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Derivative Instruments and Hedging Activities
 9 Months Ended
Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company uses various financial instruments, including derivatives, to manage its exposure to interest rate risk. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to specific wholesale funding positions.

Fair Values of Derivative Instruments on the Statement of Financial Condition

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Statement of Financial Condition as of March 31, 2022 and June 30, 2021:

 

 

March 31, 2022

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

 

(In Thousands)

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Interest rate contracts

Other assets

 

$

34,007

 

 

Other liabilities

 

$

-

 

Total

 

 

$

34,007

 

 

 

 

$

-

 

 

 

June 30, 2021

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

Location

 

Fair Value

 

 

Location

 

Fair Value

 

 

(In Thousands)

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Interest rate contracts

Other assets

 

$

1,832

 

 

Other liabilities

 

$

673

 

Total

 

 

$

1,832

 

 

 

 

$

673

 

 

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using derivatives are primarily to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps and caps as part of its interest rate risk management strategy. These interest rate products are designated as cash flow hedges. As of March 31, 2022, the Company had a total of 10 interest rate swaps and caps with a total notional amount of $790.0 million hedging specific wholesale funding positions.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in other comprehensive income, net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate wholesale funding positions. During the three months and nine months ended March 31, 2022 the Company reclassified $1.3 million and $4.3 million, respectively, as additional interest expense. During the next twelve months, the Company estimates that $4.6 million will be reclassified as a reduction in interest expense.

The table below presents the pre-tax effects of the Company’s derivative instruments on the Consolidated Statements of Income for the three months and nine months ended March 31, 2022 and 2021:

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

March 31,

 

 

March 31,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

 

(In Thousands)

 

 

(In Thousands)

 

Amount of gain recognized in other comprehensive income

$

23,343

 

 

$

13,075

 

 

$

28,607

 

 

$

14,353

 

Amount of loss reclassified from accumulated other comprehensive income
  to interest expense

 

(1,268

)

 

 

(1,987

)

 

 

(4,271

)

 

 

(6,576

)

 

Offsetting Derivatives

The tables below present a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives in the Consolidated Statements of Financial Condition as of March 31, 2022 and June 30, 2021, respectively. The net amounts presented for derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Statements of Financial Condition.

 

 

March 31, 2022

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

34,158

 

 

$

(151

)

 

$

34,007

 

 

$

-

 

 

$

-

 

 

$

34,007

 

Total

$

34,158

 

 

$

(151

)

 

$

34,007

 

 

$

-

 

 

$

-

 

 

$

34,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Posted

 

 

Net Amount

 

 

(In Thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

151

 

 

$

(151

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Total

$

151

 

 

$

(151

)

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Received

 

 

Net Amount

 

 

(In Thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

6,847

 

 

$

(5,015

)

 

$

1,832

 

 

$

-

 

 

$

-

 

 

$

1,832

 

Total

$

6,847

 

 

$

(5,015

)

 

$

1,832

 

 

$

-

 

 

$

-

 

 

$

1,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts Not Offset

 

 

 

 

 

Gross Amount Recognized

 

 

Gross Amounts Offset

 

 

Net Amounts Presented

 

 

Financial Instruments

 

 

Cash Collateral Posted

 

 

Net Amount

 

 

(In Thousands)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

5,688

 

 

$

(5,015

)

 

$

673

 

 

$

-

 

 

$

(673

)

 

$

-

 

Total

$

5,688

 

 

$

(5,015

)

 

$

673

 

 

$

-

 

 

$

(673

)

 

$

-

 

 

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty. At March 31, 2022, none of the Company’s derivatives were in a net liability position. As required under the enforceable master netting arrangement with its derivatives counterparties, at March 31, 2022, the Company was not required to post financial collateral.

In addition to the derivative instruments noted above, the Company’s pipeline of loans held for sale at March 31, 2022 and June 30, 2021, included $16.0 million and $48.4 million, respectively, of in process loans whose terms included interest rate locks to borrowers, which are considered free-standing derivative instruments whose fair values are not material to the Company’s financial condition or results of operations.