Deposits and Borrowed Funds

12 Months Ended

Sep. 30, 2020

Deposits and Borrowed Funds [Abstract]

Deposits and Borrowed Funds

DEPOSITS AND BORROWED FUNDS

Deposits - Non-interest-bearing deposits totaled $451.4 million and $357.3 million as of September 30, 2020 and 2019, respectively. Certificates of deposit with a minimum denomination of $250 thousand were $643.0 million and $610.0 million as of September 30, 2020 and 2019, respectively. Deposits in excess of $250 thousand may not be fully insured by the Federal Deposit Insurance Corporation.

FHLB Borrowings - FHLB borrowings at September 30, 2020 consisted of $1.79 billion in FHLB advances, of which $1.15 billion were fixed-rate advances and $640.0 million were variable-rate advances, and no borrowings against the variable-rate FHLB line of credit. FHLB borrowings at September 30, 2019 consisted of $2.04 billion in FHLB advances, of which $1.40 billion were fixed-rate advances and $640.0 million were variable-rate advances, and $100.0 million against the variable-rate FHLB line of credit. The line of credit is set to expire on November 12, 2021, at which time it is expected to be renewed by FHLB for a one-year period.

FHLB advances at September 30, 2020 and 2019 were comprised of the following:

	2020			2019
	(Dollars in thousands)
FHLB advances	$	1,793,000		$	2,040,000
Deferred prepayment penalty	(3,687)			(11)
	$	1,789,313		$	2,039,989
Weighted average contractual interest rate on FHLB advances	1.41		%	2.23		%
Weighted average effective interest rate on FHLB advances(1)	2.31			2.37

(1)The effective interest rate includes the net impact of deferred amounts and interest rate swaps related to the adjustable-rate FHLB advances.

During fiscal years 2019 and 2018, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at each quarter end, or earlier if the strategy it is not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, are deposited at the FRB of Kansas City. The leverage strategy was not utilized during the current year due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable.

At both September 30, 2020 and 2019, the Bank had entered into interest rate swap agreements with a total notional amount of $640.0 million in order to hedge the variable cash flows associated with $640.0 million of adjustable-rate FHLB advances. At September 30, 2020 and 2019, the interest rate swap agreements had an average remaining term to maturity of 3.5 years and 4.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At September 30, 2020 and September 30, 2019, the interest rate swaps were in a loss position with a total fair value of $53.1 million and $33.1 million, respectively, which was reported in accounts payable and accrued expenses on the consolidated balance sheet. During fiscal years 2020 and 2019, $6.3 million and $438 thousand, respectively, were reclassified from AOCI as an increase to interest expense. At September 30, 2020, the Company estimated that $15.6 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank posted cash collateral of $54.6 million at September 30, 2020 and $33.3 million at September 30, 2019.

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $350.0 million with a weighted average contractual interest rate of 2.42% and a weighted average remaining term of 1.0 years, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average contractual interest rate of 1.43% and a weighted average term of 4.7 years. The Bank paid penalties totaling $4.2 million to FHLB as a result of prepaying the FHLB advances. The prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.

FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB and certain securities, when necessary. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of a borrowing institution's regulatory total assets without the pre-approval of FHLB senior management. In July 2020, the president of FHLB approved an increase, through July 2021, in the Bank's borrowing limit to 50% of Bank Call Report total assets. At September 30, 2020, the ratio of the par value of the Bank's FHLB borrowings to the Bank's Call Report total assets was 19%. At times, the Bank's FHLB borrowings to the Bank's Call Report total assets may be in excess of 40% due to the leverage strategy.

Repurchase Agreements - At September 30, 2020, the Company had no repurchase agreements outstanding. At September 30, 2019, the Company had repurchase agreements outstanding in the amount of $100.0 million, with a weighted average contractual rate of 2.53%. The repurchase agreements were included in other borrowings on the consolidated balance sheet. All of the Company's repurchase agreements at September 30, 2019 were fixed-rate. See Note 4 for information regarding the amount of securities pledged as collateral in conjunction with repurchase agreements. Securities are delivered to the party with whom each transaction is executed and the party agrees to resell the same securities to the Bank at the maturity of the agreement. The Bank retains the right to substitute similar or like securities throughout the terms of the agreements. The repurchase agreements and collateral are subject to valuation at current market levels and the Bank may ask for the return of excess collateral or be required to post additional collateral due to changes in the market values of these items. The Bank may also be required to post additional collateral as a result of principal payments received on the securities pledged.

Maturity of Borrowed Funds and Certificates of Deposit - The following table presents the scheduled maturity of FHLB advances, at par, and certificates of deposit as of September 30, 2020:

	FHLB		Certificates
	Advances		of Deposit
	Amount		Amount
	(Dollars in thousands)
2021	$	843,000	$	1,505,501
2022	200,000		773,278
2023	300,000		426,520
2024	100,000		239,650
2025	250,000		75,391
Thereafter	100,000		904
	$	1,793,000	$	3,021,244

Junior Subordinated Debentures and Trust-Preferred Securities - In conjunction with the CCB acquisition, the Company assumed $10.1 million of junior subordinated debentures relating to mandatorily redeemable capital trust preferred securities that were previously issued by CCB-sponsored trusts to third-party investors. The proceeds from the sale of the trust preferred securities to investors were invested by the trusts in the related junior subordinated debentures issued by CCB. The junior subordinated debentures were redeemed by the Company during fiscal year 2019, which resulted in the concurrent redemption by the trusts of the related trust preferred securities.