DERIVATIVES

6 Months Ended

Jun. 30, 2024

DERIVATIVES

DERIVATIVES

10. DERIVATIVES

As part of its asset liability management, the Company utilizes interest rate swap agreements to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent the amount exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

The following sets forth information regarding the Company’s derivative financial instruments at the periods indicated:

	Assets				Liabilities
	Notional				Notional
(in thousands)	Amount		Fair Value (1)		Amount		Fair Value (1)
June 30, 2024
Cash flow hedges:
Interest rate swaps (Brokered Certificates of Deposit)	$	25,000	$	249	$	50,000	$	(158)
Fair value hedges:
Interest rate swaps (Loans)		—		—		50,000		(191)
Total	$	25,000	$	249	$	100,000	$	(349)
December 31, 2023
Cash flow hedges:
Interest rate swaps (Brokered Certificates of Deposit)	$	—	$	—	$	75,000	$	(1,256)
Fair value hedges:
Interest rate swaps (Loans)		—		—		50,000		(1,105)
Total	$	—	$	—	$	125,000	$	(2,361)

(1) Derivatives in a positive position are recorded as “Other assets” and derivatives in a negative position are recorded as “Other liabilities” in the Consolidated Statements of Financial Condition.

Cash Flow Hedges of Interest Rate Risk

Interest rate swaps with notional amounts totaling $75.0 million as of June 30, 2024 and December 31, 2023, were designated as cash flow hedges of certain Brokered Certificates of Deposit. The swaps were determined to be fully effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets/(other liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.

The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the consolidated statements of income relating to the cash flow derivative instruments for the periods indicated.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Gain recognized in other comprehensive income	$	170	$	111	$	1,056	$	111
Gain (loss) recognized in interest expense		189		—		373		—

Fair Value Hedges of Interest Rate Risk

On November 1, 2023, the Company entered into a three year interest rate swap with a notional amount totaling $50 million which was designated as a fair value hedge of certain fixed rate residential mortgages. The Company pays a fixed rate of 4.56% and receives a floating rate based on SOFR for the life of the agreement without an exchange of the underlying notional amount. The hedge was determined to be effective during the six  monhts ended June 30, 2024 and the Company expects the hedge to remain effective during the remaining term of the swap. The gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized in interest income.

The following table presents the effects of the Company’s derivative instruments designated as fair value hedges on the Consolidated Statements of Income for the three and six months ended June 30, 2024. There were no fair value hedges for the three and six months ended June 30, 2023.

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Net gain on hedged items recorded in interest income on loans	$	10	$	—	$	4	$	—
Gain on hedge recorded in interest income on loans		96		—		191		—

At June 30, 2024 and December 31, 2023, the following amounts were recorded on the Statement of Financial Condition related to cumulative basis adjustment for fair value hedges.

	June 30,		December 31,
(in thousands)	2024		2023
Loans receivable:
Carrying amount of the hedged assets(1)	$	50,000	$	50,000
Fair value hedging adjustment included in the carrying amount of the hedged assets		209		1,119

(1) This amount includes the amortized cost basis of the closed portfolios of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At June 30, 2024 and December 31, 2023, the amortized cost basis of the closed portfolios used in the hedging relationships was $394.3 million and $410.3 million, respectively. The cumulative basis adjustments associated with these hedging relationships was $0.2 million and $1.1 million, respectively, and the amounts of the designated hedged items were $50.0 million and $50.0 million, respectively.

Credit-Risk-Related Contingent Features

The Company has minimum collateral posting thresholds with certain of its derivative counterparties. If the termination value of derivatives is a net liability position, the Company is required to post collateral against its obligations under the agreements. However, if the termination value of derivatives is a net asset position, the counterparty is required to post collateral to the Company. As of June 30, 2024, the Company received a nominal amount of collateral from its counterparties under the agreements in a net asset position. At December 31, 2023, the Company posted $2.2 million in collateral to its counterparties in a net liability position.