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DERIVATIVES AND HEDGING | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES AND HEDGING | The Company is party to various derivative instruments that are used for asset and liability management and client financing needs. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require no net investment and allow for the net settlement of positions. The notional amount serves as the basis for the payment provision of the contract and takes the form of units, such as shares or dollars. The underlying variable represents a specified interest rate, index, or other component. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the market value of the derivative contract. The Company’s predominant derivative and hedging activities involve interest rate swaps related to certain term loans and forward sales contracts associated with mortgage banking activities. Generally, these instruments help the Company manage exposure to market risk and meet client financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as market-driven interest rates and prices or other economic factors. As of December 31, 2024 and 2023, the notional values or contractual amounts and fair values of the Company’s derivatives were as follows (in thousands):
| Asset Derivatives |  | Liability Derivatives
| December 31, 2024 |  | December 31, 2023 |  | December 31, 2024 |  | December 31, 2023
| Notional/ Contract Amount |  | Fair Value |  | Notional/ Contract Amount |  | Fair Value |  | Notional/ Contract Amount |  | Fair Value |  | Notional/ Contract Amount |  | Fair Value
Hedged interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 400,000 |  |  | $ | 15,141 |
Interest rate swaps not designated in hedge relationships | $ | 386,995 |  |  | $ | 30,134 |  |  | $ | 416,711 |  |  | $ | 29,058 |  |  | $ | 386,995 |  |  | $ | 30,184 |  |  | $ | 416,711 |  |  | $ | 29,126 |
Master netting agreements |  |  | (15,627) |  |  |  |  | (13,929) |  |  |  |  | — |  |  |  |  | (13,929) |
Cash offset/(settlement) |  |  | — |  |  |  |  | — |  |  |  |  | — |  |  |  |  | (529) |
Net interest rate swaps |  |  | 14,507 |  |  |  |  | 15,129 |  |  |  |  | 30,184 |  |  |  |  | 29,809 |
Risk participation agreements | 817 |  |  | — |  |  | 1,050 |  |  | — |  |  | 43,097 |  |  | 6 |  |  | 45,298 |  |  | 42 |
Mortgage loan commitments | 30,085 |  |  | 108 |  |  | 19,572 |  |  | 275 |  |  | 5,427 |  |  | 2 |  |  | — |  |  | — |
Forward sales contracts | 49,628 |  |  | 223 |  |  | 5,406 |  |  | — |  |  | — |  |  | — |  |  | 17,966 |  |  | 185 |
Total | $ | 467,525 |  |  | $ | 14,838 |  |  | $ | 442,739 |  |  | $ | 15,404 |  |  | $ | 435,519 |  |  | $ | 30,192 |  |  | $ | 479,975 |  |  | $ | 30,036 |
The Company’s asset derivatives are included in other assets, while the liability derivatives are included in accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. Interest Rate Swaps used in Cash Flow Hedges: During the fourth quarter of 2021, the Company entered into interest rate swaps designated as cash flow hedges to hedge the variable cash flows associated with existing floating rate loans. These hedge contracts involved the receipt of fixed-rate payments from a counterparty in exchange for the Company making floating-rate payments over the life of the agreements without the exchange of the underlying notional amount. In late 2024, these interest rate swap derivatives matured. Since the derivatives were designated and qualified as cash flow hedges, the unrealized gains and losses on these derivatives were recorded in AOCI and subsequently reclassified into interest income in the same period that the hedged transaction affected earnings. Amounts reported in AOCI related to the derivatives were reclassified to interest income as interest payments were made on the Company’s variable-rate assets. As these derivatives have matured, no additional amounts will be reclassified as a decrease to interest income. The following table presents the effect of cash flow hedge accounting on AOCI for the years ended December 31, 2024 and 2023 (in thousands):
| For the Year Ended December 31, 2024
| Amount of Gain or (Loss) Recognized in AOCI on Derivative |  | Amount of Gain or (Loss) Recognized in AOCI Included Component |  | Amount of Gain or (Loss) Recognized in AOCI Excluded Component |  | Location of Gain or (Loss) Recognized from AOCI into Income |  | Amount of Gain or (Loss) Reclassified from AOCI into Income |  | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component |  | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
Interest rate swaps | $ | (2,145) |  |  | $ | (2,145) |  |  | $ | — |  |  | Interest Income |  | $ | (16,074) |  |  | $ | (16,074) |  |  | $ | — |
| For the Year Ended December 31, 2023
| Amount of Gain or (Loss) Recognized in AOCI on Derivative |  | Amount of Gain or (Loss) Recognized in AOCI Included Component |  | Amount of Gain or (Loss) Recognized in AOCI Excluded Component |  | Location of Gain or (Loss) Recognized from AOCI into Income |  | Amount of Gain or (Loss) Reclassified from AOCI into Income |  | Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component |  | Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component
Interest rate swaps | $ | (4,398) |  |  | $ | (4,398) |  |  | $ | — |  |  | Interest Income |  | $ | (16,955) |  |  | $ | (16,955) |  |  | $ | — |
At December 31, 2024, no net unrealized gains or losses on cash flow hedges remain in AOCI, compared to a loss of $10.6 million at December 31, 2023. Interest Rate Swaps: The Bank offers an interest rate swap program for commercial loan clients that provides the client with a variable-rate loan and enters into an interest rate swap in which the client receives a variable-rate payment in exchange for a fixed-rate payment. The Bank offsets its risk exposure by entering into an offsetting interest rate swap with a dealer counterparty for the same notional amount and length of term as the client interest rate swap providing the dealer counterparty with a fixed-rate payment in exchange for a variable-rate payment. These swaps do not qualify as designated hedges; therefore, each swap is accounted for as a freestanding derivative. Risk Participation Agreements: In conjunction with the purchase or sale of participating interests in loans, the Company also participates in related swaps through risk participation agreements. The existing credit derivatives resulting from these participations are not designated as hedges as they are not used to manage interest rate risk in the Company’s assets or liabilities and are not speculative. Mortgage Loan Commitments: The Company sells originated one- to four-family residential loans into the secondary mortgage loan markets. During the period of loan origination and prior to the sale of the loans in the secondary market, the Company has exposure to movements in interest rates associated with written interest rate lock commitments with potential borrowers to originate one- to four-family residential loans that are intended to be sold and for closed one- to four-family residential loans held for sale for which fair value accounting has been elected, that are awaiting sale and delivery into the secondary market. The Company economically hedges the risk of changing interest rates associated with these one- to four-family residential loan commitments by entering into forward sales contracts to sell these loans or mortgage-backed securities to broker/dealers at specific prices and dates. Gains (losses) recognized in income within mortgage banking operations on non-designated hedging instruments for the years ended December 31, 2024, 2023 and 2022, were as follows (in thousands):
|  |  | For the Years Ended December 31
|  |  | 2024 |  | 2023 |  | 2022
Mortgage loan commitments |  |  | $ | (79) |  |  | $ | 263 |  |  | $ | (1,427) |
Forward sales contracts |  |  | 320 |  |  | 313 |  |  | 84 |
|  |  | $ | 241 |  |  | $ | 576 |  |  | $ | (1,343) |
The Company is exposed to credit-related losses in the event of nonperformance by the counterparty to these agreements. Credit risk of the financial contract is controlled through the credit approval, limits, and monitoring procedures and Management does not expect the counterparties to fail their obligations. In connection with the interest rate swaps between the Bank and the dealer counterparties, the agreements contain a provision where if the Bank fails to maintain its status as a well or adequately capitalized institution, then the counterparty could terminate the derivative positions and the Bank would be required to settle its obligations. Similarly, the Bank could be required to settle its obligations under certain of its agreements if specific regulatory events occur, such as a publicly issued prompt corrective action directive, cease and desist order, or a capital maintenance agreement that required the Bank to maintain a specific capital level. If the Bank had breached any of these provisions, it could have been required to settle its obligations under the agreements at the termination value. As of December 31, 2024 and 2023, the Company had no obligations to dealer counterparties related to these agreements. The Company generally posts collateral against derivative liabilities in the form of cash, government agency-issued bonds, mortgage-backed securities, or commercial mortgage-backed securities. Collateral posted against derivative liabilities was $19.9 million and $15.0 million as of December 31, 2024 and 2023, respectively. The collateral posted included restricted cash of $18.9 million and $14.0 million as of December 31, 2024 and 2023, respectively. Derivative assets and liabilities are recorded at fair value on the balance sheet. Master netting agreements allow the Company to settle all derivative contracts held with a single counterparty on a net basis and to offset net derivative positions with related collateral where applicable. In addition, some interest rate swap derivatives between the Company and the dealer counterparties are cleared through central clearing houses. These clearing houses characterize the variation margin payments as settlements of the derivative’s market exposure and not as collateral. The variation margin is treated as an adjustment to our cash collateral, as well as a corresponding adjustment to our derivative asset or liability. As of December 31, 2024 and 2023, the variation margin adjustment was a positive adjustment of $15.6 million and negative adjustment of $529,000, respectively. The following presents additional information related to the Company’s interest rate swaps, both designated and non-designated as hedged, as of December 31, 2024 and 2023 (in thousands):
| December 31, 2024
|  |  |  |  |  |  | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition |  |
| Gross Amounts Recognized |  | Amounts offset in the Statement of Financial Condition |  | Net Amounts in the Statement of Financial Condition |  | Netting Adjustment Per Applicable Master Netting Agreements |  | Fair Value of Financial Collateral in the Statement of Financial Condition |  | Net Amount
Derivative assets |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 30,134 |  |  | $ | (15,627) |  |  | $ | 14,507 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,507 |
| $ | 30,134 |  |  | $ | (15,627) |  |  | $ | 14,507 |  |  | $ | — |  |  | $ | — |  |  | $ | 14,507 |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 30,184 |  |  | $ | — |  |  | $ | 30,184 |  |  | $ | — |  |  | $ | (18,228) |  |  | $ | 11,956 |
| $ | 30,184 |  |  | $ | — |  |  | $ | 30,184 |  |  | $ | — |  |  | $ | (18,228) |  |  | $ | 11,956 |
| December 31, 2023
|  |  |  |  |  |  | Gross Amounts of Financial Instruments Not Offset in the Consolidated Statement of Financial Condition |  |
| Gross Amounts Recognized |  | Amounts offset in the Statement of Financial Condition |  | Net Amounts in the Statement of Financial Condition |  | Netting Adjustment Per Applicable Master Netting Agreements |  | Fair Value of Financial Collateral in the Statement of Financial Condition |  | Net Amount
Derivative assets |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 29,058 |  |  | $ | (13,929) |  |  | $ | 15,129 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,129 |
| $ | 29,058 |  |  | $ | (13,929) |  |  | $ | 15,129 |  |  | $ | — |  |  | $ | — |  |  | $ | 15,129 |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | $ | 44,267 |  |  | $ | (14,458) |  |  | $ | 29,809 |  |  | $ | — |  |  | $ | (13,124) |  |  | $ | 16,685 |
| $ | 44,267 |  |  | $ | (14,458) |  |  | $ | 29,809 |  |  | $ | — |  |  | $ | (13,124) |  |  | $ | 16,685 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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