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Interest Rate Derivatives | 3 Months Ended
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Mar. 31, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Interest Rate Derivatives | Note 11: Interest Rate Derivatives The Company is exposed to certain risks related to both its business operations and changes in economic conditions. As part of managing interest rate risk, the Company periodically enters into standardized interest rate derivative contracts (designated as hedging agreements) to modify the repricing characteristics of certain portions of the Company’s earning assets and interest-bearing liabilities portfolios. The Company designates interest rate hedging agreements utilized in the management of interest rate risk as either fair value hedges or cash flow hedges. Interest rate hedging agreements are recorded at fair value as other assets or liabilities. The Company had no material derivative contracts not designated as hedging agreements at March 31, 2025 or December 31, 2024. As a result of interest rate fluctuations, fixed-rate interest-earning assets and interest-bearing liabilities will appreciate or depreciate in fair value. When effectively hedged, this fair value appreciation or depreciation will generally be offset by substantially identical changes in the fair value of derivative instruments that are linked to the hedged assets and liabilities. This strategy is referred to as fair value hedging and the derivative instruments employed in this strategy are therefore designated as fair value hedges. In a fair value hedge, the fair value of the derivative (the interest rate hedging agreement) is recorded in the Company’s consolidated balance sheet with the corresponding gain or loss recognized as an adjustment to the carrying balance of the hedged asset or liability. Changes in the correlation between the hedging instrument and the hedged asset or liability that give rise to differences between the changes in the fair value of the interest rate hedging agreements and the hedged items represents hedge ineffectiveness and are recorded as adjustments to the interest income or interest expense of the respective hedged instrument. In the case of pay-fixed or receive-fixed interest rate swap agreements, designated as fair value hedges, the periodic difference in the net cash flows due to (due from) the Company from (to) a counterparty are recorded in current period earnings as adjustments to the interest income or interest expense of the respective hedged asset or liability. Cash flows related to floating rate assets and liabilities will fluctuate with changes in underlying rate indices. When effectively hedged, the increases or decreases in cash flows related to the floating-rate asset or liability will generally be offset by changes in cash flows of the derivative instruments designated as a hedge. This strategy is referred to as cash flow hedging and the derivative instruments employed in these strategies are therefore designated as cash flow hedges. In a cash flow hedge, the effective portion of the derivative’s gain or loss is initially reported as a component of accumulated other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. In the case of pay-fixed or receive-fixed interest rate swap agreements, designated as cash flow hedges, the periodic difference in the net cash flows due to (due from) the Company from (to) a counterparty are recorded in current period earnings as adjustments to the interest income or interest expense of the respective hedged asset or liability. Among the array of interest rate hedging contracts, potentially available to the Company, are interest rate swap and interest rate cap (or floor) contracts. The Company uses interest rate swaps, cap or floor contracts as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed payments over the life of the agreements without the exchange of the underlying notional amount. An interest rate cap is a type of interest rate derivative in which the buyer receives payments at the end of each contractual period in which the index interest rate exceeds the contractually agreed upon strike price rate. The purchaser of a cap contract will continue to benefit from any rise in interest rates above the strike price. Similarly, an interest rate floor is a derivative contract in which the buyer receives payments at the end of each period in which the interest rate is below the agreed strike price. The purchaser of a floor contract will continue to benefit from any decrease in interest rates below the strike price. The Company had no interest rate cap or floor contracts in place at March 31, 2025 or December 31, 2024. The Company records various hedges in the consolidated statements of condition at fair value. The Company’s accounting treatment for these derivative instruments is based on the instrument's hedge designation determined at the inception of each derivative instrument's contractual term. The following tables show the Company’s outstanding fair value hedges at March 31, 2025 and December 31, 2024:
(In thousands) |  | Carrying Amount of the Hedged Assets at March 31, 2025 |  |  | Cumulative Amount of Fair Value Hedging Adjustment Subtracted/(Added) from Carrying Amount of the Hedged Assets at March 31, 2025 |  |  | Hedge-Adjusted Carrying Amount of the Hedged Assets at December 31, 2024 |  |  | Cumulative Amount of Fair Value Hedging Adjustment Subtracted from Carrying Amount of the Hedged Assets at December 31, 2024 |
Line item on the balance sheet in which the hedged item is included: |  |  |  |  |  |  |
Available-for-sale securities (1) |  | $ | 76,279 |  |  | $ | 1,994 |  |  | $ | 76,303 |  |  | $ | 3,199 |
Loans receivable (2) |  | $ | 132,246 |  |  | $ | 1,116 |  |  | $ | 133,765 |  |  | $ | 2,887 |
(1) The $76.3 million carrying amount of hedged assets represents the hedge-adjusted amortized cost basis of individually evaluated municipal, private label, and GSE-backed securities designated as the underlying assets for the hedging relationships. The notional amount of the designated hedges were $78.2 million and $73.9 million at March 31, 2025 and December 31, 2024, respectively. The fair value of the derivatives (an unrealized gain, receivable from derivative counterparties) recorded in other assets resulted in a net asset position of $2.0 million and $3.2 million at March 31, 2025 and December 31, 2024, respectively. The Company's participation in fair value hedging transactions increased investment security interest income by $302,000 and $632,000 in the three month periods ended March 31, 2025 and March 31, 2024, respectively. (2) The $132.2 million net carrying amount of hedged assets represents the hedge-adjusted amortized cost of a designated pool of residential mortgages and the aggregate hedge-adjusted amortized cost of four specified purchased consumer loan pools. These pools of loans were designated as the underlying assets for the hedging relationships in which the hedged underlying asset's notional amounts were the amortized cost projected to be remaining at the end of the contractual term of the hedging instruments. The amount of the designated hedged items were $133.4 million and $128.9 million at March 31, 2025 and December 31, 2024, respectively. At March 31, 2025, the fair value of the derivatives recorded in other assets (an unrealized gain, receivable from derivative counterparties) resulted in a net asset position of $1.1 million, recorded by the Company as a component of other assets. The Company’s participation in fair value hedging transactions increased interest income by $267,000 and $628,000, for the three month periods ended March 31, 2025 and March 31, 2024, respectively. Details of the two hedging strategies, in place at March 31, 2025 are presented below: a. On April 7, 2023 the Bank entered into an amortizing swap transaction with an initial notional amount of $100.0 million whereby the Bank will receive 3-month SOFR rate monthly, based on the notional amount of the swap contract at the beginning of each month until the swap transaction expires in 2035. The notional amount of the swap declines monthly according to a predetermined amortization schedule and was $74.6 million at March 31, 2025. The Bank will pay a fixed rate of 3.208% to the contract's counterparty throughout the life of the contract based on each month's beginning notional balance. The fair value of this swap contract was $1.5 million at March 31, 2025. b. On December 7, 2023, the Bank entered into five fixed-pay interest rate swap contracts with a total notional amount of $50.0 million, whereby the Bank will receive 3-month SOFR monthly until the respective maturity dates of the contracts. The contracts expire in annual increments on December 1 of 2025 ($5.0 million, fixed rate of 4.463%), 2026 ($5.0 million, fixed rate of 4.136%), 2027 ($10.0 million, fixed rate of 3.973%), 2028 ($15.0 million, fixed rate of 3.887%), and 2029 ($15.0 million, fixed rate of 3.845%). The fair value of these swap contracts in aggregate was a reduction of $377,000 at March 31, 2025. The following tables summarize the net effects of the Company's fair value and cash flow hedges for the three months ended March 31, 2025 and March 31, 2024, respectively:
Fair Value Hedges |  |  |  |  |  |  |  |
(In thousands) | Three Months Ended March 31, 2025 |
Hedge Category | Average Notional Balance |  | Period Ending Notional Balance |  | Net Cash Received Recorded In Net Income |  | Fair Value Receivable at Period End |
Investments | $ | 73,283 |  | $ | 73,061 |  | $ | 301 |  | $ | 1,994 |
Loans |  | 126,980 |  |  | 126,047 |  |  | 267 |  |  | 1,116 |
Total | $ | 200,263 |  | $ | 199,108 |  | $ | 568 |  | $ | 3,110 |
| Three Months Ended March 31, 2024 |
Hedge Category | Average Notional Balance |  | Period Ending Notional Balance |  | Net Cash Received Recorded In Net Income |  | Fair Value Receivable at Period End |
Investments | $ | 87,500 |  | $ | 83,519 |  | $ | 632 |  | $ | 3,509 |
Loans |  | 138,903 |  |  | 137,850 |  |  | 628 |  |  | 3,035 |
Total | $ | 226,403 |  | $ | 221,369 |  | $ | 1,260 |  | $ | 6,544 |
Cash Flow Hedges |  |  |  |  |  |  |  |
(In thousands) | Three Months Ended March 31, 2025 |
Hedge Category | Average Notional Balance |  | Period Ending Notional Balance |  | Net Cash Received Recorded In Net Income |  | Fair Value Receivable at Period End |
Borrowed Funds | $ | - |  | $ | - |  | $ | 80 |  | $ | - |
| Three Months Ended March 31, 2024 |
Hedge Category | Average Notional Balance |  | Period Ending Notional Balance |  | Net Cash Received Recorded In Net Income |  | Fair Value Receivable at Period End |
Borrowed Funds | $ | 40,000 |  | $ | 40,000 |  | $ | 157 |  | $ | 556 |
On April 17, 2024 the Bank elected to settle its previously established cash flow hedges designated against $40.0 million of floating-rate liabilities. This election was made in response to planned reductions in the Bank’s future levels of floating rate brokered certificates of deposit. Due to increases in interest rates since the inception dates of the cash flow hedges, the Bank realized a cash basis gain of $766,000 on that date, recorded for financial statement purposes, as a deferred gain in other assets. $458,000 of this gain will be recognized, as a reduction of interest expense, in substantially equal monthly installments through April 30, 2026 and $308,000 of this gain will be recognized, as a reduction in interest expense, in substantially equal monthly installments through April 30, 2027, which were the respective original maturity dates of the settled hedging contracts. The amounts of hedge ineffectiveness, recognized at March 31, 2025 and December 31, 2024 for cash flow hedges were not material to the Company’s consolidated results of operations. A portion of, or the entire amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge, no longer be considered effective. Management believes that the hedges will remain fully effective during the remaining term of the respective hedging contracts. The changes in the fair values of the interest rate hedging agreements primarily result from the effects of changing index interest rates and the reduction of the time each quarter between the measurement date and the contractual maturity date of the hedging instrument. The Company manages its potential credit exposure on interest rate swap transactions by entering into bilateral credit support agreements with each contractual counterparty. These agreements require collateralization of credit exposures beyond specified minimum threshold amounts. Interest rate hedging agreements are entered into with counterparties that meet the Company's established credit standards and the agreements contain master netting, collateral and/or settlement provisions protecting the at-risk party. Based on adherence to the Company’s credit standards and the presence of the netting, collateral or settlement provisions, the Company believes that the credit risk inherent in these contracts was not material at March 31, 2025.

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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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