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Item 8. Financial Statements and Supplementary Data

2021-11-24 compared with 2020-11-25 · 433 added, 466 removed, 1134 unchanged (44% of the section changed)

51 unchanged sentences

Critical Audit Matter Description

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

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

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

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

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

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

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

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

The allowance for credit losses (ACL) is a valuation amount that is deducted from the amortized cost basis of loans which represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date.

In management's ACL model, average historical loss rates on loan pools with similar risk characteristics are compared to historical data and a correlation is estimated using regression analysis.

Each quarter, the Company's ACL model pairs the results of the regression analysis with a third party provided economic forecast in order to project future loss rates for a reasonable and supportable time period before reverting back to long-term historical averages for each economic index.

The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for prepayments and curtailments.

The ACL model generates aggregated estimated cash flows for the time period that remains in each loan's contractual life which are discounted back to the reporting 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 necessary.

Management evaluates qualitative factors not included in historical loss rates, macroeconomic forecasts, or other model inputs and/or other ACL processes, considering risks related to loan portfolio attributes and external factors and adjusts the modeled ACL as deemed appropriate based upon the assessment.

We identified the allowance for credit losses as a critical audit matter because of the significant estimates and assumptions required by management in determining qualitative factor adjustments.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists, when performing audit procedures to evaluate the reasonableness of management's qualitative factor adjustments.

How the Critical Audit Matter Was Addressed in the Audit

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

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

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

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

• We tested the effectiveness of controls over the Company's ACL model including those over the determination of the qualitative adjustments and management's review of the adequacy of the ACL.

• With the assistance of our credit specialists, we evaluated the appropriateness of the ACL model, evaluated data elements utilized in the ACL model such as portfolio segmentation into loan pools, forecast and reversion to mean time periods, and economic forecasts, and evaluated reasonableness of the use of qualitative adjustments to the outputs of the modeled ACL.

• We evaluated the qualitative adjustments including reasonableness and basis for the adjustments which include market and economic conditions and/or portfolio performance metrics.

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

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

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

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

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

• We evaluated the magnitude and proportion of the overall allowance, including the directional consistency and magnitude of the qualitative adjustments.

• We reviewed independent economic statistics such as common macroeconomic indicators, as well as industry peers, and we used data analytics to identify changes in the loan portfolio to assess the completeness of management's qualitative adjustments.

/s/ Deloitte & Touche LLP

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$ 42,262 $ 185,148

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

Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $ 2,008,456 and $ 1,529,605 )

2,014,608 1,560,950

Loans receivable, net (allowance for credit losses ("ACL") of $ 19,823 and $ 31,527 )

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Premises and equipment, net 99,127 101,875

Income taxes receivable, net — 2

Other assets 320,686 342,532

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Deferred income tax liabilities, net 5,810 8,180

Accounts payable and accrued expenses 146,942 101,868

Other liabilities 129,270 146,942

Total liabilities 8,388,973 8,202,359

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Deposit service fees 12,282 11,285 12,740

Gain on sale of Visa Class B shares 7,386 — —

Insurance commissions 3,030 2,487 2,821

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Advertising and promotional 5,133 4,889 5,244

Loss on interest rate swap termination 4,752 — —

Deposit and loan transaction costs 2,761 2,890 2,478

Office supplies and related expense 2,195 2,439 1,888

Federal insurance premium 2,545 914 1,172

Office supplies and related expense 1,715 2,195 2,439

Other non-interest expense 4,930 5,514 6,006

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

Other comprehensive income, net of tax 755 755

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

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

Capital City Bancshares, Inc.

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

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

Cumulative effect of adopting Accounting Standards Update ("ASU") 2014-09 394 394

ESOP activity 549 1,651 2,200

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

Stock-based compensation 552 552

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Net income, fiscal year 2020 64,540 64,540

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

Cumulative effect of adopting ASU 2016-02 88 88

Other comprehensive loss, net of tax ( 1,606 ) ( 1,606 )

ESOP activity 336 1,652 1,988

1 unchanged sentence

Stock-based compensation 570 570

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

Stock options exercised 1 637 638

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

Net income, fiscal year 2020 64,540 64,540

Other comprehensive loss, net of tax ( 1,606 ) ( 1,606 )

Cumulative effect of adopting ASU 2016-13 ( 2,288 ) ( 2,288 )

Net income, fiscal year 2021 76,082 76,082

Other comprehensive income, net of tax 200 200

ESOP activity 383 1,653 2,036

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Provision for deferred income taxes ( 1,668 ) ( 5,588 ) ( 361 )

Gain on the sale of Visa Class B shares ( 7,386 ) — —

Unrestricted cash collateral (provided to)/received from derivative counterparties, net — — ( 9,970 )

1 unchanged sentence

Income taxes payable/receivable, net 105 774 2,173

Accounts payable and accrued expenses ( 8,231 ) ( 19,746 ) ( 639 )

Other liabilities ( 14,306 ) ( 8,231 ) ( 19,746 )

Net cash provided by operating activities 74,467 92,928 80,947

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Proceeds from calls, maturities and principal reductions of HTM securities — — 165,336

Proceeds from sale of AFS securities — — 2,078

Proceeds from the redemption of FHLB stock 25,386 10,421 197,054

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Proceeds from sale of other real estate owned ("OREO") 194 993 2,053

Cash acquired from acquisition — — 15,685

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

Proceeds from the sale of Visa Class B shares 7,386 — —

Proceeds from sale of assets held-for-sale 2,619 — —

Proceeds from bank-owned life insurance ("BOLI") death benefit 443 490 —

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Stock options exercised 324 638 1,485

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

Net cash provided by financing activities 82,785 44,370 ( 199,561 )

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS ( 169,416 ) ( 13,992 ) 114,645

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SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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

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

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

Common stock issued $ — $ — $ 39,113

Fair value of assets acquired, excluding acquired cash and intangibles $ — $ — $ 418,062

Fair value of liabilities assumed $ — $ — $ 412,675

Transfer of HTM securities, at amortized cost, to AFS securities $ — $ — $ 444,732

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Description of Business - Capitol Federal Financial, Inc.

(the "Company") provides a full range of retail banking services through its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"), a federal savings bank, which has 45 traditional and 9 in-store banking offices serving primarily the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and portions of the Kansas City metropolitan area.

(the "Company") provides a full range of retail banking services through its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"), a federal savings bank, which 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.

The Bank emphasizes mortgage lending, primarily originating and purchasing one- to four-family loans, and providing personal retail financial services, along with offering commercial banking and lending products.

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Deposits and Borrowed Funds."

Regulations of the Board of Governors of the Federal Reserve System ("FRB") require federally chartered savings banks to maintain cash reserves against their transaction accounts.

Required reserves must be maintained in the form of vault cash, an account at a Federal Reserve Bank, or a pass-through account as defined by the FRB.

Regulations of the Board of Governors of the Federal Reserve System ("FRB") have required federally chartered savings banks to maintain cash reserves against their transaction accounts.

Required reserves were required to be maintained in the form of vault cash, an account at a Federal Reserve Bank, or a pass-through account as defined by the FRB.

The amount of interest-earning deposits held at the Federal Reserve Bank of Kansas City ("FRB of Kansas City") as of September 30, 2021 and 2020 was $ 24.1 million and $ 172.2 million, respectively.

The Bank is in compliance with the FRB requirements.

For the years ended September 30, 2020 and 2019, the average daily balance of required reserves at the FRB of Kansas City was $ 6.6 million and $ 21.5 million, respectively.

Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into certain FHLB advances with contractual maturities of 90 days or less.

Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows.

Securities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSE"), including Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association, and municipal bonds.

In March 2020, the FRB eliminated reserve requirements for all depository institutions;

thus, there was no reserve requirement in place at September 30, 2021 or 2020.

Securities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSEs"), including Federal National Mortgage Association, Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association, and municipal bonds.

Securities are classified as HTM, AFS, or trading based on management's intention for holding the securities on the date of purchase.

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

Accrued interest receivable for all securities is reported in other assets on the consolidated balance sheet.

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

Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude accrued interest from all required disclosures of amortized cost was elected.

Additionally, an election was made to not measure ACL for accrued interest receivables.

Interest accrued but not received is reversed against interest income.

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

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

Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to

interest income over the life of the securities using the level-yield method.

At September 30, 2021 and 2020, the portfolio did not contain any securities classified as HTM.

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

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

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

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During the fiscal years ended September 30, 2021 and 2020, neither the Company nor the Bank maintained a trading securities portfolio.

Management monitors securities in the investment portfolio for impairment on an ongoing basis and performs a formal review quarterly.

The process involves monitoring market events and other items that could impact issuers.

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

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

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

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

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

Allowance for Credit Losses on AFS Debt Securities - Management monitors AFS debt securities for impairment on an ongoing basis and performs a formal review quarterly.

If an AFS debt security is in an unrealized loss position at the time of the quarterly review, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost.

If either condition is met, the entire loss in fair value is recognized in current earnings.

If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors.

In making this assessment, management considers the security structure, the cause(s) and severity of the loss, expectations of future performance including recent events specific to the issuer or industry including the issuer's financial condition and current ability to make future payments in a timely manner, and external credit ratings and recent downgrades in such ratings.

Management's assessment involves a high degree of subjectivity and judgment that is based on information available at a point in time.

If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss has occurred, and an ACL is recorded, which became effective October 1, 2020 when the Company adopted ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses.

The ACL is limited by the amount that the fair value is less than the amortized cost basis.

Any impairment not recorded through the provision for credit losses is recognized in other comprehensive income.

Prior to the adoption of ASU 2016-13, management assessed all known facts and circumstances to determine whether an other-than-temporary loss should be recognized for impaired securities.

If an other-than-temporary impairment had occurred, the difference between the amortized cost and fair value was recognized as a loss in earnings and the security was written down to fair value.

Changes in the ACL on AFS debt securities are recorded as an increase or decrease in the provision for credit losses on the consolidated statements of income.

Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met.

Interest accrued on AFS debt securities but not received is also reversed against interest income.

As of October 1, 2020 and September 30, 2021, the Company did not identify any credit losses related to the Company's AFS debt securities so there was no ACL on AFS debt securities as of those dates.

Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at amortized cost, excluding accrued interest.

Amortized cost is the amount of unpaid principal, net of undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs.

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

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

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

Loans are presented on the consolidated balance sheet net of ACL on loans.

Interest on loans is accrued based on the principal amount outstanding.

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

Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost was elected.

Additionally, an election was made to not measure ACL for accrued interest receivables.

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

1 unchanged sentence

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

Coronavirus Disease 2019 ("COVID-19") loan modification programs - In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic.

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

COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period, but an option for a three- to six-month forbearance of principal and interest was also available to our borrowers.

Coronavirus Disease 2019 ("COVID-19") loan modifications - In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic ("COVID-19 loan modifications").

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

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

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

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

Loans reported as COVID-19 loan modifications include all loans modified under the programs, including loans classified as TDRs.

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

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

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

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

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

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A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio, and the loan is well secured and within policy.

Impaired loans - A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement.

Interest income on impaired loans is recognized in the period collected unless the ultimate collection of principal is considered doubtful, in which case interest income is no longer recognized.

Acquired loans - Acquired loans are initially recorded at fair value based on a discounted cash flow valuation methodology that considers, among other things, interest rates, projected prepayments, projected default rates, loss given default and recovery rates, with no carryover of any existing ACL.

Acquired loans with evidence of credit quality deterioration at acquisition are reviewed to determine if it is probable that the Company will not be able to collect all contractual amounts due, including both principal and interest.

When both conditions exist, such loans are categorized and accounted for as purchased credit impaired ("PCI") loans.

When these conditions do not exist, the loans are categorized as non-PCI loans.

For PCI loans with cash flows that the Company has determined can be reasonably estimated, which is the majority of the PCI loans, interest income is recognized on a level-yield basis over the life of the loan based upon the excess of expected cash flows over the original investment in the loan.

Allowance for Credit Losses - The ACL represents management's best estimate of the amount of inherent losses in the loan portfolio as of the balance sheet date.

It involves a high degree of complexity and requires management to make difficult and subjective judgments and assumptions about highly uncertain matters.

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

The use of different judgments and assumptions could cause reported results to differ significantly.

Management maintains the ACL through provisions for credit losses that are either charged or credited to income.

One- to four-family loans, including home equity loans, are individually evaluated for loss when the loan is generally 180 days delinquent and any losses are charged-off.

Allowance for Credit Losses on Loans Receivable - The ACL is a valuation amount that is deducted from the amortized cost basis of loans.

It represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date and is determined using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts, along with the application of qualitative factors when necessary.

The ACL is recorded upon origination or purchase of a loan and is updated at subsequent reporting dates.

Changes in the ACL are recorded through increases or decreases to the provision for credit losses in the consolidated statements of income.

The ACL is an estimate that requires significant judgment including projections of the macroeconomic environment as of a point in time.

The macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.

The Bank's ACL is measured on a collective ("pool") basis, with loans aggregated into pools based on similar risk characteristics such as collateral type, historical loss experience, loan-to-value ("LTV") for one- to four-family loans, and payment sources for commercial loans.

Loans that do not share similar risk characteristics are evaluated on an individual

Charge-offs against the related ACL amounts for any loan type may be recorded at any time if the Bank has knowledge of the existence of a probable loss.

One- to four-family loans and consumer home equity loans are deemed to be collateral dependent and individually evaluated for loss when the loan is generally 180 days delinquent, and any identified losses are charged-off at that time.

Losses are based on new collateral values obtained through appraisals, less estimated costs to sell.

Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount.

An updated appraisal is requested, at a minimum, every 12 months thereafter if the loan is 180 days or more delinquent or in foreclosure.

If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan.

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

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

consideration of estimated costs to sell.

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

The primary risk characteristics inherent in the 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.

Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions.

For commercial loans, loans are individually evaluated for loss if management determines they exhibit unique risk characteristics.

Specific allocations of ACL are established and/or losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information regarding the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement.

In the case of secured loans, the loan is deemed to be collateral dependent when this occurs, and the specific allocation of ACL and/or charge-off amount is based on a comparison of the amounts due from the borrower and calculated current fair value of the collateral after consideration of estimated costs to sell.

The primary credit risk characteristics inherent in the 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.

Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, charge-offs, and provisions for credit losses.

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.

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

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

The categories include the following:

one- to four-family loans;

commercial loans;

consumer home equity loans;

and other consumer loans.

Home equity loans 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 loan-to-value ("LTV") ratio.

The one- to four-family loan portfolio and related home equity loans are segregated into additional categories based on the following risk characteristics:

loan source (originated, correspondent purchased, or bulk purchased), interest payments (fixed-rate and adjustable-rate), LTV ratios, borrower's credit scores, and geographic location.

The categories were derived by management based on reviewing the historical performance of the one- to four-family loan portfolio and taking into consideration current economic conditions, such as trends in residential real estate values in certain areas of the U.S.

and unemployment rates.

The commercial loan portfolio is segregated into additional categories based on the type of loan (real estate loan, construction loan or commercial and industrial).

Impaired loans are not included in the formula analysis as they are individually evaluated for loss.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

For non-PCI loans, the Company estimates a hypothetical amount of ACL using the same historical loss and qualitative factors as the Bank's formula analysis model to establish the hypothetical amount of ACL.

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

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.

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

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

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

For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period.

The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life.

Generally, the historical time periods are at least one economic cycle.

These historical loss rates are compared to historical data related to economic variables including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis.

Each quarter, the Company's ACL model pairs the results of the regression analysis with an economic forecast of these same macroeconomic variables, which is provided by a third party, in order to project future loss rates.

The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to long-term historical averages at the macroeconomic variable level using a straight-line method.

The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for expected prepayments and curtailments.

The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a TDR will be executed.

In the case of revolving lines of credit, since the rate of principal reduction is generally at the discretion of the borrower, remaining contractual lives are calculated by estimating future cash flows expected to be received from the borrower until the outstanding balance has been reduced to zero.

Using all of these inputs, the ACL model generates aggregated estimated cash flows for the time period that remains in each loan's contractual life.

These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of future cash flows.

Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of future cash flows compared to the amortized cost basis of the loan pool.

Additionally, qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs and/or other ACL processes, as deemed appropriate by management's current assessment of risks related to loan portfolio attributes and external factors.

Such qualitative factor considerations 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 changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates.

Management assesses the potential impact of such items and adjusts the modeled ACL as deemed appropriate based upon the assessment.

Reserve for Off-Balance Sheet Credit Exposures - The Company's off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate or purchase loans that are not unconditionally cancellable by the Company.

Expected credit losses on these amounts are calculated using the same methodology that is applied in the ACL model;

however, the estimate of credit risk for off-balance sheet credit exposures also takes into consideration the likelihood that funding of the unfunded amount/commitment will occur.

The reserve for these off-balance sheet credit exposures is recorded as a liability and is presented in other liabilities on the consolidated balance sheet.

Changes to the reserve on off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the consolidated statements of income.

Federal Home Loan Bank Stock - As a member of FHLB, the Bank is required to acquire and hold shares of FHLB stock.

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Stock and cash dividends received on FHLB stock are reflected as dividend income in the consolidated statements of income.

Premises and Equipment - Land is carried at cost.

Premises, Equipment, and Leases - Land is carried at cost.

Buildings, leasehold improvements, and furniture, fixtures and equipment are carried at cost less accumulated depreciation and leasehold amortization.

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

Leasehold improvements are amortized over the

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

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

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

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

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

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

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

Revenue Recognition for additional information.

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

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

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

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

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

The lease liabilities associated with operating leases are included in other liabilities on the consolidated balance sheets.

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

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

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

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

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

based upon the term of the lease.

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

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

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

Low Income Housing Partnerships - As part of the Bank's community reinvestment initiatives, the Bank invests in affordable housing limited partnerships ("low income housing partnerships") that make equity investments in affordable housing properties.

The Bank is a limited partner in each partnership in which it invests.

A separate, unrelated third party is the general partner.

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

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

Goodwill is assessed for impairment on an annual basis, or more frequently in certain circumstances.

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The Company's intangible assets primarily relate to core deposits.

These intangible assets are amortized based upon the expected economic benefit over an estimated life of approximately 8 years and are tested for impairment whenever events or circumstances change.

These intangible assets are amortized based upon the expected economic benefit over an estimated life determined at the time of acquisition and are tested for impairment whenever events or circumstances change.

Interest Rate Swaps - The Company uses interest rate swaps as part of its interest rate risk management strategy to hedge the variable cash outflows associated with certain borrowings.

Interest rate swaps are carried at fair value in the Company's consolidated financial statements.

For interest rate swaps that are designated and qualify as cash flow hedges, the effective portion of changes in the fair value of such agreements are recorded in AOCI and are subsequently reclassified into interest expense in the period that interest on the borrowings affects earnings.

The ineffective portion of the change in fair value of the interest rate swap is recognized directly in earnings.

Effectiveness is assessed using regression analysis.

At the inception of a hedge, the Company documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured and an evaluation of hedged transaction effectiveness.

Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes.

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

Deferred income tax expense

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

Deferred income tax expense (benefit) represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps.

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

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All positive and negative evidence is reviewed in determining how much of a valuation allowance is recognized on a quarterly basis.

Certain accounting literature prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken, or expected to be taken, in a tax return.

Accounting Standards Codification ("ASC") Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken, or expected to be taken, in a tax return.

Interest and penalties related to unrecognized tax benefits are recognized in income tax expense in the consolidated statements of income.

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The Company applies the modified prospective method in which compensation cost is recognized over the service period for all awards granted.

Borrowed Funds - The Bank has entered into repurchase agreements, which are sales of securities under agreements to repurchase, with approved counterparties.

These agreements are recorded as financing transactions, and thereby reported as liabilities on the consolidated balance sheet, with the related expense reported as interest expense on the consolidated statements of income, as the Bank maintains effective control over the transferred securities and the securities continue to be carried in the Bank's securities portfolio.

The Bank has obtained borrowings from FHLB in the form of advances and a line of credit.

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

Additionally, the Bank is authorized to borrow from the Federal Reserve Bank's "discount window."

The Company uses interest rate swaps as part of its interest rate risk management strategy to hedge the variable cash outflows associated with certain borrowings.

Interest rate swaps are carried at fair value in the Company's consolidated financial statements.

The ineffective portion of the change in fair value of the interest rate swap is recognized directly in earnings.

Effectiveness is assessed using regression analysis.

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

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

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

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

See "Note 16.

Revenue Recognition" for additional information.

Segment Information - As a community-oriented financial institution, substantially all of the Bank's operations involve the delivery of loan and deposit products to customers.

Management makes operating decisions and assesses performance based on an ongoing review of these community banking operations, which constitute the Company's only operating segment for financial reporting purposes.

The Bank is a limited partner in each partnership in which it invests.

A separate, unrelated third party is the general partner.

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

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

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Unvested restricted stock awards contain nonforfeitable rights to dividends and are treated as participating securities in the computation of EPS pursuant to the two-class method.

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

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

Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities.

The accounting applied by a lessor is largely unchanged from that applied under the previous guidance.

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

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

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

The optional practical expedients the Company elected include:

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

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

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

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

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

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

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

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

Recent Accounting Pronouncements - In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

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

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

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

Additionally, the ASU amends the current credit loss measurements for AFS debt securities.

Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP.

The ASU, as amended, replaces the incurred loss methodology in 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.

The CECL methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and off-balance sheet credit exposures, over their remaining contractual lives.

Under the CECL methodology, expected credit losses are measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Additionally, the ASU amended the credit loss measurements for AFS debt securities.

Credit losses related to AFS debt securities are now recorded through the ACL rather than as a direct write-down.

The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses.

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

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

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

The Company worked with a software provider on the

application and implementation of the new accounting guidance.

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

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

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

However, management continues to evaluate the impact of adoption.

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

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

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

The ASU, as amended, became effective for the Company on October 1, 2020.

The Company adopted the ASU, as amended, on October 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.

Financial results for reporting periods beginning on or after October 1, 2020 are reported in accordance with the new ASU, as amended, while prior period amounts continue to be reported in accordance with previous GAAP.

Upon adoption, the Company recorded a cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures of $ 2.3 million, net of tax of $ 739 thousand, which was recognized as a decrease in retained earnings.

The following table presents the impact of the cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures.

September 30,

2020 October 1, 2020

Balance Cumulative-Effect Adjustment Balance

(Dollars in thousands)

One- to four-family:

Originated $ 6,085 $ ( 4,452 ) $ 1,633

Correspondent purchased 2,691 ( 367 ) 2,324

Bulk purchased 467 436 903

Commercial real estate 20,349 699 21,048

Commercial and industrial 1,451 ( 892 ) 559

Home equity 370 ( 289 ) 81

Other 114 104 218

Total ACL 31,527 ( 4,761 ) 26,766

Reserve for off-balance sheet credit exposures — 7,788 7,788

ACL and reserve for off-balance sheet credit exposures $ 31,527 $ 3,027 $ 34,554

The Company elected the practical expedient to exclude accrued interest receivable from the amortized cost of financing receivables and AFS debt securities.

Accrued interest totaled $ 18.7 million and $ 2.9 million at September 30, 2021 for loans receivable and AFS securities, respectively, and was included in other assets on the consolidated balance sheet.

Additionally, an election was made not to measure ACL for accrued interest receivables.

The enhanced disclosures required by the ASU, as amended, are included in the relevant significant accounting policies above and in "Note 4.

Loans Receivable and Allowance for Credit Losses."

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

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The ASU adds disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

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

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

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

This ASU, which was adopted on October 1, 2020, did not have a material impact on the Company's consolidated financial condition, results of operations, or disclosures.

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

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract .

The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license).

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

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

The ASU was adopted by the Company on October 1, 2020.

The Company includes hosting arrangements that are service contracts in its evaluation of projects for capitalization.

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

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

This ASU makes clarifications and corrections to the application of the guidance contained in each of the amended topics.

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

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

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

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

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

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

therefore, pro-forma financial data and related disclosures are not included.

The Company acquired loans and deposits with fair values of $ 299.7 million and $ 352.5 million, respectively, at the date of acquisition.

Included in the loans acquired from CCB at August 31, 2018 were PCI loans with contractually required cash flows totaling $ 2.6 million.

Of that amount, the Company expected to collect $ 1.9 million, which was also the fair value at the date of acquisition.

Under the terms of the acquisition agreement, the Company issued 3.0 million shares of common stock for all outstanding shares of CCB capital stock, for a total merger consideration of $ 39.1 million, based on the Company's closing stock price of $ 13.21 on August 31, 2018.

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

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

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

The merger-related expenses were reflected on the Company's consolidated statement of income and were reported primarily in regulatory and outside services.

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

Since the Company previously adopted ASU 2017-12, the related provisions included in ASU 2019-04 were adopted at the same time.

The Company adopted the non-hedging amendments contained in ASU 2019-04, including amendments related to ASU 2016-13, on October 1, 2020.

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

For additional information regarding the impact of adopting ASU 2016-13, see ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments above.

EARNINGS PER SHARE

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$ 282,030 $ 371 $ 118 $ 1

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

The unrealized losses at September 30, 2021 were a result of an increase in market yields from the time the securities were purchased.

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

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

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

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

The impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

As a result of the analysis, management has concluded that no other-than-temporary impairments existed at September 30, 2020 or 2019.

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

Management did not record ACL on securities in an unrealized loss position at September 30, 2021 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of September 30, 2021, by contractual maturity, are shown below.

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

In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without prepayment penalty.

In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty.

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

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One year through five years 495,181 491,685

Five years through ten years 25,000 24,851

524,245 520,615

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FRB of Kansas City 64,707 259,851

Repurchase agreements — 108,271

Commercial deposits 66,256 —

$ 395,848 $ 590,837

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

The Company recognized a gain of $ 9 thousand on the sale.

During fiscal year 2021, the Company sold its Visa Class B shares.

The proceeds and realized gain related to the sale of the Visa Class B shares were each $ 7.4 million.

All other dispositions of securities during fiscal years 2021, 2020, and 2019 were the result of principal repayments, calls, or maturities.

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$ 7,081,142 $ 7,202,851

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

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

As of September 30, 2021 and 2020, the Bank serviced loans for others aggregating $ 63.4 million and $ 87.2 million, respectively.

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

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

With the exception of Paycheck Protection Program loans, which are unsecured but are generally guaranteed by the U.S.

Small Business Administration, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets.

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

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Consumer loans - 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 deposits.

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

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

The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

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and (3) commercial.

These segments are further divided into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio.

See discussion regarding the credit risks for these loan segments in "Note 1.

Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans Receivable." These segments are further divided into classes for purposes of providing disaggregated credit quality information about the loan portfolio.

The classes are:

one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial.

One- to four-family construction loans are included in either the originated class or correspondent purchased class, and commercial construction loans are included in the commercial real estate class.

The Bank's primary credit quality indicators for the one- to four-family and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores.

The Bank's primary credit quality indicators for the commercial and consumer - other loan portfolios are delinquency status and asset classifications.

The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented.

The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs.

At September 30, 2020 and 2019, all loans 90 or more days delinquent were on nonaccrual status.

One- to four-family construction loans are included in the originated class and commercial construction loans are included in the commercial real estate class.

As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status.

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

Loan classifications are defined as follows:

• Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the nonaccrual loan categories.

• Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.

• Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

The following table sets forth, as of September 30, 2021, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification.

All revolving lines of credit are presented separately, regardless of origination year.

Loans classified as doubtful or loss are individually evaluated for loss.

At September 30, 2021, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

In the table below, certain commercial loans are presented in the "Current Fiscal Year" column and are reported as special mention or substandard.

These loans were generally first originated in prior years but were renewed or modified in the current year.

September 30, 2021

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Recorded

Delinquent in Foreclosure Loans Loans Investment

Current Fiscal Fiscal Fiscal Fiscal Revolving

Fiscal Year Year Year Year Prior Line of

Year 2020 2019 2018 2017 Years Credit Total

(Dollars in thousands)

One- to four-family:

Pass $ 958,080 $ 705,561 $ 326,156 $ 250,846 $ 281,104 $ 1,434,455 $ — $ 3,956,202

Special Mention 402 443 501 678 237 7,805 — 10,066

Substandard — 966 867 51 192 11,192 — 13,268

Correspondent purchased

Pass 630,977 334,042 88,057 136,572 162,938 664,530 — 2,017,116

Special Mention 760 — 356 — — 3,160 — 4,276

Substandard — — 169 504 — 4,527 — 5,200

Bulk purchased

Pass — — — — — 169,519 — 169,519

Special Mention — — — — — — — —

Substandard — — — — — 4,848 — 4,848

1,590,219 1,041,012 416,106 388,651 444,471 2,300,036 — 6,180,495

Commercial real estate

Pass 272,329 149,244 94,972 61,214 38,962 35,591 5,231 657,543

Special Mention 50,352 — — — — 49,369 — 99,721

Substandard 810 627 225 669 — 34 — 2,365

Commercial and industrial

Pass 32,651 10,168 6,988 2,213 1,155 595 11,709 65,479

Special Mention — — — — — — — —

Substandard — — — 86 48 — 765 899

356,142 160,039 102,185 64,182 40,165 85,589 17,705 826,007

Pass 3,295 2,218 1,428 1,563 536 2,473 74,036 85,549

Special Mention — — 37 12 — — 82 131

Substandard — 60 — — — 9 636 705

Pass 3,491 1,631 1,086 944 465 105 339 8,061

Special Mention — — 4 — — — — 4

Substandard — 3 6 1 3 — — 13

6,786 3,912 2,561 2,520 1,004 2,587 75,093 94,463

Total $ 1,953,147 $ 1,204,963 $ 520,852 $ 455,353 $ 485,640 $ 2,388,212 $ 92,798 $ 7,100,965

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at September 30, 2020 (prior to the adoption of CECL).

At that date, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

Special Mention Substandard

(Dollars in thousands)

One- to four-family:

Originated $ 9,249 $ 15,729

4 unchanged sentences

Home equity 331 581

Other 75 8 83 9,980 10,063

$ 63,653 $ 31,058

Delinquency Status - The following table sets forth, as of September 30, 2021, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision.

All revolving lines of credit are presented separately, regardless of origination year.

September 30, 2021

Current Fiscal Fiscal Fiscal Fiscal Revolving

Fiscal Year Year Year Year Prior Line of

Year 2020 2019 2018 2017 Years Credit Total

(Dollars in thousands)

One- to four-family:

Current $ 958,482 $ 706,970 $ 327,408 $ 251,524 $ 281,341 $ 1,445,992 $ — $ 3,971,717

30-89 — — — 51 — 4,091 — 4,142

90+/FC — — 116 — 192 3,369 — 3,677

Correspondent purchased

Current 630,977 334,042 88,413 136,572 162,017 668,685 — 2,020,706

30-89 760 — — — 921 948 — 2,629

90+/FC — — 169 504 — 2,584 — 3,257

Bulk purchased

Current — — — — — 170,809 — 170,809

30-89 — — — — — 555 — 555

90+/FC — — — — — 3,003 — 3,003

1,590,219 1,041,012 416,106 388,651 444,471 2,300,036 — 6,180,495

Commercial real estate

Current 323,491 149,244 94,972 61,651 38,962 84,957 5,231 758,508

30-89 — — — — — 37 — 37

90+/FC — 627 225 232 — — — 1,084

Commercial and industrial

Current 32,651 10,168 6,988 2,212 1,155 595 12,474 66,243

30-89 — — — — — — — —

90+/FC — — — 87 48 — — 135

356,142 160,039 102,185 64,182 40,165 85,589 17,705 826,007

Current 3,295 2,218 1,465 1,575 536 2,357 73,958 85,404

30-89 — — — — — 121 375 496

90+/FC — 60 — — — 4 421 485

Current 3,491 1,631 1,088 944 465 105 339 8,063

30-89 — — 2 — — — — 2

90+/FC — 3 6 1 3 — — 13

6,786 3,912 2,561 2,520 1,004 2,587 75,093 94,463

Total $ 1,953,147 $ 1,204,963 $ 520,852 $ 455,353 $ 485,640 $ 2,388,212 $ 92,798 $ 7,100,965

Delinquent and Nonaccrual Loans - The following tables present the amortized cost at September 30, 2021 and, prior to the adoption of CECL, the recorded investment, which is identical to amortized cost, at September 30, 2020, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total.

At September 30, 2021 and 2020, all loans 90 or more days delinquent were on nonaccrual status.

September 30, 2021

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Recorded

Delinquent in Foreclosure Loans Loans Investment

30 to 89 Days Delinquent or Delinquent Current Amortized

Delinquent in Foreclosure Loans Loans Cost

(Dollars in thousands)

8 unchanged sentences

$ 7,861 $ 11,654 $ 19,515 $ 7,081,450 $ 7,100,965

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

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

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

September 30, 2020

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Recorded

Delinquent in Foreclosure Loans Loans Investment

(Dollars in thousands)

6 unchanged sentences

Home equity 323 296 619 103,210 103,829

Other 75 8 83 9,980 10,063

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

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

Loan classifications are defined as follows:

• Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.

Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.

• Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented.

Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss.

Loans classified as doubtful or loss are individually evaluated for loss.

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

September 30,

Special Mention Substandard Special Mention Substandard

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of September 30, 2021 and 2020 was $ 799 thousand and $ 1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 170 thousand at September 30, 2021 and $ 183 thousand at September 30, 2020.

The following table presents the amortized cost at September 30, 2021 and, prior to the adoption of CECL, the recorded investment at September 30, 2020, by class, of loans classified as nonaccrual.

Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented as of September 30, 2021, all of which were individually evaluated for loss and any identified losses have been charged off.

September 30, 2021 September 30, 2020

Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans

(Dollars in thousands)

6 unchanged sentences

Home equity 494 84 305

Other — 8 2 24

$ 13,493 $ 4,763 $ 12,541

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

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

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

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

The consumer - home equity LTV does not take into account the first lien position, if applicable.

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.

September 30,

Credit Score LTV Credit Score LTV

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

One- to four-family - correspondent 765 64 765 65

One- to four-family - bulk purchased 767 60 762 61

Consumer - home equity 756 19 754 19

769 62 766 62

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

These tables do not reflect the recorded investment at the end of the periods indicated.

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

TDRs - The following tables present the amortized cost for the current year and, prior to the adoption of CECL, the recorded investment for prior years, prior to restructuring and immediately after restructuring in all loans restructured during the years presented.

These tables do not reflect the amortized cost at the end of the periods indicated.

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

For the Year Ended September 30, 2021

38 unchanged sentences

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

For the Years Ended

For the Year Ended

September 30, 2021 September 30, 2020 September 30, 2019

Number of Recorded Number of Recorded Number of Recorded

Contracts Investment Contracts Investment Contracts Investment

Number of Amortized Number of Recorded Number of Recorded

Contracts Cost Contracts Investment Contracts Investment

(Dollars in thousands)

8 unchanged sentences

— $ — 3 $ 181 1 $ 45

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

September 30, 2020 September 30, 2019

Unpaid Unpaid

Recorded Principal Related Recorded Principal Related

Investment Balance ACL Investment Balance ACL

Impaired Loans - The following information pertains to impaired loans, by class, as of September 30, 2020 (prior to the adoption of CECL).

Prior to the adoption of CECL, a loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement.

Recorded Principal Related

Investment Balance ACL

(Dollars in thousands)

7 unchanged sentences

Home equity 280 360 —

Other — 45 — — 29 —

19,614 21,201 —

7 unchanged sentences

Home equity — — —

Other — — — — — —

1,929 1,928 323

6 unchanged sentences

Home equity 280 360 —

Other — 45 — — 29 —

$ 21,543 $ 23,129 $ 323

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

For the Years Ended

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

Average Interest Average Interest Average Interest

Recorded Income Recorded Income Recorded Income

Investment Recognized Investment Recognized Investment Recognized

The following information pertains to impaired loans, by class, for the periods presented (prior to the adoption of CECL).

For the Year Ended

September 30, 2020 September 30, 2019

Average Interest Average Interest

Recorded Income Recorded Income

Investment Recognized Investment Recognized

(Dollars in thousands)

18 unchanged sentences

Other — — — —

1,464 91 — — — —

One- to four-family:

7 unchanged sentences

$ 23,064 $ 984 $ 23,780 $ 961

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

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

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

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

As noted in Note 1.

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

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

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

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

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented.

Activity during fiscal years 2020 and 2019 occurred prior to the adoption of CECL.

For the Year Ended September 30, 2021

4 unchanged sentences

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

Adoption of CECL ( 4,452 ) ( 367 ) 436 ( 4,383 ) ( 193 ) ( 185 ) ( 4,761 )

Balance at October 1, 2020 1,633 2,324 903 4,860 21,607 299 26,766

Charge-offs ( 164 ) — ( 21 ) ( 185 ) ( 515 ) ( 15 ) ( 715 )

22 unchanged sentences

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

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

September 30, 2020

The following is a summary of the loan portfolio and related ACL balances by loan portfolio segment disaggregated by the Company's impairment method as of September 30, 2020 (prior to the adoption of CECL).

One- to Four-Family

10 unchanged sentences

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

September 30, 2019

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

The key assumptions in the Company's ACL model at September 30, 2021 include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at September 30, 2021.

The key assumptions utilized in estimating the Company's ACL at September 30, 2021 are discussed below.

• Economic Forecast - Management considered several economic forecasts provided by a third party and selected the economic forecast believed to be the most appropriate considering the facts and circumstances at September 30, 2021.

The forecasted economic indices applied to the model at September 30, 2021 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

gross domestic product.

The economic index most impactful to all loan pools within the model at September 30, 2021 was the national unemployment rate.

The forecast national unemployment rate in the economic scenario selected by management at September 30, 2021 had the national unemployment rate gradually declining to 3.4 % at September 30, 2022 which was the end of our four-quarter forecast time period.

• Forecast and reversion to mean time period - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at September 30, 2021.

• Prepayment and curtailment assumptions - The assumptions used at September 30, 2021 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model.

• Qualitative factors - The qualitative factors applied by management at September 30, 2021 included the following:

◦ The balance and trending of large-dollar special mention commercial loans;

◦ The economic uncertainties related to (1) the job market, specifically the unemployment rate and labor participation rate and how the significant federal aid may be impacting those measures and the true state of the financial position of borrowers and (2) the unevenness of the recovery in certain industries;

◦ COVID-19 loan modifications related to commercial real estate loans.

The decrease in ACL at September 30, 2021 compared to October 1, 2020 (CECL adoption date) was primarily a result of a negative provision for credit losses of $ 6.5 million.

The negative provision for credit losses was due primarily to a reduction in the commercial loan ACL related to improvements in forecasted economic conditions since CECL adoption, partially offset by an increase in commercial loan qualitative factors as discussed above.

Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the period indicated.

The negative provision for credit losses was due primarily to a reduction in the commercial loan reserves related to improvements in forecasted economic conditions since CECL adoption.

For the Year Ended September 30, 2021

(Dollars in thousands)

Recorded investment in loans:

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

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

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

ACL for loans:

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

Individually evaluated for impairment — — — — — — —

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

PREMISES AND EQUIPMENT

Beginning balance $ —

Adoption of CECL 7,788

Balance at October 1, 2020 7,788

Provision for credit losses ( 2,045 )

Ending balance $ 5,743

PREMISES, EQUIPMENT AND LEASES

A summary of the net carrying value of premises and equipment at September 30, 2021 and 2020 was as follows:

6 unchanged sentences

$ 99,127 $ 101,875

During the current year, management decided to relocate one of the Bank's branches.

As a result, the Company classified as held-for-sale and subsequently sold the property where the branch was previously located.

The sale of this property resulted in a loss of $ 940 thousand, which was included in other non-interest expense on the consolidated statements of income.

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

These leases have remaining terms that range from one year to 46 years, some of which include exercising renewal options that the Company considers to be reasonably certain.

As of September 30, 2021, a right-of-use asset of $ 12.7 million was included in other assets and a lease liability of $ 12.8 million was included in other liabilities on the consolidated balance sheets.

As of September 30, 2021, for the Company's operating leases, the weighted average remaining lease term was 21.8 years and the weighted average discount rate was 2.51 %.

The following table presents lease expenses and supplemental cash flow information related to the Company's leases for the years indicated.

For the Year Ended September 30,

(Dollars in thousands)

Operating lease expense $ 1,404 $ 1,511

Variable lease expense 176 201

Short-term lease expense 2 17

Cash paid for amounts included in the measurement of lease liabilities 1,301 1,357

The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of September 30, 2021 (dollars in thousands):

Fiscal year 2022 $ 1,210

Fiscal year 2023 1,224

Fiscal year 2024 993

Fiscal year 2025 759

Fiscal year 2026 711

Thereafter 13,477

Total future minimum lease payments 18,374

Amounts representing interest ( 5,552 )

Present value of net future minimum lease payments $ 12,822

LOW INCOME HOUSING PARTNERSHIPS

The Bank's investment in low income housing partnerships, which is included in other assets in the consolidated balance sheets, was $ 101.2 million and $ 89.7 million at September 30, 2021 and 2020, respectively.

The Bank's obligations related to unfunded commitments, which are included in accounts payable and accrued expenses in the consolidated balance sheets, were $ 44.5 million and $ 40.0 million at September 30, 2020 and 2019, respectively.

The Bank's obligations related to unfunded commitments, which are included in other liabilities in the consolidated balance sheets, were $ 51.6 million and $ 44.5 million at September 30, 2021 and 2020, respectively.

The majority of the commitments at September 30, 2021 are projected to be funded through the end of calendar year 2023 .

For fiscal year 2021, the net income tax benefit associated with these investments, which consists of proportional amortization expense and affordable housing tax credits and other related tax benefits, was reported in income tax expense in the consolidated statements of income.

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

The amount of proportional amortization expense recognized during fiscal years 2021, 2020 and 2019 was $ 8.4 million, $ 7.9 million and $ 6.8 million, respectively, and the amount of affordable housing tax credits and other related tax benefits was $ 10.5 million, $ 9.8 million and $ 8.6 million, respectively, resulting in a net income tax benefit of $ 2.1 million, $ 1.9 million and $ 1.8 million, respectively.

There were no impairment losses during fiscal years 2021, 2020, or 2019 resulting from the forfeiture or ineligibility of tax credits or other circumstances.

INTANGIBLE ASSETS

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

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

The Company recognized goodwill of $ 8.0 million associated with an acquisition in 2018.

The goodwill was calculated as the consideration exchanged in excess of the fair value of assets, net of the fair value of liabilities assumed.

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

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

5 unchanged sentences

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

Acquisition of CCB 7,989 10,052

Purchase accounting adjustments 1,335 —

Amortization — ( 2,316 )

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

Purchase accounting adjustments 1,335 —

Amortization — ( 1,964 )

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

Purchase accounting adjustments — —

Amortization — ( 1,578 )

6 unchanged sentences

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

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

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

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

Borrowings - FHLB borrowings at September 30, 2021 consisted of $ 1.58 billion in FHLB advances, of which $ 1.23 billion were fixed-rate advances and $ 365.0 million were variable-rate advances, and no borrowings against the variable-rate FHLB line of credit.

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

On November 12, 2021 , the line of credit was renewed by FHLB for a one-year period.

Additionally, the Bank is authorized to borrow from the Federal Reserve Bank's "discount window."

FHLB advances at September 30, 2021 and 2020 were comprised of the following:

6 unchanged sentences

(1) The effective interest rate includes the net impact of deferred amounts and interest rate swaps related to the adjustable-rate FHLB advances.

During fiscal years 2019 and 2018, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings.

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, with all of the balance being paid down at each quarter end, or earlier if the strategy it is not profitable.

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

The leverage strategy was not utilized during the current year due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City making the transaction unprofitable.

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

At September 30, 2021 and 2020, the Bank had entered into interest rate swap agreements with a total notional amount of $ 365.0 million and $ 640.0 million, respectively, in order to hedge the variable cash flows associated with $ 365.0 million and $ 640.0 million, respectively, of adjustable-rate FHLB advances.

At September 30, 2021 and 2020, the interest rate swap agreements had an average remaining term to maturity of 4.1 years and 3.5 years, respectively.

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

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

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

At September 30, 2021 and September 30, 2020, the interest rate swaps were in a loss position with a total fair value of $ 27.7 million and $ 53.1 million, respectively, which was reported in other liabilities on the consolidated balance sheet.

During fiscal year 2021, $ 13.6 million was reclassified from AOCI.

Of this amount, $ 10.0 million was recognized as an increase to interest expense and $ 3.6 million, net of tax, was reclassified as a result of the termination of the related interest rate swaps, as discussed below, and reported in the loss on interest rate swap termination line item within the consolidated statements of operations.

During fiscal year 2020, $ 6.3 million was reclassified from AOCI as an increase to interest expense.

At September 30, 2021, the Company estimated that $ 9.2 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months.

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The Bank posted cash collateral of $ 28.0 million at September 30, 2021 and $ 54.6 million at September 30, 2020.

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

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

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

During the current fiscal year, the Bank terminated interest rate swaps with a notional amount of $ 200.0 million which were tied to FHLB advances totaling $ 200.0 million.

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

Since it was management's intention to prepay the related FHLB advances, it is no longer probable that the original forecasted transactions subject to the cash flow hedges will occur.

Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses, net of tax, totaling $ 3.6 million ($ 4.8 million pretax) from AOCI into earnings.

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $ 400.0 million with a weighted average contractual interest rate of 1.29 % and a weighted average remaining term of 0.9 years, and replaced these advances with fixed-rate FHLB advances totaling $ 400.0 million with a weighted average contractual interest rate of 0.80 % and a weighted average term of 5.0 years.

The Bank paid penalties of $ 5.1 million to FHLB as a result of prepaying these FHLB advances.

The weighted average effective interest rate of the new advances is 1.03 %.

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

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

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At September 30, 2021, the ratio of the par value of the Bank's FHLB borrowings to the Bank's Call Report total assets was 16 %.

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

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

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

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

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

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

Securities are delivered to the party with whom each transaction is executed and the party agrees to resell the same securities to the Bank at the maturity of the agreement.

The Bank retains the right to substitute similar or like securities throughout the terms of the agreements.

The repurchase agreements and collateral are subject to valuation at current market levels and the Bank may ask for the return of excess collateral or be required to post additional collateral due to changes in the market values of these items.

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

Maturity of Borrowed Funds and Certificates of Deposit - The following table presents the scheduled maturity of FHLB advances, at par, and certificates of deposit as of September 30, 2021:

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$ 1,590,000 $ 2,743,591

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

The proceeds from the sale of the trust preferred securities to investors were invested by the trusts in the related junior subordinated debentures issued by CCB.

The junior subordinated debentures were redeemed by the Company during fiscal year 2019, which resulted in the concurrent redemption by the trusts of the related trust preferred securities.

Income tax expense for the years ended September 30, 2021, 2020, and 2019 consisted of the following:

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$ 19,946 $ 16,090 $ 26,411

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

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

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

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

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

The Company's effective tax rates were 20.8 %, 20.0 %, and 21.9 % for the years ended September 30, 2021, 2020, and 2019, respectively.

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State taxes, net of Federal tax effect 3,102 3.2 2,626 3.3 4,024 3.3

Deferred tax liability remeasurement, net — — — — ( 7,498 ) ( 6.0 )

Low income housing tax credits, net ( 2,085 ) ( 2.1 ) ( 1,897 ) ( 2.4 ) ( 1,745 ) ( 1.4 )

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ESOP compensation 1,422 1,360

Reserve for off-balance sheet credit exposures 1,402 —

Low income housing partnerships 522 655

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FHLB stock dividends 12,563 15,699

Unrealized gain on AFS securities 7,617 3,258

Premises and equipment 4,256 4,625

Lease right-of-use assets 3,088 3,588

Deposit intangible 1,475 1,978

ACL 2,892 2,388

Unrealized gain on AFS securities 1,501 7,617

Deposit intangible 1,047 1,475

Other 513 970

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

At both September 30, 2020 and 2019, the Company had a valuation allowance of $ 1.8 million related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return.

At September 30, 2021 and 2020, the Company had a valuation allowance of $ 72 thousand and $ 1.8 million, respectively, related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return.

The companies included in the consolidated Kansas corporate income tax return are the holding company, Capitol Funds, Inc.

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therefore, a valuation allowance has been recorded for the related amounts at September 30, 2021 and 2020.

The decrease in the valuation allowance at September 30, 2021 compared to September 30, 2020 was due primarily to the expiration of operating losses generated during fiscal year 2011, which resulted in the removal of the related deferred tax asset and corresponding valuation allowance.

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

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

statements of income.

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

For the years ended September 30, 2021, 2020, and 2019 the Company had no unrecognized tax benefits.

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With few exceptions, the Company is no longer subject to U.S.

federal and state examinations by tax authorities for fiscal years before 2017 .

federal and state examinations by tax authorities for fiscal years ending before 2018 .

EMPLOYEE STOCK OWNERSHIP PLAN

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Of these amounts, $ 383 thousand, $ 336 thousand, and $ 549 thousand related to the difference between the market price of the Company's stock when the shares were acquired by the ESOP trust and the average market price of the Company's stock during the years ended September 30, 2021, 2020, and 2019, respectively.

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

The amount included in compensation expense for dividends on unallocated ESOP shares in excess of the debt service payments was $ 219 thousand, $ 0 and $ 906 thousand for the years ended September 30, 2021, 2020, and 2019, respectively.

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

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

The Company may also award stock appreciation rights, although no stock appreciation rights have been awarded to date.

The incentive stock options expire no later than 10 years from the date of grant, and the nonqualified stock options expire no later than 15 years from the date of grant.

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New shares are issued by the Company upon the exercise of stock options.

Compensation expense attributable to stock option awards during the years ended September 30, 2020, 2019, and 2018 totaled $ 12 thousand, $ 49 thousand, and $ 71 thousand, respectively.

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

Restricted Stock Plans – The Equity Incentive Plan had 2,363,000 shares originally eligible to be granted as restricted stock and, as of September 30, 2021, the Company had 1,612,319 shares available for future grants of restricted stock under this plan.

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The fair value of restricted stock that vested during the years ended September 30, 2021, 2020, and 2019 totaled $ 441 thousand, $ 535 thousand, and $ 294 thousand, respectively.

As of September 30, 2020, there was $ 1.1 million of unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted average period of 2.7 years.

As of September 30, 2021, there was $ 760 thousand of unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted average period of 2.2 years.

COMMITMENTS AND CONTINGENCIES

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As of September 30, 2021 and 2020, the Bank had approved but unadvanced lines of credit of $ 287.9 million and $ 283.2 million, respectively.

The Company also has standby letters of credit, which are conditional commitments to guarantee the performance of a customer to a third party.

Most guarantees have one-year terms.

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

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

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

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

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

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

Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules and to have met the well-capitalized ratio requirements.

Management elected to use the CBLR framework for the Bank and Company as of the effective date.

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

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

Beginning in calendar year 2021, the CBLR

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

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

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

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

Beginning in calendar year 2021, the CBLR requirement increased to 8.5% and will return to 9% in calendar year 2022.

Management believes, as of September 30, 2021, that the Bank and Company meet all capital adequacy requirements to which they are subject and there were no conditions or events subsequent to September 30, 2021 that would change the Bank's or Company's category.

For Capital Corrective Action

Actual Adequacy Purposes Provisions

Amount Ratio Amount Ratio Amount Ratio

Actual Adequacy Purposes

Amount Ratio Amount Ratio

(Dollars in thousands)

As of September 30, 2021

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

As of September 30, 2019

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

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

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

Total capital 1,178,263 24.3 387,630 8.0 484,537 10.0

As of September 30, 2020

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

Bank $ 1,114,325 11.5 % $ 822,194 8.5 %

Company 1,246,259 12.9 822,053 8.5

As of September 30, 2020

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

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

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

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

Bank 1,168,808 12.4 754,884 8.0

Company 1,287,854 13.7 754,767 8.0

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

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Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles.

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in accounts payable and accrued expenses if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity.

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity.

Deposits and Borrowed Funds" for additional information.

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

On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted

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

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

On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party.

No adjustments were made to the estimated fair values obtained from the counterparty during the years ended September 30, 2021 and 2020.

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

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

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

The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date.

Loans Receivable – With the adoption of CECL, collateral dependent assets are assets evaluated on an individual basis.

Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis.

Prior to the adoption of CECL, loans identified as impaired were considered financial assets measured at fair value on a non-recurring basis.

The valuation method for collateral dependent assets and impaired loans is identical.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during fiscal years 2021 and 2020 that were still held in the portfolio as of September 30, 2021 and 2020 was $ 7.4 million and $ 5.7 million, respectively.

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

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

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

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

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

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

The primary significant unobservable inputs for commercial loans individually evaluated during the year ended September 30, 2021 were downward adjustments to the book value of the collateral for lack of marketability.

During fiscal year 2021, the adjustments ranged from 7 % to 50 %, with a weighted average of 21 %.

During fiscal year 2020, the adjustments ranged from 4 % to 50 %, with a weighted average of 18 %.

The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

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

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

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

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

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

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

— 6,274 6,274

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

7 unchanged sentences

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

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

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

1 unchanged sentence

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

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

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

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

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

During fiscal years 2021, 2020 and 2019, revenue from contracts with customers totaled $ 16.5 million, $ 14.8 million and $ 16.6 million, respectively.

Deposit Service Fees

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

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

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

Interchange network charges totaled $ 3.2 million and $ 3.4 million for fiscal years 2020 and 2019, respectively.

therefore interchange transaction fee income is reported net of interchange network charges.

Interchange network charges totaled $ 3.6 million, $ 3.2 million and $ 3.4 million for fiscal years 2021, 2020 and 2019, respectively.

Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance and transaction-based fees such as overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs.

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

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

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

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

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

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

Operating lease expense $ 1,511

Variable lease expense 201

Short-term lease expense 17

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

Fiscal year 2021 1,192

Fiscal year 2022 1,302

Fiscal year 2023 1,210

Fiscal year 2024 1,003

Fiscal year 2025 827

Thereafter 15,308

Total future minimum lease payments 20,842

Amounts representing interest ( 6,129 )

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

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

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

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

Thereafter 1,115

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

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

First Second Third Fourth

Quarter Quarter Quarter Quarter Total

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

Total interest and dividend income $ 80,036 $ 78,955 $ 74,381 $ 71,606 $ 304,978

Net interest and dividend income 48,697 48,668 46,287 45,683 189,335

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

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

Basic EPS 0.16 0.03 0.14 0.13 0.47

Diluted EPS 0.16 0.03 0.14 0.13 0.47

Dividends declared per share 0.425 0.085 0.085 0.085 0.68

Average number of basic shares outstanding 137,898 137,968 138,018 137,705 137,897

Average number of diluted shares outstanding 137,976 138,000 138,018 137,705 137,901

Total interest and dividend income $ 82,421 $ 82,037 $ 82,211 $ 83,285 $ 329,954

Net interest and dividend income 52,301 52,597 51,681 49,811 206,390

Provision for credit losses — — 450 300 750

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

Basic EPS 0.18 0.18 0.17 0.16 0.68

Diluted EPS 0.18 0.18 0.17 0.16 0.68

Dividends declared per share 0.475 0.085 0.335 0.085 0.98

Average number of basic shares outstanding 137,551 137,635 137,720 137,801 137,677

Average number of diluted shares outstanding 137,592 137,691 137,788 137,867 137,735

PARENT COMPANY FINANCIAL INFORMATION (PARENT COMPANY ONLY)

8 unchanged sentences

Note receivable - ESOP 37,213 38,614

Other assets 707 711

Receivable from the Bank 18,158 —

Income taxes receivable, net 467 492

Other assets 625 707

TOTAL ASSETS $ 1,242,355 $ 1,288,092

Accounts payable and accrued expenses 3,142 91

Deferred income tax liabilities, net 82 91

Other liabilities — 3,142

Total liabilities 82 3,233

28 unchanged sentences

EXCESS OF DISTRIBUTION OVER EARNINGS OF SUBSIDIARY 131,769 68,463 129,681

INCOME TAX EXPENSE (BENEFIT) 28 57 ( 179 )

INCOME TAX (BENEFIT) EXPENSE ( 62 ) 28 57

INCOME BEFORE EQUITY IN EXCESS OF

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Provision for deferred income taxes ( 9 ) 91 —

Other assets ( 60 ) 54 ( 53 )

Receivable from the Bank ( 18,257 ) — —

Income taxes receivable/payable 25 ( 63 ) 57

Accounts payable and accrued expenses 13 ( 86 ) ( 257 )

Other assets 21 ( 60 ) 54

Other liabilities ( 5 ) 13 ( 86 )

Net cash provided by operating activities 113,651 68,461 129,694

1 unchanged sentence

Principal collected on note receivable from ESOP 1,401 1,357 1,314

Cash acquired from acquisition — — 18

Purchase of equipment — — ( 423 )

8 unchanged sentences

Net cash used in financing activities ( 121,965 ) ( 113,672 ) ( 142,251 )

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 43,854 ) ( 11,364 ) 16,899

NET DECREASE IN CASH AND CASH EQUIVALENTS ( 6,913 ) ( 43,854 ) ( 11,364 )

CASH AND CASH EQUIVALENTS:

1 unchanged sentence

End of year $ 75,553 $ 82,466 $ 126,320

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Common stock issued for acquisition $ — $ — $ 39,113

Capital contribution to subsidiary in conjunction with acquisition of CCB $ — $ — $ 48,798

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data