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Derivatives and Hedging Activities | 6 Months Ended
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Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities The Company enters into derivative financial instruments which involve, to varying degrees, interest rate and credit risk. The Company manages these risks as part of its asset and liability management process and through credit policies and procedures, seeking to minimize counterparty credit risk by establishing credit limits and collateral agreements. The Company utilizes derivative financial instruments to accommodate the business needs of its customers as well as to economically hedge the exposure that this creates for the Company. Additionally, the Company enters into certain derivative financial instruments to enhance its ability to manage interest rate risk that exists as part of its ongoing business operations. The Company may also enter into derivative financial instruments to reduce credit risk and manage regulatory capital levels. The Company does not use derivative financial instruments for trading purposes. Customer Derivatives – Interest Rate Swaps and Cap Contracts Derivatives Not Designated as Hedging Instruments Interest Rate Swaps and Cap Contracts The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The Company also enters into interest rate cap contracts that enable commercial loan customers to lock in a cap on a variable-rate commercial loan agreement. This feature prevents the loan from repricing to a level that exceeds the cap contract’s specified interest rate, which serves to hedge the risk from rising interest rates. The Company then enters into an offsetting interest rate cap contract with a third party in order to economically hedge its exposure through the customer agreement. These interest rate swaps and cap contracts with both the customers and third parties are not designated as hedges under ASC Topic 815, Derivatives and Hedging, and therefore changes in fair value are reported in earnings. As the interest rate swaps and cap contracts are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC Topic 820, Fair Value Measurements. The Company recognized gains of $7,000 and $17,000 in commercial loan swap income resulting from fair value adjustments for the three and six months ended June 30, 2026, respectively, as compared to losses of $9,000 and $25,000 for the corresponding prior year periods. Credit Default Swap In December 2025, the Company entered into a credit default swap related to a $1.52 billion pool of on-balance sheet residential mortgage loans, as the buyer of credit protection, to manage regulatory capital levels and reduce credit risk. The swap is a freestanding derivative as the contract is distinct from the referenced loan agreements and is executed with a separate counterparty. Under the terms of the swap contract, the Company will be compensated for certain credit-related losses on the residential mortgage loan pool, which had a total remaining principal balance of $1.42 billion and $1.50 billion at June 30, 2026 and December 31, 2025, respectively. The credit protection purchased was equal to the credit default swap notional amount of $71.2 million and $75.8 million at June 30, 2026 and December 31, 2025, respectively. The loss on the credit default swap for the three and six months ended June 30, 2026 was $721,000 and $609,000, respectively and was recorded in other income on the Consolidated Statements of Income. As the buyer of credit protection, the Company pays a premium to the protection seller in return for the right to receive a payment if a specified credit event occurs. The premium expense associated with the credit default swap for the three and six months ended June 30, 2026 totaled $877,000 and $1.8 million, respectively, and was recorded in other operating expense on the Consolidated Statements of Income. The credit default swap terminates in October 2055. Derivatives Designated as Hedging Instruments Interest Rate Swap Contracts - Fair Value Hedges During 2025, the Company entered into interest rate swap derivatives to hedge the changes in fair value of AFS debt securities due to changes in interest rates. The swaps hedge the interest rate risk component of the change in fair value of the hedged items (i.e., hedged layers of AFS debt securities), and were designated and qualified as portfolio layer method fair value hedges under ASC Topic 815, Derivatives and Hedging. The last of the fair value hedges is scheduled to expire in October 2042. For AFS securities that are included in a fair value hedge relationship, changes in fair value related to changes to the benchmark interest rate on AFS securities are immediately recognized into interest income in the Consolidated Statements of Income, and are offset by the change in the fair value of the interest rate swap derivatives. Changes in fair value of the AFS securities that are unrelated to interest rate risk are recorded in OCI as net unrealized gains (losses) on AFS securities. Throughout the life of the hedges, basis adjustments are maintained at the portfolio level and are allocated to individual assets only under certain circumstances. These circumstances include instances where the portfolio amount falls below the hedged layer amounts, or in cases of voluntary de-designation. The cumulative fair value hedge basis adjustments included in the carrying amount of hedged assets are reversed through the Consolidated Statements of Income in future periods as an adjustment to yield. All swaps involved in fair value hedges have been determined to be effective. The following table presents the amortized cost and cumulative basis adjustment for closed portfolios of securities used to designate fair value hedging relationships (in thousands):
|  | As of June 30, 2026 |  | As of December 31, 2025 |  |
AFS securities: |  |  |  |  |  |
Amortized cost (excluding fair value hedge basis adjustment) |  | $ | 659,375 |  |  | $ | 682,878 |  |  |
Fair value hedge basis adjustment |  | (12,223) |  |  | (4,038) |  |  |
The table below presents the effects of fair value hedges on net interest income, as well as their location on the Consolidated Statements of Income (in thousands):
|  | Location of Gain/(Loss) Recognized in Income |  | Three Months Ended June 30, 2026 |  | Six Months Ended June 30, 2026
AFS securities: |  |  |  |  |  |
Gain recognized on derivatives |  | Interest income - debt securities |  | $ | 5,523 |  |  | $ | 8,185 |
Loss recognized on hedged items |  | Interest income - debt securities |  | (5,484) |  |  | (8,074) |
Net gains recognized on fair value hedges |  | Interest income - debt securities |  | $ | 39 |  |  | $ | 111 |
Interest Rate Option and Swap Contracts - Cash Flow Hedges In June 2026, the Company entered into interest rate collars, which are option contracts intended to limit the Company's exposure to increases in short term interest rates while foregoing some of the upside if short term interest rates decrease significantly. These contracts hedge the risk of variability in the Company’s cash flows arising from future interest payments attributable to changes in the benchmark SOFR rate below certain interest rate floors and above certain interest rate caps related to the rollover of fixed-rate FHLB advances, brokered time deposits, or other fixed rate borrowings. The collars were designated and qualified as a cash flow hedge under ASC Topic 815, Derivatives and Hedging. The collars have terms ranging from three to five years, and the last of the collar hedges is scheduled to expire in June 2031. During 2022, the Company entered into a three-year interest rate swap intended to add stability to its net interest income and to manage its exposure to future interest rate movements associated with a pool of floating-rate commercial loans. The swap was designated and qualified as a cash flow hedge, under ASC Topic 815, Derivatives and Hedging. The interest rate swap matured on January 1, 2026, and there were no additional reclassifications into interest income. The table below presents the effect on the Company’s AOCI or AOCL attributable to the cash flow hedge derivatives, net of tax, and the related gains/losses reclassified from AOCI into income (in thousands):
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | 2026 |  | 2025 |  | 2026 |  | 2025
AOCL balance at beginning of period, net of tax |  | $ | — |  |  | $ | (23) |  |  | $ | — |  |  | $ | (87) |
Unrealized (losses) gains recognized in OCI |  | (581) |  |  | (93) |  |  | (581) |  |  | (93) |
Losses reclassified from AOCI into interest income |  | — |  |  | 64 |  |  | — |  |  | 128 |
AOCL balance at end of period, net of tax |  | $ | (581) |  |  | $ | (52) |  |  | $ | (581) |  |  | $ | (52) |
During the next twelve months ending June 30, 2027, the Company estimates that there will be no reclassifications into interest income or expense. Derivatives Not Designated as Hedging Instruments and Designated as Hedging Instruments The table below presents the notional amount and fair value of derivatives designated and not designated as hedging instruments, as well as their location on the Consolidated Statements of Financial Condition (in thousands):
|  | Notional |  | Fair Value |  |  |  |
|  |  | Other assets |  | Other liabilities |  |
As of June 30, 2026 |  |  |  |  |  |  |  |  |  |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |
Interest rate swaps and cap contracts |  | $ | 2,254,358 |  |  | $ | 73,854 |  |  | $ | 73,877 |  |  |  |  |
Credit default swap |  | 71,246 |  |  | — |  |  | 844 |  |  |  |  |
Derivatives Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |
Interest rate option contracts - cash flow hedge |  | 1,320,000 |  |  | — |  |  | 817 |  |  |  |  |
Interest rate swap contracts - fair value hedge |  | 649,564 |  |  | 12,103 |  |  | — |  |  |  |  |
Total Derivatives |  | $ | 4,295,168 |  |  | $ | 85,957 |  |  | $ | 75,538 |  |  |  |  |
As of December 31, 2025 |  |  |  |  |  |  |  |  |  |
Derivatives Not Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |
Interest rate swaps and cap contracts |  | $ | 1,537,760 |  |  | $ | 53,768 |  |  | $ | 53,809 |  |  |  |  |
Credit default swap |  | 75,802 |  |  | — |  |  | 234 |  |  |  |  |
Derivatives Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |
Interest rate swap contract - cash flow hedge |  | 100,000 |  |  | — |  |  | — |  |  |  |  |
Interest rate swap contracts - fair value hedge |  | 678,921 |  |  | 4,055 |  |  | 26 |  |  |  |  |
Total Derivatives |  | $ | 2,392,483 |  |  | $ | 57,823 |  |  | $ | 54,069 |  |  |  |  |
Credit Risk-Related Mitigating Features The Company is exposed to credit risk in the event of nonperformance by various derivative counterparties. The Company minimizes risk of nonperformance by being a party to International Swaps and Derivatives Association agreements with third party broker-dealers that require a minimum dollar transfer amount upon a margin call. This requirement is dependent on certain specified credit measures. There was no cash collateral posted by the Company with third parties at either June 30, 2026 or December 31, 2025. The amount of cash collateral received from these third parties was $63.4 million and $42.9 million at June 30, 2026 and December 31, 2025, respectively. The amount of cash collateral posted or received with these third parties is deemed to be sufficient to collateralize both the fair market value change as well as any additional amounts that may be required as a result of a change in the specified credit measures. The interest rate derivatives which the Company executes with the commercial borrowers are collateralized by the borrowers’ commercial real estate financed by the Company. The credit default swap is not exposed to counterparty credit risk as it is fully collateralized. The aggregate fair value of all derivative financial instruments in a liability position with credit measure contingencies and entered into with third parties was $75.5 million and $54.0 million at June 30, 2026 and December 31, 2025, respectively.

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