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Derivative Financial Instruments

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Derivative Financial Instruments

20. Derivative Financial Instruments

At December 31, 2023 and 2022, the Company’s derivative financial instruments consist 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 $902.5 million and $273.6 million at December 31, 2023 and December 31, 2022, respectively; 2) to facilitate risk management strategies for our loan customers with $721.0 million of swaps outstanding, which include $360.5 million with customers and $360.5 million with bank counterparties at December 31, 2023 and $221.2 million of swaps outstanding, which include $110.6 million with customers and $110.6 million with bank counterparties at December 31, 2022; and 3) to mitigate exposure to rising interest rates on certain short-term advances, brokered deposits and municipal deposits totaling $826.8 million and $871.5 million at December 31, 2023 and December 31, 2022, respectively.

At December 31, 2023, the Company has outstanding portfolio layer hedges on a closed portfolio of AFS securities with a notional amount of $200.0 million and a closed portfolio of loans with a notional amount of $500.0 million.

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

At December 31, 2023 and 2022, derivatives with a combined notional amount of $722.0 million and $221.2 million, respectively, were not designated as hedges. At December 31, 2023 and 2022, derivatives with a combined notional amount of $902.5 million and $273.6 million were designated as fair value hedges. At December 31, 2023 and 2022, derivatives with a combined notional amount of $825.8 million and $871.5 million, respectively, were designated as cash flow hedges.

For cash flow hedges, the changes in the fair value of the derivative are reported in accumulated other comprehensive income (loss), net of tax. Amounts in accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged forecasted transaction effects earnings. During the years ended December 31, 2023 and 2022, $25.4 million and $0.3 million in reduced expense, respectively was reclassified from accumulated other comprehensive income (loss) to interest expense. The estimated amount to be reclassified in next 12 months out of accumulated other comprehensive income (loss) into earnings is $19.7 million. During the years ended December 31, 2023 and 2021, the Company did not terminate any cash flow hedges. During the year ended December 31, 2022, the Company terminated 4 cash flow hedges with a combined notional value of $170.8 million, resulting in a net gain of $6.0 million. This income is being amortized over the remaining original terms of the cash flow hedges resulting in income recognized totaling $4.7 million and $0.7 million for the years ended December 31, 2023 and 2022, respectively, which is recorded in deposits and other interest expense in the Consolidated Statements of Income.

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⁾

December 31, 2023		(In thousands)
Cash flow hedges:
Interest rate swaps (borrowings and deposits)		$	555,000		$	21,973		$	270,750		$	1,076
Fair value hedges:
Interest rate swaps (loans and securities)			702,540			21,068			200,000			1,354
Non hedge:
Interest rate swaps (loans and deposits)			361,486			25,972			360,486			25,971
Total		$	1,619,026		$	69,013		$	831,236		$	28,401

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						the Hedged
the Hedged Item Is Included			Assets/(Liabilities)						Assets/(Liabilities)
(In thousands)			December 31, 2023			December 31, 2022			December 31, 2023			December 31, 2022
Loans
Multi-family residential		$	81,471		$	82,613		$	(9,078)		$	(10,480)
Commercial real estate			110,666			167,353			(8,301)			(15,442)
Total		$	192,137		$	249,966		$	(17,379)		$	(25,922)

Portfolio Layer
Loans held for Investment ⁽¹⁾		$	2,590,087		$	—		$	(949)		$	—
Securities available for sale ⁽²⁾			283,195			—			(2,254)			—
Total		$	2,873,282		$	—		$	(3,203)		$	—

(1) Carrying amount represents the amortized cost. At December 31, 2023, the amortized cost of the portfolio layer method closed portfolio was $2.6 billion, of which $500 million was designated as hedged. The cumulative amount of basis adjustments was $0.9 million.

(2) Carrying amount represents the fair value. December 31, 2023, the fair value of the portfolio layer method closed portfolio was $283.2 million, of which $200 million was designated as hedged. The cumulative amount of basis adjustments was $2.3 million.

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


					For the years ended
		Affected Line Item in the Statements			December 31,
(In thousands)		Where Net Income is Presented			2023			2022			2021
Financial Derivatives:

Interest rate swaps - non hedge		Other interest expense			$	—		$	—		$	(305)

Interest rate swaps - non hedge		Net gain (loss) from fair value adjustments				—			—			978

Interest rate swaps - fair value hedge (loans)		Interest and fees on loans				15,909			96			(3,481)

Interest rate swaps - fair value hedge (securities)		Interest and dividends on securities				2,912			—			—

Interest rate swaps - non hedge (municipal deposit)		Interest expense - Deposits				3			—			—
												-
Interest rate swaps - cash flow hedge (short-term advances)		Other interest expense				5,312			(2,218)			(10,554)

Interest rate swaps - cash flow hedge (brokered deposits)		Interest expense - Deposits				20,112			2,504			(139)
Total net income (expense) from the effects of derivative instruments					$	44,248		$	382		$	(13,501)

The Company’s interest rate swaps are subject to master netting arrangements between the Company and its three designated counterparties. The Company has not made a policy election to offset its derivative positions. The interest rate swaps with borrowers are cross collateralized with the underlying loan and, therefore, there is no posted collateral. Interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount and receive collateral for agreements in a net asset position.

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 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
December 31, 2023
Assets:
Interest rate swaps		$	69,013		$	—		$	69,013		$	—		$	(48,505)		$	20,508
Liabilities:
Interest rate swaps			28,401			—			28,401			—			—			28,401

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