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Item 7. Management’s Discussion and Analysis

2021-11-24 compared with 2020-11-25 · 529 added, 701 removed, 388 unchanged (76% of the section changed)

5 unchanged sentences

The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

All of these loans were current

as of September 30, 2020.

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

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

These loans are fully guaranteed by the SBA.

The program ended August 8, 2020.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

See "Part I, Item 1A.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Summary of Results of Operation and Financial Condition

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical Accounting Policies

Our most critical accounting policies are the methodologies used to determine the ACL and fair value measurements.

These policies are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters.

Net income for fiscal year 2021 increased $11.5 million, or 17.9% compared to the prior year, due primarily to recording a $22.3 million provision for credit losses during the prior year compared to recording a negative provision for credit losses of $8.5 million in the current year, as a result of improvements in economic conditions between periods.

This was partially offset by a decrease in net interest income and an increase in income tax expense.

The net interest margin was 1.90% for the current year compared to 2.12% in the prior year.

The decrease in the net interest margin was due primarily to a reduction in asset yields due to the low interest rate environment, partially offset by a decrease in the cost of deposits and borrowings.

Additionally, cash flows from the one-to four-family loan portfolio not reinvested into loans were used to purchase lower yielding securities, which also decreased the overall asset yield.

During the latter portion of the current year, the pace of loan refinance and payoff activity slowed, resulting in lower premium amortization related to correspondent one- to four-family loans compared to earlier in the year, and there was a reduction in the purchases of lower-yielding securities as cash flows from the loan and deposit portfolios slowed, all of which helped stabilize the net interest margin.

As discussed above, the Bank experienced high levels of loan refinance and payoff activity for the majority of the current year, before slowing later in the year.

This was a trend continued from the last half of the prior year.

Additionally, there was significant deposit growth during the latter part of the prior year and the first half of the current year due to a reduction in customer spending and high levels of government assistance.

The loan portfolio decreased $121.7 million, or 1.7%, during the current year, primarily in the correspondent one-to four-family loan portfolio, while the securities portfolio increased $453.7 million, or 29.1%.

Deposit growth during the current year was used to pay down certain maturing advances and purchase securities.

The deposit portfolio increased $406.0 million, or 6.6%, during the current year, while borrowings decreased $206.5 million, or 11.5%.

The deposit growth was primarily in non-maturity deposit accounts, partially offset by a decrease in retail certificates of deposit as customers moved some of the funds from maturing certificates into more liquid investment options such as the Bank's retail money market accounts.

There is some uncertainty regarding how long the increased balance of non-maturity deposits will be retained by the Bank as customers return to more normal spending habits and/or choose to invest in higher-yielding investment options outside of the Bank.

The Bank may be required to replace deposit outflows with higher costing borrowings, which would increase the cost of funds over time.

The Bank's asset quality continued to remain strong during the current fiscal year, reflected in low delinquency and charge-off ratios.

At September 30, 2021, loans 30 to 89 days delinquent were 0.11% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.16% of total loans receivable, net.

The ratio of net charge-offs (recoveries) ("NCOs") during the current year to average loans outstanding during the current year was 0.01%.

In March 2020, the Bank initiated loan modification programs to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 modifications").

As of September 30, 2021, $2.7 million of one- to four-family loans and $146.4 million of commercial loans with COVID-19 modifications were still in their deferral period, compared to $39.8 million and $367.4 million, respectively, as of September 30, 2020.

We have observed very low delinquency rates for loans that were previously subject to COVID-19 modifications and have since resumed full payments.

Additionally, in March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans, and this suspension remained in place at September 30, 2021.

Approximately 75% of non-performing one- to four family loans at September 30, 2021 either had foreclosure proceedings initiated prior to the foreclosure suspension or would have had foreclosure proceedings initiated if the suspension were not in place.

At September 30, 2021, the Bank had a one-year gap position of $(664.1) million, or (6.9)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period.

Despite the negative gap, net interest income is projected to increase in a rising interest rate environment due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the interest rate change.

This assumption is based on a historical analysis of the Bank's deposit pricing behavior.

See additional discussion in "Part II, Item 7A.

Quantitative and Qualitative Disclosures About Market Risk."

Critical Accounting Estimates

Our most critical accounting estimates are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements.

These estimates are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions about highly uncertain matters.

The use of different judgments, assumptions, and estimates could affect reported results materially.

These critical accounting policies and their application are reviewed at least annually by our audit committee.

The following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application.

Allowance for Credit Losses.

The Company maintains an ACL to absorb inherent losses in the loan portfolio based upon ongoing quarterly assessments of the loan portfolio.

The ACL is maintained through provisions for credit losses which are either charged or credited to income.

The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in economic conditions that could result in changes to the amount of the recorded ACL.

Additionally, bank regulators review the ACL and could have a differing view from management regarding the ACL balance, which could result in an increase in the ACL and/or the recognition of additional charge-offs.

Although management believes that the Bank has established and maintained the ACL at appropriate levels, additions may be necessary if economic and other conditions worsen substantially from the current operating environment, and/or if bank regulators have a differing view from management regarding the ACL balance.

Our lending emphasis on the origination and purchase of one- to four-family loans and, to a lesser extent, consumer loans secured by one- to four-family residential properties, has resulted in a loan concentration in one- to four-family residential mortgage loans.

We believe the primary risks inherent in our one- to four-family and consumer loan portfolios are a decline in economic conditions, elevated levels of unemployment or underemployment, and declines in residential real estate values.

Adverse changes in any one or a combination of these events may negatively affect borrowers' ability to repay their loans, resulting in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions.

Although the commercial loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient.

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, we prepare a formula analysis model which segregates our loan portfolio into categories based on certain risk characteristics such as loan type (one- to four-family, commercial, etc.), interest payments (fixed-rate and adjustable-rate), loan source (originated, correspondent purchased, or bulk purchased), LTV ratios, borrower's credit score and payment status (i.e.

current or number of days delinquent).

Consumer loans, such as second mortgages and home equity lines of credit, with the same underlying collateral as a one- to four-family loan are combined with the one- to four-family loan in the formula analysis model to calculate a combined LTV ratio.

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

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

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

These critical accounting estimates and their application are reviewed at least annually by our audit committee.

The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.

Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures.

The ACL is a valuation amount that is deducted from the amortized cost basis of loans and represents management's estimate of lifetime credit losses expected on the Company's loan portfolio as of the balance sheet date.

The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company.

Management estimates the ACL by projecting future loss rates which are dependent upon forecasted economic indices and applying qualitative factors when deemed appropriate by management.

The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions.

The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life.

The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of ACL required by the calculation.

Management then considers qualitative factors when accessing the overall level of ACL.

See "Allowance for Credit Losses on Loans Receivable" and "Reserve for Off-Balance Sheet Credit Exposures" within "Part II, Item 8.

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

Summary of Significant Accounting Policies" for additional information.

One of the most significant judgments used in projecting loss rates when estimating the ACL and reserves for off-balance sheet credit exposures is the macro-economic forecast provided by a third party.

The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate, changes in commercial real estate prices, changes in home values, and changes in the United States gross domestic product.

The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate.

Each reporting period, several macro-economic forecast scenarios are considered by management.

Management selects the macro-economic forecast(s) that is/are most reflective of expectations at that point in time.

Changes in the macro-economic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.

Other key assumptions in the calculation of the ACL and reserve for off-balance sheet credit exposures estimates include the forecast and reversion to mean time periods and prepayment and curtailment assumptions.

The calculation is much less sensitive to these assumptions than the macro-economic forecasts.

The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index.

The forecast and reversion to mean time period used for each economic index at September 30, 2021 was four quarters.

Prepayment and curtailment assumptions are based on the Company's historical experience over the trailing 12 months and are adjusted by management as deemed necessary.

The prepayment and curtailment assumptions vary based on loan product type.

The ACL and reserves for off-balance sheet credit exposures may be materially affected by qualitative factors, especially during periods of economic uncertainty, for items not reflected in the lifetime credit loss calculation, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors.

Such qualitative factors may include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect

of other external factors such as significant unique events or conditions, and actual and/or expected change in economic conditions, real estate values, and/or other economic developments.

The qualitative factors applied by management at September 30, 2021 were (1) the balance and trending of large-dollar special mention loans, (2) economic uncertainties related to the job market and the unevenness of the recovery in certain industries, and (3) COVID-19 loan modifications related to commercial real estate loans.

The qualitative factors applied at September 30, 2021, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model.

The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4.

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

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

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

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

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

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

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

Such considerations included:

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

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

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

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

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

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

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

possible need for an additional loan loss provision.

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

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

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

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

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

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

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

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

ASU 2016-13, Financial Instruments - Credit Losses:

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

Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the qualitative factors applied at September 30, 2021.

The ACL and the reserves for off balance sheet credit exposures was $19.8 million and $5.7 million, respectively at September 30, 2021, compared to $26.8 million and $7.8 million, respectively, at October 1, 2020, which was the date we adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

The $7.0 million decrease in the ACL and $2.0 million decrease in the reserves for off-balance sheet credit exposures was primarily attributable to the improved economic conditions between time periods, specifically in the national unemployment rate.

The average national unemployment rate during the four-quarter macro-economic forecast selected by management as of October 1, 2020 was 10.8%, compared to 3.8% during the four-quarter macro-economic forecast selected at September 30, 2021.

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4.

Summary of Significant Accounting Policies" for additional information.

Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the assumptions used in the Company's September 30, 2021 estimate of ACL.

While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserves for off-balance sheet credit exposures.

Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.

If actual results differ significantly from our assumptions, our ACL and reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.

Fair Value Measurements.

4 unchanged sentences

The Company's AFS securities are measured at fair value on a recurring basis.

Changes in the fair value of AFS securities are recorded, net of tax, as AOCI in stockholders' equity.

Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity.

The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities.

10 unchanged sentences

Summary of Significant Accounting Policies."

Management Strategy

We are a community-oriented financial institution dedicated to serving the needs of customers in our market areas.

Our commitment is to provide qualified borrowers the broadest possible access to home ownership through our mortgage lending programs and to offer a complete set of personal and commercial banking products and services to our customers.

We strive to enhance stockholder value while maintaining a strong capital position.

To achieve these goals, we focus on the following strategies:

We are one of the leading originators of one- to four-family loans in the state of Kansas.

We originate these loans primarily for our own portfolio, and we service the loans we originate.

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

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

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

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

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

• Deposit Services.

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

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

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

• Cost Control.

We generally are very effective at controlling our costs of operations.

By using technology, we are able to centralize our loan servicing and deposit support functions for efficient processing.

We serve a broad range of customers through relatively few branch locations.

Our average deposit base per traditional branch at September 30, 2020 was approximately $123.6 million.

This large average deposit base per branch helps to control costs.

Our one- to four-family lending strategy and our effective management of credit risk allows us to service a large portfolio of loans at efficient levels because it costs less to service a portfolio of performing loans.

We recognize it is more expensive to offer a full suite of commercial products and services, but we will continue our efforts to control those costs.

• Asset Quality.

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

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

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

• Capital Position.

Our policy has always been to protect the safety and soundness of the Bank through credit and operational risk management, balance sheet strength, and sound operations.

The end result of these activities has been a capital ratio in excess of the well-capitalized standards set by the OCC.

We believe that maintaining a strong capital position safeguards the long-term interests of the Bank, the Company, and our stockholders.

• Stockholder Value.

We strive to provide stockholder value while maintaining a strong capital position.

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

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

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

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

Stockholder value is also provided through common stock repurchases.

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

• Interest Rate Risk Management.

Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities.

As such, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities.

In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with board policies.

Financial Condition

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

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

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

The following table summarizes the Company's financial condition at the dates indicated.

September 30, Change expressed in:

2021 2020 Dollars Percent

(Dollars in thousands)

Total assets $ 9,631,246 $ 9,487,218 $ 144,028 1.5 %

AFS securities 2,014,608 1,560,950 453,658 29.1

Loans receivable, net 7,081,142 7,202,851 (121,709) (1.7)

Deposits 6,597,396 6,191,408 405,988 6.6

Borrowings 1,582,850 1,789,313 (206,463) (11.5)

Stockholders' equity 1,242,273 1,284,859 (42,586) (3.3)

Equity to total assets at end of period 12.9 % 13.5 %

Average number of basic shares outstanding 135,481 137,897 (2,416) (1.8)

Average number of diluted shares outstanding 135,496 137,901 (2,405) (1.7)

Total assets increased due mainly to an increase in the securities portfolio, partially offset by decreases in cash and cash equivalents and loans receivable.

Cash flows from the deposit portfolio were used to purchase securities and pay down certain maturing borrowings.

Loans Receivable.

Originating and purchasing loans secured by one- to four-family residential properties is the Bank's primary lending business, resulting in a concentration in residential first mortgage loans secured by properties located in Kansas and Missouri.

The Bank also originates and participates in commercial loans, and originates consumer loans and construction loans.

The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a select group of correspondent lenders ("correspondent purchased").

Loan purchases enable the Bank to attain geographic diversification in the one- to four-family loan portfolio.

We generally pay a premium of 0.50% to 1.0% of the loan balance to purchase these loans, and 1.0% of the loan balance to purchase the servicing of these loans.

The premium paid is amortized against the interest earned over the life of the loan, which reduces the loan yield.

If a loan pays off before the scheduled maturity date, the remaining premium is recognized as reduction in interest income.

During the current fiscal year, the Bank recognized a significant amount of premium amortization due to payoffs and endorsements.

In the past, the Bank has also purchased one- to four-family loans from correspondent and nationwide lenders in bulk loan packages ("bulk purchased").

The majority of the Bank's bulk purchased loans were guaranteed by one seller.

The Bank has not experienced any losses with this group of loans since the loan package was purchased in August 2012.

The Bank originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate.

The majority of these loans are secured by property located within the Bank's Kansas City market area.

The Bank's owner-occupied construction-to-permanent loan program combines the construction loan and the permanent loan into one loan, allowing the borrower to secure the same interest rate structure throughout the construction period and the permanent loan term.

The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by savings deposits.

The Bank also originates a very limited amount of unsecured loans.

Generally, consumer loans are originated in the Bank's market areas.

The majority of our consumer loan portfolio is comprised of home equity lines of credit which have adjustable interest rates.

For a majority of the home equity lines of credit, the Bank has the first mortgage or the Bank is in the first lien position.

The Bank's commercial loan portfolio is composed of commercial real estate loans, commercial construction loans and commercial and industrial loans.

Our commercial real estate loans include a variety of property types, including hotels, office and retail buildings, senior housing facilities, and multi-family dwellings located in Kansas, Missouri, and 12 other states.

The Bank's commercial and industrial loan portfolio consists largely of loans secured by accounts receivable, inventory and equipment.

Commercial borrowers are generally required to provide financial information annually, including borrower financial statements, subject property rental rates and income, maintenance costs, updated real estate property tax and insurance payments, and personal financial information for the guarantor(s).

This allows the Bank to monitor compliance with loan covenants and review the borrower's performance, including cash flows from operations, debt service coverage, and comparison of performance to projections and year-over-year performance trending.

Additionally, the Bank monitors and performs site visits, or in the case of participation loans, obtains updates from the lead bank as needed to determine the condition of the collateral securing the loan.

Depending on the financial strength of the project and/or the complexity of the borrower's financials, the Bank may also perform a global analysis of cash flows to account for all other properties owned by the borrower or guarantor.

If signs of weakness are identified, the Bank may begin performing more frequent financial and/or collateral reviews or will initiate contact with the borrower, or the lead bank will contact the borrower if the loan is a participation loan, to ensure cash flows from operations are maintained at a satisfactory level to meet the debt requirements.

Both macro-level and loan-level stress-test scenarios based on existing and forecasted market conditions are part of the on-going portfolio management process for the commercial real estate portfolio.

The Bank mitigates the risk of commercial real estate construction lending during the construction period by monitoring inspection reports from an independent third-party, project budget, percentage of completion, on-site inspections and percentage of advanced funds.

Commercial and industrial loans are monitored through a review of borrower performance as indicated by borrower financial statements, borrowing base reports, accounts receivable aging reports, and inventory aging reports.

These reports are required to be provided by the borrowers monthly, quarterly, or annually depending on the nature of the borrowing relationship.

The Bank regularly monitors the level of risk in the entire commercial loan portfolio, including concentrations in such factors as geographic locations, collateral types, tenant brand name, borrowing relationships, and lending relationships in the case of participation loans, among other factors.

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

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

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

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

September 30, 2021 September 30, 2020

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Total loans receivable, net $ 7,081,142 $ 7,202,851

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

The following table presents the contractual maturity of our loan portfolio, along with associated weighted average yields, at September 30, 2021.

Loans which have adjustable interest rates are shown as maturing in the period during which the contract is due.

The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses.

One year or less (1)

Over one year to five years Over five years to 15 years Over 15 years Total

Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield

(Dollars in thousands)

One- to four-family:

Originated $ 845 4.17 % $ 63,633 3.81 % $ 1,438,945 2.93 % $ 2,452,641 3.39 % $ 3,956,064 3.23 %

Correspondent purchased 79 3.63 4,515 3.16 508,895 2.49 1,489,988 3.05 2,003,477 2.91

Bulk purchased 6 5.88 313 4.39 34,651 2.10 138,692 1.42 173,662 1.56

Construction (2)

— — — — 2,568 2.71 36,574 2.83 39,142 2.82

Total 930 4.13 68,461 3.77 1,985,059 2.80 4,117,895 3.20 6,172,345 3.08

Commercial real estate 117,713 3.75 142,047 4.46 329,868 4.25 87,280 4.08 676,908 4.18

Commercial and industrial 17,626 4.17 34,216 4.00 9,615 4.59 5,040 4.17 66,497 4.14

Construction (2)

6,369 4.05 38,260 3.87 15,706 3.78 25,628 4.57 85,963 4.07

Total 141,708 3.81 214,523 4.28 355,189 4.24 117,948 4.19 829,368 4.17

Home equity (3)

1,672 4.83 2,071 5.74 44,874 4.51 37,657 4.57 86,274 4.57

Other 868 3.02 6,770 4.30 448 6.64 — — 8,086 4.29

Total 2,540 4.21 8,841 4.64 45,322 4.53 37,657 4.57 94,360 4.55

Total loans receivable $ 145,178 3.82 $ 291,825 4.17 $ 2,385,570 3.05 $ 4,273,500 3.24 7,096,073 3.23

Discounts/unearned loan fees 29,556

Premiums/deferred costs (34,448)

Total loans receivable, net $ 7,081,142

(1) Includes demand loans, loans having no stated maturity, and overdraft loans.

(2) Construction loans are presented based upon the contractual maturity date, which includes the permanent financing period for construction-to-permanent loans.

(3) For home equity loans, including those that do not have a stated maturity date, the maturity date calculated assumes the borrower always makes the required minimum payment.

The majority of home equity loans assume a maximum term of 240 months.

The following table presents, as of September 30, 2021, the amount of loans due after September 30, 2022, and whether these loans have fixed or adjustable interest rates.

Fixed Adjustable Total

(Dollars in thousands)

One- to four-family:

Originated $ 3,709,020 $ 246,199 $ 3,955,219

Correspondent purchased 1,838,138 165,260 2,003,398

Bulk purchased 5,477 168,179 173,656

Construction 36,492 2,650 39,142

Total 5,589,127 582,288 6,171,415

Commercial real estate 304,031 255,164 559,195

Commercial and industrial 35,197 13,674 48,871

Construction 37,956 41,638 79,594

Total 377,184 310,476 687,660

Home equity 11,518 $ 73,084 84,602

Other 5,262 1,956 7,218

Total 16,780 75,040 91,820

Total loans receivable $ 5,983,091 $ 967,804 $ 6,950,895

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

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

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The endorsed balance and rate are included in the ending loan portfolio balance and rate.

During fiscal year 2020, the Bank endorsed $695.4 million of one- to four-family loans, reducing the average rate on those loans by 83 basis points.

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

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

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

For the Three Months Ended

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

Amount Rate Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

Beginning balance $ 7,407,442 3.64 % $ 7,493,280 3.74 % $ 7,424,834 3.77 % $ 7,412,473 3.81 %

Originated and refinanced:

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

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

Purchased and participations:

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

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

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

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

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

Other — — (79) (257)

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

For the Year Ended September 30,

The renewal balance and rate are included in the ending loan portfolio balance and rate.

For the Year Ended

September 30, 2021 September 30, 2020

Amount Rate Amount Rate

2 unchanged sentences

Originated and refinanced 1,437,454 2.89 1,166,235 3.30

Fixed 949,912 3.15 505,334 4.10

Adjustable 216,323 3.97 319,608 4.77

Purchased and participations 824,241 2.89 541,596 3.44

Fixed 441,904 3.44 186,135 4.64

Adjustable 99,692 3.47 76,305 4.40

Change in undisbursed loan funds (174,416) (3,998)

Repayments (2,215,585) (1,890,975)

Principal recoveries, net 1 13

Principal recoveries/(charge-offs), net (478) 1

Other (139) (336)

1 unchanged sentence

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

During the current fiscal year, the Bank endorsed $765.5 million of one- to four-family loans, reducing the average rate on those loans by 92 basis points.

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

Loan originations, purchases, and refinances are reported together.

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

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

For the Year Ended

3 unchanged sentences

One- to four-family $ 1,615,165 2.66 % 71.4 % $ 1,189,835 3.21 % 69.6 %

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

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

One- to four-family construction 125,309 2.77 5.5 44,754 3.28 2.6

Commercial real estate 44,005 4.17 2.7 27,886 6.21 2.6

Real estate 28,944 3.85 1.3 44,005 4.17 2.7

Commercial and industrial 49,857 2.45 2.2 65,174 1.92 3.8

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

Construction 42,505 3.65 1.9 39,346 4.71 2.3

Home equity 3,491 5.42 0.2 4,493 5.83 0.3

3 unchanged sentences

One- to four-family 59,813 2.52 2.6 131,665 2.94 7.7

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

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

One- to four-family construction 11,069 2.64 0.5 12,984 2.97 0.8

Commercial real estate 50,697 4.56 3.0 100,142 4.84 9.2

Real estate 120,202 3.70 5.3 50,697 4.56 3.0

Commercial and industrial 18,581 3.97 0.8 6,360 4.72 0.4

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

Construction 126,155 4.08 5.6 53,563 4.06 3.1

Home equity 55,740 4.42 2.5 58,709 4.95 3.4

3 unchanged sentences

Purchased and participation loans included above:

Correspondent - one- to four-family $ 395,778 3.34 $ 118,758 4.31

Correspondent purchased - one- to four-family $ 671,077 2.65 $ 395,778 3.34

Participations - commercial 40,314 3.66 46,126 4.29

1 unchanged sentence

Adjustable-rate:

Correspondent - one- to four-family 52,192 2.94 47,655 3.83

Correspondent purchased - one- to four-family 18,450 2.45 52,192 2.94

Participations - commercial 94,400 4.36 47,500 4.04

1 unchanged sentence

Total purchased/participation loans $ 824,241 2.89 $ 541,596 3.44

(1) The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.

(2) The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.

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

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of September 30, 2021.

Credit scores are updated at least annually, with the latest update in September 2021, from a nationally recognized consumer rating agency.

1 unchanged sentence

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

September 30, 2020

% of Credit Average

Amount Total Score LTV Balance

(Dollars in thousands)

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

Correspondent purchased 2,101,082 33.6 765 64 379

Bulk purchased 208,427 3.4 767 60 300

$ 6,246,819 100.0 % 768 63 187

September 30, 2019

% of Credit Average

Amount Total Score LTV Balance

Amount Total Rate Score LTV Balance

(Dollars in thousands)

3 unchanged sentences

$ 6,133,203 100.0 % 3.09 769 62 194

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

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

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

Of the loans originated and refinanced during the current year, 76% had loan values of $510 thousand or less.

Of the correspondent loans purchased during the current year, 20% had loan values of $510 thousand or less.

For the Year Ended

September 30, 2020 September 30, 2019

Credit Credit

Amount LTV Score Amount LTV Score

(Dollars in thousands)

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

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

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

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

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

State Amount % of Total Rate

(Dollars in thousands)

Kansas $ 804,919 58.4 % 3.15 %

Missouri 234,730 17.0 3.20

Texas 177,752 12.9 3.23

Other states 161,837 11.7 3.32

$ 1,379,238 100.0 % 3.19

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

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

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

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

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

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

Count Amount Score LTV

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

Amount Rate LTV Score

(Dollars in thousands)

5 unchanged sentences

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

15 years More than Adjustable- Total

or less 15 years Rate Amount Rate

(Dollars in thousands)

2 unchanged sentences

$ 182,512 2.65

Rate 2.49 % 3.08 % 2.79 %

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

Commercial Loans - During fiscal year 2021, the Bank originated $251.5 million of commercial loans, including $22.8 million of Paycheck Protection Program ("PPP") loans, and entered into commercial loan participations totaling $134.7 million.

The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $270.0 million at a weighted average rate of 3.59%.

Additionally, during the current fiscal year, $63.5 million of PPP loans were paid off, primarily by the U.S.

Small Business Administration (SBA) following completion of the loan forgiveness process.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of September 30, 2021.

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

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

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

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

Unpaid Undisbursed Gross Loan Outstanding % of

2 unchanged sentences

Senior housing 34 $ 229,082 $ 36,202 $ 265,284 $ 30,500 $ 295,784 27.8 %

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

Retail building 135 158,834 49,705 208,539 11,622 220,161 20.7

Hotel 10 137,301 57,364 194,665 — 194,665 18.3

Office building 92 49,608 60,379 109,987 — 109,987 10.3

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

One- to four-family property 385 61,717 7,457 69,174 1,453 70,627 6.6

Single use building 25 42,155 4,873 47,028 21,300 68,328 6.4

Multi-family 38 53,173 13,026 66,199 690 66,889 6.3

Other 101 31,001 5,166 36,167 1,502 37,669 3.6

6 unchanged sentences

Kansas 636 $ 327,419 $ 21,416 $ 348,835 $ 44,302 $ 393,137 36.9 %

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

Texas 11 135,644 137,480 273,124 — 273,124 25.7

Missouri 146 205,989 26,052 232,041 21,265 253,306 23.8

Colorado 7 16,087 20,012 36,099 — 36,099 3.4

Arkansas 3 12,143 21,620 33,763 — 33,763 3.2

Nebraska 6 33,464 4 33,468 — 33,468 3.1

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

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

Other 11 32,125 7,588 39,713 1,500 41,213 3.9

820 $ 762,871 $ 234,172 $ 997,043 $ 67,067 $ 1,064,110 100.0 %

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

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

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

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

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

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

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

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

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

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of September 30, 2021.

7 unchanged sentences

1,477 $ 1,171,763

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

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

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

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

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

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

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

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

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

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

Modification Type % of

Interest Payment % of Property Type/

Only Deferral Total Total Business Purpose

Asset Quality

Delinquent and nonaccrual loans and other real estate owned ("OREO").

The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated.

Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period.

The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any.

Of the loans 30 to 89 days delinquent at September 30, 2021 and 2020, approximately 61% and 70%, respectively, were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at September 30,

Number Amount Number Amount

(Dollars in thousands)

One- to four-family:

Originated 48 $ 4,156 42 $ 3,012

Correspondent purchased 7 2,590 8 3,123

Bulk purchased 4 541 12 2,532

Commercial 2 37 2 45

Consumer 25 498 26 398

86 $ 7,822 90 $ 9,110

Loans 30 to 89 days delinquent

to total loans receivable, net 0.11 % 0.13 %

The following table presents the Company's nonaccrual loans and OREO at the dates indicated.

The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any.

Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.

At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest.

Non-performing assets include nonaccrual loans and OREO.

OREO primarily includes assets acquired in settlement of loans.

In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans.

At September 30, 2021, there were $7.4 million of nonaccrual one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place.

September 30,

Number Amount Number Amount

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

One- to four-family:

Originated 50 $ 3,693 51 $ 4,362

Correspondent purchased 10 3,210 6 2,397

Bulk purchased 9 2,974 12 2,903

Commercial 6 1,214 5 1,360

Consumer 21 498 14 304

96 11,589 88 11,326

Loans 90 or more days delinquent or in foreclosure

as a percentage of total loans 0.16 % 0.16 %

Nonaccrual loans less than 90 Days Delinquent:

One- to four-family:

Originated 7 $ 1,288 9 $ 691

Correspondent purchased — — — —

Bulk purchased 1 131 — —

Commercial 4 419 3 464

Consumer 1 9 1 9

13 1,847 13 1,164

Total nonaccrual loans 109 13,436 101 12,490

Nonaccrual loans as a percentage of total loans 0.19 % 0.17 %

One- to four-family:

Originated (2)

3 $ 170 4 $ 183

Total non-performing assets 112 $ 13,606 105 $ 12,673

Non-performing assets as a percentage of total assets 0.14 % 0.13 %

(1) Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.

(2) Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by September 30, 2021, $2.2 million were 30 to 89 days delinquent and $2.8 million were 90 or more days delinquent as of September 30, 2021.

Of the commercial COVID-19 loan modifications that had completed the deferral period by September 30, 2021, $3 thousand were 30 to 89 days delinquent and none were 90 or more days delinquent as of September 30, 2021.

The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at September 30, 2021.

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

At September 30, 2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

Loans 30 to 89 Loans 90 or More Days Delinquent

One- to Four-Family Days Delinquent or in Foreclosure

State Amount % of Total Amount % of Total Amount % of Total LTV

(Dollars in thousands)

Kansas $ 3,516,327 57.3 % $ 3,900 53.5 % $ 3,511 35.6 % 57 %

Missouri 1,042,467 17.0 1,316 18.1 1,442 14.6 56

Texas 597,161 9.8 — — 1,929 19.5 41

Other states 977,248 15.9 2,071 28.4 2,995 30.3 56

$ 6,133,203 100.0 % $ 7,287 100.0 % $ 9,877 100.0 % 53

Classified Assets.

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

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4.

Loans Receivable and Allowance for Credit Losses" for asset classification definitions.

The following table presents loans classified as special mention or substandard at the dates presented.

The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any.

The increase in commercial special mention loans at September 30, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans for which the borrowers have been impacted by the COVID-19 pandemic.

Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments.

Subsequent to September 30, 2021, the underlying economic considerations being monitored for these two loans returned to levels deemed appropriate by the Company, and the loans were removed from special mention, resulting in a $49.4 million reduction in the balance of special mention loans.

The special mention ACL associated with these two loans at September 30, 2021 was approximately $2.2 million.

September 30, 2021 September 30, 2020

Special Mention Substandard Special Mention Substandard

(Dollars in thousands)

One- to four-family $ 14,332 $ 23,458 $ 11,339 $ 25,630

Commercial 99,729 3,259 52,006 4,914

Consumer 135 718 332 589

$ 114,196 $ 27,435 $ 63,677 $ 31,133

Allowance for Credit Losses.

The distribution of our ACL at the dates indicated is summarized below.

The Company adopted ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments on October 1, 2020.

The ASU, as amended, replaces the incurred loss methodology in accounting principles generally accepted in the United States of America ("GAAP"), which required credit losses to be recognized when it is probable that a loss has been incurred, with an expected credit loss methodology, which is commonly known as the current expected credit loss ("CECL") methodology.

Information as of October 1, 2020 is included in the tables below for comparability purposes.

September 30, 2021 October 1, 2020 September 30, 2020

% of % of % of

Amount Loans to Amount Loans to Amount Loans to

of ACL Total Loans of ACL Total Loans of ACL Total Loans

(Dollars in thousands)

One- to four-family:

Originated $ 1,590 55.8 % $ 1,609 54.5 % $ 6,044 54.5 %

Correspondent purchased 2,062 28.2 2,324 29.1 2,691 29.1

Bulk purchased 304 2.4 903 2.9 467 2.9

Construction 22 0.6 25 0.5 41 0.5

Total 3,978 87.0 4,861 87.0 9,243 87.0

Real estate 13,706 9.6 16,595 8.6 16,869 8.6

Commercial and industrial 344 0.9 559 1.4 1,451 1.4

Construction 1,602 1.2 4,452 1.5 3,480 1.5

Total 15,652 11.7 21,606 11.5 21,800 11.5

Consumer loans:

Home equity 126 1.2 81 1.4 370 1.4

Other consumer 67 0.1 218 0.1 114 0.1

Total consumer loans 193 1.3 299 1.5 484 1.5

$ 19,823 100.0 % $ 26,766 100.0 % $ 31,527 100.0 %

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.

September 30, October 1, September 30,

2021 2020 2020

One- to four-family:

Originated 0.04 % 0.04 % 0.15 %

Correspondent purchased 0.10 0.11 0.13

Bulk purchased 0.18 0.43 0.22

Construction 0.06 0.07 0.12

Total 0.06 0.08 0.15

Commercial real estate 2.02 2.65 2.69

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

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

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

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

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

Office building 7,643 336 7,979 2.2 12.3

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

Other 2,318 — 2,318 0.6 6.8

Commercial and industrial 0.52 0.57 1.49

Construction 1.86 4.22 3.30

Total 1.89 2.60 2.63

Consumer 0.20 0.26 0.42

Total 0.28 0.37 0.44

See "Part II, Item 8.

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

Summary of Significant Accounting Policies and Note 4.

Loans Receivable and Allowance for Credit Losses” for additional information regarding the Bank's ACL.

The following tables present ACL activity and related ratios at the dates and for the periods indicated.

The current year NCOs were primarily in the commercial loan portfolio.

The ratio of NCOs during the current year to average non-performing assets was higher than the prior year due to higher NCOs in the current year compared to a net recovery in the prior year.

The ACL to nonaccrual loans at end of period ratio and ACL to loans receivable, net at end of period ratio were lower in the current year compared to the prior year due primarily to a lower ACL balance at September 30, 2021.

As discussed above, on October 1, 2020, the Company adopted CECL, which is a different credit loss estimate methodology than the methodology applicable at September 30, 2020.

Year Ended September 30,

2021 2020 2019

(Dollars in thousands)

Balance at beginning of period $ 31,527 $ 9,226 $ 8,463

Adoption of CECL (4,761) — —

Charge-offs (715) (443) (262)

Recoveries 237 444 275

Net (charge-offs) recoveries (478) 1 13

Provision for credit losses (6,465) 22,300 750

Balance at end of period $ 19,823 $ 31,527 $ 9,226

Ratio of NCOs during the period

to average non-performing assets 3.63 % (0.01) % (0.12) %

ACL to nonaccrual loans at end of period 147.54 252.42 121.99

ACL to loans receivable, net at end of period 0.28 0.44 0.12

ACL to NCOs 41.5x N/M (1)

(1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during the periods.

The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.

Year Ended September 30,

2021 2020 2019

NCOs Average Loans NCOs as a % of Average Loans NCOs Average Loans NCOs as a % of Average Loans NCOs Average Loans NCOs as a % of Average Loans

(Dollars in thousands)

One- to four-family:

Originated $ 20 $ 3,936,166 0.00 % $ 23 $ 3,916,716 0.00 % $ 53 $ 3,892,585 0.00 %

Correspondent — 2,010,823 0.00 — 2,348,120 0.00 — 2,487,560 0.00

Bulk purchased 21 191,029 0.01 (265) 230,720 (0.11) (80) 274,289 (0.03)

Construction — 29,893 0.00 — 33,709 0.00 — 27,007 0.00

Total 41 6,167,911 0.00 (242) 6,529,265 0.00 (27) 6,681,441 0.00

Real estate 465 637,712 0.07 215 602,482 0.04 (22) 535,151 0.00

Commercial and industrial — 75,219 0.00 24 76,473 0.03 122 61,044 0.20

Working capital 4,136 — 4,136 1.1 32.7

Equipment 848 — 848 0.2 1.2

Business investment 719 — 719 0.2 5.5

Purchase/lease autos 651 — 651 0.2 5.7

Construction — 75,771 0.00 — 106,172 0.00 (25) 105,576 (0.02)

Total 465 788,702 0.06 239 785,127 0.03 75 701,771 0.01

Home equity (26) 92,495 (0.03) (13) 112,939 (0.01) (52) 125,164 (0.04)

Other (2) 8,782 (0.02) 15 10,395 0.14 (9) 10,519 (0.09)

7,140 — 7,140 1.9 6.0

Total (28) 101,277 (0.03) 2 123,334 0.00 (61) 135,683 (0.04)

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

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

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

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

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

$ 478 $ 7,057,890 0.01 $ (1) $ 7,437,726 0.00 $ (13) $ 7,518,895 0.00

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

Overall, fixed-rate securities comprised 94% of our securities portfolio at September 30, 2021.

The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.

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

During the current fiscal year purchases exceeded maturities and repayments, resulting in a $453.7 million increase in the balance.

Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings.

The portfolio weighted average yield decreased due to purchases of securities at yields lower than the existing portfolio due to the low interest rate environment during the current year.

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

September 30, 2021 September 30, 2020

Amount Yield WAL Amount Yield WAL

Amount Yield WAL (1)

(Dollars in thousands)

1 unchanged sentence

MBS $ 1,363,645 1.30 % 3.5 $ 945,432 1.82 % 3.7

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

government-sponsored enterprises ("GSE") debentures 519,971 0.61 3.7 369,967 0.62 1.7

Municipal bonds 4,274 1.81 0.3 9,716 1.69 0.7

3 unchanged sentences

Total securities portfolio $ 2,008,456 1.16 3.5 $ 1,529,605 1.62 3.1

The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.

At September 30,

(1) The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.

The composition and maturities of the investment and MBS portfolio at September 30, 2021 are indicated in the following table by remaining contractual maturity, without consideration of call features or pre-refunding dates, along with associated weighted average yields.

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

Yields on tax-exempt investments are not calculated on a fully tax equivalent basis .

1 year or less More than 1 to 5 years More than 5 to 10 years Over 10 years Total Securities

Carrying Carrying Carrying Carrying Carrying

Value Yield Value Yield Value Yield Value Yield Value Yield

(Dollars in thousands)

FNMA $ 809,232 $ 656,799

FHLMC 327,167 208,745

Government National Mortgage Association 44,404 70,943

MBS $ 325 2.87 % $ 58,838 2.48 % $ 277,200 1.65 % $ 1,157,630 1.23 % $ 1,493,993 1.35 %

GSE debentures — — 491,475 0.59 24,851 1.00 — — 516,326 0.61

Municipal bonds 4,079 1.80 210 2.00 — — — — 4,289 1.81

$ 4,404 1.87 $ 550,523 0.79 $ 302,051 1.60 $ 1,157,630 1.23 $ 2,014,608 1.16

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

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

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

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

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

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

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

For the Three Months Ended

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

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

(Dollars in thousands)

Beginning balance - carrying value $ 982,587 2.35 % 3.3 $ 973,318 2.50 % 3.6 $ 937,317 2.61 % 3.3 $ 936,487 2.67 % 3.5

Maturities and repayments (95,842) (75,293) (65,767) (72,635)

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

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

Adjustable — — — — — — — — — — — —

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

Ending balance - carrying value $ 1,180,803 1.94 3.5 $ 982,587 2.35 3.3 $ 973,318 2.50 3.6 $ 937,317 2.61 3.3

For the Year Ended September 30,

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

For the Year Ended

September 30, 2021 September 30, 2020

Amount Yield WAL Amount Yield WAL

3 unchanged sentences

Net amortization of (premiums)/discounts (6,206) (1,661)

Fixed 537,701 1.35 5.2 77,755 2.53 4.1

Adjustable — — — 84,138 2.74 4.4

Valuation transferred from HTM to AFS — 3,039

Change in valuation on AFS securities 17,650 10,985

Ending balance - carrying value $ 1,180,803 1.94 3.5 $ 936,487 2.67 3.5

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

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

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

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

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

The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.

For the Three Months Ended

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

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

(Dollars in thousands)

Beginning balance - carrying value $ 237,467 1.23 % 0.8 $ 262,719 1.87 % 0.3 $ 292,270 2.00 % 0.8 $ 268,376 2.11 % 0.8

Maturities, calls and sales (102,115) (125,000) (80,125) (51,175)

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

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

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

Ending balance - carrying value $ 380,147 0.65 1.7 $ 237,467 1.23 0.8 $ 262,719 1.87 0.3 $ 292,270 2.00 0.8

For the Year Ended September 30,

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Beginning balance - carrying value $ 268,376 2.11 % 0.8 $ 289,942 2.05 % 2.2

Maturities, calls and sales (358,415) (249,771)

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

Fixed 470,062 0.84 2.3 224,809 2.44 0.9

Valuation transferred from HTM to AFS — 47

Purchases 1,079,351 1.01 5.0 1,007,763 1.11 3.9

Change in valuation on AFS securities (25,193) 17,937

Ending balance - carrying value $ 2,014,608 1.16 3.5 $ 1,560,950 1.63 3.1

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

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

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

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

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

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

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

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

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

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

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

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

Total liabilities increased $186.6 million, or 2.3% during the current year, due to an increase in deposits, partially offset by a decrease in borrowings, as cash flows from deposit growth were used to pay off maturing borrowings.

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

The decrease in the deposit portfolio rate during the current year was due to a reduction in offered rates due to the low interest rate environment, which resulted in certificates of deposit repricing to lower offered rates as balances renewed, along with growth in lower costing non-maturity deposits.

At September 30,

5 unchanged sentences

Money market 1,753,525 0.19 26.6 1,419,180 0.37 22.9

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

Retail certificates of deposit 2,341,531 1.41 35.5 2,623,336 1.88 42.4

Commercial certificates of deposit 190,215 0.66 2.9 143,125 1.05 2.3

Public unit certificates of deposit 211,845 0.21 3.2 254,783 0.74 4.1

$ 6,597,396 0.59 100.0 % $ 6,191,408 0.95 100.0 %

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

More than More than

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

Rate range or less 2 years years 3 years Amount Rate

The following table sets forth the weighted average maturity ("WAM") information for our certificates of deposit, in years, as of September 30, 2021.

Retail certificates of deposit 1.3

Commercial certificates of deposit 0.5

Public unit certificates of deposit 0.5

Total certificates of deposit 1.1

As of September 30, 2021 and 2020, approximately $866.0 million and $557.0 million, respectively, of our deposit portfolio was uninsured.

The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

The following table sets forth the portion of the Bank's time deposits, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of September 30, 2021 (dollars in thousands).

3 months or less $ 179,393

Over 3 through 6 months 130,300

Over 6 through 12 months 158,123

Over 12 months 129,588

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities.

The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings.

These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period.

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of September 30, 2021.

Maturity by FHLB Interest rate Contractual Effective

Fiscal Year Advances swaps (1)

Rate Rate (2)

(Dollars in thousands)

4 unchanged sentences

2026 250,000 — 0.96 1.27

Percent of total 49.8 % 25.6 % 14.1 % 10.5 %

Weighted average rate 1.46 1.99 2.16 1.88

Weighted average maturity (in years) 0.5 1.5 2.4 3.7 1.4

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

3 months 3 to 6 6 to 12 Over

or less months months 12 months Total

(Dollars in thousands)

Retail/business certificates of deposit less than $100,000 $ 177,414 $ 167,073 $ 337,599 $ 840,713 $ 1,522,799

Retail/business certificates of deposit of $100,000 or more 134,441 140,790 310,654 657,777 1,243,662

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

2027 150,000 — 0.93 1.24

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

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

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

The following tables present borrowing activity for the periods shown.

$ 1,225,000 $ 365,000 1.18 1.88

(1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 million to hedge the variability in cash flows associated with the advances.

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

The expected WAL of the interest rate swaps was 4.1 years at September 30, 2021.

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

The following table presents borrowing activity for the periods shown with borrowings being reported at par.

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

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

FHLB advances are presented at par.

The decrease in total borrowings during the current year was due to not renewing borrowings that matured.

Cash flows from deposit growth were used to pay off maturing borrowings.

The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The weighted average maturity ("WAM") is the remaining weighted average contractual term in years.

The decrease in the effective rate during the current year was due primarily to terminating certain interest rate swaps, prepaying certain advances, and replacing maturing advances at lower market interest rates.

The WAM is the remaining weighted average contractual term in years.

The beginning and ending WAMs represent the remaining maturity at each date presented.

For new borrowings, the WAMs presented are as of the date of issue.

For the Three Months Ended

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

Effective Effective Effective Effective

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

(Dollars in thousands)

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

Maturities and prepayments:

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

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

New FHLB borrowings:

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

Interest rate swaps (1)

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

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

For the Year Ended September 30,

For the Year Ended

September 30, 2021 September 30, 2020

Effective Effective

3 unchanged sentences

Maturities and prepayments (1,305,000) 2.18 — (1,505,000) 2.44 —

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

Repurchase agreements (100,000) 2.53 — —

CCB acquisition - junior subordinated debentures assumed (redeemed) — — — (10,052) 8.76 12.3

New FHLB borrowings 1,105,000 1.96 3.7 1,155,000 2.36 4.3

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

Interest rate swaps (1)

705,000 2.74 3.9 640,000 2.67 5.0

Ending balance $ 1,590,000 1.88 3.3 $ 1,790,000 2.31 3.0

(1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances.

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

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

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

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

Term Borrowings Amount

Maturity by Interest rate Total Effective

Fiscal Year Fixed-rate swaps (1)

Amount Rate (2)

(Dollars in thousands)

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

2022 200,000 — 200,000 2.23

2023 300,000 — 300,000 1.81

2024 100,000 — 100,000 3.39

2025 250,000 — 250,000 1.94

2026 100,000 — 100,000 1.60

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

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

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

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

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

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

Retail/ Business Public Unit Term

Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing

Quarter End Amount Rate Amount Rate Amount (1)

Rate Total Rate

Maturities of Interest-Bearing Liabilities.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and term borrowings for the next four quarters as of September 30, 2021.

December 31, March 31, June 30, September 30,

2021 2022 2022 2022 Total

(Dollars in thousands)

December 31, 2020 $ 311,855 1.76 % $ 100,761 0.43 % $ 53,000 1.98 % $ 465,616 1.50 %

March 31, 2021 307,863 1.78 39,310 1.19 150,000 1.97 497,173 1.79

June 30, 2021 342,662 1.51 49,185 0.48 — — 391,847 1.38

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

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

Retail/Commercial Certificates:

Amount $ 385,038 $ 329,419 $ 314,758 $ 432,378 $ 1,461,593

Repricing Rate 1.09 % 1.15 % 1.15 % 1.40 % 1.21 %

Public Unit Certificates:

Amount $ 69,063 $ 70,776 $ 32,175 $ 21,501 $ 193,515

Repricing Rate 0.26 % 0.28 % 0.09 % 0.09 % 0.22 %

Term Borrowings:

Amount $ — $ — $ — $ 75,000 $ 75,000

Repricing Rate — % — % — % 0.29 % 0.29 %

Amount $ 454,101 $ 400,195 $ 346,933 $ 528,879 $ 1,730,108

Repricing Rate 0.96 % 0.99 % 1.05 % 1.19 % 1.06 %

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

Stockholders' Equity.

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

During the current year, the Company paid cash dividends totaling $117.9 million and repurchased common stock totaling $1.5 million.

The cash dividends paid during the current year totaled $0.87 per share and consisted of a $0.40 per share True Blue Capitol cash dividend, a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share.

In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital.

2 unchanged sentences

On October 28, 2021, the Company announced a fiscal year 2021 cash true-up dividend of $0.22 per share, or approximately $29.9 million, related to fiscal year 2021 earnings.

The $0.13 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2020 and total regular quarterly cash dividends paid during fiscal year 2020, divided by the number of shares outstanding as of October 16, 2020.

The $0.22 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2021 and total regular quarterly cash dividends paid during fiscal year 2021, divided by the number of shares outstanding.

The cash true-up dividend is payable on December 3, 2021 to stockholders of record as of the close of business on November 19, 2021, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2021.

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

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

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

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock.

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

This plan has no expiration date;

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

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

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

however, the FRB's existing approval for the Company to repurchase shares extends through August 2022.

At October 1, 2021, Capitol Federal Financial, Inc., at the holding company level, had $93.8 million on deposit at the Bank.

For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders.

The payout is expected to be in the form of regular quarterly cash dividends of $0.085 per share, totaling $0.34 for the year, and a cash true-up dividend equal to fiscal year 2022 earnings in excess of the amount paid as regular quarterly cash dividends during fiscal year 2022.

4 unchanged sentences

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

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

In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019.

Given the state of economic uncertainty, the Company elected to defer the annual True Blue dividend in June 2020.

In June 2021, the Company paid a True Blue Capitol cash dividend of $0.40 per share.

The $0.40 per share True Blue Capitol cash dividend represented a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend from fiscal year 2021.

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

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

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

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

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

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, and 2019.

13 unchanged sentences

Calendar year-to-date dividends paid $ 130,149 $ 0.960 $ 64,327 $ 0.470 $ 128,230 $ 0.930

Weighted Average Yields and Rates.

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

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

The weighted average rate on FHLB borrowings includes the impact of interest rate swaps.

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

At September 30,

2020 2019 2018

Loans receivable 3.57 % 3.81 % 3.74 %

MBS 1.94 2.67 2.57

Investment securities 0.65 2.11 2.05

FHLB stock 4.64 7.47 7.22

Cash and cash equivalents 0.09 1.80 2.19

Combined yield on interest-earning assets 3.18 3.64 3.57

Rate paid on:

Checking 0.07 0.06 0.05

Savings 0.06 0.05 0.07

Money market 0.37 0.70 0.47

Retail/business certificates 1.83 2.08 1.79

Wholesale certificates 0.74 2.29 1.89

Total deposits 0.95 1.29 1.06

Total borrowings 2.31 2.37 2.18

Combined rate paid on interest-bearing liabilities 1.26 1.60 1.39

Net interest rate spread 1.92 2.04 2.18

Rate/Volume Analysis.

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

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

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

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

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

For the Year Ended September 30,

Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

Interest-earning assets:

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

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

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

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

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

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

Interest-bearing liabilities:

Checking 65 82 147

Savings 29 66 95

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

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

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

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

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

Average Balance Sheets .

13 unchanged sentences

One- to four-family loans:

Originated $ 3,966,059 $ 137,461 3.47 % $ 3,950,425 $ 150,526 3.81 %

Correspondent purchased 2,010,823 48,066 2.39 2,348,120 70,112 2.99

Bulk purchased 191,029 3,601 1.89 230,720 6,065 2.63

Total one- to four-family loans 6,167,911 189,128 3.07 6,529,265 226,703 3.47

Commercial loans 788,702 36,085 4.51 785,127 37,320 4.68

7 unchanged sentences

Cash and cash equivalents 131,798 144 0.11 179,142 1,181 0.65

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

Total interest-earning assets 9,196,045 258,181 2.80 8,941,999 304,978 3.40

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

Other non-interest-earning assets 443,724 461,614

5 unchanged sentences

Money market 1,598,838 4,128 0.26 1,252,992 6,647 0.53

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

Retail/commercial certificates 2,688,811 42,034 1.56 2,716,945 55,238 2.03

Wholesale certificates 252,623 1,192 0.47 282,947 4,659 1.65

16 unchanged sentences

(3) The average balance of investment securities includes an average balance of nontaxable securities of $6.6 million, and $13.8 million, for the years ended September 30, 2021 and 2020, respectively.

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

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

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

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

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

2 unchanged sentences

(6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(8) The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP.

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

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

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

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

For the Year Ended September 30,

Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP)

Net interest margin 2.26 % (0.04) % 2.30 %

Net interest rate spread 2.07 (0.03) 2.10

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

Rate/Volume Analysis.

For the comparison of fiscal years 2020 to 2019, see "Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

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

For the Year Ended September 30,

Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ (13,055) $ (27,542) $ (40,597)

MBS 9,247 (10,857) (1,610)

Investment securities 2,261 (3,903) (1,642)

FHLB stock (1,235) (676) (1,911)

Cash and cash equivalents (250) (787) (1,037)

Total interest-earning assets (3,032) (43,765) (46,797)

Interest-bearing liabilities:

Checking 172 (163) 9

Savings 65 (77) (12)

Money market 1,495 (4,014) (2,519)

Certificates of deposit (1,154) (15,516) (16,670)

Borrowings (7,892) (5,379) (13,271)

Total interest-bearing liabilities (7,314) (25,149) (32,463)

Net change in net interest income $ 4,282 $ (18,616) $ (14,334)

Comparison of Operating Results for the Years Ended September 30, 2021 and 2020

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

The Company recognized net income of $76.1 million, or $0.56 per share, for fiscal year 2021 compared to net income of $64.5 million, or $0.47 per share, for fiscal year 2020.

The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year compared to recording a negative provision for credit losses of $8.5 million in the current year, partially offset by a decrease in net interest income and an increase in income tax expense.

Net interest income decreased $14.3 million, or 7.6%, from the prior year to $175.0 million for the current year.

The net interest margin decreased 22 basis points, from 2.12% for the prior year to 1.90% for the current year.

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

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

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

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

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

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

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

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

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

The decreases in net interest income and net interest margin were due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income

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

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

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

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

10 unchanged sentences

Total interest and dividend income $ 258,181 $ 304,978 $ (46,797) (15.3)

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

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

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

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

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

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

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

The decrease in interest income on loans receivable was due mainly to a decrease in the weighted average yield, primarily in the one- to four-family loan portfolio.

The decrease in the weighted average yield on the one- to four-family loan portfolio was due to endorsements and refinances to lower market rates, higher premium amortization related to correspondent one- to four-family loans due to high payoff and endorsement activity, along with adjustable-rate loans repricing to lower market rates, and the origination and purchase of new loans at lower market rates.

Additionally, the average balance of the portfolio decreased compared to the prior year due primarily to a reduction in the correspondent one-to four-family loan portfolio.

See "Average Balance Sheets" above.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by an increase in the average balance of the portfolio.

Cash flows from the loan portfolio were used to purchase securities during the current fiscal year.

The decrease in dividend income on FHLB stock was due mainly to a decrease in the average balance of FHLB stock, along with a decrease in the dividend rate paid by FHLB.

The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

The decrease in interest income on investment securities was due to a decrease in the weighted average yield as a result of purchases at lower market yields, partially offset by an increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due primarily to a decrease in the yield earned on cash held at the Federal Reserve Bank of Kansas City ("FRB of Kansas City").

Interest Expense

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

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

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

7 unchanged sentences

Total interest expense $ 83,180 $ 115,643 $ (32,463) (28.1)

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

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

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

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

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

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

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

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

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, money market accounts, and wholesale certificates of deposit.

Since the onset of the COVID-19 pandemic, retail certificates of deposit have been repricing downward as they renew or are replaced at lower offered rates, and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with liquidity generated from the deposit portfolio.

The decrease in interest expense on borrowings was also a result of lowering the cost of FHLB advances by prepaying certain advances during the current and prior years.

Provision for Credit Losses

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

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

See "Part I, Item 1.

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

The Bank recorded a negative provision for credit losses during the current year of $8.5 million, compared to a $22.3 million provision for credit losses during the prior year.

The negative provision in the current fiscal year was composed of a $6.5 million decrease in the ACL for loans and a $2.0 million decrease in reserves for off-balance sheet credit exposures.

The negative provision for credit losses in the current fiscal year was due primarily to favorable forecasted economic outlooks during the year, largely related to commercial loans.

See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures at September 30, 2021 in the "Asset Quality" section and in the "Critical Accounting Estimates - Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures" section above.

Non-Interest Income

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Deposit service fees $ 12,282 $ 11,285 $ 997 8.8 %

Gain on sale of Visa Class B shares 7,386 — 7,386 N/A

Insurance commissions 3,030 2,487 543 21.8

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Total non-interest income $ 28,086 $ 19,599 $ 8,487 43.3

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

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

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

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume.

During the current year, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain.

The increase in insurance commissions was due primarily to higher annual contingent insurance commissions received in the current year compared to the prior year.

The decrease in other non-interest income was primarily related to lower income from bank-

owned life insurance ("BOLI"), due to a reduction in the yield as a result of lower market rates and reduced death benefit receipts.

Non-Interest Expense

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Advertising and promotional 5,133 4,889 244 5.0

Loss on interest rate swap termination 4,752 — 4,752 N/A

Deposit and loan transaction costs 2,761 2,890 (129) (4.5)

Office supplies and related expense 2,195 2,439 (244) (10.0)

Federal insurance premium 2,545 914 1,631 178.4

Office supplies and related expense 1,715 2,195 (480) (21.9)

Other non-interest expense 4,930 5,514 (584) (10.6)

Total non-interest expense $ 115,569 $ 106,004 $ 9,565 9.0

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

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

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

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

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

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

The increase in salaries and employee benefits was due primarily to an increase in incentive compensation, as well as an increase in loan commissions related to higher loan origination activity.

The increase in information technology and related expense was due mainly to an increase in software licensing expense and professional services expense.

During the current fiscal year, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million resulting in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings.

The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the FDIC during the prior year.

The Company's efficiency ratio was 56.91% for the current year compared to 50.74% for the prior year.

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

The change in the efficiency ratio was due to lower net interest income and higher non-interest expense, partially offset by higher non-interest income.

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

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

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

Management continues to strive to control operating costs.

The increase in the efficiency ratio in the current year related to higher non-interest expense was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current year, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year.

Income Tax Expense

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Effective Tax Rate 20.8 % 20.0 %

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

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

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

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

The increase in income tax expense was due primarily to higher pretax income in the current year, as well as a higher effective tax rate compared to the prior year.

The effective tax rate was lower in the prior year due primarily to a discrete benefit recognized in the prior year related to certain previously acquired BOLI policies.

Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21% to 22%, absent any tax law changes.

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

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The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities.

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

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

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

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

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

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

See "Part I, Item 1.

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

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

The Bank's borrowing limit was 50% of Bank Call Report total assets during the current year, as approved by the president of FHLB.

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

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

If management observes a trend in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding.

The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity.

1 unchanged sentence

At September 30, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances.

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

The amount of FHLB borrowings outstanding at September 30, 2021 was $1.59 billion, of which $175.0 million were advances scheduled to mature in the next 12 months, all of which were one-year floating-rate FHLB advances tied to interest rate swaps.

All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB.

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

At September 30, 2021, the Bank had no repurchase agreements.

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The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

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

At September 30, 2021, $1.66 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $193.5 million of public unit certificates of deposit and $176.6 million of commercial certificates of deposit.

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

The same is anticipated for our commercial certificates of deposit;

however, due to the nature of these funds, retention rates are not as predictable as for retail certificates of deposit.

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

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

These financial instruments consist primarily of commitments to originate, purchase, or participate in loans or fund lines of credit.

Additionally, the Company has investments in several low income housing partnerships and, under the terms of the agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements.

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 6.

Low Income Housing Partnerships and Note 12.

Commitments and Contingencies" for additional information regarding these commitments.

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

To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers.

The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at September 30, 2020, along with associated weighted average yields.

Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due.

The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses.

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

MBS Investment Securities Total

Amount Yield Amount Yield Amount Yield Amount Yield

(Dollars in thousands)

Within one year $ 261,605 4.17 % $ 3,664 2.63 % $ 4,009 1.47 % $ 269,278 4.11 %

After one year:

Over one to two years 110,991 3.11 1,715 3.08 5,583 1.84 118,289 3.05

Over two to three years 62,534 4.46 32,457 1.61 75,269 0.41 170,260 2.13

Over three to five years 128,088 4.46 24,752 2.19 295,286 0.68 448,126 1.84

Over five to ten years 777,216 3.70 272,681 2.34 — — 1,049,897 3.35

Over ten to fifteen years 1,424,450 3.23 570,142 1.70 — — 1,994,592 2.79

After fifteen years 4,460,112 3.59 275,392 2.06 — — 4,735,504 3.50

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

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

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

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

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

Limitations on Dividends and Other Capital Distributions

OCC regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.

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

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

The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns.

Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.

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

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

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

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

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

See "Part I, Item 1.

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

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

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

AOCI 16,505 16,505

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

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

Contingencies

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

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

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The following table summarizes our contractual obligations, along with associated weighted average contractual rates, as of September 30, 2020.

Maturity Range

Less than 1 to 3 3 to 5 More than

Total 1 year years years 5 years

(Dollars in thousands)

Operating leases $ 20,842 $ 1,192 $ 2,512 $ 1,830 $ 15,308

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

Rate 1.74 % 1.46 % 2.05 % 1.88 % 1.53 %

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

Rate 1.41 % 0.76 % 1.91 % 2.27 % 1.28 %

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

These financial instruments consist primarily of commitments to originate, purchase, or participate in loans or fund lines of credit, along with standby letters of credit.

Standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of an underlying contract with a third party.

The credit risks associated with these off-balance-sheet commitments are essentially the same as those involved with extending loans to customers and these commitments are subject to normal credit policies.

The contractual amounts of these off-balance sheet financial instruments as of September 30, 2020 were as follows (dollars in thousands):

Commitments to originate and purchase/participate in loans $ 248,607

Commitments to fund unused lines of credit 283,199

Standby letters of credit 1,372

Total $ 533,178

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

therefore, the amounts reflected in the table above are not necessarily indicative of future liquidity requirements.

Additionally, the Bank is not obligated to honor commitments to fund unused lines of credit if a customer is delinquent or otherwise in violation of the loan agreement.

The Company has investments in several low income housing partnerships.

These partnerships supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income.

If these developments successfully attract a specified percentage of residents falling in that lower income range, federal income tax credits are made available to the partners.

The tax credits are normally recognized over ten years, and they play an important part in the anticipated yield from these investments.

In order to continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be maintained.

Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements.

The majority of the commitments at September 30, 2020 are projected to be funded through the end of calendar year 2022.

At September 30, 2020, the investments totaled $89.7 million and are included in other assets in the consolidated balance sheet.

Unfunded commitments, which are recorded as liabilities, totaled $44.5 million at September 30, 2020.

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

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis