XML 26 R16.htm IDEA: XBRL DOCUMENT
v3.24.2.u1

Derivative Financial Instruments and Hedging Activities | 6 Months Ended
--- | ---
Jun. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities The Bank is exposed to certain risks from both its business operations and changes in economic conditions. As part of our asset/liability and interest rate risk management strategy, we may enter into interest rate derivative contracts to modify repricing characteristics of certain of our interest-earning assets and interest-bearing liabilities. The Bank generally designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Our credit exposure, if any, on interest rate swap asset positions is limited to the fair value (net of any collateral pledged to us) and interest payments of all swaps by each counterparty. Conversely, when an interest rate swap is in a liability position exceeding a certain threshold, we may be required to post collateral to the counterparty in an amount determined by the agreements. Collateral levels are monitored and adjusted on a regular basis for changes in interest rate swap values. On July 7, 2023, the Bank entered into various interest rate swap agreements with notional values totaling $101.8 million split evenly between terms of 2.5 and 3.0 years to hedge balance sheet interest rate sensitivity and protect certain of our fixed rate available-for-sale securities against changes in fair value related to changes in the benchmark interest rate. The interest rate swaps involve the receipt of floating rate interest from a counterparty in exchange for us making fixed-rate interest payments over the lives of the agreements, without the exchange of the underlying notional values. The transactions were designated as partial term fair value hedges and structured such that the changes in the fair value of the interest rate swaps are expected to be perfectly effective in offsetting the changes in the fair value of the hedged items attributable to changes in the SOFR OIS swap rate, the designated benchmark interest rate. Because the hedges met the criteria for using the shortcut method, there is no need to periodically reassess effectiveness during the term of the hedges. For fair value designated hedges, the gains or losses on the hedging instruments as well as the offsetting loss or gain on the hedged items, are recognized in current earnings as their fair values change. In addition, we had three interest rate swap agreements on certain loans with our customers, which are scheduled to mature at various dates ranging from June 2031 to July 2032. In December 2023, one interest rate swap, scheduled to mature in October 2037, was terminated as the hedged loan was paid off. The loan interest rate swaps were designated as fair value hedges and allowed us to offer long-term fixed-rate loans to customers without assuming the interest rate risk of a long-term asset. Converting our fixed-rate interest payments to floating-rate interest payments, generally benchmarked to the one-month U.S. dollar SOFR index, protects us against changes in the fair value of our loans associated with fluctuating interest rates. The notional amounts of the interest rate contracts are equal to the notional amounts of the hedged loans. Information on our derivatives follows:
| Asset derivatives |  | Liability derivatives
(in thousands) | June 30, 2024 | December 31, 2023 |  | June 30, 2024 | December 31, 2023
Available-for-sale securities: |  |  |  |  |
Interest rate swaps - notional amount | $ | 101,770 |  | $ | — |  |  | $ | — |  | $ | 101,770 |
Interest rate swaps - fair value 1 | $ | 140 |  | $ | — |  |  | $ | — |  | $ | 1,359 |
Loans receivable: |  |  |  |  |
Interest rate contracts - notional amount | $ | 8,131 |  | $ | 6,441 |  |  | $ | — |  | $ | 2,157 |
Interest rate contracts - fair value 1 | $ | 411 |  | $ | 287 |  |  | $ | — |  | $ | 2 |
1 Refer to Note 3, Fair Value of Assets and Liabilities, for valuation methodology. The following table presents the carrying amount and associated cumulative basis adjustment related to the application of fair value hedge accounting that is included in the carrying amount of hedged assets as of June 30, 2024 and December 31, 2023.
| Carrying Amounts of Hedged Assets |  | Cumulative Amounts of Fair Value Hedging Adjustments Included in the Carrying Amounts of the Hedged Assets
(in thousands) | June 30, 2024 | December 31, 2023 |  | June 30, 2024 | December 31, 2023
Available-for-sale securities 1 | $ | 108,133 |  | $ | 107,181 |  |  | $ | 140 |  | $ | (1,359) |
Loans receivable 2 | $ | 7,602 |  | $ | 8,183 |  |  | $ | (484) |  | $ | (367) |
1 Carrying value equals the amortized cost basis of the securities underlying the hedge relationship, which is the book value net of the fair value hedge adjustment. Amortized cost excludes accrued interest totaling $221 thousand and $222 thousand as of June 30, 2024 and December 31, 2023, respectively.
2 Carrying value equals the amortized cost basis of the loans underlying the hedge relationship, which is the loan balance net of deferred loan origination fees and cost and the fair value hedge adjustment. Amortized cost excludes accrued interest, which was not material.
The following table presents the pretax net gains (losses) recognized in interest income related to our fair value hedges for the years presented.
| Three months ended | Six months ended
(in thousands) | June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023
Interest on investment securities 1 |  |  |  |
Increase in fair value of interest rate swaps hedging available-for-sale securities | $ | 282 |  | $ | — |  | $ | 1,499 |  | $ | — |
Hedged interest earned | 206 |  | — |  | 412 |  | — |
Decrease in carrying value included in the hedged available-for-sale securities | (282) |  | — |  | (1,499) |  | — |
Net gain (loss) recognized in interest income on investment securities | $ | 206 |  | $ | — |  | $ | 412 |  | $ | — |
Interest and fees on loans 1 |  |  |  |
Increase in fair value of interest rate swaps hedging loans receivable | $ | 11 |  | $ | 250 |  | $ | 126 |  | $ | 29 |
Hedged interest earned | 54 |  | 66 |  | 109 |  | 118 |
Decrease in carrying value included in the hedged loans | (6) |  | (243) |  | (117) |  | (23) |
Decrease in value of yield maintenance agreement | (2) |  | (2) |  | (4) |  | (4) |
Net gain recognized in interest income on loans | $ | 57 |  | $ | 71 |  | $ | 114 |  | $ | 120 |
1 Represents the income line item in the statement of comprehensive loss in which the effects of fair value hedges are recorded.
Our derivative transactions with the counterparty are under an International Swaps and Derivative Association (“ISDA”) master agreement that includes “right of set-off” provisions. “Right of set-off” provisions are legally enforceable rights to offset recognized amounts and there may be an intention to settle such amounts on a net basis. We do not offset such financial instruments for financial reporting purposes. Information on financial instruments that are eligible for offset in the consolidated statements of condition follows:
Offsetting of Financial Assets and Derivative Assets
|  | Gross Amounts | Net Amounts of | Gross Amounts Not Offset in |
| Gross Amounts | Offset in the | Assets Presented | the Statements of Condition |
| of Recognized | Statements of | in the Statements | Financial | Cash Collateral |
(in thousands) | Assets 1 | Condition | of Condition 1 | Instruments | Received | Net Amount
June 30, 2024 |  |  |  |  |  |
Counterparty | $ | 551 |  | $ | — |  | $ | 551 |  | $ | — |  | $ | — |  | $ | 551 |
Total | $ | 551 |  | $ | — |  | $ | 551 |  | $ | — |  | $ | — |  | $ | 551 |
December 31, 2023 |  |  |  |  |  |
Counterparty | $ | 287 |  | $ | — |  | $ | 287 |  | $ | — |  | $ | — |  | $ | 287 |
Total | $ | 287 |  | $ | — |  | $ | 287 |  | $ | — |  | $ | — |  | $ | 287 |
Offsetting of Financial Liabilities and Derivative Liabilities
|  | Gross Amounts | Net Amounts of | Gross Amounts Not Offset in |
| Gross Amounts | Offset in the | Assets Presented | the Statements of Condition |
| of Recognized | Statements of | in the Statements | Financial | Cash Collateral |
(in thousands) | Assets 1 | Condition | of Condition 1 | Instruments | Pledged | Net Amount
June 30, 2024 |  |  |  |  |  |
Counterparty | — |  | — |  | — |  | — |  | — |  | — |
Total | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
December 31, 2023 |  |  |  |  |  |
Counterparty | $ | 1,361 |  | $ | — |  | $ | 1,361 |  | $ | (287) |  | $ | (330) |  | $ | 744 |
Total | $ | 1,361 |  | $ | — |  | $ | 1,361 |  | $ | (287) |  | $ | (330) |  | $ | 744 |
1 Amounts exclude accrued interest on swaps. For more information on how we account for our interest rate swaps, refer to Note 1 to the Consolidated Financial Statements included in our 2023 Form 10-K filed with the SEC on March 14, 2024.

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