Derivative Financial Instruments

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The following table presents the fair value and notional amount of our derivative financial instruments at September 30, 2022 and December 31, 2021.

Table 12.1 – Fair Value and Notional Amount of Derivative Financial Instruments


	September 30, 2022				December 31, 2021
	Fair Value		Notional Amount		Fair Value		Notional Amount
(In Thousands)


Assets - Risk Management Derivatives
Interest rate swaps	$	24,626	$	459,000	$	611	$	161,500
TBAs	13,568		565,000		2,880		2,440,000
Interest rate futures	26,275		681,500		25		9,000
Swaptions	—		—		18,318		1,660,000

Assets - Other Derivatives
Loan purchase and interest rate lock commitments	744		87,157		4,633		971,631

Total Assets	$	65,213	$	1,792,657	$	26,467	$	5,242,131



Liabilities - Risk Management Derivatives
Interest rate swaps	$	(23)	$	10,000	$	(1,251)	$	283,100
TBAs	(6,545)		255,000		(658)		870,000
Interest rate futures	(2)		300		(905)		62,500
Liabilities - Other Derivatives
Loan purchase and interest rate lock commitments	(212)		58,544		(503)		404,190

Total Liabilities	$	(6,782)	$	323,844	$	(3,317)	$	1,619,790
Total Derivative Financial Instruments, Net	$	58,431	$	2,116,501	$	23,150	$	6,861,921

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 September 30, 2022, we were party to swaps and swaptions with an aggregate notional amount of $469 million, TBA agreements with an aggregate notional amount of $820 million, and interest rate futures contracts with an aggregate notional amount of $682 million. At December 31, 2021, we were party to swaps and swaptions with an aggregate notional amount of $2.10 billion, futures with an aggregate notional amount of $72 million and TBA agreements with an aggregate notional amount of $3.31 billion.

For the three and nine months ended September 30, 2022, risk management derivatives had net market valuation gains of $76 million and gains of $198 million, respectively. For the three and nine months ended September 30, 2021, risk management derivatives had net market valuation gains of $4 million and gains of $38 million, respectively. 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

Loan purchase commitments ("LPCs") and interest rate lock commitments ("IRLCs") that qualify as derivatives are recorded at their estimated fair values. For the three and nine months ended September 30, 2022, LPCs and IRLCs had net market valuation losses of $3 million and losses of $54 million, respectively, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss). For both the three and nine months ended September 30, 2021, LPCs and IRLCs had net market valuation gains of $18 million, that were recorded in Mortgage banking activities, net on our consolidated statements of income (loss).

Derivatives Designated as Cash Flow Hedges

For interest rate agreements previously designated as cash flow hedges, our total unrealized loss reported in Accumulated other comprehensive income was $73 million and $76 million at September 30, 2022 and December 31, 2021, respectively. We are amortizing this loss into interest expense over the remaining term of the debt they were originally hedging. As of September 30, 2022, we expect to amortize $4 million of realized losses related to terminated cash flow hedges into interest expense over the next twelve months.

The following table illustrates the impact on interest expense of our interest rate agreements accounted for as cash flow hedges for the three and nine months ended September 30, 2022 and 2021.

Table 12.2 – Impact on Interest Expense of Interest Rate Agreements Accounted for as Cash Flow Hedges


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2022		2021		2022		2021
Net interest expense on cash flows hedges	$	—	$	—	$	—	$	—

Realized net losses reclassified from other comprehensive income	(1,040)		(1,041)		(3,086)		(3,086)
Total Interest Expense	$	(1,040)	$	(1,041)	$	(3,086)	$	(3,086)

Derivative Counterparty Credit Risk

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, we consider counterparty risk as part of our fair value assessments of all derivative financial instruments at each quarter-end. At September 30, 2022, we assessed this risk as remote and did not record an associated specific valuation adjustment. At September 30, 2022, we were in compliance with our derivative counterparty ISDA agreements.