Derivative Financial Instruments

3 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

In the normal course of business, the Company uses interest rate swaps to manage its interest rate risk and market risk in accommodating the needs of its customers. Also, the Company enters into interest rate lock commitments on mortgage loans to be held for sale, with corresponding forward sales contracts related to these interest rate lock commitments.

Derivative instruments are recognized as either assets or liabilities in the accompanying consolidated financial statements and are measured at fair value.

The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at December 31, 2016 and September 30, 2016:

	December 31, 2016
	Notional Amount		Balance Sheet Location	Positive Fair Value		Negative Fair Value
Derivatives not designated as hedging instruments:	(dollars in thousands)
Interest rate swaps	$	1,058,083	Liabilities	$	7,156	$	(25,143	)
Mortgage loan commitments	25,461		Assets	—		(105		)
Mortgage loan forward sale contracts	32,474		Liabilities	105		—

	September 30, 2016
	Notional Amount		Balance Sheet Location	Positive Fair Value		Negative Fair Value
Derivatives not designated as hedging instruments:	(dollars in thousands)
Interest rate swaps	$	1,055,822	Liabilities	$	525	$	(81,974	)
Mortgage loan commitments	52,333		Assets	66		—
Mortgage loan forward sale contracts	60,529		Liabilities	—		(66		)

As with any financial instrument, derivative financial instruments have inherent risk including adverse changes in interest rates. The Company’s exposure to derivative credit risk is defined as the possibility of sustaining a loss due to the failure of the counterparty to perform in accordance with the terms of the contract. Credit risks associated with interest rate swaps are similar to those relating to traditional on-balance sheet financial instruments. The Company manages interest rate swap credit risk with the same standards and procedures applied to its commercial lending activities. Amounts due from swap counterparties to reclaim cash collateral under the interest rate swap master netting arrangements have not been offset against the derivative balances.

Credit-risk-related contingent features

The Company has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well/adequately capitalized institution, then the counterparty has the right to terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of December 31, 2016 and September 30, 2016, the termination value of derivatives in a net liability position related to these agreements was $20.7 million and $84.4 million, respectively, which includes accrued interest but excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with its derivative counterparties and as of December 31, 2016 and September 30, 2016, the Company had posted $25.1 million and $106.1 million, respectively, in eligible collateral.

The effect of derivatives on the consolidated statements of comprehensive income for the three months ended December 31, 2016 and 2015 was as follows:

		Amount of Gain (Loss) Recognized in Income
		Three Months Ended December 31,
	Location of Gain (Loss) Recognized in Income	2016			2015
Derivatives not designated as hedging instruments:		(dollars in thousands)
Interest rate swaps	Noninterest income	$	58,976		$	9,439
Mortgage loan commitments	Noninterest income	(105		)	(24		)
Mortgage loan forward sale contracts	Noninterest income	105			24

Netting of Derivatives

The Company has various financial assets and financial liabilities that are subject to enforceable master netting agreements or similar agreements. The Company has entered into an International Swaps Derivatives Association ("ISDA") master netting arrangement with various swap counterparties. Under the terms of the master netting arrangements, all transactions between the Company and the counterparty constitute a single business relationship such that in the event of default, the non-defaulting party is entitled to set off claims and apply property held by that party in respect of any transaction against obligations owed. Any payments, deliveries, or other transfers may be applied against each other and netted.

The following tables present the Company's gross derivative financial assets and liabilities at December 31, 2016 and September 30, 2016, and the related impact of enforceable master netting agreements and cash collateral, where applicable:

	Gross Amount			Amount Offset			Net Amount Presented in Consolidated Balance Sheets			Held/Pledged Financial Instruments1		Net Amount
December 31, 2016	(dollars in thousands)
Derivative financial assets:
Derivatives subject to master netting arrangement or similar arrangement	$	7,156		$	(7,156	)	$	—		$	—	$	—
Derivative financial liabilities:
Derivatives subject to master netting arrangement or similar arrangement	(25,143		)	7,156			(17,987		)	17,987		—
Total derivative financial liabilities	$	(17,987	)	$	—		$	(17,987	)	$	17,987	$	—
1 The actual amount of collateral exceeds the fair value exposure, at the individual counterparty level, as of the date presented.

	Gross Amount			Amount Offset			Net Amount Presented in Consolidated Balance Sheets			Held/Pledged Financial Instruments1		Net Amount
September 30, 2016	(dollars in thousands)
Derivative financial assets:
Derivatives subject to master netting arrangement or similar arrangement	$	525		$	(525	)	$	—		$	—	$	—
Derivative financial liabilities:
Derivatives subject to master netting arrangement or similar arrangement	(81,974		)	525			(81,449		)	81,449		—
Total derivative financial liabilities	$	(81,449	)	$	—		$	(81,449	)	$	81,449	$	—
1 The actual amount of collateral exceeds the fair value exposure, at the individual counterparty level, as of the date presented.