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Derivative and Hedging Activities | 6 Months Ended
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Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities | Derivative and Hedging Activities The Corporation is exposed to certain risk arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Corporation's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation's known or expected cash receipts and its known or expected cash payments principally related to the Corporation's assets. 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 and commodity-related instruments generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain mutually agreed upon threshold limits. The Corporation pledged $35 million of investment securities as collateral at June 30, 2018, and pledged $24 million of investment securities as collateral at December 31, 2017. Federal regulations require the Corporation to 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 June 30, 2018 the Corporation posted $48 million of cash collateral for the margin compared to $22 million at December 31, 2017. Fair Value Hedges of Interest Rate Risk The Corporation is exposed to changes in the fair value of certain of its pools of prepayable fixed-rate assets due to changes in benchmark interest rates. The Corporation uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income. Derivatives to Accommodate Customer Needs The Corporation also facilitates customer borrowing activity by entering into various derivative contracts which are designated as free standing derivative contracts. Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk, foreign currency, and commodity prices. 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 sheets with changes in the fair value recorded as a component of Capital markets, net, and typically include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, and commodity contracts. See Note 11 for additional information and disclosures on balance sheet offsetting. Interest rate-related instruments: The Corporation provides interest rate risk management services to commercial customers, primarily forward interest rate swaps and caps. 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. Foreign currency exchange forwards: The Corporation provides foreign currency exchange services to customers, primarily forward contracts. The Corporation's customers enter into a foreign currency exchange 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 currency exchange derivative contract. Commodity contracts: Commodity contracts are entered into primarily for the benefit of commercial customers seeking to manage their exposure to fluctuating commodity prices. The Corporation mitigates its risk by then entering into an offsetting commodity derivative contract. 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. Written and Purchased Options (Time Deposit) Historically, the Corporation had entered into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”), which the Corporation ceased offering in September 2013. 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. The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments.
| June 30, 2018 |  | December 31, 2017
($ in Thousands) | Notional Amount |  | Fair Value |  | Balance Sheet Category |  | Notional Amount |  | Fair Value |  | Balance Sheet Category
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest rate-related instruments — customer and mirror | $ | 2,668,542 |  |  | $ | 62,708 |  |  | Trading assets |  | $ | 2,183,687 |  |  | $ | 28,494 |  |  | Trading assets
Interest rate-related instruments — customer and mirror | 2,668,542 |  |  | (62,141 | ) |  | Trading liabilities |  | 2,183,687 |  |  | (28,035 | ) |  | Trading liabilities
Foreign currency exchange forwards | 143,551 |  |  | 3,317 |  |  | Trading assets |  | 124,851 |  |  | 2,495 |  |  | Trading assets
Foreign currency exchange forwards | 136,177 |  |  | (3,091 | ) |  | Trading liabilities |  | 118,094 |  |  | (2,339 | ) |  | Trading liabilities
Commodity contracts | 419,459 |  |  | 66,894 |  |  | Trading assets |  | 457,868 |  |  | 38,686 |  |  | Trading assets
Commodity contracts | 419,458 |  |  | (66,380 | ) |  | Trading liabilities |  | 457,108 |  |  | (37,286 | ) |  | Trading liabilities
Interest rate lock commitments (mortgage) | 335,070 |  |  | 3,287 |  |  | Other assets |  | 222,736 |  |  | 1,538 |  |  | Other assets
Forward commitments (mortgage) | 312,003 |  |  | (919 | ) |  | Other liabilities |  | 164,567 |  |  | (313 | ) |  | Other liabilities
Purchased options (time deposit) | 25,511 |  |  | 1,027 |  |  | Other assets |  | 31,063 |  |  | 1,175 |  |  | Other assets
Written options (time deposit) | 25,511 |  |  | (1,027 | ) |  | Other liabilities |  | 31,063 |  |  | (1,175 | ) |  | Other liabilities
Derivatives designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |
Interest Rate Products | 500,000 |  |  | 2,396 |  |  | Other assets |  | — |  |  | — |  |  | Other assets
The following table presents amounts that were recorded on the balance sheet related to cumulative basis adjustment for fair value hedges.
| Line Item in the Statement of Financial Position in Which the Hedged Item is Included
| Carrying Amount of the Hedged Assets/(Liabilities) |  | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)
($ in Thousands) | June 30, 2018
Loans and investment securities receivables (a) | 497,591 |  |  | (2,409 | )
Total | $ | 497,591 |  |  | $ | (2,409 | )
(a) | These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At June 30, 2018, the amortized cost basis of the closed portfolios used in these hedging relationships was $1.2 billion; the negative cumulative basis adjustments associated with these hedging relationships was $2.4 million; and the amounts of the designated hedged items were $500 million.
The table below identifies the effect of fair value hedge accounting on the Corporation's statement of performance during the six months ended June 30, 2018.
| Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
| Six Months Ended June 30, 2018 | Year Ended December 31, 2017
($ in Thousands) | Interest Income | Other Income (Expense) | Interest Income | Other Income (Expense)
Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded | (13 | ) | — |  | — |  | — |
The effects of fair value and cash flow hedging: Gain or (loss) on fair value hedging relationships in Subtopic 815-20 |  |  |  |
Interest contracts |  |  |  |
Hedged items | (2,409 | ) | — |  | — |  | — |
Derivatives designated as hedging instruments | 2,396 |  | — |  | — |  | — |
The table below identifies the effect of derivatives not designated as hedging instruments on the Corporation's statement of performance during the six months ended June 30, 2018.
| Income Statement Category of Gain / (Loss) Recognized in Income | For the Six Months Ended June 30,
($ in Thousands) |  | 2018 |  | 2017
Derivative Instruments |  |  |  |
Interest rate-related instruments — customer and mirror, net | Capital markets, net | $ | 108 |  |  | $ | (69 | )
Interest rate lock commitments (mortgage) | Mortgage banking, net | 1,749 |  |  | 2,474 |
Forward commitments (mortgage) | Mortgage banking, net | (606 | ) |  | (2,749 | )
Foreign currency exchange forwards | Capital markets, net | 70 |  |  | 9 |
Commodity contracts | Capital markets, net | (886 | ) |  | 198 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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