What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-02-08 compared with 2022-08-08 · 316 added, 612 removed, 644 unchanged (59% of the section changed)

9 unchanged sentences

• our ability to access cost-effective funding;

• the expected synergies and other benefits from our acquisition activities;

• our ability to extend our commercial banking and trust asset management expertise;

• the expected synergies and other benefits from our acquisition activities might not be realized to the extent anticipated, within the anticipated time frames, or at all;

• our ability to extend our commercial banking and trust asset management expertise across our market areas;

• fluctuations in deposit flows;

1 unchanged sentence

• the strength of the U.S.

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;

economy in general and the strength 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 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;

15 unchanged sentences

• our success at managing the risks involved in our business.

This list of important factors is not all inclusive.

This list of factors is not all inclusive.

For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A.

Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 and Part II, Item 1A.

Risk Factors" in the Company's Annual Report on Form 10-K for the

fiscal year ended September 30, 2022 and Part II, Item 1A.

Risk Factors within this Quarterly Report on Form 10-Q.

5 unchanged sentences

The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations.

Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company.

Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company except where the context indicates otherwise.

This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC.

1 unchanged sentence

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 $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.

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 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 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.

The Company recognized net income of $16.2 million, or $0.12 per share, for the current quarter compared to net income of $22.2 million, or $0.16 per share, for the prior year quarter.

The decrease in net income was due primarily to recording a provision for credit losses of $3.7 million for the current quarter compared to a $3.4 million release of provision for the prior year quarter, partially offset by lower income tax expense.

The net interest margin decreased 38 basis points, from 1.99% for the prior year quarter to 1.61% for the current quarter.

Excluding the effects of the leverage strategy, the net interest margin decreased 11 basis points, from 1.99% for the prior year quarter to 1.88% for the current quarter.

The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates and a shift in the mix of interest-earning assets towards higher-yielding loans.

Total assets were $9.93 billion at December 31, 2022, a $304.9 million increase from September 30, 2022.

The increase in assets was primarily a result of loan growth, primarily in the correspondent one- to four-family and commercial loan portfolios.

Total deposits were $6.07 billion at December 31, 2022, a decrease of $120.3 million from September 30, 2022.

The decrease was mainly in money market accounts as depositors likely moved funds to higher yielding investment products outside of the Bank and/or used funds to support spending.

As a result of loan growth and a decrease in deposit balances during the current quarter, FHLB borrowings increased $513.0 million, to $2.65 billion at December 31, 2022.

Stockholders' equity was $1.05 billion at December 31, 2022, a $41.7 million decrease from September 30, 2022.

The decrease was due primarily to the payment of dividends and repurchase of shares during the current quarter.

The rapid increase in short-term rates led by the FRB and the impact of higher long-term rates compared to September 30, 2022 has led to decreases in the Bank's net interest margin.

There has been a runoff in deposit balances and management has increased certificate of deposit and money market account rates to stem the outflow.

The higher loan rates have made homes less affordable and reduced the turnover of housing inventory, which lowers the likelihood of existing one- to four-family loans at lower rates being paid off with the proceeds being used to fund higher rate loans.

These dynamics have caused our balance sheet to change faster than what would occur in more stable rate environments.

Net interest margin compression is anticipated to continue, and the margin may compress more in the near term, due to the shape of the yield curve and the pace at which liabilities are repricing compared to assets, along with lower costing deposits being replaced with higher costing borrowings in order to fund loan growth.

Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate;

however, the shift to higher-costing borrowings and the pace at which the interest rate increase is occurring for liabilities is more than offsetting the benefit of the higher loan rates.

Management continues to evaluate funding options and plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repriced more quickly to lower cost alternatives.

The Bank's asset quality remained strong, reflected in low delinquency and charge-off ratios.

At December 31, 2022, loans 30 to 89 days delinquent were 0.10% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.10% of total loans receivable, net.

During the current quarter, net charge-offs ("NCOs") were $2 thousand.

At December 31, 2022, the Bank had a one-year gap position of $(1.02) billion, or (10.3)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period.

This was compared to $(1.14) billion, or (11.9%) of total assets at September 30, 2022.

The change in the one-year gap amount was primarily a result of a decrease in the amount of liability cash flows coming due in one year at December 31, 2022 compared to September 30, 2022.

Management is in the process of implementing a new core processing system ("digital transformation") for the Bank, which is expected to be operational by September 2023.

We expect the new platform will allow us to introduce new products and services quickly to drive better efficiencies and provide a more personalized experience for our customers.

Our customers will experience a more modern internet banking experience, including both desktop and mobile.

Internet banking will deliver real-time alerts and provide our customers the ability to manage their own debit cards.

Our customers will also have multiple options for real-time payments, which positions the Bank for faster payment channels in the future.

Management anticipates information technology and related expenses will increase in fiscal year 2023 in conjunction with the digital transformation.

See additional discussion in the "Fiscal Year 2023 Projections" section below.

Available Information

9 unchanged sentences

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

Annualized Annualized

June 30, March 31, Percent September 30, Percent

2022 2022 Change 2021 Change

(Dollars in thousands)

December 31, September 30, Percent

2022 2022 Change

(Dollars and shares in thousands)

Total assets $ 9,929,760 $ 9,624,897 12.7 %

7 unchanged sentences

Average number of diluted shares outstanding 134,641 135,773 (3.3)

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.

During the current quarter, total assets increased by $304.9 million, which was primarily driven by loan growth, mainly in the correspondent one- to four-family and commercial loan portfolios.

The one- to four-family correspondent loan portfolio increased $151.4 million, or 6.9%, primarily as a result of purchasing loans that were in the pipeline as of September 30, 2022, while new applications received have tapered off.

Also, during the current quarter we experienced a reduction in prepayment speeds on the one- to four-family loan portfolio.

The commercial loan portfolio increased $143.9 million, or 14.9%, during the current quarter, as funding for construction loans continued and new commercial real estate loans were added.

Total liabilities increased $346.6 million due to new borrowings, partially offset by a decrease in deposits.

The decrease in deposit balances was due primarily to a reduction in money market account balances, which decreased $125.3 million during the current quarter as depositors likely moved funds to alternative, higher yielding investment products and/or used balances accumulated over the past several years to support spending.

The increase in loan balances and the decrease in deposit balances made it necessary to enter into new FHLB borrowings totaling $520.0 million during the current quarter.

The new FHLB borrowings were comprised of $450.0

million of new advances with a weighted average maturity of 3.3 years and $70.0 million on the FHLB line of credit.

The overall loan growth during the quarter exceeded management's expectations as of September 30, 2022.

While it is still management's expectation that we will stay under $10 billion in total assets at September 30, 2023, it is likely that we will exceed that threshold at several quarter-ends this year.

We are working to limit the growth in assets and to limit additional use of FHLB advances for operating needs.

Loans Receivable.

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

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

Amount Rate Amount Rate Amount Rate

The loan portfolio rate increased 14 basis points from September 30, 2022 to December 31, 2022, due primarily to one- to four-family correspondent and commercial loan growth, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates.

The average prepayment speed on one- to four-family loans was 5% during the quarter ended December 31, 2022 compared to 7% during the quarter ended September 30, 2022.

December 31, 2022 September 30, 2022

Amount Rate Amount Rate

(Dollars in thousands)

24 unchanged sentences

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

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

For the Three Months Ended

December 31, 2022 December 31, 2021

Amount Rate Amount Rate

(Dollars in thousands)

10 unchanged sentences

Loan originations, purchases, and refinances are reported together.

For the Nine Months Ended

June 30, 2022 June 30, 2021

For the Three Months Ended

December 31, 2022 December 31, 2021

Amount Rate % of Total Amount Rate % of Total

20 unchanged sentences

Correspondent purchased - one- to four-family $ 101,958 5.11 $ 129,696 2.65

Participations - commercial 69,057 3.25 38,114 3.62

Participations and purchases - commercial 870 6.60 31,663 3.25

Total fixed-rate purchased/participations 102,828 5.12 161,359 2.77

1 unchanged sentence

Correspondent purchased - one- to four-family 97,513 4.62 857 2.18

Participations - commercial 13,000 3.85 77,000 4.44

Participations and purchases - commercial 134,964 5.93 5,000 4.00

Total adjustable-rate purchased/participations 232,477 5.38 5,857 3.73

Total purchased/participation loans $ 335,305 5.30 $ 167,216 2.80

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 June 30, 2022.

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

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

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

7 unchanged sentences

$ 6,506,140 100.0 % 3.20 769 62 209

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 Nine Months Ended

June 30, 2022 June 30, 2022

Credit Credit

Amount Rate LTV Score Amount Rate LTV Score

Many of the correspondent loans purchased during the current quarter were from applications received during the prior quarter.

The Bank is working towards reducing new correspondent purchases to near zero, but continues to work through the loans currently in the pipeline.

Amount Rate LTV Score

(Dollars in thousands)

2 unchanged sentences

$ 325,979 4.89 77 766

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.

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 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

$ 205,358 5.18

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.

Commercial Loans - During the quarter ended December 31, 2022, the Bank originated $219.3 million of commercial loans and entered into commercial loan participations totaling $135.8 million.

The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $207.8 million at a weighted average rate of 5.05%.

As of December 31, 2022, September 30, 2022, and December 31, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $113.2 million, $100.4 million and $99.8 million, respectively, and commitments totaled $5.1 million, $458 thousand and $6.4 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 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%.

As of December 31, 2022, the Bank had 18 commercial real estate and commercial construction loan commitments totaling $71.5 million, at a weighted average rate of 5.91%.

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.

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

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

Count Principal Amount Amount Amount Amount

Of the total commercial undisbursed amounts and commitments outstanding as of December 31, 2022, management anticipates approximately $110 million will be funded during the March 2023 quarter, $65 million during the June 2023 quarter, $82 million during the September 2023 quarter, and $74 million during the December 2023 quarter.

December 31, 2022 September 30, 2022

Unpaid Undisbursed Gross Loan Gross Loan

Count Principal Amount Amount Amount

(Dollars in thousands)

2 unchanged sentences

Hotel 11 195,590 21,014 216,604 181,546

Office building 85 52,738 50,305 103,043 104,787 109,987

Multi-family 38 82,138 128,117 210,255 122,735

Office building 87 82,751 32,093 114,844 109,653

One- to four-family property 390 62,182 10,157 72,339 68,907

4 unchanged sentences

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

Count Principal Amount Amount Amount Amount

December 31, 2022 September 30, 2022

Unpaid Undisbursed Gross Loan Gross Loan

Count Principal Amount Amount Amount

(Dollars in thousands)

Kansas 616 $ 400,508 $ 118,911 $ 519,419 $ 423,797

Missouri 157 227,027 53,343 280,370 281,230 232,041

Texas 15 224,792 111,720 336,512 280,840

Missouri 177 246,132 89,268 335,400 296,443

Colorado 8 40,179 15,526 55,705 34,377

Arkansas 3 21,884 11,618 33,502 33,589 33,763

Tennessee 2 20,577 22,681 43,258 —

Nebraska 7 33,760 4,057 37,817 32,992

1 unchanged sentence

838 $ 1,021,960 $ 374,579 $ 1,396,539 $ 1,136,215

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 June 30, 2022.

(Dollars in thousands)

6 unchanged sentences

1,453 $ 1,586,414

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.

Asset Quality

2 unchanged sentences

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

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

Of the loans 30 to 89 days delinquent at December 31, 2022, approximately 76% were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at:

June 30, March 31, December 31,

2022 2022 2021

Number Amount Number Amount Number Amount

December 31, September 30,

Number Amount Number Amount

(Dollars in thousands)

14 unchanged sentences

Nonaccrual Loans and OREO at:

June 30, March 31, December 31,

2022 2022 2021

Number Amount Number Amount Number Amount

December 31, September 30,

Number Amount Number Amount

(Dollars in thousands)

16 unchanged sentences

Consumer — — 1 19

4 230 9 566 8 513

Total nonaccrual loans 54 8,233 66 9,443

4 unchanged sentences

Consumer 1 21 1 21

3 258 — — 2 319

Total non-performing assets 57 $ 8,415 71 $ 9,771

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 June 30, 2022.

The following table presents the states where the properties securing ten percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at December 31, 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 June 30, 2022, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

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

Loans 30 to 89 Loans 90 or More Days Delinquent

4 unchanged sentences

Missouri 1,114,740 17.1 2,312 34.1 794 11.9 56

Texas 577,347 9.3 1,088 10.6 663 9.4 40

Other states 1,807,669 27.8 865 12.7 4,502 67.7 48

3 unchanged sentences

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

The decrease in commercial special mention loans at 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

The increase in commercial special mention loans at December 31, 2022 compared to September 30, 2022 was due mainly to two loans in a single commercial relationship moving to special mention during the quarter as certain underlying economic considerations being monitored by management showed signs of deterioration.

December 31, 2022 September 30, 2022

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 June 30, 2022.

The ACL increased during the current quarter due primarily to growth in the commercial loan portfolio and a slowdown in portfolio prepayment speeds, which reduced the projected prepayment speeds used in the model for generally all loan categories.

The increase in the commercial real estate ACL to loans receivable ratio during the current quarter was due mainly to the slow down of prepayment speeds used in the model and the classification of two loans as special mention.

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

Distribution of ACL Ratio of ACL to

Loans Receivable

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

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

2022 2022 2022 2022

13 unchanged sentences

The following table presents ACL activity and related ratios at the dates and for the periods indicated.

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 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.

The ratio of NCOs during the current quarter to average non-performing assets was higher than the prior year quarter due to a net charge-off in the current quarter compared to a net recovery in the prior year quarter.

The ratio of ACL to nonaccrual loans was higher at the end of the current quarter compared to the end of the prior year quarter due mainly to a lower balance of nonaccrual loans compared to the prior year period, along with higher ACL at December 31, 2022.

The ratio of ACL to NCOs was higher in the current quarter compared to the prior year quarter due primarily a net charge-off in the current quarter compared to a net recovery in the prior year quarter, along with an increase in ACL.

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

At or For the Nine Months Ended

June 30, 2022 June 30, 2021

At or For the Three Months Ended

December 31, 2022 December 31, 2021

(Dollars in thousands)

Balance at beginning of period $ 16,371 $ 19,823

Adoption of CECL — (4,761)

Charge-offs (4) (15)

7 unchanged sentences

ACL to loans receivable, net at end of period 0.25 0.25

ACL to NCOs (annualized) N/M (1)

ACL to NCOs (annualized) 3,032x N/M (1)

(1) This ratio is not presented due to loan recoveries exceeding loan charge-offs during the period.

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

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

For the Three Months Ended

December 31, 2022 December 31, 2021

NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans

(Dollars in thousands)

17 unchanged sentences

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 June 30, 2022.

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

The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.

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

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

Amount Yield WAL (1)

December 31, 2022 September 30, 2022

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Fixed-rate securities:

MBS $ 1,191,597 1.59% 5.0 $ 1,243,270 1.57% 4.7

GSE debentures 519,979 0.64 2.6 519,977 0.61 2.9

Municipal bonds 210 3.00 0.1 750 2.24 0.1 4,274 1.81 0.3

Total fixed-rate securities 1,736,330 1.22 4.1 1,776,135 1.20 4.0 1,887,890 1.11 3.6

Adjustable-rate securities:

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 9.4 4,000 5.12 9.6

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

(1) The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.

Municipal bonds 1,032 2.55 5.1 1,243 2.63 6.5

$ 1,716,608 1.31% 4.3 $ 1,768,490 1.29% 4.2

The following table summarizes the activity in our securities portfolio for the periods presented.

The weighted average yields and WALs for purchases are presented as recorded at the time of purchase.

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

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

For the Nine Months Ended

June 30, 2022 June 30, 2021

For the Three Months Ended

December 31, 2022 December 31, 2021

Amount Yield WAL Amount Yield WAL

3 unchanged sentences

Net amortization of (premiums)/discounts (837) (1,764)

Purchases 86,993 2.56 4.3 953,818 1.00 5.1

Change in valuation on AFS securities 17,261 (14,526)

Ending balance - carrying value $ 1,528,686 1.31 4.3 $ 1,890,653 1.15 3.5

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.

Total liabilities were $8.87 billion at December 31, 2022, compared to $8.53 billion at September 30, 2022.

The increase was due to new borrowings, partially offset by a decrease in deposits.

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

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

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

Deposits decreased $120.3 million during the current quarter.

The decrease was mainly in the money market portfolio.

The balance of the retail certificate of deposit portfolio remained relatively unchanged during the current quarter;

however, the mix within the portfolio changed slightly.

There was growth in the medium-term category, generally with terms 18 to 35 months, while the short-term and long-term categories decreased.

The rate on the deposit portfolio increased 31 basis points during the current quarter due primarily to retail certificates of deposit repricing to higher offered rates as balances renewed, as well as an increase in rates offered on money market accounts.

December 31, 2022 September 30, 2022

Amount Rate Total Amount Rate Total

(Dollars in thousands)

7 unchanged sentences

$ 6,074,549 0.94 100.0 % $ 6,194,866 0.63 100.0 %

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.

Total borrowings at December 31, 2022 were $2.65 billion, an increase of $513.0 million from September 30, 2022.

The $2.65 billion was comprised of $2.14 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $145.0 million on the FHLB line of credit.

Borrowings increased during the current quarter to fund loan growth and offset deposit outflows.

During the current quarter, the Bank utilized the leverage strategy, as discussed in the "Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022" section below.

These borrowings were repaid prior to December 31, 2022.

If the Bank continues to enter into additional FHLB borrowings during the remainder of fiscal year 2023 to fund operations, the amount of the leverage strategy transaction may continue to decrease compared to the fiscal year 2022 amount due to borrowing and collateral capacity levels.

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

1 unchanged sentence

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 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

Maturity by FHLB Interest rate Total Contractual Effective

Fiscal Year Advances swaps (1)

Amount Rate Rate (2)

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

In addition to the borrowings in the table below, there were two straight-line amortizing FHLB advances outstanding at December 31, 2022 including a $45.0 million advance at a rate of 3.50% with quarterly payments of $2.5 million through June 2027 and a $95.1 million advance at a rate of 4.45% with quarterly payments of $4.9 million through October 2027.

Maturity by Contractual Effective

Fiscal Year Amount Rate Rate (1)

(Dollars in thousands)

6 unchanged sentences

$ 2,365,000 2.91 2.72

$ 1,475,000 $ 365,000 $ 1,840,000 1.81 2.12

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

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

The expected WAL of the interest rate swaps and related advances was 3.3 years at June 30, 2022.

(1) 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.

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

The new FHLB borrowings added during the current quarter had a WAM of 3.3 years, which is generally a shorter term than what management has selected in prior periods.

The shorter terms were selected with the anticipation that when rates begin to decrease, the borrowings can be repriced more quickly to lower cost alternatives.

For the Three Months Ended

December 31, 2022 December 31, 2021

Effective Effective

Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

Beginning balance $ 2,062,500 2.44 % 2.5 $ 1,590,000 1.88 % 3.3

Maturities and prepayments — — — (100,000) 3.14 — (965,000) 1.99 —

Maturities and repayments (7,418) 4.13 (100,000) 3.14

New FHLB borrowings 450,000 4.45 3.3 100,000 3.44 6.5

Ending balance $ 2,505,082 2.80 2.4 $ 1,590,000 1.90 3.1

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 June 30, 2022.

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

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 non-amortizing term borrowings for the next four quarters as of December 31, 2022.

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

2023 2023 2023 2023 Total

11 unchanged sentences

Repricing Rate 1.31 % 1.31 % 1.70 % 2.81 % 1.82 %

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

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

Retail certificates of deposit 1.6

3 unchanged sentences

Stockholders' Equity.

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 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 June 30, 2022, there remained $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock.

Stockholders' equity at December 31, 2022 was $1.05 billion, a decrease of $41.7 million from September 30, 2022.

The decrease was due primarily to the payment of $49.2 million in cash dividends and $22.2 million in share repurchases during the current quarter, partially offset by net income and the decrease in accumulated other comprehensive loss during the quarter.

Cash dividends paid during the current quarter totaled $0.365 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and a regular quarterly cash dividend of $0.085 per share.

On January 24, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023.

At December 31, 2022, the Company's ratio of equity to assets was 10.6%.

Excluding the impact of unrealized losses on AFS securities, this ratio would have been approximately 130 basis points higher.

In the long run, management considers the Bank's Community Bank Leverage Ratio ("CBLR") of at least 9%, which is currently the required percentage under regulatory guidelines, to be an appropriate level of capital.

At December 31, 2022, this ratio was 9.2%.

During the current quarter, the Company repurchased 2,729,159 shares of common stock at an average price of $8.13 per share.

There remains $22.5 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.

This plan has no expiration date;

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.

however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2023.

At December 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $51.8 million in cash on deposit at the Bank.

For fiscal year 2023, 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.

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

This has primarily been through the payment of cash dividends and stock buybacks.

This has primarily been through the payment of cash dividends and stock repurchases.

The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year.

5 unchanged sentences

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

The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2023, 2022, and 2021.

The amounts represent cash dividends paid during each period.

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.

For the quarter ending March 31, 2023, the amount presented represents the dividend payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023.

Calendar Year

8 unchanged sentences

True-up dividends paid — — 37,701 0.280 29,850 0.220

True Blue dividends paid 27,143 0.200 54,210 0.400 — —

True Blue Capitol dividends paid — — 27,143 0.200 54,210 0.400

Calendar year-to-date dividends paid $ 11,320 $ 0.085 $ 110,955 $ 0.820 $ 130,147 $ 0.960

2 unchanged sentences

For the Three Months Ended

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

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

2022 2022 2022 2022 2021

2 unchanged sentences

Loans receivable $ 64,819 $ 60,445 $ 56,886 $ 55,412 $ 55,788

Cash and cash equivalents 16,671 13,373 3,968 949 14

MBS 4,811 4,912 5,048 4,821 4,625

FHLB stock 4,158 3,865 2,695 2,240 1,231

Cash and cash equivalents 3,968 949 14 27 26

Investment securities 881 845 815 800 808

15 unchanged sentences

Diluted EPS 0.12 0.14 0.16 0.16 0.16

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 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 $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.

Interest and Dividend Income

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

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

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 56,886 $ 55,412 $ 1,474 2.7 %

MBS 5,048 4,821 227 4.7

FHLB stock 2,695 2,240 455 20.3

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 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

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

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 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 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

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

(Dollars in thousands)

NON-INTEREST INCOME:

Deposit service fees $ 3,601 $ 3,300 $ 301 9.1 %

Insurance commissions 788 543 245 45.1

Other non-interest income 1,726 1,573 153 9.7

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

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

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

(Dollars in thousands)

NON-INTEREST EXPENSE:

Salaries and employee benefits $ 14,581 $ 14,023 $ 558 4.0 %

Information technology and related expense 4,343 4,493 (150) (3.3)

Occupancy, net 3,721 3,493 228 6.5

Regulatory and outside services 1,572 1,272 300 23.6

Advertising and promotional 1,068 1,494 (426) (28.5)

Federal insurance premium 784 777 7 0.9

Deposit and loan transaction costs 664 689 (25) (3.6)

Office supplies and related expense 494 502 (8) (1.6)

Other non-interest expense 1,163 1,217 (54) (4.4)

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

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 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 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 and the effective tax rate.

For the Three Months Ended

June 30, March 31, Change Expressed in:

2022 2022 Dollars Percent

(Dollars in thousands)

Income before income tax expense $ 26,769 $ 27,745 $ (976) (3.5) %

Income tax expense 5,617 6,122 (505) (8.2)

Net income $ 21,152 $ 21,623 $ (471) (2.2)

Effective Tax Rate 21.0 % 22.1 %

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

5 unchanged sentences

For the Three Months Ended

June 30, 2022 March 31, 2022

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

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

Average Interest Average Interest Average Interest

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

Amount Paid Rate Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

39 unchanged sentences

Net interest margin (8)(9)

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

1.61 1.71 1.99

Ratio of interest-earning assets to interest-bearing liabilities 1.16x 1.16x 1.21x

Selected performance ratios:

2 unchanged sentences

Return on average equity (annualized) (9)

5.99 6.83 7.18

Average equity to average assets 9.33 9.52 12.88

Operating expense ratio (annualized) (10)

0.96 0.99 1.11

Efficiency ratio (9)(11)

54.27 53.52 52.22

Pre-tax yield on leverage strategy (12)

2 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 $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%.

(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%.

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

(3) The average balance of investment securities includes an average balance of nontaxable securities of $1.1 million, $569 thousand, and $4.0 million for the three months ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively.

(4) Included in this line, for the three months ended December 31, 2022 and September 30, 2022 respectively, is FHLB stock related to the leverage strategy with an average outstanding balance $84.3 million and $108.8 million, and dividend income of $1.8 million and $2.1 million at a weighted average yield of 8.49% and 7.75% and FHLB stock not related to the leverage strategy with an average outstanding balance of $113.3 million and $89.6 million and dividend income of $2.4 million and $1.7 million at a weighted average yield of 8.24% and 7.70%.

There was no FHLB stock related to the leverage strategy during the three months 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 $1.79 billion and $2.31 billion during the three months ended December 31, 2022 and September 30, 2022, respectively.

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

(6) Included in this line, for the three months ended December 31, 2022 and September 30, 2022 respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.87 billion and $2.42 billion, with interest paid of $17.3 million and $13.5 million, at a weighted average rate of 3.61% and 2.19%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.39 billion and $1.97 billion and interest paid of $16.3 million and $11.0 million, at a weighted average rate of 2.70% and 2.20%.

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

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

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

5 unchanged sentences

For the Three Months Ended

June 30, 2022 March 31, 2022

Actual Leverage Adjusted Actual Leverage Adjusted

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

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

Actual Leverage Adjusted Actual Leverage Adjusted Actual Leverage Adjusted

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

Yield on interest-earning assets 3.19 % 0.13 % 3.06 % 2.83 % (0.09) % 2.92 % 2.71 % — % 2.71 %

8 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 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.

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

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

June 30, 2022 vs.

March 31, 2022

Increase (Decrease) Due to

Volume Rate Total

December 31, 2022 vs.

September 30, 2022 December 31, 2022 vs.

December 31, 2021

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

Volume Rate Total Volume (1)

(Dollars in thousands)

14 unchanged sentences

Net change in net interest income $ (126) $ (3,944) $ (4,070) $ (2,372) $ 2,586 $ 214

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 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.

(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 year quarter.

Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022

For the quarter ended December 31, 2022, the Company recognized net income of $16.2 million, or $0.12 per share, compared to net income of $19.5 million, or $0.14 per share, for the quarter ended September 30, 2022.

The decrease in net income was due primarily to lower net interest income in the current quarter.

The net interest margin decreased 10 basis points, from 1.71% for the prior quarter to 1.61% for the current quarter.

Excluding the effects of the leverage strategy discussed below, the net interest margin decreased 19 basis points, from 2.07% for the prior quarter to 1.88% for the current quarter.

As discussed in the "Executive Summary" above, management anticipates net interest margin compression may continue in the near term.

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

During the current quarter, the average outstanding balance of leverage strategy borrowings was $1.87 billion.

The borrowings were repaid prior to quarter end.

The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded 8.50% during the current quarter, were deposited at the FRB of Kansas City.

Net income attributable to the leverage strategy is largely derived from 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.

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.

Net income attributable to the leverage strategy was $763 thousand during the current quarter, compared to $1.3 million for the prior quarter.

The decrease was due to a reduction in the size of the leverage strategy transaction because the borrowing capacity was needed for operational liquidity purposes.

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

It is expected that the strategy will continue to be utilized as long as it remains profitable and/or the borrowing capacity does not need to be used for other purposes.

Interest and Dividend Income

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

For the Nine Months Ended

June 30, Change Expressed in:

The weighted average yield on loans receivable increased 11 basis points and the weighted average yield on MBS increased four basis points compared to the prior quarter.

For the Three Months Ended

December 31, September 30, Change Expressed in:

2022 2022 Dollars Percent

2 unchanged sentences

Loans receivable $ 64,819 $ 60,445 $ 4,374 7.2 %

Cash and cash equivalents 16,671 13,373 3,298 24.7

MBS 4,811 4,912 (101) (2.1)

FHLB stock 4,158 3,865 293 7.6

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

Investment securities 881 845 36 4.3

Total interest and dividend income $ 91,340 $ 83,440 $ 7,900 9.5

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.

The increase in interest income on loans receivable was due to growth in the loan portfolio, along with an increase in the weighted average yield.

The loan growth was mainly in the correspondent one-to four-family and commercial loan portfolios.

The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates.

The increase in dividend income on FHLB stock was due to an increase in the dividend rate paid by FHLB.

Interest Expense

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

For the Nine Months Ended

June 30, Change Expressed in:

The weighted average rate paid on deposits increased 23 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 50 basis points compared to the prior quarter.

For the Three Months Ended

December 31, September 30, Change Expressed in:

2022 2022 Dollars Percent

4 unchanged sentences

Total interest expense $ 45,512 $ 33,542 $ 11,970 35.7

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.

The increase in interest expense on borrowings was due primarily to new borrowings added during the current quarter and near the end of the prior quarter, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs.

See additional discussion in the "Financial Condition" section above.

Additionally, interest expense on borrowings increased due to an increase in the rate paid on the short-term borrowings associated with the leverage strategy, due to higher market interest rates.

The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid on certificates of deposit and money market accounts, partially offset by a decrease in the average balance of those deposit types.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $5.7 million, compared to a negative provision for credit losses of $7.2 million during the prior year period.

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 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.

For the quarter ended December 31, 2022, the Bank recorded a provision for credit losses of $3.7 million, compared to a provision for credit losses of $1.1 million for the prior quarter.

The provision for credit losses in the current quarter was comprised of a $2.8 million increase in the ACL for loans and an $840 thousand increase in reserves for off-balance sheet credit exposures.

The provision for credit losses associated with both the ACL and reserves for off-balance sheet credit exposures was primarily a result of growth in the commercial loan portfolio and the balance of commercial construction off-balance sheet credit exposures, along with a slowdown in portfolio prepayment speeds, which reduced the projected prepayment speeds used in the model for generally all loan categories.

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 Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2022 2022 Dollars Percent

3 unchanged sentences

Insurance commissions 795 905 (110) (12.2)

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

Other non-interest income 1,096 1,421 (325) (22.9)

Total non-interest income $ 5,352 $ 5,793 $ (441) (7.6)

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.

The decrease in other non-interest income was due mainly to the prior quarter including higher gains on a loan-related financial derivative agreement, which are generally driven by changes in market interest rates.

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 Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2022 2022 Dollars Percent

7 unchanged sentences

Federal insurance premium 812 820 (8) (1.0)

Deposit and loan transaction costs 2,050 2,123 (73) (3.4)

Office supplies and related expense 633 487 146 30.0

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

Deposit and loan transaction costs 611 747 (136) (18.2)

Other non-interest expense 1,109 1,133 (24) (2.1)

Total non-interest expense $ 27,773 $ 29,807 $ (2,034) (6.8)

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.

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

The Company's efficiency ratio was 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 higher net interest income.

The decrease in salaries and employee benefits was due mainly to a decrease in loan commissions, as well as one fewer working day in the current quarter compared to the prior quarter.

The decrease in occupancy, net was due mainly to lower utility expenses and building maintenance expenses.

The decrease in regulatory and outside services was due primarily to lower consulting expenses related to the Bank's ongoing digital transformation project as those third-party services are now directly related to the project and are included in information technology and related expenses.

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

The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete.

The decrease in deposit and loan transaction costs was mainly due to loan-related activities.

The Company's efficiency ratio was 54.27% for the current quarter compared to 53.52% for the prior quarter.

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

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

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

Income Tax Expense

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

For the Nine Months Ended

June 30, 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 the effective tax rate.

For the Three Months Ended

December 31, September 30, Change Expressed in:

2022 2022 Dollars Percent

4 unchanged sentences

Effective Tax Rate 17.8 % 21.5 %

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

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

Average Balance Sheet

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.

Average outstanding balances are derived from average daily balances.

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

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

For the Nine Months Ended

June 30, 2022 June 30, 2021

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,973,184 $ 96,583 3.24 % $ 3,963,088 $ 104,482 3.52 %

Correspondent purchased 2,040,934 39,832 2.60 2,006,257 35,124 2.33

Bulk purchased 162,151 1,578 1.30 195,678 2,870 1.96

Total one- to four-family loans 6,176,269 137,993 2.98 6,165,023 142,476 3.08

Commercial loans 866,856 26,898 4.09 780,941 26,707 4.51

Consumer loans 91,979 3,195 4.64 103,241 3,575 4.63

Total loans receivable (1)

7,135,104 168,086 3.14 7,049,205 172,758 3.26

1,379,334 14,494 1.40 1,424,914 16,499 1.54

Investment securities (2)(3)

522,706 2,423 0.62 476,755 2,075 0.58

FHLB stock (4)

132,657 6,166 6.21 78,784 2,964 5.03

Cash and cash equivalents (5)

1,305,949 4,931 0.50 152,792 117 0.10

Total interest-earning assets 10,475,750 196,100 2.49 9,182,450 194,413 2.82

Other non-interest-earning assets 362,229 443,370

Total assets $ 10,837,979 $ 9,625,820

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,063,280 535 0.07 $ 955,731 588 0.08

Savings 539,152 215 0.05 478,011 209 0.06

Money market 1,835,666 2,653 0.19 1,554,947 3,220 0.28

Retail certificates 2,236,551 21,230 1.27 2,530,969 31,824 1.68

Commercial certificates 123,398 584 0.63 195,066 1,208 0.83

Wholesale certificates 170,051 226 0.18 254,606 1,022 0.54

Total deposits 5,968,098 25,443 0.57 5,969,330 38,071 0.85

Borrowings (6)

2,918,291 27,961 1.27 1,654,544 26,885 2.16

Total interest-bearing liabilities 8,886,389 53,404 0.80 7,623,874 64,956 1.14

Non-interest-bearing deposits 571,685 499,737

Other non-interest-bearing liabilities 177,081 219,204

Stockholders' equity 1,202,824 1,283,005

Total liabilities and stockholders' equity $ 10,837,979 $ 9,625,820

Net interest income (7)

$ 142,696 $ 129,457

Net interest-earning assets $ 1,589,361 $ 1,558,576

Net interest margin (8)(9)

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

Selected performance ratios:

Return on average assets (annualized) (9)

0.80 % 0.80 %

Return on average equity (annualized) (9)

Average equity to average assets 11.10 13.33

Operating expense ratio (annualized) (10)

Efficiency ratio (9)(11)

Pre-tax yield on leverage strategy (12)

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

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

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

(3) The average balance of investment securities includes an average balance of nontaxable securities of $2.1 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.

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

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

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

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

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

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

For the Nine Months Ended

June 30, 2022 June 30, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

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

Yield on interest-earning assets 2.49 % (0.25) % 2.74 % 2.82 % — % 2.82 %

Cost of interest-bearing liabilities 0.80 (0.05) 0.85 1.14 — 1.14

Return on average assets (annualized) 0.80 (0.08) 0.88 0.80 — 0.80

Return on average equity (annualized) 7.20 0.20 7.00 5.98 — 5.98

Net interest margin 1.82 (0.22) 2.04 1.88 — 1.88

Efficiency Ratio 51.99 (0.65) 52.64 57.36 — 57.36

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

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

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

Rate/Volume Analysis

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

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 Nine Months Ended

June 30, 2022 vs.

June 30, 2021

Increase (Decrease) Due to

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ 2,731 $ (7,403) $ (4,672)

MBS (515) (1,490) (2,005)

Investment securities 207 141 348

FHLB stock 2,382 820 3,202

Cash and cash equivalents 3,167 1,647 4,814

Total interest-earning assets 7,972 (6,285) 1,687

Interest-bearing liabilities:

Checking 62 (114) (52)

Savings 25 (19) 6

Money market 516 (1,083) (567)

Certificates of deposit (4,673) (7,342) (12,015)

Borrowings 4,418 (3,342) 1,076

Total interest-bearing liabilities 348 (11,900) (11,552)

Net change in net interest income $ 7,624 $ 5,615 $ 13,239

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

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.

The decrease in the effective tax rate was due primarily to lower projected pretax income in the current year, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

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

The Company recognized net income of $16.2 million, or $0.12 per share, for the current quarter compared to net income of $22.2 million, or $0.16 per share, for the prior year quarter.

The net interest margin decreased 38 basis points, from 1.99% for the prior year quarter to 1.61% for the current quarter.

Excluding the effects of the leverage strategy, the net interest margin decreased 11 basis points, from 1.99% for the prior year quarter to 1.88% for the current quarter.

Interest and Dividend Income

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2022 2021 Dollars Percent

2 unchanged sentences

Loans receivable $ 64,819 $ 55,788 $ 9,031 16.2 %

Cash and cash equivalents 16,671 14 16,657 N/M

MBS 4,811 4,625 186 4.0

FHLB stock 4,158 1,231 2,927 237.8

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

Investment securities 881 808 73 9.0

Total interest and dividend income $ 91,340 $ 62,466 $ 28,874 46.2

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.

The increase in interest income on loans receivable was due to an increase in the average balance and weighted average yield of the loan portfolio.

The increase in the average balance was mainly in the correspondent one-to four-family and commercial loan portfolios.

The increase in interest income on cash and cash equivalents and the increase in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter.

Additionally, market interest rates increased between periods resulting in an increase in the yield on cash due to an increase in FRB interest rates, and FHLB increased the dividend rate paid compared to the prior year quarter.

Interest Expense

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

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

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Total interest expense $ 45,512 $ 16,852 $ 28,660 170.1

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.

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

Interest expense on borrowings associated with the leverage strategy totaled $17.3 million during the current quarter.

Interest expense on FHLB borrowings not associated with the leverage strategy also increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs.

See additional discussion in the "Financial Condition" section above.

The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily money market accounts and certificates of deposit, partially offset by a decrease in the average balance of certificates of deposit.

Provision for Credit Losses

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.

The Bank recorded a provision for credit losses during the current quarter of $3.7 million, compared to a $3.4 million release of provision during the prior year quarter.

See "Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022" above for additional information regarding the provision for credit losses for the current quarter.

Non-Interest Income

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2022 2021 Dollars Percent

5 unchanged sentences

Total non-interest income $ 5,352 $ 5,506 $ (154) (2.8)

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

The decrease in other non-interest income was due mainly to the prior year quarter including higher gains on a loan-related financial derivative agreement, along with a decrease in income from bank-owned life insurance.

Non-Interest Expense

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2022 2021 Dollars Percent

7 unchanged sentences

Federal insurance premium 812 639 173 27.1

Deposit and loan transaction costs 664 693 (29) (4.2)

Office supplies and related expense 633 468 165 35.3

Deposit and loan transaction costs 611 697 (86) (12.3)

Other non-interest expense 1,109 919 190 20.7

Total non-interest expense $ 27,773 $ 26,694 $ 1,079 4.0

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 increase in information technology and related expenses was due mainly to higher software licensing expenses, as well as third-party project management expenses associated with the Bank's ongoing digital transformation project.

The increase in regulatory and outside services was due primarily to an increase in outside consulting services.

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

The increase in federal insurance premium expense was due to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter.

The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete.

The increase in other non-interest expense was due mainly to expenses associated with the collateral received on the Bank's interest rate swap agreements and higher deposit-related fraud losses in the current quarter.

The Company's efficiency ratio was 54.27% for the current quarter compared to 52.22% for the prior year quarter.

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

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

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 and the effective tax rate.

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 Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2022 2021 Dollars Percent

4 unchanged sentences

Effective Tax Rate 17.8 % 20.4 %

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

Average Balance Sheet

Average outstanding balances are derived from average daily balances.

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

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

For the Three Months Ended

June 30, 2022 June 30, 2021

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,982,602 $ 32,168 3.23 % $ 3,982,990 $ 33,727 3.39 %

Correspondent purchased 2,060,947 14,027 2.72 1,971,209 10,367 2.10

Bulk purchased 154,663 464 1.20 185,198 826 1.78

Total one- to four-family loans 6,198,212 46,659 3.01 6,139,397 44,920 2.93

Commercial loans 890,455 9,104 4.05 805,721 8,744 4.29

Consumer loans 92,790 1,123 4.85 96,980 1,115 4.61

Total loans receivable (1)

7,181,457 56,886 3.16 7,042,098 54,779 3.11

1,343,891 5,048 1.50 1,529,679 5,360 1.40

Investment securities (2)(3)

522,147 815 0.62 533,076 763 0.57

FHLB stock (4)

166,879 2,695 6.48 73,689 944 5.14

Cash and cash equivalents (5)

1,930,539 3,968 0.81 97,890 26 0.11

Total interest-earning assets 11,144,913 69,412 2.49 9,276,432 61,872 2.66

Other non-interest-earning assets 293,882 430,639

Total assets $ 11,438,795 $ 9,707,071

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,068,329 180 0.07 $ 1,007,242 182 0.07

Savings 556,553 74 0.05 513,528 72 0.06

Money market 1,861,302 952 0.21 1,646,970 998 0.24

Retail certificates 2,169,262 6,383 1.18 2,462,543 9,531 1.55

Commercial certificates 84,231 129 0.61 216,371 407 0.75

Wholesale certificates 113,101 69 0.24 251,571 285 0.45

Total deposits 5,852,778 7,787 0.53 6,098,225 11,475 0.75

Borrowings (6)

3,687,592 11,644 1.26 1,582,905 7,826 1.97

Total interest-bearing liabilities 9,540,370 19,431 0.81 7,681,130 19,301 1.01

Non-interest-bearing deposits 586,876 539,423

Other non-interest-bearing liabilities 147,938 203,532

Stockholders' equity 1,163,611 1,282,986

Total liabilities and stockholders' equity $ 11,438,795 $ 9,707,071

Net interest income (7)

$ 49,981 $ 42,571

Net interest-earning assets $ 1,604,543 $ 1,595,302

Net interest margin (8)(9)

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

Selected performance ratios:

Return on average assets (annualized) (9)

0.74 % 0.75 %

Return on average equity (annualized) (9)

Average equity to average assets 10.17 13.22

Operating expense ratio (annualized) (10)

Efficiency ratio (9)(11)

Pre-tax yield on leverage strategy (12)

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

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

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

(3) The average balance of investment securities includes an average balance of nontaxable securities of $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.

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

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

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

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

For the Three Months Ended

June 30, 2022 June 30, 2021

Actual Leverage Adjusted Actual Leverage Adjusted

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

Yield on interest-earning assets 2.49 % (0.30) % 2.79 % 2.66 % — % 2.66 %

Cost of interest-bearing liabilities 0.81 (0.03) 0.84 1.01 — 1.01

Return on average assets (annualized) 0.74 (0.10) 0.84 0.75 — 0.75

Return on average equity (annualized) 7.27 0.42 6.85 5.67 — 5.67

Net interest margin 1.79 (0.32) 2.11 1.84 — 1.84

Efficiency Ratio 50.61 (1.31) 51.92 57.73 — 57.73

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

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

Rate/Volume Analysis

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

For the Three Months Ended June 30,

Increase (Decrease) Due to

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ 1,276 $ 831 $ 2,107

MBS (680) 368 (312)

Investment securities (16) 68 52

FHLB stock 1,452 299 1,751

Cash and cash equivalents 2,909 1,033 3,942

Total interest-earning assets 4,941 2,599 7,540

Interest-bearing liabilities:

Checking 11 (12) (1)

Savings 6 (4) 2

Money market 121 (167) (46)

Certificates of deposit (1,773) (1,870) (3,643)

Borrowings 4,185 (367) 3,818

Total interest-bearing liabilities 2,550 (2,420) 130

Net change in net interest income $ 2,391 $ 5,019 $ 7,410

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.

Fiscal Year 2023 Projections

As discussed in the "Executive Summary" section above, the rapid increase in short-term rates led by the FRB and the impact of higher long-term rates has resulted in a decrease in our net interest margin.

Net interest margin compression is anticipated to continue, and may compress more in the near term, due to the shape of the yield curve and the pace at which liabilities are repricing compared to assets and the replacement of lower cost deposits with higher costing borrowings which are being used to fund loan growth.

Management anticipates information technology and related expenses will be approximately $5.5 million higher in fiscal year 2023 compared to fiscal year 2022 due to the digital transformation.

In addition, it is expected there will be approximately $1 million more of information technology and related expenses in fiscal year 2023 related to projects outside of the digital transformation and due to general cost increases.

Overall, it is anticipated that information technology and related expenses will be approximately $6.5 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24.5 million for the year.

In fiscal year 2024, information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due to a reduction in professional service costs.

Salaries and employee benefits are expected to be approximately $3.5 million higher in fiscal year 2023 due primarily to merit increases and salary adjustments.

Federal insurance premium expense is anticipated to be approximately $2 million higher in fiscal year 2023, due to the increase in the assessment rate beginning in January 2023.

Management anticipates the effective tax rate for fiscal year 2023 will be approximately 19%.

This is lower than the original projection of 20% to 21% previously provided, due mainly to lower projected pretax income as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

Liquidity and Capital Resources

3 unchanged sentences

The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations.

The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions.

The Bank's long-term borrowings primarily have been used to manage long-term liquidity needs and the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios that meet or exceed the regulatory standards for well-capitalized financial institutions.

In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.

5 unchanged sentences

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 June 30, 2022, as approved by the president of FHLB.

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

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

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

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

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

4 unchanged sentences

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

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.

At December 31, 2022, the Bank had total borrowings, at par, of $2.65 billion, or approximately 27% of total assets, all of which were FHLB borrowings.

Of this amount, $479.7 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 June 30, 2022, the Bank had no repurchase agreements.

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

Additionally, the Bank had pledged securities with an estimated fair value of $572.1 million as collateral for FHLB borrowings at December 31, 2022.

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

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

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

At June 30, 2022, the Bank had $1.55 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

At December 31, 2022, the Bank had $817.3 million 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 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.

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

At December 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 $137.6 million as collateral for public unit certificates of deposit at December 31, 2022.

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

At 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.

At December 31, 2022, $1.05 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $88.1 million of public unit certificates of deposit and $22.1 million of commercial certificates of deposit.

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

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

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

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

8 unchanged sentences

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

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

So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a CBLR greater than the required percentage, which is currently 9.0%), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Regulatory Capital

1 unchanged sentence

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

As of December 31, 2022, the Bank's CBLR was 9.2% and the Company's CBLR was 10.0%, 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