Capitol Federal Financial, Inc. 10-Q

Item 1. Financial Statements CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts) December 31, September 30, 2022 2022 ASSETS: Cash and cash equivalents (includes interest-earning deposits of $ 20,243 and $ 27,467 ) $ 49,686 $ 49,194 Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $ 1,716,608 and $ 1,768,490 ) 1,528,686 1,563,307 Loans receivable, net (allowance for credit losses ("ACL") of $ 19,189 and $ 16,371 ) 7,783,358 7,464,208 Federal Home Loan Bank Topeka ("FHLB") stock, at cost 124,119 100,624 Premises and equipment, net 93,507 94,820 Income taxes receivable, net 124 1,266 Deferred income tax assets, net 29,924 33,884 Other assets 320,356 317,594 TOTAL ASSETS $ 9,929,760 $ 9,624,897 LIABILITIES: Deposits $ 6,074,549 $ 6,194,866 Borrowings 2,645,195 2,132,154 Advances by borrowers 36,207 80,067 Other liabilities 119,014 121,311 Total liabilities 8,874,965 8,528,398 STOCKHOLDERS' EQUITY: Preferred stock, $ .01 par value; 100,000,000 shares authorized, no shares issued or outstanding — — Common stock, $ .01 par value; 1,400,000,000 shares authorized, 136,134,225 and 138,858,884 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively 1,361 1,388 Additional paid-in capital 1,168,061 1,190,213 Unearned compensation, Employee Stock Ownership Plan ("ESOP") ( 29,322 ) ( 29,735 ) Retained earnings 47,297 80,266 Accumulated other comprehensive (loss) income ("AOCI"), net of tax ( 132,602 ) ( 145,633 ) Total stockholders' equity 1,054,795 1,096,499 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,929,760 $ 9,624,897 See accompanying notes to consolidated financial statements. 3 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) For the Three Months Ended December 31, 2022 2021 INTEREST AND DIVIDEND INCOME: Loans receivable $ 64,819 $ 55,788 Cash and cash equivalents 16,671 14 Mortgage-backed securities ("MBS") 4,811 4,625 FHLB stock 4,158 1,231 Investment securities 881 808 Total interest and dividend income 91,340 62,466 INTEREST EXPENSE: Borrowings 33,608 7,585 Deposits 11,904 9,267 Total interest expense 45,512 16,852 NET INTEREST INCOME 45,828 45,614 PROVISION FOR CREDIT LOSSES 3,660 ( 3,439 ) NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 42,168 49,053 NON-INTEREST INCOME: Deposit service fees 3,461 3,430 Insurance commissions 795 711 Other non-interest income 1,096 1,365 Total non-interest income 5,352 5,506 NON-INTEREST EXPENSE: Salaries and employee benefits 13,698 13,728 Information technology and related expense 5,070 4,432 Occupancy, net 3,474 3,379 Regulatory and outside services 1,533 1,368 Advertising and promotional 833 1,064 Federal insurance premium 812 639 Office supplies and related expense 633 468 Deposit and loan transaction costs 611 697 Other non-interest expense 1,109 919 Total non-interest expense 27,773 26,694 INCOME BEFORE INCOME TAX EXPENSE 19,747 27,865 INCOME TAX EXPENSE 3,507 5,679 NET INCOME $ 16,240 $ 22,186 Basic earnings per share ("EPS") $ 0.12 $ 0.16 Diluted EPS $ 0.12 $ 0.16 Basic weighted average common shares 134,640,932 135,627,043 Diluted weighted average common shares 134,640,932 135,627,043 See accompanying notes to consolidated financial statements. 4 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2022 2021 Net income $ 16,240 $ 22,186 Other comprehensive income (loss), net of tax: Changes in unrealized gains/losses on AFS securities, net of taxes of $( 4,211 ) and $ 3,544 13,050 ( 10,982 ) Changes in unrealized gains/losses on cash flow hedges, net of taxes of $ 5 and $( 1,277 ) ( 19 ) 3,961 Comprehensive income $ 29,271 $ 15,165 See accompanying notes to consolidated financial statements. 5 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Dollars in thousands, except per share amounts) For the Three Months Ended December 31, 2022 Additional Unearned Total Common Paid-In Compensation Retained Stockholders' Stock Capital ESOP Earnings AOCI Equity Balance at September 30, 2022 $ 1,388 $ 1,190,213 $ ( 29,735 ) $ 80,266 $ ( 145,633 ) $ 1,096,499 Net income 16,240 16,240 Other comprehensive income, net of tax 13,031 13,031 ESOP activity ( 72 ) 413 341 Stock-based compensation 89 89 Repurchase of common stock ( 27 ) ( 22,169 ) ( 22,196 ) Cash dividends to stockholders ($ 0.365 per share) ( 49,209 ) ( 49,209 ) Balance at December 31, 2022 $ 1,361 $ 1,168,061 $ ( 29,322 ) $ 47,297 $ ( 132,602 ) $ 1,054,795 For the Three Months Ended December 31, 2021 Additional Unearned Total Common Paid-In Compensation Retained Stockholders' Stock Capital ESOP Earnings AOCI Equity Balance at September 30, 2021 $ 1,388 $ 1,189,633 $ ( 31,387 ) $ 98,944 $ ( 16,305 ) $ 1,242,273 Net income 22,186 22,186 Other comprehensive loss, net of tax ( 7,021 ) ( 7,021 ) ESOP activity 74 413 487 Restricted stock activity, net ( 3 ) ( 3 ) Stock-based compensation 123 123 Cash dividends to stockholders ($ 0.305 per share) ( 41,385 ) ( 41,385 ) Balance at December 31, 2021 $ 1,388 $ 1,189,827 $ ( 30,974 ) $ 79,745 $ ( 23,326 ) $ 1,216,660 6 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES: Net income 16,240 22,186 Adjustments to reconcile net income to net cash provided by operating activities: FHLB stock dividends ( 4,158 ) ( 1,231 ) Provision for credit losses 3,660 ( 3,439 ) Originations of loans receivable held-for-sale ("LHFS") — ( 678 ) Proceeds from sales of LHFS — 285 Amortization and accretion of premiums and discounts on securities 837 1,764 Depreciation and amortization of premises and equipment 2,298 2,341 Amortization of intangible assets 274 350 Amortization of deferred amounts related to FHLB advances, net 459 453 Common stock committed to be released for allocation - ESOP 341 487 Stock-based compensation 89 123 Changes in: Unrestricted cash collateral received from derivative counterparties, net 530 — Other assets, net ( 2,527 ) 1,452 Income taxes payable/receivable, net 1,117 2,807 Deferred income tax liabilities, net ( 245 ) 438 Other liabilities ( 4,314 ) ( 7,069 ) Net cash provided by operating activities 14,601 20,269 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from calls, maturities and principal reductions of AFS securities 51,045 107,665 Proceeds from the redemption of FHLB stock 90,423 1,224 Purchase of FHLB stock ( 109,760 ) ( 1,833 ) Net change in loans receivable ( 327,583 ) ( 12,387 ) Proceeds from sale of participating interest in loans receivable 5,563 — Purchase of premises and equipment ( 1,093 ) ( 1,526 ) Proceeds from sale of other real estate owned ("OREO") 296 120 Net cash (used in) provided by investing activities ( 291,109 ) 93,263 (Continued) 7 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) For the Three Months Ended December 31, 2022 2021 CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid ( 49,209 ) ( 41,385 ) Net change in deposits ( 120,317 ) 50,608 Proceeds from borrowings 2,000,100 293,702 Repayments on borrowings ( 1,487,518 ) ( 293,702 ) Change in advances by borrowers ( 43,860 ) ( 34,502 ) Repurchase of common stock ( 22,196 ) — Net cash provided by (used in) financing activities 277,000 ( 25,279 ) NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 492 88,253 CASH, CASH EQUIVALENTS AND RESTRICTED CASH: Beginning of period 49,194 70,292 End of period 49,686 158,545 See accompanying notes to consolidated financial statements. (Concluded) 8 Notes to Consolidated Financial Statements (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year. Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents of $ 49.7 million and $ 49.2 million at December 31, 2022 and September 30, 2022, respectively. At times, the Company holds restricted cash, which is reported in other assets on the consolidated balance sheet, related to collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps. There was no restricted cash at December 31, 2022 or September 30, 2022. See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds. Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows. Recent Accounting Pronouncements - In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclos ures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables within the scope of Accounting Standards Codification ("ASC") 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost . This ASU is effective for the Company on October 1, 2023. While the adoption of this ASU is expected to result in enhanced disclosures, the Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial condition or results of operations. 9 2. EARNINGS PER SHARE Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. For the Three Months Ended December 31, 2022 2021 (Dollars in thousands, except per share amounts) Net income $ 16,240 $ 22,186 Income allocated to participating securities ( 7 ) ( 12 ) Net income available to common stockholders $ 16,233 $ 22,174 Total basic average common shares outstanding 134,640,932 135,627,043 Effect of dilutive stock options — — Total diluted average common shares outstanding 134,640,932 135,627,043 Net EPS: Basic $ 0.12 $ 0.16 Diluted $ 0.12 $ 0.16 Antidilutive stock options, excluded from the diluted average common shares outstanding calculation 378,026 543,761 10 3. SECURITIES The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States Government-Sponsored Enterprises ("GSEs"). December 31, 2022 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 1,191,597 $ 208 $ 139,550 $ 1,052,255 GSE debentures 519,979 — 48,199 471,780 Corporate bonds 4,000 — 359 3,641 Municipal bonds 1,032 — 22 1,010 $ 1,716,608 $ 208 $ 188,130 $ 1,528,686 September 30, 2022 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 1,243,270 $ 365 $ 155,011 $ 1,088,624 GSE debentures 519,977 — 50,150 469,827 Corporate bonds 4,000 — 305 3,695 Municipal bonds 1,243 — 82 1,161 $ 1,768,490 $ 365 $ 205,548 $ 1,563,307 The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented. December 31, 2022 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 299,745 $ 17,402 $ 724,667 $ 122,148 GSE debentures — — 471,780 48,199 Corporate bonds 3,641 359 — — Municipal bonds 1,010 22 — — $ 304,396 $ 17,783 $ 1,196,447 $ 170,347 September 30, 2022 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 338,013 $ 22,563 $ 715,281 $ 132,448 GSE debentures — — 469,827 50,150 Corporate bonds 3,695 305 — — Municipal bonds 1,161 82 — — $ 342,869 $ 22,950 $ 1,185,108 $ 182,598 11 The unrealized losses at December 31, 2022 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record an ACL on securities in an unrealized loss position at December 31, 2022 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity. The amortized cost and estimated fair value of AFS debt securities as of December 31, 2022, by contractual maturity, are shown below. Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories. Amortized Estimated Cost Fair Value (Dollars in thousands) One year or less $ 25,000 $ 24,006 One year through five years 494,979 447,774 Five years through ten years 5,032 4,651 525,011 476,431 MBS 1,191,597 1,052,255 $ 1,716,608 $ 1,528,686 The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented. For the Three Months Ended December 31, 2022 2021 (Dollars in thousands) Taxable $ 874 $ 790 Non-taxable 7 18 $ 881 $ 808 The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented. December 31, 2022 September 30, 2022 (Dollars in thousands) FHLB advances $ 572,068 $ 572,913 Public unit deposits 137,562 125,496 Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings 44,498 46,283 $ 754,128 $ 744,692 . 12 4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable, net at the dates presented is summarized as follows: December 31, 2022 September 30, 2022 (Dollars in thousands) One- to four-family: Originated $ 4,007,596 $ 3,988,469 Correspondent purchased 2,353,335 2,201,886 Bulk purchased 145,209 147,939 Construction 70,869 66,164 Total 6,577,009 6,404,458 Commercial: Commercial real estate 833,444 745,301 Commercial and industrial 88,327 79,981 Construction 188,516 141,062 Total 1,110,287 966,344 Consumer: Home equity 95,352 92,203 Other 9,022 8,665 Total 104,374 100,868 Total loans receivable 7,791,670 7,471,670 Less: ACL 19,189 16,371 Deferred loan fees/discounts 30,513 29,736 Premiums/deferred costs ( 41,390 ) ( 38,645 ) $ 7,783,358 $ 7,464,208 Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans. The Bank has a loan concentration in one- to four-family loans and geographic concentrations of these loans in Kansas, Missouri, and Texas. One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function. The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters. The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided. Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate and commercial construction participation loans, the Bank performs the 13 same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 85 % of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 . For commercial construction loans, LTV ratios generally do not exceed 80 % of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 , but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers. The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing commercial and industrial loans. As a result of these additional complexities, variables and risks, commercial and industrial loans require more thorough underwriting and servicing than other types of loans. Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position. The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount. Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. These segments are further divided into classes for purposes of providing disaggregated credit quality information about the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family construction loans are included in the originated class and commercial construction loans are included in the commercial real estate class. As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status. Loan Classification - In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows: • Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the nonaccrual loan categories. • Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable. • Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted. 14 The following tables set forth, as of the dates indicated, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At December 31, 2022 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. December 31, 2022 Current Fiscal Fiscal Fiscal Fiscal Revolving Fiscal Year Year Year Year Prior Line of Year 2022 2021 2020 2019 Years Credit Total (Dollars in thousands) One- to four-family: Originated Pass $ 100,424 $ 569,293 $ 923,122 $ 610,572 $ 274,505 $ 1,562,821 $ — $ 4,040,737 Special Mention 185 298 583 1,372 1,282 9,037 — 12,757 Substandard — 158 — 277 736 7,641 — 8,812 Correspondent purchased Pass 146,776 538,663 643,407 268,000 67,808 709,034 — 2,373,688 Special Mention — — 754 — 354 2,589 — 3,697 Substandard — — — — 168 5,655 — 5,823 Bulk purchased Pass — — — — — 142,131 — 142,131 Special Mention — — — — — — — — Substandard — — — — — 3,602 — 3,602 247,385 1,108,412 1,567,866 880,221 344,853 2,442,510 — 6,591,247 Commercial: Commercial real estate Pass 178,810 295,202 218,991 116,758 84,688 85,818 8,598 988,865 Special Mention — 28,435 — — — — — 28,435 Substandard — — — 594 219 267 — 1,080 Commercial and industrial Pass 10,927 26,299 15,764 4,980 3,487 1,342 24,205 87,004 Special Mention — — — — — — — — Substandard — 19 — 73 — 83 1,158 1,333 189,737 349,955 234,755 122,405 88,394 87,510 33,961 1,106,717 Consumer: Home equity Pass 1,376 6,232 2,270 1,382 935 2,845 79,993 95,033 Special Mention — — — — — — 228 228 Substandard — — — — 18 15 267 300 Other Pass 1,463 3,810 1,681 715 308 705 317 8,999 Special Mention — — — 6 — — — 6 Substandard — 3 13 1 — — — 17 2,839 10,045 3,964 2,104 1,261 3,565 80,805 104,583 Total $ 439,961 $ 1,468,412 $ 1,806,585 $ 1,004,730 $ 434,508 $ 2,533,585 $ 114,766 $ 7,802,547 15 September 30, 2022 Fiscal Fiscal Fiscal Fiscal Fiscal Revolving Year Year Year Year Year Prior Line of 2022 2021 2020 2019 2018 Years Credit Total (Dollars in thousands) One- to four-family: Originated Pass $ 563,460 $ 930,019 $ 624,274 $ 281,342 $ 212,037 $ 1,406,444 $ — $ 4,017,576 Special Mention 47 457 1,111 518 428 7,641 — 10,202 Substandard 158 — 278 1,106 256 8,968 — 10,766 Correspondent purchased Pass 494,854 651,363 273,626 69,752 104,150 627,390 — 2,221,135 Special Mention — — — 355 1,186 1,197 — 2,738 Substandard — — — 168 513 4,783 — 5,464 Bulk purchased Pass — — — — — 144,840 — 144,840 Special Mention — — — — — — — — Substandard — — — — — 3,637 — 3,637 1,058,519 1,581,839 899,289 353,241 318,570 2,204,900 — 6,416,358 Commercial: Commercial real estate Pass 366,794 221,001 111,689 86,456 41,322 46,383 7,436 881,081 Special Mention 565 — — — — — — 565 Substandard 436 — 594 221 239 30 — 1,520 Commercial and industrial Pass 38,442 17,453 5,708 4,212 919 630 11,413 78,777 Special Mention — — — — — — — — Substandard — — 78 — 73 10 1,052 1,213 406,237 238,454 118,069 90,889 42,553 47,053 19,901 963,156 Consumer: Home equity Pass 6,447 2,375 1,486 982 992 2,020 77,448 91,750 Special Mention — 66 — — — — 233 299 Substandard — — — 18 — 3 331 352 Other Pass 4,207 1,977 843 408 651 201 369 8,656 Special Mention — — 7 — — — — 7 Substandard 1 — — — — — — 1 10,655 4,418 2,336 1,408 1,643 2,224 78,381 101,065 Total $ 1,475,411 $ 1,824,711 $ 1,019,694 $ 445,538 $ 362,766 $ 2,254,177 $ 98,282 $ 7,480,579 16 Delinquency Status - The following tables set forth, as of the dates indicated, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision as of the dates indicated. All revolving lines of credit are presented separately, regardless of origination year. December 31, 2022 Current Fiscal Fiscal Fiscal Fiscal Revolving Fiscal Year Year Year Year Prior Line of Year 2022 2021 2020 2019 Years Credit Total (Dollars in thousands) One- to four-family: Originated Current $ 100,609 $ 569,591 $ 923,705 $ 611,905 $ 276,447 $ 1,574,314 $ — $ 4,056,571 30-89 — — — 316 76 4,309 — 4,701 90+/FC — 158 — — — 876 — 1,034 Correspondent purchased Current 146,776 538,663 644,161 268,000 68,162 712,039 — 2,377,801 30-89 — — — — — 1,230 — 1,230 90+/FC — — — — 168 4,009 — 4,177 Bulk purchased Current — — — — — 143,359 — 143,359 30-89 — — — — — 865 — 865 90+/FC — — — — — 1,509 — 1,509 247,385 1,108,412 1,567,866 880,221 344,853 2,442,510 — 6,591,247 Commercial: Commercial real estate Current 178,810 323,509 218,991 116,758 84,688 85,796 8,598 1,017,150 30-89 — 128 — — — 33 — 161 90+/FC — — — 594 219 256 — 1,069 Commercial and industrial Current 10,927 26,299 15,764 5,053 3,487 1,340 25,354 88,224 30-89 — 19 — — — 2 9 30 90+/FC — — — — — 83 — 83 189,737 349,955 234,755 122,405 88,394 87,510 33,961 1,106,717 Consumer: Home equity Current 1,376 6,232 2,270 1,325 935 2,846 80,022 95,006 30-89 — — — 57 18 2 369 446 90+/FC — — — — — 12 97 109 Other Current 1,463 3,795 1,681 715 297 558 317 8,826 30-89 — 15 — 6 11 147 — 179 90+/FC — 3 13 1 — — — 17 2,839 10,045 3,964 2,104 1,261 3,565 80,805 104,583 Total $ 439,961 $ 1,468,412 $ 1,806,585 $ 1,004,730 $ 434,508 $ 2,533,585 $ 114,766 $ 7,802,547 17 September 30, 2022 Fiscal Fiscal Fiscal Fiscal Fiscal Revolving Year Year Year Year Year Prior Line of 2022 2021 2020 2019 2018 Years Credit Total (Dollars in thousands) One- to four-family: Originated Current $ 563,507 $ 930,476 $ 625,110 $ 282,598 $ 212,549 $ 1,417,268 $ — $ 4,031,508 30-89 — — 553 — 64 3,506 — 4,123 90+/FC 158 — — 368 108 2,279 — 2,913 Correspondent purchased Current 494,854 651,363 273,626 70,107 105,336 629,150 — 2,224,436 30-89 — — — — — 1,117 — 1,117 90+/FC — — — 168 513 3,103 — 3,784 Bulk purchased Current — — — — — 146,399 — 146,399 30-89 — — — — — 921 — 921 90+/FC — — — — — 1,157 — 1,157 1,058,519 1,581,839 899,289 353,241 318,570 2,204,900 — 6,416,358 Commercial: Commercial real estate Current 367,795 221,001 111,689 86,456 41,322 46,383 7,436 882,082 30-89 — — — — — — — — 90+/FC — — 594 221 239 30 — 1,084 Commercial and industrial Current 38,442 17,453 5,786 4,212 919 630 12,465 79,907 30-89 — — — — — — — — 90+/FC — — — — 73 10 — 83 406,237 238,454 118,069 90,889 42,553 47,053 19,901 963,156 Consumer: Home equity Current 6,447 2,441 1,429 1,000 980 1,999 77,633 91,929 30-89 — — 57 — 12 24 226 319 90+/FC — — — — — — 153 153 Other Current 4,205 1,964 844 404 651 201 368 8,637 30-89 2 13 6 4 — — 1 26 90+/FC 1 — — — — — — 1 10,655 4,418 2,336 1,408 1,643 2,224 78,381 101,065 Total $ 1,475,411 $ 1,824,711 $ 1,019,694 $ 445,538 $ 362,766 $ 2,254,177 $ 98,282 $ 7,480,579 18 Delinquent and Nonaccrual Loans - The following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans. At December 31, 2022 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status. December 31, 2022 90 or More Days Total Total 30 to 89 Days Delinquent or Delinquent Current Amortized Delinquent in Foreclosure Loans Loans Cost (Dollars in thousands) One- to four-family: Originated $ 4,701 $ 1,034 $ 5,735 $ 4,056,571 $ 4,062,306 Correspondent purchased 1,230 4,177 5,407 2,377,801 2,383,208 Bulk purchased 865 1,509 2,374 143,359 145,733 Commercial: Commercial real estate 161 1,069 1,230 1,017,150 1,018,380 Commercial and industrial 30 83 113 88,224 88,337 Consumer: Home equity 446 109 555 95,006 95,561 Other 179 17 196 8,826 9,022 $ 7,612 $ 7,998 $ 15,610 $ 7,786,937 $ 7,802,547 September 30, 2022 90 or More Days Total Total 30 to 89 Days Delinquent or Delinquent Current Amortized Delinquent in Foreclosure Loans Loans Cost (Dollars in thousands) One- to four-family: Originated $ 4,123 $ 2,913 $ 7,036 $ 4,031,508 $ 4,038,544 Correspondent purchased 1,117 3,784 4,901 2,224,436 2,229,337 Bulk purchased 921 1,157 2,078 146,399 148,477 Commercial: Commercial real estate — 1,084 1,084 882,082 883,166 Commercial and industrial — 83 83 79,907 79,990 Consumer: Home equity 319 153 472 91,929 92,401 Other 26 1 27 8,637 8,664 $ 6,506 $ 9,175 $ 15,681 $ 7,464,898 $ 7,480,579 The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2022 and September 30, 2022 was $ 1.5 million and $ 2.0 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 182 thousand at December 31, 2022 and $ 328 thousand at September 30, 2022. 19 The following table presents the amortized cost at December 31, 2022 and September 30, 2022, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented, all of which were individually evaluated for loss and any identified losses have been charged off. December 31, 2022 September 30, 2022 Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans Nonaccrual Loans with No ACL (Dollars in thousands) One- to four-family: Originated $ 1,253 $ 379 $ 3,135 $ 1,018 Correspondent purchased 4,177 304 3,784 304 Bulk purchased 1,509 987 1,157 630 Commercial: Commercial real estate 1,080 446 1,084 449 Commercial and industrial 156 156 161 161 Consumer: Home equity 109 — 172 19 Other 17 — 1 — $ 8,301 $ 2,272 $ 9,494 $ 2,581 TDRs - The following table presents the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. This table does not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances. For the Three Months Ended December 31, 2022 December 31, 2021 Number Pre- Post- Number Pre- Post- of Restructured Restructured of Restructured Restructured Contracts Outstanding Outstanding Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family: Originated — $ — $ — 1 $ 24 $ 24 Correspondent purchased — — — — — — Bulk purchased — — — — — — Commercial: Commercial real estate — — — — — — Commercial and industrial — — — — — — Consumer: Home equity — — — — — — Other — — — — — — — $ — $ — 1 $ 24 $ 24 20 The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured. For the Three Months Ended December 31, 2022 December 31, 2021 Number of Amortized Number of Amortized Contracts Cost Contracts Cost (Dollars in thousands) One- to four-family: Originated 1 $ 8 1 $ 684 Correspondent purchased — — — — Bulk purchased — — — — Commercial: Commercial real estate — — — — Commercial and industrial — — — — Consumer: Home equity — — — — Other — — — — 1 $ 8 1 $ 684 Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented. For the Three Months Ended December 31, 2022 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) Beginning balance $ 2,066 $ 2,734 $ 206 $ 5,006 $ 11,120 $ 245 $ 16,371 Charge-offs — — — — — ( 4 ) ( 4 ) Recoveries 1 — — 1 — 1 2 Provision for credit losses 92 253 10 355 2,464 1 2,820 Ending balance $ 2,159 $ 2,987 $ 216 $ 5,362 $ 13,584 $ 243 $ 19,189 For the Three Months Ended December 31, 2021 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823 Charge-offs ( 4 ) — — ( 4 ) ( 10 ) ( 1 ) ( 15 ) Recoveries 9 — — 9 36 1 46 Provision for credit losses 22 20 ( 36 ) 6 ( 2,325 ) — ( 2,319 ) Ending balance $ 1,639 $ 2,082 $ 268 $ 3,989 $ 13,353 $ 193 $ 17,535 21 The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2022. The key assumptions utilized in estimating the Company's ACL at December 31, 2022 are discussed below. • Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at December 31, 2022. The forecasted economic indices applied to the model at December 31, 2022 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at December 31, 2022 was the national unemployment rate. The forecasted national unemployment rate in the economic scenario selected by management at December 31, 2022 had the national unemployment rate gradually increasing to 4.2 % by December 31, 2023 which was the end of our four quarter forecast time period. • Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2022. • Prepayment and curtailment assumptions - The assumptions used at December 31, 2022 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model. During the current quarter, there was a slowdown in portfolio prepayment speeds which reduced the projected prepayment speeds used in the model for generally all loan categories. • Qualitative factors - The qualitative factors applied by management at December 31, 2022 included the following: ◦ The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the economic forecasts; and ◦ Other management considerations related to commercial real estate loans that were not captured via the model assumptions, such as the balance and trending of large dollar commercial real estate loans. Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the periods indicated. At December 31, 2022 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $ 1.07 billion and $ 992.6 million, respectively. For the Three Months Ended December 31, 2022 December 31, 2021 (Dollars in thousands) Beginning balance $ 4,751 $ 5,743 Provision for credit losses 840 ( 1,120 ) Ending balance $ 5,591 $ 4,623 5. BORROWED FUNDS FHLB Borrowings and Interest Rate Swaps - At December 31, 2022 and September 30, 2022, the Bank had entered into interest rate swap agreements with an aggregate notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances. At December 31, 2022 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.8 years and 3.1 years, respectively. The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At both December 31, 2022 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $ 12.5 million which was reported in other assets on the consolidated balance sheet. During the three months ended December 31, 2022, $ 734 thousand was reclassified from AOCI as a decrease to interest expense. During the three months ended December 31, 2021, $ 1.8 million was reclassified from AOCI as an increase to interest expense. At December 31, 2022, the Company estimated that $ 9.6 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank held cash collateral of $ 12.6 million and $ 12.1 million at December 31, 2022 and September 30, 2022, respectively. During the current quarter, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involved borrowing up to $ 2.60 billion either on the Bank's line of credit with FHLB or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at quarter end, or earlier if the strategy is not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, were deposited at the FRB of Kansas City. 22 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value Measurements - The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments. The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are: • Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. • Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument. The Company bases the fair value of its financial instruments on the price that would be received from the sale of an instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis. AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2022 or during fiscal year 2022. The Company's major security types, based on the nature and risks of the securities, are: • GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2) • MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2) • Corporate Bonds and Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2) Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as adjustments to AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2022 or during fiscal year 2022. (Level 2) 23 The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2022 or September 30, 2022. December 31, 2022 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 1,052,255 $ — $ 1,052,255 $ — GSE debentures 471,780 — 471,780 — Corporate bonds 3,641 — 3,641 — Municipal bonds 1,010 — 1,010 — 1,528,686 — 1,528,686 — Interest rate swaps 12,523 — 12,523 — $ 1,541,209 $ — $ 1,541,209 $ — September 30, 2022 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 1,088,624 $ — $ 1,088,624 $ — GSE debentures 469,827 — 469,827 — Corporate bonds 3,695 — 3,695 — Municipal bonds 1,161 — 1,161 — 1,563,307 — 1,563,307 — Interest rate swaps 12,547 — 12,547 — $ 1,575,854 $ — $ 1,575,854 $ — The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis. The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date . Loans Receivable - Collateral dependent assets are assets evaluated on an individual basis. Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis. The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2022 and 2021 that were still held in the portfolio as of December 31, 2022 and 2021 was $ 4.1 million and $ 3.3 million, respectively. Fair values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3. The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10 %. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal. For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2022 and December 31, 2021 were downward adjustments to the book value 24 of the collateral for lack of marketability. During the three months ended December 31, 2022, the adjustments ranged from 8 % to 100 %, with a weighted average of 21 %. During the three months ended December 31, 2021, the adjustments ranged from 9 % to 56 %, with a weighted average of 21 %. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item. OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10 %. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2022 that was still held in the portfolio as of December 31, 2022 was $ 93 thousand. There was no OREO measured on a non-recurring basis during the three months ended December 31, 2021. The carrying value of the properties equaled the fair value of the properties at December 31, 2022 and 2021. Fair Value Disclosures - The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates. The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows: December 31, 2022 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 49,686 $ 49,686 $ 49,686 $ — $ — AFS securities 1,528,686 1,528,686 — 1,528,686 — Loans receivable 7,783,358 7,283,026 — — 7,283,026 FHLB stock 124,119 124,119 124,119 — — Interest rate swaps 12,523 12,523 — 12,523 — Liabilities: Deposits 6,074,549 6,010,404 3,860,070 2,150,334 — Borrowings 2,645,195 2,432,658 145,000 2,287,658 — September 30, 2022 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 49,194 $ 49,194 $ 49,194 $ — $ — AFS securities 1,563,307 1,563,307 — 1,563,307 — Loans receivable 7,464,208 6,889,211 — — 6,889,211 FHLB stock 100,624 100,624 100,624 — — Interest rate swaps 12,547 12,547 — 12,547 — Liabilities: Deposits 6,194,866 6,124,835 3,991,114 2,133,721 — Borrowings 2,132,154 1,910,779 75,000 1,835,779 — 25 7. ACCUMULATED OTHER COMPREHENSIVE INCOME The following tables present the changes in the components of AOCI, net of tax, for the periods indicated. For the Three Months Ended December 31, 2022 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ ( 155,119 ) $ 9,486 $ ( 145,633 ) Other comprehensive income (loss), before reclassifications 13,050 715 13,765 Amount reclassified from AOCI, net of taxes of $ 237 — ( 734 ) ( 734 ) Other comprehensive income (loss) 13,050 ( 19 ) 13,031 Ending balance $ ( 142,069 ) $ 9,467 $ ( 132,602 ) For the Three Months Ended December 31, 2021 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ 4,651 $ ( 20,956 ) $ ( 16,305 ) Other comprehensive income (loss), before reclassifications ( 10,982 ) 2,178 ( 8,804 ) Amount reclassified from AOCI, net of taxes of $( 575 ) — 1,783 1,783 Other comprehensive income (loss) ( 10,982 ) 3,961 ( 7,021 ) Ending balance $ ( 6,331 ) $ ( 16,995 ) $ ( 23,326 ) 26