Derivative Financial Instruments

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table presents the fair value and notional amount of our derivative financial instruments at June 30, 2021 and December 31, 2020.

Table 11.1 – Fair Value and Notional Amount of Derivative Financial Instruments


	June 30, 2021				December 31, 2020
	Fair Value		Notional Amount		Fair Value		Notional Amount
(In Thousands)


Assets - Risk Management Derivatives
Interest rate swaps	$	264	$	133,000	$	224	$	42,000
TBAs	2,064		730,000		18,260		3,520,000
Interest rate futures	304		81,500		—		—
Swaptions	17,482		2,100,000		19,727		1,585,000

Assets - Other Derivatives
Loan purchase and interest rate lock commitments	14,191		2,332,511		15,027		2,617,254

Total Assets	$	34,305	$	5,377,011	$	53,238	$	7,764,254



Liabilities - Risk Management Derivatives
Interest rate swaps	$	(957)	$	87,500	$	—	$	—
TBAs	(1,367)		730,000		(15,495)		3,105,000
Interest rate futures	(194)		140,000		—		—
Liabilities - Other Derivatives
Loan purchase commitments	(722)		164,971		(577)		477,153

Total Liabilities	$	(3,240)	$	1,122,471	$	(16,072)	$	3,582,153
Total Derivative Financial Instruments, Net	$	31,065	$	6,499,482	$	37,166	$	11,346,407

Risk Management Derivatives

To manage, to varying degrees, risks associated with certain assets and liabilities on our consolidated balance sheets, we may enter into derivative contracts. At June 30, 2021, we were party to swaps and swaptions with an aggregate notional amount of $2.32 billion, TBA agreements with an aggregate notional amount of $1.46 billion, and interest rate futures contracts with an aggregate notional amount of $222 million. At December 31, 2020, we were party to swaps and swaptions with an aggregate notional amount of $1.63 billion and TBA agreements with an aggregate notional amount of $6.63 billion.

During the three and six months ended June 30, 2021, risk management derivatives had a net market valuation loss of $58 million and a net market valuation gain of $35 million, respectively. During the three and six months ended June 30, 2020, risk management derivatives had net market valuation losses of zero and $98 million, respectively. These market valuation gains and losses are recorded in Mortgage banking activities, net, Investment fair value changes, net, and Other income on our consolidated statements of income (loss).

Loan Purchase and Interest Rate Lock Commitments

LPCs and IRLCs that qualify as derivatives are recorded at their estimated fair values. For the three and six months ended June 30, 2021, LPCs and IRLCs had net market valuation gains of $53 million and $0.3 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss). For the three and six months ended June 30, 2020, LPCs and IRLCs had net market valuation gains of $1 million and $22 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).

Derivatives Designated as Cash Flow Hedges

To manage the variability in interest expense related to a portion of our long-term debt that is included in our consolidated balance sheets for financial reporting purposes, we designated certain interest rate swaps as cash flow hedges.

During the first quarter of 2020, we terminated and settled all of our outstanding derivatives that had been designated as cash flow hedges for our long-term debt, with a payment of $84 million. For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $79 million and $81 million at June 30, 2021 and December 31, 2020, respectively. We are amortizing this loss into interest expense over the remaining term of the debt they were originally hedging. As of June 30, 2021, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.

For both the three and six months ended June 30, 2021, we did not have any derivatives designated as cash flow hedges. For the three and six months ended June 30, 2020, changes in the values of designated cash flow hedges were zero and negative $33 million, respectively, and were recorded in Accumulated other comprehensive income, a component of equity.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and six months ended June 30, 2021 and 2020.

Table 11.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges


	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2021		2020		2021		2020
Net interest expense on cash flows hedges	$	—	$	—	$	—	$	(860)

Realized net losses reclassified from other comprehensive income	(1,028)		(1,029)		(2,046)		(1,108)
Total Interest Expense	$	(1,028)	$	(1,029)	$	(2,046)	$	(1,968)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At June 30, 2021, we assessed this risk as remote and did not record an associated specific valuation adjustment.

At June 30, 2021, we were in compliance with our derivative counterparty ISDA agreements.