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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
DERIVATIVE FINANCIAL INSTRUMENTS

The Company is a party to various derivative financial instruments that are used in the normal course of business to meet the needs of its clients and as part of its risk management activities. These instruments include interest rate swaps and option contracts and foreign exchange forward contracts. The Company does not enter into derivative financial instruments for trading purposes.

Using derivative instruments can involve assuming counterparty credit risk to varying degrees. Counterparty credit risk relates to the loss the Company could incur if a counterparty were to default on a derivative contract. Notional amounts of derivative financial instruments do not represent credit risk, and are not recorded in the consolidated balance sheet. The overall credit risk and exposure to individual counterparties is monitored. The Company does not anticipate nonperformance by any counterparties. The amount of counterparty credit exposure is the unrealized gains in excess of collateral pledged, if any, on such derivative contracts along with the value of foreign exchange forward contracts. At December 31, 2015, the Company had $1.2 million of counterparty credit exposure on derivatives. This counterparty risk is considered as part of underwriting and on-going monitoring policies. At December 31, 2015 and 2014, the Company had pledged cash of $1.3 million and $1.0 million, respectively, as collateral in connection with interest rate swap agreements.
 
Risk Management Instruments. The Company enters into certain derivative contracts to economically hedge state tax credits and certain loans.
•
Economic hedge of state tax credits. The Company enters into interest rate caps in order to economically hedge changes in fair value of the State tax credits held for sale. See Note 19 – Fair Value Measurements for further discussion of the fair value of the state tax credits.

The table below summarizes the notional amounts and fair values of the derivative instruments used to manage risk.
 
 
 
 
Asset Derivatives
(Other Assets)
 
Liability Derivatives
(Other Liabilities)
Notional Amount
 
Fair Value
 
Fair Value
(in thousands)
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Non-designated hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate cap contracts
$
3,500

 
$
23,800

 
$
—

 
$
2

 
$
—

 
$
—




Client-Related Derivative Instruments. The Company enters into interest rate swaps to allow customers to hedge changes in fair value of certain loans. The table below summarizes the notional amounts and fair values of the client-related derivative instruments.

 
 
Asset Derivatives
(Other Assets)
 
Liability Derivatives
(Other Liabilities)
 
Notional Amount
 
Fair Value
 
Fair Value
(in thousands)
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
 
December 31,
2015
 
December 31,
2014
Non-designated hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$
153,630

 
$
141,263

 
$
1,155

 
$
907

 
$
1,155

 
$
907



Changes in the fair value of client-related derivative instruments are recognized currently in operations. For the years ended December 31, 2015 and 2014, the gains and losses offset each other due to the Company's hedging of the client swaps with other bank counterparties.