What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-07 compared with 2023-08-09 · 227 added, 252 removed, 623 unchanged (43% of the section changed)

4 unchanged sentences

(Dollars in thousands, except per share amounts)

June 30, September 30,

December 31, September 30,

Cash and cash equivalents (includes interest-earning deposits of $ 287,748 and $ 213,830 )

19 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 136,158,569 and 138,858,884 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively

1,400,000,000 shares authorized, 133,908,375 and 135,936,375 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

Additional paid-in capital 1,154,655 1,166,643

1 unchanged sentence

Retained earnings ( 113,357 ) ( 104,565 )

Accumulated other comprehensive (loss) income ("AOCI"), net of tax ( 126,706 ) ( 145,633 )

Accumulated other comprehensive income ("AOCI"), net of tax 19,155 8,700

Total stockholders' equity 1,034,121 1,044,054

5 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2023 2022 2023 2022

For the Three Months Ended

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 75,941 $ 64,819

Cash and cash equivalents 10,009 3,968 37,657 4,931

Mortgage-backed securities ("MBS") 5,859 4,811

Cash and cash equivalents 4,778 16,671

FHLB stock 2,586 4,158

2 unchanged sentences

INTEREST EXPENSE:

Borrowings 31,449 11,644 96,504 27,961

Deposits 32,443 11,904

Borrowings 19,656 33,608

Total interest expense 52,099 45,512

1 unchanged sentence

PROVISION FOR CREDIT LOSSES 123 3,660

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 33,426 49,044 116,662 148,386

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 39,470 42,168

NON-INTEREST INCOME:

1 unchanged sentence

Insurance commissions 863 795

Net loss from securities transactions ( 13,345 ) —

Other non-interest income 1,013 1,096

4 unchanged sentences

Occupancy, net 3,372 3,474

Federal insurance premium 1,860 812

Regulatory and outside services 1,643 1,533

Advertising and promotional 988 833

Federal insurance premium 1,231 784 3,289 2,200

Deposit and loan transaction costs 542 611

2 unchanged sentences

Total non-interest expense 28,508 27,773

INCOME BEFORE INCOME TAX EXPENSE 9,904 26,769 47,171 82,379

INCOME TAX EXPENSE 1,602 5,617 8,440 17,418

INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE 2,068 19,747

INCOME TAX (BENEFIT) EXPENSE ( 475 ) 3,507

NET INCOME $ 2,543 $ 16,240

8 unchanged sentences

(Dollars in thousands)

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2023 2022 2023 2022

For the Three Months Ended

Net income $ 2,543 $ 16,240

Other comprehensive income (loss), net of tax:

Changes in unrealized gains/losses on AFS securities, net of taxes of $ 3,475 , $ 10,043 , $( 6,151 ), and $ 34,710

Other comprehensive income, net of tax:

Unrealized gains on AFS securities arising during the period,

net of taxes of $( 5,350 ) and $( 4,211 )

16,581 13,050

Changes in unrealized gains/losses on cash flow hedges, net of taxes of $( 872 ), $( 1,646 ), $ 43 , and $( 7,076 )

Reclassification adjustment for gross gains on AFS securities included in net income,

net of taxes of $ 383 and $ 0

Unrealized gains (losses) on cash flow hedges arising during the period,

net of taxes of $ 967 and $( 232 )

( 2,998 ) 715

Comprehensive income (loss) $ 239 $ ( 4,866 ) $ 57,658 $ ( 20,659 )

Reclassification adjustment for cash flow hedge amounts included in net income,

net of taxes of $ 626 and $ 237

( 1,940 ) ( 734 )

Comprehensive income $ 12,998 $ 29,271

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Nine Months Ended June 30, 2023

For the Three Months Ended December 31, 2023

Additional Unearned Total

3 unchanged sentences

Net income 2,543 2,543

Cumulative effect of adopting Accounting Standards Update ("ASU") 2022-02, net of tax ( 27 ) ( 27 )

Other comprehensive income, net of tax 10,455 10,455

ESOP activity ( 190 ) 412 222

Restricted stock activity, net ( 6 ) ( 6 )

Stock-based compensation 87 87

3 unchanged sentences

Balance at December 31, 2023 $ 1,339 $ 1,154,655 $ ( 27,671 ) $ ( 113,357 ) $ 19,155 $ 1,034,121

Net income 14,189 14,189

Other comprehensive income, net of tax 13,959 13,959

ESOP activity ( 76 ) 412 336

Stock-based compensation 74 74

Cash dividends to stockholders ($ 0.085 per share)

( 11,319 ) ( 11,319 )

Balance at March 31, 2023 $ 1,361 $ 1,168,059 $ ( 28,910 ) $ 50,167 $ ( 118,643 ) $ 1,072,034

Net income 8,302 8,302

Other comprehensive loss, net of tax ( 8,063 ) ( 8,063 )

ESOP activity ( 155 ) 413 258

Stock-based compensation 75 75

Cash dividends to stockholders ($ 0.085 per share)

( 11,321 ) ( 11,321 )

Balance at June 30, 2023 $ 1,361 $ 1,167,979 $ ( 28,497 ) $ 47,148 $ ( 126,706 ) $ 1,061,285

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Additional Unearned Total

3 unchanged sentences

Net income 16,240 16,240

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

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

ESOP activity ( 72 ) 413 341

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 89 89

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

Cash dividends to stockholders ($ 0.365 per share)

1 unchanged sentence

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

Net income 21,623 21,623

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

ESOP activity 48 413 461

Stock-based compensation 124 124

Cash dividends to stockholders ($ 0.085 per share)

( 11,535 ) ( 11,535 )

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

Net income 21,152 21,152

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

ESOP activity ( 5 ) 413 408

Restricted stock activity, net ( 3 ) ( 3 )

Stock-based compensation 126 126

Cash dividends to stockholders ($ 0.285 per share)

( 38,677 ) ( 38,677 )

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

See accompanying notes to consolidated financial statements.

3 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

11 unchanged sentences

Stock-based compensation 87 89

Net loss from securities transactions 13,345 —

Unrestricted cash collateral from derivative counterparties, net ( 6,830 ) 530

3 unchanged sentences

Other liabilities ( 9,306 ) ( 4,314 )

Net cash provided by operating activities 34,063 63,394

Net cash (used in) provided by operating activities ( 5,334 ) 14,601

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Proceeds from calls, maturities and principal reductions of AFS securities 49,604 51,045

Proceeds from sale of AFS securities 1,272,512 —

Proceeds from the redemption of FHLB stock 3,134 90,423

4 unchanged sentences

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

Proceeds from bank-owned life insurance ("BOLI") death benefit 720 1,023

Net cash (used in) provided by investing activities ( 371,438 ) 11,287

Net cash provided by (used in) investing activities 678,494 ( 291,109 )

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Nine Months Ended

For the Three Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

5 unchanged sentences

Repurchase of common stock ( 11,900 ) ( 22,196 )

Net cash provided by (used in) financing activities 617,590 ( 90,184 )

NET INCREASE / (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 280,215 ( 15,503 )

Net cash (used in) provided by financing activities ( 598,408 ) 277,000

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 74,752 492

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

17 unchanged sentences

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

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents of $ 329.4 million and $ 49.2 million at June 30, 2023 and September 30, 2022, respectively.

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents at December 31, 2023 and September 30, 2023, respectively.

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

There was no restricted cash at June 30, 2023 or September 30, 2022.

There was no restricted cash at December 31, 2023 or September 30, 2023.

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

2 unchanged sentences

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

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

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

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

Troubled Debt Restructurings ("TDRs") and Vintage Disclosures .

This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables within the scope of Accounting Standards Codification ("ASC") 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost .

The Company adopted the ASU on October 1, 2023 on a prospective basis, except for the amendments impacting the measurement of the ACL for TDRs, which were adopted on a modified retrospective approach.

Upon adoption, the Company recorded a $ 20 thousand increase in ACL, a $ 16 thousand increase in reserves for off-balance sheet exposures, and a cumulative effect-adjustment to retained earnings of $ 27 thousand, net of tax.

The adjustments are attributable to including TDRs in the ACL model, as of October 1 2023.

The new disclosure requirements associated with this ASU are included below and in Note 4.

Loans Receivable and Allowance for Credit Losses.

The following significant accounting policies have been updated since the Company's 2023 Annual Report on Form 10- K to reflect the adoption of ASU 2022-02.

Troubled debt restructurings - Prior to the Company's adoption of ASU 2022-02, a loan was accounted for as a TDR if the Bank granted a concession to a borrower experiencing financial difficulties.

Such concessions generally involve extensions of loan maturity dates, the granting of periods during which reduced payment amounts are required, and/or reductions in interest rates.

The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan amount.

In the case of commercial loans, the Bank generally does not forgive principal or interest or commit to lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.

Loan modifications - The TDR policy outlined above regarding Bank concessions to a borrower experiencing financial difficulty continues to apply for loan modifications upon adoption of ASU 2022-02 on October 1, 2023.

If the change in the loan terms resulting from the modification is deemed to be more than minor, all existing unamortized deferred loan origination fees and costs are recognized at the time of modification.

Modifications of loans to borrowers experiencing financial difficulty that are in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure in the Company's footnotes.

The Company's modification disclosures are included in Note 4.

Loans Receivable and Allowance for Credit Losses.

Modified loans are included in the Company's ACL model based on the risk characteristics of the loan.

If a modified loan is deemed uncollectible and no longer shares similar risk characteristics within the respective loan pool in the ACL model, the loan is evaluated on an individual basis and any loss is charged-off against the related ACL.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements - Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative.

This ASU incorporates a variety of Topics into the Codification that are currently included in SEC Regulations S-X and S-K.

The ASU is intended to align the accounting standards of GAAP with SEC Regulations S-X and S-K.

Each amendment in the ASU will only become effective for the Company if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027.

This may result in disclosures currently presented outside of the Company's financial statements being relocated to the Company's financial statements.

The amendments will be applied prospectively by the Company.

The ASU is not expected to have a material impact to the Company's disclosures as the Company is currently subject to SEC Regulations S-X and S-K.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.

This ASU requires enhanced disclosures of segment information for all public entities, including those that have a single reportable segment, primarily in the area of segment revenues and expenses.

Entities that have a single reportable segment, like the Company, will be required to provide all the disclosures required by this ASU and all existing segment disclosures requirements in ASC 280, Segment Reporting .

This ASU is effective for the Company on October 1, 2024.

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

The Company is currently evaluating the effect this ASU will have on the Company's segment disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to Income Tax Disclosures .

This ASU requires public entities to provide additional annual disclosures regarding specific categories of the income tax rate reconciliation and additional information for reconciling items within the income tax rate reconciliation that meet a certain quantitative threshold.

This ASU is effective for the Company on October 1, 2025.

The Company is currently evaluating the effect this ASU will have on the Company's income tax disclosures.

EARNINGS PER SHARE

2 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2023 2022 2023 2022

For the Three Months Ended

(Dollars in thousands, except per share amounts)

10 unchanged sentences

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented.

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

June 30, 2023

December 31, 2023

Gross Gross Estimated

3 unchanged sentences

MBS $ 503,912 $ 19,599 $ 291 $ 523,220

GSE debentures 519,983 — 44,224 475,759

Treasury bills 213,700 58 — 213,758

Corporate bonds 4,000 — 516 3,484

Municipal bonds 1,030 — 18 1,012

$ 721,612 $ 19,657 $ 807 $ 740,462

5 unchanged sentences

MBS $ 901,440 $ 113 $ 819 $ 900,734

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

Government-sponsored enterprise ("GSE") debentures 479,610 — 182 479,428

Corporate bonds 4,000 — 622 3,378

2 unchanged sentences

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

June 30, 2023

December 31, 2023

Less Than 12 Months Equal to or Greater Than 12 Months

3 unchanged sentences

MBS $ 14,485 $ 13 $ 24,191 $ 278

GSE debentures — — 475,759 44,224

Corporate bonds — — 3,484 516

Municipal bonds 1,012 18 — —

$ 14,485 $ 13 $ 27,675 $ 794

7 unchanged sentences

Corporate bonds — — 3,378 622

Municipal bonds 1,161 82 — —

$ 6,179 $ 109 $ 62,751 $ 1,514

The unrealized losses at June 30, 2023 were a result of an increase in market yields from the time the securities were purchased.

The unrealized losses at December 31, 2023 were a result of an increase in market yields from the time the securities were purchased.

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

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

Management did not record an ACL on securities in an unrealized loss position at June 30, 2023 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of June 30, 2023, by contractual maturity, are shown below.

Management did not record an ACL on securities in an unrealized loss position at December 31, 2023 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of December 31, 2023, by contractual maturity, are shown below.

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

5 unchanged sentences

One year or less $ 213,700 $ 213,758

One year through five years 494,983 451,258

Five years through ten years 4,000 3,484

3 unchanged sentences

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

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2023 2022 2023 2022

For the Three Months Ended

(Dollars in thousands)

3 unchanged sentences

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

(Dollars in thousands)

Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings $ 693,853 $ 46,283

Public unit deposits $ 148,330 $ 178,396

FHLB advances — 572,913

Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings 124,292 519,195

$ 272,622 $ 697,591

During the quarter ended December 31, 2023, the Bank sold $ 1.30 billion of AFS securities.

The Bank received gross proceeds of $ 1.27 billion from the sale and realized gross losses of $ 14.9 million and gross gains of $ 1.6 million, resulting in a net loss of $ 13.3 million on the sale during the quarter.

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

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

June 30, 2023 September 30, 2022

December 31, 2023 September 30, 2023

(Dollars in thousands)

17 unchanged sentences

$ 7,947,510 $ 7,970,949

Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business.

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

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

Lending Practices and Underwriting Standards - Originating one- to four-family loans is the Bank's primary lending business.

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

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

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

6 unchanged sentences

Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or in participation with a lead bank.

The Bank has geographic concentrations of these loans in Kansas, Missouri and Texas.

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

For commercial real estate and commercial

construction participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank.

For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan

was being originated by the Bank.

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

4 unchanged sentences

In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing commercial and industrial loans.

As a result of these additional complexities, variables and risks, commercial and industrial loans require more thorough underwriting and servicing than other types of loans.

Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

As a result of these additional complexities, variables and risks, commercial and industrial loans generally require more thorough underwriting and servicing than other types of loans.

Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan.

9 unchanged sentences

As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status.

Loan Classification - In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification.

Loan classifications are defined as follows:

5 unchanged sentences

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

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

All revolving lines of credit and revolving lines of credit converted to term loans are presented separately, regardless of origination year.

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

At June 30, 2023 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

The commercial special mention loans presented in the "Current Fiscal Year" column are related to three loans in a single commercial relationship where the borrower has experienced some performance issues, but is beginning to trend in a positive direction.

June 30, 2023

Current Fiscal Fiscal Fiscal Fiscal Revolving

Fiscal Year Year Year Year Prior Line of

Year 2022 2021 2020 2019 Years Credit Total

At December 31, 2023 and September 30, 2023, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

December 31, 2023

Current Fiscal Fiscal Fiscal Fiscal Revolving Credit

Fiscal Year Year Year Year Prior Line of Converted

Year 2023 2022 2021 2020 Years Credit to Term Total

(Dollars in thousands)

30 unchanged sentences

September 30, 2023

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving

Year Year Year Year Year Prior Line of

2022 2021 2020 2019 2018 Years Credit Total

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving Credit

Year Year Year Year Year Prior Line of Converted

2023 2022 2021 2020 2019 Years Credit to Term Total

(Dollars in thousands)

30 unchanged sentences

Delinquency Status - The following tables set forth, as of the dates indicated, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision as of the dates indicated.

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

June 30, 2023

Current Fiscal Fiscal Fiscal Fiscal Revolving

Fiscal Year Year Year Year Prior Line of

Year 2022 2021 2020 2019 Years Credit Total

All revolving lines of credit and revolving lines of credit converted to term loans are presented separately, regardless of origination year.

December 31, 2023

Current Fiscal Fiscal Fiscal Fiscal Revolving Credit

Fiscal Year Year Year Year Prior Line of Converted

Year 2023 2022 2021 2020 Years Credit to Term Total

(Dollars in thousands)

30 unchanged sentences

September 30, 2023

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving

Year Year Year Year Year Prior Line of

2022 2021 2020 2019 2018 Years Credit Total

Fiscal Fiscal Fiscal Fiscal Fiscal Revolving Credit

Year Year Year Year Year Prior Line of Converted

2023 2022 2021 2020 2019 Years Credit to Term Total

(Dollars in thousands)

29 unchanged sentences

Total $ 1,124,730 $ 1,450,679 $ 1,709,273 $ 904,106 $ 403,494 $ 2,285,008 $ 110,969 $ 6,449 $ 7,994,708

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

At June 30, 2023 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status.

June 30, 2023

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Amortized

Delinquent in Foreclosure Loans Loans Cost

Gross Charge-Offs - Upon adoption of ASU 2022-02 on October 1, 2023, the Company is required to present gross charge-offs by class of financing receivable and year of origination or most recent credit decision.

The following table sets forth the required gross charge-off information for the three months ended December 31, 2023.

Current Fiscal Fiscal Fiscal Fiscal Revolving of Credit

Fiscal Year Year Year Year Prior Lines of Converted to

Year 2023 2022 2021 2020 Years Credit Term Total

(Dollars in thousands)

3 unchanged sentences

Bulk purchased — — — — — — — — —

— — — — — — — — —

Commercial real estate — — — — — — — — —

Commercial and Industrial — — — — — — — — —

— — — — — — — — —

Home Equity 1 1 — — — — — — 2

1 unchanged sentence

1 6 — — — — — — 7

September 30, 2022

Total $ 1 $ 6 $ — $ — $ — $ — $ — $ — $ 7

At December 31, 2023 and September 30, 2023, all loans 90 or more days delinquent were on nonaccrual status.

The increase in correspondent and bulk purchased one- to four-family loans 30 to 89 days delinquent and in nonaccrual one- to four-family loans was due mainly to delinquencies returning to more historical levels as government payment assistance programs expired.

The increase in commercial loans 30 to 89 days delinquent was a mix of several different borrowers and property types.

There was not one underlying reason for the increase in commercial loan delinquencies from September 30, 2023.

Management is working closely with the borrowers to address payment issues.

December 31, 2023

90 or More Days Total Total

11 unchanged sentences

$ 19,024 $ 10,222 $ 29,246 $ 7,942,442 $ 7,971,688

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2023 and September 30, 2022 was $ 2.2 million and $ 2.0 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

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

There was no residential OREO held as of June 30, 2023.

The following table presents the amortized cost at June 30, 2023 and September 30, 2022, by class, of loans classified as nonaccrual.

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

June 30, 2023 September 30, 2022

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

September 30, 2023

90 or More Days Total Total

30 to 89 Days Delinquent or Delinquent Current Amortized

Delinquent in Foreclosure Loans Loans Cost

(Dollars in thousands)

8 unchanged sentences

$ 16,347 $ 8,936 $ 25,283 $ 7,969,425 $ 7,994,708

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

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

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

For the Three Months Ended For the Nine Months Ended

June 30, 2023 June 30, 2023

Number Pre- Post- Number Pre- Post-

of Restructured Restructured of Restructured Restructured

Contracts Outstanding Outstanding Contracts Outstanding Outstanding

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2023 and September 30, 2023 was $ 2.8 million and $ 2.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The following table presents the amortized cost at December 31, 2023 and September 30, 2023, by class, of loans classified as nonaccrual.

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

December 31, 2023 September 30, 2023

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

(Dollars in thousands)

8 unchanged sentences

$ 10,241 $ 1,316 $ 9,453 $ 1,990

For the Three Months Ended For the Nine Months Ended

June 30, 2022 June 30, 2022

Number Pre- Post- Number Pre- Post-

of Restructured Restructured of Restructured Restructured

Contracts Outstanding Outstanding Contracts Outstanding Outstanding

Loan Modifications - The following table presents the amortized cost basis of loans as of December 31, 2023 that were both experiencing financial difficulties and modified during the three months ended December 31, 2023, by class of financing receivable and by type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulties as compared to the amortized cost basis of each class of financing receivable is also presented below.

During the three months ended December 31, 2023, the Company did not charge-off any amounts related to the loans presented in the table below.

The Company has not committed to lend additional amounts to borrowers included in this table.

Combination- Total

Term Extension Class of

Principal Interest Rate Payment Term and Financing

Forgiveness Reduction Delay Extension Payment Delay Total Receivable

(Dollars in thousands)

1 unchanged sentence

Originated $ — $ — $ — $ — $ 4,405 $ 4,405 0.11 %

Correspondent purchased — — — — — —

Bulk purchased — — — — — —

Commercial real estate — — — — — —

Commercial and industrial — — — 2 124 124

Home equity — — — 1 19 19

Other — — — — — —

Correspondent — — — — 1,247 1,247 0.05

Purchased — — — — — — —

— — — — 5,652 5,652 0.09

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

For the Three Months Ended For the Nine Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

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

Contracts Cost Contracts Cost Contracts Cost Contracts Cost

(Dollars in thousands)

One- to four-family:

Originated — $ — — $ — 1 $ 8 1 $ 684

Correspondent purchased — — — — — — — —

Bulk purchased — — — — — — — —

Commercial real estate — — — — — — —

Commercial and industrial — — — — — — —

— — — — — — —

Consumer loans:

Home equity — — — — — — —

1 unchanged sentence

— — — — — — —

Total $ — $ — $ — $ — $ 5,652 $ 5,652 0.07

Financial effect of loan modifications - All loan modifications during the three months ended December 31, 2023 were a combination of term extensions and payment delays of one- to four-family originated loans or one- to four-family correspondent loans.

The weighted average length of the term extensions was 23 months for one- to four-family originated loans and 12 months for one- to four-family correspondent loans.

The weighted average payment delay was four months for both one- to four-family originated loans and one- to four-family correspondent loans.

Performance of loan modifications - None of the loans modified during the three months ended December 31, 2023 defaulted through December 31, 2023.

The Company considers "default" to mean 90 days or more past due under the modified terms.

Of the loans modified during the three months ended December 31, 2023, $ 231 thousand of one-to four-family originated loans were 30-89 days delinquent at December 31, 2023.

All other loans modified during the three months ended December 31, 2023 were current at December 31, 2023.

TDRs - Prior to the adoption of ASU 2022-02 on October 1, 2023, loans were accounted for as TDRs if the Bank granted a concession to a borrower experiencing financial difficulties.

There were no loans restructured during the three months ended December 31, 2022.

During the three months ended December 31, 2022, there was one one-to four-family originated TDR with an amortized cost of $ 8 thousand that became delinquent within 12 months after being restructured.

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

For the Three Months Ended June 30, 2023

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,139 $ 3,074 $ 221 $ 5,434 $ 14,222 $ 233 $ 19,889

Charge-offs — — — — — ( 11 ) ( 11 )

Recoveries 1 — — 1 — — 1

Provision for credit losses 15 7 18 40 2,463 17 2,520

Ending balance $ 2,155 $ 3,081 $ 239 $ 5,475 $ 16,685 $ 239 $ 22,399

For the Nine Months Ended June 30, 2023

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,066 $ 2,734 $ 206 $ 5,006 $ 11,120 $ 245 $ 16,371

Charge-offs — — — — — ( 31 ) ( 31 )

Recoveries 2 — — 2 1 2 5

Provision for credit losses 87 347 33 467 5,564 23 6,054

Ending balance $ 2,155 $ 3,081 $ 239 $ 5,475 $ 16,685 $ 239 $ 22,399

For the Three Months Ended June 30, 2022

For the Three Months Ended December 31, 2023

One- to Four-Family

3 unchanged sentences

Beginning balance $ 2,149 $ 2,972 $ 207 $ 5,328 $ 18,180 $ 251 $ 23,759

Adoption of ASU 2022-02 3 1 14 18 2 — 20

Balance at October 1, 2023 2,152 2,973 221 5,346 18,182 251 23,779

Charge-offs — — — — — ( 7 ) ( 7 )

2 unchanged sentences

Ending balance $ 2,094 $ 2,948 $ 206 $ 5,248 $ 18,678 $ 252 $ 24,178

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

One- to Four-Family

8 unchanged sentences

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

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at June 30, 2023.

The key assumptions utilized in estimating the Company's ACL at June 30, 2023 are discussed below.

• Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at June 30, 2023.

The forecasted economic indices applied to the model at June 30, 2023 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2023.

The key assumptions utilized in estimating the Company's ACL at December 31, 2023 are discussed below.

The forecasted economic indices applied to the model at December 31, 2023 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

gross domestic product.

The economic index most impactful to all loan pools within the model at June 30, 2023 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at June 30, 2023 had the national unemployment rate gradually increasing to 4.0 % by June 30, 2024 which was the end of our four quarter forecast time period.

• Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at June 30, 2023.

• Prepayment and curtailment assumptions - The assumptions used at June 30, 2023 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model.

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

• Qualitative factors - The qualitative factors applied by management at June 30, 2023 included the following:

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

◦ Other management considerations related to commercial real estate loans that were not captured via the model assumptions.

The economic index most impactful to all loan pools within the model at December 31, 2023 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at December 31, 2023 had the national unemployment rate gradually increasing to 4.0 % by December 31, 2024, which was the end of our four-quarter forecast time period.

• Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2023.

• Prepayment and curtailment assumptions - The assumptions used at December 31, 2023 were generally based on actual historical prepayment and curtailment speeds, adjusted by management as deemed necessary.

The prepayment and curtailment assumptions vary for each respective loan pool in the model.

• Qualitative factors - The qualitative factors applied by management at December 31, 2023 included the following:

◦ The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the third-party economic forecast scenarios;

◦ Other management considerations related to commercial loans to account for credit risks not fully reflected in the discounted cash flow model.

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

At June 30, 2023 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $ 909.7 million and $ 992.6 million, respectively.

For the Three Months Ended For the Nine Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

At December 31, 2023 and September 30, 2023, the Bank's off-balance sheet credit exposures totaled $ 803.0 million and $ 837.7 million, respectively.

For the Three Months Ended

December 31, 2023 December 31, 2022

(Dollars in thousands)

Beginning balance $ 4,095 $ 4,751

Adoption of ASU 2022-02 16 —

Balance at October 1, 2023 4,111 4,751

(Release)/provision for credit losses ( 277 ) 840

1 unchanged sentence

BORROWED FUNDS

FHLB Borrowings and Interest Rate Swaps - As of June 30, 2023 and September 30, 2022, the Bank held interest rate swap agreements with an aggregate notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At June 30, 2023 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.3 years and 3.1 years, respectively.

Borrowings - Borrowings at December 31, 2023 consisted of $ 2.38 billion in FHLB advances, of which $ 2.01 billion were fixed-rate advances and $ 365.0 million were variable-rate advances, and $ 974 thousand in finance leases.

Borrowings at September 30, 2023 consisted of $ 2.38 billion in FHLB advances, of which $ 2.02 billion were fixed-rate advances and $ 365.0 million were variable-rate advances, and $ 500.0 million of borrowings from the Federal Reserve's Bank Term Funding Program ("BTFP").

During the current quarter, the Bank paid off the $ 500.0 million of BTFP borrowings.

As of December 31, 2023 and September 30, 2023, the Bank held interest rate swap agreements with an aggregate notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At December 31, 2023 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.8 years and 2.1 years, respectively.

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

At June 30, 2023 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $ 12.4 million and $ 12.5 million respectively, which was reported in other assets on the consolidated balance sheet.

During the three and nine month periods ended June 30, 2023, $ 1.7 million and $ 3.7 million, respectively, was reclassified from AOCI as a decrease to interest expense.

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

At June 30, 2023, the Company estimated that $ 8.9 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

At December 31, 2023 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $ 6.5 million and $ 13.0 million respectively, which was reported in other assets on the consolidated balance sheet.

During the three month periods ended December 31, 2023 and December 31, 2022, $ 1.9 million and $ 734 thousand, respectively, was reclassified from AOCI as a decrease to interest expense.

At December 31, 2023, the Company estimated that $ 5.2 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

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

The Bank held cash collateral of $ 13.1 million and $ 12.1 million at June 30, 2023 and September 30, 2022, respectively.

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

The leverage strategy involved borrowing on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at quarter end, or earlier if the strategy was not profitable.

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

The Bank held cash collateral of $ 7.2 million and $ 14.0 million at December 31, 2023 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

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 FRB of Kansas City.

The borrowings are repaid prior to quarter end, or earlier if the strategy is suspended.

The leverage strategy was not in place during the current quarter due to the strategy being unprofitable, but it was in place at points during the September 30, 2023 quarter.

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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

15 unchanged sentences

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value.

The majority of the securities within the AFS portfolio were issued by GSEs.

The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities.

On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source.

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

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the nine months ended June 30, 2023 or during fiscal year 2022.

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

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2023 or during fiscal year 2023.

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

Treasury bills - Estimated fair values are based on pricing data from active primary and secondary markets, and inter-dealer brokers.

• GSE debentures - Estimated fair values are based on a discounted cash flow method.

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

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

• MBS - The majority of these securities are issued by GSEs.

Estimated fair values are based on a discounted cash flow method.

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

1 unchanged sentence

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

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

Borrowed Funds" for additional information.

1 unchanged sentence

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

No adjustments were made to the estimated fair values obtained from the counterparty during the nine months ended June 30, 2023 or during fiscal year 2022.

No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2023 or during fiscal year 2023.

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

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at June 30, 2023 or September 30, 2022.

June 30, 2023

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2023 or September 30, 2023.

December 31, 2023

Quoted Prices Significant Significant

5 unchanged sentences

MBS $ 523,220 $ — $ 523,220 $ —

GSE debentures 475,759 — 475,759 —

Treasury bills 213,758 213,758 — —

Corporate bonds 3,484 — 3,484 —

Municipal bonds 1,012 — 1,012 —

740,462 213,758 526,704 —

19 unchanged sentences

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

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the nine months ended June 30, 2023 and 2022 that were still held in the portfolio as of June 30, 2023 and 2022 was $ 3.9 million and $ 4.3 million, respectively.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2023 and 2022 that were still held in the portfolio as of December 31, 2023 and 2022 was $ 1.1 million and $ 4.1 million, respectively.

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

4 unchanged sentences

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

The primary significant unobservable inputs for commercial loans individually evaluated during the nine months ended June 30, 2023 and June 30, 2022 were downward adjustments to the book value of the

collateral for lack of marketability.

During the nine months ended June 30, 2023, the adjustments ranged from 8 % to 100 %, with a weighted average of 21 %.

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

The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2023 and December 31, 2022 were downward adjustments to the book value of the collateral for lack of marketability.

During the three months ended December 31, 2023, the adjustments ranged from 5 % to 100 %, with a weighted average of 17 %.

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

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

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

The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10 %.

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

The fair value for one- to four-family OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10 %.

Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above.

The primary significant unobservable input for OREO was the appraisal or listing price.

The primary significant unobservable input for one- to four-family OREO was the appraisal or listing price.

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

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

The primary significant unobservable input for commercial OREO is downward adjustments to book value of the collateral for lack of marketability.

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

There was no OREO measured on a non-recurring basis during the nine months ended June 30, 2023.

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

The carrying value of the properties equaled the fair value of the properties at June 30, 2023 and 2022.

There was $ 219 thousand and $ 93 thousand of one- to four-family OREO measured on a non-recurring basis during the three months ended December 31, 2023 and December 31, 2022, respectively.

The carrying value of the properties equaled the fair value of the properties at December 31, 2023 and 2022.

There was no commercial OREO measured on a non-recurring basis during the three months ended December 31, 2023 or 2022.

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

2 unchanged sentences

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

June 30, 2023

December 31, 2023

Carrying Estimated Fair Value

19 unchanged sentences

Borrowings 2,879,125 2,802,849 — 2,802,849 —

At September 30, 2023, the Company recorded a deferred income tax asset of $ 47.0 million related to the net loss on a securities transaction.

The related securities were sold during the current quarter which resulted in the Company reversing the $ 47.0 million deferred tax asset at September 30, 2023 and recognizing a $ 45.0 million net operating loss deferred income tax asset as of December 31, 2023.

Additionally, the Company recorded a $ 4.6 million deferred tax asset at December 31, 2023 related to low income housing tax credits.

The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances.

At December 31, 2023, the Company does not believe a valuation allowance is necessary on the deferred income tax assets recorded during the current quarter as it is more likely than not that these amounts will be realized through the reversal of the Company's existing taxable temporary differences and projected future taxable income.

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

For the Three Months Ended June 30, 2023

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ ( 125,292 ) $ 6,649 $ ( 118,643 )

Other comprehensive income (loss), before reclassifications ( 10,765 ) 4,369 ( 6,396 )

Amount reclassified from AOCI, net of taxes of $ 538

— ( 1,667 ) ( 1,667 )

Other comprehensive income (loss) ( 10,765 ) 2,702 ( 8,063 )

Ending balance $ ( 136,057 ) $ 9,351 $ ( 126,706 )

For the Nine Months Ended June 30, 2023

For the Three Months Ended December 31, 2023

Unrealized Unrealized

7 unchanged sentences

— ( 1,940 ) ( 1,940 )

Other comprehensive income (loss) 19,062 ( 135 ) 18,927

Ending balance $ ( 136,057 ) $ 9,351 $ ( 126,706 )

For the Three Months Ended June 30, 2022

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

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

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

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

Reclassification adjustment for gross gains on AFS securities included in net income, net of taxes of $ 383

( 1,188 ) — ( 1,188 )

1 unchanged sentence

Ending balance 14,251 4,904 19,155

For the Nine Months Ended June 30, 2022

For the Three Months Ended December 31, 2022

Unrealized Unrealized

10 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements