What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2022-02-09 · 574 added, 196 removed, 662 unchanged (54% of the section changed)

14 unchanged sentences

• the strength of the U.S.

economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;

economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans, originated commercial loans, and entered into commercial loan participations;

• changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;

15 unchanged sentences

• our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyber-attacks;

• acquisitions and dispositions;

• changes in consumer spending, borrowing and saving habits;

14 unchanged sentences

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

The Company recognized net income of $22.2 million, or $0.16 per share, for the current quarter compared to net income of $18.9 million, or $0.14 per share, for the prior year quarter.

The increase in net income was due primarily to a higher negative provision for credit losses in the current quarter and an increase in net interest income.

The net interest margin increased seven basis points, from 1.92% for the prior year quarter to 1.99% for the current quarter.

The increase in net interest income and net interest margin was due mainly to a reduction in the cost of retail certificates of deposit and borrowings, which outpaced the decrease in asset yields.

The Bank's asset quality continued to remain strong during the current quarter, reflected in low delinquency and a net recovery during the quarter.

At December 31, 2021, loans 30 to 89 days delinquent were 0.18% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.15% of total loans receivable, net.

During the current quarter, net recoveries were $31 thousand.

At December 31, 2021, the Bank had a one-year gap position of $(928.0) million, or (9.7)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period.

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

The Company recognized net income of $43.8 million, or $0.32 per share, for the current year six-month period compared to net income of $39.3 million, or $0.29 per share, for the prior year six-month period.

The increase in net income was due primarily to an increase in net interest income and a higher negative provision for credit losses in the current year period, partially offset by higher income tax expense.

The net interest margin decreased seven basis points, from 1.90% for the prior year period to 1.83% for the current year period.

During the current quarter, the Company's leverage strategy, which had not been in place since 2019, was reimplemented.

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

Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 1.90% for the prior year period to 2.00% for the current year period.

The increase in net interest margin, excluding the effects of the leverage strategy, was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

The Bank's asset quality continued to remain strong, reflected in low delinquency levels and a net recovery during the current year six-month period.

At March 31, 2022, loans 30 to 89 days delinquent were 0.15% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.16% of total loans receivable, net.

During the current year period, net recoveries were $45 thousand.

At March 31, 2022, the Bank had a one-year gap position of $(1.46) billion, or (15.3)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period.

Despite a negative gap position, the net interest income projection increased as of March 31, 2022 compared to December 31, 2021 due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the increase in market interest rates.

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

At times, the Bank has utilized a leverage strategy to increase earnings.

The leverage strategy involves borrowing on either the Bank's FHLB line of credit or by entering into short-term FHLB advances with the proceeds from the borrowings, net of the required FHLB stock holdings, being deposited at the Federal Reserve Bank of Kansas City.

The leverage strategy was not in place during the current quarter or in recent years as the strategy was not profitable.

The strategy did, however, become profitable again in January 2022, and management reimplemented the strategy by entering into $1.80 billion of short-term FHLB advances.

It is expected that the strategy will continue to be used as long as it is profitable.

The borrowing level related to the strategy may fluctuate while the strategy is in place.

Management intends to implement a new core processing system for the Bank by September 2023.

The replacement system will better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences.

The implementation of the new core system and related conversion of data may result in increased third party expenses later in fiscal year 2022 and into fiscal year 2023.

Available Information

9 unchanged sentences

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

December 31, September 30, Percent

2021 2021 Change

Annualized Annualized

March 31, December 31, Percent September 30, Percent

2022 2021 Change 2021 Change

(Dollars in thousands)

8 unchanged sentences

Average number of diluted shares outstanding 135,677 135,627 0.1 135,571 0.2

The decrease in total assets was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents.

The decrease in securities was due to not reinvesting all of the cash flows from the securities portfolio during the quarter.

The increase in deposits was due primarily to an increase in non-maturity deposits, partially offset by a decrease in the certificate of deposit portfolio, as customers moved some of their funds from maturing certificates to more liquid investment options, such as the Bank's money market accounts.

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

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

The decrease in total assets from September 30, 2021 and December 31, 2021 to March 31, 2022 was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents.

The decrease in securities and stockholders' equity, specifically AOCI, from September 30, 2021 and December 31, 2021 to March 31, 2022 was due mainly to an increase in unrealized losses on AFS securities as a result of an increase in market yields from the time the securities were purchased.

Management anticipates the entire principal balance will be collected as scheduled for the AFS securities and has no current intentions to sell the securities.

Loans Receivable.

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

December 31, 2021 September 30, 2021

Amount Rate Amount Rate

March 31, 2022 December 31, 2021 September 30, 2021

Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

15 unchanged sentences

ACL 15,312 17,535 19,823

Discounts/unearned loan fees 29,363 29,556

Deferred loan fees/discounts 29,264 29,363 29,556

Premiums/deferred costs (34,703) (34,445) (34,448)

Total loans receivable, net $ 7,108,810 $ 7,095,605 $ 7,081,142

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

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

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

3 unchanged sentences

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

For the Three Months Ended

December 31, 2021 December 31, 2020

Amount Rate Amount Rate

For the Three Months Ended For the Six Months Ended

March 31, 2022 March 31, 2022 March 31, 2021

Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

10 unchanged sentences

Loan originations, purchases, and refinances are reported together.

For the Three Months Ended

December 31, 2021 December 31, 2020

For the Six Months Ended

March 31, 2022 March 31, 2021

Amount Rate % of Total Amount Rate % of Total

27 unchanged sentences

Total purchased/participation loans $ 322,706 2.86 $ 367,245 3.01

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average LTV ratio, and average balance per loan as of December 31, 2021.

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

Credit scores are updated at least annually, with the latest update in March 2022, from a nationally recognized consumer rating agency.

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

7 unchanged sentences

$ 6,094,151 100.0 % 3.03 770 62 197

T he following ta ble presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs, and weighted average credit scores for the current year-to-date period.

Amount Rate LTV Score

For the Three Months Ended For the Six Months Ended

March 31, 2022 March 31, 2022

Credit Credit

Amount Rate LTV Score Amount Rate LTV Score

(Dollars in thousands)

2 unchanged sentences

$ 282,573 2.90 70 768 $ 607,233 2.65 71 768

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 2021, along with associated weighted average rates.

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2022, along with associated weighted average rates.

Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee.

4 unchanged sentences

$ 205,148 3.24

Commercial Loans - During the current year period, the Bank originated $49.2 million of commercial loans and entered into commercial loan participations totaling $36.7 million.

The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $70.6 million at a weighted average rate of 3.89%.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of December 31, 2021.

Commercial Loans - During the six months ended March 31, 2022, the Bank originated $137.3 million of commercial loans and entered into commercial loan participations totaling $74.1 million.

During the quarter and six months ended March 31, 2022, the Bank processed commercial loan disbursements, excluding lines of credit, of approximately $103.5 million and $174.1 million, respectively, at a weighted average rate of 3.95% and 3.93%, respectively.

As of March 31, 2022, December 31, 2021, and September 30, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $101.3 million, $99.8 million and $90.7 million, respectively, and commitments of $1.4 million, $6.4 million and $16.9 million respectively.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated.

As of March 31, 2022, the Bank had commercial real estate and commercial construction loan commitments totaling $28.7 million, at a weighted average rate of 4.35%.

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

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

March 31, 2022 December 31, 2021 September 30, 2021

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

Count Principal Amount Amount Amount Amount

(Dollars in thousands)

9 unchanged sentences

Weighted average rate 3.96 % 3.83 % 3.93 % 3.97 % 4.01 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of December 31, 2021.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of the dates indicated.

March 31, 2022 December 31, 2021 September 30, 2021

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

Count Principal Amount Amount Amount Amount

(Dollars in thousands)

Kansas 630 $ 313,861 $ 52,542 $ 366,403 $ 386,332 $ 348,835

Texas 12 138,982 130,790 269,772 3,350 273,122 25.5

Missouri 169 226,952 54,278 281,230 239,943 232,041

Texas 11 162,660 111,360 274,020 269,772 273,124

Colorado 6 18,722 16,730 35,452 35,552 36,099

3 unchanged sentences

835 $ 804,921 $ 253,876 $ 1,058,797 $ 1,035,334 $ 997,043

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2021.

(Dollars in thousands)

6 unchanged sentences

1,430 $ 1,190,262

As of December 31, 2021 and September 30, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $143.5 million and $146.4 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period.

As of March 31, 2022 and December 31, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $74.3 million and $143.5 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 modifications") that were still in their deferral period.

The COVID-19 modifications of these loans occurred during fiscal year 2021.

Asset Quality

2 unchanged sentences

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

Of the loans 30 to 89 days delinquent at December 31, 2021, approximately 73% were 59 days or less delinquent.

Of the loans 30 to 89 days delinquent at March 31, 2022, approximately 64% were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at:

December 31, September 30,

Number Amount Number Amount

March 31, December 31, September 30,

2022 2021 2021

Number Amount Number Amount Number Amount

(Dollars in thousands)

13 unchanged sentences

Non-performing assets include nonaccrual loans and OREO.

Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by December 31, 2021, $5.7 million were 30 to 89 days delinquent and $2.3 million were 90 or more days delinquent as of December 31, 2021.

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

At December 31, 2021, there were $5.5 million of nonaccrual one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place.

The foreclosure suspension was lifted in January 2022 resulting in foreclosure proceedings continuing or starting on a portion of the $5.5 million of such loans.

Of the one- to four-family loans with COVID-19 modifications that had completed the deferral period by March 31, 2022, $2.9 million were 30 to 89 days delinquent as of March 31, 2022 and included in the table above, and $2.8 million were 90 or more days delinquent or in foreclosure as of March 31, 2022 and included in the table below.

Nonaccrual Loans and OREO at:

December 31, September 30,

Number Amount Number Amount

March 31, December 31, September 30,

2022 2021 2021

Number Amount Number Amount Number Amount

(Dollars in thousands)

26 unchanged sentences

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

The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at December 31, 2021.

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

At December 31, 2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

At March 31, 2022, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

Loans 30 to 89 Loans 90 or More Days Delinquent

10 unchanged sentences

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

The decrease in commercial special mention loans at December 31, 2021 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the current quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.

December 31, 2021 September 30, 2021

The decrease in commercial special mention loans at March 31, 2022 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the December 31, 2021 quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.

March 31, 2022 September 30, 2021

Special Mention Substandard Special Mention Substandard

6 unchanged sentences

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

Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of December 31, 2021.

Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of March 31, 2022.

Distribution of ACL Ratio of ACL to

Loans Receivable

December 31, September 30, December 31, September 30,

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

2022 2021 2021 2022 2021 2021

14 unchanged sentences

The ratio of net charge-offs (recoveries) ("NCOs") during the current year period to average non-performing assets was a negative percentage compared to a positive percentage in the prior year period due to a net recovery in the current year period and a net charge-off in the prior year period.

The ACL to nonaccrual loans at end of period ratio and ACL to loans receivable, net at end of period ratio were lower in the current year period compared to the prior year period due primarily to a lower ACL balance at December 31, 2021.

Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.

At or For the Three Months Ended

December 31, 2021 December 31, 2020

At or For the Six Months Ended

March 31, 2022 March 31, 2021

(Dollars in thousands)

3 unchanged sentences

Recoveries 65 136

Net (charge-offs) recoveries 31 (464)

Net recoveries (charge-offs) 45 (534)

Provision for credit losses (4,556) (2,835)

7 unchanged sentences

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

For the Three Months Ended

December 31, 2021 December 31, 2020

For the Six Months Ended

March 31, 2022 March 31, 2021

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

14 unchanged sentences

$ (45) $ 7,111,928 0.00 $ 534 $ 7,052,759 0.01

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

Additionally, the level of ACL may fluctuate based on the balance and mix of the loan portfolio.

If actual results reflect significant underperformance compared to our assumptions and/or if one or more of our assumptions, such as the economic forecast, represents a more negative outlook in a future period, there could be additions to our ACL and an increase in the provision for credit losses.

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

Overall, fixed-rate securities comprised 94% of our securities portfolio at December 31, 2021.

Overall, fixed-rate securities comprised 95% of our securities portfolio at March 31, 2022.

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

December 31, 2021 September 30, 2021

March 31, 2022 December 31, 2021 September 30, 2021

Amount Yield WAL (1)

(Dollars in thousands)

11 unchanged sentences

The weighted average yields for the beginning and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio.

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

For the Three Months Ended

December 31, 2021 December 31, 2020

The beginning and ending WALs are the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.

For the Six Months Ended

March 31, 2022 March 31, 2021

Amount Yield WAL Amount Yield WAL

6 unchanged sentences

Ending balance - carrying value $ 1,780,419 1.25 4.1 $ 2,095,924 1.28 3.9

Total liabilities were $8.39 billion at both December 31, 2021 and September 30, 2021.

During the current quarter, deposits increased $50.6 million, largely offset by a seasonal decrease in advance payments by borrowers for taxes and insurance.

Total liabilities were $8.36 billion at March 31, 2022 and $8.39 billion at December 31, 2021 and September 30, 2021, respectively.

The decrease in liabilities between December 31, 2021 and March 31, 2022 was due primarily to a decrease in deposits and a decrease in other liabilities mainly related to a reduction in the interest rate swap loss position as a result of an increase in market interest rates, along with the funding of low income housing partnership commitments, partially offset by an increase in escrows due to timing of when funds are received and disbursed.

The decrease in liabilities between September 30, 2021 and March 31, 2022 was due primarily to a reduction in other liabilities as noted above, partially offset by an increase in deposits.

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

The decrease in the deposit portfolio rate from September 30, 2021 to December 31, 2021 was due primarily to retail certificates of deposit repricing to lower offered rates as balances renewed, along with growth in lower costing non-maturity deposits and a decrease in the balance of retail certificates of deposit.

December 31, 2021 September 30, 2021

Amount Rate Total Amount Rate Total

The $33.2 million decrease in the deposit portfolio balance between December 31, 2021 and March 31, 2022 was due primarily to a decrease in certificates of deposit, partially offset by an increase in money market and savings accounts.

The $17.4 million increase in the deposit portfolio between September 30, 2021 and March 31, 2022 was due primarily to an increase in money market and checking accounts, partially offset by a decrease in certificates of deposit.

The decrease in the deposit portfolio rate from September 30, 2021 to March 31, 2022 was due primarily to retail certificates of deposit repricing to lower offered rates as balances renewed and, to a lesser extent, growth in lower costing non-maturity deposits.

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

March 31, 2022 December 31, 2021 September 30, 2021

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

(Dollars in thousands)

10 unchanged sentences

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

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of December 31, 2021.

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of March 31, 2022.

Term Borrowings Amount

12 unchanged sentences

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

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

The expected WAL of the interest rate swaps was 3.8 years at December 31, 2021.

Each interest rate swap matures on the same date as the related FHLB advance.

The expected WAL of the interest rate swaps was 3.6 years at March 31, 2022.

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

5 unchanged sentences

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

For the Three Months Ended

December 31, 2021 December 31, 2020

For the Six Months Ended

March 31, 2022 March 31, 2021

Effective Effective

3 unchanged sentences

Maturities and prepayments (100,000) 3.14 — (665,000) 2.30 —

(100,000) 3.14 — (350,000) 2.40 —

New FHLB borrowings 100,000 3.44 6.5 465,000 2.00 3.4

100,000 3.44 6.5 300,000 2.12 2.7

Ending balance $ 1,590,000 1.90 2.8 $ 1,590,000 1.94 3.3

During the current quarter, the Bank reimplemented the leverage strategy which involves borrowing up to $2.10 billion either on the Bank's line of credit with FHLB or by entering into short-term FHLB advances, depending on the rates offered by FHLB.

These borrowings were repaid prior to March 31, 2022.

Maturities of Interest-Bearing Liabilities.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and term borrowings for the next four quarters as of December 31, 2021.

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

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

2022 2022 2022 2023 Total

11 unchanged sentences

Repricing Rate 0.80 % 1.11 % 1.19 % 1.28 % 1.07 %

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

The following table sets forth the WAM information for our certificates of deposit, in years, as of December 31, 2021.

The following table sets forth the WAM information for our certificates of deposit, in years, as of March 31, 2022.

Retail certificates of deposit 1.2

3 unchanged sentences

Stockholders' Equity.

During the current quarter, the Company paid cash dividends totaling $41.4 million.

These cash dividends totaled $0.305 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and a regular quarterly cash dividend of $0.085 per share.

On January 25, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022.

During the six months ended March 31, 2022, the Company paid cash dividends totaling $52.9 million.

These cash dividends totaled $0.39 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and two regular quarterly cash dividends of $0.085 per share.

On April 20, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022.

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

At December 31, 2021, this ratio was 11.5%.

At December 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $70.8 million in cash on deposit at the Bank.

At March 31, 2022, this ratio was 11.1%.

At March 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $81.1 million in cash on deposit at the Bank.

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

Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

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

As of March 31, 2022, there remained $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock.

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

5 unchanged sentences

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

Given the state of economic uncertainty, the Company elected to defer the True Blue dividend originally planned for June 2020.

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

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

4 unchanged sentences

The amounts represent cash dividends paid during each period.

For the quarter ending March 31, 2022, the amount presented represents the dividend payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022.

For the quarter ending June 30, 2022, the amount presented represents the dividend payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022.

Calendar Year

13 unchanged sentences

For the Three Months Ended

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

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

2022 2021 2021 2021 2021

22 unchanged sentences

Diluted EPS 0.16 0.16 0.14 0.13 0.15

Comparison of Operating Results for the Three Months Ended March 31, 2022 and December 31, 2021

For the quarter ended March 31, 2022, the Company recognized net income of $21.6 million, or $0.16 per share, compared to net income of $22.2 million, or $0.16 per share, for the quarter ended December 31, 2021.

The decrease in net income was due primarily to higher non-interest expense and income tax expense, partially offset by an increase in net interest income.

The net interest margin decreased 30 basis points, from 1.99% for the prior quarter to 1.69% for the current quarter.

Excluding the effects of the leverage strategy, the net interest margin would have increased two basis points, from 1.99% for the prior quarter to 2.01% for the current quarter.

The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to a decrease in the cost of retail certificates of deposit.

The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's line of credit with FHLB or by entering into short-term FHLB advances, depending on the rates offered by FHLB.

The borrowings were repaid prior to quarter end.

The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 5.75% from dividends during the current quarter, were deposited at the FRB of Kansas City.

Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes.

Net income attributable to the leverage strategy was $545 thousand during the current quarter.

Management continues to monitor the net interest rate spread and overall profitability of the strategy.

It is expected that the strategy will continue to be utilized as long as it remains profitable.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

March 31, December 31, Change Expressed in:

2022 2021 Dollars Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 55,412 $ 55,788 $ (376) (0.7) %

MBS 4,821 4,625 196 4.2

FHLB stock 2,240 1,231 1,009 82.0

Investment securities 800 808 (8) (1.0)

Cash and cash equivalents 949 14 935 6,678.6

Total interest and dividend income $ 64,222 $ 62,466 $ 1,756 2.8

The increase in interest income on MBS was due to a decrease in premium amortization related to a slowdown in prepayment activity.

The increase in dividend income on FHLB stock was due mainly to the leverage strategy being utilized during the current quarter, partially offset by a special 1.00% year-end dividend received in the prior quarter.

The increase in interest income on cash and cash equivalents was due mainly to the leverage strategy being utilized during the current quarter.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

March 31, December 31, Change Expressed in:

2022 2021 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

Deposits $ 8,389 $ 9,267 $ (878) (9.5) %

Borrowings 8,732 7,585 1,147 15.1

Total interest expense $ 17,121 $ 16,852 $ 269 1.6

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio.

The increase in interest expense on borrowings was due to the leverage strategy being utilized during the current quarter.

Provision for Credit Losses

For the quarter ended March 31, 2022, the Bank recorded a negative provision for credit losses of $3.2 million, compared to a negative provision for credit losses of $3.4 million for the prior quarter.

The negative provision in the current quarter was comprised of a $2.2 million decrease in the ACL for loans and a $952 thousand decrease in reserves for off-balance sheet credit exposures.

The negative provision for credit losses associated with the ACL was due primarily to a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of management's outlook for prepayment activity and the composition and nature of our commercial loan portfolio, as well as a decrease in the commercial loan COVID-19 modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter.

The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to a reduction in the reserve for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

March 31, December 31, Change Expressed in:

2022 2021 Dollars Percent

(Dollars in thousands)

NON-INTEREST INCOME:

Deposit service fees $ 3,300 $ 3,430 $ (130) (3.8) %

Insurance commissions 543 711 (168) (23.6)

Other non-interest income 1,573 1,365 208 15.2

Total non-interest income $ 5,416 $ 5,506 $ (90) (1.6)

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions being lower than the prior year and the adjustments to the related accrual.

The increase in other non-interest income was due mainly to a gain on a loan-related financial derivative agreement.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

March 31, December 31, Change Expressed in:

2022 2021 Dollars Percent

(Dollars in thousands)

NON-INTEREST EXPENSE:

Salaries and employee benefits $ 14,023 $ 13,728 $ 295 2.1 %

Information technology and related expense 4,493 4,432 61 1.4

Occupancy, net 3,493 3,379 114 3.4

Regulatory and outside services 1,272 1,368 (96) (7.0)

Advertising and promotional 1,494 1,064 430 40.4

Federal insurance premium 777 639 138 21.6

Deposit and loan transaction costs 689 697 (8) (1.1)

Office supplies and related expense 502 468 34 7.3

Other non-interest expense 1,217 919 298 32.4

Total non-interest expense $ 27,960 $ 26,694 $ 1,266 4.7

The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships.

The increase in federal insurance premium expense was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current quarter.

The increase in other non-interest expense was due mainly to an increase in debit card and deposit account fraud losses, along with an increase in dues and subscriptions related to annual payments, and an increase in insurance expense due to a premium refund received in the prior quarter.

The Company's efficiency ratio was 53.24% for the current quarter compared to 52.22% for the prior quarter.

The change in the efficiency ratio was due primarily to higher non-interest expense.

The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

A higher value indicates that it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

March 31, December 31, Change Expressed in:

2022 2021 Dollars Percent

(Dollars in thousands)

Income before income tax expense $ 27,745 $ 27,865 $ (120) (0.4) %

Income tax expense 6,122 5,679 443 7.8

Net income $ 21,623 $ 22,186 $ (563) (2.5)

Effective Tax Rate 22.1 % 20.4 %

The increase in income tax expense was due primarily to a higher effective tax rate in the current quarter.

The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2021 tax returns.

Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Average Balance Sheet

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For the Three Months Ended

December 31, 2021 September 30, 2021 December 31, 2020

Average Interest Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate Amount Paid Rate

March 31, 2022 December 31, 2021

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

13 unchanged sentences

FHLB stock (4)

158,546 2,240 5.73 73,481 1,231 6.64

Cash and cash equivalents (5)

1,971,341 949 0.19 37,221 14 0.15

Total interest-earning assets 11,122,243 64,222 2.31 9,181,423 62,466 2.71

21 unchanged sentences

Net interest margin (8)(9)

1.99 1.97 1.92

Ratio of interest-earning assets to interest-bearing liabilities 1.21x 1.20x 1.20x

Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.21x

Selected performance ratios:

Return on average assets (annualized) (9)

0.75 % 0.93 %

Return on average equity (annualized) (9)

Average equity to average assets 10.50 12.88

Operating expense ratio (7)

1.11 1.17 1.13

Operating expense ratio (annualized) (10)

Efficiency ratio (9)(11)

52.22 55.55 55.37

Pre-tax yield on leverage strategy (12)

(1) Balances are adjusted for unearned loan fees and deferred costs.

1 unchanged sentence

(2) AFS securities are adjusted for unamortized purchase premiums or discounts.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $4.0 million, $4.9 million, and $9.1 million for the three months ended December 31, 2021, September 30, 2021, and December 31, 2020, respectively.

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

(3) The average balance of investment securities includes an average balance of nontaxable securities of $2.0 million and $4.0 million for the quarters ended March 31, 2022 and December 31, 2021, respectively.

(4) Included in this line, for the quarter ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and dividend income of $1.0 million at a weighted average yield of 5.71%.

There was no FHLB stock related to the leverage strategy during the quarter ended December 31, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.83 billion during the quarter ended March 31, 2022.

There were no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2021.

(6) Included in this line, for the quarter ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and interest paid of $1.3 million, at a weighted average rate of 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $7.5 million, at a weighted average rate of 1.90%.

There were no FHLB borrowings related to the leverage strategy during the quarter ended December 31, 2021.

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

(7) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.

1 unchanged sentence

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

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

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

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

For the Three Months Ended

March 31, 2022 December 31, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)

Yield on interest-earning assets 2.31 % (0.39) % 2.70 % 2.71 % — % 2.71 %

Cost of interest-bearing liabilities 0.73 (0.11) 0.84 0.88 — 0.88

Return on average assets (annualized) 0.75 (0.13) 0.88 0.93 — 0.93

Return on average equity (annualized) 7.16 0.18 6.98 7.18 — 7.18

Net interest margin 1.69 (0.32) 2.01 1.99 — 1.99

Efficiency Ratio 53.24 (0.58) 53.82 52.22 — 52.22

(10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.

(11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

(12) The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

Rate/Volume Analysis

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated.

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

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

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

For the Three Months Ended

December 31, 2021 vs.

September 30, 2021 December 31, 2021 vs.

March 31, 2022 vs.

December 31, 2021

Increase (Decrease) Due to Increase (Decrease) Due to

Volume Rate Total Volume Rate Total

Increase (Decrease) Due to

(Dollars in thousands)

14 unchanged sentences

Net change in net interest income $ 996 $ 491 $ 1,487

Comparison of Operating Results for the Three Months Ended December 31, 2021 and September 30, 2021

For the quarter ended December 31, 2021, the Company recognized net income of $22.2 million, or $0.16 per share, compared to net income of $18.6 million, or $0.14 per share, for the quarter ended September 30, 2021.

The increase in net income was due primarily to a higher negative provision for credit losses compared to the prior quarter and lower non-interest expense.

The net interest margin increased two basis points, from 1.97% for the prior quarter to 1.99% for the current quarter, due mainly to a decrease in the cost of retail certificates of deposit.

(1) The increases attributable to changes in volume related to FHLB stock, cash and cash equivalents, and borrowings were due primarily to the leverage strategy being utilized during the current quarter and not being utilized during the prior quarter.

Comparison of Operating Results for the Six Months Ended March 31, 2022 and 2021

The Company recognized net income of $43.8 million, or $0.32 per share, for the current year period compared to net income of $39.3 million, or $0.29 per share, for the prior year period.

The net interest margin decreased seven basis points, from 1.90% for the prior year period to 1.83% for the current year period.

Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 1.90% for the prior year period to 2.00% for the current year period.

The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, September 30, Change Expressed in:

For the Six Months Ended

March 31, Change Expressed in:

2022 2021 Dollars Percent

7 unchanged sentences

Total interest and dividend income $ 126,688 $ 132,541 $ (5,853) (4.4)

The decrease in interest income on loans receivable was primarily in the one-to four-family portfolio due to a reduction in the weighted average rate of the portfolio due to originations, purchases, refinances and endorsements to lower market rates and payoffs of higher rate loans, along with a reduction in commercial loan deferred fee amortization related to the PPP.

The decrease in interest income on MBS was due primarily to a decrease in the average balance of the portfolio.

The increase in dividend income on FHLB stock was due mainly to a special year-end dividend of 1.00% paid by FHLB during the current quarter.

The decrease in interest income on loans receivable was due primarily to a decrease in the weighted average rate on the originated and correspondent one- to four-family loan portfolio, partially offset by a reduction in premium amortization for correspondent one- to four-family loans and an increase in the average balance of the loan portfolio.

The decrease in the weighted average rate was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates between periods.

Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year period due to the slow-down in prepayments and endorsements, which more than offset the decrease in the weighted average rate and resulted in an increase in interest income for this loan category.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields between periods, along with higher premium amortization related to prepayment activity.

The increase in dividend income on FHLB stock and the increase in interest income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current year period.

The increase in interest income on investment securities was due primarily to an increase in the average balance of the portfolio.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, September 30, Change Expressed in:

For the Six Months Ended

March 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Total interest expense $ 33,973 $ 45,655 $ (11,682) (25.6)

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio.

See "Financial Condition" above for additional information on deposits.

The decrease in interest expense on borrowings was due to the full impact during the current quarter of certain FHLB advances being replaced at lower rates during the prior quarter.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, wholesale certificates of deposit, and money market accounts.

Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered between periods.

The decrease in interest expense on borrowings was due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021.

Cash flows from the deposit portfolio were used to pay down certain FHLB advances.

This was partially offset by the leverage strategy being utilized during the current year period and not being utilized during the prior year period.

Provision for Credit Losses

For the quarter ended December 31, 2021, the Bank recorded a negative provision for credit losses of $3.4 million, compared to a negative provision for credit losses of $1.3 million for the prior quarter.

The negative provision in the current quarter was comprised of a $2.3 million decrease in the ACL for loans due primarily to a reduction in the balance of special mention commercial loans and a $1.1 million decrease in reserves for off-balance sheet credit exposures due mainly to continued improving economic conditions.

The Bank recorded a negative provision for credit losses during the current year period of $6.6 million, compared to a negative provision for credit losses of $4.5 million during the prior year period.

The negative provision in the current year period was comprised of a $4.6 million decrease in the ACL for loans and a $2.0 million decrease in reserves for off-balance sheet credit exposures.

The negative provision for credit losses associated with the ACL in the current year period was due to (1) 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 December 31, 2021 quarter, (2) a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result management's outlook for prepayment activity and the composition and nature of our commercial loan portfolio, (3) a decrease in the commercial loan COVID-19 modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter, and (4) a decrease in the economic uncertainty qualitative factor for commercial loans due to improvement in economic conditions through March 31, 2022.

The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was due primarily to a reduction in the commercial loan economic uncertainty qualitative factor and to a reduction in the reserves for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, September 30, Change Expressed in:

For the Six Months Ended

March 31, Change Expressed in:

2022 2021 Dollars Percent

3 unchanged sentences

Insurance commissions 1,254 1,526 (272) (17.8)

Gain on sale of Visa Class B shares — 7,386 (7,386) (100.0)

Other non-interest income 2,938 2,874 64 2.2

Total non-interest income $ 10,922 $ 17,547 $ (6,625) (37.8)

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction and settlement volume, in addition to an increase in the average transaction amount.

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions being lower than the prior year and the adjustments to the related accrual.

During the prior year period, the Bank sold its Visa Class B shares, resulting in a $7.4 million gain, with no similar transaction during the current year period.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, September 30, Change Expressed in:

For the Six Months Ended

March 31, Change Expressed in:

2022 2021 Dollars Percent

6 unchanged sentences

Advertising and promotional 2,558 2,322 236 10.2

Deposit and loan transaction costs 697 638 59 9.2

Federal insurance premium 1,416 1,255 161 12.8

Deposit and loan transaction costs 1,386 1,430 (44) (3.1)

Office supplies and related expense 970 887 83 9.4

Loss on interest rate swap termination — 4,752 (4,752) (100.0)

Other non-interest expense 2,136 2,986 (850) (28.5)

Total non-interest expense $ 54,654 $ 59,720 $ (5,066) (8.5)

The decrease in salaries and employee benefits was primarily related to incentive compensation, as fiscal year 2021 incentives were finalized during the prior quarter.

The decrease in occupancy, net was due mainly to decreases in utilities, which was mainly weather related, and building maintenance expenses due to the timing of certain repairs and maintenance.

The decrease in advertising and promotional expense was due primarily to the timing of campaigns.

The Company's efficiency ratio was 52.22% for the current quarter compared to 55.55% for the prior quarter.

The improvement in the efficiency ratio was due primarily to lower non-interest expense.

The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

A lower value indicates that the financial institution is generating revenue with a lower level of expense, relative to the net interest margin and non-interest income.

The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic.

During the prior year period, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of AOCI to earnings.

The decrease in other non-interest expense was due primarily to the write-down during the prior year period of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 52.74% for the current year period compared to 57.19% for the prior year period.

The improvement in the efficiency ratio was due primarily to lower non-interest expense and higher net interest income, partially offset by lower non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, September 30, Change Expressed in:

For the Six Months Ended

March 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Effective Tax Rate 21.2 % 20.1 %

The increase in income tax expense was due primarily to higher pretax income, partially offset by a lower effective tax rate in the current quarter.

The effective tax rate was higher in the prior quarter due mainly to year-end adjustments of permanent tax differences, specifically the Company's low income housing partnership amounts.

Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Three Months Ended December 31, 2021 and 2020

The Company recognized net income of $22.2 million, or $0.16 per share, for the current quarter compared to net income of $18.9 million, or $0.14 per share, for the prior year quarter.

The increase in net income was due primarily to a higher negative provision for credit losses in the current quarter and an increase in net interest income.

The net interest margin increased seven basis points, from 1.92% for the prior year quarter to 1.99% for the current quarter.

The increase in net interest income and net interest margin was due mainly to a reduction in the average cost and balance of certificates of deposit and borrowings, which together outpaced the decrease in asset yields.

The increase in income tax expense was due primarily to higher pretax income in the current year period.

Additionally, the effective tax rate increased slightly compared to the prior year period, and is in line with management's anticipation of an effective tax rate of approximately 21% for fiscal year 2022.

Average Balance Sheet

Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown.

Average outstanding balances are derived from average daily balances.

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

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

For the Six Months Ended

March 31, 2022 March 31, 2021

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,968,475 $ 64,415 3.25 % $ 3,953,137 $ 70,755 3.58 %

Correspondent purchased 2,030,928 25,805 2.54 2,023,781 24,757 2.45

Bulk purchased 165,895 1,114 1.34 200,918 2,045 2.04

Total one- to four-family loans 6,165,298 91,334 2.96 6,177,836 97,557 3.16

Commercial loans 855,057 17,794 4.12 768,552 17,963 4.62

Consumer loans 91,573 2,072 4.54 106,371 2,459 4.64

Total loans receivable (1)

7,111,928 111,200 3.12 7,052,759 117,979 3.34

1,397,056 9,446 1.35 1,372,531 11,139 1.62

Investment securities (2)(3)

522,986 1,608 0.61 448,595 1,312 0.58

FHLB stock (4)

115,546 3,471 6.02 81,332 2,020 4.98

Cash and cash equivalents (5)

993,653 963 0.19 180,242 91 0.10

Total interest-earning assets 10,141,169 126,688 2.49 9,135,459 132,541 2.90

Other non-interest-earning assets 398,355 449,883

Total assets $ 10,539,524 $ 9,585,342

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,060,755 355 0.07 $ 929,976 407 0.09

Savings 530,451 141 0.05 460,252 136 0.06

Money market 1,822,848 1,701 0.19 1,508,935 2,222 0.30

Retail certificates 2,270,195 14,847 1.31 2,565,182 22,293 1.74

Commercial certificates 142,982 455 0.64 184,414 801 0.87

Wholesale certificates 198,527 157 0.16 256,123 737 0.58

Total deposits 6,025,758 17,656 0.59 5,904,882 26,596 0.90

Borrowings (6)

2,533,641 16,317 1.28 1,690,363 19,059 2.25

Total interest-bearing liabilities 8,559,399 33,973 0.79 7,595,245 45,655 1.20

Non-interest-bearing deposits 564,089 479,894

Other non-interest-bearing liabilities 193,606 227,189

Stockholders' equity 1,222,430 1,283,014

Total liabilities and stockholders' equity $ 10,539,524 $ 9,585,342

Net interest income (7)

$ 92,715 $ 86,886

Net interest-earning assets $ 1,581,770 $ 1,540,214

Net interest margin (8)(9)

Ratio of interest-earning assets to interest-bearing liabilities 1.18x 1.20x

Selected performance ratios:

Return on average assets (annualized) (9)

0.83 % 0.82 %

Return on average equity (annualized) (9)

Average equity to average assets 11.60 13.39

Operating expense ratio (annualized) (10)

Efficiency ratio (9)(11)

Pre-tax yield on leverage strategy (12)

(1) Balances are adjusted for unearned loan fees and deferred costs.

Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(2) AFS securities are adjusted for unamortized purchase premiums or discounts.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $3.0 million and $8.3 million for the six months ended March 31, 2022 and March 31, 2021, respectively.

(4) Included in this line, for the six months ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance $42.6 million and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.9 million and dividend income of $2.2 million at a weighted average yield of 6.18%.

There was no FHLB stock related to the leverage strategy during the six months ended March 31, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $904.6 million during the six months ended March 31, 2022.

There were no cash and cash equivalents related to the leverage strategy during the six months ended March 31, 2021.

(6) Included in this line, for the six months ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $947.3 million and interest paid of $1.3 million, at a weighted average rate of 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.59 billion and interest paid of $15.1 million, at a weighted average rate of 1.89%.

There were no FHLB borrowings related to the leverage strategy during the six months ended March 31, 2021.

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

(7) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.

Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

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

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

For the Six Months Ended

March 31, 2022 March 31, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)

Yield on interest-earning assets 2.49 % (0.22) % 2.71 % 2.90 % — % 2.90 %

Cost of interest-bearing liabilities 0.79 (0.07) 0.86 1.20 — 1.20

Return on average assets (annualized) 0.83 (0.07) 0.90 0.82 — 0.82

Return on average equity (annualized) 7.17 0.09 7.08 6.13 — 6.13

Net interest margin 1.83 (0.17) 2.00 1.90 — 1.90

Efficiency Ratio 52.74 (0.29) 53.03 57.19 — 57.19

(10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.

(11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis

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

For the Six Months Ended

March 31, 2022 vs.

March 31, 2021

Increase (Decrease) Due to

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ 1,451 $ (8,230) $ (6,779)

MBS 196 (1,889) (1,693)

Investment securities 226 70 296

FHLB stock 969 482 1,451

Cash and cash equivalents 724 148 872

Total interest-earning assets 3,566 (9,419) (5,853)

Interest-bearing liabilities:

Checking 52 (104) (52)

Savings 20 (15) 5

Money market 401 (922) (521)

Certificates of deposit (2,854) (5,518) (8,372)

Borrowings 168 (2,910) (2,742)

Total interest-bearing liabilities (2,213) (9,469) (11,682)

Net change in net interest income $ 5,779 $ 50 $ 5,829

(1) The increases attributable to changes in volume related to FHLB stock, cash and cash equivalents, and borrowings were due primarily to the leverage strategy being utilized during the current year period and not being utilized during the prior year period.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021

For the quarter ended March 31, 2022, the Company recognized net income of $21.6 million, or $0.16 per share, compared to net income of $20.4 million, or $0.15 per share for the quarter ended March 31, 2021.

The increase in net income was due primarily to a an increase in net interest income and a decrease in non-interest expense, partially offset by a decrease in non-interest income.

The net interest margin decreased 19 basis points, from 1.88% for the prior year quarter to 1.69% for the current quarter.

Excluding the effects of the leverage strategy, the net interest margin would have increased 13 basis points, from 1.88% for the prior year quarter to 2.01% for the current quarter.

The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to a decrease in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

Interest and Dividend Income

1 unchanged sentence

For the Three Months Ended

December 31, Change Expressed in:

March 31, Change Expressed in:

2022 2021 Dollars Percent

7 unchanged sentences

Total interest and dividend income $ 64,222 $ 64,334 $ (112) (0.2)

The decrease in interest income on loans receivable was due mainly to a decrease in the weighted average rate, primarily in the one- to four-family originated loan portfolio.

The premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year quarter due to the slow-down in prepayments and endorsements;

however, the decrease in the weighted average loan portfolio rate more than offset the reduction in premium amortization.

The decrease in the weighted average rate for the one- to four-family originated and correspondent loan portfolios was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of higher premium amortization related to prepayment activity, along with purchases at lower market yields, partially offset by an increase in the average balance of the portfolio.

The decrease in the weighted average rate was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates between periods.

Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year quarter due to the slow-down in prepayments and endorsements, which more than offset the decrease in the weighted average rate and resulted in an increase in interest income for this loan category.

The decrease in interest income on MBS was due mainly to a decrease in the average balance of the portfolio, as well as a decrease in the weighted average yield as a result of purchases at lower market rates between periods.

The increase in dividend income on FHLB stock and the increase in income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current quarter.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

December 31, Change Expressed in:

March 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Total interest expense $ 17,121 $ 21,261 $ (4,140) (19.5)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, money market accounts, and wholesale certificates of deposit.

Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered between periods.

Cash flows from the deposit portfolio were used to pay down certain FHLB advances.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio.

Interest expense on borrowings not associated with the leverage strategy decreased compared to the prior year quarter due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements during fiscal year 2021.

This decrease was offset by the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current quarter of $3.2 million, compared to a negative provision for credit losses of $3.0 million during the prior year quarter.

See additional information regarding the current quarter negative provision for credit losses in the "Comparison of Operating Results for the Three Months Ended December 31, 2021 and September 30, 2021" section above.

See "Comparison of Operating Results for the Three Months Ended March 31, 2022 and December 31, 2021" above for additional discussion regarding the negative provision for credit losses during the current quarter.

Non-Interest Income

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For the Three Months Ended

December 31, Change Expressed in:

March 31, Change Expressed in:

2022 2021 Dollars Percent

3 unchanged sentences

Insurance commissions 543 888 (345) (38.9)

Gain on sale of Visa Class B shares — 7,386 (7,386) (100.0)

Other non-interest income 1,573 1,389 184 13.2

Total non-interest income $ 5,416 $ 12,477 $ (7,061) (56.6)

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume, along with an increase in the amount per transaction.

The decrease in other non-interest income was primarily related to lower income from BOLI, due to receiving death benefits during the prior year quarter, compared to none during the current quarter

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions being lower than the prior year quarter and the related accrual adjustments in the current quarter.

During the prior year quarter, the Bank sold its Visa Class B shares, resulting in a $7.4 million gain, with no similar transaction during the current quarter.

Non-Interest Expense

1 unchanged sentence

For the Three Months Ended

December 31, Change Expressed in:

March 31, Change Expressed in:

2022 2021 Dollars Percent

6 unchanged sentences

Advertising and promotional 1,494 1,484 10 0.7

Deposit and loan transaction costs 697 766 (69) (9.0)

Federal insurance premium 777 634 143 22.6

Deposit and loan transaction costs 689 664 25 3.8

Office supplies and related expense 502 463 39 8.4

Loss on interest rate swap termination — 4,752 (4,752) (100.0)

Other non-interest expense 1,217 1,903 (686) (36.0)

Total non-interest expense $ 27,960 $ 32,653 $ (4,693) (14.4)

The decrease in salaries and employee benefits was due primarily to a decrease in loan commissions related to lower loan origination activity in the current quarter.

The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic.

The Company's efficiency ratio was 52.22% for the current year period compared to 55.37% for the prior year period.

The improvement in the efficiency ratio was due primarily to higher net interest income, as well as lower non-interest expense and higher non-interest income.

The increase in salaries and employee benefits was due primarily to higher anticipated incentive compensation compared to the prior year quarter.

The increase in the federal insurance premium was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current quarter.

During the prior year quarter, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of AOCI to earnings.

The decrease in other non-interest expense was due primarily to the write-down during the prior year quarter of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 53.24% for the current quarter compared to 58.78% for the prior year quarter.

The improvement in the efficiency ratio was due primarily to higher net interest income in the current quarter.

Income Tax Expense

1 unchanged sentence

For the Three Months Ended

December 31, Change Expressed in:

March 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Effective Tax Rate 22.1 % 20.9 %

The increase in income tax expense was due primarily to higher pretax income in the current year, as well as a higher effective tax rate compared to the prior year.

The higher effective tax rate in the current quarter compared to the prior year quarter was due primarily to a lower amount of favorable provision-to-return adjustments compared to the prior year quarter.

The increase in income tax expense was due primarily to higher pretax income in the current quarter.

Additionally, the effective tax rate increased slightly compared to the prior year quarter, and is in line with management's anticipation of an effective tax rate of approximately 21% for fiscal year 2022.

Average Balance Sheet

Average outstanding balances are derived from average daily balances.

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

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

For the Three Months Ended

March 31, 2022 March 31, 2021

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,965,844 $ 31,993 3.23 % $ 3,956,867 $ 34,794 3.52 %

Correspondent purchased 2,026,120 13,060 2.58 1,981,735 11,826 2.39

Bulk purchased 161,149 503 1.25 195,925 932 1.90

Total one- to four-family loans 6,153,113 45,556 2.96 6,134,527 47,552 3.10

Commercial loans 869,205 8,851 4.07 766,972 8,559 4.46

Consumer loans 90,326 1,005 4.51 102,613 1,174 4.64

Total loans receivable (1)

7,112,644 55,412 3.12 7,004,112 57,285 3.27

1,357,693 4,821 1.42 1,444,554 5,429 1.50

Investment securities (2)(3)

522,019 800 0.61 466,077 629 0.54

FHLB stock (4)

158,546 2,240 5.73 77,391 951 4.98

Cash and cash equivalents (5)

1,971,341 949 0.19 158,544 40 0.10

Total interest-earning assets 11,122,243 64,222 2.31 9,150,678 64,334 2.81

Other non-interest-earning assets 385,323 446,265

Total assets $ 11,507,566 $ 9,596,943

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,069,282 176 0.07 $ 959,928 183 0.08

Savings 540,348 71 0.05 477,985 69 0.06

Money market 1,879,799 876 0.19 1,543,911 1,038 0.27

Retail certificates 2,241,080 7,012 1.27 2,538,783 10,499 1.68

Commercial certificates 116,181 183 0.64 214,656 418 0.79

Wholesale certificates 197,335 71 0.15 260,712 322 0.50

Total deposits 6,044,025 8,389 0.56 5,995,975 12,529 0.85

Borrowings (6)

3,499,010 8,732 1.01 1,603,459 8,732 2.19

Total interest-bearing liabilities 9,543,035 17,121 0.73 7,599,434 21,261 1.13

Non-interest-bearing deposits 577,989 500,036

Other non-interest-bearing liabilities 177,995 213,602

Stockholders' equity 1,208,547 1,283,871

Total liabilities and stockholders' equity $ 11,507,566 $ 9,596,943

Net interest income (7)

$ 47,101 $ 43,073

Net interest-earning assets $ 1,579,208 $ 1,551,244

Net interest margin (8)(9)

Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.20x

Selected performance ratios:

Return on average assets (annualized) (9)

0.75 % 0.85 %

Return on average equity (annualized) (9)

Average equity to average assets 10.50 13.38

Operating expense ratio (annualized) (10)

Efficiency ratio (9)(11)

Pre-tax yield on leverage strategy (12)

(1) Balances are adjusted for unearned loan fees and deferred costs.

Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(2) AFS securities are adjusted for unamortized purchase premiums or discounts.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $2.0 million and $7.5 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

(4) Included in this line, for the three months ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and dividend income of $1.0 million at a weighted average yield of 5.71%.

There was no FHLB stock related to the leverage strategy during the three months ended March 31, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.83 billion during the three months ended March 31, 2022.

There were no cash and cash equivalents related to the leverage strategy during the three months ended March 31, 2021.

(6) Included in this line, for the three months ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and interest paid of $1.3 million, at a weighted average rate of 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $7.5 million, at a weighted average rate of 1.90%.

There were no FHLB borrowings related to the leverage strategy during the three months ended March 31, 2021.

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

(7) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities.

Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

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

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

For the Three Months Ended

March 31, 2022 March 31, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)

Yield on interest-earning assets 2.31 % (0.39) % 2.70 % 2.81 % — % 2.81 %

Cost of interest-bearing liabilities 0.73 (0.11) 0.84 1.13 — 1.13

Return on average assets (annualized) 0.75 (0.13) 0.88 0.85 — 0.85

Return on average equity (annualized) 7.16 0.18 6.98 6.37 — 6.37

Net interest margin 1.69 (0.32) 2.01 1.88 — 1.88

Efficiency Ratio 53.24 (0.58) 53.82 58.78 — 58.78

(10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.

(11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis

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

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

For the Three Months Ended March 31,

Increase (Decrease) Due to

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ 1,116 $ (2,989) $ (1,873)

MBS (317) (291) (608)

Investment securities 80 91 171

FHLB stock 1,127 162 1,289

Cash and cash equivalents 841 68 909

Total interest-earning assets 2,847 (2,959) (112)

Interest-bearing liabilities:

Checking 20 (27) (7)

Savings 8 (6) 2

Money market 197 (359) (162)

Certificates of deposit (1,555) (2,418) (3,973)

Borrowings 1,156 (1,156) —

Total interest-bearing liabilities (174) (3,966) (4,140)

Net change in net interest income $ 3,021 $ 1,007 $ 4,028

Liquidity and Capital Resources

10 unchanged sentences

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window.

See "Part I, Item 1.

Business - Sources of Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for information regarding limits on the Bank's FHLB borrowings.

Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management.

The Bank's borrowing limit was 50% of Bank Call Report total assets as of March 31, 2022, as approved by the president of FHLB.

When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs.

Additionally, FHLB borrowings may be in excess of 40% of Bank Call Report total assets as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets.

All or a portion of the short-term FHLB borrowings in conjunction with the leverage strategy can be repaid at maturity, if necessary or desired.

The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities.

Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding.

The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity.

The Bank's internal policy limits total borrowings to 55% of total assets.

At December 31, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances.

At March 31, 2022, the Bank had total borrowings, at par, of $1.59 billion, or approximately 17% of total assets, all of which were FHLB advances.

Of this amount, $175.0 million were advances scheduled to mature in the next 12 months.

All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB.

At December 31, 2021, the Bank had no repurchase agreements.

At March 31, 2022, the Bank had no repurchase agreements.

The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios.

At December 31, 2021, the Bank had $1.61 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

At March 31, 2022, the Bank had $1.54 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit.

As of December 31, 2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits.

At December 31, 2021, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 3% of total deposits.

The Bank had pledged securities with an estimated fair value of $234.9 million as collateral for public unit certificates of deposit at December 31, 2021.

As of March 31, 2022, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits.

At March 31, 2022, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 2% of total deposits.

The Bank had pledged securities with an estimated fair value of $210.9 million as collateral for public unit certificates of deposit at March 31, 2022.

The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At December 31, 2021, $1.63 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $183.6 million of public unit certificates of deposit and $125.8 million of commercial certificates of deposit.

At March 31, 2022, $1.55 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $146.7 million of public unit certificates of deposit and $88.4 million of commercial certificates of deposit.

Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard.

Due to the nature of commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit.

We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing.

While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds.

To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers.

We anticipate we will continue to have

sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

We anticipate we will continue to have sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

Limitations on Dividends and Other Capital Distributions

5 unchanged sentences

The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company.

So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage, which is currently 9%), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Regulatory Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA").

Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework.

As of December 31, 2021, the Bank's CBLR was 11.6% and the Company's CBLR was 12.8%, which exceeded the minimum requirements.

Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio of 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework.

As of March 31, 2022, the Bank's CBLR was 9.7% and the Company's CBLR was 10.7%, which exceeded the minimum requirements.

As of December 31, 2021, the Bank's CBLR was 11.6% and the Company's CBLR was 12.8%.

The decrease in the CBLR compared to the prior quarter was due to the reimplementation of the leverage strategy during the current quarter, which increased average assets.

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 2. Management’s Discussion and Analysis