Borrowed Funds

3 Months Ended

Dec. 31, 2023

Debt Disclosure [Abstract]

Borrowed Funds

BORROWED FUNDS

Borrowings - Borrowings at December 31, 2023 consisted of $2.38 billion in FHLB advances, of which $2.01 billion were fixed-rate advances and $365.0 million were variable-rate advances, and $974 thousand 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 quarter, the Bank paid off the $500.0 million of BTFP borrowings.

As of December 31, 2023 and September 30, 2023, the Bank held 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, 2023 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.8 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 December 31, 2023 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $6.5 million and $13.0 million respectively, which was reported in other assets on the consolidated balance sheet. During the three month periods ended December 31, 2023 and December 31, 2022, $1.9 million and $734 thousand, respectively, was reclassified from AOCI as a decrease to interest expense. At December 31, 2023, the Company estimated that $5.2 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 $7.2 million and $14.0 million at December 31, 2023 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

At times, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from the borrowings, net of the required FHLB stock holdings, at the FRB of Kansas City. The borrowings are repaid prior to quarter end, or earlier if the strategy is suspended. The leverage strategy was not in place during the current quarter due to the strategy being unprofitable, but it was in place at points during the September 30, 2023 quarter. 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.