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Derivative and Hedging Activities
 12 Months Ended
Dec. 31, 2014
Derivative and Hedging Activities [Abstract]  
Derivative and Hedging Activities

NOTE 13  DERIVATIVE AND HEDGING ACTIVITIES:

 

The Corporation facilitates customer borrowing activity by providing various interest rate risk management solutions through its capital markets area. To date, all of the notional amounts of customer transactions have been matched with a mirror swap with another counterparty. The Corporation has used, and may use again in the future, derivative instruments to hedge the variability in interest payments or protect the value of certain assets and liabilities recorded on its consolidated balance sheet from changes in interest rates. The predominant derivative and hedging activities include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, written options, purchased options, and certain mortgage banking activities. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, interest rate-related instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits which are determined from the credit ratings of each counterparty. The Corporation was required to pledge $11 million of investment securities as collateral at December 31, 2014, and pledged $42 million of investment securities as collateral at December 31, 2013. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, as of June 10, 2013, the Corporation must clear all LIBOR interest rate swaps through a clearing house if it can be cleared. As such, the Corporation is required to pledge cash collateral for the margin. At December 31, 2014, the Corporation posted cash collateral for the margin of $15 million, compared to $6 million at December 31, 2013.

 

The Corporation's derivative and hedging instruments are recorded at fair value on the consolidated balance sheets. The fair value of the Corporation's interest rate-related instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 17 for additional fair value information and disclosures and see Note 1 for the Corporation's accounting policy for derivative and hedging activities.

 

The table below identifies the balance sheet category and fair values of the Corporation's derivative instruments not designated as hedging instruments.

 

        Weighted Average
($ in Thousands)Notional   Balance SheetReceive Pay    
  Amount  Fair Value Category Rate (1) Rate (1)  Maturity
December 31, 2014             
Interest rate-related instruments — customer and mirror$1,636,480 $33,023Trading assets1.60%1.60% 42months
Interest rate-related instruments — customer and mirror 1,636,480  (35,372)Trading liabilities1.60%1.60% 42months
Interest rate lock commitments (mortgage) 126,379  1,947Other assets— —   —
Forward commitments (mortgage) 234,500  (2,435)Other liabilities— —   —
Foreign currency exchange forwards 60,742  2,140Trading assets— —   —
Foreign currency exchange forwards 56,573  (1,957)Trading liabilities— —   —
Purchased options (time deposit) 110,347  6,054Other assets— —   —
Written options (time deposit) 110,347  (6,054)Other liabilities— —   —
               
               
December 31, 2013             
Interest rate-related instruments — customer and mirror$1,821,787 $42,980Trading assets 1.63% 1.63% 45months
Interest rate-related instruments — customer and mirror 1,821,787  (45,815)Trading liabilities 1.63% 1.63% 45months
Interest rate lock commitments (mortgage) 102,225  416Other assets— —   —
Forward commitments (mortgage) 135,000  1,301Other assets— —   —
Foreign currency exchange forwards 25,747  748Trading assets— —   —
Foreign currency exchange forwards 24,413  (655)Trading liabilities— —   —
Purchased options (time deposit) 115,953  7,328Other assets       
Written options (time deposit) 115,953  (7,328)Other liabilities       
               
               
(1)Reflects the weighted average receive rate and pay rate for the interest rate swap derivative financial instruments only.

The table below identifies the income statement category of the gains and losses recognized in income on the Corporation’s
derivative instruments not designated as hedging instruments.
    
 Income Statement Category ofGain / (Loss)
 Gain / (Loss) Recognized in Income Recognized in Income
   ($ in Thousands)
Year ended December 31, 2014   
Interest rate-related instruments —customer and mirror, netCapital market fees, net 486
Interest rate lock commitments (mortgage)Mortgage banking, net 1,531
Forward commitments (mortgage)Mortgage banking, net (3,736)
Foreign currency exchange forwardsCapital market fees, net 90
    
    
Year ended December 31, 2013   
Interest rate-related instruments —customer and mirror, netCapital market fees, net 2,926
Interest rate lock commitments (mortgage)Mortgage banking, net (7,378)
Forward commitments (mortgage)Mortgage banking, net 1,448
Foreign currency exchange forwardsCapital market fees, net (36)

Free Standing Derivatives

The Corporation enters into various derivative contracts which are designated as free standing derivative contracts. These derivative contracts are not designated against specific assets and liabilities on the balance sheet or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value on the consolidated balance sheet with changes in the fair value recorded as a component of Capital market fees, net, and typically include interest rate-related instruments (swaps and caps).

 

Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk. The Corporation's market risk from unfavorable movements in interest rates related to these derivative contracts is generally economically hedged by concurrently entering into offsetting derivative contracts. The offsetting derivative contracts have identical notional values, terms and indices.

 

Mortgage derivatives

Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets with the changes in fair value recorded as a component of mortgage banking, net.

 

Foreign currency derivatives

The Corporation provides foreign exchange services to customers, primarily forward contracts. Our customers enter into a foreign currency forward with the Corporation as a means for them to mitigate exchange rate risk. The Corporation mitigates its risk by then entering into an offsetting foreign exchange derivative contract. Such foreign exchange contracts are carried at fair value on the consolidated balance sheet with changes in fair value recorded as a component of Capital market fees, net.

 

Written and purchased option derivatives (time deposit)

The Corporation has periodically entered into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”). During September 2013, the Corporation terminated its Power CD product. The Power CD was a time deposit that provided the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation received a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments which are carried at fair value on the consolidated balance sheets.