Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk
The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.
The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and with management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. The
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MVPE ratio continues to be an important measurement for management as we consider the changes in market rates, liquidity needs, and portfolio balances. MVPE represents a long-term view of the interest sensitivity of the Bank's balance sheet while our net interest income projections inform management of the short-term impacts of pricing decisions. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.
General assumptions used by management to evaluate the sensitivity of our financial performance to changes in interest rates presented in the tables below are utilized in, and set forth under, the gap table and related notes. Although management finds these assumptions reasonable, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and MVPE indicated in the below tables could vary substantially if different assumptions were used or actual experience differs from the assumptions. To illustrate this point, the projected cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities within the next 12 months as a percentage of total assets ("one-year gap") is also provided for up/down 200 basis point scenarios, as of September 30, 2025.
Qualitative Disclosure about Market Risk
Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment rates would likely deviate significantly from those assumed in calculating the gap table below. A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests that in a rising rate environment, earnings should increase. A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
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More Than More Than
Within One Year to Three Years Over
One Year Three Years to Five Years Five Years Total
Interest-earning assets: (Dollars in thousands)
Loans receivable (1)
$ 2,228,781 $ 1,899,064 $ 1,279,761 $ 2,680,708 $ 8,088,314
Securities (2)
187,493 319,172 166,178 174,526 847,369
Other interest-earning assets 229,134 — — — 229,134
Total interest-earning assets 2,645,408 2,218,236 1,445,939 2,855,234 9,164,817
Interest-bearing liabilities:
Non-maturity deposits (3)
948,416 607,043 438,536 1,602,403 3,596,398
Certificates of deposit 2,169,268 800,449 42,700 263 3,012,680
Borrowings (4)
511,316 1,392,292 56,267 23,311 1,983,186
Total interest-bearing liabilities 3,629,000 2,799,784 537,503 1,625,977 8,592,264
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (983,592) $ (581,548) $ 908,436 $ 1,229,257 $ 572,553
Cumulative excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (983,592) $ (1,565,140) $ (656,704) $ 572,553
Cumulative excess (deficiency) of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
September 30, 2025 (10.1) % (16.0) % (6.7) % 5.9 %
September 30, 2024 (15.9)
Cumulative one-year gap - interest rates +200 bps at:
September 30, 2025 (12.2)
September 30, 2024 (17.9)
Cumulative one-year gap - interest rates -200 bps at:
September 30, 2025 (5.8)
September 30, 2024 (12.5)
(1) Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2) MBS reflect projected prepayments at amortized cost. All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2025, at amortized cost.
(3) Although the Bank's non-maturity deposits are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts are based on assumptions developed from our actual experiences with these accounts. If all of the Bank's non-maturity deposits had been assumed to be subject to repricing within one year, interest-bearing liabilities estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.63 billion, for a cumulative one-year gap of (37.1)% of total assets.
(4) Borrowings exclude deferred prepayment penalty costs. Included in this line item are $100.0 million of FHLB adjustable-rate advances tied to interest rate swaps. The repricing of these liabilities is projected to occur at the maturity date of each interest rate swap.
At September 30, 2025, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(983.6) million, or (10.1)% of total assets, compared to $(1.51) billion, or (15.8)% of total assets, at September 30, 2024. The change in the one-year gap amount was due primarily to an increase in the amount of
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projected asset cash flows coming due in one year, as of September 30, 2025, compared to September 30, 2024, due primarily to an increase in the balance of adjustable-rate loans as the Bank continues to shift its loan portfolio from fixed-rate one- to four-family loans to commercial loans, which tend to have adjustable-rate features. The increase in projected asset cash flows, which was primarily driven by an increased balance of commercial loans, was partially offset by a decrease in the amount of fixed-rate mortgage-related asset cash flows as a result of a general decrease in balance as well as to a decrease in projected prepayment speeds, from September 30, 2024, as a result of an increase in intermediate and long-term interest and mortgage rates. Changes in projected liability cash flows, between the two periods, were largely offsetting. Increases resulting from increases in non-maturity deposits were fully offset by projected decreases in the Bank's borrowings portfolio and, to a lesser extent, the certificate of deposit portfolio. The decrease in borrowings was primarily related to the Bank prepaying and replacing $200.0 million of fixed-rate FHLB advances during the prior quarter that went from a weighted average remaining term of 0.6 years to 2.5 years, as well as to a continued decrease in the overall balance of wholesale funds.
The amount of interest-bearing liabilities expected to reprice in a given period typically is not significantly impacted by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of September 30, 2025, the Bank's one-year gap would have been projected to be $(1.19) billion, or (12.2)% of total assets. If interest rates were to decrease 200 basis points, as of September 30, 2025, the Bank's one-year gap would have been projected to be $(570.8) million, or (5.8)% of total assets. The changes in the gap amounts compared to when there is no change in rates was due to changes in the anticipated net cash flows primarily as a result of projected prepayments on mortgage-related assets in each rate environment. In higher rate environments, prepayments on mortgage-related assets are projected to be lower and, in lower rate environments, prepayments are projected to be higher. This compares to a projected one-year gap of $(1.71) billion, or (17.9)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2024, and a projected one-year gap of $(1.19) billion, or (12.5)% of total assets, if interest rates were to have decreased 200 basis points as of the same date.
Change in Net Interest Income. The Bank's net interest income projections reflect simulated responses to interest rates of assets and liabilities that are expected to mature or reprice over the next year. Repricing occurs as a result of cash flows that are received or paid on assets or due on liabilities which would be replaced at then current market interest rates or on adjustable-rate products that reset during the next year. The Bank's borrowings and certificate of deposit portfolios have stated maturities, and the cash flows related to fixed-rate liabilities do not generally fluctuate as a result of changes in interest rates. Cash flows from mortgage-related assets and callable agency debentures can vary significantly as a result of changes in interest rates. As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or endorsing their mortgage to a lower interest rate. Similarly, agency debt issuers are more likely to exercise embedded call options and issue new securities at a lower interest rate.
For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the zero basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior changes as market rates change. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities do not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of assets, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
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Change Net Interest Income At September 30,
(in Basis Points) 2025 2024
in Interest Rates (1)
Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
(Dollars in thousands)
-300 bp $ 202,033 $ (8,667) (4.1) % $ 188,322 $ 11,696 6.6 %
-200 bp 203,014 (7,686) (3.7) 183,769 7,143 4.0
-100 bp 206,913 (3,787) (1.8) 180,936 4,310 2.4
000 bp 210,700 — — 176,626 — —
+100 bp 212,822 2,122 1.0 171,222 (5,404) (3.1)
+200 bp 213,755 3,055 1.5 165,422 (11,204) (6.3)
+300 bp 214,061 3,361 1.6 158,758 (17,868) (10.1)
(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
In general, increases/(decreases) in the Bank's net interest income projections under the various interest rate scenarios presented are due to the degree in which cash flows are realized and the rates projected to be earned on funds received through loan and securities repayments, in each scenario, are greater/(less) than the rates projected to be paid on deposits and borrowings over the next 12 months. The net interest income projection was higher in the base case scenario at September 30, 2025 compared to September 30, 2024, due primarily to an increase in the average balance and average rate of the Bank's loan portfolio, lower costing liabilities, as well as to the steepening of the yield curve between the two periods. As a result, interest income projections associated with the Bank's interest-earning asset cash flows, primarily the loan portfolio, increased by more than the increase in interest expense projections on the Bank's interest-bearing liability cash flows. As of September 30, 2025, projected net interest income increased in each of the increasing rate scenarios presented and decreased in each of the decreasing rate scenarios presented, compared to September 30, 2024, where the opposite profile existed. This change was due primarily to growth in the Bank's commercial loan portfolio between the two periods, as well as to a decrease in the amount of projected interest-bearing liabilities coming due between the two periods, mainly within the wholesale borrowings portfolio. Commercial loans often have adjustable-rate features, which makes the projected amount of interest income on these assets more sensitive to changes in interest rates as they reprice on a more frequent basis. The decrease in borrowings was primarily related to the Bank prepaying and replacing $200.0 million of fixed-rate FHLB advances during the current fiscal year that went from a weighted average remaining term of 0.6 years to 2.5 years, as well as to a continued decrease in the overall balance of wholesale funds.
Change in MVPE. Changes in the estimated market values of our financial assets and liabilities drive changes in estimates of MVPE. The market value of an asset or liability reflects the present value of all the projected cash flows over its remaining life, discounted at market interest rates. As interest rates rise, generally the market value for both financial assets and liabilities decrease. The opposite is generally true as interest rates fall. The MVPE represents the theoretical market value of capital that is calculated by netting the market value of assets, liabilities, and off-balance sheet instruments. If the market values of financial assets increase by more than the market values of financial liabilities, or if the market values of financial liabilities decrease by more than the market values of financial assets, the MVPE will increase. The market value of shorter term-to-maturity and floating/adjustable-rate financial instruments is less sensitive to changes in interest rates than is the case with longer term-to-maturity and fixed-rate financial instruments. As a result, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to display less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives). The average life expected on our mortgage-related assets varies under different interest rate environments because borrowers have the ability to prepay their mortgage loans. Therefore, as interest rates decrease, the WAL of mortgage-related assets typically decreases as well. As interest rates increase, the WAL is expected to increase, which also increases the sensitivity of these assets in higher rate environments.
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The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior as market rates change. The estimations of the MVPE presented in the table below were based upon the assumption that the total composition of interest-earning assets and interest-bearing liabilities do not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
Change Market Value of Portfolio Equity At September 30,
(in Basis Points) 2025 2024
in Interest Rates (1)
Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
(Dollars in thousands)
-300 bp $ 1,477,941 $ 315,678 27.2 % $ 1,460,440 $ 359,922 32.7 %
-200 bp 1,362,942 200,679 17.3 1,345,708 245,190 22.3
-100 bp 1,256,515 94,252 8.1 1,218,938 118,420 10.8
000 bp 1,162,263 — — 1,100,518 — —
+100 bp 1,026,750 (135,513) (11.7) 962,354 (138,164) (12.6)
+200 bp 873,123 (289,140) (24.9) 797,497 (303,021) (27.5)
+300 bp 725,096 (437,167) (37.6) 634,145 (466,373) (42.4)
(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
The Bank's estimated MVPE remained largely unchanged, increasing from $1.10 billion at September 30, 2024 to $1.16 billion at September 30, 2025. Compositional changes on the balance sheet, including within the Bank's loan portfolio as it continues to shift from one- to four-family to commercial loans, helped to offset the impact resulting from an increase in intermediate and long-term market interest rates between the two periods. Our one- to four-family loans are predominately fixed-rate loans with long maturities and, therefore, are more economically sensitive to changes in market interest rates whereas commercial loans often have shorter average lives and floating/adjustable-rate features, which results in less sensitivity to changes in market interest rates. Between the two periods, the balance of the Bank's one- to four-family loans decreased $400.0 million and the balance of its commercial loans increased $607.0 million.
In elevated interest rate environments, such as the current environment, the estimated market value of the Bank's one- to four-family loan portfolio in the base case scenario is reduced as the average rate of the portfolio is less than current market rates. The Bank's commercial loans have, predominately, been originated more recently at current market rates, giving them higher estimated values in the base case compared to the Bank's one- to four-family loans. To the extent that the balance of the Bank's one- to four-family loan portfolio, with overall average rates less than current market rates, continues to decrease and the balance of commercial loans, with average rates closer to or above current market rates, continues to increase, the estimated market value of the Bank's overall loan portfolio, in the base case scenario, will continue to increase. The steepening of the yield curve between periods did not result in an overall decrease in the Bank's estimated MVPE in the base case because the shift in the loan portfolio, as described above, had a greater positive impact on MVPE than the change realized on the Bank's liabilities.
As interest rates increase, borrowers generally have less economic incentive to prepay or to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising interest rate scenarios, prepayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other major events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average lives of those mortgage-related assets.
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Similarly, call projections for callable agency debentures decrease as interest rates rise, which results in cash flows related to those assets moving closer to their contractual maturity dates. The longer expected average lives of those assets increase the sensitivity of their market value to changes in interest rates. Conversely, as interest rates decrease, borrowers who obtained credit in a higher interest rate environment have more economic incentive to prepay or to refinance their mortgages, and agency debt issuers have more economic incentive and opportunity to exercise their call options in order to re-issue debt at lower interest rates, resulting in higher projected cash flows on these assets. The resulting shorter expected average lives of those assets result in a decrease in the sensitivity of their market value to changes in interest rates.
In the increasing interest rate scenarios, the sensitivity reflects the negative impacts of rates on the market value of the Bank's loan and securities portfolios more so than on its deposit and borrowing portfolios. In the decreasing interest rate scenarios, the Bank's MVPE increases due to a larger increase in the estimated market value of the Bank's assets than its liabilities. This is because the Bank's mortgage-related assets continue to have longer duration in these rate scenarios, which equates to greater market value sensitivity as interest rates change.
The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of September 30, 2025. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.
Amount Yield/Rate WAL % of Category % of Total
(Dollars in thousands)
Securities $ 867,216 5.45 % 3.4 9.3 %
Loans receivable:
Fixed-rate one- to four-family 5,000,714 3.51 6.7 61.5 % 53.4
Fixed-rate commercial 652,018 5.42 2.0 8.0 7.0
All other fixed-rate loans 34,356 7.14 7.1 0.4 0.4
Total fixed-rate loans 5,687,088 3.75 6.2 69.9 60.8
Adjustable-rate one- to four-family 887,867 4.48 4.0 10.9 9.5
Adjustable-rate commercial 1,463,977 6.03 3.5 18.0 15.7
All other adjustable-rate loans 94,943 7.91 3.2 1.2 1.0
Total adjustable-rate loans 2,446,787 5.54 3.7 30.1 26.2
Total loans receivable 8,133,875 4.29 5.4 100.0 % 87.0
FHLB stock 90,662 9.22 1.8 1.0
Cash and cash equivalents 252,443 3.77 — 2.7
Total interest-earning assets $ 9,344,196 4.43 5.0 100.0 %
Non-maturity deposits $ 2,977,397 1.21 5.2 49.7 % 37.5 %
Retail certificates of deposit 2,828,982 3.73 0.8 47.2 35.6
Commercial certificates of deposit 61,819 3.61 0.7 1.0 0.8
Public unit certificates of deposit 121,879 4.06 0.8 2.1 1.5
Total interest-bearing deposits 5,990,077 2.48 3.0 100.0 % 75.4
Term borrowings 1,952,047 3.53 1.5 24.6
Total interest-bearing liabilities $ 7,942,124 2.74 2.6 100.0 %
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