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Derivative instruments | 9 Months Ended
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Sep. 30, 2022
Derivative instruments |
Derivative instruments | ​ Note 16. Derivative instruments ​ The Company is exposed to changing interest rates and market conditions, which affect cash flows associated with borrowings. The Company uses derivative instruments to manage interest rate risk and conditions in the commercial mortgage market and, as such, views them as economic hedges. Interest rate swaps are used to mitigate the exposure to changes in interest rates and involve the receipt of variable-rate interest amounts from a counterparty in exchange for making payments based on a fixed interest rate over the life of the swap contract. CDS are executed in order to mitigate the risk of deterioration in the current credit health of the commercial mortgage market. IRLCs are entered into with customers who have applied for residential mortgage loans and meet certain underwriting criteria. These commitments expose GMFS to market risk if interest rates change and if the loan is not economically hedged or committed to an investor. ​ For derivative instruments where the Company has not elected hedge accounting, fair value adjustments are recorded in earnings. The fair value adjustments for interest rate swaps and CDS, along with the related interest income, interest expense and gains (losses) on termination of such instruments, are reported as a net realized gain on financial instruments in the consolidated statements of income. The fair value adjustments for IRLCs and TBAs, along with the related interest income, interest expense and gains (losses) on termination of such instruments, are reported in residential mortgage banking activities in the consolidated statements of income. ​ As described in Note 3, for qualifying cash flow hedges, the change in the fair value of derivatives is recorded in OCI and recognized in the consolidated statements of income. Derivative movements impacting earnings are recognized on a consistent basis with the classification of the hedged item, primarily interest expense. The ineffective portions of the cash flow hedges are immediately recognized in earnings. ​ ​ The table below presents average notional derivative amounts, as this is the most relevant measure of volume, and derivative assets and liabilities by type. ​
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​ | ​ | ​ | ​ | September 30, 2022 | ​ | December 31, 2021
​ | ​ | ​ | ​ | Notional | ​ | Derivative | ​ | Derivative | ​ | Notional | ​ | Derivative | ​ | Derivative
(in thousands) | ​ | Primary Underlying Risk | ​ | Amount | ​ | Asset | ​ | Liability | ​ | Amount | ​ | Asset | ​ | Liability
IRLCs | ​ | Interest rate risk | ​ | $ | 303,705 | ​ | $ | — | ​ | $ | (4,345) | ​ | $ | 348,348 | ​ | $ | 2,340 | ​ | $ | —
Interest Rate Swaps - not designated as hedges | Interest rate risk | ​ | ​ | 539,545 | ​ | ​ | 13,963 | ​ | ​ | — | ​ | ​ | 536,548 | ​ | ​ | 4,076 | ​ | ​ | —
TBA Agency Securities | ​ | Interest rate risk | ​ | ​ | 254,500 | ​ | ​ | 9,184 | ​ | ​ | — | ​ | ​ | 346,000 | ​ | ​ | — | ​ | ​ | (410)
FX forwards | ​ | Foreign exchange rate risk | ​ | ​ | 22,717 | ​ | ​ | 3,065 | ​ | ​ | — | ​ | ​ | 27,484 | ​ | ​ | 606 | ​ | ​ | —
Total | ​ | ​ | ​ | $ | 1,120,467 | ​ | $ | 26,212 | ​ | $ | (4,345) | ​ | $ | 1,258,380 | ​ | $ | 7,022 | ​ | $ | (410)
​ The table below presents gains and losses on derivatives. ​
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​ | ​ | ​ | Three Months Ended September 30, 2022 | ​ | Nine Months Ended September 30, 2022 | ​
​ | ​ | ​ | Net Realized | ​ | ​ | Net Unrealized | ​ | ​ | Net Realized | ​ | ​ | Net Unrealized | ​
(in thousands) | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​
Interest rate swaps | ​ | $ | 9,278 | ​ | $ | 13,965 | ​ | $ | 6,785 | ​ | $ | 54,540 | ​
TBA Agency Securities | ​ |  | — | ​ |  | 10,097 | ​ |  | — | ​ |  | 9,596 | ​
IRLCs | ​ | ​ | — | ​ | ​ | (6,744) | ​ | ​ | — | ​ | ​ | (6,685) | ​
FX forwards | ​ | ​ | 599 | ​ | ​ | 2,147 | ​ | ​ | 2,825 | ​ | ​ | 2,459 | ​
Total | ​ | $ | 9,877 | ​ | $ | 19,465 | ​ | $ | 9,610 | ​ | $ | 59,910 | ​
​ | ​ | ​ | Three Months Ended September 30, 2021 | ​ | Nine Months Ended September 30, 2021 | ​
​ | ​ | ​ | Net Realized | ​ | ​ | Net Unrealized | ​ | ​ | Net Realized | ​ | ​ | Net Unrealized | ​
​ | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​ | ​ | Gain (Loss) | ​
CDSs | ​ | $ | (286) | ​ | $ | 301 | ​ | $ | (286) | ​ | $ | 322 | ​
Interest rate swaps | ​ |  | (1,419) | ​ |  | 4,126 | ​ |  | (7,198) | ​ |  | 12,596 | ​
TBA Agency Securities | ​ |  | — | ​ |  | 3,351 | ​ |  | — | ​ |  | 6,356 | ​
IRLCs | ​ | ​ | — | ​ | ​ | (3,769) | ​ | ​ | — | ​ | ​ | (14,003) | ​
FX forwards | ​ |  | 634 | ​ |  | 17 | ​ |  | 276 | ​ |  | 1,260 | ​
Total | ​ | $ | (1,071) | ​ | $ | 4,026 | ​ | $ | (7,208) | ​ | $ | 6,531 | ​
​ In the table above:
| ● | Gains (losses) on CDSs, interest rate swaps and FX forwards are recorded in net unrealized gain (loss) on financial instruments or net realized gain (loss) on financial instruments in the consolidated statements of income.
| ● | For qualifying hedges of interest rate risk on interest rate swaps, the effective portion relating to the unrealized gain (loss) on derivatives are recorded in AOCI.
| ● | Gains (losses) on residential mortgage banking activity TBAs and IRLCs are recorded in residential mortgage banking activities in the consolidated statements of income.
The table below summarizes the gains and losses on derivatives which have qualified for hedge accounting. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
(in thousands) | Derivatives - effective portion reclassified from AOCI to income | ​ | Hedge ineffectiveness recorded directly in income |  | Total income statement impact | ​ | Derivatives- effective portion recorded in OCI | ​ | Total change in OCI for period
Interest rate hedges- forecasted transactions: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Three Months Ended September 30, 2022 | $ | (402) | ​ | $ | — | ​ | $ | (402) | ​ | $ | (79) | ​ | $ | 323
Three Months Ended September 30, 2021 | $ | (264) | ​ | $ | — | ​ | $ | (264) | ​ | $ | (43) | ​ | $ | 221
Nine Months Ended September 30, 2022 | $ | (1,094) | ​ | $ | — |  | $ | (1,094) | ​ | $ | (207) | ​ | $ | 887
Nine Months Ended September 30, 2021 | $ | (874) | ​ | $ | — |  | $ | (874) | ​ | $ | 1,449 | ​ | $ | 2,323
​ ​ ​ In the table above:
| ● | Forecasted transactions on interest rates consists of benchmark interest rate hedges of LIBOR-indexed floating-rate liabilities.
| ● | Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
| ● | Amounts recorded in OCI for the period represents after tax amounts.

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- 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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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