Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2020

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 were comprised of interest rate swaps, which were designated as trading instruments and were terminated during the nine months ended September 30, 2020.

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 December 31, 2019 (dollar amounts in thousands):

Type of Derivative Instrument

Balance Sheet Location

December 31, 2019

Interest rate swaps (1)

Derivative assets

15,878

(1)All of the Company's interest rate swaps were cleared through a central clearing house. The Company exchanged 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 $29.0 million of derivative liabilities netted against a variation margin of $44.8 million at December 31, 2019.

The tables below summarize the activity of derivative instruments not designated as hedges for the nine months ended September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Notional Amount for the Nine Months Ended September 30, 2020
Type of Derivative Instrument	December 31, 2019		Additions		Terminations		September 30, 2020






Interest rate swaps	$	495,500	$	—	$	(495,500)	$	—


	Notional Amount for the Nine Months Ended September 30, 2019
Type of Derivative Instrument	December 31, 2018		Additions		Terminations		September 30, 2019






Interest rate swaps	$	495,500	$	—	$	—	$	495,500

The following table presents the components of realized gains (losses), net and unrealized gains (losses), net related to our derivative instruments that were not designated as hedging instruments, which are included in non-interest income (loss) in our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, respectively (dollar amounts in thousands):


	Three Months Ended September 30,
	2020				2019
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)		Unrealized Gains (Losses)
Interest rate swaps	$	—	$	—	$	—	$	(12,595)
Total	$	—	$	—	$	—	$	(12,595)


	Nine Months Ended September 30,
	2020				2019
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)		Unrealized Gains (Losses)
Interest rate swaps	$	(73,078)	$	28,967	$	—	$	(42,188)
Total	$	(73,078)	$	28,967	$	—	$	(42,188)

Derivatives Designated as Hedging Instruments

As of September 30, 2020 and December 31, 2019, there were no derivative instruments designated as hedging instruments.

Outstanding Derivatives

The Company had no outstanding derivatives as of September 30, 2020. The following table presents information about our interest rate swaps whereby we received floating rate payments in exchange for fixed rate payments as of December 31, 2019 (dollar amounts in thousands):


	December 31, 2019
Swap Maturities		Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2024		$	98,000	2.18	%	1.98	%
2027		247,500		2.39	%	1.94	%
2028		150,000		3.23	%	1.92	%
Total		$	495,500	2.60	%	1.95	%

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. All of the Company's interest rate swaps were 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.