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Derivative Financial Instruments | 9 Months Ended
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Sep. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments | Derivative Financial Instruments We maintain an overall interest rate risk management strategy that incorporates the use of derivative instruments to reduce the economic effect of interest rate changes. Our goal is to manage interest rate sensitivity by modifying the repricing frequency and underlying index characteristics of certain balance sheet liabilities so any adverse impacts related to movements in interest rates are managed within low to moderate limits. As a result of interest rate fluctuations, hedged liabilities will appreciate or depreciate in market value or create variability in cash flows. Income or loss on the derivative instruments linked to the hedged item will generally offset the effect of this unrealized appreciation or depreciation or volatility in cash flows for the period the item is being hedged. We view this strategy as a prudent management of interest rate risk. Please refer to Note 11, “Derivative Financial Instruments” in our 2015 Form 10-K for a full discussion of our risk management strategy. Although we use derivatives to reduce the risk of interest rate changes, the use of derivatives does expose us to both market and credit risk. Market risk is the chance of financial loss resulting from changes in interest rates and market liquidity. Credit risk is the risk that a counterparty will not perform its obligations under a contract and it is limited to the loss of the fair value gain in a derivative that the counterparty owes us less collateral held and plus collateral posted. When the fair value of a derivative contract less collateral held and plus collateral posted is negative, we owe the counterparty and, therefore, we have no credit risk exposure to the counterparty; however, the counterparty has exposure to us. We minimize the credit risk in derivative instruments by entering into transactions with highly-rated counterparties that are reviewed regularly by our Credit Department. We also maintain a policy of requiring that all derivative contracts be governed by an International Swaps and Derivatives Association, Inc. Master Agreement. Depending on the nature of the derivative transaction, bilateral collateral arrangements are required as well. When we have more than one outstanding derivative transaction with the counterparty, and there exists legally enforceable netting provisions with the counterparty (i.e., a legal right to offset receivable and payable derivative contracts), the “net” mark-to-market exposure, less collateral held and plus collateral posted, represents exposure with the counterparty. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. Title VII of the Dodd-Frank Act requires all standardized derivatives, including most interest rate swaps, to be submitted for clearing to central counterparties to reduce counterparty risk. As of September 30, 2016, $5.6 billion notional of our derivative contracts were cleared on the Chicago Mercantile Exchange and the London Clearing House. All derivative contracts cleared through an exchange require collateral to be exchanged based on the fair value of the derivative. Our exposure is limited to the value of the derivative contracts in a gain position less any collateral held and plus any collateral posted. When there is a net negative exposure, we consider our exposure to the counterparty to be zero. At September 30, 2016 and December 31, 2015, we had a net positive exposure (derivative gain positions to us, less collateral held by us and plus collateral posted with counterparties) related to derivatives of $47.6 million and $50.1 million, respectively. Summary of Derivative Financial Statement Impact The following tables summarize the fair values and notional amounts of all derivative instruments at September 30, 2016 and December 31, 2015, and their impact on earnings and other comprehensive income for the three and nine months ended September 30, 2016 and 2015. Please refer to Note 11, “Derivative Financial Instruments” in our 2015 Form 10-K for a full discussion of cash flow hedges, fair value hedges, and trading activities. Impact of Derivatives on the Consolidated Balance Sheet
|  |  | Cash Flow Hedges |  | Fair Value Hedges |  | Trading |  | Total
|  |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Fair Values(1) | Hedged Risk Exposure |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative Assets:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | $ | — |  |  | $ | — |  |  | $ | 42,996 |  |  | $ | 15,231 |  |  | $ | 414 |  |  | $ | 83 |  |  | $ | 43,410 |  |  | $ | 15,314 |
Derivative Liabilities:(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | (52,197 | ) |  | (27,512 | ) |  | (187 | ) |  | (2,339 | ) |  | (194 | ) |  | (646 | ) |  | (52,578 | ) |  | (30,497 | )
Total net derivatives |  |  | $ | (52,197 | ) |  | $ | (27,512 | ) |  | $ | 42,809 |  |  | $ | 12,892 |  |  | $ | 220 |  |  | $ | (563 | ) |  | $ | (9,168 | ) |  | $ | (15,183 | )
___________
(1) | Fair values reported are exclusive of collateral held and pledged and accrued interest. Assets and liabilities are presented without consideration of master netting agreements. Derivatives are carried on the balance sheet based on net position by counterparty under master netting agreements, and classified in other assets or other liabilities depending on whether in a net positive or negative position.
(2) | The following table reconciles gross positions with the impact of master netting agreements to the balance sheet classification:
|  | Other Assets |  | Other Liabilities
|  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Gross position(1) |  | $ | 43,410 |  |  | $ | 15,314 |  |  | $ | (52,578 | ) |  | $ | (30,497 | )
Impact of master netting agreement |  | (14,111 | ) |  | (9,278 | ) |  | 14,111 |  |  | 9,278 |
Derivative values with impact of master netting agreements (as carried on balance sheet) |  | 29,299 |  |  | 6,036 |  |  | (38,467 | ) |  | (21,219 | )
Cash collateral (held) pledged |  | (12,101 | ) |  | (1,070 | ) |  | 47,283 |  |  | 54,845 |
Net position |  | $ | 17,198 |  |  | $ | 4,966 |  |  | $ | 8,816 |  |  | $ | 33,626 |
__________
(1) | Gross position amounts are exclusive of accrued interest.
|  |  | Cash Flow |  | Fair Value |  | Trading |  | Total
|  |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31, |  | September 30, |  | December 31,
|  |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015 |  | 2016 |  | 2015
Notional Values |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | $ | 1,078,709 |  |  | $ | 1,109,933 |  |  | $ | 3,767,045 |  |  | $ | 3,080,167 |  |  | $ | 1,267,694 |  |  | $ | 1,305,757 |  |  | $ | 6,113,448 |  |  | $ | 5,495,857 |
Impact of Derivatives on the Consolidated Statements of Income
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Fair Value Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Hedge ineffectiveness gains (losses) recorded in earnings(1) |  | $ | 3,199 |  |  | $ | (1,843 | ) |  | $ | 2,000 |  |  | $ | (929 | )
Realized gains recorded in interest expense |  | 6,944 |  |  | 7,531 |  |  | 21,593 |  |  | 22,512 |
Total |  | $ | 10,143 |  |  | $ | 5,688 |  |  | $ | 23,593 |  |  | $ | 21,583 |
Cash Flow Hedges |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Hedge ineffectiveness losses recorded in earnings(1) |  | $ | (843 | ) |  | $ | (273 | ) |  | $ | (1,524 | ) |  | $ | (542 | )
Realized losses recorded in interest expense |  | (4,381 | ) |  | (5,411 | ) |  | (13,588 | ) |  | (16,157 | )
Total |  | $ | (5,224 | ) |  | $ | (5,684 | ) |  | $ | (15,112 | ) |  | $ | (16,699 | )
Trading |  |  |  |  |  |  |  |
Interest rate swaps: |  |  |  |  |  |  |  |
Interest reclassification |  | $ | 537 |  |  | $ | 853 |  |  | $ | 1,897 |  |  | $ | 2,846 |
Change in fair value of future interest payments recorded in earnings |  | (1,525 | ) |  | 716 |  |  | 783 |  |  | 2,972 |
Total(1) |  | (988 | ) |  | 1,569 |  |  | 2,680 |  |  | 5,818 |
Total |  | $ | 3,931 |  |  | $ | 1,573 |  |  | $ | 11,161 |  |  | $ | 10,702 |
________
(1) | Amounts included in “gains on derivatives and hedging activities, net” in the consolidated statements of income.
Impact of Derivatives on the Statements of Changes in Stockholders’ Equity
|  | Three Months Ended |  | Nine Months Ended
|  | September 30, |  | September 30,
|  | 2016 |  | 2015 |  | 2016 |  | 2015
Amount of gain (loss) recognized in other comprehensive income (loss) |  | $ | 4,943 |  |  | $ | (27,162 | ) |  | $ | (37,370 | ) |  | $ | (35,441 | )
Less: amount of (loss) gain reclassified in interest expense(1) |  | (4,381 | ) |  | 5,411 |  |  | (13,588 | ) |  | 16,157 |
Total change in other comprehensive income (loss) for unrealized gains (losses) on derivatives, before income tax benefit |  | $ | 9,324 |  |  | $ | (21,751 | ) |  | $ | (23,782 | ) |  | $ | (19,284 | )
___________ (1) Amounts included in “realized losses recorded in interest expense” in the “Impact of Derivatives on the Consolidated Statements of Income” table. Cash Collateral Cash collateral held related to derivative exposure between the Company and its derivatives counterparties was $12.1 million and $1.1 million at September 30, 2016 and December 31, 2015, respectively. Collateral held is recorded in “Other Liabilities” on the consolidated balance sheets. Cash collateral pledged related to derivative exposure between the Company and its derivatives counterparties was $47.3 million and $54.8 million at September 30, 2016 and December 31, 2015, respectively. Collateral pledged is recorded in “Other interest-earning assets” on the consolidated balance sheets.

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