XML 44 R24.htm IDEA: XBRL DOCUMENT v3.3.1.900
RISK MANAGEMENT AND DERIVATIVE INSTRUMENTS
 12 Months Ended
Dec. 31, 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 and foreign exchange 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.
Derivative Instruments Related to Mortgage Banking Activities: 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 on the Consolidated Statements of Operations. the fair value of resulting derivative assets and liabilities are included in Other Assets and Accrued Expenses and Other Liabilities, respectively, on the Consolidated Statements of Financial Condition.
The net losses relating to these derivative instruments used for mortgage banking activities are $8.0 million, $17.3 million and $270 thousand for the years ended December 31, 2015, 2014, and 2013, respectively, and are included in Net Revenue on Mortgage Banking Activities on the Consolidated Statements of Operations.
Interest Rate Swaps on Deposits and Other Borrowings: 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 year ended December 31, 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. At September 30, 2015, the fair value of these derivative instruments discontinued from hedge accounting was $918 thousand, which was reclassified into earnings. During the year ended December 31, 2015, the Company recognized a total loss of $110 thousand.
Interest Rate Swaps and Caps on Loans: The Company offers interest rate swaps and caps products to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an identical offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. These swaps and caps are not designated as hedging instruments and are recorded at fair value in Other Assets and Accrued Expenses and Other Liabilities on the Consolidated Statement of Financial Condition. The changes in fair value are recorded in Other Income in the Consolidated Statements of Operations. During the year ended December 31, 2015, changes in fair value recorded through Other Income were insignificant.
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.
 
December 31,
 
2015
 
2014
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
 
(In thousands)
Included in assets:
 
 
 
 
 
 
 
Interest rate lock commitments
$
262,135

 
$
7,343

 
$
179,923

 
$
5,750

Mandatory forward commitments
468,740

 
1,130

 
25,735

 
629

Interest rate swaps on deposits and other borrowings
25,000

 
331

 
—

 
—

Interest rate swaps and cap on loans with customers
27,467

 
238

 
—

 
—

Total included in assets
$
783,342

 
$
9,042

 
$
205,658

 
$
6,379

Included in liabilities:
 
 
 
 
 
 
 
Interest rate lock commitments
$
16,790

 
$
88

 
$
10,075

 
$
197

Mandatory forward commitments
215,272

 
300

 
364,829

 
2,803

Interest rate swaps on deposits and other borrowings
50,000

 
441

 
50,000

 
235

Interest rate swaps and caps on loans with correspondent bank
27,467

 
238

 
—

 
—

Total included in liabilities
$
309,529

 
$
1,067

 
$
424,904

 
$
3,235