XML 78 R22.htm IDEA: XBRL DOCUMENT v3.3.0.814
RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS
 9 Months Ended
Sep. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS
RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS

The Company uses derivative instruments and other risk management techniques to reduce its exposure to adverse fluctuations in interest rates in accordance with its risk management policies. The Company utilizes forward contracts and investor commitments to economically hedge mortgage banking products and may from time to time use interest rate swaps as hedges against certain liabilities.

On September 30, 2013 and January 30, 2015, the Company entered into pay-fixed, receive-variable interest-rate swap contracts for the notional amounts of $50.0 million and $25.0 million, respectively, with maturity dates of September 27, 2018 and January 30, 2022, respectively. These swap contracts were entered into with institutional counterparties to hedge against variability in cash flows attributable to interest rate risk caused by changes in the LIBOR benchmark interest rate on the Company’s ongoing LIBOR based variable rate deposits and borrowings.

During the quarter ended September 30, 2015, the Company exited the underlying hedged items related to interest rate swaps designated as cash flow hedges. As a result, the Company discontinued hedge accounting related to these interest rate swaps, and reclassified the fair value of the derivatives from AOCI into earnings. For hedged derivatives, the Company records changes in fair value in AOCI in the Consolidated Statements of Financial Condition. For non-hedged derivatives, the Company’s income statement classification policy is to record hedge ineffectiveness and the component of derivatives excluded from the assessment of hedge effectiveness in Other Income in the Consolidated Statements of Operations. As of September 30, 2015, the fair value of these derivative instruments discontinued from hedge accounting was $918 thousand, which was reclassified into earnings.

The Company originates residential real estate mortgage loans and generates revenues from the origination and sale of these loans. Although management closely monitors market conditions, such activities are sensitive to fluctuations in prevailing interest rates and real estate markets. As of September 30, 2015, approximately 76.3 percent of all properties securing loans held for sale were located in California. A change in the underlying economic conditions of the California residential real estate market could have an adverse impact on the Company’s results of operations.

In connection with mortgage banking activities, if interest rates increase, the value of the Company’s loan commitments to borrowers and fixed rate mortgage loans held-for-sale are adversely impacted. The Company attempts to economically hedge the risk of the overall change in the fair value of loan commitments to borrowers and mortgage loans held for sale by selling forward contracts on securities with government-sponsored enterprises (GSEs) and investors in loans. Forward contracts on securities of GSEs and loan commitments to borrowers are non-designated derivative instruments and the gains and losses resulting from these derivative instruments are included in Net Revenue on Mortgage Banking Activities in the Consolidated Statements of Operations. At September 30, 2015, the resulting derivative assets of $9.7 million and liabilities of $4.9 million, are included in Other Assets and Accrued Expenses and Other Liabilities, respectively, on the Consolidated Statements of Financial Condition. At September 30, 2015, the Company had outstanding forward sales commitments totaling $517.0 million. At September 30, 2015, the Company was committed to fund loans for borrowers of approximately $309.2 million.

The net losses relating to free-standing derivative instruments used for risk management were $2.7 million and $2.5 million for the three months ended September 30, 2015 and 2014, respectively, and $5.4 million and $11.6 million for the nine months ended September 30, 2015 and 2014, respectively, and are included in Net Revenue on Mortgage Banking Activities in the Consolidated Statements of Operations.

The following table presents the amount and market value of derivative instruments included in the Consolidated Statements of Financial Condition as of the dates indicated. Note 3 contains further disclosures pertaining to the fair value of mortgage banking derivatives. 
 
September 30, 2015
 
December 31, 2014
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
 
(In thousands)
Included in assets:
 
 
 
 
 
 
 
Interest rate lock commitments
$
305,769

 
$
9,721

 
$
179,923

 
$
5,750

Mandatory forward commitments
—

 
—

 
25,735

 
629

Interest rate swap
25,000

 
27

 
—

 
—

Total included in assets
$
330,769

 
$
9,748

 
$
205,658

 
$
6,379

Included in liabilities:
 
 
 
 
 
 
 
Interest rate lock commitments
$
3,455

 
$
108

 
$
10,075

 
$
197

Mandatory forward commitments
517,000

 
4,820

 
364,829

 
2,803

Interest rate swap
50,000

 
945

 
50,000

 
235

Total included in liabilities
$
570,455

 
$
5,873

 
$
424,904

 
$
3,235