We use derivative instruments and other risk management techniques to reduce our exposure to adverse fluctuations in interest rates and foreign currency exchange rates in accordance with our risk management policies and for certain loan clients to allow them to hedge the risk of rising interest rates on their variable rate loans.

The Company recognizes all derivatives on the consolidated balance sheet at fair value in derivative assets and accrued expenses and other liabilities. On the date we enter into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, or a hedge designation is not made as it is a customer-related transaction. When a derivative is designated as a fair value hedge or cash flow hedge, the Company performs an assessment at inception, and, at least quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the fair value or cash flows of the hedged items.

In March 2023, the Company entered into pay-fixed, receive-variable interest-rate swap contracts classified as cash flow hedges with notional amounts aggregating $300.0 million, five year terms and varying maturity dates through 2028. These swap contracts were entered into with institutional counterparties to hedge against variability in cash flows attributable to interest rate risk related to changes in the SOFR benchmark interest rate on a portion of the Company’s variable rate deposits and borrowings. The cash flow hedges were deemed highly effective at inception and quarterly thereafter.

The portion of changes in the fair value of the cash flow hedges considered highly effective are recognized in other comprehensive income (loss) until the related cash flows from the hedged item are recognized in earnings.

At September 30, 2023, the fair value of the cash flow hedges represent an asset of $5.9 million, of which $4.2 million (net of tax) was included in AOCI on the consolidated statements of financial condition. As of September 30, 2023, we estimated that $4.1 million of unrealized net pre-tax gains in AOCI is expected to be reclassified into earnings within the next twelve months.

Concurrently with the announcement of the proposed merger with PacWest, we entered into an aggregate of $3.1 billion in interest rate swaptions to hedge the interest rate risk associated with various assets on our balance sheet in anticipation of the sale of such assets in connection with the proposed merger with PacWest and a contingent forward loan sale agreement on $1.8 billion of the SFR loan portfolio.

Interest Rate Swaptions. We executed interest rate swaptions, with an aggregate notional amount of $3.1 billion, where, if executed, we would pay a fixed rate and receive a floating rate based on 2-year, 7-year and 10-year SOFR. In connection with executing these agreements, we paid $15.7 million. During the three and nine months ended September 30, 2023, changes in the fair value of the interest rate swaptions resulted in gains of $11.3 million and were included in noninterest income on the consolidated statements of operations.

Contingent Forward Loan Sale Agreement. Under the terms of the contingent forward loan sale agreement, we have committed to selling $1.8 billion of first lien SFR loans at a price of 87.25% plus or minus certain adjustments for accrued interest and payoffs, contingent upon receipt of approval for the closing of the bank merger. Should the merger not close for any reason, we intend to continue to hold the SFR loan portfolio for investment. The contingent forward loan sale agreement contains customary terms and conditions associated with a whole loan sale and we expect to close the forward loan sale shortly after

closing of the merger. Pursuant to the terms of the agreement, the purchase price is subject to adjustment reflecting at-market fees based on the additional time for settlement from November 8, 2023. During the three and nine months ended September 30, 2023, changes in the estimated fair value of the contingent forward loan sale agreement were gains of $34.9 million and were included in noninterest income on the consolidated statements of operations.

During the three and nine months ended September 30, 2023, changes in fair value of other interest rate swaps on loans and foreign exchange contracts were gains of $19 thousand and $7 thousand and were included in noninterest income on the consolidated statements of operations. During the three and nine months ended September 30, 2022, changes in fair value of other interest rate swaps on loans and foreign exchange contracts were gains of $38 thousand and $0.2 million.


	September 30, 2023				December 31, 2022
($ in thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value
Derivative assets:


Contingent forward loan sale agreement	$	1,803,869	$	34,902	$	—	$	—
Interest rate swaptions	3,093,000		27,003		—		—
Cash flow hedges	300,000		5,874		—		—
Interest rate swaps on loans	32,166		2,708		33,694		2,134
Foreign exchange contracts	4,597		138		5,885		158
Total	$	5,233,632	$	70,625	$	39,579	$	2,292
Derivative liabilities:



Interest rate swaps on loans	$	32,166	$	2,669	$	33,694	$	2,107

Foreign exchange contracts	4,597		130		5,885		144
Total	$	36,763	$	2,799	$	39,579	$	2,251