Derivative Instruments and Other Hedging Activities

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Other Hedging Activities

DERIVATIVE INSTRUMENTS AND OTHER HEDGING ACTIVITIES

The Company enters into derivative financial instruments to manage interest rate risk, exposures related to liquidity and credit risk, and to facilitate customer transactions. The primary types of derivatives used by the Company include interest rate swap agreements, foreign exchange contracts, interest rate lock commitments, forward sales commitments, and written and purchased options. All derivative instruments are recognized on the consolidated balance sheets as "other assets" or "other liabilities" at fair value, as required by ASC Topic 815, Derivatives and Hedging.

For cash flow hedges, the effective portion of the gain or loss related to the derivative instrument is initially reported as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings or when the hedge is terminated. The ineffective portion of the gain or loss is reported in earnings immediately. In applying hedge accounting for derivatives, the Company establishes and documents a method for assessing the effectiveness of the hedging derivative and a measurement approach for determining the ineffective aspect of the hedge upon the inception of the hedge. The Company has designated interest rate swaps in a cash flow hedge to convert forecasted variable interest payments to a fixed rate on its junior subordinated debt and has concluded that the forecasted transactions are probable of occurring.

For derivative instruments that are not designated as hedging instruments, changes in the fair value of the derivatives are recognized in earnings immediately.

Information pertaining to outstanding derivative instruments is as follows:

		Asset Derivatives Fair Value					Liability Derivatives Fair Value
(Dollars in thousands)	Balance Sheet Location	June 30, 2016		December 31, 2015		Balance Sheet Location	June 30, 2016		December 31, 2015
Derivatives designated as hedging instruments under ASC Topic 815:
Interest rate contracts	Other assets	$	—	$	58	Other liabilities	$	9,872	$	—
Total derivatives designated as hedging instruments under ASC Topic 815		$	—	$	58		$	9,872	$	—
Derivatives not designated as hedging instruments under ASC Topic 815:
Interest rate contracts	Other assets	$	43,569	$	18,077	Other liabilities	$	43,569	$	18,077
Foreign exchange contracts	Other assets	10		156		Other liabilities	—		134
Forward sales contracts	Other assets	51		1,588		Other liabilities	4,322		474
Written and purchased options	Other assets	17,968		10,607		Other liabilities	7,144		6,254
Total derivatives not designated as hedging instruments under ASC Topic 815		61,598		30,428			55,035		24,939
Total		$	61,598	$	30,486		$	64,907	$	24,939

	Asset Derivatives  Notional Amount				Liability Derivatives  Notional Amount
(Dollars in thousands)	June 30, 2016		December 31, 2015		June 30, 2016		December 31, 2015
Derivatives designated as hedging instruments under ASC Topic 815:
Interest rate contracts	$	—	$	108,500	$	108,500	$	—
Total derivatives designated as hedging instruments under ASC Topic 815	$	—	$	108,500	$	108,500	$	—
Derivatives not designated as hedging instruments under ASC Topic 815:
Interest rate contracts	$	825,745	$	590,334	$	825,745	$	590,334
Foreign exchange contracts	1,994		4,392		1,994		4,392
Forward sales contracts	15,471		223,841		462,381		173,430
Written and purchased options	463,497		328,210		181,150		181,949
Total derivatives not designated as hedging instruments under ASC Topic 815	1,306,707		1,146,777		1,471,270		950,105
Total	$	1,306,707	$	1,255,277	$	1,579,770	$	950,105

The Company is party to collateral agreements with certain derivative counterparties. Such agreements require that the Company maintain collateral based on the fair values of individual derivative transactions. In the event of default by the Company, the counterparty would be entitled to the collateral.

At June 30, 2016 and December 31, 2015, the Company was required to post $14.2 million and $21.8 million, respectively, in cash as collateral for its derivative transactions, which are included in "interest-bearing deposits in banks" on the Company’s consolidated balance sheets. The Company does not anticipate additional assets will be required to be posted as collateral, nor does it believe additional assets would be required to settle its derivative instruments immediately if contingent features were triggered at June 30, 2016. The Company’s master netting agreements represent written, legally enforceable bilateral agreements that (1) create a single legal obligation for all individual transactions covered by the master agreement and (2) in the event of default, provide the non-defaulting counterparty the right to accelerate, terminate, and close-out on a net basis all transactions under the agreement and to promptly liquidate or set-off collateral posted by the defaulting counterparty. As permitted by U.S. GAAP, the Company does not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against recognized fair value amounts of derivatives executed with the same counterparty under a master netting agreement.

The following table reconciles the gross amounts presented in the consolidated balance sheets to the net amounts that would result in the event of offset.

	June 30, 2016
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet
(Dollars in thousands)			Derivatives			Collateral  (1)			Net
Derivatives subject to master netting arrangements
Derivative assets
Interest rate contracts not designated as hedging instruments	$	43,569	$	—		$	—		$	43,569
Written and purchased options	7,144		(3,784		)	—			3,360
Total derivative assets subject to master netting arrangements	$	50,713	$	(3,784	)	$	—		$	46,929
Derivative liabilities
Interest rate contracts designated as hedging instruments	$	9,872	$	(3,784	)	$	(3,072	)	$	3,016
Interest rate contracts not designated as hedging instruments	43,569		—			(11,125		)	32,444
Total derivative liabilities subject to master netting arrangements	$	53,441	$	(3,784	)	$	(14,197	)	$	35,460

⁽¹⁾  Consists of cash collateral recorded at cost, which approximates fair value, and investment securities.

	December 31, 2015
	Gross Amounts Presented in the Balance Sheet		Gross Amounts Not Offset in the Balance Sheet
(Dollars in thousands)			Derivatives		Collateral  (1)			Net
Derivatives subject to master netting arrangements
Derivative assets
Interest rate contracts designated as hedging instruments	$	58	$	—	$	(45	)	$	13
Interest rate contracts not designated as hedging instruments	18,058		—		—			18,058
Written and purchased options	6,277		—		—			6,277
Total derivative assets subject to master netting arrangements	$	24,393	$	—	$	(45	)	$	24,348
Derivative liabilities
Interest rate contracts not designated as hedging instruments	$	18,058	$	—	$	(9,428	)	$	8,630
Total derivative liabilities subject to master netting arrangements	$	18,058	$	—	$	(9,428	)	$	8,630

⁽¹⁾  Consists of cash collateral recorded at cost, which approximates fair value, and investment securities.

During the six months ended June 30, 2016 and 2015, the Company has not reclassified into earnings any gain or loss as a result of the discontinuance of cash flow hedges because it was probable the original forecasted transaction would not occur by the end of the originally specified term.

At June 30, 2016, the Company does not expect to reclassify any amount from accumulated other comprehensive income into interest income over the next twelve months for derivatives that will be settled.

At June 30, 2016 and 2015, and for the three and six months then ended, information pertaining to the effect of the hedging instruments on the consolidated financial statements is as follows:

												Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
			Amount of Gain (Loss) Recognized in OCI net of taxes (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
(Dollars in thousands)
			For the Three Months Ended June 30
Derivatives in ASC Topic 815 Cash Flow Hedging Relationships			2016		2015			2016		2015			2016		2015
	Interest rate contracts	$	(2,328	)	$	3,038	Other income (expense)	$	—	$	—	Other income (expense)	$	—	$	—
Total		$	(2,328	)	$	3,038		$	—	$	—		$	—	$	—
												Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
			Amount of Gain (Loss) Recognized in OCI net of taxes (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
(Dollars in thousands)
			For the Six Months Ended June 30
Derivatives in ASC Topic 815 Cash Flow Hedging Relationships			2016		2015			2016		2015			2016		2015
	Interest rate contracts	$	(6,455	)	$	3,038	Other income (expense)	$	—	$	—	Other income (expense)	$	—	$	—
Total		$	(6,455	)	$	3,038		$	—	$	—		$	—	$	—

At June 30, 2016 and 2015, and for the three and six months then ended, information pertaining to the effect of derivatives not designated as hedging instruments on the consolidated financial statements is as follows:

		Amount of Gain (Loss) Recognized in Income on Derivatives
	Location of Gain (Loss) Recognized in Income on Derivatives	For the Three Months Ended June 30						For the Six Months Ended June 30
(Dollars in thousands)		2016			2015			2016			2015
Interest rate contracts (1)	Other income	$	2,332		$	934		$	5,294		$	1,939
Foreign exchange contracts	Other income	2			—			3			—
Forward sales contracts	Mortgage income	(4,787		)	8,303			(10,130		)	8,050
Written and purchased options	Mortgage income	2,488			(1,953		)	6,470			(1,185		)
Total		$	35		$	7,284		$	1,637		$	8,804

⁽¹⁾ Includes fees associated with customer interest rate contracts.