Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell “To-Be-Announced,” or TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments are currently comprised of interest rate swaps, which are designated as trading instruments.

Derivatives Not Designated as Hedging Instruments

The following table presents the fair value of derivative instruments and their location in our condensed consolidated balance sheets at September 30, 2019 and December 31, 2018, respectively (dollar amounts in thousands):



Type of Derivative Instrument	Balance Sheet Location	September 30, 2019		December 31, 2018
Interest rate swaps ⁽¹⁾	Derivative assets	$	20,673	$	10,263

⁽¹⁾

All of the Company's interest rate swaps outstanding are cleared through a central clearing house. The Company exchanges variation margin for swaps based upon daily changes in fair value. As a result of amendments to rules governing certain central clearing activities, the exchange of variation margin is treated as a legal settlement of the exposure under the swap contract. Previously, such payments were treated as cash collateral pledged against the exposure under the swap contract. Accordingly, the Company accounted for the receipt or payment of variation margin as a direct reduction to or increase of the carrying value of the interest rate swap asset or liability on the Company's condensed consolidated balance sheets. Includes $40.4 million of derivative liabilities netted against a variation margin of $61.1 million at September 30, 2019. Includes $1.8 million of derivative assets and variation margin of $8.5 million at December 31, 2018.

The tables below summarize the activity of derivative instruments not designated as hedges for the nine months ended September 30, 2019 and 2018, respectively (dollar amounts in thousands):



	Notional Amount For the Nine Months Ended September 30, 2019
Type of Derivative Instrument	December 31, 2018		Additions		Settlement, Expiration or Exercise		September 30, 2019
Interest rate swaps	$	495,500	$	—	$	—	$	495,500



	Notional Amount For the Nine Months Ended September 30, 2018
Type of Derivative Instrument	December 31, 2017		Additions		Settlement, Expiration or Exercise		September 30, 2018
Interest rate swaps	$	345,500	$	50,000	$	—	$	395,500

For the three and nine months ended September 30, 2019 and 2018, the Company did not recognize any net realized gains related to our derivative instruments. The following table presents the components of unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in the non-interest income category in our condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018 (dollar amounts in thousands):



	Three Months Ended September 30,
	2019			2018
Interest rate swaps	$	(12,595	)	$	2,275
Total	$	(12,595	)	$	2,275

	Nine Months Ended September 30,
	2019			2018
Interest rate swaps	$	(42,188	)	$	16,379
Total	$	(42,188	)	$	16,379

Derivatives Designated as Hedging Instruments

As of September 30, 2019 and December 31, 2018, there were no derivative instruments designated as hedging instruments.

Outstanding Derivatives

The following table presents information about our interest rate swaps whereby we receive floating rate payments in exchange for fixed rate payments as of September 30, 2019 and December 31, 2018, respectively (dollar amounts in thousands):



	September 30, 2019						December 31, 2018
Swap Maturities	Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate		Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2024	$	98,000	2.18	%	2.30	%	$	98,000	2.18	%	2.45	%
2027	247,500		2.39	%	2.30	%	247,500		2.39	%	2.53	%
2028	150,000		3.23	%	2.21	%	150,000		3.23	%	2.53	%
Total	$	495,500	2.60	%	2.27	%	$	495,500	2.60	%	2.52	%

The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. Currently, all of the Company's interest rate swaps outstanding are cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.