Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Derivative Financial Instruments

11.     Derivative Financial Instruments

At March 31, 2023 and December 31, 2022, the Company’s derivative financial instruments consisted of interest rate swaps. The Company’s interest rate swaps are used for three purposes: 1) to mitigate the Company’s exposure to rising interest rates on certain fixed rate loans and securities totaling $471.5 million and $273.6 million at March 31, 2023 and December 31, 2022, respectively; 2) to facilitate risk management strategies for our loan customers with $219.5 million of swaps outstanding, which include $109.7 million each with customers and with bank counterparties at March 31, 2023

and $221.2 million of swaps outstanding, which include $110.6 million each with customers and bank counterparties at December 31, 2022; 3) to mitigate exposure to rising interest rates on certain short-term advances and brokered deposits totaling $921.5 million at March 31, 2023, and $871.5 at December 31, 2022.

At March 31, 2023 and December 31, 2022, we held derivatives designated as cash flow hedges, fair value hedges and certain derivatives not designated as hedges.

The Company’s derivative instruments are carried at fair value in the Company’s financial statements as part of Other Assets for derivatives with positive fair values and Other Liabilities for derivatives with negative fair values. The accounting for changes in the fair value of a derivative instrument is dependent upon whether or not it qualifies and has been designated as a hedge for accounting purposes, and further, by the type of hedging relationship.

At March 31, 2023 and December 31, 2022, derivatives with a combined notional amount of $219.5 million and $221.2 million, respectively, were not designated as hedges. At March 31, 2023 and December 31, 2022, derivatives with a combined notional amount of $471.5 million and $273.6 million, respectively, were designated as fair value hedges. At March 31, 2023 and December 31, 2022, derivatives with a combined notional amount of $921.5 million and $871.5 million, respectively, were designated as cash flow hedges.

For cash flow hedges, the changes in the fair value of the derivatives are reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive loss are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the three months ended March 31, 2023 and 2022, $4.3 million in reduced expense and $2.7 million in additional expense, respectively, was reclassified from accumulated other comprehensive loss to interest expense. The estimated amount to be reclassified in the next 12 months out of accumulated other comprehensive loss is $15.5 million in reduced expense.

Changes in the fair value of interest rate swaps not designated as hedges are reflected in “Net gain (loss) from fair value adjustments” in the Consolidated Statements of Income.

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

	Assets				Liabilities
	Notional				Notional
	Amount		Fair Value (1)		Amount		Fair Value (1)
March 31, 2023	(In thousands)
Cash flow hedges:
Interest rate swaps (borrowings and deposits)	$	650,750	$	28,653	$	270,750	$	3,277
Fair value hedges:
Interest rate swaps (loans and securities)		471,520		20,967		—		—
Non hedge:
Interest rate swaps (loans)		109,749		15,452		109,749		15,452
Total	$	1,232,019	$	65,072	$	380,499	$	18,729
December 31, 2022
Cash flow hedges:
Interest rate swaps (borrowings and deposits)	$	700,750	$	31,716	$	170,750	$	210
Fair value hedges:
Interest rate swaps (loans)		273,607		24,673		—		—
Non hedge:
Interest rate swaps (loans)		110,598		18,197		110,598		18,197
Total	$	1,084,955	$	74,586	$	281,348	$	18,407

(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.

The following table presents information regarding the Company’s fair value hedged items for the periods indicated:

						Cumulative Amount
						of the Fair Hedging Adjustment
Line Item in the Consolidated Statement		Carrying Amount of the				Included in the Carrying Amount of
of Financial Condition in Which		Hedged Assets				the Hedged Assets
the Hedged Item is Included		Assets/(Liabilities)				Assets/(Liabilities)
(In thousands)	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Loans:
Multi-family residential	$	84,384	$	82,613	$	(8,081)	$	(10,480)
Commercial real estate		168,311		167,353		(12,797)		(15,442)
Total	$	252,695	$	249,966	$	(20,878)	$	(25,922)
Securities available for sale:
Mortgage-backed securities	$	306,425	$	—	$	(1,238)	$	—
Total	$	306,425	$	—	$	(1,238)	$	—

The following table sets forth the effect of derivative instruments on the Consolidated Statements of Income for the periods indicated:

		For the three months ended
	Affected Line Item in the Statements	March 31,
(In thousands)	Where Net Income is Presented	2023		2022
Financial Derivatives:
Interest rate swaps - fair value hedge (loans)	Interest and fees on loans	$	1,897	$	(1,435)
Interest rate swaps - fair value hedge (securities)	Interest and dividends on securities		58		—
Interest rate swaps - cash flow hedge (borrowings)	Other interest expense		1,421		(2,465)
					—
Interest rate swaps - cash flow hedge (deposits)	Deposits		2,867		(55)
Total net income (loss) from the effects of derivative instruments		$	6,243	$	(3,955)

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its designated counterparties. The Company has not made a policy election to offset its derivative positions.

The following tables present the effect of the master netting arrangements on the presentation of the derivative assets and liabilities in the Consolidated Statements of Financial Condition as of the dates indicated:

			Gross Amount		Net Amount
	Gross Amounts		Offset in Statement of		Presented in Statement of		Financial		Cash
(In thousands)	Recognized		Financial Condition		Financial Condition		Instruments		Collateral		Net Amount
March 31, 2023
Assets:
Interest rate swaps	$	65,072	$	—	$	65,072	$	—	$	(64,445)	$	627
Liabilities:
Interest rate swaps		18,729		—		18,729		—		—		18,729
December 31, 2022
Assets:
Interest rate swaps	$	74,586	$	—	$	74,586	$	—	$	(72,185)	$	2,401
Liabilities:
Interest rate swaps		18,407		—		18,407		—		—		18,407