What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-11-29 compared with 2022-11-23 · 241 added, 256 removed, 707 unchanged (41% of the section changed)

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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.

Strategic Securities Transaction

In October 2023, the Company initiated a strategic securities transaction ("securities strategy") by selling $1.30 billion of securities, representing 94% of its securities portfolio.

Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities, $192.6 million of which is reflected in our financial statements for the fiscal year ended September 30, 2023 and $13.3 million of which will be recorded in the first quarter of fiscal year 2024.

The securities strategy is designed to allow the Company to improve its earnings stream, beginning in fiscal year 2024, and to provide liquidity to deleverage the balance sheet, which should enable the Company to reduce the size of its balance sheet to under $10 billion in total assets by December 31, 2023, while keeping the Bank and Company well capitalized and with tangible common equity for the Company of more than 10.0%.

The securities strategy, on a static basis, is expected to increase our earnings per share by approximately $0.30 and our net interest margin by approximately 60 basis points in fiscal year 2024 subsequent to the sales of securities through securities reinvestment and debt repayment.

The $13.3 million loss discussed above, which was attributable to the change in valuation after September 30, 2023, is expected to reduce our earnings for the first quarter of fiscal year 2024 and for fiscal year 2024 by $0.08 per share.

The proceeds from the sale of the securities in October 2023 were used to purchase $632.0 million of securities, yielding 5.75%, and pay down $500.0 million of borrowings with a cost of 4.70%.

The Company plans to hold the remaining cash at the FRB earning the interest on reserve balances rate, until such time it can be used to fund commercial loan commitments or other Bank operations.

The Company expects these actions will help reduce total assets to approximately $9.70 billion by December 31, 2023.

The weighted average yield on the securities sold was 1.22% and the average duration was 3.6 years.

The Company expects the earn-back period to be 3.9 years, aligning closely with the average duration of the securities sold.

Following the execution of the securities strategy, the Company maintains exceptional asset quality along with strong liquidity measures, including an unused $2.11 billion line of credit with the FHLB, enabling the Company to meet current and expected future commitments.

The Company's balance sheet is primarily composed of one- to four-family loans, most of which were refinanced in fiscal years 2020, 2021 and 2022 at then-current market interest rates.

Securities were purchased during the same time period, also at low market interest rates, as a result of significant cash inflows from pandemic-related governmental stimulus support.

Beginning in March 2022, the Federal Reserve started to raise interest rates at a record pace which resulted in the Bank increasing rates on deposit products to retain funds.

Some of the Bank's borrowings also repriced to higher market interest rates during the same time period.

Due to the composition of our loan and securities portfolios, our assets were not able to reprice as quickly as our liabilities, resulting in net interest margin compression.

The securities strategy addresses the Company's recent decline in earnings associated with net interest margin compression driven by these factors by recognizing a net loss in fiscal year 2023.

Because the securities sold in the securities strategy were held on our balance sheet as AFS, the net loss in fiscal year 2023 had minimal impact to the Company's tangible book value per share ("TBVPS"), as most of this loss was already included in the calculation of our TBVPS.

Executive Summary

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 $84.5 million, or $0.62 per share, for fiscal year 2022 compared to net income of $76.1 million, or $0.56 per share, for the prior fiscal year.

The $8.4 million, or 11.0%, 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 was 1.79% for the current year compared to 1.90% for the prior year.

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 been 2.04% in the current year, a 14 basis point increase from the prior year.

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.

During the latter portion of the current year, as market interest rates increased, the Bank's cost of borrowings and deposits began increasing at a faster pace than the yield on assets.

Management anticipates this may continue in the near term.

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

The leverage strategy during the current year involved borrowing up to $2.60 billion by entering into short-term FHLB advances.

The borrowings were repaid prior to each quarter end.

The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 6.75% during the current year, were deposited at the Federal Reserve Bank of Kansas City ("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 $3.1 million during the current year.

Management continuously monitors the net interest rate spread and overall profitability of the strategy.

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

Total assets were $9.62 billion at September 30, 2022, a decrease of $6.3 million from September 30, 2021.

Loans receivable increased $383.1 million, or 5.4%, during the current year to $7.46 billion at September 30, 2022.

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

This growth was funded by cash flows from the securities portfolio and FHLB borrowings.

The deposit portfolio decreased $402.5 million during the current year, to $6.19 billion at September 30, 2022.

The decrease was primarily in the certificate of deposit portfolio, partially offset by increases in the retail checking, savings and money market accounts.

During the third quarter of fiscal year 2022, management began increasing offered rates on certificates of deposit, which slowed the runoff in this portfolio.

Due to deposit outflows and loan growth, the Bank entered into additional FHLB borrowings during the second half of the current fiscal year.

FHLB borrowings increased $549.3 million during the year, to $2.13 billion at September 30, 2022.

If deposit outflows continue, the Bank will likely increase FHLB borrowings.

If that occurs, the leverage strategy transaction amount may decrease due to borrowing, collateral capacity and capital levels.

The Company recognized net loss of $101.7 million, or $(0.76) per share, for fiscal year 2023 compared to net income of $84.5 million, or $0.62 per share, for fiscal year 2022.

The net loss for the current year resulted from the securities strategy, specifically, the $192.6 million impairment loss on the securities that management did not have the intent to hold at September 30, 2023.

The securities were sold in October 2023.

Excluding the effects of the securities strategy, earnings per share would have been $0.33 for the current year.

The decrease in earnings per share, excluding the effects of the securities

strategy, from the prior year was due primarily to lower net interest income, along with recording a provision for credit losses of $6.8 million for the current year compared to a release of provision of $4.6 million for the prior year.

The net interest margin decreased 36 basis points, from 1.79% for the prior year to 1.43% for the current year.

Excluding the effects of the leverage strategy described below, the net interest margin decreased 49 basis points, from 2.04% for the prior year to 1.55% for the current year.

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, which exceeded the increase in loan yields.

At times, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from the borrowings, net of the required FHLB stock holdings, at the Federal Reserve Bank of Kansas City ("FRB of Kansas City").

The borrowings are repaid prior to each quarter end.

The average balance of leverage strategy borrowings was $924.4 million for the year ended September 30, 2023.

At times during the current year, the leverage strategy was not profitable and therefore was not utilized, resulting in a decrease in the average outstanding balance of leverage strategy borrowings compared to the prior year.

Net income attributable to the leverage strategy was $997 thousand and $3.1 million for the years ended September 30, 2023 and 2022, respectively.

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.

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

Total assets were $10.18 billion at September 30, 2023, an increase of $552.6 million from September 30, 2022.

The increase was mainly composed of a $506.7 million increase in the loan portfolio, or 6.8% growth, and a $196.4 million increase in operating cash, partially offset by a $178.8 million decrease in securities.

The growth in the loan portfolio was primarily funded with proceeds from borrowings.

Total liabilities were $9.13 billion at September 30, 2023, an increase of $605.0 million from September 30, 2022 due primarily to a $747.0 million increase in borrowings, partially offset by a $143.6 million decrease in deposits.

The increase in borrowings was composed of $500.0 million in BTFP borrowings at a rate of 4.70% and the remaining amounts were FHLB advances.

The decrease in deposits during the current year was mainly in non-maturity deposits which decreased $670.1 million, largely retail money market accounts, partially offset by a $460.4 million increase in retail certificates of deposit and a $53.6 million increase in public unit certificates of deposit.

The decrease in non-maturity deposit balances was likely due to depositors moving funds to a higher rate certificate of deposit product offered by the Bank, higher yielding investment products outside the Bank, and/or withdrawing funds for customer spending.

The majority of the growth in the retail certificate of deposit portfolio in the current year were in terms less than 17 months.

Management continues to competitively price certain short-term retail certificate of deposit products to encourage customers to move to shorter-term options.

If rates were to decrease in the near future, the Bank would be able to more quickly reprice those balances to lower market rates at maturity.

Stockholder's equity was $1.04 billion at September 30, 2023, a decrease of $52.4 million from September 30, 2022.

The decrease was due almost entirely 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 during the year.

The unrealized losses on AFS securities increased $211.3 million, resulting in a $159.8 million reduction in AOCI, net of tax.

The Bank's asset quality continued to remain strong during the current fiscal year, reflected in low delinquency and charge-off ratios.

The decrease was due primarily to the payment of cash dividends during the current year.

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

At September 30, 2023, loans 30 to 89 days delinquent were 0.21% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.11% of total loans receivable, net.

The ratio of net charge-offs (recoveries) ("NCOs") during the current year to average loans outstanding during the current year was 0.00%.

At September 30, 2022, the Bank had a one-year gap position of $(1.14) billion, or (11.9)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period.

At September 30, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.19) billion, or (11.7)% of total assets, meaning the amount of interest-bearing liabilities exceeded the amount of interest-earning assets maturing or repricing during the same period.

See additional discussion in "Part II, Item 7A.

Quantitative and Qualitative Disclosures About Market Risk."

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 "Comparison of Operating Results for the Years Ended September 30, 2022 and 2021" section below.

In August 2023, management successfully implemented a new core processing and digital banking systems to enhance customer experiences and better position the Bank for the future.

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

Critical Accounting Estimates

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Summary of Significant Accounting Policies" for additional information.

One of the most significant judgments used in projecting loss rates when estimating the ACL and reserves for off-balance sheet credit exposures is the macro-economic forecast provided by a third party.

The economic indices sourced from the macro-economic forecast and used in projecting loss rates are the national unemployment rate, changes in commercial real estate prices, changes in home values, and changes in the United States gross domestic product.

One of the most significant judgments used in projecting loss rates when estimating the ACL and reserves for off-balance sheet credit exposures is the macroeconomic forecast provided by a third party.

The economic indices sourced from the macroeconomic forecast and used in projecting loss rates are the national unemployment rate, changes in commercial real estate prices, changes in home values, and changes in the United States gross domestic product.

The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate.

Each reporting period, several macro-economic forecast scenarios are considered by management.

Management selects the macro-economic forecast(s) that is/are most reflective of expectations at that point in time.

Changes in the macro-economic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.

Each reporting period, several macroeconomic forecast scenarios are considered by management.

Management selects the macroeconomic forecast(s) that is/are most reflective of expectations at that point in time.

Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.

Other key assumptions in the calculation of the ACL and reserve for off-balance sheet credit exposures estimates include the forecast and reversion to mean time periods and prepayment and curtailment assumptions.

The calculation is less sensitive to these assumptions than the macro-economic forecasts.

The macro-economic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index.

The calculation is less sensitive to these assumptions than the macroeconomic forecasts.

The macroeconomic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index.

The forecast and reversion to mean time period used for each economic index at September 30, 2023 was four quarters.

Prepayment and

curtailment assumptions are based on the Company's historical experience and are adjusted by management as deemed necessary.

Prepayment and curtailment assumptions are generally based on the Company's historical experience and are adjusted by management as deemed necessary.

The prepayment and curtailment assumptions vary based on loan product type.

The ACL and reserves for off-balance sheet credit exposures may be materially affected by qualitative factors, especially during periods of economic uncertainty, for items not reflected in the economic forecast and/or discounted cash flow model, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors.

The ACL and reserve for off-balance sheet credit exposures may be materially affected by qualitative factors, especially during periods of economic uncertainty, for items not reflected in the economic forecast and/or discounted cash flow model, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors.

Such qualitative factors may include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments.

The qualitative factors applied by management at September 30, 2023 were (1) economic uncertainty that may not be adequately captured in the third-party economic forecast scenarios and (2) other management considerations related to commercial loans to account for credit risks not fully reflected in the discounted cash flow model.

The qualitative factors applied at September 30, 2022, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model.

The qualitative factors applied at September 30, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes

to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model.

The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.

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Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the qualitative factors applied at September 30, 2023.

The ACL and the reserves for off-balance sheet credit exposures was $16.4 million and $4.8 million, respectively at September 30, 2022, compared to $19.8 million and $5.7 million, respectively, at September 30, 2021.

The $3.5 million decrease in the ACL and $992 thousand decrease in the reserves for off-balance sheet credit exposures was primarily attributable to a reduction in commercial loan qualitative factors, partially offset by an increase related to (1) growth in the loan portfolio and an increase in the balance of off-balance sheet credit exposures and (2) a less favorable economic forecast compared to the prior year.

The ACL and the reserve for off-balance sheet credit exposures were $23.8 million and $4.1 million, respectively at September 30, 2023, compared to $16.4 million and $4.8 million, respectively, at September 30, 2022.

The $7.4 million increase in the ACL was due primarily to the outlook for worsening economic forecast conditions in the current year compared to the prior year, along with a reduction in the projected prepayment speeds used in the model for all loan categories.

The $656 thousand decrease in the reserve for off-balance sheet credit exposures was due primarily to refining our methodology to account for the estimated credit losses on unfunded commercial construction-to-permanent loans and commitments for the time period after construction is expected to be completed.

See "Part II, Item 8.

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Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the assumptions used in the Company's September 30, 2023 estimate of ACL.

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

Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.

Additionally, the level of ACL and reserve for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.

If actual results differ significantly from our assumptions, our ACL and reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses.

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Loans Receivable.

Total loans, net at September 30, 2022 was $7.46 billion, an increase of $383.1 million from September 30, 2021.

The increase was primarily due to growth in the one- to four-family correspondent loan portfolio and commercial real estate and construction loan portfolio, along with a slow down in one- to four-family prepayment speeds due to higher market interest rates.

Total loans, net at September 30, 2023 were $7.97 billion, an increase of $506.7 million from September 30, 2022.

The increase was due primarily to growth in the commercial real estate loan portfolio and one- to four-family correspondent loan portfolio.

Originating and purchasing loans secured by one- to four-family residential properties is the Bank's primary lending business, resulting in a concentration in residential first mortgage loans secured by properties located in Kansas and Missouri.

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If a loan pays off before the scheduled maturity date, the remaining premium is recognized as reduction in interest income.

During fiscal year 2021, the Bank recognized a significant amount of premium amortization due to prepayment and endorsement activity.

Prepayment and endorsement activity slowed significantly during the last half of the current fiscal year due to the increase in market interest rates.

For balance sheet management purposes, we reduced purchases of correspondent loans during the current year, with the intention of correspondent purchases eventually being near zero.

In the past, the Bank has also purchased one- to four-family loans from correspondent and nationwide lenders in bulk loan packages ("bulk purchased").

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The majority of these loans are secured by property located within the Bank's Kansas City market area.

The Bank's owner-occupied construction-to-permanent loan program combines the construction loan and the permanent loan into one loan,

allowing the borrower to secure the same interest rate structure throughout the construction period and the permanent loan term.

As of September 30, 2022, there were $178.0 million of adjustable-rate one- to four-family loans in the portfolio for which the repricing index was tied to LIBOR, which is being discontinued and will no longer be available after June 30, 2023.

The Bank's one- to four-family loan agreements allow the Bank to choose a new alternative reference rate based upon comparable information if the current index is no longer available.

During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR.

The Bank's owner-occupied construction-to-permanent loan program combines the construction loan and the permanent loan into one loan, allowing the borrower to secure the same interest rate structure throughout the construction period and the permanent loan term.

The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by savings deposits.

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The Bank's commercial loan portfolio is composed of commercial real estate loans, commercial construction loans and commercial and industrial loans.

Our commercial real estate loans include a variety of property types, including hotels, office and retail buildings, senior housing facilities, and multi-family dwellings located in Kansas, Missouri, and 11 other states.

Our commercial real estate loans include a variety of property types, including retail buildings, senior housing facilities, multi-family dwellings, hotels, and office buildings located in Kansas, Texas, and

Missouri, and 13 other states.

The Bank's commercial and industrial loan portfolio consists largely of loans secured by accounts receivable, inventory and equipment.

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If signs of weakness are identified, the Bank may begin performing more frequent financial and/or collateral reviews or will initiate contact with the borrower, or the lead bank will contact the borrower if the loan is a participation loan, to ensure cash flows from operations are maintained at a satisfactory level to meet the debt requirements.

Both macro-level and loan-level stress-test scenarios based on existing and forecasted market conditions are part of the on-going portfolio management process for the commercial real estate portfolio.

The Bank mitigates the risk of commercial real estate construction lending during the construction period by monitoring inspection reports from an independent third-party, project budget, percentage of completion, on-site inspections and percentage of advanced funds.

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

Total loans receivable increased $375.6 million, or 5.3%, during the current year.

The rate on the portfolio increased 12 basis points during the current year due primarily to upward repricing of existing loans as a result of an increase in market interest rates, as well as originations and purchases at interest rates higher than the overall portfolio rate.

The rate on the portfolio increased 43 basis points during the current year due primarily to one- to four-family correspondent and commercial loan growth at interest rates higher than the existing portfolios, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates.

September 30, 2023 September 30, 2022

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

Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.

Commercial loan renewals are not included in the activity presented in the following table unless new funds are disbursed at the time of renewal.

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

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Repayments (956,562) (1,337,034)

Principal recoveries/(charge-offs), net 186 (478)

Principal (charge-offs)/recoveries, net (106) 186

Other (5,876) (791)

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The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total.

During the current fiscal year, the Bank endorsed $52.7 million of one- to four-family loans, reducing the average rate on those loans by 75 basis points.

Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal.

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Correspondent purchased - one- to four-family $ 199,858 5.20 $ 452,093 3.35

Purchases and participations - commercial 87,365 3.47 40,314 3.66

Participations and purchases - commercial 19,016 9.43 87,365 3.47

Total fixed-rate purchased/participations 218,874 5.57 539,458 3.37

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Correspondent purchased - one- to four-family 215,939 4.86 129,216 3.49

Purchases and participations - commercial 33,000 4.87 94,400 4.36

Participations and purchases - commercial 209,259 6.36 33,000 4.87

Total adjustable-rate purchased/participations 425,198 5.60 162,216 3.77

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$ 6,521,941 100.0 % 3.37 770 61 213

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the current fiscal year.

Amount Rate LTV Score

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The Bank processed commercial loan disbursements, excluding lines of credit, of approximately $474.6 million at a weighted average rate of 6.09%.

As of September 30, 2022 and September 30, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $100.4 million and $90.7 million, respectively, and commitments totaled $458 thousand and $16.9 million, respectively.

As of September 30, 2023 and September 30, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $158.5 million and $100.4 million, respectively, and commitments totaled $2.6 million and $458 thousand, 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 September 30, 2022, the Bank had 25 commercial real estate and commercial construction loan commitments totaling $98.7 million, at a weighted average rate of 4.78%, which are not included in the table below.

As of September 30, 2023, the Bank had three commercial real estate and commercial construction loan commitments totaling $14.0 million, at a weighted average rate of 7.57%, which are not included in the table below.

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.

Of the total commercial undisbursed amounts and commitments outstanding as of September 30, 2022, management anticipates approximately $90 million will be funded during the December 2022 quarter, $60 million during the March 2023 quarter, $50 million during the June 2023 quarter, and $46 million during the September 2023 quarter.

Of the total commercial undisbursed amounts and commitments outstanding as of September 30, 2023, management anticipates funding approximately $86 million during the December 2023 quarter, $75 million during the March 2024 quarter, $52 million during the June 2024 quarter, and $172 million during the September 2024 quarter or later.

September 30, 2023 September 30, 2022

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(Dollars in thousands)

Senior housing 35 $ 255,075 $ 73,184 $ 328,259 $ 265,284

Retail building 141 $ 265,336 $ 87,163 $ 352,499 $ 230,153

Hotel 10 152,332 29,214 181,546 194,665

Senior housing 36 308,765 22,442 331,207 328,259

Multi-family 42 83,614 225,232 308,846 122,735

Hotel 13 214,019 18,993 233,012 181,546

Office building 81 122,132 8,789 130,921 109,653

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Kansas 607 $ 471,114 $ 199,384 $ 670,498 $ 423,797

Missouri 160 232,655 63,788 296,443 232,041

Texas 17 269,718 78,989 348,707 280,840

Missouri 163 261,761 70,849 332,610 296,443

Colorado 8 42,766 6,619 49,385 34,377

Arkansas 3 21,796 11,618 33,414 33,763

Tennessee 2 26,391 15,745 42,136 —

Nebraska 8 35,571 2,038 37,609 32,992

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Of the loans 30 to 89 days delinquent at September 30, 2023 and 2022, approximately 72% and 73%, respectively, were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at September 30,

The increase in loans 30 to 89 days delinquent during the current year was due mainly to delinquencies returning to more historical levels as government payment assistance programs expired.

Number Amount Number Amount

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Bulk purchased 1 149 3 913

Construction 4 1,123 — —

Commercial 5 94 — —

28 unchanged sentences

Consumer — — 1 19

5 318 13 1,847

Total nonaccrual loans 60 9,409 66 9,443

3 unchanged sentences

— $ — 4 $ 307

Correspondent purchased 1 219 — —

Consumer — — 1 21

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(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 September 30, 2022.

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, excluding construction 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 September 30, 2023.

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.

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Missouri 1,120,470 17.2 3,608 25.0 1,582 24.0 57

Texas 576,213 9.1 — — 1,746 22.4 37

Other states 1,864,103 28.6 2,480 17.2 3,153 47.8 49

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

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

The increase in commercial special mention loans at September 30, 2023 compared to September 30, 2022 was due mainly to three loans in a single commercial relationship where the borrower has experienced some performance issues.

Since being classified as special mention, these loans have been trending in a positive direction.

Management continues to closely monitor the borrower's performance.

September 30, 2023 September 30, 2022

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Allowance for Credit Losses.

The distribution of our ACL at the dates indicated is summarized below.

The following table presents the distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated.

The increase in the ratio of ACL to loans receivable for commercial loans from September 30, 2022 to September 30, 2023 was due mainly to the outlook for worsening economic forecast conditions in the current year compared to the prior year, along with a reduction in projected prepayment speeds.

September 30, 2023 September 30, 2022

Amount Loans to Amount Loans to

of ACL Total Loans of ACL Total Loans

% of % of % of % of

ACL to ACL to Loans to ACL to ACL to Loans to

Amount Loans Total Total Amount Loans Total Total

of ACL Ratio ACL Loans of ACL Ratio ACL Loans

(Dollars in thousands)

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$ 23,759 0.30 % 100.0 % 100.0 % $ 16,371 0.22 % 100.0 % 100.0 %

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

The reduction in the ratio of ACL to loans receivable for commercial real estate loans and commercial construction loans from September 30, 2021 to September 30, 2022 was due to a reduction in commercial loan qualitative factors.

September 30, September 30,

One- to four-family:

Originated 0.05 % 0.04 %

Correspondent purchased 0.12 0.10

Bulk purchased 0.14 0.18

Construction 0.08 0.06

Total 0.08 0.06

Commercial real estate 1.17 2.02

Commercial and industrial 0.61 0.52

Construction 1.35 1.86

Total 1.15 1.89

Consumer 0.24 0.20

Total 0.22 0.28

See "Part II, Item 8.

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The following tables present ACL activity and related ratios at the dates and for the periods indicated.

On October 1, 2020, the Bank adopted ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments ("CECL").

The current year net recovery was due primarily to recoveries on one- to four-family originated loans and commercial real estate loans.

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

The ratio of ACL to nonaccrual loans was higher in the current year compared to the prior year due mainly to a lower balance of nonaccrual loans compared to the prior year period, partially offset by lower ACL at September 30, 2022.

The ratio of ACL to loans receivable, net was lower in the current year compared to the prior year due primarily to a reduction in ACL.

The Bank adopted ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments ("CECL") on October 1, 2020.

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

The ratio of ACL to nonaccrual loans was higher in the current year compared to the prior year due to higher ACL compared to the prior year period.

The ratio of ACL to loans receivable, net was higher in the current year compared to the prior year due primarily to a higher ACL balance, mainly related to commercial loans.

The ratio of ACL to NCOs for the prior year period was not meaningful as recoveries exceeded loan charge-offs, compared to the current year period where loan charge-offs exceeded recoveries.

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

At or For the Year Ended September 30,

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Recoveries 9 256 237

Net recoveries (charge-offs) 186 (478) 1

Net (charge-offs) recoveries (106) 186 (478)

Provision for credit losses 7,494 (3,638) (6,465)

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ACL to loans receivable, net at end of period 0.30 0.22 0.28

ACL to NCOs N/M (1)

41.5x N/M (1)

(1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during the periods.

ACL to NCOs 223x N/M 42x

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

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Overall, fixed-rate securities comprised 95% of our securities portfolio at September 30, 2023.

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.

The balance of securities decreased during the current fiscal year as cash flows from the securities portfolio were generally used to fund loan portfolio growth.

The increase in the yield during the current year was due to purchases at yields higher than the overall portfolio and upward repricing of the adjustable-rate portion of the portfolio as a result of higher market interest rates.

The increase in the WAL in the current year was also due primarily to higher market interest rates which lengthened the life of the securities by decreasing the amount of prepayments.

September 30, 2023 September 30, 2022

Amount Yield WAL (1)

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

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$ 1,385,992 1.35 3.8 $ 1,768,490 1.29 4.2

(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.

The composition and maturities of the securities portfolio at September 30, 2023 is indicated in the following table by remaining contractual maturity, without consideration of call features or pre-refunding dates, along with associated weighted average yields.

The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.

The weighted average yields were calculated by multiplying each estimated fair value by its yield and dividing the sum of these results by the total estimated fair value.

Yields on tax-exempt investments are not calculated on a fully tax equivalent basis .

1 year or less More than 1 to 5 years More than 5 to 10 years Over 10 years Total Securities

Carrying Carrying Carrying Carrying Carrying

Estimated Estimated Estimated Estimated Estimated

Fair Fair Fair Fair Fair

Value Yield Value Yield Value Yield Value Yield Value Yield

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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.

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Total liabilities were $9.13 billion at September 30, 2023, compared to $8.53 billion at September 30, 2022.

The increase in liabilities between September 30, 2021 and September 30, 2022 was due primarily to an increase in FHLB borrowings to fund deposit outflows and loan growth.

The increase in liabilities between September 30, 2022 and September 30, 2023 was due primarily to an increase in 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.

The decrease in deposits compared to the prior year was mainly in non-maturity deposits, largely retail money market accounts, partially offset by increases in retail certificates of deposit and public unit certificates of deposit.

The increase in the deposit portfolio rate during the current year period was due mainly to higher rates on money market accounts and retail certificates of deposit.

At September 30,

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$ 6,051,220 2.07 100.0 % $ 6,194,866 0.63 100.0 %

Deposits decreased $402.5 million during the current year.

The decrease was primarily in the certificate of deposit portfolio, partially offset by an increase in retail checking, savings and money market accounts.

Retail certificates of deposit decreased $268.0 million, with the decrease occurring in the medium-term and long-term categories.

Commercial certificates of deposit decreased $153.9 million, which was primarily related to one commercial customer for which the reduction in the current year was anticipated.

During the third quarter of the current year, the Bank began increasing rates offered on retail certificates of deposit and money market accounts.

Even with the increase in offered rates, management anticipates continued retail deposit outflows in future periods, primarily in transaction accounts, due to strong consumer spending, along with competition from other financial institutions and/or brokerage firms that may offer alternative higher yielding investment options.

As of September 30, 2022 and 2021, approximately $721.8 million and $866.0 million, respectively, of our deposit portfolio was uninsured.

As of September 30, 2023 and 2022, $789.0 million and $721.8 million, respectively, of our deposit portfolio was uninsured.

Of the $789.0 million at September 30, 2023, $425.1 million related to commercial and retail deposit accounts and the remainder was mainly comprised of fully collateralized public unit deposits and intercompany accounts.

The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

The following table sets forth the portion of the Bank's time deposits, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of September 30, 2022 (dollars in thousands).

The following table sets forth the portion of the Bank's certificates of deposit portfolio, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of September 30, 2023 (dollars in thousands).

3 months or less $ 72,983

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Over 12 months 197,993

Total borrowings at September 30, 2022 were $2.13 billion, an increase of $549.3 million from September 30, 2021.

The $2.13 billion was composed of $1.70 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $75.0 million on the FHLB line of credit.

The increase in borrowings was a result of deposit outflows, loan growth and a slow-down in loan prepayment speeds due to an increase in market interest rates.

If deposit outflows continue, the Bank will likely enter into additional FHLB borrowings.

During the current year, the Bank reimplemented the leverage strategy, as discussed in the "Executive Summary" section above.

These borrowings were repaid prior to September 30, 2022.

If the Bank enters into additional FHLB borrowings

during fiscal year 2023 to provide sufficient liquidity for operations, the amount of the leverage strategy transaction may 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.

The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings.

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

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 September 30, 2022.

In addition to the borrowings in the table below, there were two straight-line amortizing FHLB advances outstanding at September 30, 2022, including a $47.5 million advance at a rate of 3.50% with quarterly payments of $2.5 million through June 2027 and a $100.0 million advance at a rate of 4.45% with quarterly payments of $4.9 million through October 2027.

Total borrowings at September 30, 2023 were $2.88 billion, which was comprised of $2.02 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $500.0 million in BTFP borrowings.

The $747.0 million increase in borrowings from September 30, 2022 was due mainly to the new BTFP borrowings totaling $500.0 million with a term of one year and a rate of 4.70%.

During the current and prior year, the Bank utilized the leverage strategy, as discussed in the "Executive Summary" section above.

These borrowings were repaid prior to September 30, 2023 and 2022.

The following table presents the maturity of term borrowings, which consist of FHLB advances and BTFP borrowings, along with associated weighted average contractual and effective rates as of September 30, 2023.

Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.

Maturity by Contractual Effective

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$ 2,882,828 3.63 3.34

$ 1,915,000 2.29 2.31

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

The following table presents borrowing activity for the periods shown.

The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer.

The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer, and line of credit borrowings are excluded.

The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

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

The new FHLB borrowings added during the current year had a WAM of 3.2 years, which is generally a shorter term than what management has selected in prior periods.

During the current year, management periodically paid off BTFP borrowings and borrowed new BTFP funds to take advantage of lower interest rates.

Because of these transactions, BTFP activity is presented on a net basis in the table below.

For the Year Ended September 30,

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

Maturities and prepayments (177,500) 1.94 — (1,305,000) 2.18 —

Maturities and repayments (329,672) 2.01 — (177,500) 1.94 —

New FHLB borrowings 650,000 4.47 3.2 650,000 3.68 3.7

BTFP, net 500,000 4.70 1.0 — — —

Ending balance $ 2,882,828 3.34 1.8 $ 2,062,500 2.44 2.5

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Stockholders' Equity.

Total stockholders' equity at September 30, 2022 was $1.10 billion, a $145.8 million decrease from September 30, 2021.

The decrease was almost entirely related to a reduction in AOCI as a result of unrealized losses on AFS securities due to an increase in market interest rates.

During the current year, the Company paid cash dividends totaling $103.1 million.

These cash dividends totaled $0.76 per share and consisted of a $0.20 per share True Blue Capitol cash dividend, a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share.

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

At September 30, 2022, this ratio was 9.9%.

The increase in unrealized losses on AFS securities and the related impact on AOCI reduced the Bank's ratio of equity to total assets by approximately 150 basis points.

For additional information, see "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 15.

Accumulated Other Comprehensive Income."

Stockholders' equity totaled $1.04 billion at September 30, 2023.

During the year ended September 30, 2023, the Company paid cash dividends totaling $83.2 million.

These cash dividends totaled $0.62 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and four regular quarterly cash dividends of $0.085 per share.

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

On October 26, 2022, the Company announced a fiscal year 2022 cash true-up dividend of $0.28 per share, or approximately $38.0 million, related to fiscal year 2022 earnings.

The $0.28 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2022 and total regular quarterly cash dividends paid during fiscal year 2022, divided by the number of shares outstanding.

The cash true-up dividend is payable on December 2, 2022 to stockholders of record as of the close of business on November 18, 2022, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2022.

In conjunction with the securities strategy, the $192.6 million unrealized loss at September 30, 2023 associated with the $1.30 billion of AFS securities that management intended to sell, was recognized in income during the current year.

Since the securities were classified as AFS, the unrealized loss was already reflected in stockholders' equity within AOCI.

Therefore, the recognition of the unrealized loss in income in the current year did not impact stockholders' equity.

See "Part II, Item 8.

Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 15.

Accumulated Other Comprehensive Income" for additional information on AOCI.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards.

As of September 30, 2023, the Bank's capital ratios exceeded the well-capitalized requirements.

As of September 30, 2023, the Bank also exceeded all internal policy thresholds for sensitivity to changes in interest rates, and the Bank's risk-based tier 1 capital ratio was 16.0%.

See "Part II, Item 8.

Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 13.

Regulatory Capital Requirements" for additional regulatory capital information.

At September 30, 2023, Capitol Federal Financial, Inc., at the holding company level, had $83.4 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 payout is expected to be in the form of regular quarterly cash dividends of $0.085 per share, totaling $0.34 for the year, and a cash true-up dividend equal to fiscal year 2023 earnings in excess of the amount paid as regular quarterly cash dividends during fiscal year 2023.

It is anticipated that the fiscal year 2023 cash true-up dividend will be paid in December 2023.

For fiscal year 2024, it is the intention of the Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year.

To the extent that earnings in fiscal year 2024 exceed $0.34 per share, the Board of Directors will consider the payment of additional dividends.

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 September 30, 2022, there was $44.7 million authorized under an existing stock repurchase plan for purchases of the Company's common stock.

This plan has no expiration date;

however, the FRB's existing approval for the Company to repurchase shares extends through August 2023.

On October 27, 2022, the Company announced its intention to resume repurchasing shares under the existing plan.

The amount and timing of the stock repurchases is dependent on the market price of the Company's common stock.

During the current year, the Company repurchased 2,979,753 shares of common stock at an average price of $7.87 per share.

Subsequent to September 30, 2023 and through November 22, 2023, the Company repurchased 700,000 shares at an average price of $5.35 per share.

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

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.

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

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

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

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

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

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

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 Capitol dividend.

There remains $17.5 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 of Kansas City's existing approval for the Company to repurchase shares expires in August 2024.

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.

The 2022 true-up dividend amount presented represents the dividend payable on December 2, 2022 to stockholders of record as of November 18, 2022.

Calendar Year

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Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

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Net change in net interest income $ 624 $ (39,946) $ (39,322)

(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 and not being utilized during the prior year.

Average Balance Sheets .

52 unchanged sentences

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

Operating expense ratio (10)

1.04 % 1.01 %

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

2 unchanged sentences

(3) The average balance of investment securities includes an average balance of nontaxable securities of $1.0 million and $1.7 million for the years ended September 30, 2023 and 2022, respectively.

(4) Included in this line, for the year ended September 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance $71.0 million and dividend income of $4.8 million at a weighted average yield of 6.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $78.2 million and dividend income of $5.2 million at a weighted average yield of 6.69%.

There was no FHLB stock related to the leverage strategy during the year ended September 30, 2021.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.51 billion during the year ended September 30, 2022.

There were no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2021.

(6) Included in this line, for the year ended September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $18.5 million, at a weighted average rate of 1.15%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.71 billion and interest paid of $34.0 million, at a weighted average rate of 1.98%.

There were no FHLB borrowings related to the leverage strategy during the year ended September 30, 2021.

(4) Included in this line, for the years ended September 30, 2023 and September 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $41.6 million and $71.0 million, respectively, dividend income of $3.6 million and $4.8 million, respectively, at a weighted average yield of 8.69% and 6.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $116.3 million and $78.2 million, respectively, and dividend income of $10.2 million and $5.2 million, respectively, at a weighted average yield of 8.77% and 6.69%, respectively.

(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $882.8 million and $1.51 billion during the years ended September 30, 2023 and September 30, 2022, respectively.

(6) Included in this line, for the years ended September 30, 2023 and September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $924.4 million and $1.58 billion, respectively, and interest paid of $39.7 million and $18.5 million, respectively, at a weighted average rate of 4.24% and 1.15%, respectively, and borrowings not related to the leverage strategy with an average outstanding balance of $2.73 billion and $1.71 billion, respectively, and interest paid of $84.5 million and $34.0 million, respectively, at a weighted average rate of 3.08% and 1.98%, respectively.

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

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(8) Net interest margin represents 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 accounting principles generally accepted in the United States of America ("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.

The pre-tax yield on the leverage strategy was 0.25% for the year ended September 30, 2022.

(9) The table below provides a reconciliation between performance measures presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the same performance measures excluding the effects of the leverage strategy and without the net loss on securities transactions associated with the securities strategy, which are not presented in accordance with GAAP.

Management believes it is important for comparability purposes to provide the performance measures without the leverage strategy because of the unique nature of the leverage strategy and the net loss on securities transactions due to the non-recurring nature of the securities strategy.

The Excluding Leverage Strategy (Non-GAAP) column and the Excluding Securities Strategy (Non-GAAP) column each begin with Actual (GAAP) before applying the respective strategy adjustments.

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

The net loss on securities associated with the securities strategy is non-recurring, outside of the additional $13.3 million of pre-tax net loss that will be reported in the first quarter of fiscal year 2024 related to the sale of the securities in October 2023, and resulted in the Company reporting a net loss for fiscal year 2023.

For the Year Ended September 30,

Actual Leverage Adjusted Actual Leverage Adjusted

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

Actual Leverage Excluding Leverage Strategy Securities Excluding Securities Strategy Actual Leverage Excluding Leverage Strategy

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

Yield on interest-earning assets 3.35 % 0.10 % 3.25 % 2.59 % (0.19) % 2.78 %

Cost of interest-bearing liabilities 2.25 0.23 2.02 0.94 0.04 0.90

Return on average assets (0.93) 0.09 (1.02) (1.33) % 0.40 % 0.76 (0.09) 0.85

Return on average equity (9.48) 0.10 (9.58) (13.58) 4.10 7.11 0.26 6.85

Net interest margin 1.43 (0.12) 1.55 1.79 (0.25) 2.04

Efficiency Ratio (626.63) (53.24) (573.39) (691.94) 65.31 52.39 (0.87) 53.26

Earnings Per Share $ (0.76) $ (1.09) $ 0.33

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

Comparison of Operating Results for the Years Ended September 30, 2023 and 2022

The Company recognized net income of $84.5 million, or $0.62 per share, for the current year compared to net income of $76.1 million, or $0.56 per share, for the prior year.

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 Company recognized net loss of $101.7 million, or $(0.76) per share, for the current year, compared to net income of $84.5 million, or $0.62 per share, for the prior year.

The net loss for the current year resulted from the securities strategy, specifically, the recognition of the impairment loss on the securities sold in October 2023.

Excluding the effects of the securities strategy, earnings per share would have been $0.33 for the current year.

The decrease in earnings per share from the prior year, excluding the effects of the securities strategy, was due primarily to lower net interest income, along with recording a provision for credit losses of $6.8 million for the current year compared to a release of provision of $4.6 million for the prior year.

The net interest margin decreased 36 basis points, from 1.79% for the prior year to 1.43% for the current year.

Excluding the effects of the leverage strategy, the net interest margin would have increased 14 basis points, from 1.90% for the prior year to 2.04% for the current year.

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.

Excluding the effects of the leverage strategy, the net interest margin decreased 49 basis points, from 2.04% for the prior year to 1.55% for the current year.

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

For the Year Ended

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Loans receivable $ 280,087 $ 228,531 $ 51,556 22.6 %

MBS 19,406 21,399 (1,993) (9.3)

Cash and cash equivalents 43,796 18,304 25,492 139.3

MBS 18,520 19,406 (886) (4.6)

FHLB stock 13,821 10,031 3,790 37.8

1 unchanged sentence

Total interest and dividend income $ 359,789 $ 279,540 $ 80,249 28.7

The decrease in interest income on loans receivable was due to a lower weighted average rate on the originated and correspondent one- to four-family loan portfolio during the current year, mostly offset by an increase in the average balance of the loan portfolio.

The lower weighted average rate was due to endorsements, refinances, originations and purchases at lower market rates at the time of the transactions in the prior fiscal year, 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 due to the slow-down in prepayments and endorsements resulting from the increase in market interest rates during the last half of the current fiscal year, partially offsetting the reduction in interest income related to a lower weighted average rate on the one- to four-family portfolio mentioned above.

The decrease in interest income on the MBS portfolio was due primarily to a decrease in the average balance of the portfolio, as repayments were primarily used to fund loan growth.

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 year and not being utilized during the prior year.

Additionally, market interest rates increased during the year resulting in an increase in the yield on cash, and FHLB increased the dividend rate paid during the year.

The increase in interest income on investment securities was due primarily to an increase in the average balance of the portfolio, along with an increase in the yield due to purchases at higher market yields during the current year.

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

The increase in the average balance was mainly in the correspondent one-to four-family and commercial real estate 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 interest income on cash and cash equivalents was due to a higher yield on cash as a result of an increase in FRB interest rates.

The increase in dividend income on FHLB stock was due mainly to a higher FHLB dividend rate compared to the prior fiscal year, along with an increase in the average balance of FHLB stock due to an increase in FHLB borrowings not associated with the leverage strategy.

Interest Expense

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

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

For the Year Ended

6 unchanged sentences

Total interest expense $ 206,517 $ 86,946 $ 119,571 137.5

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

Interest expense on borrowings associated with the leverage strategy totaled $18.5 million during the current year.

Interest expense on FHLB borrowings not associated with the leverage strategy was lower in the current year due to terminating or not renewing certain interest rate swap agreements, not replacing some maturing FHLB advances and prepaying certain advances during fiscal year 2021, partially offset by an increase in the average balance due to an increase in FHLB borrowings to fund operational needs during the latter portion of the current year.

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

Retail certificates of deposit repriced downward during the prior year and first half of the current year as they were renewed or were replaced at lower offered rates at the time of the renewal, along with some certificates of deposit not renewing.

During the third quarter of fiscal year 2022, management began to increase rates offered on retail certificates of deposit and money market accounts to help reduce the outflow from these portfolios.

The increase in interest expense on borrowings was due primarily to an increase in the average balance and weighted average rate on borrowings not associated with the leverage strategy, along with an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year.

Interest expense on borrowings not associated with the leverage strategy increased due to new borrowings added during the current year, at market interest rates higher than the overall portfolio rate, to replace maturing advances, meet deposit withdrawals, and fund other operational needs.

Interest expense on borrowings associated with the leverage strategy increased $21.2 million compared to the prior year due to an increase in the weighted average rates paid on leverage strategy borrowings, partially offset by reduced usage in the current year compared to the prior year.

The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily retail certificates of deposit and money market accounts.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year of $4.6 million, compared to a negative provision for credit losses of $8.5 million during the prior year.

The negative provision in the current year was comprised of a $3.6 million decrease in the ACL for loans and a $992 thousand decrease in reserves for off-balance sheet credit exposures.

The negative provision for credit losses associated with the ACL in the current year 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 and a less favorable economic forecast compared to the prior year.

The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year was due primarily to a reduction in commercial loan qualitative factors, partially offset by growth in commercial construction exposures.

See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures at September 30, 2022 in the "Asset Quality" section and in the "Critical Accounting Estimates - Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures" section above.

The Bank recorded a provision for credit losses during the current year of $6.8 million, compared to a release of provision of $4.6 million during the prior year.

The provision for credit losses in the current year was comprised of a $7.5 million increase in the ACL for loans and a $656 thousand decrease in reserve for off-balance sheet credit exposures.

The provision for credit losses associated with the ACL was due primarily to the outlook for worsening economic forecast conditions in the current year compared to the prior year, along with a reduction in the projected prepayment speeds used in the model for all loan categories.

The release of provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to refining our methodology to account for the estimated credit losses on unfunded commercial construction-to-permanent loans and commitments for the time period after construction is expected to be completed.

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.

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

For the Year Ended

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Insurance commissions 3,487 2,947 540 18.3

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

Net loss from securities transactions (192,622) — (192,622) N/A

Other non-interest income 4,935 6,085 (1,150) (18.9)

Total non-interest income $ (171,455) $ 22,830 $ (194,285) (851.0)

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.

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

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

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the digital transformation, an increase in debit card expenses, and waiving certain fees for several weeks after the digital transformation.

The increase in insurance commissions was due primarily to annual contingent insurance commissions received being higher than anticipated and the related accrual adjustments, along with overall commissions being higher in the current year due mainly to growth and strong retention on personal policies and continued success growing our commercial policies.

The net loss from securities transactions relates to the Bank's securities strategy discussed above.

The decrease in other non-interest income was due mainly to gains on a loan-related financial derivative agreement included in the prior year, with no such market value gains in the current year, along with a decrease in income on bank-owned life insurance compared to the prior year due to a reduction in the yield and death benefits received during the current year.

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.

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

For the Year Ended

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Regulatory and outside services 6,039 6,192 (153) (2.5)

Advertising and promotional 5,178 5,133 45 0.9

Federal insurance premium 4,456 3,020 1,436 47.5

Advertising and promotional 4,305 5,178 (873) (16.9)

Deposit and loan transaction costs 2,694 2,797 (103) (3.7)

Office supplies and related expense 2,499 1,951 548 28.1

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

Other non-interest expense 4,789 4,432 357 8.1

Total non-interest expense $ 113,934 $ 112,851 $ 1,083 1.0

The increase in salaries and employee benefits was due primarily to merit increases and higher benefits expense, partially offset by a lower employee count during the current year.

The increase in regulatory and outside services was due to higher consulting expenses related to the Bank's upcoming digital transformation project.

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.

During the prior year, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million, with no similar transaction in the current fiscal year.

The decrease in other non-interest expense was due primarily to the write-down during the prior year of a property that had previously served as one of the Bank's branch locations, partially offset by higher debit card fraud losses in the current year.

The decrease in salaries and employee benefits was attributable mainly to lower incentive compensation in the current year, along with a reduction in loan commissions due to lower loan origination activity, and an increase in capitalized payroll costs related to the digital transformation.

The increase in information technology and related expenses was due mainly to third-party project management expenses associated with the digital transformation, along with higher software licensing expenses due to agreement renewals at higher costs and new agreements associated with the digital transformation.

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

The increase in federal insurance premium expense was due mainly to an increase in the FDIC assessment rate.

The increase in office supplies and related expense was due primarily to an increase in postage, along with 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.

The Company's efficiency ratio was (626.63)% for the current year compared to 52.39% for the prior year.

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

Management anticipates information technology and related expenses will be approximately $6 million higher in fiscal year 2023 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 associated with projects outside of the digital transformation and due to general cost increases.

Overall, it is anticipated information technology and related expenses will be approximately $7 million higher in fiscal year 2023, or approximately $25 million for the year.

Salaries and employee benefits is 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, and reflecting the anticipation that leverage strategy utilization in fiscal year 2023 will be lower than fiscal year 2022.

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.

Excluding the effects of the securities strategy, the efficiency ratio would have been 65.31% for the current year.

The change in the efficiency ratio, excluding the securities strategy, was due primarily to lower net interest income.

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

A higher value generally indicates that it is costing the financial institution more money to generate revenue, relative to its net interest income 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.

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

For the Year Ended

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(Dollars in thousands)

Income before income tax expense $ 107,203 $ 96,028 $ 11,175 11.6 %

Income tax expense 22,750 19,946 2,804 14.1

Net income $ 84,453 $ 76,082 $ 8,371 11.0

(Loss) income before income tax (benefit) expense $ (138,955) $ 107,203 $ (246,158) (229.6) %

Income tax (benefit) expense (37,296) 22,750 (60,046) (263.9)

Net (loss) income $ (101,659) $ 84,453 $ (186,112) (220.4)

Effective Tax Rate 26.8 % 21.2 %

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

The income tax benefit in the current year was a result of the pretax loss.

The pretax loss, combined with the Company's permanent differences, contributed to the increase in the effective tax rate.

Generally, the Company's permanent differences lower the effective tax rate when the Company has pretax income and tax expense, but as a result of the current year pretax loss, the Company's permanent differences have the impact of raising the effective tax rate.

Fiscal Year 2024 Outlook

Salaries and employee benefits expense is expected to be $5 million higher in fiscal year 2024 as compared to fiscal year 2023 due to an anticipated increase in incentive compensation, merit increases, the filling of vacant positions, and a reduction in capitalized payroll costs which were related to the digital transformation in fiscal year 2023.

Information technology and related expenses are anticipated to be $3 million lower in fiscal year 2024 as compared to fiscal year 2023 due to a reduction in professional services costs related to the digital transformation.

Now that the digital transformation is complete, these professional services are no longer necessary.

Income from deposit service fees is anticipated to be approximately $1 million lower in fiscal year 2024 as compared to fiscal year 2023 due to changes in the fee structure of certain deposit products after the digital transformation, which is in line with industry trends.

In the first quarter of fiscal year 2024, $13.3 million of net pre-tax losses will be recognized on the sale of securities in October 2023.

Management anticipates the effective tax rate for fiscal year 2024 will be approximately 19% to 20%.

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Liquidity management is both a daily and long-term function of our business management.

The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities.

The Company's most available liquid assets are represented by cash and cash equivalents and AFS securities.

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 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 the 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.

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The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk.

Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios.

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

Management also monitors key liquidity

statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios.

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at the FHLB in addition to the FRB of Kansas City's discount window, as well as the BTFP through March 2024.

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 FHLB borrowing limit was 50% of Bank Call Report total assets as of September 30, 2023, as approved by the president of FHLB.

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

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

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

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

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

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

The amount that can be borrowed under the BTFP is based upon the par value of securities pledged as collateral, the term can be up to one year in length, and the borrowings can be prepaid without penalty.

At September 30, 2023, the amount of securities pledged for the discount window and BTFP was $516.0 million, at par.

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

1 unchanged sentence

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

At September 30, 2022, the Bank had total borrowings, at par, of $2.14 billion, or approximately 22% of total assets, all of which were FHLB borrowings.

Of this amount, $329.7 million were advances scheduled to mature in the next 12 months.

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 $572.9 million as collateral for FHLB borrowings at September 30, 2022.

At September 30, 2023, the Bank had total borrowings, at par, of $2.88 billion, or approximately 28% of total assets.

The borrowings balance was composed of $2.38 billion of FHLB advances and $500.0 million related to the BTFP.

Of this amount, $990.0 million is scheduled to mature in the next 12 months.

Management estimated that the Bank had $2.71 billion in additional liquidity available at September 30, 2023 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

At September 30, 2023, the Bank had no repurchase agreements.

1 unchanged sentence

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 September 30, 2022, the Bank had $863.0 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.

1 unchanged sentence

At September 30, 2023, 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 $125.5 million as collateral for public unit certificates of deposit at September 30, 2022.

The Bank had pledged securities with an estimated fair value of $178.4 million as collateral for public unit certificates of deposit at September 30, 2023.

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.

1 unchanged sentence

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.

Due 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.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers.

2 unchanged sentences

See "Part II, Item 8.

Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 6.

Financial Statements and Supplementary Data –

Notes to Consolidated Financial Statements – Note 6.

Low Income Housing Partnerships and Note 12.

4 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis