Derivative Instruments

6 Months Ended

Dec. 31, 2024

(6) Derivative Instruments

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, primarily by managing the amount, sources and duration of its assets and liabilities. The Company has interest rate derivatives that result from a service provided to certain qualifying customers and, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

Derivatives Not Designated as Hedging Instruments

The Company enters into interest rate swap agreements with its commercial customers to provide them with a long-term fixed rate, while simultaneously entering into offsetting interest rate swap agreements with a counterparty to swap the fixed rate to a variable rate to manage interest rate exposure. These interest rate swap agreements are not designated as hedges for accounting purposes. As the interest rate swap agreements have substantially equivalent and offsetting terms, they do not present any material exposure to the Company’s consolidated statements of income. The Company records its interest rate swap agreements at fair value and are presented within other assets and other liabilities on the consolidated statements of financial condition. Changes in the fair value of assets and liabilities arising from these derivatives are included, net, in other operating income on the consolidated statements of income. Under terms of the agreements with the third-party counterparties, the Company provides cash collateral to the counterparty, when required, for the initial trade. Subsequent to the trade, the margin is exchanged in either direction, based upon the estimated fair value of the underlying contracts. Cash collateral represents the amount that is exchanged under master netting agreements that allows the Company to offset the derivative position with the related collateral. The notional amount of the interest rate swaps does not represent amounts 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 table present the notional amount and fair values of interest rate derivative positions:

	At December 31, 2024
	Asset derivatives					Liability derivatives
(In thousands)	Statement of financial condition location	Notional amount		Fair value		Statement of financial condition location	Notional amount		Fair value
Interest rate derivatives	Other Assets	$	98,569	$	757	Other Liabilities	$	98,569	$	757
Less cash collateral					-	Other Liabilities				-
Total after netting				$	757				$	757

	At June 30, 2024
	Asset derivatives					Liability derivatives
(In thousands)	Statement of financial condition location	Notional amount		Fair value		Statement of financial condition location	Notional amount		Fair value
Interest rate derivatives	Other Assets	$	50,707	$	585	Other Liabilities	$	50,707	$	585
Less cash collateral					-	Other Liabilities				(410	)
Total after netting				$	585				$	175

Risk Participation Agreements

Risk participation agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that any and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment.

RPAs in which the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. The RPAs participations-out are spread out over three financial institution counterparties and terms range between four to eight years. The Company’s credit exposure transferred out was zero and $105,000 as of December 31, 2024 and June 30, 2024, respectively. The Company transferred out RPAs with a notional amount of $16.6 million and $8.0 million as of December 31, 2024 and June 30, 2024, respectively.

RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivables from the customer. The RPAs participations-ins are spread out over five financial institution counterparties and terms range between two to twelve years. The credit exposure associated with risk participations-ins was $137,000 and $276,000 as of December 31, 2024 and June 30, 2024, respectively. The Company held RPAs with a notional amount of $120.5 million and $112.3 million as of December 31, 2024 and June 30, 2024, respectively.