What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2020-11-25 compared with 2019-11-27 · 577 added, 295 removed, 512 unchanged (63% of the section changed)

6 unchanged sentences

The Company provides a full range of banking services through the Bank, which is a wholly-owned subsidiary of the Company headquartered in Topeka, Kansas.

The Bank has 44 traditional and 10 in-store banking offices serving primarily the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and portions of the Kansas City metropolitan area.

The Bank has 45 traditional and nine in-store banking offices serving primarily the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and portions of the Kansas City metropolitan area.

We have been, and intend to continue to be, a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve.

The Company's results of operations are primarily dependent on net interest income, which is the difference between the interest earned on loans, securities, and cash, and the interest paid on deposits and borrowings.

During April 2019, the Bank completed the integration of the operations of Capital City Bank into the Bank's operations.

The Company completed its acquisition of Capital City Bank and its parent company, CCB, on August 31, 2018.

The acquisition of Capital City Bank, a commercial bank with $450 million in assets, allows us to advance our commercial banking strategy through enhanced commercial deposit and lending products while managing to stay under $10 billion in assets.

The acquisition also allows the Bank to compete for commercial banking business through a wide variety of commercial deposit services and expanded commercial lending products, as well as trust and brokerage services.

The Company recognized net income of $94.2 million, or $0.68 per share, for fiscal year 2019 compared to net income of $98.9 million, or $0.73 per share, for fiscal year 2018.

The decrease in net income was due primarily to a $10.0 million increase in non-interest expense during the current year due mainly to an increase in salaries and employee benefits and information technology and related expenses, partially offset by a $7.6 million increase in net interest income due primarily to higher yielding loans added in the acquisition of CCB.

Additionally, income tax expense was $1.4 million higher in the current fiscal year due primarily to income tax adjustments required in the prior fiscal year with the enactment of The Tax Cuts and Jobs Act (the "Tax Act") in December 2017.

At times, the Bank has utilized a leverage strategy to increase earnings.

The leverage strategy has involved borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB.

The borrowings were repaid prior to quarter end, or earlier if the strategy was suspended.

The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.4% from dividends during the current fiscal year, were deposited at the FRB of Kansas City.

Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes.

Net income attributable to the leverage strategy was $36 thousand during the current fiscal year compared to $1.7 million during the prior fiscal year.

The decrease was due mainly to the strategy being suspended for the majority of the current fiscal year due to the large negative interest rate spread, making the strategy unprofitable.

Management continues to monitor the net interest rate spread and overall profitability of the strategy.

It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

The net interest margin increased 31 basis points, from 1.95% for the prior fiscal year to 2.26% for the current fiscal year.

When the leverage strategy is in place, it reduces the net interest margin due to the limited amount of earnings from the transaction in comparison to the size of the transaction.

Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points, from 2.24% for the prior fiscal year to 2.30% for the current fiscal year.

The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition, partially offset by an increase in the cost of deposits.

To the extent market rates of interest remain at current levels or go lower during fiscal year 2020, the Company expects a decrease in our net interest margin, compared to fiscal year 2019, due primarily to lower yields on our loans and securities.

If realized, the decrease in the yields on our loans and securities is expected to be from loans originated at lower rates, adjustable-rate loans repricing lower and increased prepayment speeds on our correspondent loans and MBS portfolios, which would accelerate the amortization of the premiums we have paid to acquire these assets.

The rates on our certificate of deposit portfolio and borrowings may also decrease if market rates decrease, but will likely do so at a slower pace than interest-earning assets because the majority of those liabilities have stated maturities.

Management continues to manage the size and mix of the loan portfolio, over the long-term, by utilizing cash flows from the one- to four-family loan portfolio to fund commercial loan growth.

Given the current level of total assets and the interest rate environment, it is unlikely that the loan portfolio will increase in the next year, but it is expected that cash flows from the one- to four-family loan portfolio will continue to be used to fund commercial loan growth.

Over the past few years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances.

By moving cash from lower yielding assets to higher yielding assets and repaying higher costing liabilities, we have been able to maintain our net interest margin.

Additionally, the Bank began reducing its balance of public unit certificates of deposit late in the third quarter of the current fiscal year in order to reduce its use of expensive wholesale funds and release securities pledged as collateral, which assists with liquidity levels.

The balance of public unit certificates of deposit was $294.9 million at September 30, 2019.

Management intends to maintain the balance of public unit certificates of deposit at approximately the same level for the time being.

Management continues to evaluate liquidity levels, as measured by the ratio of securities and cash to total assets, and may consider reducing its target ratio below the current target level of 15%.

Total assets were $9.34 billion at September 30, 2019 compared to $9.45 billion at September 30, 2018.

The $109.5 million, or 1.2% decrease was largely in the securities portfolio and the loan portfolio, partially offset by an increase in operating cash.

The one- to four-family loan portfolio decreased $285.6 million, partially offset by a $198.3 million increase in the commercial loan portfolio as cash flows from the one- to four-family loan portfolio were used to fund commercial loan growth.

During the current fiscal year, the Bank originated and refinanced $660.8 million of one- to four-family and consumer loans with a weighted average rate of 4.18% and purchased $166.4 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.17%.

The Bank also originated $164.1 million of commercial loans with a weighted average rate of 5.10% and entered into commercial real estate loan participations totaling $96.0 million at a weighted average rate of 5.27%.

The commercial loan portfolio was $767.9 million at September 30, 2019, compared to $569.6 million at September 30, 2018, an increase of $198.3, or 35%.

At September 30, 2019, the commercial loan portfolio was composed of 76% commercial real estate, 16% commercial construction, and 8% commercial and industrial.

Company's Actions and Impact on Operations as a Result of the COVID-19 Pandemic

Management's actions related to the COVID-19 pandemic and the impact of the pandemic on certain aspects of the Company's business during fiscal year 2020 are summarized below.

Bank operations - In mid-March 2020, preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in Bank offices, and preventative cleaning at offices and branches.

Lobby services were limited to appointment only while drive-through, mobile, and online banking became the Bank's primary channels of serving customers.

Retail loan closings were conducted with customers coming to our drive-through facilities and commercial loans were closed in person only when necessary.

All employees continued to be paid their regular salary and receive full benefits.

In mid-May 2020, lobbies reopened with limitations on the number of customers in a branch at one time.

We also implemented operational measures to promote social distancing when customers visit branches and installed sneeze guards.

There are several other precautions being taken at our locations such as extra cleaning in high traffic/touch areas and providing locations with additional cleaning supplies, hand sanitizer and masks.

In early June 2020, back-office employees started to return to the office in phases.

Due to the increase in COVID-19 cases in late June into July 2020, management rolled back the changes to the lobbies that occurred mid-May and adjusted the return to office phases, where necessary, for back-office employees and lobby services were again by appointment only.

In mid-September 2020, lobbies were reopened once again.

Management continues to monitor COVID-19 cases and will adjust operational plans as necessary.

Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic.

Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest and, in some cases, escrow.

COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period.

See "Financial Condition - Loans Receivable" below for additional discussion regarding COVID-19 loan modifications.

As of September 30, 2020, the Bank had 193 one- to four-family loans totaling $39.8 million and 27 consumer loans totaling $795 thousand that were still in their deferral period.

The deferral period concluded by September 30, 2020 for $199.7 million of one- to four-family loans and $1.6 million of consumer loans.

As of September 30, 2020, the Bank had 204 commercial loans with a combined gross loan amount of $367.4 million, which includes undisbursed amounts, that were still in their deferral period.

The deferral period concluded by September 30, 2020 for $43.5 million, or 11%, of the commercial loans subject to COVID-19 loan modifications.

All of these loans were current

as of September 30, 2020.

The deferral period for the majority of the remaining commercial loans concluded by November 16, 2020.

Small Business Administration Paycheck Protection Program loans - As of September 30, 2020, the Bank had originated and funded 791 PPP loans totaling $43.9 million, with a median loan amount of $19 thousand, and received origination fees totaling $1.9 million associated with these loans.

These loans are fully guaranteed by the SBA.

The program ended August 8, 2020.

Through November 16, 2020, $12.2 million of the Bank's PPP loans have been forgiven by the SBA.

On October 8, 2020 the SBA released a streamlined loan forgiveness application for PPP loans in amounts of $50 thousand or less.

Of the PPP loans originated by the Bank, 611 loans totaling $9.6 million, or 22% of the Bank's aggregate PPP loan balance, were in amounts less than $50 thousand and will be eligible for the streamlined forgiveness process.

Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020.

Based on the Company's existing capital levels, deposit inflows, loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests.

Management continues to anticipate being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and the Bank remaining well capitalized with sufficient liquidity to serve our customers.

Deposit balances have increased due primarily to the economic stimulus payments, a reduction in consumer spending, and PPP loan proceeds being deposited at the Bank.

As a result, management is currently faced with the challenge of excess liquidity.

Due to the nature of deposit cash flows, management does not know how long the excess liquidity will continue.

As such, management has elected, for the time being, to reduce the Bank's level of borrowings and increase the balance of securities using the excess liquidity from the deposit portfolio.

With earnings of $0.47 per share for fiscal year 2020, and a cash balance at the holding company level of $82.5 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future.

Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask at that time for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend.

It is management's intention to ask for a regulatory non-objection at some point in the future to pay this dividend when economic conditions are more certain.

It is currently the Company's intention to pay out 100% of its fiscal year 2021 earnings.

Management's Evolving Response to COVID-19 - There is continued concern about a resurgence of COVID-19 as we enter the winter months.

In October and November 2020, COVID-19 cases, hospitalizations, and deaths nationally and in our local market areas increased compared to the summer months, including to new record levels in some areas.

The Kansas Governor recently issued an executive order establishing a statewide face-covering protocol as part of her administration's strategy to keep schools and businesses open and to protect the economy.

We continue to be confronted with a significant and unfamiliar degree of uncertainty as to how a resurgence will impact our customers, employees, and operations and how actions taken by governmental authorities and other third parties in response to a resurgence will impact our customers, employees, and operations.

We will continue to monitor COVID-19 cases and will adjust operational plans as necessary.

We will also continue to assist our customers as necessary during these uncertain times.

See "Part I, Item 1A.

Risk Factors - Risks Related to Macroeconomic Conditions" for additional discussion regarding the impact the COVID-19 pandemic may have on our business, results of operations and financial condition.

Impact on Market Interest Rates as a Result of COVID-19 Pandemic and Company's Response

The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020.

This was after most broader market rates decreased significantly in response to evolving news about the COVID-19 pandemic.

The dramatic lowering of interest rates in a short period of time impacted the operations and performance of the Bank.

Deteriorating economic conditions included more than 20 million people becoming unemployed in the United States in one month's time, with more than 58 million in total filing for unemployment benefits, along with immediate reductions in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others, and had a devastating impact on the economy.

Since that time, many areas of consumer spending have rebounded, generally locally and not related to travel and entertainment.

As previously described, we adjusted our operations in response to the

COVID-19 pandemic and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the CARES Act have allowed.

There is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic.

This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

We have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer.

We responded to lower market rates for lending by lowering rates offered on our one- to four-family loan products over the course of the year.

Given current market interest rates, rates offered on new loans and the recent volume of one- to four-family refinances and endorsements allowing borrowers to take advantage of the lower current market interest rates, the yield on the total loan portfolio is likely to continue to decrease.

Additionally, with significant cash inflows realized due to investment securities being called and prepayments on MBS increasing, the yields on reinvested funds into new securities are lower than portfolio yields.

Since the onset of the pandemic the Bank lowered its offered rates on all retail deposit products except checking and savings accounts.

Changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits, while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as certificates of deposit reprice lower when they mature.

As the Bank further monitors rates offered and the cost of borrowings, we anticipate that the average cost of our interest-bearing liabilities will continue to decrease.

Considering the drastic changes in market rates and the ongoing economic uncertainty, even with the changes the Bank has made to its cost of funding, with the lower rates on new mortgage loans, refinances, endorsements and new securities also at lower rates, our net interest margin could continue to decrease, with further downside risk as a result of high levels of prepayments and premium amortization on correspondent one- to four-family loans and MBS.

Summary of Results of Operation and Financial Condition

The Company recognized net income of $64.5 million, or $0.47 per share, for the year ended September 30, 2020 compared to net income of $94.2 million, or $0.68 per share, for the year ended September 30, 2019.

The decrease in net income was due primarily to a $21.6 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $17.1 million, or 8.3%, from the prior year to $189.3 million for the current year.

The leverage strategy was suspended at certain times during the prior year and during all of the current year due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable.

Excluding the effects of the leverage strategy, net interest income decreased $16.9 million, or 8.2% compared to the prior year.

The decrease in net interest income excluding the effects of the leverage strategy was due to a $20.9 million decrease in interest and dividend income, partially offset by a $4.0 million decrease in interest expense.

Interest and dividend income decreased across all interest-earning asset types, with the most significant being a $13.7 million decrease in interest income on loans receivable, primarily related to correspondent loans.

Interest income on correspondent loans decreased due primarily to a reduction in the portfolio balance and rate related to payoffs exceeding purchases, new loans purchased at lower market interest rates, and downward repricing of existing loans, along with an increase in premium amortization due to payoffs and endorsements.

Interest expense on borrowings, excluding the effects of the leverage strategy, decreased $5.4 million due to replacing FHLB advances at lower market rates and a reduction in the rate and usage of the Bank's FHLB line of credit.

This was partially offset by a $1.4 million increase in interest expense on deposits due to an increase in the cost of the retail/business certificate of deposit portfolio.

The net interest margin decreased 14 basis points, from 2.26% for the prior year to 2.12% for the current year.

When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.

Excluding the effects of the leverage strategy, the net interest margin would have decreased 18 basis points, from 2.30% for the prior year to 2.12% for the current year.

The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio.

Total assets at September 30, 2020 were $9.49 billion, an increase of $147.2 million, or 1.6% from September 30, 2019.

The increase was due mainly to an increase in securities, partially offset by a decrease in loans receivable.

Securities were purchased with cash flows from payments on the loan portfolio and growth in the deposit portfolio.

Total loans decreased $213.9 million from September 30, 2019 to September 30, 2020.

The decrease was primarily in the one- to four-family correspondent loans and one- to four-family bulk purchased loans, partially offset by an increase in one- to four-family originated loans and commercial loans.

During the current year, the Bank originated and refinanced $1.00 billion of one- to four-family and consumer loans with a weighted average rate of 3.27% and purchased $448.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.29%.

The Bank also originated $165.5 million of commercial loans with a weighted average rate of 3.52% and entered into commercial real estate loan participations of $93.6 million at a weighted average rate of 4.16%.

The commercial loan portfolio totaled $829.7 million at September 30, 2020 and was composed of 75% commercial real estate, 12% commercial and industrial, and 13% commercial construction.

Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $205.5 million, was $937.5 million at September 30, 2020.

Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $21.7 million, was $119.3 million at September 30, 2020.

Total deposits were $5.58 billion at September 30, 2019 compared to $5.60 billion at September 30, 2018.

The retail/business certificate of deposit portfolio increased $163.4 million, or 6.5%, during the current fiscal year, funded primarily by cash flows from new certificate of deposit accounts, money market accounts, and checking accounts.

The public unit certificate of deposit portfolio decreased $112.8 million during the current fiscal year, which was intentional, as discussed above.

Excluding the impact of the decrease in the balance of public unit certificates of deposit, total deposits would have increased $91.3 million, or 1.8%, during the current fiscal year.

Total deposits at September 30, 2020 were $6.19 billion, an increase of $609.5 million, or 10.9%, from September 30, 2019.

Non-maturity deposits increased $575.9 million, including a $242.8 million increase in checking accounts, a $220.8 million increase in money market accounts, and a $112.3 million increase in savings accounts.

Retail/business certificates of deposit increased $73.7 million during the current year, mainly in the business-related certificates of deposit category.

These increases were partially offset by a $40.1 million decrease in public unit certificates of deposit.

Total borrowings at September 30, 2020 were $1.79 billion, a decrease of $450.7 million, or 20.1%, from September 30, 2019.

The decrease was due to not renewing a portion of the FHLB advances and repurchase agreements that matured during the current year and repaying the FHLB line of credit balance.

Cash flows from the deposit portfolio were used to pay off maturing borrowings and the FHLB line of credit.

Stockholders' equity was $1.28 billion at September 30, 2020 compared to $1.34 billion at September 30, 2019.

The $55.3 million decrease was due primarily to the payment of $134.9 million in cash dividends, partially offset by net income of $94.2 million during the current fiscal year.

The $51.5 million decrease was due primarily to the payment of cash dividends totaling $93.9 million and the repurchase of common stock totaling $23.8 million, partially offset by net income of $64.5 million during the current year.

During the current fiscal year, the Company repurchased 2,558,100 shares of common stock.

In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital.

At September 30, 2020, this ratio was 12.3%.

The cash dividends paid during the current year totaled $0.68 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share.

Critical Accounting Policies

21 unchanged sentences

Historical loss factors are applied to each loan category in the formula analysis model.

Additionally, qualitative loss factors that management believes impact the collectability of the loan portfolio as of the evaluation date are applied to each loan category.

Additionally, qualitative factors that management believes impact the collectability of the loan portfolio as of the evaluation date are applied to each loan category.

Qualitative loss factors increase as loans are classified or become delinquent.

1 unchanged sentence

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1.

Summary of Significant Accounting Policies" for additional information related to the loss factors utilized in the formula analysis model.

The loss factors applied in the formula analysis model are reviewed quarterly by management to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.

Summary of Significant Accounting Policies" for additional information related to the historical and qualitative loss factors utilized in the formula analysis model.

The historical loss and qualitative factors applied in the formula analysis model are reviewed quarterly by management to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.

Our ACL methodology permits modifications to the formula analysis model in the event that, in management's judgment, significant factors which affect the collectability of the portfolio or any category of the loan portfolio, as of the evaluation date, have changed from the current formula analysis model.

Management's evaluation of the qualitative factors with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with a specific problem loan or portfolio segment.

During the current fiscal year, management increased the historical loss and qualitative factors applied in the formula analysis model for all loan categories and added a COVID-19 qualitative loss factor to the Bank's commercial loan portfolio.

The increase in the factors and the addition of the new qualitative factor was in response to the deterioration of economic conditions due to the COVID-19 pandemic.

Management considered several items when determining the appropriate historical loss and qualitative factors to apply in the formula analysis model.

Such considerations included:

national and state unemployment and unemployment benefit claim information, amount and timing of governmental financial assistance, the Bank's COVID-19 loan modification program, consumer spending information, industries most impacted by the COVID-19 pandemic and a loan analysis completed by the commercial lending team.

Management also evaluated the Bank's historical and peer ACL to loan ratios and charge-off ratios taking into consideration the economic conditions during those time periods.

After applying the higher and new factors in the formula analysis model, management then considered the calculated ACL to loans ratio compared to historical and peer ratios to determine the appropriate amount of ACL at September 30, 2020, considering the economic conditions at that point in time.

Non-PCI loans that have not become impaired subsequent to the acquisition date are included in the formula analysis model.

For these loans, the Company estimates a hypothetical amount of ACL.

The Company uses the acquired bank's past loss history adjusted for qualitative factors to establish the hypothetical amount of ACL.

This amount is compared with the remaining net purchase discount for the non-PCI loans to test for credit quality deterioration and the possible need for an additional loan loss provision.

The Company applies the same historical and qualitative loss factors as the Bank's formula analysis model to establish the hypothetical amount of ACL.

This amount is compared with the remaining net purchase discount for the non-PCI loans to test for credit quality deterioration and the

possible need for an additional loan loss provision.

To the extent the remaining net purchase discount of the pool is greater than the hypothetical ACL, no additional ACL is necessary.

If the remaining net purchase discount of the pool is less than the hypothetical ACL, the difference results in an increase to the ACL recorded through a provision for credit losses.

Management utilizes the formula analysis model, along with analyzing and considering several other relevant internal and external data elements, when evaluating the adequacy of the ACL.

Such data elements include the trend and composition of delinquent and non-performing loans, trends in foreclosed property transactions and charge-off activity, the current status and trends of local and national employment levels, trends and current conditions in the housing markets, loan growth and concentrations, industry and peer charge-off and ACL information, and certain ACL ratios such as ACL to loans receivable, net and annualized historical losses.

Since our loan portfolio is primarily concentrated in one- to four-family real estate, management monitors residential real estate market value trends in the Bank's local market areas and geographic sections of the U.S.

by reference to various industry and market reports, economic releases and surveys, and management's general and specific knowledge of the real estate markets in which we lend, in order to determine what impact, if any, such trends may have on the level of ACL.

Reviewing these data elements assists management in evaluating the overall credit quality of the loan portfolio and the reasonableness of the ACL on an ongoing basis, and whether changes need to be made to our ACL methodology.

Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate.

If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

In addition, the adequacy of the Company's ACL is reviewed during bank regulatory examinations.

We consider any comments from our regulators when assessing the appropriateness of our ACL.

We seek to apply ACL methodology in a consistent manner;

however, the methodology can be modified in response to changing conditions.

Management seeks to apply the ACL methodology in a consistent manner;

however, the methodology may be modified in response to changing conditions.

ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments became effective for the Company on October 1, 2020.

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1.

Summary of Significant Accounting Policies" for additional information.

Fair Value Measurements.

10 unchanged sentences

The Company's interest rate swaps are measured at fair value on a recurring basis.

The Company uses a discounted cash flow analysis using observable market-based inputs to determine the fair value of its interest rate swaps.

The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs.

Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity.

12 unchanged sentences

We also purchase one- to four-family loans from correspondent lenders.

In addition, we offer several commercial lending options to our customers and participate in commercial loans with other lenders.

We offer both fixed- and adjustable-rate products with various terms to maturity and pricing options.

We maintain strong relationships with local real estate agents to attract mortgage loan business.

With the acquisition of CCB in August 2018, we began offering more commercial lending options to our customers.

We rely on our marketing efforts and customer service reputation to attract mortgage business from walk-in customers, customers that apply online, and existing customers.

• Deposit Services.

We offer a wide array of deposit products and services.

We offer a wide array of retail and business deposit products and services.

These products include checking, savings, money market, certificates of deposit, and retirement accounts.

With the acquisition of CCB, we began offering commercial deposit services.

Our deposit services are provided through a branch network of 54 locations, including traditional branches and retail in-store locations, our call center which operates on extended hours, mobile banking, telephone banking, and online banking and bill payment services.

8 unchanged sentences

• Asset Quality.

We utilize underwriting standards for our lending products that are designed to limit our exposure to credit risk.

We utilize underwriting standards for our lending products, including the loans we purchase and participate in, that are designed to limit our exposure to credit risk.

We require complete documentation for both originated and purchased loans, and make credit decisions based on our assessment of the borrower's ability to repay the loan in accordance with its terms.

Additionally, we monitor the asset quality of existing loans and strive to work proactively with customers who face challenging financial conditions.

• Capital Position.

5 unchanged sentences

One way that we continue to provide returns to stockholders is through our dividend payments.

Total dividends declared and paid during fiscal year 2019 were $134.9 million , including a $0.25 per share, or $34.4 million , True Blue® Capitol Dividend paid in June 2019 .

Total dividends declared and paid during fiscal year 2020 were $93.9 million.

The Company's cash dividend payout policy is reviewed quarterly by management and the Board of Directors, and the ability to pay dividends under the policy depends upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

For fiscal year 2020 , it is the intent of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to its stockholders through regular quarterly dividends and a true-up dividend.

For fiscal year 2021, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to its stockholders through regular quarterly dividends and a true-up dividend.

Stockholder value is also provided through common stock repurchases.

During fiscal year 2020, the Company repurchased $23.8 million, or 2,558,100 shares, of common stock.

• Interest Rate Risk Management.

3 unchanged sentences

Financial Condition

Total assets were $9.34 billion at September 30, 2019 compared to $9.45 billion at September 30, 2018.

The $109.5 million decrease was largely in the securities portfolio and the loan portfolio, partially offset by an increase in operating cash.

The increase in operating cash primarily occurred later in the current fiscal year due to the interest rate environment as the interest rate earned on excess reserves was comparable to the available yield on securities, along with an increase in projected funding of commercial loan commitments.

Total assets at September 30, 2020 were $9.49 billion, an increase of $147.2 million, or 1.6% from September 30, 2019.

The increase was due mainly to an increase in securities, partially offset by a decrease in loans receivable.

Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio.

Loans Receivable.

The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.

Approximately 64% of the one- to four-family loan portfolio at September 30, 2019 had a balance of $484 thousand or less at the time of origination.

The weighted average rate of the loan portfolio increased seven basis points due primarily to the origination and purchase of loans at higher market rates during the current fiscal year, as well as adjustable-rate loans repricing to higher market rates.

September 30, 2019

September 30, 2018

Approximately 67% of the one- to four-family loan portfolio balance at September 30, 2020 was comprised of loans that had a balance of $510 thousand or less at the time of origination.

The weighted average interest rate on our loan portfolio decreased 26 basis points, to 3.55% at September 30, 2020.

The decrease was due primarily to the downward repricing of the one- to four-family originated and correspondent purchased portfolios as a result of endorsements, payoffs of loans with higher rates, and originations and purchases at lower market rates during the year.

September 30, 2020 September 30, 2019

Amount Rate Amount Rate

(Dollars in thousands)

One- to four-family:

Originated $ 3,937,310 3.50 % $ 3,873,851 3.74 %

Correspondent purchased 2,101,082 3.49 2,349,877 3.64

Bulk purchased 208,427 2.41 252,347 2.94

Construction 34,593 3.30 36,758 4.00

Total 6,281,412 3.46 6,512,833 3.68

Commercial real estate 626,588 4.29 583,617 4.48

Commercial and industrial 97,614 2.79 61,094 5.14

Construction 105,458 4.04 123,159 4.81

Total 829,660 4.08 767,870 4.58

Consumer loans:

Home equity 103,838 4.66 120,587 6.15

Other 10,086 4.40 11,183 4.57

Total 113,924 4.64 131,770 6.02

Total loans receivable 7,224,996 3.55 7,412,473 3.81

ACL 31,527 9,226

Discounts/unearned loan fees 29,190 31,058

1 unchanged sentence

Total loans receivable, net $ 7,202,851 $ 7,416,747

Loan Activity - The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs.

Loans that were paid-off as a result of refinances and loans that were sold are included in repayments.

Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs.

Loans that were paid off as a result of refinances are included in repayments.

Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement.

2 unchanged sentences

Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.

During the initial days of the COVID-19 pandemic, correspondent one- to four-family loan application acceptance was suspended by the Bank but existing correspondent applications and commitments continued to progress through the approval and funding process.

One- to four-family correspondent new loan application acceptance resumed in mid-June 2020.

For the Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Rate Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

1 unchanged sentence

Originated and refinanced:

Fixed 265,424 2.98 277,904 2.83 172,891 3.44 233,693 3.52

Adjustable 44,625 3.68 60,626 3.75 55,946 4.11 55,126 4.30

Purchased and participations:

Fixed 61,435 3.07 131,739 3.28 125,612 3.46 123,118 3.77

Adjustable 4,396 2.76 62,510 3.76 18,985 2.96 13,801 3.06

Change in undisbursed loan funds 13,898 (32,202) 24,049 (9,743)

Principal (charge-offs) recoveries, net

Repayments (572,536) (586,434) (328,644) (403,361)

Principal recoveries/(charge-offs), net 312 19 (314) (16)

Other — — (79) (257)

Ending balance $ 7,224,996 3.55 $ 7,407,442 3.64 $ 7,493,280 3.74 $ 7,424,834 3.77

For the Year Ended September 30,

Amount Rate Amount Rate

(Dollars in thousands)

Beginning balance $ 7,412,473 3.81 % $ 7,507,645 3.74 %

Originations and refinances:

Purchases and participations:

Loans added in CCB acquisition, net

Originated and refinanced:

Fixed 949,912 3.15 505,334 4.10

Adjustable 216,323 3.97 319,608 4.77

Purchased and participations:

Fixed 441,904 3.44 186,135 4.64

Adjustable 99,692 3.47 76,305 4.40

Change in undisbursed loan funds (3,998) 52,220

Repayments (1,890,975) (1,233,157)

Principal recoveries, net 1 13

Other (336) (1,630)

Ending balance $ 7,224,996 3.55 $ 7,412,473 3.81

The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity and $299.7 million of loans at a rate of 4.77% purchased in connection with the acquisition of CCB during fiscal year 2018, along with associated weighted average rates and percent of total.

The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total.

Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal.

Loan originations, purchases, and refinances are reported together.

Starting in the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for adjustable-rate one- to four-family loan originations and no longer purchases correspondent one- to four-family loans that use LIBOR, since LIBOR is expected to be discontinued in 2021.

Currently, new adjustable-rate one- to four-family loan originations and purchases are tied to the one-year CMT index, which, to date, does not appear to have had any impact on our ability and opportunities to originate and purchase adjustable-rate one- to four-family loans.

During fiscal year 2019, the Bank discontinued the use of LIBOR for adjustable-rate one- to four-family loan originations and no longer purchases correspondent one- to four-family loans that use LIBOR, since LIBOR is expected to be discontinued by the end of calendar year 2021.

Adjustable-rate one- to four-family loan originations and purchases are now tied to the one-year CMT index, which, to date, does not appear to have had any impact on our ability and opportunities to originate and purchase adjustable-rate one- to four-family loans.

For the Year Ended

September 30, 2019

September 30, 2018

September 30, 2020 September 30, 2019

Amount Rate % of Total Amount Rate % of Total

(Dollars in thousands)

One- to four-family:

<= 15 years $ 384,937 2.79 % 22.5 % $ 106,966 3.56 % 9.8 %

> 15 years 804,898 3.41 47.1 420,243 4.14 38.6

One- to four-family construction 44,754 3.28 2.6 51,663 4.13 4.8

2 unchanged sentences

Commercial construction 39,346 4.71 2.3 59,108 4.85 5.4

Home equity 4,493 5.83 0.3 5,411 6.20 0.5

Other 4,209 5.67 0.2 4,901 5.29 0.5

Total fixed-rate 1,391,816 3.24 81.5 691,469 4.24 63.6

1 unchanged sentence

One- to four-family:

<= 36 months 5,800 2.80 0.3 9,786 3.57 0.9

> 36 months 125,865 2.95 7.4 139,511 3.70 12.8

One- to four-family construction 12,984 2.97 0.8 19,364 3.86 1.8

2 unchanged sentences

Commercial construction 53,563 4.06 3.1 30,251 5.39 2.8

Home equity 58,709 4.95 3.4 66,893 6.33 6.2

Other 2,037 3.86 0.1 2,470 3.51 0.2

Total adjustable-rate 316,015 3.81 18.5 395,913 4.70 36.4

12 unchanged sentences

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented.

Credit scores are updated at least semiannually, with the latest update in September 2019, from a nationally recognized consumer rating agency.

Credit scores are updated at least annually, with the latest update in September 2020, from a nationally recognized consumer rating agency.

The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available.

1 unchanged sentence

September 30, 2020

% of Credit Average

Amount Total Score LTV Balance

(Dollars in thousands)

Originated $ 3,937,310 63.0 % 771 62 % $ 145

Correspondent purchased 2,101,082 33.6 765 64 379

Bulk purchased 208,427 3.4 767 60 300

$ 6,246,819 100.0 % 768 63 187

September 30, 2019

% of Credit Average

Amount Total Score LTV Balance

(Dollars in thousands)

Originated $ 3,873,851 59.8 % 768 62 % $ 140

Correspondent purchased 2,349,877 36.3 765 65 371

Bulk purchased 252,347 3.9 762 61 304

$ 6,476,075 100.0 % 767 63 186

The following table presents originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated.

Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank.

Of the loans originated during the current year, $300.4 million were refinanced from other lenders.

2 unchanged sentences

For the Year Ended

September 30, 2019

September 30, 2018

September 30, 2020 September 30, 2019

Credit Credit

Amount LTV Score Amount LTV Score

(Dollars in thousands)

Originated $ 662,678 74 % 767 $ 494,739 78 % 760

Refinanced by Bank customers 268,590 67 765 86,381 68 752

Correspondent purchased 447,970 71 768 166,413 73 762

$ 1,379,238 72 767 $ 747,533 76 760

The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the year ended September 30, 2020.

State Amount % of Total Rate

(Dollars in thousands)

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of September 30, 2019 , along with associated weighted average rates.

Kansas $ 804,919 58.4 % 3.15 %

Missouri 234,730 17.0 3.20

Texas 177,752 12.9 3.23

Other states 161,837 11.7 3.32

$ 1,379,238 100.0 % 3.19

Through September 30, 2020, the Bank had processed COVID-19 loan modifications for 942 one- to four-family loans totaling $239.5 million, of which $39.8 million, or 17%, were still in the deferral period as of September 30, 2020.

Of the COVID-19 loan modifications that had completed the deferral period by September 30, 2020 and were not delinquent prior to requesting assistance, $1.4 million were 30 to 89 days delinquent and none were 90 or more days delinquent as of September 30, 2020.

The modifications still in the deferral period as of September 30, 2020 are summarized in the table below, along with the weighted average credit score and weighted average LTV as of September 30, 2020.

Credit scores were updated in September 2020 from a nationally recognized consumer rating agency.

The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available.

In most cases, the most recent appraisal was obtained at the time of origination.

Count Amount Score LTV

(Dollars in thousands)

Originated 159 $ 26,859 715 67 %

Correspondent purchased 34 12,984 749 67

193 $ 39,843 727 67

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of September 30, 2020, along with associated weighted average rates.

Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee.

It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of future cash needs.

It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.

15 years More than Adjustable- Total

or less 15 years Rate Amount Rate

(Dollars in thousands)

1 unchanged sentence

Correspondent 15,687 49,912 5,080 70,679 2.89

Commercial Loans - The commercial loan portfolio totaled $767.9 million at September 30, 2019, compared to $569.6 million at September 30, 2018.

At September 30, 2019, the commercial loan portfolio was composed of 76% commercial real estate, 16% commercial construction, and 8% commercial and industrial.

During the current fiscal year, the Bank originated $164.1 million of commercial loans and entered into commercial real estate loan participations totaling $96.0 million, which included $82.0 million of commercial real estate construction loans.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by industry classification, as defined by the North American Industry Classification System, as of September 30, 2019 .

$ 51,556 $ 106,022 $ 16,380 $ 173,958 2.88

Rate 2.49 % 3.08 % 2.79 %

Commercial Loans - During fiscal year 2020, the Bank originated $165.5 million of commercial loans, of which $43.9 million were PPP loans, entered into commercial real estate loan participations totaling $93.6 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $228.7 million at a weighted average rate of 3.78%.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of September 30, 2020.

Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $534.6 million at a weighted average rate of 4.15% and adjustable-rate loans totaling $331.1 million at a weighted average rate of 4.38%.

The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at September 30, 2020 having shorter terms to maturity.

Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Real estate rental and leasing

Health care and social assistance

Accommodation and food services

Arts, entertainment, and recreation

Senior housing 25 $ 225,062 $ 32,638 $ 257,700 $ — $ 257,700 27.5 %

Hotel 9 129,488 49,686 179,174 — 179,174 19.1

Retail building 133 126,439 11,960 138,399 1,771 140,170 14.9

Office building 98 56,131 4,745 60,876 60,875 121,751 13.0

Multi-family 40 63,115 18,801 81,916 2,800 84,716 9.0

One- to four-family property 391 57,754 7,251 65,005 215 65,220 7.0

Single use building 21 43,596 5,163 48,759 1,500 50,259 5.4

Other 91 30,461 3,459 33,920 4,598 38,518 4.1

808 $ 732,046 $ 133,703 $ 865,749 $ 71,759 $ 937,508 100.0 %

Weighted average rate 4.25 % 4.19 % 4.24 % 4.05 % 4.23 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of September 30, 2020.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Kansas 627 $ 285,184 $ 15,744 $ 300,928 $ 8,254 $ 309,182 33.0 %

Missouri 149 227,101 56,545 283,646 2,005 285,651 30.5

Texas 9 117,675 53,107 170,782 60,000 230,782 24.6

Nebraska 6 33,820 16 33,836 — 33,836 3.6

Kentucky 1 25,450 109 25,559 — 25,559 2.7

California 3 5,843 4,300 10,143 1,500 11,643 1.2

Other 13 36,973 3,882 40,855 — 40,855 4.4

808 $ 732,046 $ 133,703 $ 865,749 $ 71,759 $ 937,508 100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of September 30, 2020.

Including in the working capital loan category are $43.9 million of PPP loans.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Working capital 942 $ 56,348 $ 17,237 $ 73,585 $ 331 $ 73,916 62.0 %

Equipment 119 14,184 303 14,487 850 15,337 12.9

Purchase/lease autos 178 11,275 97 11,372 — 11,372 9.5

Business investment 70 11,029 80 11,109 — 11,109 9.3

Other 22 4,778 2,785 7,563 — 7,563 6.3

1,331 $ 97,614 $ 20,502 $ 118,116 $ 1,181 $ 119,297 100.0 %

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of September 30, 2020.

6 unchanged sentences

Less than $1 million 2,003 227,933

Securities decreased $139.4 million from $1.33 billion at September 30, 2018 to $1.19 billion at September 30, 2019.

The decrease primarily occurred later in the current fiscal year and was due mainly to not reinvesting some of the cash flows from the securities portfolio due to the interest rate environment.

$ 2,139 $ 1,056,805

The Bank's commercial lending team is working proactively with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions.

Through September 30, 2020, we have modified $410.9 million of commercial loans under our COVID-19 loan modification program.

Of this amount, $43.5 million had completed the deferral period by September 30, 2020, all of which were current, and $367.4 million, or 89%, were still in the deferral period as of September 30, 2020.

We have also processed 791 PPP loans for $43.9 million, for which we received approximately $1.9 million in fees.

Approximately 60% of PPP loans processed were in the following industries:

construction, professional/scientific/technical, health care/social assistance, and retail trade.

Through November 16, 2020, $12.2 million of the Bank's PPP loans have been forgiven by the SBA.

The following table presents the gross loan amount, including undisbursed balances, of the Bank's commercial real estate loans by type of primary collateral, and commercial and industrial loans by business purpose, that have been modified per the Bank's COVID-19 loan modification program, and had not completed the deferral period as of September 30, 2020.

The information is presented by type of modification and as a percentage of total modifications, as well as by a percentage of the total gross loan amount and undisbursed balances of the related property type or business purpose category.

Of the loans presented in the table below, $258.8 million, or 70%, completed their deferral period by November 16, 2020, and an additional $57.4 million was paid off in October 2020.

Modification Type % of

Interest Payment % of Property Type/

Only Deferral Total Total Business Purpose

(Dollars in thousands)

Commercial real estate

Senior housing $ 115,082 $ 57,258 $ 172,340 46.9 % 66.9 %

Hotel 76,208 10,049 86,257 23.5 48.1

Retail building 27,197 5,815 33,012 9.0 23.9

Multi-family 30,304 1,625 31,929 8.7 65.5

One- to four-family property 14,618 4,375 18,993 5.2 31.2

Office building 7,643 336 7,979 2.2 12.3

Single use building 7,390 — 7,390 2.0 9.0

Other 2,318 — 2,318 0.6 6.8

280,760 79,458 360,218 98.1 41.6

Commercial and industrial

Working capital 4,136 — 4,136 1.1 32.7

Equipment 848 — 848 0.2 1.2

Business investment 719 — 719 0.2 5.5

Purchase/lease autos 651 — 651 0.2 5.7

Other 786 — 786 0.2 32.6

7,140 — 7,140 1.9 6.0

Total $ 287,900 $ 79,458 $ 367,358 100.0 % 37.3

Of the commercial loans modified under the COVID-19 loan modification program, through November 16, 2020, we have received or are expecting to receive requests for additional assistance on loans with a combined gross loan amount, including undisbursed balances, of $87.4 million.

This amount includes $14.6 million of loans that had exited the initial deferral period by September 30, 2020, and $72.8 million that are included in the table above, of which $69.0 million were in their second deferral as of September 30, 2020.

The Bank is evaluating requests for additional assistance as they are received.

Securities increased $338.2 million from $1.19 billion at September 30, 2019 to $1.53 billion at September 30, 2020.

The weighted average yield on the securities portfolio decreased 92 basis points, from 2.54% at September 30, 2019 to 1.62% at September 30, 2020, due primarily to purchases at lower market yields during the current year.

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated.

2 unchanged sentences

Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

September 30, 2019

September 30, 2018

September 30, 2020 September 30, 2019

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Fixed-rate securities:

MBS $ 945,432 1.82 % 3.7 $ 625,840 2.46 % 2.9

GSE debentures 369,967 0.62 1.7 249,828 2.15 0.7

2 unchanged sentences

Adjustable-rate securities:

MBS 204,490 2.49 2.9 297,416 3.10 4.7

Total securities portfolio $ 1,529,605 1.62 3.1 $ 1,191,455 2.54 2.9

2 unchanged sentences

(Dollars in thousands)

FNMA $ 809,232 $ 656,799

FHLMC 327,167 208,745

Government National Mortgage Association 44,404 70,943

$ 1,180,803 $ 936,487

Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S.

GSEs, decreased $100.5 million to $936.5 million at September 30, 2019 from $1.04 billion at September 30, 2018 .

The following table summarizes the activity in our portfolio of MBS for the periods presented.

GSEs, increased $244.3 million to $1.18 billion at September 30, 2020 from $936.5 million at September 30, 2019.

The following tables summarize the activity in our portfolio of MBS for the periods presented.

The weighted average yields and WALs for purchases are presented as recorded at the time of purchase.

The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented.

The beginning and ending WAL is the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.

The beginning and ending WAL are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.

For the Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

2 unchanged sentences

Net amortization of (premiums)/discounts (608) (363) (279) (248)

Valuation transferred from HTM to AFS

Fixed 297,024 1.06 5.9 77,455 1.29 5.0 88,863 1.80 4.5 74,359 2.05 3.8

Adjustable — — — — — — — — — — — —

Change in valuation on AFS securities (2,358) 7,470 13,184 (646)

1 unchanged sentence

For the Year Ended September 30,

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

2 unchanged sentences

Net amortization of (premiums)/discounts (1,498) (1,304)

Securities added in CCB acquisition, net

Fixed 537,701 1.35 5.2 77,755 2.53 4.1

Adjustable — — — 84,138 2.74 4.4

Valuation transferred from HTM to AFS — 3,039

2 unchanged sentences

Investment Securities - Investment securities, which consist of U.S.

GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, decreased $21.5 million to $268.4 million at September 30, 2019 from $289.9 million at September 30, 2018 .

The following table summarizes the activity of investment securities for the periods presented.

GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, increased $111.8 million to $380.1 million at September 30, 2020 from $268.4 million at September 30, 2019.

Municipal investments totaled $9.7 million at September 30, 2020.

The following tables summarize the activity of investment securities for the periods presented.

The weighted average yields and WALs for purchases are presented as recorded at the time of purchase.

2 unchanged sentences

For the Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

2 unchanged sentences

Net amortization of (premiums)/discounts (54) (80) (49) 20

Valuation transferred from HTM to AFS

Fixed 244,975 0.51 3.2 99,990 0.58 1.2 50,097 1.42 0.4 75,000 1.90 1.7

Change in valuation on AFS securities (126) (162) 526 49

1 unchanged sentence

For the Year Ended September 30,

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

2 unchanged sentences

Net amortization of (premiums)/discounts (163) 62

Securities added in CCB acquisition, net

Fixed 470,062 0.84 2.3 224,809 2.44 0.9

Valuation transferred from HTM to AFS — 47

1 unchanged sentence

Ending balance - carrying value $ 380,147 0.65 1.7 $ 268,376 2.11 0.8

Deposits - The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.

Cash flows from new certificate of deposit accounts, money market accounts, and checking accounts resulted in an increase of $163.4 million, or 6.5%, in retail/business certificates of deposit during the current fiscal year.

The public unit certificate of deposit portfolio decreased $112.8 million, which was intentional as the Bank reduced its usage of public unit certificates of deposit, as previously discussed.

Excluding the impact of the decrease in the balance of public unit certificates of deposit, total deposits would have increased $91.3 million, or 1.8%, during the current fiscal year.

Total liabilities at September 30, 2020 were $8.20 billion, an increase of $198.7 million, or 2.5% from September 30, 2019.

The increase was due to an increase in deposits, partially offset by a decrease in borrowings.

Total deposits were $6.19 billion at September 30, 2020, an increase of $609.5 million, or 10.9%, from September 30, 2019.

The increase in retail and business deposit balances was due primarily to economic stimulus payments, a reduction in consumer spending, and PPP loan proceeds being deposited at the Bank.

Also, the Bank secured a new business deposit relationship during the current year which brought in $163.6 million of new deposit balances.

Because some of these deposits related to the new business deposit relationship are COVID-19 related payments, we do not expect the full balance of the deposits received during fiscal year 2020 to be retained through fiscal year 2021.

As previously noted, since the onset of the COVID-19 pandemic, the Bank has lowered rates paid on money market accounts and certificate of deposit products.

Despite this, money market accounts increased $220.8 million and certificate of deposit accounts increased $73.8 million during the current fiscal year.

The increase in the certificate of deposit accounts was primarily related to business accounts.

As retail certificates of deposit matured during the current year, not all were renewed.

Rather, customers moved some of those funds to more liquid investment options, such as the Bank's money market accounts.

During fiscal year 2020, the Bank's weighted average retention rate of maturing retail certificates of deposit was approximately 80%, compared to approximately 85% during fiscal year 2019.

The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.

At September 30,

Amount Rate Total Amount Rate Total

(Dollars in thousands)

1 unchanged sentence

Interest-bearing checking 865,782 0.10 14.0 717,121 0.09 12.8

Savings 433,808 0.06 7.0 321,494 0.05 5.8

Money market 1,419,180 0.37 22.9 1,198,343 0.70 21.5

Retail/business certificates of deposit 2,766,461 1.83 44.7 2,692,770 2.08 48.2

Public unit certificates of deposit 254,783 0.74 4.1 294,855 2.29 5.3

The composition of the retail/business certificate of deposit portfolio changed during the current fiscal year.

Short-term and intermediate-term certificates of deposit increased $362.5 million while longer-term and variable rate certificates of deposit decreased $199.1 million.

The change in the deposit portfolio mix was intentional.

The Bank increased offered rates on short-term and certain intermediate-term certificates of deposit late in the third quarter of fiscal year 2019 and ran a special certificate of deposit campaign ("unTraditional campaign") during the last quarter of fiscal year 2019.

The intention of the unTraditional campaign was to attract deposits with generally shorter term to maturity to allow the Bank to more quickly reprice certificate of deposit funds lower if market rates decrease.

$ 6,191,408 0.95 100.0 % $ 5,581,867 1.29 100.0 %

The following tables set forth scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, at September 30, 2020.

More than More than

1 year 1 year to 2 years to 3 More than Total

Rate range or less 2 years years 3 years Amount Rate

(Dollars in thousands)

0.00 – 0.99% $ 449,875 $ 55,037 $ 8,103 $ 1,374 $ 514,389 0.55 %

1.00 – 1.99% 713,300 355,888 104,335 186,939 1,360,462 1.65

2.00 – 2.99% 342,326 362,353 313,831 127,632 1,146,142 2.38

3.00 – 3.99% — — 251 — 251 3.00

$ 1,505,501 $ 773,278 $ 426,520 $ 315,945 $ 3,021,244 1.74

Percent of total 49.8 % 25.6 % 14.1 % 10.5 %

2 unchanged sentences

Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.5

3 months 3 to 6 6 to 12 Over

or less months months 12 months Total

(Dollars in thousands)

2 unchanged sentences

Public unit certificates of deposit of $100,000 or more 100,761 39,310 97,459 17,253 254,783

Borrowings - The following tables present borrowing activity for the periods shown.

The borrowings presented in the table have original contractual terms of one year or longer.

$ 412,616 $ 347,173 $ 745,712 $ 1,515,743 $ 3,021,244

Total borrowings at September 30, 2020 were $1.79 billion, a decrease of $450.7 million, or 20.1%, from September 30, 2019.

As a result of excess liquidity due primarily to the inflow of deposits, management elected to reduce the Bank's level of borrowing during the current fiscal year.

Not all maturing FHLB advances and repurchase agreement were renewed and the FHLB line of credit balance was paid off during the year.

The following tables present borrowing activity for the periods shown.

The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer.

Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year.

FHLB advances are presented at par.

4 unchanged sentences

For the Three Months Ended

September 30, 2019

June 30, 2019

March 31, 2019

December 31, 2018

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Effective Effective Effective Effective

Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

Beginning balance $ 1,990,000 2.29 % 2.9 $ 2,090,000 2.25 % 3.0 $ 2,090,000 2.37 % 2.6 $ 2,140,000 2.38 % 2.6

Maturities and prepayments:

FHLB advances (440,000) 2.49 (200,000) 2.35 (415,000) 2.45 (350,000) 2.40

CCB acquisition - junior subordinated debentures assumed (redeemed)

Repurchase agreements (100,000) 2.53 — — — — — —

New FHLB borrowings:

Fixed-rate — — — — — — 350,000 1.70 4.7 100,000 1.96 5.0

Interest rate swaps (1)

340,000 2.73 3.5 100,000 3.20 8.0 65,000 2.61 4.0 200,000 2.57 2.5

Ending balance $ 1,790,000 2.31 3.0 $ 1,990,000 2.29 2.9 $ 2,090,000 2.25 3.0 $ 2,090,000 2.37 2.6

For the Year Ended September 30,

Effective Effective

Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

Beginning balance $ 2,140,000 2.38 % 2.6 $ 2,185,052 2.17 % 2.9

Maturities and prepayments:

FHLB advances (1,405,000) 2.44 (875,000) 2.10

2 unchanged sentences

New FHLB borrowings:

Fixed-rate 450,000 1.76 4.8 200,000 2.77 4.5

Interest rate swaps (1)

705,000 2.74 3.9 640,000 2.67 5.0

Ending balance $ 1,790,000 2.31 3.0 $ 2,140,000 2.38 2.6

1 unchanged sentence

The effective rate and WAM presented include the effect of the interest rate swaps.

Maturities - The following table presents the maturity of term borrowings (including FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of September 30, 2019 .

FHLB Advances Amount

Interest rate

Maturities - The following table presents the maturity of term borrowings (which includes FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of September 30, 2020.

The weighted average effective rate for term borrowings decreased seven basis points during fiscal year 2020, to 2.31% at September 30, 2020.

The decrease in the effective rate was due primarily to FHLB advances being replaced at lower market interest rates.

Term Borrowings Amount

Maturity by Interest rate Total Effective

Fiscal Year Fixed-rate swaps (1)

Amount Rate (2)

(Dollars in thousands)

Represents 12-month adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances.

These advances are presented based on their contractual maturity dates and will be renewed each year until the maturity or termination of the interest rate swaps.

2021 203,000 640,000 843,000 2.56 %

2022 200,000 — 200,000 2.23

2023 300,000 — 300,000 1.81

2024 100,000 — 100,000 3.39

2025 250,000 — 250,000 1.94

2026 100,000 — 100,000 1.60

$ 1,153,000 $ 640,000 $ 1,793,000 2.31

(1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances.

These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps.

The expected WAL of the interest rate swaps was 3.5 years at September 30, 2020.

(2) The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

As of September 30, 2019, the Bank had $100.0 million outstanding, at a rate of 2.20%, on its FHLB line of credit which was not related to the leverage strategy.

The average outstanding balance of FHLB line of credit borrowings during the current year was $115.6 million at an average rate of 2.54%.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of September 30, 2020.

Retail/Business

Retail/ Business Public Unit Term

Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing

Quarter End Amount Rate Amount Rate Amount (1)

Rate Total Rate

(Dollars in thousands)

3 unchanged sentences

September 30, 2021 305,591 1.40 48,274 0.95 75,000 2.99 428,865 1.63

$ 1,267,971 1.61 $ 237,530 0.67 $ 278,000 2.24 $ 1,783,501 1.59

(1) The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap.

Stockholders' Equity.

Stockholders' equity was $1.28 billion at September 30, 2020 compared to $1.34 billion at September 30, 2019.

The $55.3 million decrease was due primarily to the payment of $134.9 million in cash dividends, partially offset by net income of $94.2 million.

In the long run, management considers a ratio of stockholders' equity to total assets at the Bank of at least 10% an appropriate level of capital.

In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital.

At September 30, 2020, this ratio was 12.3%.

The cash dividends paid during the current fiscal year totaled $0.98 per share and consisted of a $0.39 per share cash true-up dividend related to fiscal year 2018 earnings per the Company's dividend policy, a $0.25 per share True Blue Capitol dividend, and four regular quarterly cash dividends totaling $0.34 per share.

On October 20, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on November 20, 2020 to stockholders of record as of the close of business on November 6, 2020.

2 unchanged sentences

The cash true-up dividend is payable on December 4, 2020 to stockholders of record as of the close of business on November 20, 2020, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2020.

During the current fiscal year, the Company repurchased $23.8 million, or 2,558,100 shares, of common stock.

Subsequent to September 30, 2020, through November 24, 2020, the Company repurchased an additional $1.5 million, or 164,400 shares, of common stock.

As of November 24, 2020, there was still $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock.

Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors.

This plan has no expiration date;

however, the Federal Reserve Bank's approval for the Company to repurchase shares extends through August 2021.

At September 30, 2020, Capitol Federal Financial, Inc., at the holding company level, had $82.5 million on deposit at the Bank.

For fiscal year 2020 , it is the intent of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to its stockholders.

For fiscal year 2021, it is currently the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders.

The payout is expected to be in the form of regular quarterly cash dividends of $0.085 per share, totaling $0.34 for the year, and a cash true-up dividend equal to fiscal year 2021 earnings in excess of the amount paid as regular quarterly cash dividends during fiscal year 2021.

2 unchanged sentences

The Company works to find multiple ways to provide stockholder value.

Recently, this has primarily been through the payment of cash dividends and historically, the Company has also utilized stock buybacks.

The Company has maintained a dividend policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year.

In order to provide additional stockholder value, the Company has paid a True Blue Capitol cash dividend of $0.25 per share in June of each of the past six years, including June 2019, and in December prior to that.

This has primarily been through the payment of cash dividends and stock buybacks.

The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year.

In order to provide additional stockholder value, the Company has paid a True Blue Capitol cash dividend of $0.25 per share in June of each of the past six years.

The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank.

The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.

Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection at that time to move capital from the Bank to the Company to pay that dividend.

It is management's intention to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain.

It remains the Company's intention to pay out 100% of its earnings.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2020, 2019, and 2018.

2 unchanged sentences

Calendar Year

2020 2019 2018

Amount Per Share Amount Per Share Amount Per Share

(Dollars in thousands, except per share amounts)

7 unchanged sentences

Calendar year-to-date dividends paid $ 64,330 $ 0.470 $ 128,230 $ 0.930 $ 133,262 $ 0.980

The Company has authorized the repurchase of $70.0 million of its common stock under its stock repurchase plan.

Shares may be repurchased from time to time based upon market conditions and available liquidity.

There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

Weighted Average Yields and Rates.

The following table presents the weighted average yields on interest-earning assets, the weighted average rates paid on interest-bearing liabilities, and the resultant interest rate spreads at the dates indicated.

As previously discussed, the leverage strategy was not in place at September 30, 2019 , 2018 , and 2017 , so the end of period yields/rates presented in the table below do not reflect the effects of this strategy.

The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates.

2 unchanged sentences

At September 30,

2020 2019 2018

Loans receivable 3.57 % 3.81 % 3.74 %

MBS 1.94 2.67 2.57

Investment securities 0.65 2.11 2.05

FHLB stock 4.64 7.47 7.22

Cash and cash equivalents 0.09 1.80 2.19

1 unchanged sentence

Rate paid on:

Checking 0.07 0.06 0.05

Savings 0.06 0.05 0.07

Money market 0.37 0.70 0.47

Retail/business certificates 1.83 2.08 1.79

1 unchanged sentence

Total deposits 0.95 1.29 1.06

FHLB borrowings

Other borrowings

Total borrowings 2.31 2.37 2.18

1 unchanged sentence

Net interest rate spread 1.92 2.04 2.18

Rate/Volume Analysis.

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing fiscal years 2020 to 2019.

For the comparison of fiscal years 2019 to 2018, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.

For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year.

The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

For the Year Ended September 30,

Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ (2,074) $ (11,661) $ (13,735)

MBS (612) (2,109) (2,721)

Investment securities (236) (1,663) (1,899)

FHLB stock (406) (1,590) (1,996)

Cash and cash equivalents (1,322) (3,303) (4,625)

Total interest-earning assets (4,650) (20,326) (24,976)

Interest-bearing liabilities:

Checking 65 82 147

Savings 29 66 95

Money market (14) (2,200) (2,214)

Certificates of deposit 2,048 1,321 3,369

Borrowings (8,876) (442) (9,318)

Total interest-bearing liabilities (6,748) (1,173) (7,921)

Net change in net interest income $ 2,098 $ (19,153) $ (17,055)

Average Balance Sheets .

7 unchanged sentences

For the Year Ended September 30,

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

4 unchanged sentences

Total loans receivable (1)

7,437,726 270,494 3.63 7,518,895 284,229 3.77

954,197 23,009 2.41 977,925 25,730 2.63

Investment securities (2)(3)

270,683 4,467 1.65 281,490 6,366 2.26

FHLB stock 100,251 5,827 5.81 106,057 7,823 7.38

Cash and cash equivalents (4)

179,142 1,181 0.65 251,015 5,806 2.28

Total interest-earning assets (1)(2)

8,941,999 304,978 3.40 9,135,382 329,954 3.61

Other non-interest-earning assets 461,614 385,803

Total assets $ 9,403,613 $ 9,521,185

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,180,110 762 0.06 $ 1,073,825 615 0.06

Savings 388,662 292 0.08 342,617 197 0.06

Money market 1,252,992 6,647 0.53 1,255,001 8,861 0.71

Retail/business certificates 2,716,945 55,238 2.03 2,531,923 48,496 1.92

1 unchanged sentence

Total deposits 5,821,656 67,598 1.16 5,572,648 66,201 1.19

FHLB borrowings (5)

Other borrowings

Total borrowings

Borrowings (5)

2,065,966 48,045 2.31 2,441,002 57,363 2.34

Total interest-bearing liabilities 7,887,622 115,643 1.46 8,013,650 123,564 1.54

3 unchanged sentences

Net interest income (6)

$ 189,335 $ 206,390

Net interest rate spread (7)(8)

1 unchanged sentence

Net interest margin (8)(9)

Ratio of interest-earning assets to interest-bearing liabilities

Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.14x

(1) Balances are adjusted for unearned loan fees and deferred costs.

Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

Balances include loans receivable held-for-sale.

MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts.

(2) AFS securities are adjusted for unamortized purchase premiums or discounts.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $13.8 million, and $21.6 million, for the years ended September 30, 2020 and 2019, respectively.

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $150.7 million and $1.33 billion for the years ended September 30, 2019 and 2018 , respectively.

Included in this line, for the years ended September 30, 2019 and 2018 , respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $157.8 million and $1.39 billion, respectively, and interest paid of $3.9 million and $22.1 million, respectively, at a weighted average rate of 2.46% and 1.57%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.18 billion and $2.17 billion, respectively, and interest paid of $50.5 million and $45.0 million, respectively, at a weighted average rate of 2.30% and 2.07%, respectively.

The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(4) There were no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2020.

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $150.7 million for the year ended September 30, 2019.

(5) There were no borrowings related to the leverage strategy during the year ended September 30, 2020.

Included in this line item, for the year ended September 30, 2019, are borrowings related to the leverage strategy with an average outstanding balance of $157.8 million and interest paid of $3.9 million, at a weighted average rate of 2.46%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.28 billion and interest paid of $53.4 million, at a weighted average rate of 2.33%.

The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.

(6) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.

3 unchanged sentences

Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy.

The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.

The pre-tax yield on the leverage strategy was 0.03% and 0.15% for the years ended September 30, 2019 and 2018 , respectively.

The leverage strategy reduces some of our performance ratios due to the small amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.

The leverage strategy was not in place during fiscal year 2020.

The pre-tax yield on the leverage strategy was 0.03% for the year ended September 30, 2019.

For the Year Ended September 30,

Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP)

Net interest margin 2.26 % (0.04) % 2.30 %

1 unchanged sentence

(9) Net interest margin represents net interest income as a percentage of average interest-earning assets.

Rate/Volume Analysis.

For the comparison of fiscal years 2018 to 2017 , see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018 .

The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

For the Year Ended September 30,

Increase (Decrease) Due to

(Dollars in thousands)

Interest-earning assets:

Loans receivable

Investment securities

Cash and cash equivalents

Total interest-earning assets

Interest-bearing liabilities:

Certificates of deposit

FHLB borrowings

Other borrowings

Total interest-bearing liabilities

Net change in net interest income

Comparison of Operating Results for the Years Ended September 30, 2020 and 2019

The Company recognized net income of $94.2 million, or $0.68 per share, for the current fiscal year compared to net income of $98.9 million, or $0.73 per share, for the prior fiscal year.

The decrease in net income was due primarily to a $10.0 million increase in non-interest expense during the current year, partially offset by a $7.6 million increase in net interest income due primarily to higher yielding loans added in the acquisition of CCB.

The net interest margin increased 31 basis points, from 1.95% for the prior fiscal year to 2.26% for the current fiscal year.

When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.

Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points, from 2.24% for the prior fiscal year to 2.30% for the current fiscal year.

The decrease in net income was due primarily to a $21.6 million increase in provision for credit losses and a $17.1 million decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $17.1 million, or 8.3%, from the prior year to $189.3 million for the current year.

The net interest margin decreased 14 basis points, from 2.26% for the prior year to 2.12% for the current year.

Excluding the effects of the leverage strategy, the net interest margin would have decreased 18 basis points, from 2.30% for the prior year to 2.12% for the current year.

The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB.

The borrowings are repaid at quarter end, or earlier if the strategy is suspended.

The proceeds from the borrowings, net of the required FHLB stock holdings, are deposited at the FRB of Kansas City.

Net income attributable to the leverage strategy was $14 thousand during the prior year.

The leverage strategy was not in place during the current year.

Management continues to monitor the net interest rate spread and overall profitability of the strategy.

It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

Interest and Dividend Income

The weighted average yield on total interest-earning assets increased 45 basis points, from 3.16% for the prior fiscal year to 3.61% for the current fiscal year, while the average balance of interest-earning assets decreased $1.03 billion from the prior fiscal year.

Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 23 basis points, from 3.39% for the prior fiscal year to 3.62% for the current fiscal year, and the average balance of interest-earning assets would have increased $202.1 million.

The weighted average yield on total interest-earning assets decreased 21 basis points, from 3.61% for the prior year to 3.40% for the current year, and the average balance of interest-earning assets decreased $193.4 million.

Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased 22 basis points, from 3.62% for the prior year to 3.40% for the current year, and the average balance of interest-earning assets would have decreased $35.6 million.

The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield.

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

For the Year Ended

September 30,

Change Expressed in:

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

1 unchanged sentence

Loans receivable $ 270,494 $ 284,229 $ (13,735) (4.8) %

MBS 23,009 25,730 (2,721) (10.6)

FHLB stock 5,827 7,823 (1,996) (25.5)

Investment securities 4,467 6,366 (1,899) (29.8)

1 unchanged sentence

Total interest and dividend income $ 304,978 $ 329,954 $ (24,976) (7.6)

The increase in interest income on loans receivable was due to a $282.0 million increase in the average balance of the portfolio, as well as a 17 basis point increase in the weighted average yield on the portfolio to 3.77% for the current fiscal year.

The increase in the average balance was due mainly to the acquisition of CCB.

The increase in the weighted average yield was also due mainly to the addition of higher yielding loans associated with the CCB acquisition, legacy adjustable-rate loans repricing to higher market rates, and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 28 basis point increase in the weighted average yield on the portfolio to 2.63% for the current fiscal year, along with a $16.7 million increase in the average balance of the portfolio.

The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS repricing to higher market rates.

Net premium amortization of $1.3 million during the current fiscal year decreased the weighted average yield on the portfolio by 13 basis points.

During the prior fiscal year, $3.0 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 31 basis points.

As of September 30, 2019, the remaining net balance of premiums on our portfolio of MBS was $2.3 million.

The decrease in dividend income on FHLB stock was due to a decrease in the average balance of FHLB stock as a result of the leverage strategy being in place for a shorter period of time during the current fiscal year as compared to the prior fiscal year.

This was partially offset by a higher dividend rate on FHLB stock during the current fiscal year.

The increase in interest income on the investment securities portfolio was due to a 66 basis point increase in the weighted average yield on the portfolio to 2.26%.

The increase in the weighted average yield was primarily a result of replacing maturing securities at higher market rates.

The cash and cash equivalents line item in the table above includes interest income associated and not associated with the leverage strategy.

Interest income on cash and cash equivalents not related to the leverage strategy decreased $705 thousand from the prior fiscal year due to an $86.8 million decrease in the average balance, partially offset by a 68 basis point increase in the weighted average yield.

Interest income on cash associated with the leverage strategy decreased $16.9 million from the prior fiscal year due to a $1.18 billion decrease in the average balance, as the leverage strategy was in place for a shorter period of time during the current fiscal year.

The decrease in interest income on loans receivable was due mainly to a decrease in yield on correspondent loans, including a $5.8 million increase in the amortization of premiums related to increases in payoff and endorsement activity.

This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $152.2 million, or 2.3%, partially offset by a $64.9 million, or 9.2%, increase in the average balance of higher-yielding commercial loans, excluding PPP loans.

The weighted average yield on the loans receivable portfolio decreased 14 basis points, from 3.77% for the prior year to 3.63% for the current year.

The decrease in interest income on the MBS portfolio was due primarily to a 22 basis point decrease in the weighted average yield to 2.41% in the current year as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields.

The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, as well as to the leverage strategy not being in place during the current year.

The decrease in interest income on investment securities was due mainly to a 61 basis point decrease in the weighted average yield to 1.65% in the current year as a result of calls and maturities either being replaced at lower market rates or not being replaced.

The decrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a portion of the prior year and not being in place during the current year, along with a decrease in the yield earned on cash held at the FRB of Kansas City.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities increased 18 basis points, from 1.36% for the prior fiscal year to 1.54% for the current fiscal year, while the average balance of interest-bearing liabilities decreased $973.3 million from the prior fiscal year.

Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 19 basis points, from 1.33% for the prior fiscal year to 1.52% for the current fiscal year, and the average balance of interest-bearing liabilities would have increased $263.2 million.

The weighted average rate paid on total interest-bearing liabilities decreased eight basis points, from 1.54% for the prior year to 1.46% for the current year, and the average balance of interest-bearing liabilities decreased $126.0 million.

Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased six basis points, from 1.52% for the prior year to 1.46% for the current year, while the average balance of interest-bearing liabilities would have increased $31.8 million.

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Year Ended

September 30,

Change Expressed in:

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

FHLB borrowings

Other borrowings

Deposits $ 67,598 $ 66,201 $ 1,397 2.1 %

Borrowings 48,045 57,363 (9,318) (16.2)

Total interest expense $ 115,643 $ 123,564 $ (7,921) (6.4)

The increase in interest expense on deposits was due primarily to a 20 basis point increase in the weighted average rate, to 1.19% for the current fiscal year.

The deposit accounts assumed in the CCB acquisition were at a lower average rate than our legacy deposit portfolio rate and our overall deposit portfolio rate, which partially offset the increase in the deposit portfolio rate in the current fiscal year.

The increase in the weighted average rate was due primarily to increases in the average retail/business certificate of deposit portfolio rate and money market portfolio rate, which increased 29 basis points and 33 basis points, respectively, as market interest rates increased throughout both years.

Additionally, late in the third quarter of the current fiscal year, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of the current fiscal year the Bank ran an unTraditional campaign resulting in growth in the short-term and certain intermediate-term certificates of deposit.

The FHLB borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy.

Interest expense on FHLB borrowings not related to the leverage strategy increased $5.5 million from the prior fiscal year due to a 23 basis point increase in the weighted average rate paid, to 2.30% for the current fiscal year, and a $14.0 million increase in the average balance of the portfolio.

The increase in the weighted average rate paid was due primarily to certain maturing advances being replaced at higher effective market interest rates.

Interest expense on FHLB borrowings associated with the leverage strategy decreased $18.2 million from the prior fiscal year due to the leverage strategy being in place for a shorter period of time during the current fiscal year.

The decrease in interest expense on other borrowings was due mainly to the maturity of a $100.0 million repurchase agreement during the prior fiscal year, which was not replaced with a new repurchase agreement.

The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio, partially offset by decreases in the cost of wholesale certificates of deposit and money market accounts.

The weighted average rate of the retail/business certificate of deposit portfolio increased 11 basis points, to 2.03% for the current year, and the average balance increased $185.0 million, or approximately 7%.

In the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms.

During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign with above-market rates, resulting in growth in the short-term and certain intermediate-term certificates of deposit.

Since the onset of the COVID-19 pandemic, the retail/business certificate of deposit portfolio has been gradually repricing down as certificates renew to lower offered rates.

The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy.

Interest expense on borrowings not related to the leverage strategy decreased $5.4 million from the prior year due primarily to a decrease in the average balance of such borrowings, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the increase in deposits.

Interest expense on FHLB borrowings associated with the leverage strategy decreased $3.9 million from the prior year due to the leverage strategy being in place for a portion of the prior year and not being in place at all during the current year.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current fiscal year of $750 thousand, compared to no provision for credit losses during the prior fiscal year.

The $750 thousand provision for credit losses in the current fiscal year is due primarily to commercial loan activities during the current fiscal year, specifically the classification of a large commercial loan as special mention, commercial loan growth and funding, certain commercial loans that renewed since being obtained in the CCB acquisition and are now in the Bank's ACL model, and commercial loan charge-offs.

The Bank recorded a provision for credit losses during the current year of $22.3 million, compared to $750 thousand during the prior year.

The $22.3 million provision for credit losses in the current year was primarily related to the deterioration of economic conditions as a result of COVID-19.

See "Part I, Item 1.

Business – Asset Quality – Allowance for credit losses and Provision for credit losses" for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at September 30, 2020.

Non-Interest Income

1 unchanged sentence

For the Year Ended

September 30,

Change Expressed in:

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

1 unchanged sentence

Deposit service fees $ 11,285 $ 12,740 $ (1,455) (11.4) %

Income from bank-owned life insurance ("BOLI")

Insurance commissions 2,487 2,821 (334) (11.8)

Other non-interest income 5,827 6,397 (570) (8.9)

Total non-interest income $ 19,599 $ 21,958 $ (2,359) (10.7)

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current fiscal year.

Previously, interchange network charges were reported in deposit and loan expense.

As a result of the adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is now reported net of interchange network charges, which totaled $3.4 million during the current fiscal year and $3.0 million during the prior fiscal year.

The increase in income from BOLI was due primarily to a one-time adjustment during the prior fiscal year to the benchmark rate associated with one of the policies which reduced income from BOLI during that period, as well as to an increase in income related to policies acquired in the CCB acquisition.

The increase in other non-interest income was due mainly to revenues from the trust asset management operations obtained in the CCB acquisition, commercial loan fee related income, insurance commission income, and income related to the collateral pledged by the Bank on its interest rate swap agreements .

The decrease in deposit service fees was due mainly to a decrease in service charge income, primarily resulting from a decrease in consumer activity related to the COVID-19 pandemic, along with the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019.

The decrease in insurance commissions was due primarily to a decrease in the amount of annual contingent insurance commissions.

The decrease in other non-interest income was due mainly to a decrease in loan-related fees, primarily prepayment fees and late charges, compared to the prior year.

Non-Interest Expense

1 unchanged sentence

For the Year Ended

September 30,

Change Expressed in:

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

10 unchanged sentences

Total non-interest expense $ 106,004 $ 106,944 $ (940) (0.9)

The increase in salaries and employee benefits was due primarily to expense related to retained CCB employees.

Management anticipates salaries and employee benefits will be approximately $4.0 million higher in fiscal year 2020 due primarily to an increase in staffing for commercial banking activities and related back office functions, along with an increase in information technology staff.

The $4.0 million increase is expected to be approximately $1.2 million in each of the second and third quarters and $1.6 million in the fourth quarter.

The increase in information technology and related expense was due mainly to an increase in software licensing fees and costs related to the integration of CCB operations.

The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition.

The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard discussed above.

The increase in office supplies and related expense was due primarily to costs related to the integration of CCB customers and operations.

The decrease in the federal insurance premium was due mainly to the Bank receiving a credit from the FDIC as a result of the FDIC deposit insurance fund ratio reaching 1.40%.

Pursuant to regulatory guidance, once the insurance fund exceeds 1.38% of insured deposits, deposit insurance assessment credits are allocated to banks with less than $10 billion in assets, to compensate for premiums previously paid that contributed to growth of the fund past 1.15%.

These credits will continue to offset the Bank's premium assessments as long as the insurance fund ratio remains above 1.38% of insured deposits and the Bank still has a remaining credit balance.

As of September 30, 2019, the Bank had a remaining credit of $1.6 million.

The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB.

Management anticipates other non-interest expense may increase in the first quarter of fiscal year 2020 due primarily to a potential $400 thousand write-down of an OREO property that was added in the CCB acquisition, related to an offer received on this property subsequent to September 30, 2019.

The Company's efficiency ratio was 46.83% for the current fiscal year compared to 43.89% for the prior fiscal year.

The change in the efficiency ratio was due to higher non-interest expense in the current fiscal year compared to the prior fiscal year.

The decrease in information technology and related expense was due mainly to the prior year including costs related to the integration of the operations of CCB.

The increase in occupancy, net was due primarily to an increase in facility-related costs resulting from the impact of the COVID-19 pandemic, along with an increase in depreciation expense.

The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules, postponements of campaigns, and cancellations of certain sponsorships as a result of the COVID-19 pandemic.

The increase in deposit and loan transaction costs was due mainly to the timing of loan origination-related costs.

The decrease in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the FDIC during the majority of the current year.

The decrease in other non-interest expense was due primarily to a decrease in amortization of deposit intangibles, as well as a decrease in debit card fraud losses.

The Company's efficiency ratio was 50.74% for the current year compared to 46.83% for the prior year.

The change in the efficiency ratio was due to lower net interest income in the current year compared to the prior year.

The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.

A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.

Income Tax Expense

Income tax expense was $26.4 million for the current fiscal year compared to $25.0 million for the prior fiscal year.

The effective tax rate was 21.9% for the current fiscal year compared to 20.2% for the prior fiscal year.

The increase in the effective tax rate compared to the prior year was due mainly to the enactment of the Tax Act in the prior fiscal year.

In accordance with GAAP, the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate tax rate which reduced income tax expense by $7.5 million.

This benefit was partially offset, when comparing the two fiscal years, as the Company was required to apply a blended statutory federal tax rate, because we have a fiscal year end of September 30, of 24.5% in the prior fiscal year compared to 21% in the current fiscal year.

Additionally, the tax credit benefits associated with the Company's low income housing partnership investments were higher in the current fiscal year compared to the prior fiscal year, which contributed to a reduction in the current year effective income tax compared to the prior fiscal year.

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.

For the Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

Income before income tax expense $ 80,630 $ 120,654 $ (40,024) (33.2) %

Income tax expense 16,090 26,411 (10,321) (39.1)

Net income $ 64,540 $ 94,243 $ (29,703) (31.5)

Effective Tax Rate 20.0 % 21.9 %

The decrease in income tax expense was due primarily to lower pretax income in the current year.

The lower effective tax rate in the current year compared to the prior year was due mainly to the Company's permanent differences, such as low income housing partnership tax credits, which generally reduce our tax expense, having a proportionately larger impact given the lower pretax income in the current year period.

Additionally, an income tax benefit was recognized during the current year as a result of favorable federal tax guidance issued during the current year related to certain bank-owned life insurance policies added in the CCB acquisition.

Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21% to 22%.

7 unchanged sentences

The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations.

The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intent to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions.

The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions.

In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.

3 unchanged sentences

Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios.

See the "Executive Summary" above for information regarding the impact of the COVID-19 pandemic on our liquidity.

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window.

Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of regulatory total assets without the pre-approval of FHLB senior management.

The president of FHLB has approved an increase, through July 2020 , in the Bank's borrowing limit to 55% of Bank Call Report total assets.

When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs.

The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities, and is used only when other sources of short-term liquidity are unavailable.

See "Part I, Item 1.

Business - Sources of Funds" for information regarding limits on the Bank's FHLB borrowings.

The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities.

Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.

2 unchanged sentences

The Bank's internal policy limits total borrowings to 55% of total assets.

At September 30, 2019 , the Bank had total borrowings, at par, of $2.24 billion, or approximately 24% of total assets.

At September 30, 2020, the Bank had total borrowings, at par, of $1.79 billion, or approximately 19% of total assets, all of which were FHLB advances.

The amount of FHLB borrowings outstanding at September 30, 2020 was $1.79 billion, of which $843.0 million were advances scheduled to mature in the next 12 months, including $640.0 million of one-year floating-rate FHLB advances tied to interest rate swaps.

1 unchanged sentence

At September 30, 2020, the ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 19%.

When the full leverage strategy is in place, FHLB borrowings may be in excess of 40% of the Bank's Call Report total assets, and may be in excess of 40% as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets.

All or a portion of the FHLB borrowings in conjunction with the leverage strategy can be repaid at any point in time while the strategy is in effect, if necessary or desired.

At September 30, 2019 , the Bank had repurchase agreements of $100.0 million, or approximately 1% of total assets, all of which were scheduled to mature in the next 12 months.

The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings limit of 55% as discussed above.

The Bank has pledged securities with an estimated fair value of $108.3 million as collateral for repurchase agreements as of September 30, 2019 .

The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.

At September 30, 2020, the Bank had no repurchase agreements.

The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios.

At September 30, 2019 , the Bank had $708.8 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

At September 30, 2020, the Bank had $1.22 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit.

4 unchanged sentences

At September 30, 2020, $1.51 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $237.5 million of public unit certificates of deposit.

Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products at the prevailing rate, although no assurance can be given in this regard.

We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products.

Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard.

We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing.

While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds.

4 unchanged sentences

As of September 30, 2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $228.0 million.

Investment Securities

MBS Investment Securities Total

Amount Yield Amount Yield Amount Yield Amount Yield

(Dollars in thousands)

8 unchanged sentences

Total due after one year 6,963,391 3.54 1,177,139 1.94 376,138 0.64 8,516,668 3.19

Demand loans, loans having no stated maturity, and overdraft loans are included in the amounts due within one year.

$ 7,224,996 3.57 $ 1,180,803 1.94 $ 380,147 0.65 $ 8,785,946 3.22

(1) The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment.

All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year.

Construction loans are presented based on the estimated term to complete construction.

The maturity date for home equity loans assumes the customer always makes the required minimum payment.

Limitations on Dividends and Other Capital Distributions

1 unchanged sentence

Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings.

Savings institutions must also maintain an applicable capital conservation buffer above minimum risk-based capital requirements in order to avoid restrictions on capital distributions, including dividends.

A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution.

2 unchanged sentences

The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company.

So long as the Bank remains well capitalized after each capital distribution, operates in a safe and sound manner, and maintains an applicable capital conservation buffer above its minimum risk-based capital requirements, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action.

As of September 30, 2019 , the Bank and Company exceeded all regulatory capital requirements.

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 14.

Regulatory Capital Requirements" for additional information related to regulatory capital.

So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a CBLR greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain a the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework.

As of September 30, 2020, the Bank's CBLR was 12.4% and the Company's CBLR was 13.7%, which exceeded the minimum requirements.

See "Part I, Item 1.

Business – Regulation and Supervision – Regulatory Capital Requirements" for additional information related to regulatory capital.

The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of September 30, 2020, for the Bank and the Company (dollars in thousands):

Total equity as reported under GAAP $ 1,165,813 $ 1,284,859

Goodwill and other intangibles, net of deferred tax liabilities

AOCI 16,505 16,505

Goodwill and other intangibles, net of associated deferred taxes (13,510) (13,510)

Total tier 1 capital $ 1,168,808 $ 1,287,854

Total capital

Contingencies

In the normal course of business, the Company and the Bank are named defendants in various lawsuits and counter claims.

In the opinion of management, after consultation with legal counsel, none of the currently pending suits are expected to have a materially adverse effect on the Company's consolidated financial statements for the year ended September 30, 2020, or future periods.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

1 unchanged sentence

Maturity Range

Less than 1 to 3 3 to 5 More than

Total 1 year years years 5 years

(Dollars in thousands)

1 unchanged sentence

Certificates of deposit $ 3,021,244 $ 1,505,501 $ 1,199,798 $ 315,041 $ 904

FHLB advances

Repurchase agreements

Rate 1.74 % 1.46 % 2.05 % 1.88 % 1.53 %

Borrowings $ 1,793,000 $ 843,000 $ 500,000 $ 350,000 $ 100,000

Rate 1.41 % 0.76 % 1.91 % 2.27 % 1.28 %

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of customers.

6 unchanged sentences

Standby letters of credit 1,372

Total $ 533,178

It is expected that some of the commitments will expire unfunded;

11 unchanged sentences

We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis