Derivative Financial Instruments

6 Months Ended

Mar. 31, 2021

Derivative Financial Instruments

Derivative Financial Instruments

10. Derivative Financial Instruments

The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitment). The Company also enters into forward mortgage loan commitments to sell loans to various investors to protect itself against exposure to various factors and to reduce sensitivity to interest rate movements. Both the interest rate lock commitments and the related forward mortgage loan sales contracts are considered derivatives and are recorded on the accompanying consolidated balance sheets at fair value in accordance with FASB ASC 815, Derivatives and Hedging, with changes in fair value recorded in mortgage banking income in the accompanying consolidated statements of income. All such derivatives are considered stand-alone derivatives and have not been formally designated as hedges by management.

Certain financial instruments, including derivatives, may be eligible for offset in the balance sheet when the “right of setoff” exists or when the instruments are subject to an enforceable master netting agreement, which includes the right of the non-defaulting party or non-affected party to offset recognized amounts, including collateral posted with the counterparty, to determine a net receivable or net payable upon early termination of the agreement.  Certain of the Company’s derivative instruments are subject to master netting agreements.  However, the Company has not elected to offset such financial instruments in the consolidated balance sheets.  The Company may be required to post margin collateral to derivative counterparties based on agreements with the dealers.  At March 31, 2021 and September 30, 2020, the Company had cash collateral posted with certain derivative counterparties of $1.7 million and $3.0 million, respectively, against its derivative obligations.  Cash collateral related to derivative contracts is recorded in interest-bearing deposits with banks or other assets in the consolidated balance sheets.

The tables below provide information on the Company’s derivative financial instruments as of March 31, 2021 and September 30, 2020.

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
	March 31,		March 31,		March 31,
(In thousands)	2021		2021		2021
Interest rate lock commitments	$	501,695	$	262	$	—
Forward mortgage loan sale contracts		457,100		5,662		72
	$	958,795	$	5,924	$	72

	Notional		Asset		Liability
	Amount		Derivatives		Derivatives
	September 30,		September 30,		September 30,
(In thousands)	2020		2020		2020
Interest rate lock commitments	$	793,671	$	14,937	$	—
Forward mortgage loan sale contracts		605,750		226		1,827
	$	1,399,421	$	15,163	$	1,827

Income (loss) related to derivative financial instruments included in mortgage banking income in the accompanying consolidated statements of income for the three and six-month periods ended March 31, 2021 and 2020 is as follows:

	Three Months Ended				Six Months Ended
	March 31,				March 31,
(In thousands)	2021		2020		2021		2020
Interest rate lock commitments	$	(11,153)	$	2,757	$	(14,675)	$	2,409
Forward mortgage loan sale contracts		18,977		(10,380)		11,614		(10,817)
	$	7,824	$	(7,623)	$	(3,061)	$	(8,408)