v3.25.2
Derivatives and Hedging Activities
 6 Months Ended
Jun. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities
12. DERIVATIVES AND HEDGING ACTIVITIES
The Company is a party to various derivative instruments. The primary types of derivatives the Company uses are interest rate contracts, forward purchase and sale commitments, and interest rate futures. Generally, these instruments are used to help manage the Company's exposure to interest rate risk related to IRLCs and its inventory of loans HFS and MSRs and also to meet client financing and hedging needs.
Derivatives are recorded at fair value on the Consolidated Balance Sheet, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow the Company to settle all derivative contracts held with the same counterparty on a net basis, and to offset net derivative positions with related cash collateral, where applicable.
As of June 30, 2025 and December 31, 2024, the Company did not have any outstanding cash flow hedges.
Derivatives Designated in Hedge Relationships
The Company utilizes derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to minimize the exposure to changes in benchmark interest rates, which reduces asset sensitivity and volatility due to interest rate fluctuations, such that interest rate risk falls within Board approved limits. The primary derivative instruments used to manage interest rate risk are interest rate swaps, which convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) from either a fixed rate to a variable rate, or from a variable rate to a fixed rate.
The Company has pay fixed/receive variable interest rate swaps designated as fair value hedges of certain fixed rate loans and AFS debt securities. As a result, the Company receives variable-rate interest payments in exchange for making fixed-rate payments over the lives of the contracts without exchanging the notional amounts. The variable-rate interest payments are based on SOFR plus a spread adjustment. During the three months ended June 30, 2025, the Company terminated an interest rate swap on hedged AFS U.S. Treasury securities. The terminated hedge had a notional value of $1.0 billion and a cumulative basis adjustment of $11 million at the time of termination. As the hedged securities were sold in the same period as the termination of the swap, both the basis adjustment and the related loss on sale of the hedged securities were recognized in earnings as a component of Gain on sales of investment securities, resulting in a net gain of $7.7 million, as described in "Note 2. Investment Securities."
The Company also has pay fixed/receive variable interest rate swaps, designated as fair value hedges using the portfolio layer method to manage the exposure to changes in fair value associated with pools of fixed rate loans, resulting from changes in the designated benchmark interest rate (federal funds rate). These portfolio layer hedges provide the Company the ability to execute a fair value hedge of the interest rate risk associated with a portfolio of similar prepayable assets, whereby the last dollar amount estimated to remain in the portfolio of assets was identified as the hedged item. Under these interest rate swap contracts, the Company receives a variable rate and pays a fixed rate on the outstanding notional amount. During the year ended December 31, 2024, the Company terminated a portion of its portfolio layer method swaps. The terminated hedge had a notional value of $500 million and a cumulative loan basis adjustment of $4 million at the time of termination. During the three months ended June 30, 2025, the Company terminated an additional portion of its portfolio layer method swaps. The terminated hedge had a notional value of $500 million and a cumulative loan basis adjustment of $1 million at the time of termination. For both terminations, the cumulative loan basis adjustment was allocated to the individual loans remaining within the closed pool and will be amortized over the remaining life of these loans through interest income.
The Company also had pay fixed/receive variable interest rate swaps, designated as fair value hedges using the last-of-layer method. Upon termination of these last-of-layer hedges in 2022, the cumulative basis adjustment on these hedges was allocated across the remaining loan pool and was being amortized over the remaining term. The terminated last-of-layer hedge basis adjustment was fully amortized as of December 31, 2024.
Derivatives Not Designated in Hedge Relationships
Management enters into certain contracts and agreements, including foreign exchange derivative contracts, back-to-back interest rate contracts, risk participation agreements and equity warrants, which are not designated as accounting hedges. Foreign exchange derivative contracts include spot, forward, forward window, and swap contracts. The purpose of these derivative contracts is to mitigate foreign currency risk on transactions entered into, or on behalf of customers. The Company's back-to-back interest rate contracts are used to allow customers to manage long-term interest rate risk. Contracts with customers, along with the related derivative trades the Company places, are both remeasured at fair value, and are referred to as economic hedges since they economically offset the Company's exposure. Risk participation agreements are entered into with lead banks in certain loan syndication deals to share in the risk of default on interest rate swaps on participated loans. Equity warrants represent the right to buy shares in a company at a specified price and are acquired by the Company primarily in
connection with negotiating credit facilities and certain other services to private, venture-backed companies in the technology industry.
The Company also uses derivative financial instruments to manage exposure to interest rate risk within its mortgage banking business related to IRLCs and its inventory of loans HFS and MSRs. The Company economically hedges the changes in fair value associated with changes in interest rates generally by utilizing forward purchase and sale commitments, interest rate futures and interest rate contracts.
Fair Value Hedges
As of June 30, 2025 and December 31, 2024, the following amounts are reflected on the Consolidated Balance Sheet related to cumulative basis adjustments for outstanding fair value hedges:
June 30, 2025December 31, 2024
Carrying Value of Hedged Assets (1)Cumulative Fair Value Hedging Adjustment (2)Carrying Value of Hedged Assets (1)Cumulative Fair Value Hedging Adjustment (2)
(in millions)
Loans HFI, net of deferred loan fees and costs (3)$3,818 $(5)$4,320 $(96)
Investment securities - AFS2,130 40 — — 
(1)Represents the amortized cost basis of the hedged assets.
(2)Included in the carrying value of the hedged assets.
(3)Included portfolio layer method derivative instruments with $3.5 billion and $4.0 billion designated as the hedged amount (from a closed portfolio of prepayable fixed rate loans with a carrying value of $7.4 billion and $8.7 billion) as of June 30, 2025 and December 31, 2024, respectively. The cumulative basis adjustment included in the carrying value of these hedged items totaled $4 million and $78 million as of June 30, 2025 and December 31, 2024, respectively.
For the Company's derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative instrument as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current period earnings. The loss or gain on the hedged item is recognized in the same line item as the offsetting loss or gain on the related interest rate swaps. For loans and AFS debt securities, the gain or loss on the hedged item is included in interest income, as shown in the table below.
Three Months Ended June 30,
20252024
Income Statement ClassificationGain/(Loss) on SwapsGain/(Loss) on Hedged ItemGain/(Loss) on SwapsGain/(Loss) on Hedged Item
(in millions)
Interest income on loans, including fees$(31.6)$31.6 $11.2 $(11.4)
Interest income on investment securities(38.4)40.2 — — 
Six Months Ended June 30,
20252024
Income Statement ClassificationGain/(Loss) on SwapsGain/(Loss) on Hedged ItemGain/(Loss) on SwapsGain/(Loss) on Hedged Item
(in millions)
Interest income on loans, including fees$(95.4)$95.5 $83.2 $(83.8)
Interest income on investment securities(38.4)40.2 — — 
In addition to the gains and losses on the Company's outstanding fair value hedges presented in the above table, the Company recognized $0.1 million in interest income related to the amortization of the cumulative basis adjustment on its discontinued portfolio layer method hedges during the three and six months ended June 30, 2025, and $2.9 million and $5.9 million related to its discontinued last-of-layer hedges during the three and six months ended June 30, 2024, respectively.
Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments
The following table summarizes the fair value of the Company's derivative instruments on a gross basis as of June 30, 2025, December 31, 2024, and June 30, 2024. The change in the notional amounts of these derivatives from June 30, 2024 to June 30, 2025 indicates the volume of the Company's derivative transaction activity during these periods. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow the Company to settle all derivative contracts with the same counterparty on a net basis and to offset the net derivative position with the related cash collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, the Company does not adjust those derivative amounts with counterparties.
 June 30, 2025December 31, 2024June 30, 2024
Fair ValueFair ValueFair Value
Notional
Amount		Derivative AssetsDerivative LiabilitiesNotional
Amount		Derivative AssetsDerivative LiabilitiesNotional
Amount		Derivative AssetsDerivative Liabilities
(in millions)
Derivatives designated as hedging instruments:
Fair value hedges
Interest rate contracts$6,033 $23 $56 $4,344 $97 $— $3,866 $78 $— 
Total$6,033 $23 $56 $4,344 $97 $— $3,866 $78 $— 
Derivatives not designated as hedging instruments:
Foreign currency contracts$109 $1 $2 $69 $1 $1 $93 $— $— 
Forward contracts24,687 63 111 21,731 81 48 14,514 13 24 
Futures contracts (1)15,690 — — 13,200 — — 8,544 — — 
Interest rate lock commitments2,947 24 — 2,396 5 7 2,781 10 2 
Interest rate contracts7,984 32 34 6,336 19 20 4,487 21 22 
Risk participation agreements226 — — 99 — — 74 — — 
Equity warrants63 33 — 59 30 — 59 22 — 
Total$51,706 $153 $147 $43,890 $136 $76 $30,552 $66 $48 
Margin— 347 (41)— 72 3 — 121 1 
Total, including margin$51,706 $500 $106 $43,890 $208 $79 $30,552 $187 $49 
(1)The Company enters into futures purchase and sales contracts that are subject to daily remargining and almost all of which are based on three-month SOFR to hedge against its MSR valuation exposure. The notional amount on these contracts is substantial as these contracts have a short duration and are intended to cover the longer duration of MSR hedges.
The fair value of derivative contracts, after taking into account the effects of master netting agreements, is included in Other assets or Other liabilities on the Consolidated Balance Sheet, as summarized in the table below:
June 30, 2025December 31, 2024June 30, 2024
Gross amount of recognized assets (liabilities)Gross offsetNet assets (liabilities)Gross amount of recognized assets (liabilities)Gross offsetNet assets (liabilities)Gross amount of recognized assets (liabilities)Gross offsetNet assets (liabilities)
(in millions)
Derivatives subject to master netting arrangements:
Assets
Foreign currency contracts$— $— $— $1 $— $1 $— $— $— 
Forward contracts63 — 63 81 — 81 13 — 13 
Interest rate contracts25 — 25 106 — 106 94 — 94 
Margin347 — 347 72 — 72 121 — 121 
Netting— (134)(134)— (52)(52)— (21)(21)
$435 $(134)$301 $260 $(52)$208 $228 $(21)$207 
Liabilities
Foreign currency contracts$(2)$— $(2)$— $— $— $— $— $— 
Forward contracts(108)— (108)(47)— (47)(22)— (22)
Interest rate contracts(78)— (78)(6)— (6)(4)— (4)
Margin41 — 41 (3)— (3)(1)— (1)
Netting— 134 134 — 52 52 — 21 21 
$(147)$134 $(13)$(56)$52 $(4)$(27)$21 $(6)
Derivatives not subject to master netting arrangements:
Assets
Foreign currency contracts$1 $— $1 $— $— $— $— $— $— 
Interest rate lock commitments24 — 24 5 — 5 10 — 10 
Interest rate contracts30 — 30 10 — 10 5 — 5 
Equity warrants33 — 33 30 — 30 22 — 22 
$88 $— $88 $45 $— $45 $37 $— $37 
Liabilities
Foreign currency contracts$— $— $— $(1)$— $(1)$— $— $— 
Forward contracts(3)— (3)(1)— (1)(2)— (2)
Interest rate lock commitments— — — (7)— (7)(2)— (2)
Interest rate contracts(12)— (12)(14)— (14)(18)— (18)
$(15)$— $(15)$(23)$— $(23)$(22)$— $(22)
Total derivatives and margin
Assets$523 $(134)$389 $305 $(52)$253 $265 $(21)$244 
Liabilities(162)134 (28)(79)52 (27)(49)21 (28)
The following table summarizes the net gain (loss) on derivatives included in the non-interest income line items below:
Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
(in millions)
Net gain (loss) on loan origination and sale activities:
Interest rate lock commitments$10.8 $(2.3)$25.8 $(10.3)
Forward contracts(17.5)9.3 (73.0)26.0 
Interest rate contracts2.3 (0.7)2.3 (2.9)
Other contracts(0.1)0.2 3.4 0.9 
Net (loss) gain on derivatives$(4.5)$6.5 $(41.5)$13.7 
Net loan servicing revenue:
Forward contracts$(9.3)$(11.2)$(1.9)$(27.5)
Futures contracts(0.6)3.7 (6.4)14.4 
Interest rate contracts16.5 (16.7)42.8 (53.0)
Net gain (loss) on derivatives$6.6 $(24.2)$34.5 $(66.1)
Counterparty Credit Risk
Like other financial instruments, derivatives contain an element of credit risk. This risk is measured as the expected replacement value of the contracts. Management enters into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with the same counterparty. Additionally, management monitors counterparty credit risk exposure on each contract to determine appropriate limits on the Company's total credit exposure across all product types, which may require the Company to post collateral to counterparties when these contracts are in a net liability position and conversely, for counterparties to post collateral to the Company when these contracts are in a net asset position. Management reviews the Company's collateral positions on a daily basis and exchanges collateral with counterparties in accordance with standard ISDA documentation and other related agreements. The Company generally posts or holds collateral in the form of cash deposits or highly rated securities issued by the U.S. Treasury or government-sponsored enterprises (FNMA and FHLMC), or guaranteed by GNMA. At June 30, 2025, December 31, 2024, and June 30, 2024 collateral pledged by the Company to counterparties for its derivatives totaled $399 million, $117 million, and $130 million, respectively.