Derivative Financial Instruments

9 Months Ended

Sep. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We are required to record derivatives on our Condensed Consolidated Statements of Financial Condition as assets and liabilities measured at their fair value. The accounting for increases and decreases in the value of derivatives depends upon the use of derivatives and whether the derivatives qualify for hedge accounting.

Our derivative financial instruments according to the type of hedge in which they are designated follows:

	September 30, 2024
	Notional Amount		Average Maturity (years)	Fair Value
	(Dollars in thousands)
Fair value hedge designation
Pay-fixed interest rate swap agreement - commercial	$	5,745	4.6	$	239
Pay-fixed interest rate swap agreements - securities available for sale	148,895		3.1	11,259
Pay-fixed interest rate swap agreements - installment	100,000		2.7	(1,741)
Pay-fixed interest rate swap agreements - mortgage	150,000		2.8	(2,779)
Interest rate cap agreements - securities available for sale	40,970		3.6	181
Total	$	445,610	2.9	$	7,159
Cash flow hedge designation
Interest rate floor agreements - commercial	$	325,000	2.5	$	7,281
No hedge designation
Rate-lock mortgage loan commitments	$	26,947	0.1	$	253
Mandatory commitments to sell mortgage loans	40,399		0.1	25
Pay-fixed interest rate swap agreements - commercial	492,129		5.2	(1,313)
Pay-variable interest rate swap agreements - commercial	492,129		5.2	1,313
Total	$	1,051,604	4.9	$	278

	December 31, 2023
	Notional Amount		Average Maturity (years)	Fair Value
	(Dollars in thousands)
Fair value hedge designation
Pay-fixed interest rate swap agreement - commercial	$	6,033	5.4	$	349
Pay-fixed interest rate swap agreements - securities available for sale	148,895		3.9	15,287
Pay-fixed interest rate swap agreements - installment	100,000		3.4	(1,228)
Pay-fixed interest rate swap agreements - mortgage	100,000		4.3	(2,131)
Interest rate cap agreements - securities available for sale	40,970		4.3	456
Total	$	395,898	3.9	$	12,733
Cash flow hedge designation
Interest rate floor agreements - commercial	$	150,000	3.5	$	4,221
No hedge designation
Rate-lock mortgage loan commitments	18,081		0.1	173
Mandatory commitments to sell mortgage loans	30,442		0.1	(279)
Pay-fixed interest rate swap agreements - commercial	379,012		5.9	7,169
Pay-variable interest rate swap agreements - commercial	379,012		5.9	(7,169)
Total	$	806,547	5.5	$	(106)

We have established management objectives and strategies that include interest-rate risk parameters for maximum fluctuations in net interest income and market value of portfolio equity. We monitor our interest rate risk position via simulation modeling reports. The goal of our asset/liability management efforts is to maintain profitable financial leverage within established risk parameters.

We have entered into pay-fixed interest rate swaps and caps to protect a portion of the fair value of a certain fixed rate commercial loan and certain mortgage and installment loans (‘‘Fair Value Hedge – Portfolio Loans’’). As a result, changes in the fair values of the pay-fixed interest rate swaps and caps are expected to offset changes in the fair values of the fixed rate portfolio loans due to fluctuations in interest rates. We record the fair values of Fair Value Hedge – Portfolio Loans in accrued income and other assets and accrued expenses and other liabilities on our Condensed Consolidated Statements of Financial Condition. The hedged items (a fixed rate commercial loan and certain fixed rate mortgage and installment loans) are also recorded at fair value which offsets the adjustment to the Fair Value Hedge – Portfolio Loans. On an ongoing basis, we adjust our Condensed Consolidated Statements of Financial Condition to reflect the then current fair values of both the Fair Value Hedge – Portfolio Loans and the hedged items. The related gains or losses are reported in interest income – interest and fees on loans in our Condensed Consolidated Statements of Operations. During the second quarter of 2023 we terminated the interest rate cap that was previously hedging certain installment loans. The remaining unrealized gain on this terminated interest cap is being amortized into earnings over the original life of the interest rate cap.

We have entered into pay-fixed interest rate swap and interest rate cap agreements to protect a portion of the fair value of certain securities available for sale (‘‘Fair Value Hedge – AFS Securities’’). As a result, the change in the fair value of the pay-fixed interest rate swap and interest rate cap agreements is expected to offset a portion of the change in the fair value of the fixed rate securities available for sale due to fluctuations in interest rates. We record the fair value of Fair Value Hedge – AFS Securities in accrued income and other assets and accrued expenses and other liabilities on our Condensed Consolidated Statements of Financial Condition. The hedged items (fixed rate securities available for sale) are also recorded at fair value which offsets the adjustment to the Fair Value Hedge – AFS Securities. On an ongoing basis, we adjust our Condensed Consolidated Statements of Financial Condition to reflect the then current fair value of both the Fair Value Hedge – AFS Securities and the hedged item. The related gains or losses are reported in interest income – interest on securities – tax-exempt in our Condensed Consolidated Statements of Operations.

We have entered into interest rate floor agreements to manage the variability in future expected cash flows of certain commercial loans (‘‘Cash Flow Hedge – Portfolio Loans’’). We record the fair value of Cash Flow Hedge – Portfolio Loans in accrued income and other assets and accrued expenses and other liabilities on our Condensed Consolidated Statements of Financial Condition. The changes in the fair value of Cash Flow Hedge - Portfolio Loans are recorded in accumulated other comprehensive loss and are reclassified into the line item in our Condensed Consolidated Statements of Operations in which the hedged items are recorded in the same period the hedged items affect earnings. It is anticipated that as of September 30, 2024, $0.2 million will be reclassified from accumulated other comprehensive loss on Cash Flow Hedge - Portfolio Loans into earnings as a reduction of interest and fees on loans over the next twelve months. The maximum term of any Cash Flow Hedge - Portfolio Loans at September 30, 2024 is 3.9 years.

Certain derivative financial instruments have not been designated as hedges. The fair value of these derivative financial instruments has been recorded on our Condensed Consolidated Statements of Financial Condition and is adjusted on an ongoing basis to reflect their then current fair value. The changes in fair value of derivative financial instruments not designated as hedges are recognized in earnings

In the ordinary course of business, we enter into rate-lock mortgage loan commitments with customers (“Rate-Lock Commitments”). These commitments expose us to interest rate risk. We also enter into mandatory commitments to sell mortgage loans (“Mandatory Commitments”) to reduce the impact of price fluctuations of mortgage loans held for sale and Rate-Lock Commitments. Mandatory Commitments help protect our loan sale profit margin from fluctuations in interest rates. The changes in the fair value of Rate-Lock Commitments and Mandatory Commitments are recognized currently as part of net gains on mortgage loans in our Condensed Consolidated Statements of Operations. We obtain market prices on Mandatory Commitments and Rate-Lock Commitments. Net gains on mortgage loans, as well as net income may be more volatile as a result of these derivative instruments, which are not designated as hedges.

We have a program that allows commercial loan customers to lock in a fixed rate for a longer period of time than we would normally offer for interest rate risk reasons. We will enter into a variable rate commercial loan and an interest rate swap agreement with a customer and then enter into an offsetting interest rate swap agreement with an unrelated party. The interest rate swap agreement fair values will generally move in opposite directions resulting in little or no net impact on our Condensed Consolidated Statements of Operations. All of the interest rate swap agreements - commercial in the table above with no hedge designation relate to this program.

We had entered into a no hedge designation pay-variable interest rate swap agreement in an attempt to manage the cost of certain funding liabilities. The changes in fair value of this no hedge pay-variable interest rate swap is recorded in non-interest expense-other in our Condensed Consolidated Statements of Operations. This no hedge designation pay-variable interest rate swap agreement matured during the third quarter of 2023.

The following tables illustrate the impact that the derivative financial instruments discussed above have on individual line items in the Condensed Consolidated Statements of Financial Condition for the periods presented:

Fair Values of Derivative Instruments

	Asset Derivatives						Liability Derivatives
	September 30, 2024			December 31, 2023			September 30, 2024			December 31, 2023
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivatives designated as hedging instruments
Pay-fixed interest rate swap agreements	Other assets	$	11,519	Other assets	$	15,636	Other liabilities	$	4,541	Other liabilities	$	3,359
Interest rate cap agreements	Other assets	181		Other assets	456		Other liabilities	—		Other liabilities	—
Interest rate floor agreements	Other assets	7,281		Other assets	4,221		Other liabilities	—		Other liabilities	—
		18,981			20,313			4,541			3,359
Derivatives not designated as hedging instruments
Rate-lock mortgage loan commitments	Other assets	253		Other assets	173		Other liabilities	—		Other liabilities	—
Mandatory commitments to sell mortgage loans	Other assets	25		Other assets	—		Other liabilities	—		Other liabilities	279
Pay-fixed interest rate swap agreements - commercial	Other assets	9,101		Other assets	12,683		Other liabilities	10,414		Other liabilities	5,514
Pay-variable interest rate swap agreements - commercial	Other assets	10,414		Other assets	5,514		Other liabilities	9,101		Other liabilities	12,683
		19,793			18,370			19,515			18,476
Total derivatives		$	38,774		$	38,683		$	24,056		$	21,835

The effect of derivative financial instruments on the Condensed Consolidated Statements of Operations follows:

	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)					Gain (Loss) Recognized in Income
	Three Month Periods Ended September 30,					Three Month Periods Ended September 30,				Location of Gain (Loss) Recognized in Income	Three Month Periods Ended September 30,
	2024		2023			2024		2023			2024		2023
											(In thousands)
Fair Value Hedges
Pay-fixed interest rate swap agreement - commercial										Interest and fees on loans	$	(184)	$	96
Pay-fixed interest rate swap agreements - securities available for sale										Interest on securities available for sale - tax - exempt	(4,882)		926
Pay-fixed interest rate swap agreements - Installment										Interest and fees on loans	(2,421)		765
Pay-fixed interest rate swap agreements - Mortgage										Interest and fees on loans	(2,940)		785
Interest rate cap agreements - securities available for sale	$	(255)	$	(25)	Interest on securities available for sale - tax - exempt	$	(57)	$	(55)	Interest on securities available for sale - tax - exempt	(119)		39
Interest rate cap agreements - installment	—		—		Interest and fees on loans	—		—		Interest and fees on loans	—		—
Total	$	(255)	$	(25)		$	(57)	$	(55)		$	(10,546)	$	2,611
Cash Flow Hedges
Interest rate floor agreements - commercial	$	2,999	$	(502)	Interest and fees on loans	$	(333)	$	(17)	Interest and fees on loans	$	(333)	$	(17)
No hedge designation
Rate-lock mortgage loan commitments										Net gains on mortgage loans	$	111	$	(147)
Mandatory commitments to sell mortgage loans										Net gains on mortgage loans	(122)		238
Pay-fixed interest rate swap agreements - commercial										Interest income	(15,031)		$	5,579
Pay-variable interest rate swap agreements - commercial										Interest income	15,031		(5,579)
Pay-variable interest rate swap agreement										Non-interest expense - other	—		$	—
Total											$	(11)	$	91

	Gain (Loss) Recognized in Other Comprehensive Income (Effective Portion)				Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Loss Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)					Gain (Loss) Recognized in Income
	Nine Month Periods Ended September 30,					Nine Month Periods Ended September 30,				Location of Gain (Loss) Recognized in Income	Nine Month Periods Ended September 30,
	2024		2023			2024		2023			2024		2023
											(In thousands)
Fair Value Hedges
Pay-fixed interest rate swap agreement - commercial										Interest and fees on loans	$	(110)	$	113
Pay-fixed interest rate swap agreements - securities available for sale										Interest on securities available for sale - tax - exempt	(4,028)		550
Pay-fixed interest rate swap agreements - Installment										Interest and fees on loans	(513)		1,362
Pay-fixed interest rate swap agreements - Mortgage										Interest and fees on loans	(648)		785
Interest rate cap agreements - securities available for sale	$	(194)	$	(438)	Interest on securities available for sale - tax - exempt	$	(167)	$	(207)	Interest on securities available for sale - tax - exempt	(81)		286
Interest rate cap agreements - installment	—		—		Interest and fees on loans	—		—		Interest and fees on loans	—		(14)
Total	$	(194)	$	(438)		$	(167)	$	(207)		$	(5,380)	$	3,082
Cash Flow Hedges
Interest rate floor agreements - commercial	$	246	$	(502)	Interest and fees on loans	$	(838)	$	(17)	Interest and fees on loans	$	(838)	$	(17)
No hedge designation
Rate-lock mortgage loan commitments										Net gains on mortgage loans	$	80	$	916
Mandatory commitments to sell mortgage loans										Net gains on mortgage loans	304		169
Pay-fixed interest rate swap agreements - commercial										Interest income	(8,482)		4,694
Pay-variable interest rate swap agreements - commercial										Interest income	8,482		(4,694)
Pay-variable interest rate swap agreement										Non-interest expense - other	—		(12)
Total											$	384	$	1,073