives on the Statements of Changes in Stockholders' Equity
 
 
Years Ended December 31,
 
 
2015
 
2014
 
2013
Amount of loss recognized in other comprehensive income
 
$
(26,699
)
 
$
(28,842
)
 
$
—

Amount of loss reclassified in interest expense(1)
 
(21,475
)
 
(9,070
)
 
—

Total change in other comprehensive income for unrealized losses on derivatives, before income tax benefit
 
$
(5,224
)
 
$
(19,772
)
 
$
—



(1)
Amounts included in “realized 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 the Company and its derivatives counterparties was $1.1 million and $0.9 million at December 31, 2015 and 2014, respectively. Collateral held is recorded in “Other Liabilities” on the consolidated balance sheets. Cash collateral pledged related to derivative exposure between the Company and its derivatives counterparties was $54.8 million and $72.5 million at December 31, 2015 and 2014, respectively. Collateral pledged is recorded in "Other interest-earning assets" on the consolidated balance sheets.