What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-02-09 compared with 2021-08-09 · 160 added, 452 removed, 604 unchanged (50% of the section changed)

4 unchanged sentences

(Dollars in thousands, except per share amounts)

June 30, September 30,

December 31, September 30,

Cash and cash equivalents (includes interest-earning deposits of $ 106,225 and $ 24,289 )

6 unchanged sentences

Premises and equipment, net 97,718 99,127

Income taxes receivable, net 891 —

Other assets 314,445 320,686

11 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 138,833,184 and 138,956,296 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively

1,400,000,000 shares authorized, 138,842,784 and 138,832,284 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively

Additional paid-in capital 1,189,827 1,189,633

9 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2021 2020 2021 2020

For the Three Months Ended

INTEREST AND DIVIDEND INCOME:

11 unchanged sentences

PROVISION FOR CREDIT LOSSES ( 3,439 ) ( 1,532 )

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 45,262 46,287 136,644 121,352

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 49,053 45,345

NON-INTEREST INCOME:

Deposit service fees 3,430 2,947

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

Insurance commissions 711 638

5 unchanged sentences

Occupancy, net 3,379 3,379

Loss on interest rate swap termination — — 4,752 —

Regulatory and outside services 1,368 1,585

17 unchanged sentences

(Dollars in thousands)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2021 2020 2021 2020

For the Three Months Ended

Net income $ 22,186 $ 18,898

3 unchanged sentences

Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $( 1,277 ) and $( 1,220 )

( 88 ) ( 1,146 ) 17,258 ( 18,151 )

Comprehensive income $ 15,165 $ 24,032

4 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

Additional Unearned Total

3 unchanged sentences

Net income 22,186 22,186

Other comprehensive income, net of tax 5,134 5,134

Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13, net of tax ( 2,288 ) ( 2,288 )

ESOP activity 80 413 493

Restricted stock activity, net ( 8 ) ( 8 )

Stock-based compensation 118 118

Repurchase of common stock ( 1 ) ( 1,407 ) ( 122 ) ( 1,530 )

Cash dividends to stockholders ($ 0.215 per share)

( 29,128 ) ( 29,128 )

Balance at December 31, 2020 1,388 1,188,636 ( 32,627 ) 130,522 ( 11,371 ) 1,276,548

Net income 20,444 20,444

Other comprehensive loss, net of tax ( 7,021 ) ( 7,021 )

ESOP activity 74 413 487

Stock-based compensation 134 134

Stock options exercised 24 24

Cash dividends to stockholders ($ 0.085 per share)

( 11,518 ) ( 11,518 )

Balance at March 31, 2021 1,388 1,188,926 ( 32,214 ) 139,448 ( 18,953 ) 1,278,595

Net income 18,187 18,187

Other comprehensive income, net of tax 5,615 5,615

ESOP activity 118 413 531

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 123 123

Stock options exercised 300 300

Cash dividends to stockholders ($ 0.305 per share)

( 41,385 ) ( 41,385 )

Balance at June 30, 2021 $ 1,388 $ 1,189,466 $ ( 31,801 ) $ 91,909 $ ( 13,338 ) $ 1,237,624

CAPITOL FEDERAL FINANCIAL, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(Dollars in thousands, except per share amounts)

For the Nine Months Ended June 30, 2020

Balance at December 31, 2021 $ 1,388 $ 1,189,827 $ ( 30,974 ) $ 79,745 $ ( 23,326 ) $ 1,216,660

For the Three Months Ended December 31, 2020

Additional Unearned Total

2 unchanged sentences

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

Cumulative effect of adopting ASU 2016-02, net of tax 88 88

Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13 ("CECL"), net of tax ( 2,288 ) ( 2,288 )

Net income 18,898 18,898

3 unchanged sentences

Stock-based compensation 118 118

Stock options exercised 1 612 613

Repurchase of common stock ( 1 ) ( 1,407 ) ( 122 ) ( 1,530 )

Cash dividends to stockholders ($ 0.215 per share)

1 unchanged sentence

Balance at December 31, 2020 $ 1,388 $ 1,188,636 $ ( 32,627 ) $ 130,522 $ ( 11,371 ) $ 1,276,548

Net income 4,276 4,276

Other comprehensive loss, net of tax ( 12,051 ) ( 12,051 )

ESOP activity 117 413 530

Stock-based compensation 152 152

Stock options exercised 25 25

Cash dividends to stockholders ($ 0.085 per share)

( 11,733 ) ( 11,733 )

Balance at March 31, 2020 1,415 1,211,466 ( 33,866 ) 130,756 ( 21,978 ) 1,287,793

Net income 19,474 19,474

Other comprehensive income, net of tax 4,387 4,387

ESOP activity 61 413 474

Restricted stock activity, net ( 6 ) ( 6 )

Stock-based compensation 132 132

Cash dividends to stockholders ($ 0.085 per share)

( 11,734 ) ( 11,734 )

Balance at June 30, 2020 $ 1,415 $ 1,211,653 $ ( 33,453 ) $ 138,496 $ ( 17,591 ) $ 1,300,520

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

11 unchanged sentences

Stock-based compensation 123 118

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

Other assets, net 1,452 1,942

11 unchanged sentences

Proceeds from sale of other real estate owned ("OREO") 120 53

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

Proceeds from sale of assets held-for-sale 977 —

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

Net cash (used in) provided by investing activities ( 274,392 ) 2,833

Net cash provided by (used in) investing activities 93,263 ( 140,010 )

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

6 unchanged sentences

Repurchase of common stock — ( 4,568 )

Stock options exercised 324 638

Net cash provided by financing activities 109,802 128,549

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS ( 113,213 ) 200,519

Net cash (used in) provided by financing activities ( 25,279 ) 97,941

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS 88,253 ( 22,866 )

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

1 unchanged sentence

End of period $ 158,545 $ 216,842

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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

Operating lease liabilities obtained $ — $ 16,726

See accompanying notes to consolidated financial statements.

14 unchanged sentences

Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $ 95.3 million and $ 185.1 million at June 30, 2021 and September 30, 2020, respectively, and restricted cash and cash equivalents of $ 31.2 million and $ 54.6 million at June 30, 2021 and September 30, 2020, respectively, which was included in other assets on the consolidated balance sheet.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $ 135.5 million and $ 42.3 million at December 31, 2021 and September 30, 2021, respectively, and restricted cash and cash equivalents of $ 23.1 million and $ 28.0 million at December 31, 2021 and September 30, 2021, respectively, which was included in other assets on the consolidated balance sheet.

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

1 unchanged sentence

Borrowed Funds.

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

Securities are classified as held-to maturity ("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.

At June 30, 2021 and September 30, 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 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.

Gains or losses on the disposition of AFS securities are recognized using the specific identification method.

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

See additional discussion of fair value of AFS securities in "Note 6.

Fair Value of Financial Instruments."

Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported at fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income.

Neither the Company nor the Bank maintained a trading securities portfolio during the nine months ended June 30, 2021 or during fiscal year 2020.

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 June 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.

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

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, without being required to complete the standard application and underwriting process.

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

If the change in loan terms resulting from the endorsement is deemed to be more than minor, the loan is treated as a new loan and all existing unamortized deferred loan origination fees and costs are recognized at the time of endorsement.

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 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 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.

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.

In the case of commercial loans, the Bank does not forgive principal or interest or commit to lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.

Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date.

The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.

Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears.

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

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

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

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.

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.

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 basis.

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.

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, 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.

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

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

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

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

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.

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 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, 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,

October 1, 2020

Cumulative-Effect Adjustment

(Dollars in thousands)

One- to four-family:

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

Correspondent purchased

2,691 ( 367 ) 2,324

Bulk purchased

Commercial real estate

20,349 699 21,048

Commercial and industrial

1,451 ( 892 ) 559

370 ( 289 ) 81

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 $ 19.1 million and $ 3.1 million at June 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:

Disclosure Framework - Changes to the Disclosures Requirements for Fair Value Measurement .

This ASU eliminates, modifies and adds certain disclosure requirements for fair value measurements.

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.

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 licenses).

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 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

2 unchanged sentences

The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2021 2020 2021 2020

For the Three Months Ended

(Dollars in thousands, except per share amounts)

12 unchanged sentences

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

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

June 30, 2021

The majority of the MBS and investment securities portfolios are composed of securities issued by United States Government-Sponsored Enterprises ("GSEs").

December 31, 2021

Gross Gross Estimated

16 unchanged sentences

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

June 30, 2021

December 31, 2021

Less Than 12 Months Equal to or Greater Than 12 Months

15 unchanged sentences

$ 1,398,300 $ 12,488 $ 10,612 $ 65

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

The unrealized losses at December 31, 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 did not record ACL on securities in an unrealized loss position at June 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 June 30, 2021, by contractual maturity, are shown below.

Management did not record ACL on securities in an unrealized loss position at December 31, 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 December 31, 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.

6 unchanged sentences

One year through five years 519,972 511,064

Five years through ten years 25,000 24,885

523,316 514,414

2 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2021 2020 2021 2020

For the Three Months Ended

(Dollars in thousands)

1 unchanged sentence

Non-taxable 18 38

$ 763 $ 847 $ 2,075 $ 3,736

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

June 30, 2021 September 30, 2020

December 31, 2021 September 30, 2021

(Dollars in thousands)

3 unchanged sentences

$ 338,384 $ 395,848

During the current year, 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 the nine months ended June 30, 2021 and June 30, 2020 were the result of principal repayments, calls, or maturities.

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable, net at the dates presented is summarized as follows:

June 30, 2021 September 30, 2020

December 31, 2021 September 30, 2021

(Dollars in thousands)

31 unchanged sentences

For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank.

At the time of origination, LTV ratios on commercial

real estate loans generally do not exceed 85 % of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 .

At the time of origination, loan-to-value ("LTV")

ratios on commercial real estate loans generally do not exceed 85 % of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 .

For commercial construction loans, LTV ratios generally do not exceed 80 % of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 , but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property.

1 unchanged sentence

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 ("PPP") loans, which are unsecured, 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 ("PPP") 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.

9 unchanged sentences

and (3) commercial.

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

Summary of Significant Accounting Policies - Allowance for Credit Losses.

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

1 unchanged sentence

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.

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.

1 unchanged sentence

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 non-performing 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.

2 unchanged sentences

• 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 June 30, 2021, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification.

The following table sets forth, as of the dates indicated, 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 June 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.

June 30, 2021

At December 31, 2021 and September 30, 2021, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

December 31, 2021

Current Fiscal Fiscal Fiscal Fiscal Revolving

32 unchanged sentences

Total $ 276,010 $ 1,994,363 $ 1,152,663 $ 496,095 $ 428,660 $ 2,673,582 $ 91,767 $ 7,113,140

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.

September 30, 2021

Special Mention Substandard

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving

Year Year Year Year Year Prior Line of

2021 2020 2019 2018 2017 Years Credit Total

(Dollars in thousands)

One- to four-family:

Originated $ 9,249 $ 15,729

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

Home equity 331 581

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

Delinquency Status - The following table sets forth, as of June 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.

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

Delinquency Status - The following tables set forth, as of the dates indicated, 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 as of the dates indicated.

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

June 30, 2021

December 31, 2021

Current Fiscal Fiscal Fiscal Fiscal Revolving

32 unchanged sentences

Total $ 276,010 $ 1,994,363 $ 1,152,663 $ 496,095 $ 428,660 $ 2,673,582 $ 91,767 $ 7,113,140

Delinquent and Nonaccrual Loans - The following tables present the amortized cost at June 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 June 30, 2021 and September 30, 2020, all loans 90 or more days delinquent were on nonaccrual status.

June 30, 2021

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Amortized

Delinquent in Foreclosure Loans Loans Cost

September 30, 2021

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving

Year Year Year Year Year Prior Line of

2021 2020 2019 2018 2017 Years Credit Total

(Dollars in thousands)

One- to four-family:

Originated $ 5,132 $ 3,680 $ 8,812 $ 3,983,030 $ 3,991,842

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

Home equity 316 432 748 87,920 88,668

Other 38 13 51 8,328 8,379

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

30-89 — — — — — — — —

September 30, 2020

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 the dates indicated, 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 loans.

At December 31, 2021 and September 30, 2021, all loans 90 or more days delinquent were on nonaccrual status.

December 31, 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

$ 12,747 $ 10,712 $ 23,459 $ 7,089,681 $ 7,113,140

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2021 and September 30, 2020 was $ 946 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 $ 177 thousand at June 30, 2021 and $ 183 thousand at September 30, 2020.

The following table presents the amortized cost at June 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 June 30, 2021, all of which were individually evaluated for loss and any identified losses have been charged off.

June 30, 2021 September 30, 2020

Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans

September 30, 2021

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Amortized

Delinquent in Foreclosure Loans Loans Cost

(Dollars in thousands)

6 unchanged sentences

Home equity 496 485 981 85,404 86,385

Other 2 13 15 8,063 8,078

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

Troubled Debt Restructurings - The following tables present the amortized cost for the current period and, prior to the adoption of CECL, the recorded investment for the prior period, prior to restructuring and immediately after restructuring in all loans restructured during the periods 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 Three Months Ended For the Nine Months Ended

June 30, 2021 June 30, 2021

Number Pre- Post- Number Pre- Post-

of Restructured Restructured of Restructured Restructured

Contracts Outstanding Outstanding Contracts Outstanding Outstanding

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2021 and September 30, 2021 was $ 845 thousand and $ 799 thousand, 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 $ 319 thousand at December 31, 2021 and $ 170 thousand at September 30, 2021.

The following table presents the amortized cost at December 31, 2021 and September 30, 2021, by class, of loans classified as nonaccrual.

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

December 31, 2021 September 30, 2021

Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans Nonaccrual Loans with No ACL

(Dollars in thousands)

8 unchanged sentences

$ 11,220 $ 3,868 $ 13,493 $ 4,763

For the Three Months Ended For the Nine Months Ended

June 30, 2020 June 30, 2020

Troubled Debt Restructurings ("TDRs") - The following tables present the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods 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 Three Months Ended

December 31, 2021 December 31, 2020

Number Pre- Post- Number Pre- Post-

12 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Number of Amortized Number of Recorded Number of Amortized Number of Recorded

Contracts Cost Contracts Investment Contracts Cost Contracts Investment

For the Three Months Ended

December 31, 2021 December 31, 2020

Number of Amortized Number of Recorded

Contracts Cost Contracts Investment

(Dollars in thousands)

8 unchanged sentences

1 $ 684 — $ —

Impaired Loans - The following information pertains to impaired loans, by class, as of the date and for the period presented (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.

For the Three Months Ended For the Nine Months Ended

September 30, 2020 June 30, 2020 June 30, 2020

Unpaid Average Interest Average Interest

Recorded Principal Related Recorded Income Recorded Income

Investment Balance ACL Investment Recognized Investment Recognized

With no related allowance recorded

One- to four-family:

Originated $ 12,385 $ 12,813 $ — $ 13,865 $ 150 $ 14,273 $ 472

Correspondent purchased 1,955 2,058 — 1,949 19 1,855 56

Bulk purchased 3,843 4,302 — 4,814 46 4,910 148

Commercial real estate 1,052 1,379 — 817 5 494 9

Commercial and industrial 99 244 — 26 — 24 —

Home equity 280 360 — 319 4 329 15

Other — 45 — 1 — — —

19,614 21,201 — 21,791 224 21,885 700

With an allowance recorded

One- to four-family:

Originated — — — — — — —

Correspondent purchased — — — — — — —

Bulk purchased — — — — — — —

Commercial real estate 660 660 83 — — — —

Commercial and industrial 1,269 1,268 240 1,875 24 1,440 78

Home equity — — — — — — —

Other — — — — — — —

1,929 1,928 323 1,875 24 1,440 78

One- to four-family:

Originated 12,385 12,813 — 13,865 150 14,273 472

Correspondent purchased 1,955 2,058 — 1,949 19 1,855 56

Bulk purchased 3,843 4,302 — 4,814 46 4,910 148

Commercial real estate 1,712 2,039 83 817 5 494 9

Commercial and industrial 1,368 1,512 240 1,901 24 1,464 78

Home equity 280 360 — 319 4 329 15

Other — 45 — 1 — — —

$ 21,543 $ 23,129 $ 323 $ 23,666 $ 248 $ 23,325 $ 778

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

Activity during the three and nine months ended June 30, 2020 occurred prior to the adoption of CECL.

For the Three Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

One- to Four-Family

7 unchanged sentences

Ending balance $ 1,639 $ 2,082 $ 268 $ 3,989 $ 13,353 $ 193 $ 17,535

For the Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2020

One- to Four-Family

9 unchanged sentences

Ending balance $ 1,538 $ 1,758 $ 852 $ 4,148 $ 21,707 $ 270 $ 26,125

For the Three Months Ended June 30, 2020

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 6,467 $ 3,355 $ 557 $ 10,379 $ 20,328 $ 489 $ 31,196

Charge-offs — — — — — ( 5 ) ( 5 )

Recoveries — — — — 17 7 24

Provision for credit losses ( 121 ) ( 166 ) ( 51 ) ( 338 ) 359 ( 21 ) —

Ending balance $ 6,346 $ 3,189 $ 506 $ 10,041 $ 20,704 $ 470 $ 31,215

For the Nine Months Ended June 30, 2020

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

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

Charge-offs ( 64 ) — — ( 64 ) ( 349 ) ( 15 ) ( 428 )

Recoveries 3 — — 3 98 16 117

Provision for credit losses 4,407 1,986 ( 181 ) 6,212 15,784 304 22,300

Ending balance $ 6,346 $ 3,189 $ 506 $ 10,041 $ 20,704 $ 470 $ 31,215

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).

September 30, 2020

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Recorded investment in loans:

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

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

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

ACL for loans:

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

Individually evaluated for impairment — — — — 323 — 323

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

The key assumptions in the Company's ACL model 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 June 30, 2021.

The key assumptions utilized in estimating the Company's ACL at June 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 June 30, 2021.

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

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2021.

The key assumptions utilized in estimating the Company's ACL at December 31, 2021 are discussed below.

The forecasted economic indices applied to the model at December 31, 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 June 30, 2021 was the national unemployment rate.

The forecast national unemployment rate in the economic scenario selected by management at June 30, 2021 had the national unemployment rate gradually declining to 3.7 % at June 30, 2022 which was the end of our four quarter forecast time period.

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

The reversion to mean time period was also four quarters for all of the economic indices at June 30, 2021.

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

• Qualitative factors - The qualitative factors applied by management at June 30, 2021 included the balance and trending of large-dollar special mention commercial loans, and the economic uncertainties related to (1) the job market, specifically, the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying individuals, (2) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted, and (3) the unevenness of the recovery in certain industries.

The economic index most impactful to all loan pools within the model at December 31, 2021 was the national unemployment rate.

The forecast national unemployment rate in the economic scenario selected by management at December 31, 2021 had the national unemployment rate gradually declining to 3.5 % by December 31, 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 December 31, 2021.

• Prepayment and curtailment assumptions - The assumptions used at December 31, 2021 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model over the trailing 12 months.

• Qualitative factors - The qualitative factors applied by management at December 31, 2021 included the following:

◦ The economic uncertainties related to (1) the job market, the labor force composition, the unemployment rate, and labor participation rate and how the significant federal assistance and other factors may be impacting those measures and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships;

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

◦ Coronavirus Disease 2019 ("COVID-19") loan modifications related to commercial real estate loans.

The decrease in ACL during the current quarter was primarily a result of a negative provision for credit losses of $ 2.3 million.

The negative provision for credit losses was due primarily to a reduction in the commercial loan ACL related to a decrease in the commercial loan economic uncertainty qualitative factor as a result of improved economic conditions compared to the prior quarter.

The negative provision for credit losses associated with the ACL was due primarily to a reduction in the large-dollar special mention commercial loan qualitative factor due to two large-dollar special mention commercial loans moving to the pass classification during the current quarter.

Additionally, the economic uncertainty qualitative factor for commercial loans also decreased during the current quarter as economic conditions continued to improve for the industries related to this qualitative factor.

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 periods indicated.

For the Three Months Ended June 30, 2021 For the Nine Months Ended June 30, 2021

The negative provision for credit losses in the current quarter was due primarily to improvements in economic conditions in certain industries in which the Bank has lending relationships.

For the Three Months Ended For the Three Months Ended

December 31, 2021 December 31, 2020

(Dollars in thousands)

5 unchanged sentences

BORROWED FUNDS

FHLB Borrowings and Interest Rate Swaps - At June 30, 2021 and September 30, 2020, the Bank had entered into interest rate swap agreements with a total notional amount of $ 440.0 million and $ 640.0 million, respectively, in order to hedge the variable cash flows associated with $ 440.0 million and $ 640.0 million, respectively, of adjustable-rate FHLB advances.

At June 30, 2021 and September 30, 2020, the interest rate swap agreements had an average remaining term to maturity of 3.6 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 June 30, 2021 and September 30, 2020, the interest rate swaps were in a loss position with a total fair value of $ 30.4 million and $ 53.1 million, respectively, which was reported in other liabilities on the consolidated balance sheet.

During the three and nine months ended June 30, 2021, $ 2.1 million and $ 11.5 million, respectively, was reclassified from AOCI.

Of this amount, for the nine months ended June 30, 2021, $ 7.9 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 the three and nine months ended June 30, 2020, $ 1.7 million and $ 3.4 million, respectively, was reclassified from AOCI as an increase to interest expense.

At June 30, 2021, the Company estimated that $ 9.6 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months.

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

The Bank posted cash collateral of $ 31.2 million at June 30, 2021 and $ 54.6 million at September 30, 2020.

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.

FHLB Borrowings and Interest Rate Swaps - At December 31, 2021 and September 30, 2021, the Bank had entered into interest rate swap agreements with a total notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At December 31, 2021 and September 30, 2021, the interest rate swap agreements had an average remaining term to maturity of 3.8 years and 4.1 years, respectively.

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.

At December 31, 2021 and September 30, 2021, the interest rate swaps were in a loss position with a total fair value of $ 22.5 million and $ 27.7 million, respectively, which was reported in other liabilities on the consolidated balance sheet.

During the three months ended December 31, 2021 and December 31, 2020, $ 1.8 million and $ 3.0 million, respectively, was reclassified from AOCI as an increase to interest expense.

At December 31, 2021, the Company estimated that $ 8.0 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months.

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

The Bank posted cash collateral of $ 23.1 million at December 31, 2021 and $ 28.0 million at September 30, 2021.

FAIR VALUE OF FINANCIAL INSTRUMENTS

11 unchanged sentences

The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.

The Company bases its fair values on the price that would be received from the sale of a financial instrument in an orderly transaction between market participants at the measurement date under current market conditions.

The Company bases the fair value of its financial instruments on the price that would be received from the sale of an instrument in an orderly transaction between market participants at the measurement date under current market conditions.

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

5 unchanged sentences

If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management.

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the nine months ended June 30, 2021 or during fiscal year 2020.

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2021 or during fiscal year 2021.

The Company's major security types, based on the nature and risks of the securities, are:

9 unchanged sentences

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 nine months ended June 30, 2021 or during fiscal year 2020.

No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2021 or during fiscal year 2021.

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

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at June 30, 2021 or September 30, 2020.

June 30, 2021

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2021 or September 30, 2021.

December 31, 2021

Quoted Prices Significant Significant

21 unchanged sentences

Interest rate swaps $ 27,719 $ — $ 27,719 $ —

The Company's significant Level 3 measurements that are measured on a non-recurring basis pertain to the Company's loans receivable and OREO.

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

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 as part of the ACL on an individual basis.

Those collateral dependent assets for which there is an associated ACL 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 the nine months ended June 30, 2021 and 2020 that were still held in the portfolio as of June 30, 2021 and 2020 was $ 7.4 million and $ 6.0 million, respectively.

Loans Receivable - 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.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2021 and 2020 that were still held in the portfolio as of December 31, 2021 and 2020 was $ 3.3 million and $ 5.9 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 %.

3 unchanged sentences

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

The primary significant unobservable inputs for commercial loans individually evaluated during the nine months ended June 30, 2021 and June 30, 2020 were downward adjustments to the book value of the collateral for lack of marketability.

During the nine months ended June 30, 2021, the adjustments ranged from 7 % to 50 %, with a weighted average of 22 %.

During the nine months ended June 30, 2020, the adjustments ranged from 4 % to 50 %, with a weighted average of 17 %.

The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2021 and December 31, 2020 were downward adjustments to the book value of the collateral for lack of marketability.

During the three months ended December 31, 2021, the adjustments ranged from 9 % to 56 %, with a weighted average of 21 %.

During the three months ended December 31, 2020, the adjustments ranged from 10 % to 50 %, with a weighted average of 26 %.

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

5 unchanged sentences

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

The fair value of OREO measured on a non-recurring basis during the nine months ended June 30, 2021 and 2020 that was still held in the portfolio as of June 30, 2021 and 2020 was $ 177 thousand and $ 183 thousand, respectively.

The carrying value of the properties equaled the fair value of the properties at June 30, 2021 and 2020.

There was no OREO measured on a non-recurring basis during the three months ended December 31, 2021.

The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2020 that was still held in the portfolio as of December 31, 2020 was $ 30 thousand.

The carrying value of the properties equaled the fair value of the properties at December 31, 2021 and 2020.

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

2 unchanged sentences

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

June 30, 2021

December 31, 2021

Carrying Estimated Fair Value

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The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.

For the Three Months Ended June 30, 2021

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ 3,934 $ ( 22,887 ) $ ( 18,953 )

Other comprehensive income (loss), before reclassifications 5,703 ( 2,212 ) 3,491

Amount reclassified from AOCI, net of taxes of $( 686 )

— 2,124 2,124

Other comprehensive income (loss) 5,703 ( 88 ) 5,615

Ending balance $ 9,637 $ ( 22,975 ) $ ( 13,338 )

For the Nine Months Ended June 30, 2021

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ 23,728 $ ( 40,233 ) $ ( 16,505 )

Other comprehensive income (loss), before reclassifications ( 14,091 ) 5,743 ( 8,348 )

Amount reclassified from AOCI, net of taxes of $( 3,717 )

— 11,515 11,515

Other comprehensive income (loss) ( 14,091 ) 17,258 3,167

Ending balance $ 9,637 $ ( 22,975 ) $ ( 13,338 )

For the Three Months Ended June 30, 2020

For the Three Months Ended December 31, 2021

Unrealized Unrealized

9 unchanged sentences

Ending balance $ ( 6,331 ) $ ( 16,995 ) $ ( 23,326 )

For the Nine Months Ended June 30, 2020

For the Three Months Ended December 31, 2020

Unrealized Unrealized

10 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements