Borrowed Funds

3 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Borrowed Funds

BORROWED FUNDS

FHLB Borrowings and Interest Rate Swaps - At December 31, 2022 and September 30, 2022, the Bank had entered into interest rate swap agreements with an aggregate notional amount of $365.0 million in order to hedge the variable cash flows associated with $365.0 million of adjustable-rate FHLB advances. At December 31, 2022 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.8 years and 3.1 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 both December 31, 2022 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $12.5 million which was reported in other assets on the consolidated balance sheet. During the three months ended December 31, 2022, $734 thousand was reclassified from AOCI as a decrease to interest expense. During the three months ended December 31, 2021, $1.8 million was reclassified from AOCI as an increase to interest expense. At December 31, 2022, the Company estimated that $9.6 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 $12.6 million and $12.1 million at December 31, 2022 and September 30, 2022, respectively.

During the current quarter, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involved borrowing up to $2.60 billion either on the Bank's line of credit with FHLB or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at quarter end, or earlier if the strategy is not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, were deposited at the FRB of Kansas City.