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Derivatives and Hedging Activities | 9 Months Ended
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Jun. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivatives and Hedging Activities The following tables present the fair value, notional amount and balance sheet classification of derivative assets and liabilities at June 30, 2022 and September 30, 2021.
June 30, 2022 | Derivative Assets |  | Derivative Liabilities
Interest rate contract purpose | Balance Sheet Location | Notional | Fair Value |  | Balance Sheet Location | Notional | Fair Value
| (In thousands) |  | (In thousands)
Client swap program hedges | Other assets | $ | 565,380 |  | $ | 43,219 |  |  | Other liabilities | $ | 565,380 |  | $ | 43,219 |
Commercial loan fair value hedges | Other assets | 42,209 |  | 1,153 |  |  | Other liabilities | — |  | — |
Mortgage loan fair value hedges | Other assets | 470,000 |  | 26,415 |  |  | Other liabilities | — |  | — |
Borrowings cash flow hedges | Other assets | 1,000,000 |  | 136,436 |  |  | Other liabilities | — |  | — |
|  | $ | 2,077,589 |  | $ | 207,223 |  |  |  | $ | 565,380 |  | $ | 43,219 |
September 30, 2021 | Derivative Assets |  | Derivative Liabilities
Interest rate contract purpose | Balance Sheet Location | Notional | Fair Value |  | Balance Sheet Location | Notional | Fair Value
| (In thousands) |  | (In thousands)
Client swap program hedges | Other assets | $ | 644,355 |  | $ | 10,983 |  |  | Other liabilities | $ | 644,355 |  | $ | 10,983 |
Commercial loan fair value hedges | Other assets | — |  | — |  |  | Other liabilities | 44,678 |  | 2,177 |
Mortgage loan fair value hedges | Other assets | — |  | — |  |  | Other liabilities | 470,000 |  | 1,641 |
Borrowings cash flow hedges | Other assets | 1,000,000 |  | 42,442 |  |  | Other liabilities | — |  | — |
|  | $ | 1,644,355 |  | $ | 53,425 |  |  |  | $ | 1,159,033 |  | $ | 14,801 |
The Company enters into interest rate swaps to hedge interest rate risk. These arrangements include hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method. These relationships qualify as fair value hedges under FASB ASC 815, Derivatives and Hedging ("ASC 815"), which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged items. Gains and losses on interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item. Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged item is adjusted to reflect the cumulative impact of changes in fair value attributable to the hedged risk. The hedge basis adjustment remains with the hedged item until the hedged item is de-recognized from the balance sheet. The following tables present the impact of fair value hedge accounting on the carrying value of the hedged items at June 30, 2022 and September 30, 2021.
(In thousands) | June 30, 2022
Balance sheet line item in which hedged item is recorded | Carrying value of hedged items | Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2) | $ | 1,210,272 |  | $ | (27,410) |
| $ | 1,210,272 |  | $ | (27,410) |
(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At June 30, 2022, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1.2 billion, the cumulative basis adjustment associated with the hedging relationships was $(26.2) million, and the amount of the designated hedged items was $470 million. During the year ended September 30, 2021, hedge accounting was discontinued on $30 million (30%) of a $100 million last of layer hedge. At June 30, 2022, there is $1.0 million of remaining unamortized basis adjustment associated with the terminated portion of the hedge and it will be recognized over the remaining life of the associated pool of loans. (2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At June 30, 2022, the amortized cost basis of the hedged commercial loans was $41 million and the cumulative basis adjustment associated with the hedging relationships was $(1.2) million.
(In thousands) | September 30, 2021
Balance sheet line item in which hedged item is recorded | Carrying value of hedged items | Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
Loans receivable (1) (2) | $ | 1,515,487 |  | $ | 4,215 |
| $ | 1,515,487 |  | $ | 4,215 |
(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At September 30, 2021, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $1.5 billion, the cumulative basis adjustment associated with the hedging relationships was $1.9 million, and the amount of the designated hedged items was $470 million. During the year ended September 30, 2021, hedge accounting was discontinued on $30 million (30%) of a $100 million last of layer hedge. (2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2021, the amortized cost basis of the hedged commercial loans was $47 million and the cumulative basis adjustment associated with the hedging relationships was $2.4 million. During the year ended September 30, 2021, hedge accounting was discontinued on a $46 million commercial loan hedge. The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates. For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same income statement line item as the hedged cash flows. During the nine months ended June 30, 2021, $400,000,000 of cash flow hedges with an average effective rate of 2.15% were terminated and the associated FHLB borrowings were repaid at their 90-day call date. Additionally, a $200,000,000 partial termination of a cash flow hedge with an average effective rate of 0.79% was executed with the associated FHLB borrowing being repaid and a $14,110,000 gain recorded on the swap. Lastly, a $150,000,000 FHLB borrowing (unhedged) with a rate of 2.91% was repaid prior to maturity. As of June 30, 2022, the maturities for hedges of adjustable rate borrowings ranged from two years to eight years, with the weighted average being 6.8 years. The following tables present the gain (loss) recognized in AOCI on derivative instruments related to cash flow hedges on borrowings for the periods presented, as well as the effect of reclassification adjustments.
(In thousands) | Three Months Ended June 30,
Amounts recognized in AOCI | 2022 | 2021
Interest rate contracts: |  |
Pay fixed/receive floating swaps on borrowings cash flow hedges | $ | 31,225 |  | $ | (23,485) |
Reclassification adjustment of net (gain)/loss included in net income | — |  | — |
Total pre-tax gain/(loss) recognized in AOCI | $ | 31,225 |  | $ | (23,485) |
(In thousands) | Nine Months Ended June 30,
Amounts recognized in AOCI | 2022 | 2021
Interest rate contracts: |  |
Pay fixed/receive floating swaps on borrowings cash flow hedges | $ | 93,994 |  | $ | 67,198 |
Reclassification adjustment of net (gain)/loss included in net income | — |  | (14,110) |
Total pre-tax gain/(loss) recognized in AOCI | $ | 93,994 |  | $ | 53,088 |
The following tables present the gain (loss) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the periods presented.
| Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021
| Interest income on loans receivable | Interest expense on FHLB advances | Interest income on loans receivable | Interest expense on FHLB advances
| (In thousands) | (In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges | $ | 149,113 |  | $ | (6,118) |  | $ | 134,193 |  | $ | (9,937) |
Gain/(loss) on fair value hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives | $ | (394) |  |  | $ | (1,582) |  |
Recognized on derivatives | 8,325 |  |  | (6,262) |  |
Recognized on hedged items | (8,564) |  |  | 6,292 |  |
Net income/(expense) recognized on fair value hedges | $ | (633) |  |  | $ | (1,552) |  |
Gain/(loss) on cash flow hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives |  | $ | 21 |  |  | $ | 2,182 |
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense |  | — |  |  | — |
Net income/(expense) recognized on cash flow hedges |  | $ | 21 |  |  | $ | 2,182 |
| Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021
| Interest income on loans receivable | Interest expense on FHLB advances | Interest income on loans receivable | Interest expense on FHLB advances
| (In thousands) | (In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges | $ | 426,882 |  | $ | (21,486) |  | $ | 400,621 |  | $ | (35,126) |
Gain/(loss) on fair value hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives | $ | (2,964) |  |  | $ | (4,686) |  |
Recognized on derivatives | 31,386 |  |  | 15,816 |  |
Recognized on hedged items | (31,625) |  |  | (15,541) |  |
Net income/(expense) recognized on fair value hedges | $ | (3,203) |  |  | $ | (4,411) |  |
Gain/(loss) on cash flow hedging relationships: |  |  |  |
Interest rate contracts |  |  |  |
Amounts related to interest settlements on derivatives |  | $ | 3,757 |  |  | $ | 8,846 |
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense |  | — |  |  | 14,110 |
Net income/(expense) recognized on cash flow hedges |  | $ | 3,757 |  |  | $ | 22,956 |
The Company periodically enters into certain interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rate payments, while the Company retains a variable rate loan. Under these agreements, the Company enters into a variable rate loan agreement and a swap agreement with the client. The swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company enters into a corresponding swap agreement with a third party in order to offset its exposure on the variable and fixed components of the client's swap agreement. The interest rate swaps are derivatives under ASC 815, with changes in fair value recorded in earnings. There was no net impact to the statement of operations for the nine months ended June 30, 2022 and 2021 as the changes in fair value of the receive fixed swap and pay fixed swap offset each other. The following tables present the impact of derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented.
(In thousands) |  | Three Months Ended June 30,
Derivative instruments | Classification of gain/(loss) recognized in income on derivative instrument | 2022 | 2021
Interest rate contracts: |  |  |
Pay fixed/receive floating swap | Other noninterest income | $ | 15,865 |  | $ | 10,814 |
Receive fixed/pay floating swap | Other noninterest income | (15,865) |  | (10,814) |
|  | $ | — |  | $ | — |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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