Borrowed Funds

9 Months Ended

Jun. 30, 2024

Debt Disclosure [Abstract]

Borrowed Funds

BORROWED FUNDS

Borrowings - Borrowings at June 30, 2024 consisted of $2.29 billion in FHLB advances, of which $1.99 billion were fixed-rate advances and $300.0 million were variable-rate advances, and $1.1 million in finance leases. Borrowings at September 30, 2023 consisted of $2.38 billion in FHLB advances, of which $2.02 billion were fixed-rate advances and $365.0 million were variable-rate advances, and $500.0 million of borrowings from the Federal Reserve's Bank Term Funding Program ("BTFP"). During the current year period, the Bank paid off the $500.0 million of BTFP borrowings.

As of June 30, 2024 and September 30, 2023, the Bank held interest rate swap agreements with an aggregate notional amount of $300.0 million and $365.0 million, respectively, in order to hedge the variable cash flows associated with $300.0 million and $365.0 million, respectively, of adjustable-rate FHLB advances. At June 30, 2024 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.7 years and 2.1 years, respectively. The interest rate swaps were designated as cash flow hedges and involved 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 June 30, 2024 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $6.6 million and $13.0 million, respectively, which was reported in other assets on the consolidated balance sheet. During the three and nine month periods ended June 30, 2024, $1.6 million and $5.2 million, respectively, was reclassified from AOCI as a decrease to interest expense. During the three and nine month periods ended June 30, 2023, $1.7 million and $3.7 million, respectively, was reclassified from AOCI as a decrease to interest expense. At June 30, 2024, the Company estimated that $4.3 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease 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 held cash collateral of $7.3 million and $14.0 million at June 30, 2024 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

Periodically, management has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the cost to purchase FHLB stock to meet FHLB stock holding requirements, at the FRB of Kansas City ("leverage strategy"). The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. Leverage strategy borrowings are repaid prior to each quarter end. The leverage strategy was not in place during the current year nine month period due to the strategy being unprofitable, but it was in place at points during the prior year nine month period. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.