Derivative Financial Instruments

3 Months Ended

Mar. 31, 2024

Notes to Financial Statements

Derivative Financial Instruments

11.     Derivative Financial Instruments

At March 31, 2024 and December 31, 2023, 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 with a notional amount of $900.8 million and $902.5 million of swaps outstanding at March 31, 2024 and December 31, 2023, respectively; 2) to facilitate risk management strategies for our loan customers with $734.4 million of swaps outstanding, which include $367.2 million each with customers and bank counterparties at March 31, 2024 and $721.0 million of swaps outstanding, which include $360.5 million each with customers and bank counterparties at December 31, 2023; and 3) to mitigate exposure to rising interest rates on certain short-term advances, brokered deposits and municipal deposits with $826.8 million of swaps outstanding at both March 31, 2024 and December 31, 2023.

At both March 31, 2024 and December 31, 2023, the Company maintained 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.

For non-portfolio layer method fair value hedges, the hedge basis (the amount of the change in fair value) is added to (or subtracted from) the carrying amount of the hedged item. For portfolio layer method hedges, the hedge basis does not adjust the carrying value of the hedged item and is instead maintained on a closed portfolio basis. These basis adjustments would be allocated to the amortized cost of specific loans or AFS securities within the pools if either of the hedges were de-designated.

At March 31, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, derivatives with a combined notional amount of $735.4 million and $722.0 million, respectively, were not designated as hedges. At March 31, 2024 and December 31, 2023, derivatives with a combined notional amount of $900.8 million and $902.5 million, respectively, were designated as fair value hedges. At both March 31, 2024 and December 31, 2023, derivatives with a combined notional amount of $825.8 million 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 income (loss) are reclassified into earnings in the same period during which the hedged forecasted transaction affected earnings. During the three months ended March 31, 2024 and 2023, $6.9 million and $4.3 million in reduced expense, respectively, was reclassified from accumulated other comprehensive income (loss) to interest expense. A portion of the reduced expense is driven by the amortization of income from terminated cash flow hedges. This income is amortized over the remaining original terms of terminated cash flow hedges. During the three months ended March 31, 2024, the Company terminated seven cash flow hedges with a combined notional value of $420.8 million, resulting in a net gain of $1.7 million. There were no cashflow hedges terminated during the three months ended March 31, 2023. During the three months ended March 31, 2024 and 2023, income from the amortization of terminated cash flow hedges totaled $0.8 million and $1.4 million, respectively. The estimated amount to be reclassified in the next 12 months out of accumulated other comprehensive income (loss) into earnings is $21.5 million.

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, 2024	(In thousands)
Cash flow hedges:
Interest rate swaps (borrowings and deposits)	$	825,750	$	24,448	$	—	$	—
Fair value hedges:
Interest rate swaps (loans and securities)		900,825		30,482		—		—
Non hedge:
Interest rate swaps (loans and deposits)		368,195		20,236		367,195		20,235
Total	$	2,094,770	$	75,166	$	367,195	$	20,235
December 31, 2023
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

(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)		March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Loans
Multi-family residential	$	78,986	$	81,471	$	(10,911)	$	(9,078)
Commercial real estate		63,748		70,198		(5,300)		(4,778)
Commercial business		39,708		40,468		(3,940)		(3,523)
Total	$	182,442	$	192,137	$	(20,151)	$	(17,379)
Portfolio Layer
Loans held for Investment	$	2,541,669	$	2,590,087	$	(6,334)	$	(949)
Securities available for sale		272,523		283,195		(5,051)		(2,254)
Total	$	2,814,192	$	2,873,282	$	(11,385)	$	(3,203)

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	2024		2023
Financial Derivatives:
Interest rate swaps - fair value hedge (loans)	Interest and fees on loans		3,587		1,897
Interest rate swaps - fair value hedge (securities)	Interest and dividends on securities		949		58
Interest rate swaps - non hedge (municipal deposit)	Interest expense - Deposits		1		—
Interest rate swaps - cash flow hedge (short-term advances)	Other interest expense		364		1,421
Interest rate swaps - cash flow hedge (brokered deposits)	Interest expense - Deposits		6,498		2,867
Total net income (expense) from the effects of derivative instruments		$	11,399	$	6,243

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 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 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, 2024
Assets:
Interest rate swaps	$	75,166	$	—	$	75,166	$	—	$	(68,285)	$	6,881
Liabilities:
Interest rate swaps		20,235		—		20,235		—		—		20,235
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