DERIVATIVES AND HEDGING ACTIVITIES

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

From time to time, the Company utilizes interest rate swaps and other derivative financial instruments as part of its asset liability management strategy to manage interest rate risk positions.

Fair Value Hedges of Interest Rate Risk

During the year ended December 31, 2019, the Company entered into two, two-year interest rate swaps with a total notional amount of $1.0 billion to hedge the interest rate risk related to certain hybrid multifamily loans which are currently in their fixed rate period. The swaps are designated as fair value hedges and involve the payment of a fixed rate amount to a counterparty in exchange for the Company receiving a variable rate payment over the life of the swaps without the exchange of the underlying notional amount. The gain or loss on the derivatives, as well as the offsetting loss or gain on the hedged items attributable to the hedged risk are recognized in interest income for loans.

For the three and nine months ended September 30, 2020, the floating rate amounts recognized related to the net settlement of the interest rate swaps were less than the fixed rate amounts recognized. As such, interest income on loans due to these swaps decreased by $3.5 million and $7.3 million for the three and nine months ended September 30, 2020, respectively, compared to an increase in interest income on loans of $1.4 million and $1.5 million for the three and nine months ended September 30, 2019, respectively.

The following table presents the effect of the Company’s interest rate swaps on the unaudited consolidated statement of income for the three and nine months ended September 30, 2020:


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	2020		2019		2020		2019
Derivative - interest rate swaps:
Interest income	$	(3,437)	$	1,400	$	(7,383)	$	1,514
Hedged items - loans:
Interest income	(16)		6		40		5
Net effect on interest income	$	(3,453)	$	1,406	$	(7,343)	$	1,519

The following table presents the fair value of the Company’s interest rate swaps, as well as its classification on the unaudited consolidated statements of financial condition as of September 30, 2020 and December 31, 2019:


			Fair Values of Derivative Instruments
			Asset Derivatives			Liability Derivatives
(Dollars in thousands)	Notional Amount		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
As of September 30, 2020:
Interest Rate Swaps	$	1,000,000	Prepaid Expenses and Other Assets	$	—	Other Liabilities and Accrued Expenses	$	10,834
As of December 31, 2019:
Interest Rate Swaps	$	1,000,000	Prepaid Expenses and Other Assets	$	1,156	Other Liabilities and Accrued Expenses	$	746

As of September 30, 2020 and December 31, 2019, the following amounts were recorded in the unaudited consolidated statements of financial condition related to cumulative basis adjustments for its fair value hedges.


Line Item in the Consolidated Statements of Financial Condition in Which the Hedged Items are Included	Carrying Amount of the Hedged Assets		Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
(Dollars in thousands)
As of September 30, 2020:
Loans receivable, net (1)	$	1,010,879	$	10,879
As of December 31, 2019:
Loans receivable, net (1)	$	999,595	$	(405)

(1) These amounts include the amortized cost basis of closed portfolio loans used to designate hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationship. At September 30, 2020 and December 31, 2019, the amortized cost basis of the closed portfolio loans used in these hedging relationships were $2.2 billion and $2.5 billion, respectively; the cumulative basis adjustments associated with these hedging relationships were $10.9 million and $(405) thousand, respectively, and the amount of the designated hedged items were $1.0 billion and $999.6 million, respectively.

As of September 30, 2020 and December 31, 2019, the Company had posted $11.9 million and $2.8 million, respectively, in cash collateral in connection with its interest rate swaps. Cash collateral is included in restricted cash within the unaudited consolidated statements of financial condition.