What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2020-11-25 compared with 2019-11-27 · 566 added, 313 removed, 1034 unchanged (46% of the section changed)

24 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Kansas City, Missouri

25 unchanged sentences

Management's methodology for assessing the appropriateness of the allowance for credit losses (ACL) consists of a formula analysis model, along with analyzing and considering several other relevant internal and external factors.

In the formula analysis model, historical loss factors, as adjusted, are applied to each loan category and qualitative loss factors are applied to reflect risks inherent in each loan category that are not captured by the historical loss factors.

Management reviews the loss factors quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.

Management also analyzes and considers several other relevant internal and external factors, including the trend and composition of delinquent loans and nonperforming 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, and industry and peer charge-off and ACL information, among other considerations.

on management's review of these data elements, they evaluate the reasonableness of the ACL on an ongoing basis and whether any changes need to be made to the Bank's ACL methodology.

Given the significant amount of judgment required by management when considering the relevant data elements, performing audit procedures to evaluate the reasonableness of the estimated ACL required a high degree of auditor judgment.

In the formula analysis model, historical loss factors, as adjusted, are applied to each loan category and qualitative factors are applied to reflect risks inherent in each loan category that are not captured by the historical loss factors.

Management reviews the factors quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.

Management also analyzes and considers several other relevant internal and external factors, including the national and state unemployment rates, national and state unemployment benefit claim levels, the amount of and timing of financial assistance provided by the government and the Bank's COVID-19 loan modification program, residential real estate value trends, credit score trends, delinquent loan trends, consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, commercial lending's review of the Bank's largest commercial loan relationships, historical peer ACL to loan

ratios and industry and peer charge-off percentages, among other considerations.

Based on management's review of these data elements, they evaluate the reasonableness of the ACL on an ongoing basis and whether any changes need to be made to the Bank's ACL methodology, including the consideration of the economic conditions.

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.

Considering the estimation and judgment required by management in determining adjustments for qualitative factors, our audit of the ACL and the related disclosures required a high degree of auditor judgment with regard to the qualitative adjustments specifically to the commercial loan portfolio.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the ACL formula analysis model included the following, among others:

We tested the effectiveness of controls over the Company's ACL formula analysis model inclusive of the controls over loan charge-off activity and management's review of the adequacy of the ACL.

We tested the classification and appropriate segregation of loan categories based on certain risk characteristics in order to evaluate the application of the relevant data elements.

• We tested the effectiveness of controls over the Company's ACL formula analysis model inclusive of the controls over loan charge-off activity and including additional considerations with respect to current economic conditions and management's review of the adequacy of the ACL.

• We tested the classification and appropriate segregation of loan categories based on certain risk characteristics in order to evaluate the application of the relevant economic and qualitative assumptions.

• We evaluated the appropriateness and relevance of the data elements by comparing to relevant internal and external sources.

• We tested the mathematical accuracy of (i) the historical charge-off activity, (ii) the quantitative measures of the qualitative loss factors, and (iii) the formula analysis model calculations.

We evaluated analytics, trends, and peer analyses of the overall ACL formula analysis model to assess for reasonableness.

• We assessed the reasonableness of, and evaluated support for, key qualitative adjustments based on market and economic conditions and/or portfolio performance metrics.

• We assessed the reasonableness of, and evaluated support for, the COVID-19 qualitative factor applied to the commercial portfolio including (i) industries significantly impacted by the COVID-19 pandemic, (ii) commercial lending's review of commercial loan relationships, and (iii) COVID-19 loan modifications.

• We evaluated analytics, trends, and peer analysis of the overall ACL formula analysis model to assess for reasonableness.

/s/ Deloitte & Touche LLP

Kansas City, Missouri

6 unchanged sentences

Cash and cash equivalents (includes interest-earning deposits of $ 172,430 and $ 198,809 )

Available-for-sale ("AFS"), at estimated fair value (amortized cost of $1,191,455 and $718,564)

Held-to-maturity ("HTM"), at amortized cost (estimated fair value of $0 and $601,071)

$ 185,148 $ 220,370

Available-for-sale ("AFS") securities, at estimated fair value 1,560,950 1,204,863

Loans receivable, net (allowance for credit losses ("ACL") of $ 31,527 and $ 9,226 )

7,202,851 7,416,747

Federal Home Loan Bank Topeka ("FHLB") stock, at cost 93,862 98,456

1 unchanged sentence

Income taxes receivable, net — 2

FHLB borrowings

Other borrowings

Other assets 342,532 302,796

TOTAL ASSETS $ 9,487,218 $ 9,340,018

Deposits $ 6,191,408 $ 5,581,867

Borrowings 1,789,313 2,239,989

Advance payments by borrowers for taxes and insurance 65,721 65,686

Income taxes payable, net 795 —

Deferred income tax liabilities, net 8,180 14,282

5 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 141,440,030 and 141,225,516

shares issued and outstanding as of September 30, 2019 and 2018, respectively

1,400,000,000 shares authorized, 138,956,296 and 141,440,030 shares issued and outstanding as of September 30, 2020 and 2019, respectively

Additional paid-in capital 1,189,853 1,210,226

9 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands, except per share amounts)

2020 2019 2018

INTEREST AND DIVIDEND INCOME:

1 unchanged sentence

Mortgage-backed securities ("MBS") 23,009 25,730 22,619

FHLB stock 5,827 7,823 10,962

Investment securities 4,467 6,366 4,670

2 unchanged sentences

INTEREST EXPENSE:

FHLB borrowings

Other borrowings

Deposits 67,598 66,201 52,625

Borrowings 48,045 57,363 70,494

Total interest expense 115,643 123,564 123,119

4 unchanged sentences

Deposit service fees 11,285 12,740 15,636

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

Insurance commissions 2,487 2,821 2,469

Other non-interest income 5,827 6,397 3,930

13 unchanged sentences

INCOME TAX EXPENSE 16,090 26,411 24,979

NET INCOME $ 64,540 $ 94,243 $ 98,927

Basic earnings per share ("EPS") $ 0.47 $ 0.68 $ 0.73

Diluted EPS $ 0.47 $ 0.68 $ 0.73

See accompanying notes to consolidated financial statements.

3 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands)

2020 2019 2018

Net income $ 64,540 $ 94,243 $ 98,927

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on AFS securities arising during the period,

net of taxes of $(3,468), $2,499, and $1,595

Unrealized gains on securities reclassified from HTM to AFS

during the period, net of taxes of $(750), $0, and $0

Changes in unrealized gains (losses) on cash flow hedges,

net of taxes of $10,394, $(2,785), and $226

Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $( 4,359 ), $( 3,468 ), and $ 2,499

13,578 10,804 ( 6,741 )

Unrealized gains on securities reclassified from held-to-maturity ("HTM") to AFS during the period, net of taxes of $ 0 , $( 750 ), and $ 0

Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $ 4,875 , $ 10,394 , and $( 2,785 )

( 15,184 ) ( 32,379 ) 7,496

Comprehensive income $ 62,934 $ 75,004 $ 99,682

4 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands, except per share amounts)

Stockholders'

Additional Unearned Total

Common Paid-In Compensation Retained Stockholders'

Stock Capital ESOP Earnings AOCI Equity

Balance at September 30, 2017 $ 1,382 $ 1,167,368 $ ( 37,995 ) $ 234,640 $ 2,918 $ 1,368,313

Net income, fiscal year 2018 98,927 98,927

Other comprehensive loss, net of tax

Other comprehensive income, net of tax 755 755

Reclassification of certain tax effects related to adopting Accounting Standards Update ("ASU") 2018-02 ( 667 ) 667 —

Cumulative effect of adopting ASU 2016-09 19 ( 19 ) —

Capital City Bancshares, Inc.

("CCB") acquisition 30 39,083 39,113

ESOP activity 541 1,652 2,193

Restricted stock activity, net

Stock-based compensation 372 372

1 unchanged sentence

Cash dividends to stockholders ($ 0.88 per share)

( 118,312 ) ( 118,312 )

Balance at September 30, 2018 1,412 1,207,644 ( 36,343 ) 214,569 4,340 1,391,622

Net income, fiscal year 2019 94,243 94,243

Other comprehensive income, net of tax

Reclassification of certain tax effects related to adopting Accounting Standards Update ("ASU") 2018-02

Other comprehensive loss, net of tax ( 19,239 ) ( 19,239 )

Cumulative effect of adopting ASU 2014-09 394 394

Capital City Bancshares, Inc.

("CCB") acquisition

ESOP activity 549 1,651 2,200

Restricted stock activity, net 1 ( 3 ) ( 2 )

Stock-based compensation 552 552

1 unchanged sentence

Cash dividends to stockholders ($ 0.98 per share)

( 134,929 ) ( 134,929 )

Balance at September 30, 2019 1,414 1,210,226 ( 34,692 ) 174,277 ( 14,899 ) 1,336,326

5 unchanged sentences

Stock-based compensation 570 570

Repurchase of common stock ( 26 ) ( 21,897 ) ( 1,881 ) ( 23,804 )

Stock options exercised 1 637 638

Cash dividends to stockholders ($ 0.68 per share)

( 93,862 ) ( 93,862 )

Balance at September 30, 2020 $ 1,389 $ 1,189,853 $ ( 33,040 ) $ 143,162 $ ( 16,505 ) $ 1,284,859

4 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands)

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 64,540 $ 94,243 $ 98,927

Adjustments to reconcile net income to net cash provided by operating activities:

27 unchanged sentences

Proceeds from the redemption of common equity securities related to the redemption of junior subordinated debentures — 302 —

Net cash provided by (used in) investing activities

Proceeds from bank-owned life insurance ("BOLI") death benefit 490 — —

Net cash (used in) provided by investing activities ( 151,290 ) 233,259 ( 21,567 )

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

YEARS ENDED SEPTEMBER 30, 2020, 2019, and 2018 (Dollars in thousands)

2020 2019 2018

CASH FLOWS FROM FINANCING ACTIVITIES:

4 unchanged sentences

Change in advance payments by borrowers for taxes and insurance 35 422 939

Payment of FHLB prepayment penalties ( 4,215 ) — —

Repurchase of common stock ( 20,767 ) — —

Stock options exercised 638 1,485 261

Excess tax benefits from stock options

Net cash used in financing activities

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS

Net cash provided by (used in) financing activities 44,370 ( 199,561 ) ( 315,200 )

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS ( 13,992 ) 114,645 ( 212,604 )

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:

Beginning of year 253,700 139,055 351,659

End of year $ 239,708 $ 253,700 $ 139,055

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

3 unchanged sentences

Loans transferred to LHFS $ — $ — $ 15,814

Operating lease right-of-use assets obtained $ 16,841 $ — $ —

Operating lease liabilities obtained $ 16,726 $ — $ —

Common stock issued $ — $ — $ 39,113

22 unchanged sentences

Actual results could differ from these estimates and assumptions.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $ 220.4 million and $ 139.1 million at September 30, 2019 and 2018 and restricted cash and cash equivalents of $ 33.3 million at September 30, 2019, which was included in other assets on the consolidated balance sheet.

There was no restricted cash and cash equivalents at September 30, 2018 .

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $ 185.1 million and $ 220.4 million at September 30, 2020 and 2019, respectively, and restricted cash and cash equivalents of $ 54.6 million and $ 33.3 million at September 30, 2020 and 2019, respectively, which was included in other assets on the consolidated balance sheet.

The restricted cash and cash equivalents relate to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.

11 unchanged sentences

Generally, classifications are made in response to liquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase.

Securities that management has the intent and ability to hold to maturity are classified as HTM and reported at amortized cost.

Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost.

Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method.

At September 30, 2020 and 2019, the portfolio did not contain any securities classified as HTM.

Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with unrealized gains and losses reported as a component of AOCI within stockholders' equity, net of deferred income taxes.

9 unchanged sentences

The evaluation includes, but is not limited to, such factors as:

the nature of the investment, the length of time the security has had a fair value less than the amortized cost basis, the cause(s) and severity of the loss, expectation of an anticipated recovery period, recent events specific to the issuer or industry including the issuer's financial condition and current ability to make future payments in a timely manner, external credit ratings and recent downgrades in such ratings, management's intent to sell and whether it is more likely than not management would be required to sell prior to recovery for debt securities.

the nature of the investment, the length of time the security has had a fair value less than the amortized cost basis, the cause(s) and severity of the loss, expectation of an anticipated recovery period, recent events specific to the issuer or industry including the issuer's financial condition and current ability to make future payments in a timely manner, external credit ratings and recent downgrades in such ratings, management's intention to sell and whether it is more likely than not management would be required to sell prior to recovery for debt securities.

Management determines whether other-than-temporary losses should be recognized for impaired securities by assessing all known facts and circumstances surrounding the securities.

If management intends to sell an impaired security or if it is more likely than not that management will be required to sell an impaired security before recovery of its amortized cost basis, an other-than-temporary impairment has occurred and the difference between amortized cost and fair value will be recognized as a loss in earnings and the security will be written down to fair value.

Loans Receivable - Loans receivable that management has the intent and ability to hold for the foreseeable future are carried at the amount of unpaid principal, net of ACL, undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs.

Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at the amount of unpaid principal, net of ACL, undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs.

Net loan origination fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method.

Interest on loans is credited to income as earned and accrued only if deemed collectible.

Loan endorsements - Certain existing loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a cash fee, to endorse their original loan terms to current loan terms being offered by the Bank.

Loan endorsements - Certain existing one- to four- family loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank.

The fee received for each endorsement is deferred and amortized as an adjustment to interest income over the life of the loan.

1 unchanged sentence

If the change in loan terms is deemed to be minor, the fee received for the endorsement is added to the net remaining unamortized deferred fee or deferred cost balance.

Troubled debt restructurings ("TDRs") - For borrowers experiencing financial difficulties, the Bank may grant a concession to the borrower.

Such concessions generally involve extensions of loan maturity dates, the granting of periods during which reduced payment amounts are required, and/or reductions in interest rates.

Coronavirus Disease 2019 ("COVID-19") loan modification programs - In 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 up to a six-month interest-only payment period, but an option for a three- to six-month forbearance of principal and interest was also available to our borrowers.

The Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or Interagency guidance when determining if a borrower's modification is subject to troubled debt restructuring ("TDR") classification.

If it is determined that the modification does not meet the criteria under the CARES Act or Interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework.

Loans subject to forbearance under the COVID-19 loan modification program are not reported as past due or placed on nonaccrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans.

Troubled debt restructurings - For borrowers experiencing financial difficulties, the Bank may grant a concession to the borrower.

Such concessions generally involve extensions of loan maturity dates, the granting of periods during which

reduced payment amounts are required, and/or reductions in interest rates.

The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan amount.

4 unchanged sentences

We also report certain TDR loans as nonaccrual loans that are required to be reported as such pursuant to regulatory reporting requirements.

Loans on which the accrual of income has been discontinued are designated as nonaccrual

and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed.

Loans on which the accrual of income has been discontinued are designated as nonaccrual and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed.

A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due or, in the case of a TDR loan, the borrower has made the required consecutive loan payments.

18 unchanged sentences

When a non-real estate secured consumer loan is 120 days delinquent, any identified losses are charged-off.

For commercial loans, generally losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement, or, in the case of secured loans, it is determined, through the analysis of current information with regards to the Bank's collateral position, that the amounts due from the borrower are in excess of the calculated current fair value of the collateral after consideration of estimated costs to sell.

consideration of estimated costs to sell.

Charge-offs for any loan type may also occur at any time if the Bank has knowledge of the existence of a probable loss.

3 unchanged sentences

Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is more limited than that for a residential property.

Therefore, the Bank could hold the property for an extended period of time, or potentially be forced to sell at a discounted price, resulting in additional losses.

Our commercial and industrial loans are primarily secured by

accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

Each quarter end, a formula analysis is prepared which segregates the loan portfolio into categories based on certain risk characteristics.

Therefore, the Bank could hold the property for an extended period of time, or be forced to sell at a discounted price, resulting in additional losses.

Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

As of each quarter end, a formula analysis is prepared which segregates the loan portfolio into categories based on certain risk characteristics.

The categories include the following:

11 unchanged sentences

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

Each quarter end, management reviews historical losses over a look-back time period and utilizes the historical loss time periods believed to be the most appropriate considering the current economic conditions.

As of each quarter end, management reviews historical losses over a look-back time period and utilizes the historical loss time periods believed to be the most appropriate considering the then-current economic conditions.

The historical loss time period is then adjusted for a loss emergence time period, which represents the estimated time period from the date of a loss event to the date we recognize a charge-off/loss.

Qualitative loss factors are utilized in the formula analysis model to reflect risks inherent in each loan category that are not captured by the historical loss factors.

The qualitative loss factors for one- to four-family and consumer loan portfolios take into consideration such items as:

Qualitative factors are utilized in the formula analysis model to reflect risks inherent in each loan category that are not captured by the historical loss factors.

The qualitative factors for one- to four-family and consumer loan portfolios take into consideration such items as:

unemployment rate trends, residential real estate value trends, credit score trends, and delinquent loan trends.

The qualitative loss factors for the commercial loan portfolio take into consideration the composition of the portfolio along with industry and peer charge-off information and certain ACL ratios.

The qualitative factors for the commercial loan portfolio take into consideration the composition of the portfolio along with industry and peer charge-off information and certain ACL ratios.

As loans are classified or become delinquent, the qualitative loss factors increase for each respective loan category.

The qualitative loss factors were derived by management based on a review of the historical performance of the respective loan portfolios and industry and peer information for those loan portfolios with no or limited historical loss experience, along with consideration of current economic conditions and the likely impact such conditions might have on the performance of the loan portfolio.

For non-PCI 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.

The qualitative factors were derived by management based on a review of the historical performance of the respective loan portfolios and industry and peer information for those loan portfolios with no or limited historical loss experience, along with consideration of current economic conditions and the likely impact such conditions might have on the performance of the loan portfolio.

Management increased the historical loss and qualitative factors for the one- to four-family and consumer loan portfolios during the current fiscal year to account for a higher level of estimated inherent losses in the loan portfolio as a result of the deterioration of economic conditions due to the COVID-19 pandemic.

When determining the appropriate historical loss and qualitative factors for the one- to four-family and consumer loan portfolios, management took into consideration such factors as the national and state unemployment rates and related trends, national and state unemployment benefit claim levels and related trends, the amount of and timing of financial assistance provided by the government, and the Bank's COVID-19 loan modification program.

Unemployed individuals benefited from additional unemployment benefits afforded under the CARES Act;

however, the majority of the financial assistance provided by the federal government, which may be masking the Bank's actual credit exposure, tapered off significantly by September 30, 2020.

In late March 2020, the Bank began offering a COVID-19 loan modification program for one- to four-family and consumer loans.

While the intention of the COVID-19 loan modification program was to keep customers current on their payments and therefore in their homes during

the worst of the economic downturn, the program could be masking the Bank's actual credit exposure on these loans.

After considering the factors noted above, management evaluated the Bank's historical ACL to loans ratios compared to historical unemployment rates and housing price index trends and the Bank's historical charge-off percentages.

After reviewing historical information and considering the economic conditions at September 30, 2020, management selected the worst historical time periods and used those historical loss and qualitative factors in the ACL formula analysis model at September 30, 2020.

Management then compared the ACL (calculated by the formula analysis model) to loans ratio to the Bank's historical ACL to loan ratios to determine the appropriate amount of ACL at September 30, 2020 considering the economic conditions at that point in time.

Management also increased the qualitative factors and applied a COVID-19 qualitative factor to the Bank's commercial loan portfolio at September 30, 2020.

To determine the appropriate qualitative factors for the Bank's commercial loan portfolio at September 30, 2020, management considered the factors noted above, along with such factors as consumer spending levels and trends, industries significantly impacted by the COVID-19 pandemic, the commercial lending team's review of the Bank's largest commercial loan relationships, and the Bank's COVID-19 loan modification program.

The Bank's commercial lending team's loan analysis through September 30, 2020 primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns.

Those considered most at risk were among the categories with the highest usage of the Bank's COVID-19 loan modification program.

We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of the Bank's borrowers that took advantage of the program;

however, as is the case with one- to four-family loans, the modifications may be masking the Bank's actual credit exposure.

The commercial lending team also considered the largest credits and LTVs for loans in the industries most impacted by the COVID-19 pandemic.

After considering the factors noted above and the very limited historical loan loss experience for the Bank's commercial loan portfolio, management reviewed historical peer ACL to loan ratios and peer charge-off percentages and the economic conditions during those time periods.

After reviewing peer historical information and considering the economic conditions at September 30, 2020, management increased the commercial loan qualitative factors and applied a COVID-19 qualitative factor.

Management then compared the ACL (calculated by the formula analysis model) to loans ratio to peer historical ACL to loan ratios to determine the appropriate amount of ACL at September 30, 2020 considering the economic conditions at that point in time.

For non-PCI loans, the Company estimates a hypothetical amount of ACL using the same historical loss and qualitative 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.

1 unchanged sentence

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 factors when evaluating the adequacy of the ACL.

Such factors include the trend and composition of delinquent loans 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 the Bank's 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 the Bank lends, 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 the Bank's 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.

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

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

however, the methodology may be modified in response to changing conditions, such as was the case during the current fiscal year.

Although management believes the ACL was at a level adequate to absorb inherent losses in the loan portfolio at September 30, 2020, the level of the ACL remains an estimate that is subject to significant judgment and short-term changes.

8 unchanged sentences

Buildings, furniture, fixtures and equipment are depreciated over their estimated useful lives using the straight-line method.

Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective leases.

Leasehold improvements are amortized over the

shorter of their estimated useful lives or the term of the respective leases.

The costs for major improvements and renovations are capitalized, while maintenance, repairs and minor improvements are charged to operating expenses as incurred.

Gains and losses on dispositions are recorded as non-interest income or non-interest expense as incurred.

Revenue Recognition - Non-interest income within the scope of Accounting Standards Codification ("ASC") Topic 606 is recognized by the Company when performance obligations, under the terms of the contract, are satisfied.

This income is measured as the amount of consideration expected to be received in exchange for the providing of services.

The majority of the Company's applicable non-interest income continues to be recognized at the time when services are provided to its customers.

Revenue Recognition for additional information.

Leases - The Company leases real estate property for branches, ATMs, and certain equipment.

All of the leases in which the Company is the lessee are classified as operating leases.

The Company determines if an arrangement is a lease at inception and if the lease is an operating lease or a finance lease.

Operating lease right-of-use assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease.

The right-of-use assets associated with operating leases are recorded in other assets in the Company's consolidated balance sheets.

The lease liabilities associated with operating leases are included in accounts payable and accrued expenses on the consolidated balance sheets.

The period over which the right-of-use asset is amortized is generally the lesser of the expected remaining term or the remaining useful life of the leased asset.

The lease liability is decreased as periodic lease payments are made.

The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable.

The calculated amounts of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments.

The Company's lease agreements often include one or more options to renew at the Company's discretion.

If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability.

Generally, the Company cannot practically determine the interest rate implicit in the lease so the Company's incremental borrowing rate is used as the discount rate for the lease.

The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease.

For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was applied.

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Company's consolidated statements of income.

For facility-related leases, the Company elected, by lease class, to not separate lease and non-lease components.

Lease expense is recognized on a straight-line basis over the lease term.

Variable lease expense primarily represents payments such as common area maintenance, real estate taxes, and utilities and are recognized as expense in the period when those payments are incurred.

Short-term lease expense relates to leases with an initial term of 12 months or less.

The Company has elected to not record a right-of-use asset or lease liability for short-term leases.

Other Assets - Included in other assets on the consolidated balance sheet are the Company's intangible assets, recognized as a result of the acquisition of CCB, which consist of goodwill, deposit intangibles and other intangibles.

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Under this method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

Deferred income tax expense (benefit) represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps and changes in the market value of restricted stock awards between the grant date and vesting date.

Deferred income tax expense

(benefit) represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps and changes in the market value of restricted stock awards between the grant date and vesting date.

Income tax related penalties and interest, if any, are included in income tax expense in the consolidated statements of income.

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The Bank receives affordable housing tax credits and other tax benefits for these investments.

Low Income Housing Partnerships" for additional information.

Earnings Per Share - Basic EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period.

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Shares issued and shares reacquired during any period are weighted for the portion of the period that they were outstanding.

In computing both basic and diluted EPS, the weighted average number of common shares outstanding includes the ESOP shares previously allocated to participants and shares committed to be released for allocation to participants and restricted stock shares which have vested or have been allocated to participants.

ESOP shares that have not been committed to be released are excluded from the computation of basic and diluted EPS.

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Trust Asset Management - Assets (other than cash deposits with the Bank) held in fiduciary or agency capacities for customers are not included in the accompanying consolidated balance sheets, since such items are not assets of the Company or its subsidiaries.

Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers.

The ASU, as amended, implements a common revenue standard that clarifies the principles for recognizing revenue included in Accounting Standards Codification ("ASC") Topic 606.

The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The majority of the Company's revenue is composed of interest income from loans and securities which are explicitly excluded from the amended ASU.

The Company elected to implement the amended ASU using the modified retrospective application with a cumulative adjustment to opening retained earnings at October 1, 2018.

Upon adoption of the amended ASU, the Company recorded a cumulative adjustment, which increased opening retained earnings by $ 394 thousand related to contracts that were not complete upon adoption.

The amount was related to the change in the recognition of revenue related to certain insurance commissions.

Additionally, effective October 1, 2018, interchange network charges are reported as a reduction in deposit service fees.

Previously, these charges were reported as expense in deposit and loan transaction costs in the consolidated statements of income.

The Company concluded the ASU did not significantly change the Company's revenue recognition methods.

This ASU did not have a material impact on the Company's consolidated financial condition or results of operations at the time of adoption.

The new disclosure requirements of the ASU are included in Note 17.

Revenue Recognition.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall:

Recognition and Measurement of Financial Assets and Financial Liabilities .

The ASU supersedes certain accounting guidance related to equity securities with readily determinable fair values and the related impairment assessment.

An entity's equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this ASU.

The ASU requires public business entities to utilize the exit price notion when determining fair value for financial instruments measured at amortized cost on the balance sheet.

The ASU also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the notes to the financial statements.

ASU 2016-01 became effective for the Company on October 1, 2018.

The adoption of this ASU did not have a material impact on the Company's consolidated financial condition or results of operations.

The new disclosure requirements of the ASU are included in Note 15.

Fair Value of Financial Instruments.

In February 2016, the FASB issued ASU 2016-02, Leases .

Recent Accounting Pronouncements - In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases .

The ASU, as amended, revises lease accounting guidance by requiring that lessees recognize the assets and liabilities arising from leases on the balance sheet.

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In July 2018, the FASB issued ASU 2018-11, Leases , which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition.

The ASU, as amended, will be effective for the Company on October 1, 2019.

Upon adoption, the Company intends to elect the modified retrospective approach and the optional transition method under which the Company can use the effective date as the date of initial application of the amendments.

The cumulative-effect adjustment at the time of adoption is not anticipated to be material.

The optional practical expedients the Company intends to elect include:

The ASU, as amended, became effective for the Company on October 1, 2019.

Upon adoption, the Company elected the modified retrospective approach and the optional transition method under which the Company used the effective date as the date of initial application of the amendments.

The optional practical expedients the Company elected include:

(1) not reassessing whether any expired or existing contracts are or contain leases, (2) not reassessing the classification of any expired or existing contracts, (3) not reassessing initial direct costs for existing leases, and (4) using hindsight for leases existing at adoption date.

For leases with an initial term of 12 months or less, the Company intends to elect the short-term lease option, which entails not recognizing right-of-use assets and lease liabilities for these leases.

Additionally, the Company intends to elect, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components.

The Company developed a lease inventory and an internal lease data collection, organization, and computing platform for compliance with this ASU and implemented processes to ensure adequate internal controls were in place to assess contracts and enable proper accounting and reporting upon adoption and going forward.

Upon adoption, the Company will recognize a right-of-use asset and a lease liability of approximately $ 15 million , related to the Company's non-cancellable operating lease commitments based on the present value of the expected remaining lease payments as of October 1, 2019.

These ASUs are not expected to have a material impact on the Company's results of operations and cash flows at the time of adoption.

The disclosures required by the ASU will be provided beginning with the Company's Form 10-Q for the first quarter of fiscal year 2020.

For leases with an initial term of 12 months or less, the Company elected the short-term lease option, which entails not recognizing right-of-use assets and lease liabilities for these leases.

Additionally, the Company elected, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components.

Upon adoption, the Company recognized a right-of-use asset of $ 15.7 million and a lease liability of $ 15.5 million, related to the Company's non-cancellable operating lease commitments based on the present value of the expected remaining lease payments as of October 1, 2019.

The cumulative-effect adjustment to retained earnings at the time of adoption totaled $ 88 thousand.

These ASUs did not have a material impact on the Company's results of operations and cash flows at the time of adoption.

The disclosures required by the ASU are included in Note 18.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

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The ASU, as amended, replaces the incurred loss impairment methodology in current GAAP, which requires credit losses to be recognized when it is probable that a loss has been incurred, with a new impairment methodology.

The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial

assets not measured at fair value, such as loans, HTM debt securities, and loan commitments, over their contractual lives.

The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and loan commitments, over their contractual lives.

Under the new impairment methodology, expected credit losses will be measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

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The ASU will become effective for the Company on October 1, 2020.

The Company continues to work with a software provider on the application and implementation of the new accounting guidance.

The integration of the Company's data with the software provider is substantially complete.

Management anticipates model development, with the assistance of the software provider, will begin in late calendar year 2019 and will take several months to complete.

While we are currently unable to reasonably estimate the impact of adopting this ASU, we expect the impact of adoption will be influenced by the composition of our loan and securities portfolios as well as the economic conditions and forecasts at the time of adoption.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows:

Restricted Cash (a consensus of the FASB Emerging Issues Task Force) .

The ASU addresses diversity in the classification and presentation of changes in restricted cash and cash equivalents on the statement of cash flows.

The ASU requires that amounts described as restricted cash and cash equivalents be included with cash and cash equivalents when reconciling the beginning and ending amounts presented on the statement of cash flows, requires disclosures on the nature of restrictions on cash and cash equivalents, and the amount and financial statement line presentation of restricted cash and cash equivalents.

The Company adopted this ASU on October 1, 2018 and it did not have a material impact on the Company's consolidated financial condition or results of operations at the time of adoption.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging:

Targeted Improvements to Accounting for Hedging Activities .

The ASU amends the hedge accounting recognition and presentation requirements in current GAAP.

The purpose of the ASU was to improve transparency of hedging relationships in the financial statements and to reduce the complexity of applying hedge accounting for preparers.

The Company elected to early-adopt this ASU, along with the components of ASU 2019-04 that are applicable to ASU 2017-12, on September 30, 2019.

See below for more information regarding ASU 2019-04.

As part of the adoption, the Company reclassified $ 444.7 million of HTM securities, at amortized cost, which were eligible to be hedged under the last-of-layer method, to AFS securities.

The adoption of this ASU did not have a material impact on the Company's consolidated financial condition or results of operations at the time of adoption.

The Company intends to apply a modified retrospective approach when adopting the ASU.

Upon adoption, a cumulative-effect adjustment for the change in the allowance for credit losses and reserves on unfunded commitments will be recognized in retained earnings, net of tax.

The Company worked with a software provider on the

application and implementation of the new accounting guidance.

The Company has determined its loan segmentation and the methodologies that will be utilized for each loan segment, and has also developed several assumptions including a reasonable and supportable forecast time period, a reversion methodology, and prepayment and curtailment speeds, among others.

Management is in the process of finalizing supporting documentation and internal controls, policies, and procedures.

Based on analysis performed by the Company with consideration given to the loan portfolio at September 30, 2020 and current expectation of future economic conditions, our ACL and reserves on unfunded commitments upon adoption will be $ 26.8 million and $ 7.8 million, respectively, which would result in a cumulative effect adjustment to retained earnings, net of tax, of $ 2.3 million.

However, management continues to evaluate the impact of adoption.

The preliminary results may change as the model is finalized and the remaining implementation steps are completed.

The enhanced disclosures required by this ASU will be presented beginning with the Company's December 31, 2020 Quarterly Report on Form 10-Q.

Under this new accounting standard, the Company's ACL may fluctuate more significantly from period to period than it has historically as a result of changes in forecasted economic conditions and changes in the composition of the Company's loan portfolio.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement:

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Entities are allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date.

Since this ASU only requires disclosure changes, it will not have a significant impact on the Company's consolidated financial condition and results of operations.

Since this ASU only requires disclosure changes, it is not expected to have a significant impact on the Company's consolidated financial condition and results of operations.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software:

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The effective date of this ASU for the Company is October 1, 2020, with early adoption permitted.

The Company is currently evaluating the effect of the ASU on the Company's consolidated financial condition, results of operations and disclosures.

This ASU is not expected to have a significant impact on the Company's consolidated financial condition, results of operations and disclosures.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.

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According to the provisions of the ASU, entities that have not adopted ASU 2017-12 prior to the issuance of ASU 2019-04 shall adopt the provisions of both ASUs at the same time.

The effective date of the non-hedging amendments contained in ASU 2019-04 for the Company is

October 1, 2020.

The Company is currently evaluating the effect of the non-hedging amendments contained in this ASU on the Company's consolidated financial condition, results of operations and disclosures.

On August 31, 2018, the Company completed the acquisition of CCB and its wholly-owned subsidiary Capital City Bank headquartered in Topeka, Kansas.

Capital City Bank owned and leased banking locations in Topeka, Lawrence, and Overland Park, Kansas.

The effective date of the non-hedging amendments contained in ASU 2019-04 for the Company is October 1, 2020.

The non-hedging amendments contained in this ASU are not expected to have a significant impact on the Company's consolidated financial condition, results of operations and disclosures.

On August 31, 2018, the Company completed the acquisition of CCB and its wholly-owned subsidiary, Capital City Bank.

Capital City Bank was headquartered in Topeka, Kansas and owned and leased banking locations in Topeka, Lawrence, and Overland Park, Kansas.

The acquisition was not considered material to the Company's financial statements;

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Intangible Assets" for additional information regarding the acquisition of CCB.

There were no merger-related expenses incurred during fiscal year 2020.

During fiscal years 2019 and 2018, the Company incurred $ 30 thousand and $ 872 thousand, respectively, of pre-tax merger-related expenses attributable to the CCB acquisition.

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For the Year Ended September 30,

2020 2019 2018

(Dollars in thousands, except per share amounts)

Net income $ 64,540 $ 94,243 $ 98,927

Income allocated to participating securities ( 52 ) ( 55 ) ( 40 )

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Total diluted average common shares outstanding 137,901,188 137,735,401 134,758,991

Basic $ 0.47 $ 0.68 $ 0.73

Diluted $ 0.47 $ 0.68 $ 0.73

Antidilutive stock options, excluded from the diluted average

common shares outstanding calculation 437,731 470,938 541,418

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS and HTM securities at the dates presented.

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented.

The majority of the MBS and investment securities portfolios are composed of securities issued by GSEs.

Upon the adoption of ASU 2017-12 and certain components of ASU 2019-04 on September 30, 2019, the Company reclassified $ 444.7 million of HTM securities, at amortized cost, to AFS securities.

September 30, 2020

Gross Gross Estimated

Amortized Unrealized Unrealized Fair

Cost Gains Losses Value

(Dollars in thousands)

MBS $ 1,149,922 $ 31,212 $ 331 $ 1,180,803

GSE debentures 369,967 414 41 370,340

Municipal bonds 9,716 91 — 9,807

$ 1,529,605 $ 31,717 $ 372 $ 1,560,950

September 30, 2019

Gross Gross Estimated

Amortized Unrealized Unrealized Fair

Cost Gains Losses Value

(Dollars in thousands)

MBS $ 923,256 $ 15,571 $ 2,340 $ 936,487

GSE debentures 249,828 304 178 249,954

Municipal bonds 18,371 52 1 18,422

Municipal bonds

The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.

$ 1,191,455 $ 15,927 $ 2,519 $ 1,204,863

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.

September 30, 2020

Less Than 12 Months

Equal to or Greater Than 12 Months

Less Than 12 Months Equal to or Greater Than 12 Months

Estimated Unrealized Estimated Unrealized

Fair Value Losses Fair Value Losses

(Dollars in thousands)

MBS $ 207,071 $ 330 $ 118 $ 1

GSE debentures 74,959 41 — —

Municipal bonds — — — —

$ 282,030 $ 371 $ 118 $ 1

September 30, 2019

Less Than 12 Months

Equal to or Greater Than 12 Months

Less Than 12 Months Equal to or Greater Than 12 Months

Estimated Unrealized Estimated Unrealized

Fair Value Losses Fair Value Losses

(Dollars in thousands)

MBS $ 111,368 $ 126 $ 199,442 $ 2,214

GSE debentures — — 74,812 178

Municipal bonds 1,755 1 — —

Municipal bonds

The unrealized losses at September 30, 2019 and 2018 were primarily a result of an increase in market yields from the time the securities were purchased.

$ 113,123 $ 127 $ 274,254 $ 2,392

The unrealized losses at September 30, 2020 and 2019 were a result of an increase in market yields from the time the securities were purchased.

In general, as market yields rise, the fair value of securities will decrease;

as market yields fall, the fair value of securities will increase.

Management generally views changes in fair value caused by changes in interest rates as temporary.

Management generally views changes in fair value caused by changes in market yields as temporary.

Therefore, these securities have not been classified as other-than-temporarily impaired.

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Summary of Significant Accounting Policies - Securities" for additional information regarding our impairment review and classification process for securities.

The amortized cost and estimated fair value of debt securities as of September 30, 2019 , by contractual maturity, are shown below.

The amortized cost and estimated fair value of AFS debt securities as of September 30, 2020, by contractual maturity, are shown below.

Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer.

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For this reason, MBS are not included in the maturity categories.

Amortized Estimated

Cost Fair Value

(Dollars in thousands)

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One year through five years 375,696 376,138

379,683 380,147

MBS 1,149,922 1,180,803

$ 1,529,605 $ 1,560,950

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.

For the Year Ended September 30,

2020 2019 2018

(Dollars in thousands)

Taxable $ 4,242 $ 6,020 $ 4,275

Non-taxable 225 346 395

$ 4,467 $ 6,366 $ 4,670

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.

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Public unit deposits $ 330,986 $ 381,143

Repurchase agreements

FRB of Kansas City 259,851 6,636

Repurchase agreements — 108,271

$ 590,837 $ 496,050

During fiscal year 2018, the Company sold trust preferred securities and received proceeds of $ 2.1 million.

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One- to four-family:

Originated $ 3,937,310 $ 3,873,851

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

Bulk purchased 208,427 252,347

Construction 34,593 36,758

Total 6,281,412 6,512,833

Commercial real estate 626,588 583,617

Commercial and industrial 97,614 61,094

Construction 105,458 123,159

Total 829,660 767,870

Home equity 103,838 120,587

Other 10,086 11,183

Total 113,924 131,770

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

ACL 31,527 9,226

Discounts/unearned loan fees 29,190 31,058

Premiums/deferred costs ( 38,572 ) ( 44,558 )

Included in the loan portfolio at September 30, 2019 were $ 199.6 million of non-PCI loans and $ 2.1 million of PCI loans associated with the acquisition of CCB during fiscal year 2018.

$ 7,202,851 $ 7,416,747

Included in the loan portfolio at September 30, 2020 were $ 139.6 million of non-PCI loans and $ 5 thousand of PCI loans associated with the acquisition of CCB during fiscal year 2018.

At September 30, 2020, the Company had $ 2.4 million of net purchase discounts related to non-PCI loans and $ 5 thousand related to PCI loans.

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The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income.

Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets.

In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these loans, as well as the expectation that commercial and industrial loans generally will be serviced principally from the operations of the business, and those operations may not be successful.

With the exception of Paycheck Protection Program loans, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets.

In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these loans.

As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans.

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September 30, 2020

90 or More Days

30 to 89 Days

Delinquent or

in Foreclosure

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Recorded

Delinquent in Foreclosure Loans Loans Investment

(Dollars in thousands)

One- to four-family:

Originated $ 3,001 $ 4,347 $ 7,348 $ 3,950,387 $ 3,957,735

Correspondent purchased 3,170 2,433 5,603 2,122,085 2,127,688

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Commercial and industrial 5 157 162 96,124 96,286

Home equity 323 296 619 103,210 103,829

Other 75 8 83 9,980 10,063

$ 9,172 $ 11,385 $ 20,557 $ 7,213,821 $ 7,234,378

September 30, 2019

90 or More Days

30 to 89 Days

Delinquent or

in Foreclosure

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Recorded

Delinquent in Foreclosure Loans Loans Investment

(Dollars in thousands)

One- to four-family:

Originated $ 7,187 $ 3,261 $ 10,448 $ 3,885,335 $ 3,895,783

Correspondent purchased 2,762 1,023 3,785 2,377,629 2,381,414

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Commercial and industrial 70 173 243 60,340 60,583

The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2019 and 2018 was $ 1.5 million and $ 2.9 million , respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 745 thousand at September 30, 2019 and $ 1.3 million at September 30, 2018 .

Home equity 446 302 748 119,688 120,436

Other 78 21 99 11,035 11,134

$ 14,929 $ 6,264 $ 21,193 $ 7,404,780 $ 7,425,973

The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of both September 30, 2020 and 2019 was $ 1.5 million, which is included in loans 90 or more days delinquent or in foreclosure in the table above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 183 thousand at September 30, 2020 and $ 745 thousand at September 30, 2019.

The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.

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One- to four-family:

Originated $ 5,037 $ 4,436

Correspondent purchased 2,433 1,023

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Commercial and industrial 157 173

Home equity 305 337

$ 12,541 $ 7,541

In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification.

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At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

The increase in special mention loans at September 30, 2019 compared to September 30, 2018 was due primarily to one commercial real estate participation loan that relates to a recently opened large hotel and convention center.

Due to the identified credit weaknesses, management made the decision to classify the loan as special mention during the June 30, 2019 quarter.

Management continues to closely monitor the hotel and convention center and surrounding activities.

September 30,

Special Mention

Special Mention Substandard Special Mention Substandard

(Dollars in thousands)

One- to four-family:

Originated $ 9,249 $ 15,729 $ 12,941 $ 15,628

Correspondent purchased 2,076 4,512 2,349 2,785

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Commercial and industrial 1,040 1,368 1,215 3,057

Home equity 331 581 280 696

Other — 8 2 24

$ 63,653 $ 31,058 $ 69,780 $ 29,956

The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and consumer home equity loans at the dates presented.

Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts.

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

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

The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure.

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September 30,

Credit Score LTV Credit Score LTV

One- to four-family - originated 771 62 % 768 62 %

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Consumer - home equity 756 19 754 19

769 62 766 62

TDRs - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented.

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Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.

During the fourth quarter of fiscal year 2017, management refined its methodology for assessing whether a loan modification qualifies as a TDR which, though not material, resulted in fewer loans being classified as TDRs in the current fiscal year and prior fiscal year.

For the Year Ended September 30, 2020

Number Pre- Post-

of Restructured Restructured

Contracts Outstanding Outstanding

(Dollars in thousands)

One- to four-family:

Originated 5 $ 241 $ 242

Correspondent purchased 1 192 191

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Commercial and industrial 1 1,683 1,709

Home equity 2 45 44

11 $ 3,073 $ 3,157

For the Year Ended September 30, 2019

Number Pre- Post-

of Restructured Restructured

Contracts Outstanding Outstanding

(Dollars in thousands)

One- to four-family:

Originated 3 $ 385 $ 386

Correspondent purchased — — —

2 unchanged sentences

Commercial and industrial — — —

Home equity — — —

5 $ 762 $ 763

For the Year Ended September 30, 2018

Number Pre- Post-

of Restructured Restructured

Contracts Outstanding Outstanding

(Dollars in thousands)

One- to four-family:

Originated 5 $ 264 $ 281

Correspondent purchased 2 406 406

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Commercial and industrial — — —

Home equity — — —

7 $ 670 $ 687

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.

For the Years Ended

September 30, 2019

September 30, 2018

September 30, 2017

September 30, 2020 September 30, 2019 September 30, 2018

Number of Recorded Number of Recorded Number of Recorded

Contracts Investment Contracts Investment Contracts Investment

(Dollars in thousands)

One- to four-family:

Originated 1 $ 38 1 $ 45 22 $ 1,416

Correspondent purchased — — — — 1 124

2 unchanged sentences

Commercial and industrial — — — — — —

Home equity 1 9 — — 4 133

Other — — — — — —

3 $ 181 1 $ 45 30 $ 2,713

Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented.

All impaired loans were individually evaluated for loss and all losses were charged-off, resulting in no related ACL for these loans.

September 30, 2019

September 30, 2018

September 30, 2020 September 30, 2019

Unpaid Unpaid

Recorded Principal Related Recorded Principal Related

Investment Balance ACL Investment Balance ACL

(Dollars in thousands)

With no related allowance recorded

One- to four-family:

Originated $ 12,385 $ 12,813 $ — $ 14,683 $ 15,241 $ —

Correspondent purchased 1,955 2,058 — 1,763 1,868 —

2 unchanged sentences

Commercial and industrial 99 244 — 60 184 —

Home equity 280 360 — 345 462 —

Other — 45 — — 29 —

19,614 21,201 — 21,794 23,445 —

With an allowance recorded

One- to four-family:

Originated — — — — — —

Correspondent purchased — — — — — —

Bulk purchased — — — — — —

Commercial real estate 660 660 83 — — —

Commercial and industrial 1,269 1,268 240 — — —

Home equity — — — — — —

Other — — — — — —

1,929 1,928 323 — — —

One- to four-family:

Originated $ 12,385 $ 12,813 — $ 14,683 $ 15,241 —

Correspondent purchased 1,955 2,058 — 1,763 1,868 —

Bulk purchased 3,843 4,302 — 4,943 5,661 —

Commercial real estate 1,712 2,039 83 — — —

Commercial and industrial 1,368 1,512 240 60 184 —

Home equity 280 360 — 345 462 —

Other — 45 — — 29 —

$ 21,543 $ 23,129 $ 323 $ 21,794 $ 23,445 $ —

The following information pertains to impaired loans, by class, for the periods presented.

During the fourth quarter of fiscal year 2017, management refined its methodology for classifying loans as impaired.

The change resulting from this refinement was immaterial.

For the Years Ended

September 30, 2019

September 30, 2018

September 30, 2017

September 30, 2020 September 30, 2019 September 30, 2018

Average Interest Average Interest Average Interest

Recorded Income Recorded Income Recorded Income

Investment Recognized Investment Recognized Investment Recognized

(Dollars in thousands)

1 unchanged sentence

One- to four-family:

Originated $ 13,918 $ 606 $ 16,030 $ 671 $ 23,847 $ 990

Correspondent purchased 1,878 73 2,071 82 3,204 112

2 unchanged sentences

Commercial and industrial 41 — 5 — — —

Home equity 318 20 417 28 588 39

Other — — — — — —

21,600 893 23,780 961 34,077 1,332

With an allowance recorded

One- to four-family:

Originated — — — — — —

Correspondent purchased — — — — — —

2 unchanged sentences

Commercial and industrial 1,413 91 — — — —

Home equity — — — — — —

Other — — — — — —

1,464 91 — — — —

One- to four-family:

Originated 13,918 606 16,030 671 23,847 990

Correspondent purchased 1,878 73 2,071 82 3,204 112

2 unchanged sentences

Commercial and industrial 1,454 91 5 — — —

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology.

Home equity 318 20 417 28 588 39

Other — — — — — —

$ 23,064 $ 984 $ 23,780 $ 961 $ 34,077 $ 1,332

Allowance for Credit Losses - The Bank maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio.

Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics.

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

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

As noted in Note 1.

Summary of Significant Accounting Policies, Allowance for Credit Losses, management increased the historical loss factors and qualitative factors for all loan categories at September 30, 2020 and applied a COVID-19 qualitative factor to the Bank's commercial loan portfolio, due to deterioration of economic conditions as a result of the COVD-19 pandemic.

The increase in the factors and the new COVID-19 pandemic qualitative factor resulted in an increase in the ACL during the current fiscal year.

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

The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology.

For the Year Ended September 30, 2020

One- to Four-Family

Correspondent

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,000 $ 1,203 $ 687 $ 3,890 $ 5,171 $ 165 $ 9,226

Charge-offs ( 64 ) — — ( 64 ) ( 349 ) ( 30 ) ( 443 )

Recoveries 41 — 265 306 110 28 444

Provision for credit losses 4,108 1,488 ( 485 ) 5,111 16,868 321 22,300

2 unchanged sentences

One- to Four-Family

Correspondent

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,953 $ 1,861 $ 925 $ 5,739 $ 2,556 $ 168 $ 8,463

Charge-offs ( 75 ) — ( 26 ) ( 101 ) ( 124 ) ( 37 ) ( 262 )

Recoveries 22 — 106 128 49 98 275

Provision for credit losses ( 900 ) ( 658 ) ( 318 ) ( 1,876 ) 2,690 ( 64 ) 750

2 unchanged sentences

One- to Four-Family

Correspondent

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 3,173 $ 1,922 $ 1,000 $ 6,095 $ 2,112 $ 191 $ 8,398

Charge-offs ( 136 ) ( 128 ) — ( 264 ) — ( 38 ) ( 302 )

Recoveries 144 — 196 340 — 27 367

Provision for credit losses ( 228 ) 67 ( 271 ) ( 432 ) 444 ( 12 ) —

1 unchanged sentence

The following is a summary of the loan portfolio and related ACL balances, at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method.

There was no ACL for loans individually evaluated for impairment at either date as all losses were charged-off.

September 30, 2020

One- to Four-Family

Correspondent

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

1 unchanged sentence

Collectively evaluated for impairment $ 3,945,350 $ 2,125,733 $ 205,497 $ 6,276,580 $ 822,643 $ 113,612 $ 7,212,835

Recorded investment in loans

Individually evaluated for impairment 12,385 1,955 3,843 18,183 3,080 280 21,543

ACL for loans collectively

evaluated for impairment

$ 3,957,735 $ 2,127,688 $ 209,340 $ 6,294,763 $ 825,723 $ 113,892 $ 7,234,378

ACL for loans:

Collectively evaluated for impairment $ 6,085 $ 2,691 $ 467 $ 9,243 $ 21,477 $ 484 $ 31,204

Individually evaluated for impairment — — — — 323 — 323

$ 6,085 $ 2,691 $ 467 $ 9,243 $ 21,800 $ 484 $ 31,527

September 30, 2019

One- to Four-Family

Correspondent

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

1 unchanged sentence

Collectively evaluated for impairment $ 3,881,100 $ 2,379,651 $ 248,541 $ 6,509,292 $ 763,662 $ 131,225 $ 7,404,179

Recorded investment in loans

Individually evaluated for impairment 14,683 1,763 4,943 21,389 60 345 21,794

ACL for loans collectively

evaluated for impairment

$ 3,895,783 $ 2,381,414 $ 253,484 $ 6,530,681 $ 763,722 $ 131,570 $ 7,425,973

ACL for loans:

Collectively evaluated for impairment $ 2,000 $ 1,203 $ 687 $ 3,890 $ 5,171 $ 165 $ 9,226

Individually evaluated for impairment — — — — — — —

$ 2,000 $ 1,203 $ 687 $ 3,890 $ 5,171 $ 165 $ 9,226

PREMISES AND EQUIPMENT

1 unchanged sentence

(Dollars in thousands)

Land $ 16,566 $ 14,313

Building and improvements 116,595 110,262

Furniture, fixtures and equipment 57,504 52,270

190,665 176,845

Less accumulated depreciation 88,790 80,061

The Bank has entered into non-cancelable operating lease agreements with respect to banking premises and equipment.

It is expected that many agreements will be renewed at expiration in the normal course of business.

Rental expense was $ 1.5 million , $ 1.2 million , and $ 1.1 million for the years ended September 30, 2019 , 2018 , and 2017 , respectively.

As of September 30, 2019 , future minimum rental commitments, rounded to the nearest thousand, required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year were as follows:

$ 101,875 $ 96,784

LOW INCOME HOUSING PARTNERSHIPS

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For fiscal year 2020, the net income tax benefit associated with these investments, which consists of proportional amortization expense and affordable housing tax credits and other related tax benefits, was reported in income tax expense in the consolidated statements of income.

The amount of proportional amortization expense recognized during fiscal years 2019 , 2018 and 2017 was $ 6.8 million , $ 7.0 million and $ 4.4 million , respectively, and the amount of affordable housing tax credits and other related tax benefits was $ 8.6 million , $ 7.5 million and $ 6.9 million , respectively, resulting in a net income tax benefit of $ 1.8 million , $ 500 thousand and $ 2.5 million , respectively.

The increase in proportional amortization expense in fiscal years 2019 and 2018 compared to fiscal year 2017 was due primarily to a change in the tax rate resulting from The Tax Cuts and Jobs Act (the "Tax Act"), as well as to changes in the life cycle stage of the investments.

The amount of proportional amortization expense recognized during fiscal years 2020, 2019 and 2018 was $ 7.9 million, $ 6.8 million and $ 7.0 million, respectively, and the amount of affordable housing tax credits and other related tax benefits was $ 9.8 million, $ 8.6 million and $ 7.5 million, respectively, resulting in a net income tax benefit of $ 1.9 million, $ 1.8 million and $ 500 thousand, respectively.

There were no impairment losses during fiscal years 2020, 2019, or 2018 resulting from the forfeiture or ineligibility of tax credits or other circumstances.

INTANGIBLE ASSETS

With the acquisition of CCB, the Company recognized goodwill of $ 8.0 million , which is calculated as the consideration exchanged in excess of the fair value of assets, net of the fair value of liabilities assumed.

Certain purchase accounting adjustments were applied during the measurement period in the current fiscal year, resulting in a $1.3 million increase in goodwill associated with the acquisition of CCB.

With the acquisition of CCB in fiscal year 2018, the Company recognized goodwill of $ 8.0 million, which is calculated as the consideration exchanged in excess of the fair value of assets, net of the fair value of liabilities assumed.

Certain purchase accounting adjustments were applied during the measurement period in fiscal year 2019, resulting in a $1.3 million increase in goodwill associated with the acquisition of CCB.

The Company also recognized $ 10.1 million of other intangible assets in conjunction with the acquisition which is largely composed of core deposit intangibles.

2 unchanged sentences

Core Deposit and

Other Intangibles

Goodwill Other Intangibles

(Dollars in thousands)

1 unchanged sentence

Acquisition of CCB 7,989 10,052

Amortization — ( 234 )

Balance at September 30, 2018 7,989 9,819

Purchase accounting adjustments 1,335 —

Amortization — ( 2,316 )

Balance at September 30, 2019 9,324 7,503

Purchase accounting adjustments — —

Amortization — ( 1,964 )

Balance at September 30, 2020 $ 9,324 $ 5,539

As of September 30, 2020, there was no impairment recorded on goodwill or other intangible assets.

4 unchanged sentences

Deposits in excess of $250 thousand may not be fully insured by the Federal Deposit Insurance Corporation.

FHLB Borrowings - FHLB borrowings at September 30, 2019 consisted of $ 2.04 billion in FHLB advances, of which $ 1.40 billion were fixed-rate advances and $ 640.0 million were variable-rate advances, and $ 100.0 million against the variable-rate FHLB line of credit.

FHLB borrowings at September 30, 2018 consisted of $ 2.07 billion in FHLB advances, of which $ 1.60 billion were fixed-rate advances and $ 475.0 million were variable-rate advances.

and $ 100.0 million against the variable-rate FHLB line of credit.

FHLB Borrowings - FHLB borrowings at September 30, 2020 consisted of $ 1.79 billion in FHLB advances, of which $ 1.15 billion were fixed-rate advances and $ 640.0 million were variable-rate advances, and no borrowings against the variable-rate FHLB line of credit.

FHLB borrowings at September 30, 2019 consisted of $ 2.04 billion in FHLB advances, of which $ 1.40 billion were fixed-rate advances and $640.0 million were variable-rate advances, and $ 100.0 million against the variable-rate FHLB line of credit.

The line of credit is set to expire on November 12, 2021 , at which time it is expected to be renewed by FHLB for a one-year period.

3 unchanged sentences

Deferred prepayment penalty ( 3,687 ) ( 11 )

$ 1,789,313 $ 2,039,989

Weighted average contractual interest rate on FHLB advances 1.41 % 2.23 %

4 unchanged sentences

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

Management can discontinue the use of the leverage strategy at any point in time.

At September 30, 2019 and 2018 , the Bank had entered into interest rate swap agreements with a total notional amount of $ 640.0 million and $ 475.0 million , respectively, in order to hedge the variable cash flows associated with $ 640.0 million and $ 475.0 million , respectively, of adjustable-rate FHLB advances.

The leverage strategy was not utilized during 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.

At both September 30, 2020 and 2019, the Bank had entered into interest rate swap agreements with a total notional amount of $ 640.0 million in order to hedge the variable cash flows associated with $ 640.0 million of adjustable-rate FHLB advances.

At September 30, 2020 and 2019, the interest rate swap agreements had an average remaining term to maturity of 3.5 years and 4.5 years, respectively.

The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements.

At September 30, 2019 , the interest rate swaps were in a loss position with a total fair value of $ 33.1 million , which was reported in accounts payable and accrued expenses on the consolidated balance sheet.

At September 30, 2018 , the interest rate swaps were in a gain position with a total fair value of $ 9.7 million , which was reported in other assets on the consolidated balance sheet.

During fiscal years 2019 and 2018 , $ 438 thousand and $ 515 thousand , respectively, were reclassified from AOCI as an increase to interest expense and no hedge ineffectiveness was recognized in the consolidated statements of income during either period.

At September 30, 2019 , the Company estimates that $ 5.4 million will be reclassified as an increase to interest expense during the next 12 months.

The Bank has minimum collateral posting thresholds with its derivative counterparty and posts collateral on a daily basis.

The Bank posted cash collateral of $ 33.3 million at September 30, 2019 and held cash collateral of $ 10.0 million at September 30, 2018 .

At September 30, 2020 and September 30, 2019, the interest rate swaps were in a loss position with a total fair value of $ 53.1 million and $ 33.1 million, respectively, which was reported in accounts payable and accrued expenses on the consolidated balance sheet.

During fiscal years 2020 and 2019, $ 6.3 million and $ 438 thousand, respectively, were reclassified from AOCI as an increase to interest expense.

At September 30, 2020, the Company estimated that $ 15.6 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months.

The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis.

The Bank posted cash collateral of $ 54.6 million at September 30, 2020 and $ 33.3 million at September 30, 2019.

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $ 350.0 million with a weighted average contractual interest rate of 2.42 % and a weighted average remaining term of 1.0 years, and replaced these advances with $ 350.0 million of fixed-rate FHLB advances with a weighted average contractual interest rate of 1.43 % and a weighted average term of 4.7 years.

The Bank paid penalties totaling $ 4.2 million to FHLB as a result of prepaying the FHLB advances.

The prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.

FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB and certain securities, when necessary.

3 unchanged sentences

At times, the Bank's FHLB borrowings to the Bank's Call Report total assets may be in excess of 40% due to the leverage strategy.

Repurchase Agreements - At September 30, 2019 and 2018 , the Company had repurchase agreements outstanding in the amount of $ 100.0 million , with a weighted average contractual rate of 2.53 % .

The repurchase agreements are included in other borrowings on the consolidated balance sheet.

All of the Company's repurchase agreements at September 30, 2019 and 2018 were fixed-rate.

Repurchase Agreements - At September 30, 2020, the Company had no repurchase agreements outstanding.

At September 30, 2019, the Company had repurchase agreements outstanding in the amount of $ 100.0 million, with a weighted average contractual rate of 2.53 %.

The repurchase agreements were included in other borrowings on the consolidated balance sheet.

All of the Company's repurchase agreements at September 30, 2019 were fixed-rate.

See Note 4 for information regarding the amount of securities pledged as collateral in conjunction with repurchase agreements.

3 unchanged sentences

The Bank may also be required to post additional collateral as a result of principal payments received on the securities pledged.

Maturity of Borrowed Funds and Certificates of Deposit - The following table presents the scheduled maturity of FHLB advances, at par, repurchase agreements, and certificates of deposit as of September 30, 2019 :

Maturity of Borrowed Funds and Certificates of Deposit - The following table presents the scheduled maturity of FHLB advances, at par, and certificates of deposit as of September 30, 2020:

FHLB Certificates

Advances of Deposit

Amount Amount

(Dollars in thousands)

2021 $ 843,000 $ 1,505,501

2022 200,000 773,278

2023 300,000 426,520

2024 100,000 239,650

2025 250,000 75,391

Thereafter 100,000 904

$ 1,793,000 $ 3,021,244

Junior Subordinated Debentures and Trust-Preferred Securities - In conjunction with the CCB acquisition, the Company assumed $ 10.1 million of junior subordinated debentures relating to mandatorily redeemable capital trust preferred securities that were previously issued by CCB-sponsored trusts to third-party investors.

2 unchanged sentences

Income tax expense for the years ended September 30, 2020, 2019, and 2018 consisted of the following:

2020 2019 2018

(Dollars in thousands)

The Tax Act made significant changes to the U.S.

corporate income tax laws, such as a permanent reduction in the federal corporate income tax rate from 35 % to 21 % effective January 1, 2018, bonus depreciation that will allow full expensing of qualified property, and other changes to and/or limitations on certain corporate income tax deductions.

As required by Section 15 of the Internal Revenue Code, the Company had a blended statutory federal income tax rate of 24.5 % for the year ended September 30, 2018, which is based on the applicable income tax rates prior to and subsequent to January 1, 2018 and the number of days in the fiscal year.

In accordance with GAAP, the Company revalued its deferred tax assets and liabilities as of December 22, 2017 to account for the future impact of a lower federal income tax rate.

The revaluation of the Company's deferred tax assets and liabilities resulted in a $ 7.5 million reduction in income tax expense during the December 31, 2017 quarter and a corresponding reduction in the Company's net deferred tax liability.

Federal $ 17,610 $ 22,030 $ 26,007

State 4,068 4,742 3,512

21,678 26,772 29,519

Federal ( 4,857 ) ( 456 ) ( 5,956 )

State ( 731 ) 95 1,416

( 5,588 ) ( 361 ) ( 4,540 )

$ 16,090 $ 26,411 $ 24,979

The Tax Cuts and Jobs Act, enacted in December 2017, made significant changes to the U.S.

corporate income tax laws, such as a permanent reduction in the federal corporate income tax rate from 35 % to 21 % effective January 1, 2018.

The Company had a blended statutory federal income tax rate of 24.5 % for the year ended September 30, 2018, which was based on the applicable income tax rates prior to and subsequent to January 1, 2018 and the number of days in the fiscal year.

The Company revalued its deferred tax assets and liabilities as of the enactment date to account for the future impact of a lower federal income tax rate.

The Company's effective tax rates were 20.0 %, 21.9 %, and 20.2 % for the years ended September 30, 2020, 2019, and 2018, respectively.

The differences between such effective rates and the statutory Federal income tax rate computed on income before income tax expense resulted from the following:

2020 2019 2018

Amount % Amount % Amount %

(Dollars in thousands)

6 unchanged sentences

ESOP related expenses, net ( 525 ) ( 0.6 ) ( 757 ) ( 0.6 ) ( 790 ) ( 0.6 )

Deferred income tax expense represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps and changes in the market value of restricted stock awards between the grant date and vesting date.

The sources of these differences and the tax effect of each as of September 30, 2019 , 2018 , and 2017 were as follows:

(Dollars in thousands)

Net purchase discounts related to acquired loans

FHLB stock dividends

Salaries, deferred compensation and employee benefits

Low income housing partnerships

Premises and equipment

Deposit intangible

Acquired BOLI policies ( 636 ) ( 0.8 ) — — — —

Other ( 410 ) ( 0.5 ) ( 448 ) ( 0.4 ) ( 611 ) ( 0.5 )

$ 16,090 20.0 % $ 26,411 21.9 % $ 24,979 20.2 %

The components of the net deferred income tax liabilities as of September 30, 2020 and 2019 were as follows:

2 unchanged sentences

Unrealized loss on interest rate swaps $ 12,916 $ 8,041

ACL 6,553 1,938

Lease liabilities 3,590 —

Salaries, deferred compensation and employee benefits 1,622 1,579

ESOP compensation 1,360 1,288

Net purchase discounts related to acquired loans

Low income housing partnerships 655 792

Unrealized loss on AFS securities

Net purchase discounts related to acquired loans 577 991

Other 2,717 2,918

Gross deferred income tax assets 29,990 17,547

3 unchanged sentences

FHLB stock dividends 15,699 16,009

Premises and equipment

Unrealized gain on AFS securities 7,617 3,258

Premises and equipment 4,625 3,546

Lease right-of-use assets 3,588 —

Deposit intangible 1,475 1,978

Unrealized gain on interest rate swaps

ACL 2,388 3,018

Other 970 2,197

Gross deferred income tax liabilities 36,362 30,006

1 unchanged sentence

The State of Kansas allows for a bad debt deduction on savings and loan institutions' privilege tax returns of up to 5% of Kansas taxable income.

Due to the low level of net loan charge-offs experienced by the Bank historically, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs for several years resulting in a state deferred tax liability.

At September 30, 2019 and 2018, the state deferred tax liability associated with ACL was in excess of the federal deferred tax asset.

Due to the low level of net loan charge-offs experienced by the Bank historically, at times, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs, resulting in a state deferred tax liability, which is presented separately from the federal deferred tax asset related to ACL.

The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances.

6 unchanged sentences

ASC 740 Income Taxes prescribes a process by which a tax position taken, or expected to be taken, on an income tax return is determined based upon the technical merits of the position, along with whether the tax position meets a more-likely-than-not-recognition threshold, to determine the amount, if any, of unrecognized tax benefits to recognize in the financial statements.

Estimated penalties and interest related to unrecognized tax benefits are included in income tax expense in the consolidated statements of income.

For the year ended September 30, 2019 , 2018 , and 2017 the Company had no unrecognized tax benefits.

Estimated penalties and interest related to unrecognized tax benefits are included in income tax expense in the consolidated

statements of income.

For the years ended September 30, 2020, 2019, and 2018 the Company had no unrecognized tax benefits.

The Company files income tax returns in the U.S.

8 unchanged sentences

The loan for the shares acquired in the corporate reorganization matures on September 30, 2040 .

As annual loan payments are made on September 30, shares are released from collateral and allocated to qualified employees based on the proportion of their qualifying compensation to total qualifying compensation.

As annual loan payments are made on each September 30th, shares are released from collateral and allocated to qualified employees based on the proportion of their qualifying compensation to total qualifying compensation.

On September 30, 2020, 165,198 shares were released from collateral.

5 unchanged sentences

Of these amounts, $ 336 thousand, $ 549 thousand, and $ 541 thousand related to the difference between the market price of the Company's stock when the shares were acquired by the ESOP trust and the average market price of the Company's stock during the years ended September 30, 2020, 2019, and 2018, respectively.

The amount included in compensation expense for dividends on unallocated ESOP shares in excess of the debt service payments was $ 906 thousand , $ 688 thousand , and $ 833 thousand for the years ended September 30, 2019 , 2018 , and 2017 , respectively.

The amount included in compensation expense for dividends on unallocated ESOP shares in excess of the debt service payments was zero for the year ended September 30, 2020, and $ 906 thousand and $ 688 thousand for the years ended September 30, 2019 and 2018, respectively.

Shares may be withdrawn from the ESOP trust due to diversification (a participant may begin to diversify at least 25 % of their ESOP shares at age 50 ), retirement, termination, or death of the participant.

10 unchanged sentences

however, awards granted under these two plans remain outstanding until they are individually vested, forfeited or expire.

The objectives of the Equity Incentive Plan are to provide additional compensation to certain officers, directors and key employees by facilitating their acquisition of stock interest in the Company and enable the Company to retain personnel of experience and ability in key positions of responsibility.

The objectives of the Equity Incentive Plan are to provide additional compensation to certain officers, directors and key employees by facilitating their acquisition of an equity interest in the Company and enable the Company to retain personnel of experience and ability in key positions of responsibility.

Stock Option Plans – There are currently 287,935 stock options outstanding as a result of grants awarded from the Stock Option Plan.

The Equity Incentive Plan had 5,907,500 stock options originally eligible to be granted and, as of September 30, 2020, the Company had 4,199,316 stock options still available for future grants under this plan.

This plan will expire in January 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested, forfeited, or expire.

This plan will expire on January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested, forfeited, or expire.

The Company may issue incentive and nonqualified stock options under the Equity Incentive Plan.

9 unchanged sentences

The fair value of stock options vested during the years ended September 30, 2020, 2019, and 2018 was $ 24 thousand, $ 64 thousand, and $ 77 thousand, respectively.

As of September 30, 2019 , the total future compensation cost related to non-vested stock options not yet recognized in the consolidated statements of income was $ 12 thousand , and the weighted average period over which these awards are expected to be recognized was 0.7 years .

Restricted Stock Plans – The Equity Incentive Plan had 2,363,000 shares originally eligible to be granted as restricted stock and, as of September 30, 2020, the Company had 1,625,519 shares available for future grants of restricted stock under this plan.

This plan will expire in January 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested or forfeited.

This plan will expire on January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan remain outstanding until they are individually vested or forfeited.

The vesting period of the restricted stock awards under the Equity Incentive Plan has generally ranged from 3 years to 5 years.

At September 30, 2019 , the Company had 121,800 unvested restricted stock shares with a weighted average grant date fair value of $ 13.72 per share.

At September 30, 2020, the Company had 104,850 unvested shares of restricted stock with a weighted average grant date fair value of $ 13.65 per share.

Compensation expense is calculated based on the fair market value of the common stock at the date of the grant, as defined by the plan, and is recognized over the vesting time period.

9 unchanged sentences

Purchase/participate adjustable-rate 65,080 49,141

$ 248,607 $ 230,996

Commitments to originate loans are commitments to lend to a customer.

9 unchanged sentences

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

At September 30, 2019 and 2018 , the Company had $ 1.2 million in outstanding standby letters of credit, and no amounts had been recorded as liabilities for the Company's potential obligations under these agreements at either date.

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

At September 30, 2020 and 2019, the Company had $ 1.4 million and $ 1.2 million, respectively, in outstanding standby letters of credit, and no amounts had been recorded as liabilities for the Company's potential obligations under these agreements at either date.

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

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.

5 unchanged sentences

The Company's and Bank's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

Generally, savings institutions, such as the Bank, may make capital distributions during any calendar year equal to the earnings of the previous two calendar years and current year-to-date earnings.

It is generally required that the Bank remain well capitalized before and after the proposed distribution.

The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank.

So long as the Bank continues to remain well capitalized after each capital distribution and operates in a safe and sound manner, it is management's belief that the regulators will continue to allow the Bank to distribute its net income to the Company, although no assurance can be given in this regard.

In conjunction with the Company's corporate reorganization in December 2010, a "liquidation account" was established for the benefit of certain depositors of the Bank in an amount equal to Capitol Federal Savings Bank MHC's ownership interest in the retained earnings of Capitol Federal Financial as of June 30, 2010.

As of September 30, 2019 , the balance of this liquidation account was $ 127.6 million .

Under applicable federal banking regulations, neither the Company nor the Bank is permitted to pay dividends on its capital stock to its stockholders if stockholders' equity would be reduced below the amount of the liquidation account at that time.

The Bank and the Company must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes.

Effective January 1, 2016, the Company and Bank were required to maintain a capital conservation buffer above certain minimum risk-based capital ratios for capital adequacy purposes in order to avoid certain restrictions on capital distributions and other payments including dividends, share repurchases, and certain compensation.

The required capital conservation buffer was phased in over a four-year period by increasing the required buffer amount by 0.625 % each year to a total of 2.50%.

The capital conservation buffer was fully phased in on January 1, 2019.

The capital conservation buffer was 2.500 % at September 30, 2019 and 1.875 % at September 30, 2018 .

At September 30, 2019 and 2018 , the Bank and Company exceeded the capital conservation buffer requirement.

Management believes, as of September 30, 2019 , that the Bank and Company meet all capital adequacy requirements to which they are subject and there were no conditions or events subsequent to September 30, 2019 that would change the Bank's or Company's category.

In September 2019, the regulatory agencies, including the Office of the Comptroller of the Currency and FRB, adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio ("CBLR") for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria.

Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% 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 well-capitalized ratio requirements.

Management is still reviewing the CBLR framework, but expects the Bank and Company will elect to use the CBLR framework.

Corrective Action

Adequacy Purposes

In April 2020, as directed by Section 4012 of the CARES Act, the regulatory agencies introduced temporary changes to the CBLR.

These changes, which subsequently were adopted as a final rule, temporarily reduced the CBLR requirement to 8% through the end of calendar year 2020.

Beginning in calendar year 2021, the CBLR

requirement will increase to 8.5% for the calendar year before returning to 9% in calendar year 2022.

Management has elected to use the CBLR framework for the Bank and Company.

Before electing to use the CBLR framework, the Company and Bank were required to maintain a capital conservation buffer above certain minimum risk-based capital ratios for capital adequacy purposes in order to avoid certain restrictions on capital distributions and other payments including dividends, share repurchases, and certain compensation.

The capital conservation buffer was 2.5 % at September 30, 2019, and the Bank and Company exceeded the capital conservation buffer requirement at that time.

Management believes, as of September 30, 2020, that the Bank and Company meet all capital adequacy requirements to which they are subject and there were no conditions or events subsequent to September 30, 2020 that would change the Bank's or Company's category.

For Capital Corrective Action

Actual Adequacy Purposes Provisions

Amount Ratio Amount Ratio Amount Ratio

(Dollars in thousands)

As of September 30, 2020

Tier 1 leverage

Common Equity Tier 1 ("CET1") capital

Tier 1 capital

Total capital

CBLR $ 1,168,808 12.4 % $ 754,884 8.0 % N/A N/A

As of September 30, 2019

Tier 1 leverage 1,169,037 12.1 387,427 4.0 484,284 5.0

Common Equity Tier 1 ("CET1") capital 1,169,037 24.1 218,042 4.5 314,949 6.5

Tier 1 capital 1,169,037 24.1 290,722 6.0 387,630 8.0

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As of September 30, 2020

Tier 1 leverage

Tier 1 capital

Total capital

CBLR 1,287,854 13.7 754,767 8.0 N/A N/A

As of September 30, 2019

Tier 1 leverage

Tier 1 capital

Total capital

Tier 1 leverage 1,336,377 13.8 387,346 4.0 N/A N/A

CET1 capital 1,336,377 27.6 218,070 4.5 N/A N/A

Tier 1 capital 1,336,377 27.6 290,759 6.0 N/A N/A

Total capital 1,345,603 27.8 387,679 8.0 N/A N/A

Generally, savings institutions, such as the Bank, may make capital distributions during any calendar year equal to the earnings of the previous two calendar years and current year-to-date earnings.

It is generally required that the Bank remain well capitalized before and after the proposed distribution.

The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank.

As of September 30, 2020, the balance of this liquidation account was $ 115.4 million.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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cash flow analysis with independent observable market-based inputs from a third party.

The Company did not make any adjustments to the estimated fair values during the years ended September 30, 2019 and 2018 .

No adjustments were made to the estimated fair values during the years ended September 30, 2020 and 2019.

The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented.

The Company did not have any Level 3 financial instruments measured at fair value on a recurring basis at September 30, 2019 or 2018 .

The Company did not have any liabilities that were measured at fair value at September 30, 2018 .

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at September 30, 2020 or 2019.

September 30, 2020

Quoted Prices

in Active Markets

Other Observable

for Identical Assets

Quoted Prices Significant Significant

in Active Markets Other Observable Unobservable

Carrying for Identical Assets Inputs Inputs

Value (Level 1) (Level 2) (Level 3)

(Dollars in thousands)

AFS Securities:

MBS $ 1,180,803 $ — $ 1,180,803 $ —

GSE debentures 370,340 — 370,340 —

Municipal bonds 9,807 — 9,807 —

$ 1,560,950 $ — $ 1,560,950 $ —

Interest rate swaps $ 53,149 $ — $ 53,149 $ —

September 30, 2019

Quoted Prices

in Active Markets

Other Observable

for Identical Assets

Quoted Prices Significant Significant

in Active Markets Other Observable Unobservable

Carrying for Identical Assets Inputs Inputs

Value (Level 1) (Level 2) (Level 3)

(Dollars in thousands)

AFS Securities:

MBS $ 936,487 $ — $ 936,487 $ —

GSE debentures 249,954 — 249,954 —

Municipal bonds 18,422 — 18,422 —

$ 1,204,863 $ — $ 1,204,863 $ —

Interest rate swaps $ 33,090 $ — $ 33,090 $ —

The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis.

Loans Receivable – The amount of loans individually evaluated for impairment on a non-recurring basis during fiscal years 2019 and 2018 that were still held in the portfolio as of September 30, 2019 and 2018 was $ 6.8 million and $ 6.7 million , respectively.

The majority of these loans were secured by residential real estate and were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10 % .

Loans Receivable – The fair value of impaired loans individually evaluated for impairment on a non-recurring basis during fiscal years 2020 and 2019 that were still held in the portfolio as of September 30, 2020 and 2019 was $ 5.7 million and $ 6.8 million, respectively.

The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10 %.

Fair values were estimated through current appraisals.

Management does not adjust or apply a discount to the appraised value, except for the estimated sales cost noted above.

The primary significant unobservable input for loans individually evaluated for impairment was the appraisal.

Fair values of loans individually evaluated for impairment cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

Based on this evaluation, the Bank charged-off all loss amounts as of September 30, 2019 and 2018 ;

therefore, the fair value was equal to the carrying value and there was no ACL related to these loans.

Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal.

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable.

Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace.

The primary significant unobservable inputs for impaired commercial loans individually evaluated for impairment during the year ended September 30, 2020 were downward adjustments to the book value of the collateral for lack of marketability.

The adjustments ranged from 4 % to 50 %, with a weighted average of 18 %.

There were no impaired commercial loans individually evaluated during the year ended September 30, 2019.

Fair values of impaired loans individually evaluated for impairment cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

OREO – OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value.

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Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3.

The fair value of OREO measured on a non-recurring basis during fiscal years 2019 and 2018 that was still held in the portfolio as of September 30, 2019 and 2018 was $ 678 thousand and $ 1.9 million , respectively.

The fair value of OREO measured on a non-recurring basis during fiscal years 2020 and 2019 that was still held in the portfolio as of September 30, 2020 and 2019 was $ 183 thousand and $ 678 thousand, respectively.

The carrying value of the properties equaled the fair value of the properties at September 30, 2020 and 2019.

Fair Value Disclosures – The Company determined estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented.

Fair Value Disclosures – The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented.

Considerable judgment is required to interpret market data to develop the estimates of fair value.

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The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:

Estimated Fair Value

Carrying Estimated Fair Value

Amount Total Level 1 Level 2 Level 3

(Dollars in thousands)

2 unchanged sentences

Loans receivable 7,202,851 7,663,000 — — 7,663,000

FHLB borrowings

Other borrowings

FHLB stock 93,862 93,862 93,862 — —

Deposits 6,191,408 6,259,080 3,170,164 3,088,916 —

Borrowings 1,789,313 1,840,605 — 1,840,605 —

Interest rate swaps 53,149 53,149 — 53,149 —

Estimated Fair Value

Carrying Estimated Fair Value

Amount Total Level 1 Level 2 Level 3

(Dollars in thousands)

1 unchanged sentence

AFS securities 1,204,863 1,204,863 — 1,204,863 —

HTM securities

Loans receivable 7,416,747 7,654,586 — — 7,654,586

FHLB stock 98,456 98,456 98,456 — —

Deposits 5,581,867 5,614,895 2,594,242 3,020,653 —

Borrowings 2,239,989 2,253,353 100,001 2,153,352 —

Interest rate swaps 33,090 33,090 — 33,090 —

FHLB borrowings

Other borrowings

ACCUMULATED OTHER COMPREHENSIVE INCOME

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For the Year Ended September 30, 2020

Gains (Losses)

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ 10,150 $ ( 25,049 ) $ ( 14,899 )

Transfer of HTM securities to AFS securities

Other comprehensive income (loss), before reclassifications 13,578 ( 21,458 ) ( 7,880 )

Amount reclassified from AOCI

Amount reclassified from AOCI, net of taxes of $( 2,014 )

— 6,274 6,274

Other comprehensive income (loss) 13,578 ( 15,184 ) ( 1,606 )

1 unchanged sentence

For the Year Ended September 30, 2019

Gains (Losses)

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ ( 2,990 ) $ 7,330 $ 4,340

Transfer of HTM securities to AFS securities 2,336 — 2,336

Other comprehensive income (loss), before reclassifications 10,804 ( 32,817 ) ( 22,013 )

Amount reclassified from AOCI

Amount reclassified from AOCI, net of taxes of $( 141 )

Other comprehensive income (loss) 13,140 ( 32,379 ) ( 19,239 )

Reclassification of certain income tax effects related to adoption of ASU 2018-02

Ending balance $ 10,150 $ ( 25,049 ) $ ( 14,899 )

For the Year Ended September 30, 2018

Gains (Losses)

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

1 unchanged sentence

Other comprehensive income (loss), before reclassifications ( 6,741 ) 6,981 240

Amount reclassified from AOCI

Amount reclassified from AOCI, net of taxes of $( 197 )

Other comprehensive income (loss) ( 6,741 ) 7,496 755

Reclassification of certain income tax effects related to adoption of ASU 2018-02 461 206 667

Ending balance $ ( 2,990 ) $ 7,330 $ 4,340

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The amount was related to the change in the recognition of revenue related to certain insurance commissions.

Details of the Company's primary types of non-interest income revenue streams by financial statement line reported in the consolidated statements of income that are within the scope of the amended ASU and ASC Topic 606 are below.

During the current fiscal year, revenue from contracts with customers totaled $ 16.6 million .

Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below.

During fiscal years 2020 and 2019, revenue from contracts with customers totaled $ 14.8 million and $ 16.6 million, respectively.

Deposit Service Fees

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In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction.

The Company determined it is acting as an agent for its debit card customers when they are utilizing the card payment networks;

The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks;

therefore, upon adoption of the amended ASU, interchange transaction fee income is reported net of interchange network charges.

5 unchanged sentences

Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly).

Other Non-Interest Income

Trust Asset Management Income - The Company provides trust asset management services to customers.

The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end.

Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.

Insurance Commissions - Commissions are received on insurance product sales.

Insurance Commissions

Commissions are received on insurance product sales.

The Company acts in the capacity of an agent between the Company's customer and the insurance carrier.

3 unchanged sentences

Previously, contingent insurance commissions were recognized when the funds were received.

Other Non-Interest Income

Trust Asset Management Income - The Company provides trust asset management services to customers.

The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end.

Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.

The Company leases real estate property for branches, ATMs, and certain equipment.

These leases have remaining terms that range from one year to 47 years, some of which include the exercising of renewal options that the Company considers to be reasonably certain.

As September 30, 2020, a right-of-use asset of $ 14.7 million was included in other assets and a lease liability of $ 14.7 million was included in accounts payable and accrued expenses on the consolidated balance sheets.

As of September 30, 2020, for the Company's operating leases, the weighted average remaining lease term was 23.5 years and the weighted average discount rate was 2.59 %.

The following table presents lease expenses and supplemental cash flow information related to the Company's leases for fiscal year 2020 (dollars in thousands).

Operating lease expense $ 1,511

Variable lease expense 201

Short-term lease expense 17

Cash paid for amounts included in the measurement of lease liabilities 1,357

The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of September 30, 2020 (dollars in thousands):

Fiscal year 2021 1,192

Fiscal year 2022 1,302

Fiscal year 2023 1,210

Fiscal year 2024 1,003

Fiscal year 2025 827

Thereafter 15,308

Total future minimum lease payments 20,842

Amounts representing interest ( 6,129 )

Present value of net future minimum lease payments $ 14,713

The Company elected the modified retrospective approach for its adoption of ASU 2016-02, and the optional transition method under which the Company used the effective date as the date of initial application of the amendments.

These elections require the inclusion of ASC Topic 840 disclosures for periods that continue to be presented in accordance with ASC Topic 840.

As of September 30, 2019, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year were as follows (dollars in thousands):

Thereafter 1,115

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table presents summarized quarterly data for each of the years indicated for the Company.

First Second Third Fourth

Quarter Quarter Quarter Quarter Total

(Dollars and counts in thousands, except per share amounts)

2 unchanged sentences

Provision for credit losses 225 22,075 — — 22,300

Net income 22,511 4,276 19,474 18,279 64,540

Basic EPS 0.16 0.03 0.14 0.13 0.47

Diluted EPS 0.16 0.03 0.14 0.13 0.47

Dividends declared per share 0.425 0.085 0.085 0.085 0.68

4 unchanged sentences

Provision for credit losses — — 450 300 750

Net income 24,383 24,554 22,897 22,409 94,243

Basic EPS 0.18 0.18 0.17 0.16 0.68

Diluted EPS 0.18 0.18 0.17 0.16 0.68

Dividends declared per share 0.475 0.085 0.335 0.085 0.98

11 unchanged sentences

Note receivable - ESOP 38,614 39,971

Other assets 707 711

Income taxes receivable, net 492 429

Junior subordinated debentures

TOTAL ASSETS $ 1,288,092 $ 1,336,417

Accounts payable and accrued expenses 3,142 91

Deferred income tax liabilities, net 91 —

Total liabilities 3,233 91

3 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 141,440,030 and 141,225,516

shares issued and outstanding as of September 30, 2019 and 2018, respectively

1,400,000,000 shares authorized, 138,956,296 and 141,440,030 shares issued and outstanding as of September 30, 2020 and 2019, respectively

Additional paid-in capital 1,189,853 1,210,226

7 unchanged sentences

(Dollars in thousands)

2020 2019 2018

INTEREST AND DIVIDEND INCOME:

16 unchanged sentences

EQUITY IN EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY ( 3,895 ) ( 35,381 ) ( 34,940 )

NET INCOME $ 64,540 $ 94,243 $ 98,927

STATEMENTS OF CASH FLOWS

1 unchanged sentence

(Dollars in thousands)

2020 2019 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 64,540 $ 94,243 $ 98,927

Adjustments to reconcile net income to net cash provided by operating activities:

3 unchanged sentences

Provision for deferred income taxes 91 — ( 35 )

Other assets ( 60 ) 54 ( 53 )

Income taxes receivable/payable ( 63 ) 57 ( 145 )

10 unchanged sentences

Cash dividends paid ( 93,862 ) ( 134,929 ) ( 118,312 )

Repurchase of common stock ( 20,767 ) — —

Repayment of other borrowings — ( 10,052 ) —

4 unchanged sentences

Beginning of year 126,320 137,684 120,785

End of year $ 82,466 $ 126,320 $ 137,684

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

3 unchanged sentences

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 8. Financial Statements and Supplementary Data