Note 7—Derivative Instruments

The Company uses derivative instruments for various purposes. Pay-fixed interest rate swaps, interest rate basis swaps and interest rate caps are used to manage interest rate risk. Foreign currency forward exchange agreements are used to manage currency risk associated with the financing of our SAWHF equity investment. TRS agreements were used by the Company to obtain, or retain, the economic risks and rewards associated with tax exempt municipal bonds. During the second quarter of 2019, the Company terminated all remaining TRS agreements.

Derivative instruments that are recognized in the Consolidated Balance Sheets are measured on a fair value basis. Because the Company does not designate any of its derivative instruments as fair value or cash flow hedges, changes in fair value of such instruments are recognized in the Consolidated Statements of Operations as a component of “Net (losses) gains on derivatives.” Derivative assets are presented in the Consolidated Balance Sheets as a component of “Other assets” and derivative liabilities are presented in the Consolidated Balance Sheets as a component of “Other liabilities.”

The following table provides information about the carrying value of the Company’s derivative instruments:


	Fair Value
	At				At
	September 30, 2019				December 31, 2018
(in thousands)	Assets		Liabilities		Assets		Liabilities
Total return swaps	$	─	$	─	$	1,130	$	─
Basis swaps		104		─		808		─
Interest rate caps		201		─		998		─
Interest rate swaps		─		324		2,674		─
Foreign currency forward exchange		269		─		187		─
Total carrying value of derivative instruments	$	574	$	324	$	5,797	$	─

The following table provides information about the notional amounts of the Company’s derivative instruments:


	Notional Amounts
	At		At
	September 30,		December 31,
(in thousands)	2019		2018
Total return swaps	$	─	$	18,278
Basis swaps		35,000		35,000
Interest rate caps		35,000		80,000
Interest rate swaps		35,000		65,000
Foreign currency forward exchange		4,343		4,331
Total notional amount of derivative instruments	$	109,343	$	202,609

During the nine months ended September 30, 2019, the notional amount of interest rate derivative instruments and total return swaps significantly decreased. The following table attributes the decrease in the total notional amount of such instruments to contract expirations, contract terminations and net cash settlements that occurred during the nine months ended September 30, 2019:


	Notional
	Amounts
Balance, January 1, 2019	$	198,278
Impact from expirations		(46,714)
Impact from terminations		(46,528)
Impact from settlements		(36)
Balance, September 30, 2019	$	105,000

The following table provides information about the net (losses) gains that were recognized by the Company in connection with its derivative instruments:


	For the three months ended				For the nine months ended
	September 30,				September 30,
(in thousands)	2019		2018		2019		2018
Total return swaps (1)	$	─	$	422	$	(42)	$	2,060
Basis swaps (2)		(273)		208		(526)		715
Interest rate caps		(234)		137		(797)		612
Interest rate swaps (3)		(441)		327		(2,717)		1,722
Foreign currency forward exchange		269		8		89		355
Total net (losses) gains of derivative instruments	$	(679)	$	1,102	$	(3,993)	$	5,464

⁽¹⁾

The accrual of net interest payments that are made in connection with TRS agreements that are reported as derivative instruments are classified as a component of “Net (losses) gains on derivatives” on the Consolidated Statements of Operations. Net cash received was $0.7 million for the three months ended September 30, 2018. Net cash received was $0.2 million and $1.9 million for the nine months ended September 30, 2019, and September 30, 2018, respectively.

⁽²⁾

The accrual of net interest payments that are made in connection with basis swaps is classified as a component of “Net (losses) gains on derivatives” on the Consolidated Statements of Operations. The net cash received was $0.1 million and $0.2 million for the three and nine months ended September 30, 2019, respectively, while the net cash paid was de minimis for the three and nine months ended September 30, 2018.

⁽³⁾

The accrual of net interest payments that are made in connection with interest rate swaps is classified as a component of “Net (losses) gains on derivatives” on the Consolidated Statements of Operations. Net cash received was de minimis for the three months ended September 30, 2019 and $0.2 million for the nine months ended September 30, 2019. Net cash received was $0.1 million and $0.3 million for the three and nine months ended September 30, 2018, respectively. During the three and nine months ended September 30, 2018, the Company also received $0.3 million to amend two interest rate swaps and recorded $0.3 million through “Other assets” on the Consolidated Balance Sheets. The amount recorded to “Net (losses) gains on derivatives” on the Consolidated Statements of Operations was de minimis.