Fair Value Measurements

9 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

FASB ASC 820, Fair Value Measurement ("ASC 820") defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company has established and documented the process for determining the fair values of its assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, fair value is determined using valuation models or third-party appraisals. The following is a description of the valuation methodologies used to measure and report the fair value of financial assets and liabilities on a recurring or nonrecurring basis.

Measured on a Recurring Basis

Available-for-Sale Securities, Loans Held for Sale and Derivative Contracts

Securities available for sale are recorded at fair value on a recurring basis. The fair value of debt securities are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under GAAP are considered a Level 2 input method. Securities that are traded on active exchanges are measured using the closing price in an active market and are considered a Level 1 input method.

Certain loans acquired in the Merger which have been designated as held for sale were recorded at fair value to be remeasured on a recurring basis until sold. The fair value of these loans is based on observable market data including dealer quotes and bids from third parties. These are considered a Level 2 input method.

The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the Company enters into the opposite trade with a counter party to offset its interest rate risk. The Company has also entered into commercial loan hedges, mortgage pool hedges and borrowings hedges using interest rate swaps. The fair value of these interest rate swaps are estimated by a third-party pricing service using a discounted cash flow technique. These are considered a Level 2 input method.

The following tables present the balance and level in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis (with the exception of those measured using the NAV practical expedient).

	June 30, 2024
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities	$	—	$	292,775	$	—	$	292,775
Asset-backed securities	—		507,812		—		507,812
Municipal bonds	—		35,017		—		35,017
Corporate debt securities	—		241,167		—		241,167
Mortgage-backed securities
Agency pass-through certificates	—		1,351,998		—		1,351,998
Total available-for-sale securities	—		2,428,769		—		2,428,769
Loans held for sale	—		468,527		—		468,527
Derivatives:
Client swap program hedges	—		63,374		—		63,374
Commercial loan fair value hedges	—		2,534		—		2,534
Mortgage loan fair value hedges	—		59,243		—		59,243
Borrowings cash flow hedges	—		151,333		—		151,333
Total financial assets	$	—	$	3,173,780	$	—	$	3,173,780
Financial Liabilities
Client swap program hedges	$	—	$	64,075	$	—	$	64,075
Total financial liabilities	$	—	$	64,075	$	—	$	64,075

	September 30, 2023
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets
Available-for-sale securities:
U.S. government and agency securities	$	—	$	217,053	$	—	$	217,053
Asset-backed securities	—		588,016				588,016
Municipal bonds	—		34,662		—		34,662
Corporate debt securities	—		242,522		—		242,522
Mortgage-backed securities
Agency pass-through certificates	—		912,844		—		912,844
Total available-for-sale securities	—		1,995,097		—		1,995,097
Client swap program hedges	—		78,797		—		78,797
Commercial loan fair value hedges	—		3,405		—		3,405
Mortgage loan fair value hedges	—		46,396		—		46,396
Borrowings cash flow hedges	—		184,373		—		184,373
Total financial assets	$	—	$	2,308,068	$	—	$	2,308,068
Financial Liabilities
Client swap program hedges	$	—	$	79,668	$	—	$	79,668
Total financial liabilities	$	—	$	79,668	$	—	$	79,668

Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as collateral dependent loans and real estate owned ("REO"). REO consists principally of properties acquired through foreclosure. From time to time, and on a nonrecurring basis, adjustments using fair value measurements are recorded to reflect increases or decreases based on the discounted cash flows, the current appraisal or estimated value of the collateral or REO property.

When management determines that the fair value of the collateral or the REO requires additional adjustments, either as a result of an updated appraised value or when there is no observable market price, the Company classifies the collateral dependent loan or real estate owned as Level 3. Level 3 assets recorded at fair value on a nonrecurring basis at June 30, 2024 included loans for which an allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as real estate owned where the fair value of the property was less than the cost basis.

The following tables present the aggregated balance of assets that were measured at fair value on a nonrecurring basis at June 30, 2024 and June 30, 2023, and the total gains (losses) resulting from those fair value adjustments during the respective periods. The estimated fair value measurements are shown gross of estimated selling costs.

 

	June 30, 2024								Three Months Ended June 30, 2024		Nine Months Ended June 30, 2024
	Level 1		Level  2		Level  3		Total		Total Gains (Losses)
	(In thousands)								(In thousands)
Loans (1)	$	—	$	—	$	4,345	$	4,345	$	(2,679)	$	(3,004)
Real estate owned (2)	—		—		1,460		1,460		(35)		(1,910)
Balance at end of period	$	—	$	—	$	5,805	$	5,805	$	(2,714)	$	(4,914)

(1)The gains (losses) represent re-measurements of collateral-dependent loans.

(2)The gains (losses) represent aggregate write-downs and charge-offs on real estate owned.

	June 30, 2023								Three Months Ended June 30, 2023		Nine Months Ended June 30, 2023
	Level 1		Level  2		Level  3		Total		Total Gains (Losses)
	(In thousands)								(In thousands)
Loans (1)	$	—	$	—	$	34,535	$	34,535	$	(10,530)	$	(16,773)
Real estate owned (2)	—		—		3,672		3,672		(121)		(98)
Balance at end of period	$	—	$	—	$	38,207	$	38,207	$	(10,651)	$	(16,871)

(1)The gains (losses) represent re-measurements of collateral-dependent loans.

(2)The gains (losses) represent aggregate write-downs and charge-offs on real estate owned.

At June 30, 2024, there was $28,000 in foreclosed residential real estate properties held as REO. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process was $6,134,000.

Fair Values of Financial Instruments

FASB ASC 825, Financial Instruments ("ASC 825") requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below.

		June 30, 2024				September 30, 2023
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		($ in thousands)
Financial assets
Cash and cash equivalents	1	$	2,492,504	$	2,492,504	$	980,649	$	980,649
Available-for-sale securities
U.S. government and agency securities	2	292,775		292,775		217,053		217,053
Asset-backed securities	2	507,812		507,812		588,016		588,016
Municipal bonds	2	35,017		35,017		34,662		34,662
Corporate debt securities	2	241,167		241,167		242,522		242,522
Mortgage-backed securities
Agency pass-through certificates	2	1,351,998		1,351,998		912,844		912,844
Total available-for-sale securities		2,428,769		2,428,769		1,995,097		1,995,097
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates	2	447,638		398,005		423,586		355,188
Total held-to-maturity securities		447,638		398,005		423,586		355,188
Loans receivable	3	20,873,919		20,038,322		17,476,550		16,559,758
Loans held for sale	2	468,527		468,527		—		—
FHLB stock	2	107,282		107,282		126,820		126,820
Other assets - client swap program hedges	2	63,374		63,374		78,797		78,797
Other assets - commercial fair value loan hedges	2	2,534		2,534		3,405		3,405
Other assets - mortgage loan fair value hedges	2	59,243		59,243		46,396		46,396
Other assets - borrowings cash flow hedges	2	151,333		151,333		184,373		184,373
Financial liabilities
Time deposits	2	9,255,760		9,188,683		5,305,016		5,232,689
Borrowings	2	3,934,514		3,929,935		3,650,000		3,653,229
Junior subordinated deferrable interest debentures	3	50,485		50,535		—		—
Senior Debt	2	94,361		94,752		—		—
Other liabilities - client swap program hedges	2	64,075		64,075		79,668		79,668

The following methods and assumptions were used to estimate the fair value of financial instruments:

Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value. 

Available-for-sale securities and held-to-maturity securities – Securities at fair value are primarily priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and are considered a Level 2 input method. Equity securities that are exchange traded are considered a Level 1 input method.

Loans receivable – Fair values are estimated first by stratifying the portfolios of loans with similar financial characteristics. Loans are segregated by type such as multi-family real estate, residential mortgage, construction, commercial, consumer and land loans. Each loan category is further segmented into fixed- and adjustable-rate interest terms. For residential mortgages and multi-family loans, the bank determined that its best exit price was by securitization. MBS benchmark prices are used as a base price, with further loan level pricing adjustments made based on individual loan characteristics such as FICO score, LTV, Property Type and occupancy. For all other loan categories an estimate of fair value is then calculated based on discounted cash

flows using a discount rate offered and observed in the market on similar products, plus an adjustment for liquidity to reflect the non-homogeneous nature of the loans, as well as an annual loss rate based on historical losses to arrive at an estimated exit price fair value. Fair value for impaired loans is also based on recent appraisals or estimated cash flows discounted using rates commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

Loans held for sale - The loans held for sale portfolio was recorded at fair value based on quotes or bids from third parties.

FHLB stock – The fair value is based upon the par value of the stock that equates to its carrying value.

Time deposits – The fair value of time deposits is estimated by discounting the estimated future cash flows using rates offered for deposits with similar remaining maturities.

Borrowings – The fair value of FHLB advances and FRB borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.

Junior subordinated deferrable interest debentures - The fair value of junior subordinated debentures is estimated using an income approach valuation technique. The significant unobservable input utilized in the estimation of fair value of these instruments is the credit risk adjusted spread. The credit risk adjusted spread represents the nonperformance risk of the liability, contemplating the inherent risk of the obligation. The ending carrying (fair) value of the junior subordinated debentures measured at fair value represents the estimated amount that would be paid to transfer these liabilities in an orderly transaction amongst market participants. Due to credit concerns in the capital markets and inactivity in the trust preferred markets that have limited the observability of market spreads, the Company has classified this as a Level 3 fair value measurement.

Senior Debt - The fair value of senior debt is estimated by using model pricing based on the debts relationship to other benchmark quoted pricing as provided by an independent third party and are considered a Level 2 input.

Interest rate swaps – The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the Company enters into the opposite trade with a counterparty to offset its interest rate risk. The Company also uses interest rate swaps for various fair value hedges and cash flow hedges. The fair value of these interest rate swaps is estimated by a third-party pricing service using a discounted cash flow technique.

The following tables provide details about the amortized cost and fair value of available-for-sale and held-to-maturity securities.

	June 30, 2024
	Amortized Cost		Gross Unrealized				Fair Value		Yield
			Gains		Losses
	($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year	$	6,530	$	3	$	(4)	$	6,529	5.84	%
1 to 5 years	5,528		3		(233)		5,298		2.82
5 to 10 years	151,376		1,205		—		152,581		6.01
Over 10 years	128,092		571		(296)		128,367		6.33
Asset-backed securities
1 to 5 years	12,369		—		(334)		12,035		6.10
5 to 10 years	17,411		63		—		17,474		6.23
Over 10 years	479,681		672		(2,050)		478,303		6.33
Corporate debt securities due
Within 1 year	25,043		—		(436)		24,607		3.50
1 to 5 years	119,108		882		(163)		119,827		5.58
5 to 10 years	112,327		—		(15,594)		96,733		3.87
Municipal bonds due
5 to 10 years	5,697		—		(514)		5,183		3.00
Over 10 years	29,803		274		(243)		29,834		5.85
Mortgage-backed securities
Agency pass-through certificates	1,415,258		2,600		(65,860)		1,351,998		4.01
	2,508,223		6,273		(85,727)		2,428,769		4.81
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates	447,638		170		(49,803)		398,005		3.17
	447,638		170		(49,803)		398,005		3.17
	$	2,955,861	$	6,443	$	(135,530)	$	2,826,774	4.51	%

	September 30, 2023
	Amortized Cost		Gross Unrealized					Fair Value		Yield
			Gains		Losses
	($ in thousands)
Available-for-sale securities
U.S. government and agency securities due
Within 1 year	$	3,501	$	—		$	(36)	$	3,465	6.06	%
1 to 5 years	18,894		—			(563)		18,331		4.70
5 to 10 years	87,922		177			—		88,099		5.76
Over 10 years	106,340		831			(13)		107,158		5.84
Asset-backed securities
1 to 5 years	18,579		—			(715)		17,864		6.06
5 to 10 years	36,875		2			(99)		36,778		6.11
Over 10 years	539,911		578			(7,115)		533,374		6.35
Corporate debt securities due
1 to 5 years	151,893		895			(1,787)		151,001		5.14
5 to 10 years	113,221		—			(21,700)		91,521		3.87
Municipal bonds due
5 to 10 years	5,720		—			(701)		5,019		3.00
Over 10 years	29,832		361			(550)		29,643		5.85
Mortgage-backed securities
Agency pass-through certificates	1,005,928		66			(93,150)		912,844		3.39
	2,118,616		2,910			(126,429)		1,995,097		4.64
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates	423,586		—			(68,398)		355,188		2.88
	423,586		—			(68,398)		355,188		2.88
	$	2,542,202	$	2,910		$	(194,827)	$	2,350,285	4.35	%

The Company purchased $321,308,000 of AFS investment securities during the nine months ended June 30, 2024 and purchased $317,027,000 of AFS securities during the nine months ended June 30, 2023. The Company also obtained $516,308,000 in AFS securities in the Merger. Sales of AFS securities totaled $179,215,000 during the nine months ended June 30, 2024 compared to sales of $94,000 during the prior year same period. The Company sold approximately $171,000,000 of AFS securities obtained in the Merger to rebalance the overall portfolio. Realized gains and losses from the sale were included in purchase accounting adjustments to reflect the acquisition date fair value as the sales took place close to the Merger date. For HTM investment securities, there were $47,092,000 in purchases during the nine months ended June 30, 2024 and no purchases during the nine months ended June 30, 2023. $2,570,000 of HTM securities were obtained in the Merger. There were no sales of HTM investment securities during the nine months ended June 30, 2024 or June 30, 2023. Substantially all of the agency mortgage-backed securities have contractual due dates that exceed 25 years.

The Company elected to exclude AIR from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS securities, AIR totaled $9,772,000 and $8,641,000 as of June 30, 2024 and September 30, 2023, respectively. For HTM debt securities, AIR totaled $1,181,000 and $1,013,000 as of June 30, 2024 and September 30, 2023, respectively. AIR for securities is included in the Interest receivable line item balance on the Company’s consolidated statements of financial condition.

The following tables show the gross unrealized losses and fair value of securities as of June 30, 2024 and September 30, 2023, by length of time that individual securities in each category have been in a continuous loss position. There were 227 and 231 securities with an unrealized loss as of June 30, 2024 and September 30, 2023, respectively.

 

June 30, 2024	Less than 12 months				12 months or more				Total
	Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value
	(In thousands)
Available-for-sale securities
Corporate debt securities	$	(163)	$	19,831	$	(16,030)	$	121,341	$	(16,193)	$	141,172
Municipal bonds	—		—		(757)		14,743		(757)		14,743
Asset-backed securities	(336)		59,540		(2,583)		299,752		(2,919)		359,292
Mortgage-backed securities	(789)		231,819		(65,070)		696,533		(65,859)		928,352
	(1,288)		311,190		(84,440)		1,132,369		(85,728)		1,443,559
Held-to-maturity securities
Mortgage-backed securities	—		—		(49,802)		345,952		(49,802)		345,952
	$	(1,288)	$	311,190	$	(134,242)	$	1,478,321	$	(135,530)	$	1,789,511

September 30, 2023	Less than 12 months				12 months or more				Total
	Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value
	(In thousands)
Available-for-sale securities
Corporate debt securities	$	—	$	—	$	(23,487)	$	167,452	$	(23,487)	$	167,452
Municipal bonds due	—		—		(1,250)		14,302		(1,250)		14,302
U.S. government and agency securities	(13)		14,917		(599)		21,795		(612)		36,712
Asset-backed securities	(2,142)		86,800		(5,788)		445,454		(7,930)		532,254
Mortgage-backed securities	(2,030)		142,235		(91,120)		744,010		(93,150)		886,245
	(4,185)		243,952		(122,244)		1,393,013		(126,429)		1,636,965
Held-to-maturity securities
Mortgage-backed securities	(15)		1,424		(68,383)		353,764		(68,398)		355,188
	$	(4,200)	$	245,376	$	(190,627)	$	1,746,777	$	(194,827)	$	1,992,153

The decline in fair value since purchase is attributable to changes in interest rates. Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of June 30, 2024 or September 30, 2023. The Company does not consider AFS or HTM investments to have any credit impairment.

The Company does not believe that the AFS debt securities that were in an unrealized loss position have any credit loss impairment as of June 30, 2024 or September 30, 2023. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is more likely than not the Company will not be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. AFS debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Corporate debt securities and municipal bonds are considered to have an issuer of high credit quality and the decline in fair value is due to changes in interest rates and other market conditions. The issuer continues to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.