Derivative and Financial Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In the normal course of business, we enter into interest rate lock commitments ("IRLCs") with borrowers who have applied for loan funding and meet defined credit and underwriting criteria. Since we can terminate IRLCs if the borrower does not comply with the terms of the contract, and some IRLCs may expire without being utilized, these IRLCs do not necessarily represent future cash requirements.

Market risk arises if interest rates move adversely between the time we originate a mortgage loan or we enter into an IRLC and the date the loan is committed or sold to an investor. We mitigate our exposure to interest rate market risk relating to mortgage loans held-for-sale and IRLCs using: (1) forward sales of mortgage-backed securities, which are commitments to sell a specified financial instrument at a specified future date for a specified price, (2) mandatory delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price within a specified time period, and (3) best-effort delivery forward loan sale commitments, which are obligations of an investor to buy loans at a specified price subject to the underlying mortgage loans being funded and closed. The best-effort delivery forward loan sale commitments do not meet the definition of a derivative financial instrument in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). We have elected the fair value option for the best-effort delivery forward loan sale commitments in accordance with ASC Topic 825, Financial Instruments ("ASC 825").

Forward sales of mortgage-backed securities are the predominant derivative and financial instruments we use to minimize market risk during the period from the time we extend an interest rate lock to a loan applicant until the time the loan is committed under a best-effort or mandatory delivery forward loan sale commitment.

The following table sets forth the notional amounts and fair value measurement of our derivative and financial instruments at September 30, 2023 and December 31, 2022:


	September 30, 2023								December 31, 2022

	Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net		Notional Value		Derivative Assets		Derivative Liabilities		Derivatives, Net
	(Dollars in thousands)								(Dollars in thousands)
Interest rate lock commitments	$	274,211	$	1,485	$	2,750	$	(1,265)	$	394,004	$	1,566	$	3,244	$	(1,678)
Forward sales of mortgage-backed securities	366,000		5,452		—		5,452		323,000		580		5,849		(5,269)
Mandatory delivery forward loan sale commitments	50,597		229		290		(61)		105,060		794		3		791
Best-effort delivery forward loan sale commitments	5,870		49		1		48		139,972		2,161		185		1,976

For the three and nine months ended September 30, 2023, we recorded net gains on these derivative and financial instruments measured on a recurring basis of $4.1 million and $5.6 million, respectively, in revenues in the financial services section of our consolidated statements of operations and comprehensive income, compared to net gains of $7.3 million and $44.6 million for the same periods in 2022. There are no credit-risk-related contingent features within our derivative agreements, and counterparty risk is considered minimal.