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Derivative Instruments
 9 Months Ended
Sep. 30, 2017
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, 2017
December 31, 2016
Interest rate swaps
$
1,723,448

$
1,685,099

Interest rate caps
31,923

59,379

Credit risk participation agreements
112,348

121,514

Foreign exchange contracts
8,783

4,046

 Mortgage loan commitments
23,616

12,429

Mortgage loan forward sale contracts
1,607

6,626

Forward TBA contracts
32,000

15,000

Total notional amount
$
1,933,725

$
1,904,093



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 regulated clearing organization who becomes the Company's legal 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 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.

Under its program to sell residential mortgage loans in the secondary market, the Company designates 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, 2017
Dec. 31, 2016
 
Sept. 30, 2017
Dec. 31, 2016
(In thousands)    
  Fair Value
 
  Fair Value
Derivative instruments:
 
 
 
 
 
   Interest rate swaps
$
10,630

$
12,987

 
$
(5,775
)
$
(12,987
)
   Interest rate caps
29

78

 
(29
)
(78
)
   Credit risk participation agreements
56

65

 
(129
)
(156
)
   Foreign exchange contracts
68

66

 
(30
)
(4
)
   Mortgage loan commitments
757

355

 
—

(6
)
   Mortgage loan forward sale contracts
8

—

 
—

(63
)
   Forward TBA contracts
102

15

 
(16
)
(45
)
 Total
$
11,650

$
13,566

 
$
(5,979
)
$
(13,339
)


Due to rule changes by the Company's clearing counterparty effective January 2017, collateral previously recorded in "other assets" has been reclassified and offset against the fair values of cleared swaps, such that at September 30, 2017, the positive fair values of cleared swaps were reduced by $2.4 million and the negative fair values of cleared swaps were reduced by $7.3 million, as reflected in the table above.

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)
 
2017
2016
 
2017
2016
Derivative instruments:
 
 
 
 
 
 
  Interest rate swaps
Other non-interest income
$
702

$
203

 
$
1,301

$
3,198

  Credit risk participation agreements
Other non-interest income
7

50

 
18

(8
)
  Foreign exchange contracts
Other non-interest income
51

(20
)
 
(24
)
(12
)
  Mortgage loan commitments
Loan fees and sales
(114
)
86

 
408

613

  Mortgage loan forward sale contracts
Loan fees and sales
8

1

 
70

1

  Forward TBA contracts
Loan fees and sales
(322
)
(172
)
 
(580
)
(898
)
Total
 
$
332

$
148

 
$
1,193

$
2,894



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 agent. 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, 2017
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
10,809

$
—

$
10,809

$
(364
)
$
—

$
10,445

Derivatives not subject to master netting agreements
841

—

841

 
 
 
Total derivatives
11,650

—

11,650

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
5,829

$
—

$
5,829

$
(364
)
$
(1,692
)
$
3,773

Derivatives not subject to master netting agreements
150

—

150

 
 
 
Total derivatives
5,979

—

5,979

 
 
 
December 31, 2016
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
13,111

$
—

$
13,111

$
(3,391
)
$
—

$
9,720

Derivatives not subject to master netting agreements
455

—

455

 
 
 
Total derivatives
13,566

—

13,566

 
 
 
Liabilities:
 
 
 
 
 
 
Derivatives subject to master netting agreements
$
13,124

$
—

$
13,124

$
(3,391
)
$
(5,292
)
$
4,441

Derivatives not subject to master netting agreements
215

—

215

 
 
 
Total derivatives
13,339

—

13,339