| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities | | Fair Value | | Unrealized Losses |
| (Dollars in Thousands) |
Securities Available for Sale: | | | | | | | | | | | | | |
Obligations of state and political subdivisions | $ | 26,456 | | | $ | 1,022 | | | $ | — | | | $ | — | | | 71 | | $ | 26,456 | | | $ | 1,022 | |
Asset-backed securities | 153,235 | | | 2,566 | | | 4,846 | | | 38 | | | 15 | | 158,081 | | | 2,604 | |
Collateralized loan obligations | 190,147 | | | 7,000 | | | 112,700 | | | 4,091 | | | 24 | | 302,847 | | | 11,091 | |
Corporate bonds | 135,184 | | | 12,636 | | | 10,429 | | | 1,571 | | | 31 | | 145,613 | | | 14,207 | |
Collateralized mortgage obligations | 6,318 | | | 571 | | | — | | | — | | | 6 | | 6,318 | | | 571 | |
Commercial pass-through securities | 57,838 | | | 5,451 | | | 96,932 | | | 20,102 | | | 22 | | 154,770 | | | 25,553 | |
Residential pass-through securities | 147,704 | | | 24,211 | | | 319,903 | | | 88,143 | | | 119 | | 467,607 | | | 112,354 | |
Total | $ | 716,882 | | | $ | 53,457 | | | $ | 544,810 | | | $ | 113,945 | | | 288 | | $ | 1,261,692 | | | $ | 167,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities | | Fair Value | | Unrealized Losses |
| (Dollars in Thousands) |
Securities Available for Sale: | | | | | | | | | | | | | |
Obligations of state and political subdivisions | $ | 11,310 | | | $ | 89 | | | $ | — | | | $ | — | | | 30 | | $ | 11,310 | | | $ | 89 | |
Asset-backed securities | 161,303 | | | 2,928 | | | 5,254 | | | 21 | | | 15 | | 166,557 | | | 2,949 | |
Collateralized loan obligations | 236,967 | | | 6,435 | | | 70,846 | | | 1,445 | | | 24 | | 307,813 | | | 7,880 | |
Corporate bonds | 129,407 | | | 6,464 | | | 3,815 | | | 185 | | | 27 | | 133,222 | | | 6,649 | |
Collateralized mortgage obligations | 7,122 | | | 329 | | | — | | | — | | | 6 | | 7,122 | | | 329 | |
Commercial pass-through securities | 63,045 | | | 3,194 | | | 102,817 | | | 16,577 | | | 21 | | 165,862 | | | 19,771 | |
Residential pass-through securities | 237,928 | | | 26,566 | | | 274,197 | | | 54,058 | | | 106 | | 512,125 | | | 80,624 | |
Total | $ | 847,082 | | | $ | 46,005 | | | $ | 456,929 | | | $ | 72,286 | | | 229 | | $ | 1,304,011 | | | $ | 118,291 | |
The following table presents the gross unrecognized losses on securities and the estimated fair value of the related securities, aggregated by investment category and length of time that securities have been in a continuous unrecognized loss position within the held to maturity portfolio at September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrecognized Losses | | Fair Value | | Unrecognized Losses | | Number of Securities | | Fair Value | | Unrecognized Losses |
| (Dollars in Thousands) |
Securities Held to Maturity: | | | | | | | | | | | | | |
Obligations of state and political subdivisions | $ | 19,222 | | | $ | 608 | | | $ | — | | | $ | — | | | 39 | | $ | 19,222 | | | $ | 608 | |
Commercial pass-through securities | 9,976 | | | 2,298 | | | — | | | — | | | 1 | | 9,976 | | | 2,298 | |
Residential pass-through securities | 70,350 | | | 13,489 | | | — | | | — | | | 8 | | 70,350 | | | 13,489 | |
| | | | | | | | | | | | | |
Total | $ | 99,548 | | | $ | 16,395 | | | $ | — | | | $ | — | | | 48 | | $ | 99,548 | | | $ | 16,395 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Less than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Unrecognized Losses | | Fair Value | | Unrecognized Losses | | Number of Securities | | Fair Value | | Unrecognized Losses |
| (Dollars in Thousands) |
Securities Held to Maturity: | | | | | | | | | | | | | |
Obligations of state and political subdivisions | $ | 8,681 | | | $ | 78 | | | $ | — | | | $ | — | | | 15 | | $ | 8,681 | | | $ | 78 | |
Commercial pass-through securities | 10,729 | | | 1,552 | | | — | | | — | | | 1 | | 10,729 | | | 1,552 | |
Residential pass-through securities | 76,264 | | | 8,587 | | | — | | | — | | | 8 | | 76,264 | | | 8,587 | |
| | | | | | | | | | | | | |
Total | $ | 95,674 | | | $ | 10,217 | | | $ | — | | | $ | — | | | 24 | | $ | 95,674 | | | $ | 10,217 | |
Available for sale securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or from other factors. An impairment related to credit factors would be recorded through an allowance for credit losses. The allowance is limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the Consolidated Statement of Income if management intends to sell, or may be required to sell, the securities before they recover in value. The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due or were placed in nonaccrual status at September 30, 2022. Management believes that the unrealized losses on these securities are a function of changes in market interest rates and credit spreads, not changes in credit quality. No allowance for credit losses was recorded at September 30, 2022 on available for sale securities.
At September 30, 2022, the held to maturity securities portfolio consists of agency mortgage-backed securities and obligations of state and political subdivisions. The mortgage-backed securities are issued by U.S. government agencies and are implicitly guaranteed by the U.S. government. The obligations of state and political subdivisions in the portfolio are highly rated by major rating agencies and have a long history of no credit losses. The Company regularly monitors the obligations of state and political subdivisions sector of the market and reviews collectability including such factors as the financial condition of the issuers as well as credit ratings in effect as of the reporting period. No allowance for credit losses was recorded at September 30, 2022 on held to maturity securities.
5. LOANS RECEIVABLE
The following table sets forth the composition of the Company’s loan portfolio at September 30, 2022 and June 30, 2022:
| | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| (In Thousands) |
Commercial loans: | | | |
Multi-family mortgage | $ | 2,570,297 | | | $ | 2,409,090 | |
Nonresidential mortgage | 1,040,688 | | | 1,019,838 | |
Commercial business | 186,361 | | | 176,807 | |
Construction | 166,052 | | | 140,131 | |
Total commercial loans | 3,963,398 | | | 3,745,866 | |
| | | |
One- to four-family residential mortgage | 1,666,730 | | | 1,645,816 | |
| | | |
Consumer loans: | | | |
Home equity loans | 43,269 | | | 42,028 | |
Other consumer | 2,869 | | | 2,866 | |
Total consumer loans | 46,138 | | | 44,894 | |
| | | |
Total loans | 5,676,266 | | | 5,436,576 | |
| | | |
Unaccreted yield adjustments (1) | (19,896) | | | (18,731) | |
| | | |
Total loans receivable, net of yield adjustments | $ | 5,656,370 | | | $ | 5,417,845 | |
___________________________
(1)At September 30, 2022, included a fair value adjustment to the carrying amount of hedged one- to four-family residential mortgage loans.
Past Due Loans
Past due status is based on the contractual payment terms of the loans. The following tables present the payment status of past due loans as of September 30, 2022 and June 30, 2022, by loan segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payment Status September 30, 2022 |
| 30-59 Days | | 60-89 Days | | 90 Days and Over | | Total Past Due | | Current | | Total |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | — | | | $ | 10,842 | | | $ | 10,842 | | | $ | 2,559,455 | | | $ | 2,570,297 | |
Nonresidential mortgage | 20 | | | 918 | | | 18,102 | | | 19,040 | | | 1,021,648 | | | 1,040,688 | |
Commercial business | — | | | 8 | | | 325 | | | 333 | | | 186,028 | | | 186,361 | |
Construction | — | | | — | | | — | | | — | | | 166,052 | | | 166,052 | |
One- to four-family residential mortgage | 1,305 | | | 1,009 | | | 2,326 | | | 4,640 | | | 1,662,090 | | | 1,666,730 | |
Home equity loans | 153 | | | — | | | 24 | | | 177 | | | 43,092 | | | 43,269 | |
Other consumer | — | | | — | | | — | | | — | | | 2,869 | | | 2,869 | |
Total loans | $ | 1,478 | | | $ | 1,935 | | | $ | 31,619 | | | $ | 35,032 | | | $ | 5,641,234 | | | $ | 5,676,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payment Status June 30, 2022 |
| 30-59 Days | | 60-89 Days | | 90 Days and Over | | Total Past Due | | Current | | Total |
| (In Thousands) |
Multi-family mortgage | $ | 3,148 | | | $ | 3,056 | | | $ | 7,788 | | | $ | 13,992 | | | $ | 2,395,098 | | | $ | 2,409,090 | |
Nonresidential mortgage | 4,026 | | | — | | | 18,132 | | | 22,158 | | | 997,680 | | | 1,019,838 | |
Commercial business | 98 | | | 57 | | | 155 | | | 310 | | | 176,497 | | | 176,807 | |
Construction | — | | | — | | | — | | | — | | | 140,131 | | | 140,131 | |
One- to four-family residential mortgage | 1,525 | | | 253 | | | 3,455 | | | 5,233 | | | 1,640,583 | | | 1,645,816 | |
Home equity loans | 28 | | | 35 | | | — | | | 63 | | | 41,965 | | | 42,028 | |
Other consumer | — | | | — | | | — | | | — | | | 2,866 | | | 2,866 | |
Total loans | $ | 8,825 | | | $ | 3,401 | | | $ | 29,530 | | | $ | 41,756 | | | $ | 5,394,820 | | | $ | 5,436,576 | |
Nonperforming Loans
Loans are generally placed on nonaccrual status when contractual payments become 90 or more days past due or when the Company does not expect to receive all principal and interest payments owed substantially in accordance with the terms of the loan agreement, regardless of past due status. Loans that become 90 days past due, but are well secured and in the process of collection, may remain on accrual status. Nonaccrual loans are generally returned to accrual status when all payments due are brought current and the Company expects to receive all remaining principal and interest payments owed substantially in accordance with the terms of the loan agreement. Payments received in cash on nonaccrual loans, including both the principal and interest portions of those payments, are generally applied to reduce the carrying value of the loan. The Company did not recognize interest income on non-accrual loans during the three months ended September 30, 2022 and 2021.
The following tables present information relating to the Company’s nonperforming loans as of September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Status September 30, 2022 |
| 90 Days and Over Past Due Accruing | | Nonaccrual Loans with Allowance for Credit Losses | | Nonaccrual Loans with no Allowance for Credit Losses | | Total Nonperforming | | Performing | | Total |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | 8,317 | | | $ | 18,089 | | | $ | 26,406 | | | $ | 2,543,891 | | | $ | 2,570,297 | |
Nonresidential mortgage | — | | | 12,328 | | | 19,021 | | | 31,349 | | | 1,009,339 | | | 1,040,688 | |
Commercial business | — | | | 275 | | | 50 | | | 325 | | | 186,036 | | | 186,361 | |
Construction | — | | | — | | | 1,402 | | | 1,402 | | | 164,650 | | | 166,052 | |
One- to four-family residential mortgage | — | | | 4,420 | | | 4,584 | | | 9,004 | | | 1,657,726 | | | 1,666,730 | |
Home equity loans | — | | | — | | | 88 | | | 88 | | | 43,181 | | | 43,269 | |
Other consumer | — | | | — | | | — | | | — | | | 2,869 | | | 2,869 | |
Total loans | $ | — | | | $ | 25,340 | | | $ | 43,234 | | | $ | 68,574 | | | $ | 5,607,692 | | | $ | 5,676,266 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Status June 30, 2022 |
| 90 Days and Over Past Due Accruing | | Nonaccrual Loans with Allowance for Credit Losses | | Nonaccrual Loans with no Allowance for Credit Losses | | Total Nonperforming | | Performing | | Total |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | 8,367 | | | $ | 18,286 | | | $ | 26,653 | | | $ | 2,382,437 | | | $ | 2,409,090 | |
Nonresidential mortgage | — | | | 12,602 | | | 19,292 | | | 31,894 | | | 987,944 | | | 1,019,838 | |
Commercial business | — | | | 212 | | | 81 | | | 293 | | | 176,514 | | | 176,807 | |
Construction | — | | | — | | | 1,561 | | | 1,561 | | | 138,570 | | | 140,131 | |
One- to four-family residential mortgage | — | | | 3,543 | | | 4,946 | | | 8,489 | | | 1,637,327 | | | 1,645,816 | |
Home equity loans | — | | | 302 | | | 1,129 | | | 1,431 | | | 40,597 | | | 42,028 | |
Other consumer | — | | | — | | | — | | | — | | | 2,866 | | | 2,866 | |
Total loans | $ | — | | | $ | 25,026 | | | $ | 45,295 | | | $ | 70,321 | | | $ | 5,366,255 | | | $ | 5,436,576 | |
Troubled Debt Restructurings (“TDRs”)
TDRs are loans where the Company has modified the contractual terms of the loan as a result of the financial condition of the borrower. Subsequent to their modification, TDRs are placed on non-accrual until such time as satisfactory payment performance has been demonstrated, at which time the loan may be returned to accrual status. On a case-by-case basis, the Company may agree to modify the contractual terms of a loan to assist a borrower who may be experiencing financial difficulty, as well as to preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR. The Company had TDRs totaling $20.8 million and $22.2 million as of September 30, 2022 and June 30, 2022, respectively. The allowance for credit losses associated with the TDRs presented in the tables below totaled $403,000 and $365,000 as of September 30, 2022 and June 30, 2022, respectively. As of September 30, 2022, the Company had commitments to lend additional funds totaling $92,000 to borrowers whose loans had been restructured in a TDR.
The following tables present total TDR loans at September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Accrual | | Non-accrual | | Total |
| # of Loans | | Amount | | # of Loans | | Amount | | # of Loans | | Amount |
| (Dollars In Thousands) |
Commercial loans: | | | | | | | | | | | |
Multi-family mortgage | — | | $ | — | | | 2 | | $ | 5,582 | | | 2 | | $ | 5,582 | |
Nonresidential mortgage | 3 | | 190 | | | 1 | | 395 | | | 4 | | 585 | |
Commercial business | 4 | | 3,578 | | | — | | — | | | 4 | | 3,578 | |
Construction | — | | — | | | 1 | | 1,402 | | | 1 | | 1,402 | |
Total commercial loans | 7 | | 3,768 | | 4 | | 7,379 | | 11 | | 11,147 |
| | | | | | | | | | | |
One- to four-family residential mortgage | 27 | | 3,723 | | | 18 | | 4,419 | | | 45 | | 8,142 | |
| | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | |
Home equity loans | 6 | | 1,454 | | | 1 | | 35 | | | 7 | | 1,489 | |
Total | 40 | | $ | 8,945 | | | 23 | | $ | 11,833 | | | 63 | | $ | 20,778 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Accrual | | Non-accrual | | Total |
| # of Loans | | Amount | | # of Loans | | Amount | | # of Loans | | Amount |
| (Dollars In Thousands) |
Commercial loans: | | | | | | | | | | | |
Multi-family mortgage | — | | $ | — | | | 2 | | $ | 5,626 | | | 2 | | $ | 5,626 | |
Nonresidential mortgage | 4 | | 389 | | | 2 | | 1,565 | | | 6 | | 1,954 | |
Commercial business | 5 | | 3,631 | | | 2 | | 82 | | | 7 | | 3,713 | |
Construction | — | | — | | | 1 | | 1,561 | | | 1 | | 1,561 | |
Total commercial loans | 9 | | 4,020 | | | 7 | | 8,834 | | | 16 | | 12,854 | |
| | | | | | | | | | | |
One- to four-family residential mortgage | 29 | | 4,488 | | | 16 | | 3,314 | | | 45 | | 7,802 | |
| | | | | | | | | | | |
Consumer loans: | | | | | | | | | | | |
Home equity loans | 5 | | 164 | | | 2 | | 1,364 | | | 7 | | 1,528 | |
Total | 43 | | $ | 8,672 | | | 25 | | $ | 13,512 | | | 68 | | $ | 22,184 | |
The following tables present information regarding TDRs that occurred during the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Three Months Ended September 30, 2021 |
| # of Loans | | Pre- modification Recorded Investment | | Post- modification Recorded Investment | | # of Loans | | Pre- modification Recorded Investment | | Post- modification Recorded Investment |
| (Dollars In Thousands) |
Multi-family mortgage | — | | $ | — | | | $ | — | | | 1 | | $ | 2,987 | | | $ | 2,972 | |
One- to four-family residential mortgage | 1 | | 435 | | | 435 | | | — | | — | | | — | |
Home equity loans | 1 | | 35 | | | 35 | | | — | | — | | | — | |
Total | 2 | | $ | 470 | | | $ | 470 | | | 1 | | $ | 2,987 | | | $ | 2,972 | |
During the three months ended September 30, 2022, there were charge-offs of $10,000 related to TDRs. During the three months ended September 30, 2021, there were no charge-offs related to TDRs. During the three months ended September 30, 2022 and 2021, there were no defaults of TDRs.
Loan modifications generally involve a reduction in interest rates and/or extension of maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future. The loans which qualified as TDRs during the three months ended September 30, 2022 and 2021, capitalized prior past due amounts and modified the repayment terms.
Individually Analyzed Loans
Individually analyzed loans include loans which do not share similar risk characteristics with other loans. TDRs will generally be evaluated for individual impairment, however, after a period of sustained repayment performance which permits the credit to be returned to accrual status, a TDR would generally be removed from individual impairment analysis and returned to its corresponding pool. As of September 30, 2022, the carrying value of individually analyzed loans, including loans acquired with deteriorated credit quality that were individually analyzed, totaled $68.6 million, of which $62.7 million were considered collateral dependent.
For collateral dependent loans where management has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral, the allowance for credit losses is measured based on the difference between the fair value of the collateral, less costs to sell, and the amortized cost basis of the loan as of the measurement date. See Note 12 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.
The following table presents the carrying value and related allowance of collateral dependent individually analyzed loans at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| Carrying Value | | Related Allowance | | Carrying Value | | Related Allowance |
| (In Thousands) |
Commercial loans: | | | | | | | |
Multi-family mortgage | $ | 26,406 | | | $ | 755 | | | $ | 26,653 | | | $ | 849 | |
Nonresidential mortgage (1) | 30,985 | | | 2,580 | | | 30,733 | | | 2,696 | |
Commercial business (2) | — | | | — | | | — | | | — | |
Construction | 1,402 | | | — | | | 1,561 | | | — | |
Total commercial loans | 58,793 | | | 3,335 | | | 58,947 | | | 3,545 | |
| | | | | | | |
One- to four-family residential mortgage (3) | 3,895 | | | 51 | | | 4,305 | | | 77 | |
| | | | | | | |
Consumer loans: | | | | | | | |
Home equity loans (3) | 35 | | | — | | | 35 | | | — | |
| | | | | | | |
Total | $ | 62,723 | | | $ | 3,386 | | | $ | 63,287 | | | $ | 3,622 | |
___________________________
(1)Secured by income-producing nonresidential property.
(2)Secured by business assets.
(3)Secured by one- to four-family residential properties.
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. The Company uses the following definitions for risk ratings:
Pass – Loans that are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral in a timely manner.
Special Mention – Loans which do not currently expose the Company to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other potential weaknesses.
Substandard – Loans which are inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful – Loans which have all of the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable, on the basis of currently existing facts, conditions and values.
Loss – Loans which are considered uncollectible or of so little value that their continuance as assets is not warranted.
The following table presents the risk category of loans as of September 30, 2022 by loan segment and vintage year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year for Fiscal Years ended June 30, | | | | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Revolving Loans | | Total |
| (In Thousands) |
Multi-family mortgage: | | | | | | | | | | | | | | | |
Pass | $ | 229,047 | | | $ | 960,324 | | | $ | 244,070 | | | $ | 206,625 | | | $ | 258,937 | | | $ | 638,115 | | | $ | — | | | $ | 2,537,118 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | 6,773 | | | — | | | 6,773 | |
Substandard | — | | | — | | | — | | | — | | | 9,667 | | | 16,739 | | | — | | | 26,406 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multi-family mortgage | 229,047 | | | 960,324 | | | 244,070 | | | 206,625 | | | 268,604 | | | 661,627 | | | — | | | 2,570,297 | |
Nonresidential mortgage: | | | | | | | | | | | | | | | |
Pass | 53,919 | | | 230,708 | | | 86,743 | | | 53,439 | | | 60,353 | | | 511,563 | | | 6,000 | | | 1,002,725 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | 586 | | | — | | | 586 | |
Substandard | — | | | — | | | 717 | | | — | | | 933 | | | 35,727 | | | — | | | 37,377 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total nonresidential mortgage | 53,919 | | | 230,708 | | | 87,460 | | | 53,439 | | | 61,286 | | | 547,876 | | | 6,000 | | | 1,040,688 | |
Commercial business: | | | | | | | | | | | | | | | |
Pass | 8,035 | | | 41,099 | | | 37,369 | | | 10,214 | | | 2,897 | | | 10,682 | | | 71,005 | | | 181,301 | |
Special Mention | — | | | — | | | — | | | 58 | | | 183 | | | 2,960 | | | 8 | | | 3,209 | |
Substandard | — | | | — | | | 37 | | | 285 | | | — | | | 1,398 | | | 131 | | | 1,851 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total commercial business | 8,035 | | | 41,099 | | | 37,406 | | | 10,557 | | | 3,080 | | | 15,040 | | | 71,144 | | | 186,361 | |
Construction loans: | | | | | | | | | | | | | | | |
Pass | 1,759 | | | 21,598 | | | 113,806 | | | 11,387 | | | 3,019 | | | 7,346 | | | 5,735 | | | 164,650 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | 1,402 | | | — | | | 1,402 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction loans | 1,759 | | | 21,598 | | | 113,806 | | | 11,387 | | | 3,019 | | | 8,748 | | | 5,735 | | | 166,052 | |
Residential mortgage: | | | | | | | | | | | | | | | |
Pass | 62,773 | | | 469,622 | | | 515,419 | | | 84,535 | | | 48,612 | | | 472,149 | | | 375 | | | 1,653,485 | |
Special Mention | — | | | — | | | — | | | — | | | 1,192 | | | 499 | | | — | | | 1,691 | |
Substandard | — | | | — | | | — | | | — | | | 82 | | | 11,472 | | | — | | | 11,554 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total residential mortgage | 62,773 | | | 469,622 | | | 515,419 | | | 84,535 | | | 49,886 | | | 484,120 | | | 375 | | | 1,666,730 | |
Home equity loans: | | | | | | | | | | | | | | | |
Pass | 2,642 | | | 2,873 | | | 675 | | | 1,587 | | | 2,843 | | | 8,740 | | | 22,224 | | | 41,584 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | 118 | | | 1,439 | | | 128 | | | 1,685 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total home equity loans | 2,642 | | | 2,873 | | | 675 | | | 1,587 | | | 2,961 | | | 10,179 | | | 22,352 | | | 43,269 | |
Other consumer loans | | | | | | | | | | | | | | | |
Pass | 204 | | | 346 | | | 285 | | | 465 | | | 357 | | | 1,101 | | | 35 | | | 2,793 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | 76 | | | 76 | |
Other consumer loans | 204 | | | 346 | | | 285 | | | 465 | | | 357 | | | 1,101 | | | 111 | | | 2,869 | |
Total loans | $ | 358,379 | | | $ | 1,726,570 | | | $ | 999,121 | | | $ | 368,595 | | | $ | 389,193 | | | $ | 1,728,691 | | | $ | 105,717 | | | $ | 5,676,266 | |
The following table presents the risk category of loans as of June 30, 2022 by loan segment and vintage year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Term Loans by Origination Year for Fiscal Years ended June 30, | | | | |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving Loans | | Total |
| (In Thousands) |
Multi-family mortgage: | | | | | | | | | | | | | | | |
Pass | $ | 963,263 | | | $ | 250,385 | | | $ | 211,101 | | | $ | 264,174 | | | $ | 248,058 | | | $ | 438,642 | | | $ | — | | | $ | 2,375,623 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | 6,814 | | | — | | | 6,814 | |
Substandard | — | | | — | | | — | | | 9,821 | | | 5,935 | | | 10,897 | | | — | | | 26,653 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total multi-family mortgage | 963,263 | | | 250,385 | | | 211,101 | | | 273,995 | | | 253,993 | | | 456,353 | | | — | | | 2,409,090 | |
Nonresidential mortgage: | | | | | | | | | | | | | | | |
Pass | 231,777 | | | 87,309 | | | 53,983 | | | 60,714 | | | 49,285 | | | 491,849 | | | 6,052 | | | 980,969 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | 591 | | | — | | | 591 | |
Substandard | — | | | 720 | | | — | | | 933 | | | 4,026 | | | 32,599 | | | — | | | 38,278 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total nonresidential mortgage | 231,777 | | | 88,029 | | | 53,983 | | | 61,647 | | | 53,311 | | | 525,039 | | | 6,052 | | | 1,019,838 | |
Commercial business: | | | | | | | | | | | | | | | |
Pass | 46,888 | | | 38,791 | | | 12,155 | | | 3,581 | | | 4,861 | | | 6,455 | | | 58,662 | | | 171,393 | |
Special Mention | — | | | — | | | 62 | | | 186 | | | 2,173 | | | 873 | | | 215 | | | 3,509 | |
Substandard | — | | | 38 | | | 319 | | | — | | | 1,347 | | | 61 | | | 58 | | | 1,823 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | 80 | | | 2 | | | 82 | |
Total commercial business | 46,888 | | | 38,829 | | | 12,536 | | | 3,767 | | | 8,381 | | | 7,469 | | | 58,937 | | | 176,807 | |
Construction loans: | | | | | | | | | | | | | | | |
Pass | 16,407 | | | 95,526 | | | 10,337 | | | 3,039 | | | 6,509 | | | 1,017 | | | 5,735 | | | 138,570 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | 1,561 | | | — | | | 1,561 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total construction loans | 16,407 | | | 95,526 | | | 10,337 | | | 3,039 | | | 6,509 | | | 2,578 | | | 5,735 | | | 140,131 | |
Residential mortgage: | | | | | | | | | | | | | | | |
Pass | 472,160 | | | 524,163 | | | 88,645 | | | 49,316 | | | 55,139 | | | 442,517 | | | 374 | | | 1,632,314 | |
Special Mention | — | | | — | | | — | | | 1,205 | | | — | | | 621 | | | — | | | 1,826 | |
Substandard | — | | | — | | | — | | | 83 | | | — | | | 11,593 | | | — | | | 11,676 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total residential mortgage | 472,160 | | | 524,163 | | | 88,645 | | | 50,604 | | | 55,139 | | | 454,731 | | | 374 | | | 1,645,816 | |
Home equity loans: | | | | | | | | | | | | | | | |
Pass | 3,197 | | | 692 | | | 1,681 | | | 3,117 | | | 2,027 | | | 7,321 | | | 22,334 | | | 40,369 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | 120 | | | — | | | 1,539 | | | — | | | 1,659 | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total home equity loans | 3,197 | | | 692 | | | 1,681 | | | 3,237 | | | 2,027 | | | 8,860 | | | 22,334 | | | 42,028 | |
Other consumer loans | | | | | | | | | | | | | | | |
Pass | 442 | | | 308 | | | 471 | | | 375 | | | 258 | | | 895 | | | 34 | | | 2,783 | |
Special Mention | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Substandard | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Doubtful | — | | | — | | | — | | | — | | | — | | | — | | | 83 | | | 83 | |
Other consumer loans | 442 | | | 308 | | | 471 | | | 375 | | | 258 | | | 895 | | | 117 | | | 2,866 | |
Total loans | $ | 1,734,134 | | | $ | 997,932 | | | $ | 378,754 | | | $ | 396,664 | | | $ | 379,618 | | | $ | 1,455,925 | | | $ | 93,549 | | | $ | 5,436,576 | |
Mortgage Loans in Foreclosure
The Company may obtain physical possession of one- to four-family real estate collateralizing a residential mortgage loan or nonresidential real estate collateralizing a nonresidential mortgage loan via foreclosure or through an in-substance repossession. As of September 30, 2022, the Company held one single-family property in other real estate owned with an aggregate carrying value of $178,000 that was acquired through a foreclosure on a residential mortgage loan. As of that same date, the Company held five residential mortgage loans with aggregate carrying values totaling $1.0 million and one nonresidential mortgage loan with a carrying value of $13.3 million which were in the process of foreclosure. As of June 30, 2022, the Company held one single-family property in other real estate owned with an aggregate carrying value of $178,000 that was acquired through a foreclosure on a residential mortgage loan. As of that same date, the Company held seven residential mortgage loans with aggregate carrying values totaling $1.5 million which were in the process of foreclosure.
6. ALLOWANCE FOR CREDIT LOSSES
Allowance for Credit Losses on Loans Receivable
The following tables present the balance of the allowance for credit losses at September 30, 2022 and June 30, 2022. The balance of the allowance for credit losses is based on an expected loss methodology, referred to as the “CECL” methodology. The tables identify the valuation allowances attributable to specifically identified impairments on individually analyzed loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans collectively evaluated. The tables include the underlying balance of loans receivable applicable to each category as of those dates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Credit Losses September 30, 2022 |
| Loans acquired with deteriorated credit quality individually analyzed | | Loans acquired with deteriorated credit quality collectively evaluated | | Loans individually analyzed | | Loans collectively evaluated | | Total allowance for credit losses |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | — | | | $ | 755 | | | $ | 25,491 | | | $ | 26,246 | |
Nonresidential mortgage | — | | | 68 | | | 2,580 | | | 6,504 | | | 9,152 | |
Commercial business | — | | | 6 | | | 5 | | | 1,961 | | | 1,972 | |
Construction | — | | | — | | | — | | | 1,120 | | | 1,120 | |
One- to four-family residential mortgage | 25 | | | 172 | | | 164 | | | 8,440 | | | 8,801 | |
Home equity loans | — | | | 2 | | | — | | | 242 | | | 244 | |
Other consumer | — | | | — | | | — | | | 78 | | | 78 | |
Total loans | $ | 25 | | | $ | 248 | | | $ | 3,504 | | | $ | 43,836 | | | $ | 47,613 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance of Loans Receivable September 30, 2022 |
| Loans acquired with deteriorated credit quality individually analyzed | | Loans acquired with deteriorated credit quality collectively evaluated | | Loans individually analyzed | | Loans collectively evaluated | | Total loans |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | — | | | $ | 26,406 | | | $ | 2,543,891 | | | $ | 2,570,297 | |
Nonresidential mortgage | 364 | | | 3,763 | | | 30,985 | | | 1,005,576 | | | 1,040,688 | |
Commercial business | — | | | 1,267 | | | 325 | | | 184,769 | | | 186,361 | |
Construction | — | | | 5,735 | | | 1,402 | | | 158,915 | | | 166,052 | |
One- to four-family residential mortgage | 79 | | | 5,377 | | | 8,925 | | | 1,652,349 | | | 1,666,730 | |
Home equity loans | 26 | | | 350 | | | 62 | | | 42,831 | | | 43,269 | |
Other consumer | — | | | — | | | — | | | 2,869 | | | 2,869 | |
Total loans | $ | 469 | | | $ | 16,492 | | | $ | 68,105 | | | $ | 5,591,200 | | | $ | 5,676,266 | |
Unaccreted yield adjustments | | | | | | | | | (19,896) | |
Loans receivable, net of yield adjustments | | | | | | | | | $ | 5,656,370 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for Credit Losses June 30, 2022 |
| Loans acquired with deteriorated credit quality individually analyzed | | Loans acquired with deteriorated credit quality collectively evaluated | | Loans individually analyzed | | Loans collectively evaluated | | Total allowance for credit losses |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | — | | | $ | 849 | | | $ | 24,472 | | | $ | 25,321 | |
Nonresidential mortgage | — | | | 73 | | | 2,696 | | | 7,821 | | | 10,590 | |
Commercial business | — | | | 9 | | | 16 | | | 1,767 | | | 1,792 | |
Construction | — | | | — | | | — | | | 1,486 | | | 1,486 | |
One- to four-family residential mortgage | — | | | 229 | | | 148 | | | 7,163 | | | 7,540 | |
Home equity loans | 26 | | | — | | | — | | | 219 | | | 245 | |
Other consumer | — | | | — | | | — | | | 84 | | | 84 | |
Total loans | $ | 26 | | | $ | 311 | | | $ | 3,709 | | | $ | 43,012 | | | $ | 47,058 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance of Loans Receivable June 30, 2022 |
| Loans acquired with deteriorated credit quality individually analyzed | | Loans acquired with deteriorated credit quality collectively evaluated | | Loans individually analyzed | | Loans collectively evaluated | | Total loans |
| (In Thousands) |
Multi-family mortgage | $ | — | | | $ | — | | | $ | 26,653 | | | $ | 2,382,437 | | | $ | 2,409,090 | |
Nonresidential mortgage | 377 | | | 5,033 | | | 31,517 | | | 982,911 | | | 1,019,838 | |
Commercial business | — | | | 1,267 | | | 293 | | | 175,247 | | | 176,807 | |
Construction | — | | | 5,735 | | | 1,561 | | | 132,835 | | | 140,131 | |
One- to four-family residential mortgage | 87 | | | 6,460 | | | 8,402 | | | 1,630,867 | | | 1,645,816 | |
Home equity loans | 329 | | | 58 | | | 1,102 | | | 40,539 | | | 42,028 | |
Other consumer | — | | | — | | | — | | | 2,866 | | | 2,866 | |
Total loans | $ | 793 | | | $ | 18,553 | | | $ | 69,528 | | | $ | 5,347,702 | | | $ | 5,436,576 | |
Unaccreted yield adjustments | | | | | | | | | (18,731) | |
Loans receivable, net of yield adjustments | | | | | | | | | $ | 5,417,845 | |
The following tables present the activity in the allowance for credit losses on loans for the three months ended September 30, 2022 and 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in the Allowance for Credit Losses Three Months Ended September 30, 2022 |
| Balance at June 30, 2022 | | Charge-offs | | Recoveries | | Provision for (reversal of) credit losses | | Balance at September 30, 2022 |
| (In Thousands) |
Multi-family mortgage | $ | 25,321 | | | $ | — | | | $ | — | | | $ | 925 | | | $ | 26,246 | |
Nonresidential mortgage | 10,590 | | | (10) | | | — | | | (1,428) | | | 9,152 | |
Commercial business | 1,792 | | | (118) | | | 12 | | | 286 | | | 1,972 | |
Construction | 1,486 | | | — | | | — | | | (366) | | | 1,120 | |
One- to four-family residential mortgage | 7,540 | | | — | | | — | | | 1,261 | | | 8,801 | |
Home equity loans | 245 | | | — | | | — | | | (1) | | | 244 | |
Other consumer | 84 | | | — | | | 1 | | | (7) | | | 78 | |
Total loans | $ | 47,058 | | | $ | (128) | | | $ | 13 | | | $ | 670 | | | $ | 47,613 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in the Allowance for Credit Losses Three Months Ended September 30, 2021 |
| Balance at June 30, 2021 | | Charge-offs | | Recoveries | | (Reversal of) provision for credit losses | | Balance at September 30, 2021 |
| (In Thousands) |
Multi-family mortgage | $ | 28,450 | | | $ | (104) | | | $ | — | | | $ | (3,364) | | | $ | 24,982 | |
Nonresidential mortgage | 16,243 | | | (813) | | | — | | | (1,585) | | | 13,845 | |
Commercial business | 2,086 | | | (160) | | | 97 | | | (29) | | | 1,994 | |
Construction | 1,170 | | | — | | | — | | | 260 | | | 1,430 | |
One- to four-family residential mortgage | 9,747 | | | — | | | 2 | | | (620) | | | 9,129 | |
Home equity loans | 433 | | | — | | | — | | | (115) | | | 318 | |
Other consumer | 36 | | | (2) | | | — | | | 53 | | | 87 | |
Total loans | $ | 58,165 | | | $ | (1,079) | | | $ | 99 | | | $ | (5,400) | | | $ | 51,785 | |
Allowance for Credit Losses on Off Balance Sheet Commitments
The following table presents the activity in the allowance for credit losses on off balance sheet commitments recorded in other non-interest expense for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | 2021 | | | | |
| (In Thousands) | | |
Balance at beginning of the period | $ | 1,041 | | | $ | 1,708 | | | | | |
Reversal of credit losses | (288) | | | (124) | | | | | |
Balance at end of the period | $ | 753 | | | $ | 1,584 | | | | | |
7. DEPOSITS
Deposits are summarized as follows:
| | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| (In Thousands) |
Non-interest-bearing demand | $ | 683,406 | | | $ | 653,899 | |
Interest-bearing demand | 2,382,411 | | | 2,265,597 | |
Savings | 982,916 | | | 1,053,198 | |
Certificates of deposits | 2,059,545 | | | 1,889,562 | |
Total deposits | $ | 6,108,278 | | | $ | 5,862,256 | |
8. BORROWINGS
Borrowings at September 30, 2022 and June 30, 2022 consisted of the following:
| | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| (In Thousands) |
FHLB advances | $ | 796,454 | | | $ | 651,337 | |
Overnight borrowings (1) | 55,000 | | | 250,000 | |
Total borrowings | $ | 851,454 | | | $ | 901,337 | |
___________________________
(1)At September 30, 2022 and June 30, 2022, represents FHLB overnight line of credit borrowings.
Fixed rate advances from the FHLB of New York mature as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| Balance | | Weighted Average Interest Rate | | Balance | | Weighted Average Interest Rate |
| (Dollars in Thousands) |
By remaining period to maturity: | | | | | | | |
Less than one year | $ | 665,000 | | | 3.20 | % | | $ | 520,000 | | | 2.04 | % |
One to two years | 22,500 | | | 2.63 | | | 22,500 | | | 2.63 | |
Two to three years | 103,500 | | | 2.68 | | | 103,500 | | | 2.68 | |
Three to four years | 6,500 | | | 2.82 | | | 6,500 | | | 2.82 | |
Four to five years | — | | | — | | | — | | | — | |
Greater than five years | — | | | — | | | — | | | — | |
Total advances | 797,500 | | | 3.11 | % | | 652,500 | | | 2.17 | % |
Unamortized fair value adjustments | (1,046) | | | | | (1,163) | | | |
Total advances, net of fair value adjustments | $ | 796,454 | | | | | $ | 651,337 | | | |
At September 30, 2022, FHLB advances and overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.88 billion and $162.5 million, respectively. At June 30, 2022, FHLB advances and overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.58 billion and $178.0 million, respectively.
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 and assets.
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 Statements of Financial Condition as of September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Asset Derivatives | | Liability Derivatives |
| Location | | Fair Value | | Location | | Fair Value |
| (In Thousands) |
Derivatives designated as hedging instruments: | | | | | | | |
Interest rate contracts | Other assets | | $ | 66,511 | | | Other liabilities | | $ | — | |
Total | | | $ | 66,511 | | | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Asset Derivatives | | Liability Derivatives |
| Location | | Fair Value | | Location | | Fair Value |
| (In Thousands) |
Derivatives designated as hedging instruments: | | | | | | | |
Interest rate contracts | Other assets | | $ | 41,223 | | | Other liabilities | | $ | — | |
Total | | | $ | 41,223 | | | | | $ | — | |
Cash Flow Hedges of Interest Rate Risk
The Company’s uses derivatives to add stability to interest expense and interest income and to manage its exposure to interest rate movements. The Company has entered into interest rate swaps, interest rate caps and an interest rate floor as part of its interest rate risk management strategy. These interest rate products are designated as cash flow hedges. As of September 30, 2022, the Company had a total of 10 interest rate swaps and caps with a total notional amount of $875.0 million hedging specific wholesale funding and one interest rate floor with a notional amount of $100.0 million hedging floating-rate available for sale securities.
For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in other comprehensive income (loss), net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.
For cash flow hedges on the Company’s wholesale funding positions, amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s hedged variable rate wholesale funding positions. During the three months ended September 30, 2022, the Company reclassified $1.6 million as a reduction in interest expense. During the next twelve months, the Company estimates that $20.6 million will be reclassified as a reduction in interest expense.
For cash flow hedges on the Company’s assets, amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest income as interest payments are received on the Company’s hedged variable rate assets.
The table below presents the pre-tax effects of the Company’s derivative instruments designated as cash flow hedges on the Consolidated Statements of Income for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | 2021 | | | | |
| (In Thousands) | | |
Amount of gain recognized in other comprehensive income | $ | 22,170 | | | $ | 154 | | | | | |
Amount of gain (loss) reclassified from accumulated other comprehensive income to interest expense | 1,620 | | | (1,497) | | | | | |
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets. As of September 30, 2022, the Company had one interest rate swap with a notional amount of $150.0 million hedging fixed-rate residential mortgage loans.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.
The table below presents the effects of the Company’s derivative instruments designated as fair value hedges on the Consolidated Statements of Income for the three months ended September 30, 2022. There were no fair value hedges for the three months ended September 30, 2021:
| | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | | | | | |
| (In Thousands) | | |
Loss on hedged items recorded in interest income on loans | $ | (4,033) | | | | | | | |
Gain on hedge recorded in interest income on loans | 3,927 | | | | | | | |
As of September 30, 2022, the following amounts were recorded on the Statement of Financial Condition related to cumulative basis adjustment for fair value hedges. There were no fair value hedges at June 30, 2022:
| | | | | | | |
| September 30, 2022 | | |
| (In Thousands) |
Loans receivable: | | | |
Carrying amount of the hedged assets(1) | $ | 145,967 | | | |
Fair value hedging adjustment included in the carrying amount of the hedged assets | (4,033) | | | |
___________________________________
(1)This amount includes the amortized cost basis of the closed portfolio of loans receivable used to designate the hedging relationship in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedge period. At September 30, 2022, the amortized cost basis of the closed portfolio used in this hedging relationship was $272.8 million.
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 September 30, 2022 and June 30, 2022, 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 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 | $ | 66,511 | | | $ | — | | | $ | 66,511 | | | $ | — | | | $ | — | | | $ | 66,511 | |
Total | $ | 66,511 | | | $ | — | | | $ | 66,511 | | | $ | — | | | $ | — | | | $ | 66,511 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 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 | $ | 41,223 | | | $ | — | | | $ | 41,223 | | | $ | — | | | $ | — | | | $ | 41,223 | |
Total | $ | 41,223 | | | $ | — | | | $ | 41,223 | | | $ | — | | | $ | — | | | $ | 41,223 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
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 September 30, 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 September 30, 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 September 30, 2022 and June 30, 2022, included $12.8 million and $20.3 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.
10. BENEFIT PLANS
Components of Net Periodic Expense
The following table sets forth the aggregate net periodic benefit expense for the Bank’s Benefit Equalization Plan, Postretirement Welfare Plan, Directors’ Consultation and Retirement Plan, Atlas Bank Retirement Income Plan and Supplemental Executive Retirement Plan:
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | Affected Line Item in the Consolidated Statements of Income |
| 2022 | | 2021 | | | | | | |
| (In Thousands) | | | | |
Service cost | $ | 117 | | | $ | 138 | | | | | | | Salaries and employee benefits |
Interest cost | 96 | | | 69 | | | | | | | Other expense |
Amortization of unrecognized (gain) loss | (6) | | | 20 | | | | | | | Other expense |
Expected return on assets | (25) | | | (28) | | | | | | | Other expense |
Net periodic benefit cost | $ | 182 | | | $ | 199 | | | | | | | |
2021 Equity Incentive Plan
During the three months ended September 30, 2022, the Company granted 323,218 restricted stock units (“RSUs”) comprised of 238,121 service-based RSUs and 85,097 performance-based RSUs. The service-based RSUs will vest in three tranches over a period of three years and the performance-based RSUs will cliff vest upon the achievement of performance measures over the three-year period ending June 30, 2025. The number of performance-based RSUs that will vest, if any, will depend on whether, and to what extent, the performance measures are achieved. Common stock will be issued from authorized shares upon the vesting of the RSUs.
11. INCOME TAXES
The following table presents a reconciliation between the reported income taxes for the periods presented and the income taxes which would be computed by applying the federal income tax rate of 21% to income for the three months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | 2021 | | | | |
| (Dollars in Thousands) | | |
Income before income taxes | $ | 21,790 | | | $ | 26,987 | | | | | |
Statutory federal tax rate | 21 | % | | 21 | % | | | | |
Federal income tax expense at statutory rate | $ | 4,576 | | | $ | 5,667 | | | | | |
(Reduction) increase in income taxes resulting from: | | | | | | | |
Tax exempt interest | (59) | | | (70) | | | | | |
State tax, net of federal tax effect | 1,420 | | | 2,128 | | | | | |
Incentive stock option compensation expense | 3 | | | 23 | | | | | |
Income from bank-owned life insurance | (775) | | | (328) | | | | | |
| | | | | | | |
| | | | | | | |
Other items, net | 90 | | | (148) | | | | | |
| | | | | | | |
| | | | | | | |
Total income tax expense | $ | 5,255 | | | $ | 7,272 | | | | | |
Effective income tax rate | 24.12 | % | | 26.95 | % | | | | |
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (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. There are three levels of inputs that may be used to measure fair values:
| | | | | |
Level 1: | Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. |
| |
Level 2: | Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from, or corroborated by, market data by correlation or other means. |
| |
Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Assets Measured on a Recurring Basis:
The following methods and significant assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a recurring basis at September 30, 2022 and June 30, 2022:
Investment Securities Available for Sale
The Company’s available for sale investment securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the securities’ terms and conditions, among other things. From time to time, the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third-party sources or derived using internal models.
Derivatives
The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate caps and swaps. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis and extensions of the Black-Scholes model. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.
Those assets measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In Thousands) |
Assets: | | | | | | | |
Debt securities available for sale: | | | | | | | |
Obligations of state and political subdivisions | $ | — | | | $ | 27,458 | | | $ | — | | | $ | 27,458 | |
Asset-backed securities | — | | | 158,081 | | | — | | | 158,081 | |
Collateralized loan obligations | — | | | 302,847 | | | — | | | 302,847 | |
Corporate bonds | — | | | 145,613 | | | — | | | 145,613 | |
Total debt securities | — | | | 633,999 | | | — | | | 633,999 | |
| | | | | | | |
Mortgage-backed securities available for sale: | | | | | | | |
Collateralized mortgage obligations | — | | | 6,318 | | | — | | | 6,318 | |
Residential pass-through securities | — | | | 468,089 | | | — | | | 468,089 | |
Commercial pass-through securities | — | | | 154,770 | | | — | | | 154,770 | |
Total mortgage-backed securities | — | | | 629,177 | | | — | | | 629,177 | |
Total securities available for sale | $ | — | | | $ | 1,263,176 | | | $ | — | | | $ | 1,263,176 | |
| | | | | | | |
Interest rate contracts | $ | — | | | $ | 66,511 | | | $ | — | | | $ | 66,511 | |
| | | | | | | |
Total assets | $ | — | | | $ | 1,329,687 | | | $ | — | | | $ | 1,329,687 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In Thousands) |
Assets: | | | | | | | |
Debt securities available for sale: | | | | | | | |
Obligations of state and political subdivisions | $ | — | | | $ | 28,435 | | | $ | — | | | $ | 28,435 | |
Asset-backed securities | — | | | 166,557 | | | — | | | 166,557 | |
Collateralized loan obligations | — | | | 307,813 | | | — | | | 307,813 | |
Corporate bonds | — | | | 153,397 | | | — | | | 153,397 | |
Total debt securities | — | | | 656,202 | | | — | | | 656,202 | |
| | | | | | | |
Mortgage-backed securities available for sale: | | | | | | | |
Collateralized mortgage obligations | — | | | 7,122 | | | — | | | 7,122 | |
Residential pass-through securities | — | | | 514,758 | | | — | | | 514,758 | |
Commercial pass-through securities | — | | | 166,011 | | | — | | | 166,011 | |
Total mortgage-backed securities | — | | | 687,891 | | | — | | | 687,891 | |
Total securities available for sale | $ | — | | | $ | 1,344,093 | | | $ | — | | | $ | 1,344,093 | |
| | | | | | | |
Interest rate contracts | $ | — | | | $ | 41,223 | | | $ | — | | | $ | 41,223 | |
| | | | | | | |
Total assets | $ | — | | | $ | 1,385,316 | | | $ | — | | | $ | 1,385,316 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Assets Measured on a Non-Recurring Basis:
The following methods and assumptions were used to estimate the fair values of the Company’s assets measured at fair value on a non-recurring basis at September 30, 2022 and June 30, 2022:
Individually Analyzed Collateral Dependent Loans
The fair value of collateral dependent loans that are individually analyzed is determined based upon the appraised fair value of the underlying collateral, less costs to sell. Such collateral primarily consists of real estate and, to a lesser extent, other business assets. Management may also adjust appraised values to reflect estimated changes in market values or apply other adjustments to appraised values resulting from its knowledge of the collateral. Internal valuations may be utilized to determine the fair value of other business assets. For non-collateral-dependent loans, management estimates fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management’s own estimates of the assumptions as a market participant would in pricing such loans. Individually analyzed collateral dependent loans are considered a Level 3 valuation by the Company.
Other Real Estate Owned
Other real estate owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for credit losses. If further declines in the estimated fair value of the asset occur, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions.
Those assets measured at fair value on a non-recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In Thousands) |
Collateral dependent loans: | | | | | | | |
Residential mortgage | $ | — | | | $ | — | | | $ | 2,033 | | | $ | 2,033 | |
Multi-family mortgage | — | | | — | | | 7,562 | | | 7,562 | |
Nonresidential mortgage | — | | | — | | | 10,934 | | | 10,934 | |
Total | $ | — | | | $ | — | | | $ | 20,529 | | | $ | 20,529 | |
| | | | | | | |
Other real estate owned, net: | | | | | | | |
Residential | $ | — | | | $ | — | | | $ | 178 | | | $ | 178 | |
Total | $ | — | | | $ | — | | | $ | 178 | | | $ | 178 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
| (In Thousands) |
Collateral dependent loans: | | | | | | | |
Residential mortgage | $ | — | | | $ | — | | | $ | 2,035 | | | $ | 2,035 | |
Multi-family mortgage | — | | | — | | | 7,517 | | | 7,517 | |
Nonresidential mortgage | — | | | — | | | 11,479 | | | 11,479 | |
Total | $ | — | | | $ | — | | | $ | 21,031 | | | $ | 21,031 | |
| | | | | | | |
Other real estate owned, net: | | | | | | | |
Residential | $ | — | | | $ | — | | | $ | 178 | | | $ | 178 | |
Total | $ | — | | | $ | — | | | $ | 178 | | | $ | 178 | |
The following tables present additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Fair Value | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average |
| (Dollars in Thousands) |
Collateral dependent loans: | | | | | | | | | |
Residential mortgage | $ | 2,033 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 7% - 10% | | 9.05 | % |
Multi-family mortgage | 7,562 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 10% - 11% | | 10.66 | % |
Nonresidential mortgage | 10,934 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 9% - 19% | | 14.28 | % |
Total | $ | 20,529 | | | | | | | | | |
| | | | | | | | | |
Other real estate owned, net: | | | | | | | | | |
Residential | $ | 178 | | | Market valuation of underlying collateral | (3) | Adjustments to reflect current conditions/selling costs | (2) | 6.00% | | 6.00 | % |
Total | $ | 178 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Fair Value | | Valuation Techniques | | Unobservable Input | | Range | | Weighted Average |
| (Dollars in Thousands) |
Collateral dependent loans: | | | | | | | | | |
Residential mortgage | $ | 2,035 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 7% - 10% | | 8.97 | % |
Multi-family mortgage | 7,517 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 10% - 12% | | 11.06 | % |
Nonresidential mortgage | 11,479 | | | Market valuation of underlying collateral | (1) | Adjustments to reflect current conditions/selling costs | (2) | 9% - 18% | | 12.72 | % |
Total | $ | 21,031 | | | | | | | | | |
| | | | | | | | | |
Other real estate owned, net: | | | | | | | | | |
Residential | $ | 178 | | | Market valuation of underlying collateral | (3) | Adjustments to reflect current conditions/selling costs | (2) | 6.00% | | 6.00 | % |
Total | $ | 178 | | | | | | | | | |
___________________________________
(1)The fair value of collateral dependent loans is generally determined based on an independent appraisal of the fair value of a loan’s underlying collateral.
(2)The fair value basis of collateral dependent loans and other real estate owned is adjusted to reflect management’s estimates of selling costs including, but not limited to, real estate brokerage commissions and title transfer fees.
(3)The fair value of other real estate owned is generally determined based upon the lower of an independent appraisal of the property’s fair value or the applicable listing price or contracted sales price.
At September 30, 2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $23.9 million and valuation allowance of $3.4 million reflecting an aggregate fair value of $20.5 million. By comparison, at June 30, 2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $24.6 million and valuation allowance of $3.6 million reflecting an aggregate fair value of $21.0 million.
Once a loan is foreclosed, the fair value of the other real estate owned continues to be evaluated based upon the fair value of the repossessed real estate originally securing the loan. At September 30, 2022 and June 30, 2022, the Company held other real estate owned totaling $178,000, respectively, whose carrying value was written down utilizing Level 3 inputs.
The following tables present the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2022 and June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (In Thousands) |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 96,076 | | | $ | 96,076 | | | $ | 96,076 | | | $ | — | | | $ | — | |
Investment securities available for sale | 1,263,176 | | | 1,263,176 | | | — | | | 1,263,176 | | | — | |
Investment securities held to maturity | 115,943 | | | 99,548 | | | — | | | 99,548 | | | — | |
Loans held-for-sale | 12,936 | | | 12,772 | | | — | | | 12,772 | | | — | |
Net loans receivable | 5,608,757 | | | 5,308,136 | | | — | | | — | | | 5,308,136 | |
FHLB Stock | 44,957 | | | — | | | — | | | — | | | — | |
Interest receivable | 23,817 | | | 23,817 | | | 24 | | | 7,215 | | | 16,578 | |
Interest rate contracts | 66,511 | | | 66,511 | | | — | | | 66,511 | | | — | |
| | | | | | | | | |
Financial liabilities: | | | | | | | | | |
Deposits | 6,108,278 | | | 6,068,334 | | | 4,048,733 | | | — | | | 2,019,601 | |
Borrowings | 851,454 | | | 847,489 | | | — | | | — | | | 847,489 | |
Interest payable on deposits | 3,130 | | | 3,130 | | | 588 | | | — | | | 2,542 | |
Interest payable on borrowings | 2,182 | | | 2,182 | | | — | | | — | | | 2,182 | |
Interest rate contracts | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2022 |
| Carrying Amount | | Fair Value | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
| (In Thousands) |
Financial assets: | | | | | | | | | |
Cash and cash equivalents | $ | 101,615 | | | $ | 101,615 | | | $ | 101,615 | | | $ | — | | | $ | — | |
Investment securities available for sale | 1,344,093 | | | 1,344,093 | | | — | | | 1,344,093 | | | — | |
Investment securities held to maturity | 118,291 | | | 108,118 | | | — | | | 108,118 | | | — | |
Loans held-for-sale | 28,874 | | | 28,831 | | | — | | | 28,831 | | | — | |
Net loans receivable | 5,370,787 | | | 5,215,079 | | | — | | | — | | | 5,215,079 | |
FHLB Stock | 47,144 | | | — | | | — | | | — | | | — | |
Interest receivable | 20,466 | | | 20,466 | | | 2 | | | 5,210 | | | 15,254 | |
Interest rate contracts | 41,223 | | | 41,223 | | | — | | | 41,223 | | | — | |
| | | | | | | | | |
Financial liabilities: | | | | | | | | | |
Deposits | 5,862,256 | | | 5,839,035 | | | 3,972,694 | | | — | | | 1,866,341 | |
Borrowings | 901,337 | | | 900,505 | | | — | | | — | | | 900,505 | |
Interest payable on deposits | 722 | | | 722 | | | 147 | | | — | | | 575 | |
Interest payable on borrowings | 1,611 | | | 1,611 | | | — | | | — | | | 1,611 | |
| | | | | | | | | |
Commitments. The fair value of commitments to fund credit lines and originate or participate in loans held in portfolio or loans held for sale is estimated using fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, including those relating to loans held for sale that are considered derivative instruments for financial statement reporting purposes, the fair value also considers the difference between current levels of interest and the committed rates. The carrying value, represented by the net deferred fee arising from the unrecognized commitment, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure.
Limitations. Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument. Because no fair value exists for a significant portion of the financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature, involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The fair value estimates are based on existing on-and-off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment, and advances from borrowers for taxes and insurance. In addition, the ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.
Finally, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments. This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values.
13. COMPREHENSIVE INCOME (LOSS)
The components of accumulated other comprehensive loss included in stockholders’ equity at September 30, 2022 and June 30, 2022 are as follows:
| | | | | | | | | | | |
| September 30, 2022 | | June 30, 2022 |
| (In Thousands) |
Net unrealized loss on securities available for sale | $ | (167,396) | | | $ | (118,031) | |
Tax effect | 48,290 | | | 34,104 | |
Net of tax amount | (119,106) | | | (83,927) | |
| | | |
Fair value adjustments on derivatives | 60,355 | | | 39,805 | |
Tax effect | (17,502) | | | (11,542) | |
Net of tax amount | 42,853 | | | 28,263 | |
| | | |
Benefit plan adjustments | (122) | | | (89) | |
Tax effect | 35 | | | 26 | |
Net of tax amount | (87) | | | (63) | |
| | | |
Total accumulated other comprehensive loss | $ | (76,340) | | | $ | (55,727) | |
Other comprehensive loss and related tax effects for the three months ended September 30, 2022 and 2021 are presented in the following table:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | 2021 | | | | |
| (In Thousands) |
Net unrealized holding loss on securities available for sale | $ | (49,365) | | | $ | (7,046) | | | | | |
| | | | | | | |
Net realized gain on sale and call of securities available for sale (1) | — | | | (1) | | | | | |
| | | | | | | |
Fair value adjustments on derivatives | 20,550 | | | 1,651 | | | | | |
| | | | | | | |
(Accretion) amortization of benefit plan net actuarial (gain) loss | (33) | | | 20 | | | | | |
| | | | | | | |
Other comprehensive loss before taxes | (28,848) | | | (5,376) | | | | | |
Tax effect | 8,235 | | | 1,568 | | | | | |
Total other comprehensive loss | $ | (20,613) | | | $ | (3,808) | | | | | |
___________________________________
(1)Represents amounts reclassified out of accumulated other comprehensive income and included in gain on sale of securities on the Consolidated Statements of Income.
14. NET INCOME PER COMMON SHARE (“EPS”)
The following schedule shows the Company’s earnings per share calculations for the periods presented:
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | |
| 2022 | | 2021 | | | | |
| (In Thousands, Except Per Share Data) |
Net income | $ | 16,535 | | | $ | 19,715 | | | | | |
| | | | | | | |
Weighted average number of common shares outstanding - basic | 65,737 | | | 74,537 | | | | | |
Effect of dilutive securities | 19 | | | 19 | | | | | |
Weighted average number of common shares outstanding - diluted | 65,756 | | | 74,556 | | | | | |
| | | | | | | |
Basic earnings per share | $ | 0.25 | | | $ | 0.26 | | | | | |
Diluted earnings per share | $ | 0.25 | | | $ | 0.26 | | | | | |
Stock options for 2,965,000 and 3,115,000 shares of common stock were not considered in computing diluted earnings per share for the three months ended September 30, 2022 and 2021, respectively, because they were considered anti-dilutive. In addition, 323,218 RSUs were not considered in computing diluted earnings per share for the three months ended September 30, 2022 because they were considered anti-dilutive.
ITEM 2.