Capitol Federal Financial, Inc. 10-Q

Item 1. Financial Statements CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts) December 31, September 30, 2021 2021 ASSETS: Cash and cash equivalents (includes interest-earning deposits of $ 106,225 and $ 24,289 ) $ 135,475 $ 42,262 Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $ 1,899,027 and $ 2,008,456 ) 1,890,653 2,014,608 Loans receivable, net (allowance for credit losses ("ACL") of $ 17,535 and $ 19,823 ) 7,095,605 7,081,142 Federal Home Loan Bank Topeka ("FHLB") stock, at cost 75,261 73,421 Premises and equipment, net 97,718 99,127 Other assets 314,445 320,686 TOTAL ASSETS $ 9,609,157 $ 9,631,246 LIABILITIES: Deposits $ 6,648,004 $ 6,597,396 Borrowings 1,583,303 1,582,850 Advance payments by borrowers for taxes and insurance 38,227 72,729 Income taxes payable, net 3,733 918 Deferred income tax liabilities, net 3,981 5,810 Other liabilities 115,249 129,270 Total liabilities 8,392,497 8,388,973 STOCKHOLDERS' EQUITY: Preferred stock, $ .01 par value; 100,000,000 shares authorized, no shares issued or outstanding — — Common stock, $ .01 par value; 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 1,388 1,388 Additional paid-in capital 1,189,827 1,189,633 Unearned compensation, Employee Stock Ownership Plan ("ESOP") ( 30,974 ) ( 31,387 ) Retained earnings 79,745 98,944 Accumulated other comprehensive (loss) income ("AOCI"), net of tax ( 23,326 ) ( 16,305 ) Total stockholders' equity 1,216,660 1,242,273 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,609,157 $ 9,631,246 See accompanying notes to consolidated financial statements. 3 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) For the Three Months Ended December 31, 2021 2020 INTEREST AND DIVIDEND INCOME: Loans receivable $ 55,788 $ 60,694 Mortgage-backed securities ("MBS") 4,625 5,710 FHLB stock 1,231 1,069 Investment securities 808 683 Cash and cash equivalents 14 51 Total interest and dividend income 62,466 68,207 INTEREST EXPENSE: Deposits 9,267 14,067 Borrowings 7,585 10,327 Total interest expense 16,852 24,394 NET INTEREST INCOME 45,614 43,813 PROVISION FOR CREDIT LOSSES ( 3,439 ) ( 1,532 ) NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 49,053 45,345 NON-INTEREST INCOME: Deposit service fees 3,430 2,947 Insurance commissions 711 638 Other non-interest income 1,365 1,485 Total non-interest income 5,506 5,070 NON-INTEREST EXPENSE: Salaries and employee benefits 13,728 14,138 Information technology and related expense 4,432 4,233 Occupancy, net 3,379 3,379 Regulatory and outside services 1,368 1,585 Advertising and promotional 1,064 838 Deposit and loan transaction costs 697 766 Federal insurance premium 639 621 Office supplies and related expense 468 424 Other non-interest expense 919 1,083 Total non-interest expense 26,694 27,067 INCOME BEFORE INCOME TAX EXPENSE 27,865 23,348 INCOME TAX EXPENSE 5,679 4,450 NET INCOME $ 22,186 $ 18,898 Basic earnings per share ("EPS") $ 0.16 $ 0.14 Diluted EPS $ 0.16 $ 0.14 Basic weighted average common shares 135,627,043 135,397,691 Diluted weighted average common shares 135,627,043 135,398,884 See accompanying notes to consolidated financial statements. 4 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2021 2020 Net income $ 22,186 $ 18,898 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $ 3,544 and $( 409 ) ( 10,982 ) 1,140 Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $( 1,277 ) and $( 1,220 ) 3,961 3,994 Comprehensive income $ 15,165 $ 24,032 See accompanying notes to consolidated financial statements. 5 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except per share amounts) For the Three Months Ended December 31, 2021 Additional Unearned Total Common Paid-In Compensation Retained Stockholders' Stock Capital ESOP Earnings AOCI Equity Balance at September 30, 2021 $ 1,388 $ 1,189,633 $ ( 31,387 ) $ 98,944 $ ( 16,305 ) $ 1,242,273 Net income 22,186 22,186 Other comprehensive loss, net of tax ( 7,021 ) ( 7,021 ) ESOP activity 74 413 487 Restricted stock activity, net ( 3 ) ( 3 ) Stock-based compensation 123 123 Cash dividends to stockholders ($ 0.305 per share) ( 41,385 ) ( 41,385 ) 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 Common Paid-In Compensation Retained Stockholders' Stock Capital ESOP Earnings AOCI Equity Balance at September 30, 2020 $ 1,389 $ 1,189,853 $ ( 33,040 ) $ 143,162 $ ( 16,505 ) $ 1,284,859 Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13 ("CECL"), net of tax ( 2,288 ) ( 2,288 ) Net income 18,898 18,898 Other comprehensive income, net of tax 5,134 5,134 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 See accompanying notes to consolidated financial statements. 6 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 22,186 $ 18,898 Adjustments to reconcile net income to net cash provided by operating activities: FHLB stock dividends ( 1,231 ) ( 1,069 ) Provision for credit losses ( 3,439 ) ( 1,532 ) Originations of loans receivable held-for-sale ("LHFS") ( 678 ) ( 364 ) Proceeds from sales of LHFS 285 366 Amortization and accretion of premiums and discounts on securities 1,764 1,017 Depreciation and amortization of premises and equipment 2,341 2,304 Amortization of intangible assets 350 422 Amortization of deferred amounts related to FHLB advances, net 453 254 Common stock committed to be released for allocation - ESOP 487 493 Stock-based compensation 123 118 Changes in: Other assets, net 1,452 1,942 Income taxes payable/receivable, net 2,807 2,372 Deferred income tax liabilities, net 438 248 Other liabilities ( 7,069 ) ( 6,266 ) Net cash provided by operating activities 20,269 19,203 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of AFS securities — ( 504,780 ) Proceeds from calls, maturities and principal reductions of AFS securities 107,665 152,396 Proceeds from the redemption of FHLB stock 1,224 10,238 Purchase of FHLB stock ( 1,833 ) — Net change in loans receivable ( 12,387 ) 203,698 Purchase of premises and equipment ( 1,526 ) ( 2,058 ) Proceeds from sale of other real estate owned ("OREO") 120 53 Proceeds from bank-owned life insurance ("BOLI") death benefit — 443 Net cash provided by (used in) investing activities 93,263 ( 140,010 ) (Continued) 7 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2021 2020 CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid ( 41,385 ) ( 29,128 ) Net change in deposits 50,608 219,434 Proceeds from borrowings 293,702 305,000 Repayments on borrowings ( 293,702 ) ( 358,000 ) Change in advance payments by borrowers for taxes and insurance ( 34,502 ) ( 32,505 ) Payment of FHLB prepayment penalties — ( 2,292 ) Repurchase of common stock — ( 4,568 ) 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: Beginning of period 70,292 239,708 End of period $ 158,545 $ 216,842 See accompanying notes to consolidated financial statements. (Concluded) 8 Notes to Consolidated Financial Statements (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC"). 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 $ 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. See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds. 2. EARNINGS PER SHARE Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. 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 December 31, 2021 2020 (Dollars in thousands, except per share amounts) Net income $ 22,186 $ 18,898 Income allocated to participating securities ( 12 ) ( 13 ) Net income available to common stockholders $ 22,174 $ 18,885 Average common shares outstanding 135,626,594 135,397,242 Average committed ESOP shares outstanding 449 449 Total basic average common shares outstanding 135,627,043 135,397,691 Effect of dilutive stock options — 1,193 Total diluted average common shares outstanding 135,627,043 135,398,884 Net EPS: Basic $ 0.16 $ 0.14 Diluted $ 0.16 $ 0.14 Antidilutive stock options, excluded from the diluted average common shares outstanding calculation 543,761 431,212 9 3. SECURITIES 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 United States Government-Sponsored Enterprises ("GSEs"). December 31, 2021 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 1,375,711 $ 14,105 $ 13,577 $ 1,376,239 GSE debentures 519,972 — 8,908 511,064 Municipal bonds 3,344 6 — 3,350 $ 1,899,027 $ 14,111 $ 22,485 $ 1,890,653 September 30, 2021 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 1,484,211 $ 18,690 $ 8,908 $ 1,493,993 GSE debentures 519,971 — 3,645 516,326 Municipal bonds 4,274 15 — 4,289 $ 2,008,456 $ 18,705 $ 12,553 $ 2,014,608 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. December 31, 2021 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 891,031 $ 12,727 $ 45,877 $ 850 GSE debentures 511,064 8,908 — — Municipal bonds — — — — $ 1,402,095 $ 21,635 $ 45,877 $ 850 September 30, 2021 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 881,975 $ 8,843 $ 10,612 $ 65 GSE debentures 516,325 3,645 — — Municipal bonds — — — — $ 1,398,300 $ 12,488 $ 10,612 $ 65 10 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 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. 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. Amortized Estimated Cost Fair Value (Dollars in thousands) One year or less $ 3,344 $ 3,350 One year through five years 519,972 511,064 523,316 514,414 MBS 1,375,711 1,376,239 $ 1,899,027 $ 1,890,653 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 December 31, 2021 2020 (Dollars in thousands) Taxable $ 790 $ 645 Non-taxable 18 38 $ 808 $ 683 The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented. December 31, 2021 September 30, 2021 (Dollars in thousands) Public unit deposits $ 234,884 $ 264,885 Federal Reserve Bank of Kansas City ("FRB of Kansas City") 59,249 64,707 Commercial deposits 44,251 66,256 $ 338,384 $ 395,848 11 4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable, net at the dates presented is summarized as follows: December 31, 2021 September 30, 2021 (Dollars in thousands) One- to four-family: Originated $ 3,941,568 $ 3,956,064 Correspondent purchased 1,991,944 2,003,477 Bulk purchased 165,339 173,662 Construction 47,508 39,142 Total 6,146,359 6,172,345 Commercial: Commercial real estate 687,518 676,908 Commercial and industrial 76,254 66,497 Construction 105,702 85,963 Total 869,474 829,368 Consumer: Home equity 84,400 86,274 Other 7,825 8,086 Total 92,225 94,360 Total loans receivable 7,108,058 7,096,073 Less: ACL 17,535 19,823 Discounts/unearned loan fees 29,363 29,556 Premiums/deferred costs ( 34,445 ) ( 34,448 ) $ 7,095,605 $ 7,081,142 Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri. One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function. The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters. The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided. Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. 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, loan-to-value ("LTV") 12 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. Appraisals on properties securing these loans are performed by independent state certified fee appraisers. 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 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. As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans. 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 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. The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount. Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. 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 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. 13 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 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 Fiscal Year Year Year Year Prior Line of Year 2021 2020 2019 2018 Years Credit Total (Dollars in thousands) One- to four-family: Originated Pass $ 153,605 $ 953,530 $ 679,862 $ 309,547 $ 238,567 $ 1,616,383 $ — $ 3,951,494 Special Mention — 280 441 489 674 7,502 — 9,386 Substandard — — 965 862 151 10,421 — 12,399 Correspondent purchased Pass 64,897 682,510 309,379 81,155 125,506 743,060 — 2,006,507 Special Mention — — — 353 517 2,706 — 3,576 Substandard — — — 169 — 4,917 — 5,086 Bulk purchased Pass — — — — — 161,842 — 161,842 Special Mention — — — — — — — — Substandard — — — — — 4,154 — 4,154 218,502 1,636,320 990,647 392,575 365,415 2,550,985 — 6,154,444 Commercial: Commercial real estate Pass 38,103 276,050 149,120 94,674 58,672 117,858 6,057 740,534 Special Mention — 47,093 — — — — — 47,093 Substandard — 944 594 225 662 32 — 2,457 Commercial and industrial Pass 18,238 27,849 9,012 6,422 1,683 1,499 10,651 75,354 Special Mention — — — — — — — — Substandard — — — — 86 38 786 910 56,341 351,936 158,726 101,321 61,103 119,427 17,494 866,348 Consumer: Home equity Pass 347 3,143 1,857 1,241 1,287 2,561 73,106 83,542 Special Mention — — — 56 — — 265 321 Substandard — — 59 — — 85 521 665 Other Pass 820 2,964 1,374 895 854 521 381 7,809 Special Mention — — — — — — — — Substandard — — — 7 1 3 — 11 1,167 6,107 3,290 2,199 2,142 3,170 74,273 92,348 Total $ 276,010 $ 1,994,363 $ 1,152,663 $ 496,095 $ 428,660 $ 2,673,582 $ 91,767 $ 7,113,140 14 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 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: 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 Consumer: Home equity 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 Other 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 15 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. December 31, 2021 Current Fiscal Fiscal Fiscal Fiscal Revolving Fiscal Year Year Year Year Prior Line of Year 2021 2020 2019 2018 Years Credit Total (Dollars in thousands) One- to four-family: Originated Current $ 153,605 $ 953,810 $ 680,212 $ 309,531 $ 238,982 $ 1,626,212 $ — $ 3,962,352 30-89 — — 372 1,251 410 4,960 — 6,993 90+/FC — — 684 116 — 3,134 — 3,934 Correspondent purchased Current 64,897 681,753 309,379 81,508 124,031 745,230 — 2,006,798 30-89 — 757 — — 1,992 2,464 — 5,213 90+/FC — — — 169 — 2,989 — 3,158 Bulk purchased Current — — — — — 163,873 — 163,873 30-89 — — — — — 155 — 155 90+/FC — — — — — 1,968 — 1,968 218,502 1,636,320 990,647 392,575 365,415 2,550,985 — 6,154,444 Commercial: Commercial real estate Current 38,103 323,897 149,120 94,674 59,102 117,858 6,057 788,811 30-89 — 190 — — — 32 — 222 90+/FC — — 594 225 232 — — 1,051 Commercial and industrial Current 18,238 27,849 9,012 6,422 1,683 1,499 11,437 76,140 30-89 — — — — — — — — 90+/FC — — — — 86 38 — 124 56,341 351,936 158,726 101,321 61,103 119,427 17,494 866,348 Consumer: Home equity Current 347 3,143 1,857 1,297 1,287 2,559 73,423 83,913 30-89 — — — — — 7 142 149 90+/FC — — 59 — — 80 327 466 Other Current 820 2,961 1,365 895 854 518 381 7,794 30-89 — 3 9 — — 3 — 15 90+/FC — — — 7 1 3 — 11 1,167 6,107 3,290 2,199 2,142 3,170 74,273 92,348 Total $ 276,010 $ 1,994,363 $ 1,152,663 $ 496,095 $ 428,660 $ 2,673,582 $ 91,767 $ 7,113,140 16 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 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: 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 Consumer: Home equity 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 Other 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 17 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 Amortized Delinquent in Foreclosure Loans Loans Cost (Dollars in thousands) One- to four-family: Originated $ 6,993 $ 3,934 $ 10,927 $ 3,962,352 $ 3,973,279 Correspondent purchased 5,213 3,158 8,371 2,006,798 2,015,169 Bulk purchased 155 1,968 2,123 163,873 165,996 Commercial: Commercial real estate 222 1,051 1,273 788,811 790,084 Commercial and industrial — 124 124 76,140 76,264 Consumer: Home equity 149 466 615 83,913 84,528 Other 15 11 26 7,794 7,820 $ 12,747 $ 10,712 $ 23,459 $ 7,089,681 $ 7,113,140 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) One- to four-family: Originated $ 4,142 $ 3,677 $ 7,819 $ 3,971,717 $ 3,979,536 Correspondent purchased 2,629 3,257 5,886 2,020,706 2,026,592 Bulk purchased 555 3,003 3,558 170,809 174,367 Commercial: Commercial real estate 37 1,084 1,121 758,508 759,629 Commercial and industrial — 135 135 66,243 66,378 Consumer: 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 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. 18 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) One- to four-family: Originated $ 4,385 $ 1,835 $ 4,965 $ 2,237 Correspondent purchased 3,158 307 3,257 307 Bulk purchased 1,968 1,062 3,134 1,564 Commercial: Commercial real estate 1,108 457 1,496 485 Commercial and industrial 124 124 134 86 Consumer: Home equity 466 83 494 84 Other 11 — 13 — $ 11,220 $ 3,868 $ 13,493 $ 4,763 19 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- of Restructured Restructured of Restructured Restructured Contracts Outstanding Outstanding Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family: Originated 1 $ 24 $ 24 4 $ 647 $ 645 Correspondent purchased — — — — — — Bulk purchased — — — — — — Commercial: Commercial real estate — — — — — — Commercial and industrial — — — — — — Consumer: Home equity — — — — — — Other — — — — — — 1 $ 24 $ 24 4 $ 647 $ 645 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 December 31, 2021 December 31, 2020 Number of Amortized Number of Recorded Contracts Cost Contracts Investment (Dollars in thousands) One- to four-family: Originated 1 $ 684 — $ — Correspondent purchased — — — — Bulk purchased — — — — Commercial: Commercial real estate — — — — Commercial and industrial — — — — Consumer: Home equity — — — — Other — — — — 1 $ 684 — $ — 20 Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented. For the Three Months Ended December 31, 2021 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823 Charge-offs ( 4 ) — — ( 4 ) ( 10 ) ( 1 ) ( 15 ) Recoveries 9 — — 9 36 1 46 Provision for credit losses 22 20 ( 36 ) 6 ( 2,325 ) — ( 2,319 ) Ending balance $ 1,639 $ 2,082 $ 268 $ 3,989 $ 13,353 $ 193 $ 17,535 For the Three Months Ended December 31, 2020 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) 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 ( 14 ) — — ( 14 ) ( 515 ) ( 3 ) ( 532 ) Recoveries 34 — — 34 12 22 68 Provision for credit losses ( 115 ) ( 566 ) ( 51 ) ( 732 ) 603 ( 48 ) ( 177 ) Ending balance $ 1,538 $ 1,758 $ 852 $ 4,148 $ 21,707 $ 270 $ 26,125 21 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 December 31, 2021. The key assumptions utilized in estimating the Company's ACL at December 31, 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 December 31, 2021. 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 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; and ◦ 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 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. 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) Beginning balance $ 5,743 Beginning balance $ — Provision for credit losses ( 1,120 ) Adoption of CECL 7,788 Ending balance $ 4,623 Balance at October 1, 2020 7,788 Provision for credit losses ( 1,355 ) Ending balance $ 6,433 22 5. BORROWED FUNDS 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. 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. 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value Measurements - The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments. The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are: • Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. • Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. 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 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. The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis. AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. 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 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: • GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2) • MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2) 23 • Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2) 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. See "Note 5. 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 obtained from the counterparty during the three months ended December 31, 2021 or during fiscal year 2021. (Level 2) 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 December 31, 2021 or September 30, 2021. December 31, 2021 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 1,376,239 $ — $ 1,376,239 $ — GSE debentures 511,064 — 511,064 — Municipal bonds 3,350 — 3,350 — $ 1,890,653 $ — $ 1,890,653 $ — Liabilities: Interest rate swaps $ 22,481 $ — $ 22,481 $ — September 30, 2021 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 1,493,993 $ — $ 1,493,993 $ — GSE debentures 516,326 — 516,326 — Municipal bonds 4,289 — 4,289 — $ 2,014,608 $ — $ 2,014,608 $ — Liabilities: Interest rate swaps $ 27,719 $ — $ 27,719 $ — 24 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 - 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 %. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal. For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for 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. 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. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10 %. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. 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. 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. 25 Fair Value Disclosures - The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates. The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows: December 31, 2021 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 135,475 $ 135,475 $ 135,475 $ — $ — AFS securities 1,890,653 1,890,653 — 1,890,653 — Loans receivable 7,095,605 7,492,182 — — 7,492,182 FHLB stock 75,261 75,261 75,261 — — Liabilities: Deposits 6,648,004 6,662,597 4,044,775 2,617,822 — Borrowings 1,583,303 1,597,020 — 1,597,020 — Interest rate swaps 22,481 22,481 — 22,481 — September 30, 2021 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 42,262 $ 42,262 $ 42,262 $ — $ — AFS securities 2,014,608 2,014,608 — 2,014,608 — Loans receivable 7,081,142 7,534,278 — — 7,534,278 FHLB stock 73,421 73,421 73,421 — — Liabilities: Deposits 6,597,396 6,649,954 3,838,656 2,811,298 — Borrowings 1,582,850 1,611,414 — 1,611,414 — Interest rate swaps 27,719 27,719 — 27,719 — 26 7. ACCUMULATED OTHER COMPREHENSIVE INCOME The following tables present the changes in the components of AOCI, net of tax, for the periods indicated. For the Three Months Ended December 31, 2021 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ 4,651 $ ( 20,956 ) $ ( 16,305 ) Other comprehensive income (loss), before reclassifications ( 10,982 ) 2,178 ( 8,804 ) Amount reclassified from AOCI, net of taxes of $( 575 ) — 1,783 1,783 Other comprehensive income (loss) ( 10,982 ) 3,961 ( 7,021 ) Ending balance $ ( 6,331 ) $ ( 16,995 ) $ ( 23,326 ) For the Three Months Ended December 31, 2020 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 1,140 1,024 2,164 Amount reclassified from AOCI, net of taxes of $( 959 ) — 2,970 2,970 Other comprehensive income (loss) 1,140 3,994 5,134 Ending balance $ 24,868 $ ( 36,239 ) $ ( 11,371 ) 27