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Derivatives | 9 Months Ended
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Sep. 30, 2023
Derivatives |
Derivatives | Note 15 Derivatives ​ Risk management objective of using derivatives ​ The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company has established policies stipulating that neither carrying value nor fair value at risk should exceed established guidelines. The Company has designed strategies to confine these risks within the established limits and identify appropriate trade-offs in the financial structure of its balance sheet. These strategies include the use of derivative financial instruments to help achieve the desired balance sheet repricing structure while meeting the desired objectives of its clients. Currently, the Company employs certain interest rate swaps that are designated as fair value hedges, cash flow hedges and economic hedges. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. ​ Fair values of derivative instruments on the balance sheet ​ The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the consolidated statements of financial condition as of September 30, 2023 and December 31, 2022. Information about the valuation methods used to measure fair value is provided in note 18. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | Asset derivatives fair value | ​ | ​ | ​ | Liability derivatives fair value
​ | ​ | Balance Sheet | ​ | September 30, | ​ | December 31, | ​ | Balance Sheet | ​ | September 30, | ​ | December 31,
​ |  | location |  | 2023 |  | 2022 |  | Location |  | 2023 |  | 2022
Derivatives designated as hedging instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | Other assets | ​ | $ | 41,612 | ​ | $ | 34,164 |  | Other liabilities | ​ | $ | 2,464 | ​ | $ | 1,929
Total derivatives designated as hedging instruments | ​ | ​ | ​ | $ | 41,612 | ​ | $ | 34,164 | ​ | ​ | ​ | $ | 2,464 | ​ | $ | 1,929
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives not designated as hedging instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | Other assets | ​ | $ | 10,972 | ​ | $ | 10,657 |  | Other liabilities | ​ | $ | 13,471 | ​ | $ | 10,660
Interest rate lock commitments | ​ | Other assets | ​ | ​ | 252 | ​ | ​ | 197 | ​ | Other liabilities | ​ | ​ | 55 | ​ | ​ | 174
Forward contracts | ​ | Other assets | ​ | ​ | 183 | ​ | ​ | 210 | ​ | Other liabilities | ​ | ​ | 2 | ​ | ​ | 104
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | $ | 11,407 | ​ | $ | 11,064 | ​ | ​ | ​ | $ | 13,528 | ​ | $ | 10,938
​ Cash flow hedges ​ The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses floors and collars as part of its interest rate risk management strategy. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. Interest rate collars designated as cash flow hedges involve the payments of variable-rate amounts if interest rates rise above the cap strike rate on the contract and receipt of variable-rate amounts if interest rates fall below the floor strike rate on the contract. Beginning with the third quarter of 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate loan assets. ​ For derivatives that qualify and are designated as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is included in interest income. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. As of September 30, 2023, the Company had cash flow hedges with a notional amount of $200.0 million. The Company expects to reclassify $2.0 million from accumulated other comprehensive income (loss) (“AOCI”) as a reduction to interest income during the next 12 months. ​ Fair value hedges ​ Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2023, the Company had interest rate swaps with a notional amount of $337.4 million, which were designated as fair value hedges of interest rate risk. As of December 31, 2022, the Company had interest rate swaps with a notional amount of $340.1 million that were designated as fair value hedges. These interest rate swaps were associated with $462.5 million and $482.7 million of the Company’s fixed-rate loans as of September 30, 2023 and December 31, 2022, respectively, before a gain of $8.4 million and $29.7 million from the fair value hedge adjustment in the carrying amount, included in loans receivable in the statements of financial condition as of September 30, 2023 and December 31, 2022, respectively. Fair value hedge adjustments included basis adjustments on terminated positions to be amortized through the contractual maturity date of each respective hedged item. Excluding those terminated positions, the fair value hedge adjustments consisted of gains totaling $42.5 million and $33.4 million as of September 30, 2023 and December 31, 2022, respectively. ​ For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives. ​ Non-designated hedges ​ Derivatives not designated as hedges are not speculative and consist of interest rate swaps with commercial banking clients that facilitate their respective risk management strategies. 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. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the client swaps and the offsetting swaps are recognized directly in earnings. As of September 30, 2023, the Company had matched interest rate swap transactions with an aggregate notional amount of $436.0 million related to this program. As of December 31, 2022, the Company had matched interest rate swap transactions with an aggregate notional amount of $383.0 million. Derivative fee income from non-designated hedges totaled $0.4 million and $0.7 million for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2022, derivative fee income from non-designated hedges totaled $0.3 million and $0.5 million, respectively. ​ As part of its mortgage banking activities, the Company enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the clients have locked into that interest rate. The Company then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Fair value changes of certain loans under interest rate lock commitments are hedged with forward sales contracts of MBS. Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in non-interest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Company determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying assets. The fair value of the underlying assets is impacted by current interest rates, remaining origination fees, costs of production to be incurred and the probability that the interest rate lock commitments will close or will be funded. ​ Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Company does not expect any counterparty to any MBS contract to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Company fails to deliver the loans subject to interest rate risk lock commitments, it will still be obligated to “pair off” MBS to the counterparty. Should this be required, the Company could incur significant costs in acquiring replacement loans and such costs could have an adverse effect on the consolidated financial statements. ​ The fair value of the mortgage banking derivative is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change. ​ The Company had interest rate lock commitments with a notional value of $27.9 million and forward contracts with a notional value of $34.9 million at September 30, 2023. At December 31, 2022, the Company had interest rate lock commitments with a notional value of $35.5 million and forward contracts with a notional value of $45.0 million. ​ Effect of derivative instruments on the consolidated statements of operations and accumulated other comprehensive income ​ The tables below present the effect of the Company’s derivative financial instruments in the consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location of gain (loss) | ​ | Amount of gain recognized in income on derivatives
Derivatives in fair value | ​ | recognized in income on | ​ | For the three months ended September 30, | ​ | For the nine months ended September 30,
hedging relationships |  | derivatives |  | 2023 |  | 2022 |  | 2023 |  | 2022
Interest rate products |  | Interest and fees on loans | ​ | $ | 13,005 | ​ | $ | 13,893 | ​ | $ | 16,855 | ​ | $ | 44,183
​ ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location of gain (loss) | ​ | Amount of loss recognized in income on hedged items
​ | ​ | recognized in income on | ​ | For the three months ended September 30, | ​ | For the nine months ended September 30,
Hedged items |  | hedged items |  | 2023 |  | 2022 |  | 2023 |  | 2022
Interest rate products |  | Interest and fees on loans | ​ | $ | (10,255) |  | $ | (14,589) | ​ | $ | (9,940) |  | $ | (47,601)
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Location of gain (loss) | ​ | Amount of (loss) gain recognized in income on derivatives
Derivatives not designated | ​ | recognized in income on | ​ | For the three months ended September 30, | ​ | For the nine months ended September 30,
as hedging instruments |  | derivatives |  | 2023 |  | 2022 |  | 2023 |  | 2022
Interest rate products |  | Other non-interest expense |  | $ | (33) |  | $ | 49 | ​ | $ | (32) |  | $ | 5
Interest rate lock commitments | ​ | Mortgage banking income | ​ | ​ | 30 | ​ | ​ | (1,936) | ​ | ​ | 73 | ​ | ​ | (2,780)
Forward contracts | ​ | Mortgage banking income | ​ | ​ | 49 | ​ | ​ | 2,179 | ​ | ​ | 74 | ​ | ​ | 2,095
Total | ​ | ​ |  | $ | 46 |  | $ | 292 | ​ | $ | 115 |  | $ | (680)
​ The table below presents the effect of fair value cash flow hedge accounting on AOCI as of the dates presented. The Company did not utilize cash flow hedges until the third quarter of 2022. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three months ended September 30, 2023
​ | ​ | ​ | Loss recognized in OCI on derivatives | ​ | ​ | Loss recognized in OCI included component | ​ | ​ | Loss recognized in OCI excluded component | ​ | Location of Loss recognized from AOCI into income | ​ | ​ | Loss reclassified from AOCI into income | ​ | ​ | Loss reclassified from AOCI into income included component | ​ | ​ | Loss reclassified from AOCI into income excluded component
Derivatives in cash flow hedging relationships: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | $ | (1,122) | ​ | $ | (818) | ​ | $ | (304) |  | Interest income | ​ | $ | (493) | ​ | $ | (374) | ​ | $ | (119)
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the nine months ended September 30, 2023
​ | ​ | ​ | Loss recognized in OCI on derivatives | ​ | ​ | Loss recognized in OCI included component | ​ | ​ | Loss recognized in OCI excluded component | ​ | Location of Loss recognized from AOCI into income | ​ | ​ | Loss reclassified from AOCI into income | ​ | ​ | Loss reclassified from AOCI into income included component | ​ | ​ | Loss reclassified from AOCI into income excluded component
Derivatives in cash flow hedging relationships: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | $ | (2,773) | ​ | $ | (2,254) | ​ | $ | (519) |  | Interest income | ​ | $ | (1,158) | ​ | $ | (821) | ​ | $ | (337)
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the three and nine months ended September 30, 2022
​ | ​ | ​ | Loss recognized in OCI on derivatives | ​ | ​ | Loss recognized in OCI included component | ​ | ​ | Loss recognized in OCI excluded component | ​ | Location of Loss recognized from AOCI into income | ​ | ​ | Gain reclassified from AOCI into income | ​ | ​ | Loss reclassified from AOCI into income included component | ​ | ​ | Gain reclassified from AOCI into income excluded component
Derivatives in cash flow hedging relationships: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | $ | (2,355) | ​ | $ | (1,827) | ​ | $ | (528) |  | Interest income | ​ | $ | (14) | ​ | $ | — | ​ | $ | (14)
​ Credit-risk-related contingent features ​ The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness for reasons other than an error or omission of an administrative or operational nature, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. ​ The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well/adequately capitalized institution, then the counterparty has the right to terminate the derivative positions and the Company would be required to settle its obligations under the agreements. ​ As of September 30, 2023, the termination value of derivatives in a net liability position related to these agreements was zero. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and, as of September 30, 2023, the Company had met these thresholds. If the Company had breached any of these provisions at September 30, 2023, it could have been required to settle its obligations under the agreements at the termination value.

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