Derivative Instruments

12 Months Ended

Dec. 31, 2014

Derivative Instrument Detail [Abstract]

Derivative Instruments

Derivative Instruments

The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. The largest group of notional amounts relate to interest rate swaps, which are discussed in more detail below.

	December 31
(In thousands)	2014		2013
Interest rate swaps	$	647,709	$	596,933
Interest rate caps	53,587		9,736
Credit risk participation agreements	75,943		52,456
Foreign exchange contracts	19,791		81,207
Total notional amount	$	797,030	$	740,332

The Company’s foreign exchange activity involves the purchase and sale of forward foreign exchange contracts, which are commitments to purchase or deliver a specified amount of foreign currency at a specific future date. This activity enables customers involved in international business to hedge their exposure to foreign currency exchange rate fluctuations. The Company minimizes its related exposure arising from these customer transactions with offsetting contracts for the same currency and time frame. In addition, the Company uses foreign exchange contracts, to a limited extent, for trading purposes, including taking proprietary positions. Risk arises from changes in the currency exchange rate and from the potential for counterparty nonperformance. These risks are controlled by adherence to a foreign exchange trading policy which contains control limits on currency amounts, open positions, maturities and losses, and procedures for approvals, record-keeping, monitoring and reporting. Hedge accounting has not been applied to these foreign exchange activities.

Credit risk participation agreements arise when the Company contracts, as a guarantor or beneficiary, with other financial institutions to share credit risk associated with certain interest rate swaps. The Company’s risks and responsibilities as guarantor are further discussed in Note 20 on Commitments, Contingencies and Guarantees.    

The Company’s interest rate risk management strategy includes the ability to modify the repricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows. Interest rate swaps are used on a limited basis as part of this strategy. The Company’s other derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings. These instruments include interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. These swaps are offset by matching contracts purchased by the Company from other financial dealer institutions. Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. The notional amount of these free-standing swaps at December 31, 2014 was $641.7 million.

Many of the Company’s interest rate swap arrangements with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions, or can require instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

The banking customer counterparties are engaged in a variety of businesses, including real estate, building materials, communications, consumer products, education, and manufacturing. At December 31, 2014, the largest loss exposures were in the groups related to real estate and building materials, retirement communities, and manufacturing. If the counterparties in these groups failed to perform, and if the underlying collateral proved to be of no value, the Company would incur losses of $3.7 million (real estate and building materials), $1.2 million (retirement communities), and $1.2 million (manufacturing), based on estimated amounts at December 31, 2014.

The fair values of the Company’s derivative instruments are shown in the table below. Information about the valuation methods used to measure fair value is provided in Note 16 on Fair Value Measurements. Derivatives instruments with a positive fair value (asset derivatives) are reported in other assets in the consolidated balance sheets while derivative instruments with a negative fair value (liability derivatives) are reported in other liabilities in the consolidated balance sheets.

	Asset Derivatives				Liability Derivatives
	December 31				December 31
	2014		2013		2014			2013
(In thousands)	Fair Value				Fair Value
Derivatives designated as hedging instruments:
Interest rate swaps	$	—	$	—	$	(22	)	$	(300	)
Total derivatives designated as hedging instruments	$	—	$	—	$	(22	)	$	(300	)
Derivatives not designated as hedging instruments:
Interest rate swaps	$	10,144	$	11,428	$	(10,144	)	$	(11,429	)
Interest rate caps	62		1		(62		)	(1		)
Credit risk participation agreements	3		4		(226		)	(69		)
Foreign exchange contracts	248		1,547		(494		)	(1,530		)
Total derivatives not designated as hedging instruments	$	10,457	$	12,980	$	(10,926	)	$	(13,029	)
Total derivatives	$	10,457	$	12,980	$	(10,948	)	$	(13,329	)

The effects of derivative instruments on the consolidated statements of income are shown in the table below.

	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
		For the Years Ended December 31
(In thousands)		2014			2013		2012
Derivatives and hedged instruments in fair value hedging relationships:
Interest rate swaps and hedged loans	Interest and fees on loans	$	(1	)	$	14	$	7
Total		$	(1	)	$	14	$	7
Derivatives not designated as hedging instruments:
Interest rate swaps	Other non-interest income	$	1,674		$	1,140	$	743
Interest rate caps	Other non-interest income	33			—		—
Credit risk participation agreements	Other non-interest income	122			234		25
Foreign exchange contracts	Other non-interest income	(263		)	81		(161		)
Mortgage loan commitments	Loan fees and sales	—			—		(20		)
Mortgage loan forward sale contracts	Loan fees and sales	—			—		11
Total		$	1,566		$	1,455	$	598