What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-02-08 compared with 2022-08-08 · 111 added, 250 removed, 659 unchanged (35% of the section changed)

4 unchanged sentences

(Dollars in thousands, except per share amounts)

June 30, September 30,

December 31, September 30,

Cash and cash equivalents (includes interest-earning deposits of $ 20,243 and $ 27,467 )

12 unchanged sentences

Borrowings 2,645,195 2,132,154

Advance payments by borrowers for taxes and insurance 55,955 72,729

Income taxes payable, net — 918

Deferred income tax liabilities, net — 5,810

Advances by borrowers 36,207 80,067

Other liabilities 119,014 121,311

4 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 138,854,084 and 138,832,284 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively

1,400,000,000 shares authorized, 136,134,225 and 138,858,884 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

Additional paid-in capital 1,168,061 1,190,213

9 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2022 2021 2022 2021

For the Three Months Ended

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 64,819 $ 55,788

Cash and cash equivalents 16,671 14

Mortgage-backed securities ("MBS") 4,811 4,625

FHLB stock 4,158 1,231

Cash and cash equivalents 3,968 26 4,931 117

Investment securities 881 808

6 unchanged sentences

PROVISION FOR CREDIT LOSSES 3,660 ( 3,439 )

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 49,044 45,262 148,386 136,644

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 42,168 49,053

NON-INTEREST INCOME:

1 unchanged sentence

Insurance commissions 795 711

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

Other non-interest income 1,096 1,365

7 unchanged sentences

Federal insurance premium 812 639

Deposit and loan transaction costs 664 693 2,050 2,123

Office supplies and related expense 633 468

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

Deposit and loan transaction costs 611 697

Other non-interest expense 1,109 919

12 unchanged sentences

(Dollars in thousands)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2022 2021 2022 2021

For the Three Months Ended

Net income $ 16,240 $ 22,186

3 unchanged sentences

Changes in unrealized gains/losses on cash flow hedges, net of taxes of $ 5 and $( 1,277 )

5,099 ( 88 ) 21,924 17,258

Comprehensive income (loss) $ ( 4,866 ) $ 23,802 $ ( 20,659 ) $ 60,696

Comprehensive income $ 29,271 $ 15,165

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Additional Unearned Total

3 unchanged sentences

Net income 16,240 16,240

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

Other comprehensive income, net of tax 13,031 13,031

ESOP activity ( 72 ) 413 341

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 89 89

Repurchase of common stock ( 27 ) ( 22,169 ) ( 22,196 )

Cash dividends to stockholders ($ 0.365 per share)

1 unchanged sentence

Balance at December 31, 2022 $ 1,361 $ 1,168,061 $ ( 29,322 ) $ 47,297 $ ( 132,602 ) $ 1,054,795

Net income 21,623 21,623

Other comprehensive loss, net of tax ( 52,581 ) ( 52,581 )

ESOP activity 48 413 461

Stock-based compensation 124 124

Cash dividends to stockholders ($ 0.085 per share)

( 11,535 ) ( 11,535 )

Balance at March 31, 2022 $ 1,388 $ 1,189,999 $ ( 30,561 ) $ 89,833 $ ( 75,907 ) $ 1,174,752

Net income 21,152 21,152

Other comprehensive loss, net of tax ( 26,018 ) ( 26,018 )

ESOP activity ( 5 ) 413 408

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 126 126

Cash dividends to stockholders ($ 0.285 per share)

( 38,677 ) ( 38,677 )

Balance at June 30, 2022 $ 1,388 $ 1,190,117 $ ( 30,148 ) $ 72,308 $ ( 101,925 ) $ 1,131,740

CAPITOL FEDERAL FINANCIAL, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

(Dollars in thousands, except per share amounts)

For the Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

Additional Unearned Total

2 unchanged sentences

Balance at September 30, 2021 $ 1,388 $ 1,189,633 $ ( 31,387 ) $ 98,944 $ ( 16,305 ) $ 1,242,273

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

Net income 22,186 22,186

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

ESOP activity 80 413 493

Restricted stock activity, net ( 8 ) ( 8 )

Stock-based compensation 118 118

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

Cash dividends to stockholders ($ 0.215 per share)

( 29,128 ) ( 29,128 )

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

Net income 20,444 20,444

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

ESOP activity 74 413 487

Stock-based compensation 134 134

Stock options exercised 24 24

Cash dividends to stockholders ($ 0.085 per share)

( 11,518 ) ( 11,518 )

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

Net income 18,187 18,187

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

ESOP activity 118 413 531

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 123 123

Stock options exercised 300 300

Cash dividends to stockholders ($ 0.305 per share)

( 41,385 ) ( 41,385 )

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

See accompanying notes to consolidated financial statements.

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

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

11 unchanged sentences

Stock-based compensation 89 123

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

Unrestricted cash collateral (provided to)/received from derivative counterparties, net 2,620 —

Unrestricted cash collateral received from derivative counterparties, net 530 —

Other assets, net ( 2,527 ) 1,452

4 unchanged sentences

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of AFS securities ( 86,993 ) ( 953,818 )

Proceeds from calls, maturities and principal reductions of AFS securities 51,045 107,665

2 unchanged sentences

Net change in loans receivable ( 327,583 ) ( 12,387 )

Proceeds from sale of participating interest in loans receivable 5,563 —

Purchase of premises and equipment ( 1,093 ) ( 1,526 )

Proceeds from sale of other real estate owned ("OREO") 296 120

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

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

Proceeds from bank-owned life insurance ("BOLI") death benefit 1,023 443

Net cash provided by (used in) investing activities 11,287 ( 274,392 )

Net cash (used in) provided by investing activities ( 291,109 ) 93,263

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

3 unchanged sentences

Repayments on borrowings ( 1,487,518 ) ( 293,702 )

Change in advance payments by borrowers for taxes and insurance ( 16,774 ) ( 18,391 )

Payment of FHLB prepayment penalties — ( 5,076 )

Change in advances by borrowers ( 43,860 ) ( 34,502 )

Repurchase of common stock ( 22,196 ) —

Stock options exercised — 324

Net cash (used in) provided by financing activities ( 90,184 ) 109,802

NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 15,503 ) ( 113,213 )

Net cash provided by (used in) financing activities 277,000 ( 25,279 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 492 88,253

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

17 unchanged sentences

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

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows included cash and cash equivalents of $ 54.8 million and $ 42.3 million at June 30, 2022 and September 30, 2021, respectively, and included restricted cash of $ 28.0 million at September 30, 2021, which was included in other assets on the consolidated balance sheet.

There was no restricted cash at June 30, 2022.

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

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents of $ 49.7 million and $ 49.2 million at December 31, 2022 and September 30, 2022, respectively.

At times, the Company holds restricted cash, which is reported in other assets on the consolidated balance sheet, related to collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.

There was no restricted cash at December 31, 2022 or September 30, 2022.

See additional discussion regarding the interest rate swaps in Note 5.

Borrowed Funds.

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

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

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

Recent Accounting Pronouncements - In March 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Recent Accounting Pronouncements - In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings ("TDRs") and Vintage Disclos ures.

2 unchanged sentences

This ASU is effective for the Company on October 1, 2023.

The Company is currently evaluating the effect of this ASU on the Company's consolidated financial condition, results of operations and disclosures.

While the adoption of this ASU is expected to result in enhanced disclosures, the Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial condition or results of operations.

EARNINGS PER SHARE

2 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2022 2021 2022 2021

For the Three Months Ended

(Dollars in thousands, except per share amounts)

11 unchanged sentences

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

June 30, 2022

December 31, 2022

Gross Gross Estimated

14 unchanged sentences

GSE debentures 519,977 — 50,150 469,827

Corporate bonds 4,000 — 305 3,695

Municipal bonds 1,243 — 82 1,161

1 unchanged sentence

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

June 30, 2022

December 31, 2022

Less Than 12 Months Equal to or Greater Than 12 Months

14 unchanged sentences

GSE debentures — — 469,827 50,150

Corporate bonds 3,695 305 — —

Municipal bonds 1,161 82 — —

$ 342,869 $ 22,950 $ 1,185,108 $ 182,598

The unrealized losses at June 30, 2022 were a result of an increase in market yields from the time the securities were purchased.

The unrealized losses at December 31, 2022 were a result of an increase in market yields from the time the securities were purchased.

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

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

Management did not record an ACL on securities in an unrealized loss position at June 30, 2022 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of June 30, 2022, by contractual maturity, are shown below.

Management did not record an ACL on securities in an unrealized loss position at December 31, 2022 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of December 31, 2022, by contractual maturity, are shown below.

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

11 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2022 2021 2022 2021

For the Three Months Ended

(Dollars in thousands)

1 unchanged sentence

Non-taxable 7 18

$ 815 $ 763 $ 2,423 $ 2,075

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

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

(Dollars in thousands)

FHLB advances $ 572,068 $ 572,913

Public unit deposits 137,562 125,496

Federal Reserve Bank of Kansas City ("FRB of Kansas City") 52,394 64,707

Commercial deposits 17,686 66,256

Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings 44,498 46,283

$ 754,128 $ 744,692

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

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

All other dispositions of securities during the nine months ended June 30, 2022 and June 30, 2021 were the result of principal repayments, calls, or maturities.

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

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

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

(Dollars in thousands)

19 unchanged sentences

The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans.

The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

The Bank has a loan concentration in one- to four-family loans and geographic concentrations of these loans in Kansas, Missouri, and Texas.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans.

Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB").

Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function.

6 unchanged sentences

When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property.

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

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

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

For commercial real estate and commercial construction participation loans, the Bank performs the

same underwriting procedures as if the loan was being originated by the Bank.

At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 85 % of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 .

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

23 unchanged sentences

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

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

The following tables set forth, as of the dates indicated, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification.

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

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

At June 30, 2022 and September 30, 2021, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

June 30, 2022

At December 31, 2022 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

December 31, 2022

Current Fiscal Fiscal Fiscal Fiscal Revolving

32 unchanged sentences

Total $ 439,961 $ 1,468,412 $ 1,806,585 $ 1,004,730 $ 434,508 $ 2,533,585 $ 114,766 $ 7,802,547

In the table below, certain commercial loans are presented in the "Fiscal Year 2021" column and are reported as special mention or substandard.

These loans were generally first originated in prior years but were renewed or modified in fiscal year 2021.

September 30, 2022

35 unchanged sentences

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

June 30, 2022

December 31, 2022

Current Fiscal Fiscal Fiscal Fiscal Revolving

68 unchanged sentences

Delinquent and Nonaccrual Loans - The following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans.

At June 30, 2022 and September 30, 2021, all loans 90 or more days delinquent were on nonaccrual status.

June 30, 2022

At December 31, 2022 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status.

December 31, 2022

90 or More Days Total Total

25 unchanged sentences

$ 6,506 $ 9,175 $ 15,681 $ 7,464,898 $ 7,480,579

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2022 and September 30, 2021 was $ 1.7 million and $ 799 thousand, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure as of June 30, 2022 and September 30, 2021 was $ 258 thousand and $ 170 thousand, respectively.

The following table presents the amortized cost at June 30, 2022 and September 30, 2021, by class, of loans classified as nonaccrual.

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2022 and September 30, 2022 was $ 1.5 million and $ 2.0 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 182 thousand at December 31, 2022 and $ 328 thousand at September 30, 2022.

The following table presents the amortized cost at December 31, 2022 and September 30, 2022, by class, of loans classified as nonaccrual.

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

June 30, 2022 September 30, 2021

December 31, 2022 September 30, 2022

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

9 unchanged sentences

$ 8,301 $ 2,272 $ 9,494 $ 2,581

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

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

TDRs - The following table presents the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented.

This table does not reflect the amortized cost at the end of the periods indicated.

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

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022

Number Pre- Post- Number Pre- Post-

of Restructured Restructured of Restructured Restructured

Contracts Outstanding Outstanding Contracts Outstanding Outstanding

(Dollars in thousands)

One- to four-family:

Originated — $ — $ — 2 $ 124 $ 124

Correspondent purchased — — — — — —

Bulk purchased — — — — — —

Commercial real estate — — — — — —

Commercial and industrial — — — 2 124 124

Home equity — — — 1 19 19

Other — — — — — —

— $ — $ — 5 $ 267 $ 267

For the Three Months Ended For the Nine Months Ended

June 30, 2021 June 30, 2021

For the Three Months Ended

December 31, 2022 December 31, 2021

Number Pre- Post- Number Pre- Post-

12 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

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

Number of Amortized Number of Amortized Number of Amortized Number of Amortized

Contracts Cost Contracts Cost Contracts Cost Contracts Cost

For the Three Months Ended

December 31, 2022 December 31, 2021

Number of Amortized Number of Amortized

Contracts Cost Contracts Cost

(Dollars in thousands)

9 unchanged sentences

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

For the Three Months Ended June 30, 2022

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 1,709 $ 2,129 $ 241 $ 4,079 $ 11,031 $ 202 $ 15,312

Charge-offs — — — — — ( 10 ) ( 10 )

Recoveries 126 — — 126 52 7 185

Provision for credit losses 69 308 ( 17 ) 360 407 29 796

Ending balance $ 1,904 $ 2,437 $ 224 $ 4,565 $ 11,490 $ 228 $ 16,283

For the Nine Months Ended June 30, 2022

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823

Charge-offs ( 4 ) — — ( 4 ) ( 10 ) ( 16 ) ( 30 )

Recoveries 137 — — 137 101 12 250

Provision for credit losses 159 375 ( 80 ) 454 ( 4,253 ) 39 ( 3,760 )

Ending balance $ 1,904 $ 2,437 $ 224 $ 4,565 $ 11,490 $ 228 $ 16,283

For the Three Months Ended June 30, 2021

For the Three Months Ended December 31, 2022

One- to Four-Family

7 unchanged sentences

Ending balance $ 2,159 $ 2,987 $ 216 $ 5,362 $ 13,584 $ 243 $ 19,189

For the Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

One- to Four-Family

3 unchanged sentences

Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823

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

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

Charge-offs ( 4 ) — — ( 4 ) ( 10 ) ( 1 ) ( 15 )

3 unchanged sentences

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

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at June 30, 2022.

The key assumptions utilized in estimating the Company's ACL at June 30, 2022 are discussed below.

• Economic Forecast - Management considered several economic forecasts provided by a third party and selected a weighted economic forecast that was most appropriate considering the facts and circumstances at June 30, 2022.

The forecasted economic indices applied to the model at June 30, 2022 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2022.

The key assumptions utilized in estimating the Company's ACL at December 31, 2022 are discussed below.

• Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at December 31, 2022.

The forecasted economic indices applied to the model at December 31, 2022 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

gross domestic product.

The economic index most impactful to all loan pools within the model at June 30, 2022 was the national unemployment rate.

The forecast national unemployment rate in the economic scenario selected by management at June 30, 2022 had the national unemployment rate gradually increasing to 4.3 % by June 30, 2023 which was the end of our four quarter forecast time period.

• Forecast and reversion to mean time period - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at June 30, 2022.

• Prepayment and curtailment assumptions - The assumptions used at June 30, 2022 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model.

• Qualitative factors - The qualitative factors applied by management at June 30, 2022 included the following:

◦ The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate;

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

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

The decrease in ACL during the current year-to-date period was primarily a result of a negative provision for credit losses of $ 3.8 million which was due to a reduction in commercial loan qualitative factors, partially offset by an increase in ACL related to loan growth.

The economic index most impactful to all loan pools within the model at December 31, 2022 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at December 31, 2022 had the national unemployment rate gradually increasing to 4.2 % by December 31, 2023 which was the end of our four quarter forecast time period.

• Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2022.

• Prepayment and curtailment assumptions - The assumptions used at December 31, 2022 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model.

During the current quarter, there was a slowdown in portfolio prepayment speeds which reduced the projected prepayment speeds used in the model for generally all loan categories.

• Qualitative factors - The qualitative factors applied by management at December 31, 2022 included the following:

◦ The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the economic forecasts;

◦ Other management considerations related to commercial real estate loans that were not captured via the model assumptions, such as the balance and trending of large dollar commercial real estate loans.

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

The negative provision for credit losses in the current year period was due primarily to a reduction in the commercial loan qualitative factors.

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022

(Dollars in thousands)

Beginning balance $ 3,672 Beginning balance $ 5,743

Provision for credit losses 141 Provision for credit losses ( 1,930 )

Ending balance $ 3,813 Ending balance $ 3,813

For the Three Months Ended For the Nine Months Ended

June 30, 2021 June 30, 2021

At December 31, 2022 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $ 1.07 billion and $ 992.6 million, respectively.

For the Three Months Ended

December 31, 2022 December 31, 2021

(Dollars in thousands)

Beginning balance $ 6,127 Beginning balance $ —

Provision for credit losses 34 Adoption of CECL 7,788

Ending balance $ 6,161 Balance at October 1, 2020 7,788

Beginning balance $ 4,751 $ 5,743

Provision for credit losses 840 ( 1,120 )

1 unchanged sentence

BORROWED FUNDS

FHLB Borrowings and Interest Rate Swaps - At June 30, 2022 and September 30, 2021, the Bank had entered into interest rate swap agreements with a total notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At June 30, 2022 and September 30, 2021, the interest rate swap agreements had an average remaining term to maturity of 3.3 years and 4.1 years, respectively.

FHLB Borrowings and Interest Rate Swaps - At December 31, 2022 and September 30, 2022, the Bank had entered into interest rate swap agreements with an aggregate notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At December 31, 2022 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.8 years and 3.1 years, respectively.

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

At June 30, 2022, the interest rate swaps were in a gain position with a total fair value of $ 1.3 million which was reported in other assets on the consolidated balance sheet.

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

During the three and nine months ended June 30, 2022, $ 1.3 million and $ 4.8 million, respectively, was reclassified from AOCI as an increase to interest expense.

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

Of this amount, for the nine months ended June 30, 2021, $ 7.9 million was recognized as an increase to interest expense and $ 3.6 million, net of tax, was reclassified as a result of the termination of the related interest rate swaps, as discussed below, and reported in the loss on interest rate swap termination line item within the consolidated statements of operations.

At June 30, 2022, the Company estimated that $ 1.4 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

At both December 31, 2022 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $ 12.5 million which was reported in other assets on the consolidated balance sheet.

During the three months ended December 31, 2022, $ 734 thousand was reclassified from AOCI as a decrease to interest expense.

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

At December 31, 2022, the Company estimated that $ 9.6 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

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

The Bank held cash collateral of $ 2.6 million at June 30, 2022 and posted cash collateral of $ 28.0 million at September 30, 2021.

During the current year-to-date period, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings.

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

The Bank held cash collateral of $ 12.6 million and $ 12.1 million at December 31, 2022 and September 30, 2022, respectively.

During the current quarter, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings.

The leverage strategy involved borrowing up to $ 2.60 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, with all of the balance being paid down at quarter end, or earlier if the strategy is not profitable.

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

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

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

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

19 unchanged sentences

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

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the nine months ended June 30, 2022 or during fiscal year 2021.

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2022 or during fiscal year 2022.

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

3 unchanged sentences

Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities.

• Corporate Bonds - Estimated fair values are based on a discounted cash flow method.

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

• Municipal Bonds - Estimated fair values are based on a discounted cash flow method.

• Corporate Bonds and Municipal Bonds - Estimated fair values are based on a discounted cash flow method.

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

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

Borrowed Funds" for additional information.

1 unchanged sentence

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

No adjustments were made to the estimated fair values obtained from the counterparty during the nine months ended June 30, 2022 or during fiscal year 2021.

No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2022 or during fiscal year 2022.

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

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at June 30, 2022 or September 30, 2021.

June 30, 2022

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2022 or September 30, 2022.

December 31, 2022

Quoted Prices Significant Significant

20 unchanged sentences

GSE debentures 469,827 — 469,827 —

Corporate bonds 3,695 — 3,695 —

Municipal bonds 1,161 — 1,161 —

1 unchanged sentence

Interest rate swaps 12,547 — 12,547 —

$ 1,575,854 $ — $ 1,575,854 $ —

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

2 unchanged sentences

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

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the nine months ended June 30, 2022 and 2021 that were still held in the portfolio as of June 30, 2022 and 2021 was $ 4.3 million and $ 7.4 million, respectively.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2022 and 2021 that were still held in the portfolio as of December 31, 2022 and 2021 was $ 4.1 million and $ 3.3 million, respectively.

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

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

1 unchanged sentence

Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal.

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable.

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable.

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

The primary significant unobservable inputs for commercial loans individually evaluated during the nine months ended June 30, 2022 and June 30, 2021 were downward adjustments to the book value

The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2022 and December 31, 2021 were downward adjustments to the book value

of the collateral for lack of marketability.

During the nine months ended June 30, 2022, the adjustments ranged from 9 % to 56 %, with a weighted average of 21 %.

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

During the three months ended December 31, 2022, the adjustments ranged from 8 % to 100 %, with a weighted average of 21 %.

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

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

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

3 unchanged sentences

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

The fair value of OREO measured on a non-recurring basis during the nine months ended June 30, 2022 and 2021 that was still held in the portfolio as of June 30, 2022 and 2021 was $ 258 thousand and $ 177 thousand, respectively.

The carrying value of the properties equaled the fair value of the properties at June 30, 2022 and 2021.

The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2022 that was still held in the portfolio as of December 31, 2022 was $ 93 thousand.

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

The carrying value of the properties equaled the fair value of the properties at December 31, 2022 and 2021.

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

2 unchanged sentences

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

June 30, 2022

December 31, 2022

Carrying Estimated Fair Value

16 unchanged sentences

FHLB stock 100,624 100,624 100,624 — —

Interest rate swaps 12,547 12,547 — 12,547 —

Deposits 6,194,866 6,124,835 3,991,114 2,133,721 —

Borrowings 2,132,154 1,910,779 75,000 1,835,779 —

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

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

For the Three Months Ended June 30, 2022

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ ( 71,776 ) $ ( 4,131 ) $ ( 75,907 )

Other comprehensive income (loss), before reclassifications ( 31,117 ) 3,798 ( 27,319 )

Amount reclassified from AOCI, net of taxes of $( 420 )

— 1,301 1,301

Other comprehensive income (loss) ( 31,117 ) 5,099 ( 26,018 )

Ending balance $ ( 102,893 ) $ 968 $ ( 101,925 )

For the Nine Months Ended June 30, 2022

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ 4,651 $ ( 20,956 ) $ ( 16,305 )

Other comprehensive income (loss), before reclassifications ( 107,544 ) 17,127 ( 90,417 )

Amount reclassified from AOCI, net of taxes of $( 1,548 )

— 4,797 4,797

Other comprehensive income (loss) ( 107,544 ) 21,924 ( 85,620 )

Ending balance $ ( 102,893 ) $ 968 $ ( 101,925 )

For the Three Months Ended June 30, 2021

For the Three Months Ended December 31, 2022

Unrealized Unrealized

9 unchanged sentences

Ending balance $ ( 142,069 ) $ 9,467 $ ( 132,602 )

For the Nine Months Ended June 30, 2021

For the Three Months Ended December 31, 2021

Unrealized Unrealized

10 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements