What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-09 · 255 added, 235 removed, 1001 unchanged (33% 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, originated commercial loans, and entered into commercial loan participations;

economy in general and the strength of and/or the availability of labor in 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;

• potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;

• potential adverse impacts of the COVID-19 endemic disease and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;

• increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;

4 unchanged sentences

• the effects of, and changes in, foreign and military policies of the United States government;

• inflation, interest rate, market, monetary, and currency fluctuations;

• inflation, interest rate, market, monetary, currency fluctuations and the effects of a potential economic recession or slower economic growth;

• the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;

22 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 $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.

The Company recognized net income of $65.0 million, or $0.48 per share, for the current year nine-month period compared to net income of $57.5 million, or $0.42 per share, for the prior year nine-month period.

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

The net interest margin decreased six basis points, from 1.88% for the prior year period to 1.82% for the current year period.

Excluding the effects of the leverage strategy, the net interest margin would have increased 16 basis points, from 1.88% for the prior year period to 2.04% 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.

Total assets were $9.48 billion at June 30, 2022, a decrease of $155.2 million from September 30, 2021.

During the current year period, cash and/or securities were partially reinvested in the loan portfolio, which increased 2.9% on an annualized basis.

Total deposits were $6.33 billion at June 30, 2022, a decrease of $267.5 million from September 30, 2021.

The majority of the decrease occurred during the current quarter.

Deposit outflows were replaced with FHLB advances.

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

At June 30, 2022, loans 30 to 89 days delinquent were 0.16% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans receivable, net.

During the current year period, net recoveries were $220 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.

At June 30, 2022, the Bank had a one-year gap position of $(1.33) billion, or (14.0)% 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 June 30, 2022 compared to September 30, 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.

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.

The replacement system is expected to 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 in the remainder of fiscal year 2022 and during fiscal year 2023.

Available Information

10 unchanged sentences

Annualized Annualized

March 31, December 31, Percent September 30, Percent

June 30, March 31, Percent September 30, Percent

2022 2022 Change 2021 Change

9 unchanged sentences

Average number of diluted shares outstanding 135,725 135,677 0.1 135,571 0.2

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.

During the current quarter and current year period, cash flows from the securities portfolio and/or excess operating cash were partially reinvested into the loan portfolio.

Loans receivable, net, increased $155.1 million during the current year period due primarily to a $74.5 million increase in commercial loans and a $74.0 million increase in one- to four-family loans.

The majority of the deposit outflows during the current year period occurred during the current quarter and were replaced with FHLB advances.

The Bank has begun to increase offered rates on certificates of deposit and money market accounts, which has reduced the runoff in these portfolios.

The decreases in stockholders' equity from September 30, 2021 and March 31, 2022 to June 30, 2022 were due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities due to an increase in market interest rates, along with the payment of a $0.20 per share True Blue Capitol dividend in June 2022.

Loans Receivable.

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

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

June 30, 2022 March 31, 2022 September 30, 2021

Amount Rate Amount Rate Amount Rate

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022 June 30, 2021

Amount Rate Amount Rate Amount Rate

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Loan originations, purchases, and refinances are reported together.

For the Six Months Ended

March 31, 2022 March 31, 2021

For the Nine Months Ended

June 30, 2022 June 30, 2021

Amount Rate % of Total Amount Rate % of Total

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Total purchased/participation loans $ 476,068 3.06 $ 620,079 2.91

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 March 31, 2022.

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

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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 periods indicated.

For the Three Months Ended For the Six Months Ended

March 31, 2022 March 31, 2022

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022

Credit Credit

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$ 345,716 3.61 74 767 $ 952,949 3.09 72 768

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 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.

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 June 30, 2022, along with associated weighted average rates.

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

3 unchanged sentences

$ 259,818 4.06

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.

Commercial Loans - During the nine months ended June 30, 2022, the Bank originated $174.9 million of commercial loans and entered into commercial loan participations totaling $82.1 million.

During the quarter and nine months ended June 30, 2022, the Bank processed commercial loan disbursements, excluding lines of credit, of approximately $57.8 million and $232.0 million, respectively, at a weighted average rate of 4.37% and 4.04%, respectively.

As of June 30, 2022, March 31, 2022, and September 30, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $95.2 million, $101.3 million and $90.7 million, respectively, and commitments totaled $440 thousand, $1.4 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%.

As of June 30, 2022, the Bank had 26 commercial real estate and commercial construction loan commitments totaling $65.5 million, at a weighted average rate of 4.17%.

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.

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

June 30, 2022 March 31, 2022 September 30, 2021

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

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Weighted average rate 4.13 % 4.32 % 4.17 % 3.93 % 4.01 %

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

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

June 30, 2022 March 31, 2022 September 30, 2021

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

9 unchanged sentences

791 $ 832,978 $ 233,277 $ 1,066,255 $ 1,058,797 $ 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 March 31, 2022.

(Dollars in thousands)

6 unchanged sentences

1,422 $ 1,227,363

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.

As of June 30, 2022 and March 31, 2022, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $73.6 million and $74.3 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.

3 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 March 31, 2022, approximately 64% were 59 days or less delinquent.

Of the loans 30 to 89 days delinquent at June 30, 2022, approximately 61% were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at:

March 31, December 31, September 30,

June 30, March 31, December 31,

2022 2022 2021

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Non-performing assets include nonaccrual loans and OREO.

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:

March 31, December 31, September 30,

June 30, March 31, December 31,

2022 2022 2021

24 unchanged sentences

2 $ 237 — $ — 2 $ 319

Consumer 1 21 — — — —

3 258 — — 2 319

Total non-performing assets 73 $ 8,897 94 $ 11,918 105 $ 11,482

2 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 March 31, 2022.

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

At June 30, 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

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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 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

The decrease in commercial special mention loans at June 30, 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.

The commercial special mention loan balance at June 30, 2022 was comprised of a single loan which continues to show improvement in its cash flow from operations and other operating metrics.

June 30, 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 March 31, 2022.

Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of June 30, 2022.

Distribution of ACL Ratio of ACL to

Loans Receivable

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

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

2022 2022 2021 2022 2022 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 March 31, 2022.

The ACL to nonaccrual loans at end of period ratio was higher at June 30, 2022 compared to June 30, 2021 due to a lower balance of nonaccrual loans at June 30, 2022.

The ACL to loans receivable, net at end of period ratio was lower at June 30, 2022 compared to June 30, 2021 due primarily to a lower ACL balance at June 30, 2022.

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

At or For the Six Months Ended

March 31, 2022 March 31, 2021

At or For the Nine Months Ended

June 30, 2022 June 30, 2021

(Dollars in thousands)

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

For the Six Months Ended

March 31, 2022 March 31, 2021

For the Nine Months Ended

June 30, 2022 June 30, 2021

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

14 unchanged sentences

$ (220) $ 7,135,104 0.00 $ 482 $ 7,049,205 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.

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 views of 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.

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

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

Overall, fixed-rate securities comprised 95% of our securities portfolio at June 30, 2022.

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

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

June 30, 2022 March 31, 2022 September 30, 2021

Amount Yield WAL (1)

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MBS 89,932 2.38 4.1 99,226 2.08 4.3 120,566 1.99 3.2

Corporate bonds 4,000 5.12 7.4 — — — — — —

Total adjustable-rate securities 93,932 2.49 4.2 99,226 2.08 4.3 120,566 1.99 3.2

Total securities portfolio $ 1,830,262 1.29 4.1 $ 1,875,361 1.24 4.1 $ 2,008,456 1.16 3.5

3 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 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

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

For the Nine Months Ended

June 30, 2022 June 30, 2021

Amount Yield WAL Amount Yield WAL

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Ending balance - carrying value $ 1,694,160 1.29 4.1 $ 2,015,705 1.24 3.8

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.

Total liabilities were $8.34 billion at June 30, 2022, compared to $8.36 billion at March 31, 2022 and $8.39 billion at September 30, 2021.

The decrease in liabilities between March 31, 2022 and June 30, 2022 was due primarily to a decrease in deposits, along with a decrease in escrows due to timing of when funds are received and disbursed, largely offset by an increase in borrowings.

The decrease in liabilities between September 30, 2021 and June 30, 2022 was due primarily to a reduction in deposits, along with 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 and the funding of low income housing partnership commitments, along with a decrease in escrows due to timing of when funds are received and disbursed, largely offset by an increase in borrowings.

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

The $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.

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.

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

June 30, 2022 March 31, 2022 September 30, 2021

% of % of % of

9 unchanged sentences

$ 6,329,883 0.49 100.0 % $ 6,614,844 0.49 100.0 % $ 6,597,396 0.59 100.0 %

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

This was the case in the current quarter and led to a reduction in retail checking account balances and continued reduction in retail certificates of deposit.

The decrease in our retail certificates of deposit during the current year was generally in accounts with terms of 18 months or longer.

Retail certificates of deposit with terms less than 18 months increased during the current year.

The Bank has begun to increase offered rates on certificates of deposit and money market accounts, which has reduced the runoff in these portfolios.

The decrease in commercial certificates of deposit during the current year was expected, as certain maturities of deposits received in prior fiscal years were anticipated to be used to fund operations at the depositors' related businesses during the current year.

The decrease in public unit deposits was due to rapidly increasing costs of available funds in this category, to the point that rates were in excess of other funding sources available to the Bank.

During the current quarter, FHLB advances were entered into in response to deposit outflows.

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

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

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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 March 31, 2022.

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 June 30, 2022.

In addition to the term borrowings in the table below, the Bank had an outstanding balance of $35.7 million on its line of credit with FHLB as of June 30, 2022.

Term Borrowings Amount

13 unchanged sentences

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.

The expected WAL of the interest rate swaps and related advances was 3.3 years at June 30, 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 Six Months Ended

March 31, 2022 March 31, 2021

Effective Effective

Amount Rate WAM Amount Rate WAM

The increase in the balance of FHLB advances during the current quarter was due to funding needs primarily in response to deposit outflows.

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022 June 30, 2021

Effective Effective Effective

Amount Rate WAM Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

3 unchanged sentences

Ending balance $ 1,840,000 2.12 2.6 $ 1,840,000 2.12 2.6 $ 1,590,000 2.00 3.5

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.

During the current year-to-date period, the Bank reimplemented the leverage strategy which 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.

These borrowings were repaid prior to June 30, 2022.

In July 2022, the level of borrowings associated with the leverage strategy was increased to $2.60 billion to further increase earnings, in response to the increase in the dividend rate paid by FHLB.

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 March 31, 2022.

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

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

2022 2022 2023 2023 Total

11 unchanged sentences

Repricing Rate 1.07 % 1.15 % 1.24 % 1.13 % 1.14 %

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

The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2022.

Retail certificates of deposit 1.1

3 unchanged sentences

Stockholders' Equity.

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.

During the nine months ended June 30, 2022, the Company paid cash dividends totaling $91.6 million.

These cash dividends totaled $0.675 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, a $0.20 per share True Blue Capitol cash dividend, and three regular quarterly cash dividends of $0.085 per share.

On July 19, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 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 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.

At June 30, 2022, this ratio was 10.6%.

At June 30, 2022, Capitol Federal Financial, Inc., at the holding company level, had $91.9 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.

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.

As of June 30, 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.

1 unchanged sentence

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

The Company plans to request a further extension of the FRB's approval.

The Company works to find multiple ways to provide stockholder value.

5 unchanged sentences

This cash dividend represented a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend from fiscal year 2021.

In June 2022, the Company paid a True Blue Capitol cash dividend of $0.20 per share.

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

2 unchanged sentences

The amounts represent cash dividends paid during each period.

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.

For the quarter ending September 30, 2022, the amount presented represents the dividend payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 2022.

Calendar Year

13 unchanged sentences

For the Three Months Ended

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

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

2022 2022 2021 2021 2021

4 unchanged sentences

FHLB stock 2,695 2,240 1,231 952 944

Investment securities 800 808 750 763 629

Cash and cash equivalents 3,968 949 14 27 26

Investment securities 815 800 808 750 763

Total interest and dividend income 69,412 64,222 62,466 63,768 61,872

Interest expense:

Deposits 8,389 9,267 10,335 11,475 12,529

Borrowings 11,644 8,732 7,585 7,889 7,826

Deposits 7,787 8,389 9,267 10,335 11,475

Total interest expense 19,431 17,121 16,852 18,224 19,301

10 unchanged sentences

Diluted EPS 0.16 0.16 0.16 0.14 0.13

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.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and March 31, 2022

For the quarter ended June 30, 2022, the Company recognized net income of $21.2 million, or $0.16 per share, compared to net income of $21.6 million, or $0.16 per share, for the quarter ended March 31, 2022.

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

The net interest margin increased 10 basis points, from 1.69% for the prior quarter to 1.79% for the current quarter.

When the leverage strategy discussed below 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 2.01% for the prior quarter to 2.11% for the current quarter.

The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in asset yields and a change in the mix of interest-earning assets, as cash was used to fund loan growth.

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

The leverage strategy during the current quarter involved borrowing up to $2.10 billion by entering into short-term FHLB advances.

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.

The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 6.5% 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.

Net income attributable to the leverage strategy was $1.2 million during the current quarter and $1.8 million during the current year-to-date period.

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

In July 2022, the Bank increased the level of borrowings associated with the leverage strategy to $2.60 billion to further increase earnings in response to the increase in the dividend rate paid by FHLB.

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

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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.

The weighted average yield on loans receivable increased four basis points and the weighted average yield on MBS increased eight basis points compared to the prior quarter.

For the Three Months Ended

March 31, December 31, Change Expressed in:

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

4 unchanged sentences

FHLB stock 2,695 2,240 455 20.3

Investment securities 800 808 (8) (1.0)

Cash and cash equivalents 3,968 949 3,019 318.1

Investment securities 815 800 15 1.9

Total interest and dividend income $ 69,412 $ 64,222 $ 5,190 8.1

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.

The increase in interest income on loans receivable was due primarily to a decrease in correspondent loan premium amortization related to a reduction in payoff activity, as well as growth in the correspondent loan portfolio.

The increase in interest income on MBS was due mainly 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 an increase in the dividend rate paid by FHLB.

The increase in interest income on cash and cash equivalents was due to an increase in the yield earned on balances held at the FRB of Kansas City, the majority of which were related to the leverage strategy, due to an increase in market interest rates.

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 weighted average rate paid on deposits and the weighted average rate paid on borrowings not associated with the leverage strategy each decreased three basis points compared to the prior quarter.

For the Three Months Ended

March 31, December 31, Change Expressed in:

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

1 unchanged sentence

INTEREST EXPENSE:

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

Borrowings $ 11,644 $ 8,732 $ 2,912 33.3 %

Deposits 7,787 8,389 (602) (7.2)

Total interest expense $ 19,431 $ 17,121 $ 2,310 13.5

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.

The increase in interest expense on borrowings was due primarily to an increase in the rate paid on the short-term borrowings associated with the leverage strategy during the current quarter, due to higher market interest rates.

Additionally, the average balance of borrowings not associated with the leverage strategy increased compared to the prior quarter due to new borrowings added near the end of the quarter, totaling $250.0 million at a weighted average rate of 3.51%, which contributed to the increase in interest expense.

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on retail certificates of deposit and a decrease in the average balance of the portfolio, as maturing accounts either were not renewed or were replaced at offered rates, which were lower than the existing portfolio.

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.

For the quarter ended June 30, 2022, the Bank recorded a provision for credit losses of $937 thousand, compared to a negative provision for credit losses of $3.2 million for the prior quarter.

The provision for credit losses in the current quarter was comprised of a $796 thousand increase in the ACL for loans and a $141 thousand increase in reserves for off-balance sheet credit exposures.

The provision for credit losses was due primarily to selecting a weighted economic forecast to incorporate a recessionary outlook into the model, as well as commercial loan growth.

Non-Interest Income

1 unchanged sentence

For the Three Months Ended

March 31, December 31, Change Expressed in:

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

5 unchanged sentences

Total non-interest income $ 6,115 $ 5,416 $ 699 12.9

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.

The increase in deposit service fees was due mainly to increases in debit card income and service charges as a result of higher transaction activity.

The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions in the prior quarter, which were lower than expected, and the related accrual adjustments.

The increase in other non-interest income was due mainly to an increase in income on BOLI related to the receipt of death benefits.

Non-Interest Expense

1 unchanged sentence

For the Three Months Ended

March 31, December 31, Change Expressed in:

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

11 unchanged sentences

Total non-interest expense $ 28,390 $ 27,960 $ 430 1.5

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 increase in salaries and employee benefits was due mainly to an increase in commissions due to an increase in loan origination activity, along with annual merit increases during the current quarter.

The increase in regulatory and outside services was due primarily to the timing of external audit expenses, as well as an increase in consulting expenses related to the Bank's upcoming implementation of a new core processing system.

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

The Company's efficiency ratio was 50.61% for the current quarter compared to 53.24% for the prior quarter.

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

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

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

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

A lower value indicates that it is costing the financial institution less 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.

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 and the effective tax rate.

For the Three Months Ended

March 31, December 31, Change Expressed in:

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

4 unchanged sentences

Effective Tax Rate 21.0 % 22.1 %

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.

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate as a result of higher deductible expenses associated with dividends paid on allocated ESOP shares due to the True Blue Capitol dividend paid in June 2022.

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

Average Balance Sheet

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown.

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.

3 unchanged sentences

For the Three Months Ended

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022

Average Interest Average Interest

54 unchanged sentences

(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 $4.0 million for the quarters ended March 31, 2022 and December 31, 2021, respectively.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $326 thousand and $2.0 million for the quarters ended June 30, 2022 and March 31, 2022, respectively.

(4) Included in this line, for the quarter ended June 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $89.4 million and dividend income of $1.4 million at a weighted average yield of 6.48%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $77.5 million and dividend income of $1.3 million at a weighted average yield of 6.48%.

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.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.89 billion and $1.83 billion during the quarters ended June 30, 2022 and March 31, 2022 respectively.

(6) Included in this line, for the quarter ended June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.99 billion and interest paid of $3.7 million, at a weighted average rate of 0.73%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.70 billion and interest paid of $8.0 million, at a weighted average rate of 1.87%.

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.

6 unchanged sentences

For the Three Months Ended

March 31, 2022 December 31, 2021

June 30, 2022 March 31, 2022

Actual Leverage Adjusted Actual Leverage Adjusted

10 unchanged sentences

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 three months ended March 31, 2022 to the three months ended December 31, 2021.

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 three months ended June 30, 2022 to the three months ended March 31, 2022.

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.

1 unchanged sentence

For the Three Months Ended

March 31, 2022 vs.

December 31, 2021

June 30, 2022 vs.

March 31, 2022

Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

14 unchanged sentences

Net change in net interest income $ 526 $ 2,354 $ 2,880

(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

Comparison of Operating Results for the Nine Months Ended June 30, 2022 and 2021

The Company recognized net income of $65.0 million, or $0.48 per share, for the current year period compared to net income of $57.5 million, or $0.42 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.

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

The net interest margin decreased six basis points, from 1.88% for the prior year period to 1.82% for the current year period.

Excluding the effects of the leverage strategy, the net interest margin would have increased 16 basis points, from 1.88% for the prior year period to 2.04% for the current year period.

2 unchanged sentences

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 Six Months Ended

March 31, Change Expressed in:

For the Nine Months Ended

June 30, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

FHLB stock 6,166 2,964 3,202 108.0

Investment securities 1,608 1,312 296 22.6

Cash and cash equivalents 4,931 117 4,814 4,114.5

Investment securities 2,423 2,075 348 16.8

Total interest and dividend income $ 196,100 $ 194,413 $ 1,687 0.9

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

The decrease in the weighted average rate was due to endorsements, refinances, originations and purchases at lower market rates at the time of the transactions between periods, which are being fully reflected in the current year.

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 resulting from an increase in market interest rates, partially offsetting the decrease in the weighted average rate.

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

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 and not being utilized during the prior period.

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

1 unchanged sentence

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 Six Months Ended

March 31, Change Expressed in:

For the Nine Months Ended

June 30, Change Expressed in:

2022 2021 Dollars Percent

1 unchanged sentence

INTEREST EXPENSE:

Deposits $ 17,656 $ 26,596 $ (8,940) (33.6) %

Borrowings $ 27,961 $ 26,885 $ 1,076 4.0 %

Deposits 25,443 38,071 (12,628) (33.2)

Total interest expense $ 53,404 $ 64,956 $ (11,552) (17.8)

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.

The increase in interest expense on borrowings was due to the leverage strategy being utilized during a portion of the current year period and not being utilized during the prior year period.

Interest expense on borrowings associated with the leverage strategy totaled $4.9 million during the current year period.

This was partially offset by a lower cost of FHLB borrowings not associated with the leverage strategy due primarily to terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, along with a decrease in the average balance of the portfolio.

Retail certificates of deposit repriced downward between periods as they were renewed or were replaced at lower offered rates, along with some certificates of deposit not renewing.

Provision for Credit Losses

1 unchanged sentence

The negative provision in the current year period was comprised of a $3.8 million decrease in the ACL for loans and a $1.9 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.

The negative provision for credit losses associated with the ACL in the current year period was due primarily to a reduction in commercial loan qualitative factors, partially offset by an increase in ACL related to loan growth during the current year period.

The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was also due primarily to a reduction in commercial loan qualitative factors.

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 Six Months Ended

March 31, Change Expressed in:

For the Nine Months Ended

June 30, Change Expressed in:

2022 2021 Dollars Percent

6 unchanged sentences

Total non-interest income $ 17,037 $ 22,783 $ (5,746) (25.2)

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.

The increase in deposit service fees was due primarily to an increase in debit card income and service charges 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, which were lower than expected, and the related accrual adjustments.

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.

The increase in other non-interest income was due primarily 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 Six Months Ended

March 31, Change Expressed in:

For the Nine Months Ended

June 30, Change Expressed in:

2022 2021 Dollars Percent

12 unchanged sentences

Total non-interest expense $ 83,044 $ 87,322 $ (4,278) (4.9)

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 increase in salaries and employee benefits was due primarily to merit increases and an increase in incentive compensation, partially offset by a decrease in commissions due to a reduction in loan origination activity compared to the prior year period.

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 year period.

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.

1 unchanged sentence

The Company's efficiency ratio was 51.99% for the current year period compared to 57.36% 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.

The improvement in the efficiency ratio was due primarily to higher net 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 Six Months Ended

March 31, Change Expressed in:

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 and effective tax rate.

For the Nine Months Ended

June 30, Change Expressed in:

2022 2021 Dollars Percent

7 unchanged sentences

Average Balance Sheet

2 unchanged sentences

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

For the Nine Months Ended

June 30, 2022 June 30, 2021

Average Interest Average Interest

54 unchanged sentences

(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.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $2.1 million and $7.2 million for the nine months ended June 30, 2022 and June 30, 2021, respectively.

(4) Included in this line, for the nine months ended June 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance $58.2 million and dividend income of $2.7 million at a weighted average yield of 6.12%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $74.5 million and dividend income of $3.5 million at a weighted average yield of 6.29%.

There was no FHLB stock related to the leverage strategy during the nine months ended June 30, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.23 billion during the nine months ended June 30, 2022.

There were no cash and cash equivalents related to the leverage strategy during the nine months ended June 30, 2021.

(6) Included in this line, for the nine months ended June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.30 billion and interest paid of $4.9 million, at a weighted average rate of 0.50%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.62 billion and interest paid of $23.0 million, at a weighted average rate of 1.89%.

There were no FHLB borrowings related to the leverage strategy during the nine months ended June 30, 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.

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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 Six Months Ended

March 31, 2022 March 31, 2021

For the Nine Months Ended

June 30, 2022 June 30, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

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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

For the Nine Months Ended

June 30, 2022 vs.

June 30, 2021

Increase (Decrease) Due to

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(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.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and 2021

For the quarter ended June 30, 2022, the Company recognized net income of $21.2 million, or $0.16 per share, compared to net income of $18.2 million, or $0.13 per share for the quarter ended June 30, 2021.

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

The net interest margin decreased five basis points, from 1.84% for the prior year quarter to 1.79% for the current quarter.

Excluding the effects of the leverage strategy, the net interest margin would have increased 27 basis points, from 1.84% for the prior year quarter to 2.11% 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.

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, a change in the mix of interest-earning assets as cash was used to fund loan growth, and higher asset yields.

Interest and Dividend Income

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For the Three Months Ended

March 31, Change Expressed in:

June 30, Change Expressed in:

2022 2021 Dollars Percent

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FHLB stock 2,695 944 1,751 185.5

Investment securities 800 629 171 27.2

Cash and cash equivalents 3,968 26 3,942 15,161.5

Investment securities 815 763 52 6.8

Total interest and dividend income $ 69,412 $ 61,872 $ 7,540 12.2

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.

The increase in interest income on loans receivable was due primarily to an increase in the average balance of the loan portfolio related to commercial loan growth, which has a greater impact on interest income than other loan types due to higher yields, along with growth in the one- to four-family correspondent loan portfolio.

Additionally, 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 contributed to the increase in interest income on loans receivable.

The decrease in interest income on MBS was due to a decrease in the average balance of the portfolio, partially offset by a decrease in premium amortization related to a slowdown in prepayment activity.

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 and not being utilized during the prior year quarter.

Interest Expense

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For the Three Months Ended

March 31, Change Expressed in:

June 30, Change Expressed in:

2022 2021 Dollars Percent

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INTEREST EXPENSE:

Deposits $ 8,389 $ 12,529 $ (4,140) (33.0) %

Borrowings $ 11,644 $ 7,826 $ 3,818 48.8 %

Deposits 7,787 11,475 (3,688) (32.1)

Total interest expense $ 19,431 $ 19,301 $ 130 0.7

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.

The increase in interest expense on borrowings was due mainly to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter.

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

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 "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.

The Bank recorded a provision for credit losses during the current quarter of $937 thousand, compared to a negative provision for credit losses of $2.7 million during the prior year quarter.

See "Comparison of Operating Results for the Three Months Ended June 30, 2022 and March 31, 2022" above for additional discussion regarding the provision for credit losses during the current quarter.

Non-Interest Income

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For the Three Months Ended

March 31, Change Expressed in:

June 30, Change Expressed in:

2022 2021 Dollars Percent

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Insurance commissions 788 723 65 9.0

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

Other non-interest income 1,726 1,286 440 34.2

Total non-interest income $ 6,115 $ 5,236 $ 879 16.8

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.

The increase in other non-interest income was due mainly to an increase in income on BOLI related to the receipt of death benefits.

Non-Interest Expense

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For the Three Months Ended

March 31, Change Expressed in:

June 30, Change Expressed in:

2022 2021 Dollars Percent

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Office supplies and related expense 494 402 92 22.9

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

Other non-interest expense 1,163 891 272 30.5

Total non-interest expense $ 28,390 $ 27,602 $ 788 2.9

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 increase in salaries and employee benefits was due primarily to an increase in incentive compensation and annual merit increases during the current quarter.

The decrease in information technology and related expense was due mainly to a decrease in professional services and software maintenance.

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

The increase in other non-interest expense was due mainly to the prior year quarter including a partial reversal of a write-down of a property that previously served as one of the Bank's branch locations, due to receiving updated pricing information for the property.

The Company's efficiency ratio was 50.61% for the current quarter compared to 57.73% for the prior year quarter.

1 unchanged sentence

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.

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 and the effective tax rate.

For the Three Months Ended

March 31, Change Expressed in:

June 30, Change Expressed in:

2022 2021 Dollars Percent

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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

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For the Three Months Ended

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

Average Interest Average Interest

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(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.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $326 thousand and $5.1 million for the three months ended June 30, 2022 and June 30, 2021, respectively.

(4) Included in this line, for the three months ended June 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $89.4 million and dividend income of $1.4 million at a weighted average yield of 6.48%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $77.5 million and dividend income of $1.3 million at a weighted average yield of 6.48%.

There was no FHLB stock related to the leverage strategy during the three months ended June 30, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.89 billion during the three months ended June 30, 2022.

There were no cash and cash equivalents related to the leverage strategy during the three months ended June 30, 2021.

(6) Included in this line, for the three months ended June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.99 billion and interest paid of $3.7 million, at a weighted average rate of 0.73%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.70 billion and interest paid of $8.0 million, at a weighted average rate of 1.87%.

There were no FHLB borrowings related to the leverage strategy during the three months ended June 30, 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.

6 unchanged sentences

For the Three Months Ended

March 31, 2022 March 31, 2021

June 30, 2022 June 30, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

10 unchanged sentences

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 three months ended June 30, 2022 to the three months ended June 30, 2021.

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,

For the Three Months Ended June 30,

Increase (Decrease) Due to

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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.

The Bank's borrowing limit was 50% of Bank Call Report total assets as of June 30, 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.

6 unchanged sentences

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

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.

At June 30, 2022, the Bank had total borrowings, at par, of $1.88 billion, or approximately 20% of total assets, all of which were FHLB borrowings.

Of this amount, $275.0 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 March 31, 2022, the Bank had no repurchase agreements.

At June 30, 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 March 31, 2022, the Bank had $1.54 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

At June 30, 2022, the Bank had $1.55 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 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.

As of June 30, 2022, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits.

At June 30, 2022, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 1% of total deposits.

The Bank had pledged securities with an estimated fair value of $123.9 million as collateral for public unit certificates of deposit at June 30, 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 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.

At June 30, 2022, $1.36 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $79.2 million of public unit certificates of deposit and $46.7 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.

14 unchanged sentences

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.

As of June 30, 2022, the Bank's CBLR was 9.4% and the Company's CBLR was 10.6%, which exceeded the minimum requirements.

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