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Derivative Instruments
 9 Months Ended
Sep. 30, 2016
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 Company’s derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.

(In thousands)
September 30, 2016
December 31, 2015
Interest rate swaps
$
1,320,674

$
1,020,310

Interest rate caps
60,954

66,118

Credit risk participation agreements
63,117

62,456

Foreign exchange contracts
3,792

15,535

 Mortgage loan commitments
24,301

8,605

Mortgage loan forward sale contracts
518

642

Forward TBA contracts
25,500

11,000

Total notional amount
$
1,498,856

$
1,184,666



The largest group of notional amounts relate to 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.

Many of the Company’s interest rate swap contracts 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 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 and building materials, manufacturing, education, communications, retail product distribution, and retirement communities. At September 30, 2016, the largest potential loss exposures were in the groups related to real estate, distribution, and retirement communities. If the counterparties in these groups failed to perform, and if the underlying collateral proved to be of no value, the Company estimates that it would incur losses of $15.7 million (real estate), $3.5 million (retirement communities), and $3.4 million (distribution) at September 30, 2016.

The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates.

In 2015, the Company initiated a program of secondary market sales of residential mortgage loans and has designated certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale commitments. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Derivative 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. Information about the valuation methods used to determine fair value is provided in Note 13 on Fair Value Measurements.
 
Asset Derivatives
 
Liability Derivatives
 
Sept. 30, 2016
Dec. 31, 2015
 
Sept. 30, 2016
Dec. 31, 2015
(In thousands)    
  Fair Value
 
  Fair Value
Derivative instruments:
 
 
 
 
 
   Interest rate swaps
$
31,135

$
11,993

 
$
(31,343
)
$
(11,993
)
   Interest rate caps
36

73

 
(36
)
(73
)
   Credit risk participation agreements
1

1

 
(272
)
(195
)
   Foreign exchange contracts
5

437

 
(10
)
(430
)
   Mortgage loan commitments
876

263

 
—

—

   Mortgage loan forward sale contracts
1

—

 
—

—

   Forward TBA contracts
2

4

 
(111
)
(38
)
 Total
$
32,056

$
12,771

 
$
(31,772
)
$
(12,729
)


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 Derivatives
Amount of Gain or (Loss) Recognized in Income on Derivatives


 
For the Three Months Ended September 30
 
For the Nine Months Ended September 30
(In thousands)
 
2016
2015
 
2016
2015
Derivative instruments:
 
 
 
 
 
 
  Interest rate swaps
Other non-interest income
$
203

$
741

 
$
3,198

$
3,551

  Credit risk participation agreements
Other non-interest income
50

(57
)
 
(8
)
(9
)
  Foreign exchange contracts
Other non-interest income
(20
)
(55
)
 
(12
)
267

  Mortgage loan commitments
Loan fees and sales
86

106

 
613

451

  Mortgage loan forward sale contracts
Loan fees and sales
1

(6
)
 
1

(5
)
  Forward TBA contracts
Loan fees and sales
(172
)
(370
)
 
(898
)
15

Total
 
$
148

$
359

 
$
2,894

$
4,270



The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

The Company is party to master netting arrangements with most of its swap derivative counterparties; however, the Company does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral, usually in the form of marketable securities, is exchanged between the Company and dealer bank counterparties and is generally subject to thresholds and transfer minimums. By contract, it may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash and securities to its clearing agency. At September 30, 2016, the Company had a net liability position with dealer bank and clearing agency counterparties totaling $31.3 million, and had posted securities with a fair value of $5.1 million and cash totaling $36.8 million. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.
 
 
 
 
Gross Amounts Not Offset in the Balance Sheet
 
(In thousands)
Gross Amount Recognized
Gross Amounts Offset in the Balance Sheet
Net Amounts Presented in the Balance Sheet
Financial Instruments Available for Offset
Collateral Received/Pledged
Net Amount
September 30, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
31,174

$
—

$
31,174

$
(38
)
$
—

$
31,136

Derivatives not subject to master netting agreements
882

—

882

 
 
 
Total derivatives
32,056

—

32,056

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
31,762

$
—

$
31,762

$
(38
)
$
(30,319
)
$
1,405

Derivatives not subject to master netting agreements
10

—

10

 
 
 
Total derivatives
31,772

—

31,772

 
 
 
December 31, 2015
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
12,071

$
—

$
12,071

$
(94
)
$
—

$
11,977

Derivatives not subject to master netting agreements
700

—

700

 
 
 
Total derivatives
12,771

—

12,771

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
12,299

$
—

$
12,299

$
(94
)
$
(10,927
)
$
1,278

Derivatives not subject to master netting agreements
430

—

430

 
 
 
Total derivatives
12,729

—

12,729