XML 31 R22.htm IDEA: XBRL DOCUMENT
v3.23.3

Derivative and Hedging Activities | 9 Months Ended
--- | ---
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative and Hedging Activities | Derivative and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposure to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate and liquidity risks, primarily by managing the amount, sources, and duration of its assets and liabilities and, the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Derivative financial instruments are recorded at fair value in other assets and other liabilities on the Consolidated Statements of Condition. The Company's policy is to present our derivative assets and derivative liabilities on the Consolidated Statement of Condition on a gross basis, even when provisions allowing for set-off are in place. However, for derivative contracts cleared through certain central clearing parties, variation margin payments are recognized as settlements. We are exposed to non-performance risk by the counterparties to our various derivative financial instruments. A majority of our derivatives are centrally cleared through a Central Counterparty Clearing House or consist of residential mortgage interest rate lock commitments further limiting our exposure to non-performance risk. We believe that the non-performance risk inherent in our remaining derivative contracts is minimal based on credit standards and the collateral provisions of the derivative agreements. Derivatives not designated as hedging instruments. The Company maintains a derivative portfolio of interest rate swaps, foreign currency swaps, futures and forward commitments used to manage exposure to changes in interest rates and MSR asset values and to meet the needs of customers. The Company also enters into interest rate lock commitments, which are commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. Market risk on interest rate lock commitments and mortgage LHFS is managed using corresponding forward sale commitments and US Treasury futures. Changes in the fair value of derivatives not designated as hedging instruments are recognized on the Consolidated Statements of Income and Comprehensive Income. Derivatives designated as hedging instruments. The Company has designated certain interest rate swaps as cash flow hedges on overnight SOFR-based variable interest payments on federal home loan bank advances. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income on the Consolidated Statements of Condition and reclassified into interest expense in the same period in which the hedge transaction is recognized in earnings. At September 30, 2023, the Company had $110 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss. The Company had $52 million (net-of-tax) of unrealized gains on derivatives classified as cash flow hedges recorded in accumulated other comprehensive loss at December 31, 2022. Derivatives that are designated in hedging relationships are assessed for effectiveness using regression analysis at inception and qualitatively thereafter, unless regression analysis is deemed necessary. All designated hedge relationships were, and are expected to be, highly effective as of September 30, 2023. Fair Value of Hedges of Interest Rate Risk The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in interest rates. The Company 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 Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives were used to hedge the changes in fair value of certain of its pools of prepayable fixed rate assets. 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. The Company has interest rate swaps with a notional amounts of $2.0 billion to hedge certain real estate loans using the portfolio layer method. For the three months ended September 30, 2023, the floating rate received related to the net settlement of this interest rate swap was greater than the fixed rate payments. As such, interest income from loans and leases in the accompanying Consolidated Statements of Income and Comprehensive Income was increased by $8 million and $15 million for three months and nine months September 30, 2023, respectively. The fair value basis adjustment on our hedged real estate loans is included in loans and leases held for investment on our Consolidated Statements of Condition. The carrying amount of our hedged loans was $6.4 billion at September 30, 2023, of which unrealized gains of $46 million were due to the fair value hedge relationship. We have designated $2.0 billion of this portfolio of loans in a hedging relationship as of September 30, 2023. The following tables set forth information regarding the Company’s derivative financial instruments:
| September 30, 2023
|  |  | Fair Value
(in millions) | Notional Amount |  | Other Assets |  | Other Liabilities
Derivatives designated as cash flow hedging instruments: |  |  |  |  |
Interest rate swaps on FHLB advances | $ | 5,500 |  |  | $ | — |  |  | $ | 5 |
Total | $ | 5,500 |  |  | $ | — |  |  | $ | 5 |
Derivatives designated as fair value hedging instruments: |  |  |  |  |
Interest rate swaps on multi-family loans held for investment | $ | 2,000 |  |  | $ | — |  |  | $ | 1 |
Derivatives not designated as hedging instruments: |  |  |  |  |
Assets |  |  |  |  |
Futures | $ | 2,630 |  |  | $ | 1 |  |  | $ | — |
Mortgage-backed securities forwards | 1,861 |  |  | 37 |  |  | — |
Rate lock commitments | 1,352 |  |  | 6 |  |  | — |
Interest rate swaps and swaptions | 5,937 |  |  | 140 |  |  | — |
Total | $ | 11,780 |  |  | $ | 184 |  |  | $ | — |
Liabilities |  |  |  |  |
Mortgage-backed securities forwards | $ | 710 |  |  | $ | — |  |  | $ | 16 |
Rate lock commitments | 702 |  | — |  | 12 |
Interest rate swaps and swaptions | 2,706 |  | — |  | 79 |
Total derivatives not designated as hedging instruments | $ | 4,118 |  |  | $ | — |  |  | $ | 107 |
| December 31, 2022
|  |  | Fair Value
(in millions) | Notional Amount |  | Other Assets |  | Other Liabilities
Derivatives designated as cash flow hedging instruments: |  |  |  |  |
Interest rate swaps | $ | 3,750 |  |  | $ | 5 |  |  | $ | — |
Total | $ | 3,750 |  |  | $ | 5 |  |  | $ | — |
Derivatives not designated as hedging instruments: |  |  |  |  |
Assets |  |  |  |  |
Futures | $ | 1,205 |  |  | $ | 2 |  |  | $ | — |
Mortgage-backed securities forwards | 1,065 |  | 36 |  | —
Rate lock commitments | 1,539 |  | 9 |  | —
Interest rate swaps and swaptions | 7,594 |  | 182 |  | —
Total | $ | 11,403 |  |  | $ | 229 |  |  | $ | — |
Liabilities |  |  |  |  |
Mortgage-backed securities forwards | $ | 739 |  |  | $ | — |  |  | $ | 61 |
Rate lock commitments | 527 |  | — |  | 10
Interest rate swaps and swaptions | 2,445 |  | — |  | 65
Total derivatives not designated as hedging instruments | $ | 3,711 |  |  | $ | — |  |  | $ | 136 |
The following table presents the derivative subject to a master netting agreement, including the cash pledged as collateral:
| September 30, 2023
|  |  |  |  |  |  | Gross Amounts Not Offset in the Statements of Condition
(in millions) | Gross Amount |  | Gross Amounts Netted in the Statements of Condition |  | Net Amount Presented in the Statements of Condition |  | Financial Instruments |  | Cash Collateral Pledged (Received)
Derivatives designated hedging instruments: |  |  |  |  |  |  |  |  |
Interest rate swaps on FHLB advances | $ | 5 |  |  | $ | — |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 80 |
Interest rate swaps on multi-family loans held for investment(1) | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 31 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Mortgage-backed securities forwards | $ | 37 |  |  | $ | — |  |  | $ | 37 |  |  | $ | — |  |  | $ | (6) |
Interest rate swaptions | 140 |  |  | — |  |  | 140 |  |  | — |  |  | (37) |
Futures | 1 |  |  | — |  |  | 1 |  |  | — |  |  | 1 |
Total derivative assets | $ | 178 |  |  | $ | — |  |  | $ | 178 |  |  | $ | — |  |  | $ | (42) |
Liabilities |  |  |  |  |  |  |  |  |
Futures | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Mortgage-backed securities forwards | 16 |  |  | — |  |  | 16 |  |  | — |  |  | 15 |
Interest rate swaps (1) | 79 |  |  | — |  |  | 79 |  |  | — |  |  | 42 |
Total derivative liabilities | $ | 95 |  |  | $ | — |  |  | $ | 95 |  |  | $ | — |  |  | $ | 57 |
(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes. The following table presents the derivative subject to a master netting agreement, including the cash pledged as collateral:
| December 31, 2022
|  |  |  |  |  |  | Gross Amounts Not Offset in the Statements of Condition
(in millions) | Gross Amount |  | Gross Amounts Netted in the Statements of Condition |  | Net Amount Presented in the Statements of Condition |  | Financial Instruments |  | Cash Collateral Pledged (Received)
Derivatives designated hedging instruments: |  |  |  |  |  |  |  |  |
Interest rate swaps on FHLB advances | $ | 5 |  |  | $ | — |  |  | $ | 5 |  |  | $ | 4 |  |  | $ | 27 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Mortgage-backed securities forwards | $ | 36 |  |  | $ | — |  |  | $ | 36 |  |  | $ | — |  |  | $ | (9) |
Interest rate swaptions | 182 |  |  | — |  |  | 182 |  |  | — |  |  | (36) |
Futures | 2 |  |  |  |  | 2 |  |  |  |  | 1 |
Total derivative assets | $ | 220 |  |  | $ | — |  |  | $ | 220 |  |  | $ | — |  |  | $ | (44) |
Liabilities |  |  |  |  |  |  |  |  |
Mortgage-backed securities forwards | $ | 61 |  |  | $ | — |  |  | $ | 61 |  |  | $ | — |  |  | $ | 54 |
Interest rate swaps (1) | 65 |  |  | — |  |  | 65 |  |  | — |  |  | 29 |
Total derivative liabilities | $ | 126 |  |  | $ | — |  |  | $ | 126 |  |  | $ | — |  |  | $ | 83 |
(1)Variation margin pledged to, or received from, a Central Counterparty Clearing House to cover the prior days fair value of open positions is considered settlement of the derivative position for accounting purposes. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of amounts subject to variability caused by changes in interest rates from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Changes in the fair value of derivatives designated and that qualify as cash flow hedges are initially recorded in other comprehensive income and are subsequently reclassified into earnings in the period that the hedged transaction affects earnings. Interest rate swaps with notional amounts totaling $5.5 billion and $3.8 billion as of September 30, 2023 and December 31, 2022, were designated as cash flow hedges of certain FHLB borrowings. The following table presents the effect of the Company’s cash flow derivative instruments on AOCL:
(in millions) | For the Nine Months Ended September 30, 2023 |  | For the Year Ended December 31, 2022 |  | For the Nine Months Ended September 30, 2022
Amount of gain (loss) recognized in AOCL | $ | 98 |  |  | $ | 88 |  |  | $ | 64 |
Amount of reclassified from AOCL to interest expense | $ | (19) |  |  | $ | (4) |  |  | $ | 4 |
Amounts reported in AOCL related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate borrowings. During the next twelve months, additional interest expense reduction of $124 million is expected to be reclassified out of AOCL. The following table presents the net gain (loss) recognized in income on derivative instruments, net of the impact of offsetting positions:
(dollars in millions) |  | Three months ended September 30, 2023 | Nine months ended September 30, 2023
Derivatives not designated as hedging instruments | Location of Gain (Loss) |  |  |
Futures | Net return on mortgage servicing rights | $ | — |  |  | $ | 3 |
Interest rate swaps and swaptions | Net return on mortgage servicing rights | (61) |  |  | (83) |
Mortgage-backed securities forwards | Net return on mortgage servicing rights | (12) |  |  | (25) |
Rate lock commitments and US Treasury futures | Net gain on loan sales | 1 |  |  | 39 |
Interest rate swaps (1) | Other non-interest income | — |  |  | 1 |
Total derivative (loss) gain |  | $ | (72) |  |  | $ | (65) |
(1) Includes customer-initiated commercial interest rate swaps.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration