Derivatives and Hedging Activities

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 the management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities.

Non-designated Hedges. Derivatives not designated in qualifying hedging relationships are not speculative and result from a service the Company provides to certain qualified commercial borrowers in loan related transactions which, therefore, are not used to manage interest rate risk in the Company’s assets or liabilities. The Company may execute interest rate swaps with qualified commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. The interest rate swap agreement which the Company executes with the commercial borrower is collateralized by the borrower's commercial real estate financed by the Company. As the Company has not elected to apply hedge accounting and these interest rate swaps do not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2024 and December 31, 2023, the Company had 152 and 154 loan related interest rate swaps with aggregate notional amounts of $2.23 billion and $2.30 billion, respectively.

The Company periodically enters into risk participation agreements ("RPAs"), with the Company functioning as either the lead institution, or as a participant when another company is the lead institution on a commercial loan. These RPAs are entered into to manage the credit exposure on interest rate contracts associated with these loan participation agreements. Under the RPAs, the Company will either receive or make a payment in the event the borrower defaults on the related interest rate contract. The Company has minimum collateral posting thresholds with certain of its risk participation counterparties, and has posted collateral of $70,000 against the potential risk of default by the borrower under these agreements. For March 31, 2024 and December 31, 2023, the Company had 12 credit derivatives, respectively, with aggregate notional amounts of $188.4 million and $142.8 million, respectively, from participations in interest rate swaps as part of these loan participation arrangements. As of March 31, 2024, the asset and liability positions of these fair value credit derivatives totaled $9,000 and $5,000, respectively, compared to $17,000 and $8,000, respectively, as of December 31, 2023.

Cash Flow Hedges of Interest Rate Risk. The Company’s objective in using interest rate derivatives is to add stability to interest expense and to manage exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable payment amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

Changes in the fair value of derivatives designated and that qualify as cash flow hedges of interest rate risk are recorded in accumulated other comprehensive (loss) income and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended March 31, 2024 and 2023, such derivatives were used to hedge the variable cash outflows associated with FHLBNY borrowings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings or demand deposits. During the next twelve months, the Company estimates that $11.1 million will be reclassified as a reduction to interest expense. As of March 31, 2024, the Company had 7 outstanding interest rate derivatives with an aggregate notional amount of $375.0 million that were each designated as a cash flow hedge of interest rate risk, compared to 9 outstanding interest rate derivatives with an aggregate notional amount of $455.0 million, as of December 31, 2023.

Assets and liabilities relating to certain financial instruments, including derivatives, may be eligible for offset in the Consolidated Statements of Financial Condition and/or subject to enforceable master netting arrangements or similar agreements. The Company does not offset asset and liabilities under such arrangements in the Consolidated Statements of Financial Condition.

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s financial instruments that are eligible for offset in the Consolidated Statements of Condition as of March 31, 2024 and December 31, 2023 (in thousands).


	Fair Values of Derivative Instruments as of March 31, 2024
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)		Notional Amount	Consolidated Statements of Financial Condition	Fair value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,117,124	Other assets	$	103,206	1,117,124	Other liabilities	103,309
Credit contracts	46,151		Other assets	9		142,260	Other liabilities	5
Total derivatives not designated as a hedging instrument				103,215				103,314

Derivatives designated as a hedging instrument:
Interest rate products	375,000		Other assets	14,237		—	Other liabilities	—

Total gross derivative amounts recognized on the balance sheet				117,452				103,314

Gross amounts offset on the balance sheet				—				—
Net derivative amounts presented on the balance sheet				$	117,452			103,314

Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	—			—
Cash collateral - institutional counterparties (1)				116,220				—
Net derivatives not offset				$	1,232			103,314


	Fair Values of Derivative Instruments as of December 31, 2023
	Asset Derivatives					Liability Derivatives
	Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)		Notional Amount		Consolidated Statements of Financial Condition	Fair value (2)
Derivatives not designated as a hedging instrument:
Interest rate products	$	1,152,200	Other assets	$	89,261	$	1,152,200	Other liabilities	89,461
Credit contracts	46,359		Other assets	17		96,462		Other liabilities	8
Total derivatives not designated as a hedging instrument				89,278					89,469

Derivatives designated as a hedging instrument:
Interest rate products	330,000		Other assets	15,886		125,000		Other liabilities	1,365

Total gross derivative amounts recognized on the balance sheet				105,164					90,834

Gross amounts offset on the balance sheet				—					—
Net derivative amounts presented on the balance sheet				$	105,164				90,834

Gross amounts not offset on the balance sheet:
Financial instruments - institutional counterparties				$	—				—
Cash collateral - institutional counterparties (1)				101,328					—
Net derivatives not offset				$	3,836				90,834

(1) Cash collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The application of the cash collateral cannot reduce the net derivative position below zero. Therefore, excess cash collateral, if any, is not reflected above.

(2) The fair values related to interest rate products in the above net derivative tables show the total value of assets and liabilities, which include accrued interest receivable and accrued interest payable for the periods ended March 31, 2024 and December 31, 2023.

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income during the three months ended March 31, 2024 and 2023 (in thousands).


		Gain (loss) recognized in income on derivatives for the three months ended
	Consolidated Statements of Income	March 31, 2024		March 31, 2023
Derivatives not designated as a hedging instrument:
Interest rate products	Other income	$	96	(74)
Credit contracts	Other income	(3)		3
Total		$	93	(71)

Derivatives designated as a hedging instrument:
Interest rate products	Interest (benefit) expense	$	(4,175)	(4,219)
Total		$	(4,175)	(4,219)

The Company has agreements with certain of its dealer counterparties which contain a provision that if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be deemed in default on its derivative obligations. In addition, the Company has agreements with certain of its dealer counterparties which contain a provision that if the Company fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of March 31, 2024, the Company had four dealer counterparties and the Company was in a net asset position with respect to all of its counterparties.