XML 34 R25.htm IDEA: XBRL DOCUMENT
v3.23.2

DERIVATIVES AND HEDGING ACTIVITIES | 6 Months Ended
--- | ---
Jun. 30, 2023
DERIVATIVES AND HEDGING ACTIVITIES |
DERIVATIVES AND HEDGING ACTIVITIES | NOTE 16: DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources and duration of its assets and liabilities. In the normal course of business, the Company may use derivative financial instruments (primarily interest rate swaps) from time to time to assist in its interest rate risk management. The Company has interest rate derivatives that result from a service provided to certain qualifying loan customers that are not used to manage interest rate risk in the Company’s assets or liabilities and are not designated in a qualifying hedging relationship. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions. In addition, the Company has interest rate derivatives that are designated in a qualified hedging relationship. Nondesignated Hedges The Company has interest rate swaps that are not designated as qualifying hedging relationships. Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain loan customers, which the Company began offering during 2011. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those 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 customer swaps and the offsetting swaps are recognized directly in earnings. At June 30, 2023, the Company had seven interest rate swaps and one interest rate cap totaling $110.5 million in notional amount with commercial customers, and seven interest rate swaps and one interest rate cap with the same aggregate notional amount with third parties related to its program. In addition, the Company has one participation loan purchased totaling $8.7 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation. At December 31, 2022, the Company had six interest rate swaps and one interest rate cap totaling $107.0 million in notional amount with commercial customers, and six interest rate swaps and one interest rate cap with the same notional amount with third parties related to its program. In addition, at December 31, 2022, the Company had one participation loan purchased totaling $8.8 million, in which the lead institution has an interest rate swap with their customer and the economics of the counterparty swap are passed along to the Company through the loan participation. During the three months ended June 30, 2023 and 2022, the Company recognized net gains of $2,000 and $145,000, respectively, in non-interest income related to changes in the fair value of these swaps. During the six months ended June 30, 2023 and 2022, the Company recognized net losses of $289,000 and net gains of $297,000, respectively, in non-interest income related to changes in the fair value of these swaps. Fair Value Hedges Interest Rate Swaps. As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, in February 2023, the Company entered into interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of certain of its fixed rate brokered deposits. The total notional amount of the swaps was $95 million with a termination date of February 28, 2025. Under the terms of the swaps, the Company receives a fixed rate of interest of 4.65% and pays a floating rate of interest equal to USD-SOFR-COMPOUND plus a spread. The floating rate resets monthly and net settlements of interest due to/from the counterparty also occurs monthly. To the extent that the fixed rate of interest exceeds USD-SOFR-COMPOUND plus the spread, the Company receives net interest settlements which are recorded as a reduction of deposit interest expense. If USD-SOFR-COMPOUND plus the spread exceeds the fixed rate of interest, the Company is required to pay net settlements to the counterparty and record those net payments as interest expense on deposits. Cash Flow Hedges Interest Rate Swaps. As a strategy to maintain acceptable levels of exposure to the risk of changes in future cash flows due to interest rate fluctuations, in October 2018, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap was $400 million with a termination date of October 6, 2025. Under the terms of the swap, the Company received a fixed rate of interest of 3.018% and paid a floating rate of interest equal to one-month USD-LIBOR. The floating rate was reset monthly and net settlements of interest due to/from the counterparty also occurred monthly. To the extent that the fixed rate of interest exceeded one-month USD-LIBOR, the Company received net interest settlements which were recorded as loan interest income. If USD-LIBOR exceeded the fixed rate of interest, the Company was required to pay net settlements to the counterparty and record those net payments as a reduction of interest income on loans. In March 2020, the Company and its swap counterparty mutually agreed to terminate the $400 million interest rate swap prior to its contractual maturity. The Company was paid $45.9 million from its swap counterparty as a result of this termination. This $45.9 million, less the accrued interest portion and net of deferred income taxes, is reflected in the Company’s stockholders’ equity as Accumulated Other Comprehensive Income and a portion of it will be accreted to interest income on loans monthly through the original contractual termination date of October 6, 2025. This has the effect of reducing Accumulated Other Comprehensive Income and increasing Net Interest Income and Retained Earnings over the period. At June 30, 2023, the Company expected to have a sufficient amount of eligible variable rate loans to continue to accrete this interest income on the terminated swap in future periods. If this expectation changes and the amount of eligible variable rate loans decreases significantly, the Company may be required to recognize this interest income more rapidly. In March 2022, the Company entered into an interest rate swap transaction as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of the swap is $300 million, with a termination date of March 1, 2024. Under the terms of the swap, the Company receives a fixed rate of interest of 1.6725% and pays a floating rate of interest equal to one-month USD-LIBOR (or the equivalent replacement rate if USD-LIBOR rate is not available). The floating rate resets monthly and net settlements of interest due to/from the counterparty also occur monthly. The floating rate of interest was 5.193% as of June 30, 2023. To the extend the floating rate of interest exceeds the fixed rate of interest, the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans. If the fixed rate of interest exceeds the floating rate of interest, the Company will receive net interest settlements, which will be recorded as loan interest income. In July 2022, the Company entered into two additional interest rate swap transactions as part of its ongoing interest rate management strategies to hedge the risk of its floating rate loans. The notional amount of each swap is $200 million with an effective date of May 1, 2023 and a termination date of May 1, 2028. Under the terms of one swap, beginning in May 2023, the Company receives a fixed rate of interest of 2.628% and pays a floating rate of interest equal to one-month USD-SOFR OIS. Under the terms of the other swap, beginning in May 2023, the Company receives a fixed rate of interest of 5.725% and pays a floating rate of interest equal to one-month USD-Prime. In each case, the floating rate is reset monthly and net settlements of interest due to/from the counterparty also occur monthly. To the extent the fixed rate of interest exceeds the floating rate of interest, the Company will receive net interest settlements, which will be recorded as loan interest income. If the floating rate of interest exceeds the fixed rate of interest, the Company will be required to pay net settlements to the counterparty and will record those net payments as a reduction of interest income on loans. At June 30, 2023, the USD-Prime rate was 8.25% and the one-month USD-SOFR OIS rate was 5.06528%. The Company recorded loan interest income of $2.0 million on the terminated interest rate swap during each of the three months ended June 30, 2023 and 2022. The Company recorded loan interest income of $4.0 million on the terminated interest rate swap during each of the six months ended June 30, 2023 and 2022. The Company recorded negative loan interest income related to the March 2022 interest rate swap of $2.6 million in the three months ended June 30, 2023 and recorded loan interest income of $668,000 in the three months ended June 30, 2022. The Company recorded negative loan interest income related to the March 2022 interest rate swap of $4.7 million in the six months ended June 30, 2023 and recorded loan interest income of $1.0 million in the six months ended June 30, 2022. The Company recorded negative loan interest income related to the two July 2022 interest rate swaps of $1.7 million in the three and six months ended June 30, 2023. Net settlements on these two interest rate swaps began in May 2023. The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings. During each of the three and six months ended June 30, 2023 and 2022, the Company recognized no non-interest income related to changes in the fair value of these derivatives. The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Location in |  | Fair Value
​ | ​ | Consolidated Statements | ​ | June 30, |  | December 31,
​ | ​ | of Financial Condition | ​ | 2023 | ​ | 2022
​ | ​ | ​ | ​ | (In Thousands)
Derivatives designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Active interest rate swaps | ​ | Accrued expenses and other liabilities | ​ | $ | 30,979 | ​ | $ | 31,277
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total derivatives designated as hedging instruments | ​ | ​ | ​ | $ | 30,979 | ​ | $ | 31,277
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives not designated as hedging instruments | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Asset Derivatives |  | ​ | ​ | ​ | ​ | ​ | ​ | ​
Interest rate products |  | Prepaid expenses and other assets | ​ | $ | 9,789 | ​ | $ | 11,061
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | $ | 9,789 | ​ | $ | 11,061
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Liability Derivatives | ​ | ​ | ​ |  | ​ | ​ | ​ | ​
Interest rate products | ​ | Accrued expenses and other liabilities | ​ | $ | 10,119 | ​ | $ | 10,820
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Total derivatives not designated as hedging instruments | ​ | ​ | ​ | $ | 10,119 | ​ | $ | 10,820
​ The following table presents the effect of cash flow hedge accounting through accumulated other comprehensive income on the statements of comprehensive income: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Amount of Gain (Loss)
​ | ​ | Recognized in AOCI
​ | ​ | Three Months Ended June 30,
Cash Flow Hedges |  | 2023 |  | 2022
​ |  | (In Thousands)
Terminated interest rate swap, net of income taxes | ​ | $ | (1,562) | ​ | $ | (1,564)
Active interest rate swaps, net of income taxes | ​ | ​ | (6,351) | ​ | ​ | (2,589)
​ | ​ | $ | (7,913) | ​ | $ | (4,153)
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Amount of Gain (Loss)
​ | ​ | Recognized in AOCI
​ | ​ | Six Months Ended June 30,
Cash Flow Hedges |  | 2023 |  | 2022
​ |  | (In Thousands)
Terminated interest rate swap, net of income taxes | ​ | $ | (3,108) | ​ | $ | (3,111)
Active interest rate swaps, net of income taxes | ​ | ​ | 224 | ​ | ​ | (5,672)
​ | ​ | $ | (2,884) | ​ | $ | (8,783)
​ The following table presents the effect of cash flow hedge accounting on the statements of income: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended June 30,
Cash Flow Hedges |  | 2023 |  | 2022
​ |  | Interest |  | Interest |  | Interest |  | Interest
​ |  | Income |  | Expense |  | Income |  | Expense
​ |  | (In Thousands)
Total Interest Income | ​ | $ | 73,618 | ​ | $ | — | ​ | $ | 52,698 | ​ | $ | —
Total Interest Expense | ​ | ​ | — | ​ | ​ | 25,480 | ​ | ​ | — | ​ | ​ | 3,867
​ | ​ | $ | 73,618 | ​ | $ | 25,480 | ​ | $ | 52,698 | ​ | $ | 3,867
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Terminated interest rate swap | ​ | $ | 2,025 | ​ | $ | — | ​ | $ | 2,025 | ​ | $ | —
Active interest rate swaps | ​ | ​ | (4,226) | ​ | ​ | — | ​ | ​ | 668 | ​ | ​ | —
​ | ​ | $ | (2,201) | ​ | $ | — | ​ | $ | 2,693 | ​ | $ | —
​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Six Months Ended June 30,
Cash Flow Hedges | ​ | 2023 | ​ | 2022
​ | ​ | Interest | ​ | Interest | ​ | Interest | ​ | Interest
​ |  | Income |  | Expense |  | Income |  | Expense
​ | ​ | (In Thousands)
Total Interest Income | ​ | $ | 145,081 | ​ | $ | — | ​ | $ | 99,372 | ​ | $ | —
Total Interest Expense | ​ | ​ | — | ​ | ​ | 43,751 | ​ | ​ | — | ​ | ​ | 7,275
​ | ​ | $ | 145,081 | ​ | $ | 43,751 | ​ | $ | 99,372 | ​ | $ | 7,275
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Terminated interest rate swap | ​ | $ | 4,028 | ​ | $ | — | ​ | $ | 4,028 | ​ | $ | —
Active interest rate swaps | ​ | ​ | (6,379) | ​ | ​ | — | ​ | ​ | 1,038 | ​ | ​ | —
​ | ​ | $ | (2,351) | ​ | $ | — | ​ | $ | 5,066 | ​ | $ | —
​ Agreements with Derivative Counterparties The Company has agreements with its derivative counterparties. If the Company defaults on any of its indebtedness, including a 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. If the Bank fails to maintain its status as a well-capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. Similarly, the Company could be required to settle its obligations under certain of its agreements if certain regulatory events occur, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level. At June 30, 2023, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers and an active interest rate swap to hedge risk related to the Company’s variable rate loans) in an overall net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $185,000. The Company has minimum collateral posting thresholds with its derivative dealer counterparties. At June 30, 2023, the Company had given cash collateral to one derivative counterparty of $23.1 million to cover its net fair value position. This counterparty position included collateral from the counterparty of $10.3 million for commercial lending swaps, collateral from the Company of $32.7 million for interest rate swaps related to variable rate loans and collateral from the Company of $519,000 for swaps related to brokered deposits. At December 31, 2022, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in a net asset position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $242,000. Additionally, the Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $20.7 million to the derivative counterparty. If the Company had breached any of these provisions at June 30, 2023 or December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value. Under the collateral agreements between the parties, either party may choose to provide cash or securities to satisfy its collateral requirements.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration