Capitol Federal Financial, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Capitol Federal Financial, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Capitol Federal Financial, Inc. and subsidiary's (the Company) internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements), and our report dated November 27, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Kansas City, Missouri November 27, 2024 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors Capitol Federal Financial, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Capitol Federal Financial, Inc. and subsidiary (the Company) as of September 30, 2024, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 27, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Allowance for credit losses on loans evaluated on a collective basis As discussed in Notes 1 and 4 to the consolidated financial statements, the Company’s total allowance for credit losses on loans (ACL) was $23.0 million as of September 30, 2024, a substantial portion of which related to the allowance for credit losses for loans evaluated on a collective basis (the collective ACL). The collective ACL includes the measure of expected lifetime credit losses on a pool basis, with loans aggregated into pools based on similar risk characteristics. The Company utilized a discounted cash flow (DCF) methodology to calculate the collective ACL. Average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. These historical loss rates are compared to historical data related to economic indices during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis. The Company's model pairs the results of the regression analysis with an economic forecast of these same economic indices in order to model probabilities of default (PDs). The PDs are then used to generate expected cash flows using segment-specific risk factors and other assumptions to model loss given defaults (LGDs). The forecast is applied for a reasonable and supportable time period of four quarters before reverting back to historical loss experience, which is accomplished by reversion to long-term historical 61 averages at the economic index level using a straight-line method over four quarters. Contractual cash flows are adjusted for expected prepayment speeds and curtailment rates. Using all of these inputs and assumptions, the DCF methodology generates aggregated estimated cash flows for the time period that remains in each loan's contractual life. These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of future cash flows. Each loan pool's allowance estimate is equal to the aggregate shortage, if any, of the present value of future cash flows compared to the amortized cost basis of the loan pool. Qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs based on management's current assessment of risks related to loan portfolio attributes and external factors. We identified the assessment of the collective ACL as a critical audit matter. A high degree of audit effort, including specialized skills and knowledge in the industry, and subjective and complex auditor judgment was involved in the assessment of the collective ACL. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the methods and models used to estimate (1) the PD and LGD and their significant assumptions, including the economic forecast and economic indices, the reasonable and supportable forecast and reversion periods, and peer data used for historical loss rates; (2) expected prepayment speeds and curtailment rates; and (3) the large dollar commercial loan concentration qualitative factor. The assessment also included an evaluation of the conceptual soundness and performance of the underlying models and assumptions. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the measurement of the collective ACL, including controls related to the: • design of the collective ACL methodology • continued use and appropriateness of the PD and LGD models • performance monitoring of the PD and LGD models • identification and determination of the significant assumptions used in the PD and LGD models • development of the qualitative factors, including the significant assumptions used in the measurement of the qualitative factors • analysis of the collective ACL results, trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions. In addition, we involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating judgments made by the Company relative to the performance monitoring of the PD and LGD models by comparing them to relevant Company specific metrics and trends and the applicable industry practices and regulatory guidance • assessing the conceptual soundness and performance testing of the PD and LGD models by inspecting the model documentation to determine whether the model is suitable for its intended use • evaluating the methodology used to select the economic forecast and economic indices, the reasonable and supportable forecast and reversion periods, peer data used for average historical loss rates, and prepayment speeds and curtailment rates by comparing them to the Company’s business environment and relevant industry practices • evaluating the methodology used to develop the large dollar commercial loan concentrations qualitative factor and the effect of that factor on the collective ACL by comparing it to relevant credit risk factors and consistency with credit trends. We also assessed the sufficiency of the audit evidence obtained relative to the collective ACL by evaluating the: • cumulative results of the audit procedures • qualitative aspects of the Company’s accounting practices • potential bias in the accounting estimates /s/ KPMG LLP We have served as the Company’s auditor since 2024. Kansas City, Missouri November 27, 2024 62 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors of Capitol Federal Financial, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Capitol Federal Financial, Inc. and subsidiary (the "Company") as of September 30, 2023, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the two years in the period ended September 30, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Kansas City, Missouri November 29, 2023 We began serving as the Company's auditor in 1974. In 2024 we became the predecessor auditor. 63 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2024 and 2023 (Dollars in thousands, except per share amounts) 2024 2023 ASSETS: Cash and cash equivalents (includes interest-earning deposits of $ 192,138 and $ 213,830 ) $ 217,307 $ 245,605 Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $ 829,852 and $ 1,385,992 ) 856,266 1,384,482 Loans receivable, net (allowance for credit losses ("ACL") of $ 23,035 and $ 23,759 ) 7,907,338 7,970,949 Federal Home Loan Bank Topeka ("FHLB") stock, at cost 101,175 110,714 Premises and equipment, net 91,463 91,531 Income taxes receivable, net 359 8,531 Deferred income tax assets, net 21,978 29,605 Other assets 331,722 336,044 TOTAL ASSETS $ 9,527,608 $ 10,177,461 LIABILITIES: Deposits $ 6,129,982 $ 6,051,220 Borrowings 2,179,564 2,879,125 Advances by borrowers 61,801 62,993 Other liabilities 123,991 140,069 Total liabilities 8,495,338 9,133,407 STOCKHOLDERS' EQUITY: Preferred stock, $ .01 par value; 100,000,000 shares authorized, no shares issued or outstanding — — Common stock, $ .01 par value; 1,400,000,000 shares authorized, 132,735,565 and 135,936,375 shares issued and outstanding as of September 30, 2024 and 2023, respectively 1,327 1,359 Additional paid-in capital 1,146,851 1,166,643 Unearned compensation, Employee Stock Ownership Plan ("ESOP") ( 26,431 ) ( 28,083 ) Accumulated deficit ( 111,104 ) ( 104,565 ) Accumulated other comprehensive income ("AOCI"), net of tax 21,627 8,700 Total stockholders' equity 1,032,270 1,044,054 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,527,608 $ 10,177,461 See accompanying notes to consolidated financial statements. 64 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands, except per share amounts) 2024 2023 2022 INTEREST AND DIVIDEND INCOME: Loans receivable $ 308,707 $ 280,087 $ 228,531 Mortgage-backed securities ("MBS") 33,650 18,520 19,406 Cash and cash equivalents 15,728 43,796 18,304 FHLB stock 10,009 13,821 10,031 Investment securities 8,749 3,565 3,268 Total interest and dividend income 376,843 359,789 279,540 INTEREST EXPENSE: Deposits 139,549 82,267 34,456 Borrowings 75,233 124,250 52,490 Total interest expense 214,782 206,517 86,946 NET INTEREST INCOME 162,061 153,272 192,594 PROVISION FOR CREDIT LOSSES 1,259 6,838 ( 4,630 ) NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 160,802 146,434 197,224 NON-INTEREST INCOME: Deposit service fees 10,562 12,745 13,798 Insurance commissions 3,257 3,487 2,947 Net loss from securities transactions ( 13,345 ) ( 192,622 ) — Other non-interest income 4,770 4,935 6,085 Total non-interest income 5,244 ( 171,455 ) 22,830 NON-INTEREST EXPENSE: Salaries and employee benefits 52,272 51,491 56,600 Information technology and related expense 20,324 23,425 18,311 Occupancy, net 13,558 14,236 14,370 Federal insurance premium 6,052 4,456 3,020 Regulatory and outside services 5,743 6,039 6,192 Advertising and promotional 4,264 4,305 5,178 Deposit and loan transaction costs 2,719 2,694 2,797 Office supplies and related expense 1,691 2,499 1,951 Other non-interest expense 5,320 4,789 4,432 Total non-interest expense 111,943 113,934 112,851 INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 54,103 ( 138,955 ) 107,203 INCOME TAX EXPENSE (BENEFIT) 16,093 ( 37,296 ) 22,750 NET INCOME (LOSS) $ 38,010 $ ( 101,659 ) $ 84,453 Basic earnings (loss) per share ("EPS") $ 0.29 $ ( 0.76 ) $ 0.62 Diluted EPS $ 0.29 $ ( 0.76 ) $ 0.62 See accompanying notes to consolidated financial statements. 65 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands) 2024 2023 2022 Net income (loss) $ 38,010 $ ( 101,659 ) $ 84,453 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $( 7,133 ), $( 2,696 ), and $ 51,565 22,362 8,355 ( 159,770 ) Reclassification adjustment for net (gains) losses on AFS securities included in net income, net of taxes of $ 383 , $( 47,000 ), and $ 0 ( 1,188 ) 145,622 — Unrealized (losses) gains on cash flow hedges arising during the period, net of taxes of $ 701 , $( 1,923 ), and $( 8,177 ) ( 2,135 ) 5,957 25,339 Reclassification adjustment for cash flow hedge amounts included in net income, net of taxes of $ 1,967 , $ 1,808 , and $( 1,647 ) ( 6,112 ) ( 5,601 ) 5,103 Comprehensive income (loss) $ 50,937 $ 52,674 $ ( 44,875 ) See accompanying notes to consolidated financial statements. 66 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands, except per share amounts) Additional Unearned Total Common Paid-In Compensation Accumulated Stockholders' Stock Capital ESOP Deficit AOCI Equity Balance at September 30, 2021 $ 1,388 $ 1,189,633 $ ( 31,387 ) $ 98,944 $ ( 16,305 ) $ 1,242,273 Net income, fiscal year 2022 84,453 84,453 Other comprehensive loss, net of tax ( 129,328 ) ( 129,328 ) ESOP activity 88 1,652 1,740 Restricted stock activity, net ( 6 ) ( 6 ) Stock-based compensation 498 498 Cash dividends to stockholders ($ 0.76 per share) ( 103,131 ) ( 103,131 ) Balance at September 30, 2022 1,388 1,190,213 ( 29,735 ) 80,266 ( 145,633 ) 1,096,499 Net loss, fiscal year 2023 ( 101,659 ) ( 101,659 ) Other comprehensive income, net of tax 154,333 154,333 ESOP activity ( 473 ) 1,652 1,179 Stock-based compensation 327 327 Repurchase of common stock ( 29 ) ( 23,424 ) — ( 23,453 ) Cash dividends to stockholders ($ 0.62 per share) ( 83,172 ) ( 83,172 ) Balance at September 30, 2023 1,359 1,166,643 ( 28,083 ) ( 104,565 ) 8,700 1,044,054 Net income, fiscal year 2024 38,010 38,010 Cumulative effect of adopting Accounting Standards Update ("ASU") 2022-02 ( 27 ) ( 27 ) Other comprehensive income, net of tax 12,927 12,927 ESOP activity ( 725 ) 1,652 927 Restricted stock activity, net 1 ( 10 ) ( 9 ) Stock-based compensation 358 358 Repurchase of common stock ( 33 ) ( 19,415 ) ( 19,448 ) Cash dividends to stockholders ($ 0.34 per share) ( 44,522 ) ( 44,522 ) Balance at September 30, 2024 $ 1,327 $ 1,146,851 $ ( 26,431 ) $ ( 111,104 ) $ 21,627 $ 1,032,270 See accompanying notes to consolidated financial statements. 67 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands) 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 38,010 $ ( 101,659 ) $ 84,453 Adjustments to reconcile net income to net cash provided by operating activities: FHLB stock dividends ( 10,009 ) ( 13,821 ) ( 10,031 ) Provision for credit losses 1,259 6,838 ( 4,630 ) Originations of loans receivable held-for-sale ("LHFS") ( 712 ) ( 1,217 ) ( 1,088 ) Proceeds from sales of LHFS 725 1,222 1,113 Amortization and accretion of premiums and discounts on securities ( 8,182 ) 3,016 4,967 Depreciation and amortization of premises and equipment 7,929 9,039 9,365 Amortization of intangible assets 774 1,069 1,372 Amortization of deferred amounts related to FHLB advances, net 1,529 1,643 1,804 Common stock committed to be released for allocation - ESOP 927 1,179 1,740 Stock-based compensation 358 327 498 Provision for deferred income taxes 3,546 ( 45,520 ) 2,047 Net loss from securities transactions 13,345 192,622 — Changes in: Unrestricted cash collateral from derivative counterparties, net ( 11,850 ) 1,940 12,050 Other assets, net 8,227 2,528 6,661 Income taxes receivable, net 8,139 ( 7,303 ) ( 2,197 ) Other liabilities ( 22,831 ) ( 4,372 ) ( 10,823 ) Net cash provided by operating activities 31,184 47,531 97,301 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of AFS securities ( 1,176,645 ) — ( 88,026 ) Proceeds from calls, maturities and principal reductions of AFS securities 455,110 186,860 323,025 Proceeds from sale of AFS securities 1,272,512 — — Proceeds from the redemption of FHLB stock 19,548 358,491 302,243 Purchase of FHLB stock — ( 354,760 ) ( 319,415 ) Net change in loans receivable 63,626 ( 520,229 ) ( 381,561 ) Proceeds from sale of participating interest in loans receivable — 5,563 — Purchase of premises and equipment ( 7,184 ) ( 6,281 ) ( 5,557 ) Proceeds from sale of other real estate owned ("OREO") 464 533 692 Proceeds from sale of assets held-for-sale 629 — — Proceeds from bank-owned life insurance ("BOLI") death benefit 1,049 720 1,023 Net cash provided by (used in) investing activities 629,109 ( 329,103 ) ( 167,576 ) (Continued) 68 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands) 2024 2023 2022 CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends paid ( 44,522 ) ( 83,172 ) ( 103,131 ) Net change in deposits 78,762 ( 143,646 ) ( 402,530 ) Proceeds from borrowings 350,100 4,293,870 1,454,402 Repayments on borrowings ( 1,052,291 ) ( 3,548,542 ) ( 906,902 ) Change in advances by borrowers ( 1,192 ) ( 17,074 ) 7,338 Repurchase of common stock ( 19,448 ) ( 23,453 ) — Net cash (used in) provided by financing activities ( 688,591 ) 477,983 49,177 NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS ( 28,298 ) 196,411 ( 21,098 ) CASH AND CASH EQUIVALENTS: Beginning of year 245,605 49,194 70,292 End of year $ 217,307 $ 245,605 $ 49,194 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income tax payments $ 6,017 $ 5,424 $ 13,559 Interest payments $ 224,701 $ 188,908 $ 83,833 See accompanying notes to consolidated financial statements. (Concluded) 69 CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business - Capitol Federal Financial, Inc. (the "Company") provides a full range of retail banking services through its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"), a federal savings bank, which has 44 traditional and four in-store banking offices serving primarily the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and portions of the Kansas City metropolitan area. The Bank emphasizes mortgage lending, primarily originating one- to four-family loans, and providing personal retail financial services, along with offering commercial banking and lending products. Basis of Presentation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, the Bank. The Bank has two wholly owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates and assumptions. 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 September 30, 2024 and 2023, respectively. Restricted cash relates to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps. There was no restricted cash included in other assets on the consolidated balance sheet at September 30, 2024 or September 30, 2023. See additional discussion regarding the interest rate swaps in "Note 8. Deposits and Borrowed Funds." Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows. Securities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSEs"), including Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC) and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association (GNMA), corporate bonds, and municipal bonds. Securities are classified as held-to-maturity ("HTM"), AFS, or trading based on management's intention for holding the securities on the date of purchase. Generally, classifications are made in response to liquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase. Accrued interest receivable for all securities is reported in other assets on the consolidated balance sheet and totaled $ 4.8 million and $ 3.1 million at September 30, 2024 and 2023, respectively. The Company excludes accrued interest from the amortized cost of securities and does not measure ACL for accrued interest. Interest accrued but not received is reversed against interest income. Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At September 30, 2024 and 2023, the portfolio did not contain any securities classified as HTM. Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with unrealized gains and non-credit losses reported as a component of AOCI within stockholders' equity, net of deferred income taxes. The amortization of premiums and discounts are recognized as adjustments to interest income over the life of the securities using the level-yield method. Gains or losses on the disposition of AFS securities are 70 recognized using the specific identification method. The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. See additional discussion of fair value of AFS securities in "Note 14. Fair Value of Financial Instruments." Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported at fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income. During the fiscal years ended September 30, 2024 and 2023, neither the Company nor the Bank maintained a trading securities portfolio. Allowance for Credit Losses on AFS Debt Securities - Management monitors AFS debt securities for impairment on an ongoing basis and performs a formal review quarterly. If an AFS debt security is in an unrealized loss position at the time of the quarterly review, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost. If either condition is met, the entire loss in fair value is recognized in current earnings. If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. In making this assessment, management considers the security structure, the cause(s) and severity of the loss, expectations of future performance (including recent events specific to the issuer or industry and the issuer's financial condition and current ability to make payments in a timely manner), and external credit ratings and recent downgrades in such ratings. Management's assessment involves a high degree of subjectivity and judgment that is based on information available at a point in time. If the assessment indicates that a credit loss might exist, the present value of cash flows expected to be collected is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss is deemed to have occurred, and an ACL is recorded. The ACL is limited by the amount that the fair value is less than the amortized cost basis. Changes in the ACL on AFS debt securities are recorded as an increase or decrease in the provision for credit losses on the consolidated statements of income. Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met. Interest accrued on AFS debt securities but not received is also reversed against interest income. As of September 30, 2024 and 2023, the Company did not identify any credit losses related to the Company's AFS debt securities, so there was no ACL on AFS debt securities as of those dates. Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at amortized cost, excluding accrued interest. Amortized cost is the amount of unpaid principal, net of undisbursed loan funds, unamortized premiums and discounts, and deferred loan fees and costs. Net loan fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method. Loans are presented on the consolidated balance sheet net of the related ACL. Interest on loans receivable is accrued based on the principal amount outstanding. Accrued interest receivable for loans is reported in other assets on the consolidated balance sheet and totaled $ 26.3 million and $ 25.0 million at September 30, 2024 and 2023, respectively. The Company does not calculate ACL for accrued interest. Interest accrued but not received is reversed against interest income. Loan endorsements - Certain existing one- to four- family loan customers, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank, without being required to complete the standard application and underwriting process. The fee received for each endorsement is deferred and amortized as an adjustment to interest income over the life of the loan. If the change in loan terms resulting from the endorsement is deemed to be more than minor, all existing unamortized deferred loan origination fees and costs are recognized at the time of endorsement. If the change in loan terms is deemed to be minor, the fee received for the endorsement is added to the net remaining unamortized deferred fee or deferred cost balance. Troubled debt restructurings - Prior to the Company's adoption of ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures on October 1, 2023 , a loan was accounted for as a TDR if the Bank granted a concession to a borrower experiencing financial difficulties. Such concessions generally involved extensions of loan maturity dates, the granting of periods during which reduced payment amounts were required, and/or reductions in interest rates. The Bank does not forgive principal or interest, nor does it commit to lend additional 71 funds to these borrowers, except for situations generally involving the capitalization of delinquent loan payments 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. 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 notes to the Company's consolidated financial statements. 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. Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date. The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment. Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears. Loans on which the accrual of income has been discontinued are designated as nonaccrual and all delinquent accrued interest is reversed. A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due. A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio ("DSCR"), and the loan is well secured and within policy. Allowance for Credit Losses on Loans Receivable - The ACL is a valuation amount that is deducted from the amortized cost basis of loans. It represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date and is determined using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts, along with the application of qualitative factors when necessary. The ACL is recorded upon origination or purchase of a loan and is updated at subsequent reporting dates. Changes in the ACL are recorded through increases or decreases to the provision for credit losses in the consolidated statements of income. The ACL is an estimate that requires significant judgment including projections of the macroeconomic environment as of a point in time. The macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses. The Bank's ACL is measured on a collective ("pool") basis, with loans aggregated into pools based on similar risk characteristics such as collateral type, historical loss experience, loan-to-value ("LTV") ratio for originated one- to four-family loans, and payment sources for commercial loans. Loans that do not share similar risk characteristics are evaluated on an individual basis. Charge-offs against the related ACL amounts for any loan type may be recorded if the Bank has knowledge of the existence of a probable loss. One- to four-family loans and consumer home equity loans are deemed to be collateral dependent and individually evaluated for loss when the loan is generally 180 days delinquent, and any identified losses are charged-off at that time. Losses are based on new collateral values obtained through appraisals, less estimated costs to sell. Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount. If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan. When a non-real estate secured consumer loan is 120 days delinquent, any identified losses are charged-off. Commercial loans are generally individually evaluated for loss during the quarterly special loan review process, or at any time management determines circumstances warrant. In general, commercial loans are individually evaluated for loss if they are rated substandard or below. Loss amounts are calculated using the market value of collateral adjusted for costs to sell compared to the amount due from the borrower, adjusted for any government guaranty there may be on the loan. If the loss amount is calculated and the Bank's commercial loan committee determines the amount is uncollectible, the amount is charged-off. If the loss amount is determined to be collectible, then the amount is reserved as a specific valuation allowance. The determination of whether the 72 loss is collectible or uncollectible is based on current financial information from the borrower, as well as any facts and information of which the Bank may have knowledge. The primary credit risk characteristics inherent in the one- to four-family and consumer loan portfolios are a decline in economic conditions, such as elevated levels of unemployment or underemployment, and declines in residential real estate values. Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, charge-offs, and provisions for credit losses. Although the commercial loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient. Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is typically more limited than that for a residential property. Therefore, the Bank could have to hold the property for an extended period of time, or be forced to sell at a discounted price, resulting in additional losses. Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life. Generally, the historical time periods are at least one economic cycle. These historical loss rates are compared to historical data related to economic indices including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis. Each quarter, the Company's model pairs the results of the regression analysis with an economic forecast of these same economic indices, which is provided by a third party, in order to model probabilities of default ("PDs"). The PDs are then used to generate expected cash flows using segment-specific risk factors and other assumptions to model loss given defaults ("LGDs"). The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to historical loss experience, which is accomplished by reversion to long-term historical averages at the economic index level using a straight-line method. Contractual cash flows are adjusted for expected prepayment speeds and curtailment rates selected by management. The contractual term excludes expected extensions, renewals and modifications. In the case of revolving lines of credit, since the rate of principal reduction is generally at the discretion of the borrower, remaining contractual lives are calculated by estimating future cash flows expected to be received from the borrower until the outstanding balance has been reduced to zero. Using all of these inputs and assumptions, the discounted cash flow methodology generates aggregated estimated cash flows for the time period that remains in each loan's contractual life. These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of estimated future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of estimated future cash flows compared to the amortized cost basis of the loan pool. Additionally, qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs, as deemed appropriate by management's current assessment of risks related to loan portfolio attributes and external factors. Such qualitative factor considerations include changes in the Bank's loan portfolio composition and credit concentrations, changes in the loan 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 in the geographic areas in which the Bank operates, and/or other management considerations to account for credit risks not fully reflected in the discounted cash flow model. Management assesses the potential impact of such items and adjusts the modeled ACL as deemed appropriate based upon the assessment. 73 Reserve for Off-Balance Sheet Credit Exposures - The Company's off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Expected credit losses on these amounts are calculated using the same ACL to loan ratio that is calculated by the ACL model; however, the estimate of credit risk for off-balance sheet credit exposures also takes into consideration the likelihood that funding of the unfunded amount/commitment will occur. The reserve for these off-balance sheet credit exposures is recorded as a liability and is presented in other liabilities on the consolidated balance sheet. Changes to the reserve for off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the consolidated statements of income. Federal Home Loan Bank Stock - As a member of FHLB, the Bank is required to acquire and hold shares of FHLB stock. The Bank's holding requirement varies based on the Bank's activities, primarily the Bank's outstanding borrowings, with FHLB. FHLB stock is carried at cost and is considered a restricted asset because it cannot be pledged as collateral or bought or sold on the open market and because it has certain redemption restrictions. Management conducts a quarterly evaluation to determine if any FHLB stock impairment exists. The quarterly impairment evaluation focuses primarily on the capital adequacy and liquidity of FHLB, while also considering the impact that legislative and regulatory developments may have on FHLB. Stock and cash dividends received on FHLB stock are reflected as dividend income in the consolidated statements of income. Premises, Equipment, and Leases - Land is carried at cost. Buildings, leasehold improvements, and furniture, fixtures and equipment are carried at cost less accumulated depreciation and leasehold amortization. Buildings, furniture, fixtures and equipment are depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the respective leases. The costs for major improvements and renovations are capitalized, while maintenance, repairs and minor improvements are charged to operating expenses as incurred. Gains and losses on dispositions are recorded as non-interest income or non-interest expense as incurred. The Company leases real estate property for branches, ATMs, and certain equipment. The Company determines if an arrangement is a lease at inception and if the lease is an operating lease or a finance lease. Leases that meet any of the following criteria are considered financing leases: (1) the lease transfers ownership of the underlying asset by the end of the lease term; (2) the lease grants the Company an option to purchase the underlying asset that the Company is reasonably certain to exercise; (3) the lease term is the major part of the remaining economic life of the underlying assets; (4) the present value of the sum of the lease payments and any residual value guaranteed by the Company that is not already reflected in the lease payments equals or exceeds substantially all the fair value of the underlying asset; or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A right-of-use asset represents the Company's right to use an underlying asset during the lease term. The calculated amounts of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company cannot practically determine the interest rate implicit in the lease, so the Company's incremental borrowing rate is used as the discount rate for the lease. The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. The right-of-use assets associated with operating leases are recorded in other assets and for finance leases in premises and equipment on the Company's consolidated balance sheet. The lease liabilities associated with operating leases are included in other liabilities and for finance leases in borrowings on the Company's consolidated balance sheets. The period over which a right-of-use asset is amortized is generally the lesser of the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. For facility-related leases, the Company elected, by lease class, to not separate lease and non-lease components. The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Operating lease expense is recognized over the lease term. Variable lease expense primarily represents payments such as common area maintenance, real estate taxes, and utilities and are recognized as expense in the period when those payment 74 obligations are incurred. Short-term lease expense relates to leases with an initial term of 12 months or less. Operating lease expense, variable lease expense and short-term lease expense associated with operating leases are included in occupancy expense in the Company's consolidated statements of income. The Company has elected to not record a right-of-use asset or lease liability for short-term leases. Financing lease right-of-use assets are amortized on a straight-line basis over the lease term and the related expense is reported in occupancy expense in the Company's consolidated statements of income. The lease obligation is increased by the accrual of interest and decreased by subsequent lease payments. Interest expense on finance leases is reported in interest expense on borrowings in the Company's consolidated statements of income. Low Income Housing Partnerships - As part of the Bank's community reinvestment initiatives, the Bank invests in affordable housing limited partnerships ("low income housing partnerships") that make equity investments in affordable housing properties. The Bank is a limited partner in each partnership in which it invests. A separate, unrelated third party is the general partner. The Bank receives affordable housing tax credits and other tax benefits for these investments. Other Assets - Included in other assets on the consolidated balance sheet are the Company's intangible assets, which consist of goodwill, deposit intangibles and other intangibles. Goodwill is assessed for impairment on an annual basis, or more frequently in certain circumstances. The test for impairment is performed by comparing the fair value of the reporting unit with its carrying amount. If the fair value is determined to be less than the carrying amount, an impairment is recorded. The Company's intangible assets primarily relate to core deposits. These intangible assets are amortized based upon the expected economic benefit over an estimated life determined at the time of acquisition and are tested for impairment whenever certain events occur or circumstances change. Interest Rate Swaps - The Company uses interest rate swaps as part of its interest rate risk management strategy to hedge the variable cash outflows associated with certain borrowings. Interest rate swaps are carried at fair value in the Company's consolidated financial statements. For interest rate swaps that are designated and qualify as cash flow hedges, changes in the fair value of such agreements are recorded in AOCI and are subsequently reclassified into interest expense in the period that interest on the borrowings affects earnings. Effectiveness is assessed using regression analysis. At the inception of a hedge, the Company documents certain items, including the relationship between the hedging instrument and the hedged item, the risk management objective and the nature of the risk being hedged, a description of how effectiveness will be measured and an evaluation of hedged transaction effectiveness. Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred income tax expense (benefit) represents the change in deferred income tax assets and liabilities excluding the tax effects of the change in net unrealized gain (loss) on AFS securities and interest rate swaps. Income tax related penalties and interest, if any, are included in income tax expense in the consolidated statements of income. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that management considers it more likely than not that a deferred tax asset will not be recovered, a valuation allowance is recorded. All positive and negative evidence is reviewed in determining how much of a valuation allowance is recognized on a quarterly basis. Accounting Standards Codification ("ASC") Topic 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an uncertain tax position taken, or expected to be taken, in a tax return. Interest and penalties related to unrecognized tax benefits are recognized in income tax expense in the consolidated statements of income. Accrued interest and penalties related to unrecognized tax benefits are included within the related tax liabilities line in the consolidated balance sheet. 75 Employee Stock Ownership Plan - The funds borrowed by the ESOP from the Company to purchase the Company's common stock are being repaid from dividends paid on unallocated ESOP shares and, if necessary, contributions by the Bank. The ESOP shares pledged as collateral are reported as a reduction of stockholders' equity at cost. As ESOP shares are committed to be released from collateral each quarter, the Company records compensation expense based on the average market price of the Company's common stock during the quarter. Additionally, the ESOP shares become outstanding for EPS computations once they are committed to be released. Stock-based Compensation - The Company has share-based plans under which stock options and restricted stock awards have been granted. Compensation expense is recognized over the service period of the share-based payment award. The Company utilizes a fair-value-based measurement method in accounting for the share-based payment transactions. The Company applies the modified prospective method in which compensation cost is recognized over the service period for all awards granted. Trust Asset Management - Assets (other than cash deposits with the Bank) held in fiduciary or agency capacities for customers are not included in the accompanying consolidated balance sheets, since such items are not assets of the Company or its subsidiaries. Revenue Recognition - Non-interest income within the scope of ASC Topic 606 is recognized by the Company when performance obligations, under the terms of the contract, are satisfied. This income is measured as the amount of consideration expected to be received in exchange for the providing of services. The majority of the Company's applicable non-interest income continues to be recognized at the time when services are provided to its customers. See "Note 16. Revenue Recognition" for additional information. Segment Information - As a community-oriented financial institution, substantially all of the Bank's operations involve the delivery of loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing review of these community banking operations, which constitute the Company's only operating segment for financial reporting purposes. Earnings Per Share - Basic EPS is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock (such as stock options) were exercised or resulted in the issuance of common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. Shares issued and shares reacquired during any period are weighted for the portion of the period that they were outstanding. In computing both basic and diluted EPS, the weighted average number of common shares outstanding includes the ESOP shares previously allocated to participants and shares committed to be released for allocation to participants and shares of restricted stock which have vested. ESOP shares that have not been committed to be released are excluded from the computation of basic and diluted EPS. Unvested restricted stock awards contain nonforfeitable rights to dividends and are treated as participating securities in the computation of EPS pursuant to the two-class method. Dividends - Dividends paid are recognized as a reduction to retained earnings. As a result, if the Company is in an accumulated deficit position, a dividend payment will increase the accumulated deficit. 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 and Vintage Disclos ures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables within the scope of 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 credit exposures, and a cumulative effect-adjustment to accumulated deficit of $27 thousand, net of tax. The adjustments are attributable to including TDRs in the ACL model, as of 76 October 1, 2023. The new required disclosures associated with this ASU are included above and in Note 4. Loans Receivable and Allowance for Credit Losses. 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 on 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 fiscal years beginning after December 15, 2023, which is the fiscal year ending September 30, 2025 for the Company, and interim periods within fiscal years beginning after December 15, 2024, which is the quarter ending December 31, 2025 for the Company. 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, starting with its Form 10-Q for the quarter ending December 31, 2025. The Company is currently evaluating the effect this ASU will have on the Company's income tax disclosures. In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements . This ASU removes references to various Concept Statements to simplify the Codification and provide a distinction between authoritative and nonauthoritative literature. This ASU is effective for the Company on October 1, 2025. The Company is currently evaluating this ASU, but it is not expected to have a significant impact on the Company's consolidated financial condition or results of operation, or the Company's disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures . This ASU requires additional expense disclosures by public entities in the notes to the financial statements. The ASU outlines the specific costs that are required to be disclosed which include such costs as: purchases of inventory, employee compensation, depreciation, intangible asset amortization, selling costs, and depreciation, depletion, and amortization related to oil and gas production. It also requires qualitative descriptions of the amounts remaining in the relevant expense income statement captions that are not separately disaggregated quantitatively in the notes to the financial statements and the entity's definition of selling expenses. The disclosures are required for each interim and annual reporting period. The ASU is effective for fiscal years beginning after December 15, 2026, which is the fiscal year ending September 30, 2028 for the Company, and interim periods beginning after December 15, 2027, which is the quarter ending December 31, 2027 for the Company. The Company is currently evaluating the effect this ASU will have on the Company's expense disclosures in the notes to the consolidated financial statements. 77 2. EARNINGS PER SHARE Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security. 2024 2023 2022 (Dollars in thousands, except per share amounts) Net income $ 38,010 $ ( 101,659 ) $ 84,453 Income allocated to participating securities ( 33 ) 51 ( 45 ) Net income available to common stockholders $ 37,977 $ ( 101,608 ) $ 84,408 Total basic average common shares outstanding 130,670,780 133,556,864 135,700,447 Effect of dilutive stock options — — — Total diluted average common shares outstanding 130,670,780 133,556,864 135,700,447 Net EPS: Basic $ 0.29 $ ( 0.76 ) $ 0.62 Diluted $ 0.29 $ ( 0.76 ) $ 0.62 Antidilutive stock options, excluded from the diluted average common shares outstanding calculation 326,308 369,421 516,603 3. SECURITIES The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of our AFS securities at both dates presented were government guaranteed or issued by a GSE. September 30, 2024 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 756,775 $ 26,885 $ 87 $ 783,573 GSE debentures 69,077 228 — 69,305 Corporate bonds 4,000 — 612 3,388 $ 829,852 $ 27,113 $ 699 $ 856,266 78 September 30, 2023 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (Dollars in thousands) MBS $ 901,440 $ 113 $ 819 $ 900,734 GSE debentures 479,610 — 182 479,428 Corporate bonds 4,000 — 622 3,378 Municipal bonds 942 — — 942 $ 1,385,992 $ 113 $ 1,623 $ 1,384,482 At September 30, 2024, there was $ 713.3 million of residential MBS and $ 70.2 million of commercial MBS. At September 30, 2023 all MBS were residential MBS. 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. September 30, 2024 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 10,997 $ 44 $ 2,919 $ 43 Corporate bonds — — 3,388 612 $ 10,997 $ 44 $ 6,307 $ 655 September 30, 2023 Less Than 12 Months Equal to or Greater Than 12 Months Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses (Dollars in thousands) MBS $ 6,179 $ 109 $ 34,555 $ 710 GSE debentures — — 24,818 182 Corporate bonds — — 3,378 622 $ 6,179 $ 109 $ 62,751 $ 1,514 The unrealized losses at September 30, 2024 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 September 30, 2024 as management does not believe any of the securities were impaired due to credit quality reasons. The issuers of these securities continue to make scheduled and timely principal and interest payments, as applicable, under the contractual term of the securities so management believes the entire principal balance will be collected as scheduled. Additionally, management does not have the intent to sell any of the securities, and believes that it is more likely than not that the Company will not be required to sell the securities before the recovery of the remaining amortized cost, which could be at maturity. The fair value is expected to recover as the securities approach their maturity date, if not before, or if market yields decline. 79 The amortized cost and estimated fair value of AFS debt securities as of September 30, 2024, by contractual maturity, are shown below. Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories. Amortized Estimated Cost Fair Value (Dollars in thousands) One year through five years $ 10,000 $ 10,000 Five years through ten years 63,077 62,693 73,077 72,693 MBS 756,775 783,573 $ 829,852 $ 856,266 The following table presents the taxable and non-taxable components of interest income on investment securities for the years presented. For the Year Ended September 30, 2024 2023 2022 (Dollars in thousands) Taxable $ 8,747 $ 3,538 $ 3,234 Non-taxable 2 27 34 $ 8,749 $ 3,565 $ 3,268 The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented. September 30, 2024 2023 (Dollars in thousands) Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings $ 111,281 $ 519,195 Public unit deposits 108,748 178,396 $ 220,029 $ 697,591 At September 30, 2023, management intended to sell securities with an estimated fair value of $ 1.30 billion, therefore an unrealized loss of $ 192.6 million associated with those securities was recognized in the consolidated statement of income for the year ended September 30, 2023 as a net loss from securities transactions. The Bank sold $ 1.30 billion of AFS securities during the current fiscal year. 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. All other dispositions of securities during the current year and prior year periods were the result of principal repayments, calls, or maturities. 80 4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES Loans receivable, net at September 30, 2024 and 2023 is summarized as follows: 2024 2023 (Dollars in thousands) One- to four-family: Originated $ 3,941,952 $ 3,978,837 Correspondent purchased 2,212,587 2,405,911 Bulk purchased 127,161 137,193 Construction 22,970 69,974 Total 6,304,670 6,591,915 Commercial: Commercial real estate 1,191,624 995,788 Commercial and industrial 129,678 112,953 Construction 187,676 178,746 Total 1,508,978 1,287,487 Consumer: Home equity 99,988 95,723 Other 9,615 9,256 Total 109,603 104,979 Total loans receivable 7,923,251 7,984,381 Less: ACL 23,035 23,759 Deferred loan fees/discounts 30,336 31,335 Premiums/deferred costs ( 37,458 ) ( 41,662 ) $ 7,907,338 $ 7,970,949 As of September 30, 2024 and 2023, the Bank serviced loans for others aggregating $ 38.1 million and $ 44.2 million, respectively. Such loans are not included in the accompanying consolidated balance sheets. Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. Loan servicing income includes servicing fees withheld from investors and certain charges collected from borrowers, such as late payment fees. The Bank held borrowers' escrow balances on loans serviced for others of $ 942 thousand and $ 972 thousand as of September 30, 2024 and 2023, respectively. Lending Practices and Underwriting Standards - Originating 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 historically also purchased one- to four-family loans from correspondent lenders, but during the current fiscal year the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future. 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. Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function. The underwriting standards for loans purchased from correspondent lenders were generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis was performed by the Bank's underwriters. The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. 81 The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided. Commercial loans - The Bank's commercial portfolio includes loans that are originated by the Bank or in participation with a lead bank. For commercial participation loans, the Bank performs the same underwriting procedures as if the loan was originated by the Bank. The Bank's commercial loan portfolio has a concentration in commercial real estate and commercial construction loans and a geographic concentration in Kansas, Texas, and Missouri. 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. At the time of origination, 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 DSCR is generally 1.15 x. The Bank generally requires a guaranty on all commercial real estate loans, but for an experienced borrower with a strong DSCR and low LTV ratio, the Bank may allow the guaranty percentage to be reduced, phased out, or originated as a non-recourse loan. For commercial construction loans, LTV ratios generally do not exceed 80 % of the projected appraised value of the property securing the loans and the minimum DSCR is generally 1.15 x, but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers. For construction loans, guaranties are typically required during the period of construction. After construction is complete, for select experienced borrowers that have a strong DSCR and low LTV ratio, the guaranty may be reduced or phased out when the property meets certain performance metrics. Additionally, the Bank generally requires the borrower to contribute equity at the start of a project and prior to any Bank funding. The Bank's commercial and industrial loans are generally made to borrowers and secured by assets located in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by longer-term assets. In general, commercial and industrial loans involve different types of credit risk than commercial real estate loans due to the nature of the loans and the type of collateral securing the loans. As a result of these different complexities, variables and risks, commercial and industrial loans generally require evaluation of different metrics and factors before origination, and require more monitoring and servicing after origination than other types of loans. Management regularly monitors the level of risk in the entire commercial loan portfolio, including concentrations in such factors as geographic locations, collateral types, tenant brand name, borrowing relationships, and lending relationships in the case of participation loans, among other factors. Annual reviews are performed for larger loans and lending relationships. The annual reviews include evaluating updated financials, as well as performing stress tests to measure the ability of the loans to withstand certain stress scenarios such as interest rate increases, revenue decreases and expense increases. 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. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount. Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. See discussion regarding the credit risks for these loan segments in "Note 1. Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans Receivable." These segments are further divided into classes for purposes of providing disaggregated credit quality information about the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family construction loans are included in 82 the originated class and commercial construction loans are included in the commercial real estate class. As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status. Loan Classification - In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any require classification. Loan classifications are defined as follows: • Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the nonaccrual loan categories. • Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable. • Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted. 83 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 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 September 30, 2024 and September 30, 2023, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. September 30, 2024 Revolving Line of 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) One- to four-family: Originated Pass $ 241,765 $ 325,492 $ 578,275 $ 809,643 $ 521,647 $ 1,447,237 $ — $ — $ 3,924,059 Special Mention — 295 1,229 1,982 772 9,565 — — 13,843 Substandard — 658 49 468 1,398 9,571 — — 12,144 Correspondent purchased Pass 798 325,384 482,103 570,970 225,650 623,496 — — 2,228,401 Special Mention — 993 659 658 398 977 — — 3,685 Substandard — — 1,662 265 — 5,130 — — 7,057 Bulk purchased Pass — — — — — 124,076 — — 124,076 Special Mention — — — — — — — — — Substandard — — — — — 3,514 — — 3,514 242,563 652,822 1,063,977 1,383,986 749,865 2,223,566 — — 6,316,779 Commercial: Commercial real estate Pass 326,158 400,649 284,493 135,935 74,174 110,309 23,865 — 1,355,583 Special Mention 12,440 2,543 — — 92 1,094 — — 16,169 Substandard 142 827 — — 647 636 50 — 2,302 Commercial and industrial Pass 46,335 32,112 18,131 8,075 1,350 2,051 20,876 — 128,930 Special Mention 401 — — — — — 12 — 413 Substandard 227 — — — — 82 26 — 335 385,703 436,131 302,624 144,010 76,263 114,172 44,829 — 1,503,732 Consumer: Home equity Pass 7,331 4,377 4,575 1,437 814 2,127 73,020 5,895 99,576 Special Mention — — — — — — 45 281 326 Substandard — 20 — — — 24 120 181 345 Other Pass 4,112 2,737 1,697 385 101 95 346 — 9,473 Special Mention — — — — — — — — — Substandard 80 14 44 — 4 — — — 142 11,523 7,148 6,316 1,822 919 2,246 73,531 6,357 109,862 Total $ 639,789 $ 1,096,101 $ 1,372,917 $ 1,529,818 $ 827,047 $ 2,339,984 $ 118,360 $ 6,357 $ 7,930,373 84 September 30, 2023 Revolving Line of 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) One- to four-family: Originated Pass $ 318,569 $ 597,298 $ 874,518 $ 568,081 $ 251,773 $ 1,398,616 $ — $ — $ 4,008,855 Special Mention — 1,883 1,468 767 1,863 8,067 — — 14,048 Substandard 292 155 221 564 939 7,954 — — 10,125 Correspondent purchased Pass 346,084 517,976 607,968 246,926 62,744 643,520 — — 2,425,218 Special Mention 308 674 1,674 420 357 1,133 — — 4,566 Substandard — — — 564 — 5,402 — — 5,966 Bulk purchased Pass — — — — — 134,464 — — 134,464 Special Mention — — — — — — — — — Substandard — — — — — 3,208 — — 3,208 665,253 1,117,986 1,485,849 817,322 317,676 2,202,364 — — 6,606,450 Commercial: Commercial real estate Pass 403,269 301,164 208,942 81,478 82,027 79,170 10,448 — 1,166,498 Special Mention 2,483 — — — — — — — 2,483 Substandard 67 — — 594 219 255 — — 1,135 Commercial and industrial Pass 30,206 23,166 11,740 3,228 2,693 748 27,104 — 98,885 Special Mention 13,191 — — — — — 699 — 13,890 Substandard — — — 73 — 82 — — 155 449,216 324,330 220,682 85,373 84,939 80,255 38,251 — 1,283,046 Consumer: Home equity Pass 5,501 5,624 1,955 1,069 746 2,224 72,119 6,205 95,443 Special Mention — 46 — — — 21 62 195 324 Substandard — — — — — 15 125 48 188 Other Pass 4,758 2,693 787 338 133 129 412 — 9,250 Special Mention — — — 4 — — — 1 5 Substandard 2 — — — — — — — 2 10,261 8,363 2,742 1,411 879 2,389 72,718 6,449 105,212 Total $ 1,124,730 $ 1,450,679 $ 1,709,273 $ 904,106 $ 403,494 $ 2,285,008 $ 110,969 $ 6,449 $ 7,994,708 85 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 and revolving lines of credit converted to term loans are presented separately, regardless of origination year. September 30, 2024 Revolving Line of 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) One- to four-family: Originated Current $ 241,765 $ 326,211 $ 578,430 $ 811,455 $ 521,550 $ 1,459,500 $ — $ — $ 3,938,911 30-89 — 64 1,074 638 1,666 5,422 — — 8,864 90+/FC — 170 49 — 601 1,451 — — 2,271 Correspondent purchased Current 798 326,377 482,598 571,182 226,048 624,961 — — 2,231,964 30-89 — — 164 446 — 2,479 — — 3,089 90+/FC — — 1,662 265 — 2,163 — — 4,090 Bulk purchased Current — — — — — 125,982 — — 125,982 30-89 — — — — — 69 — — 69 90+/FC — — — — — 1,539 — — 1,539 242,563 652,822 1,063,977 1,383,986 749,865 2,223,566 — — 6,316,779 Commercial: Commercial real estate Current 338,511 403,193 284,493 135,932 74,266 110,448 23,055 — 1,369,898 30-89 229 807 — 3 — 1,094 860 — 2,993 90+/FC — 19 — — 647 497 — — 1,163 Commercial and industrial Current 46,736 32,112 17,990 8,052 1,350 2,051 20,914 — 129,205 30-89 227 — 141 23 — — — — 391 90+/FC — — — — — 82 — — 82 385,703 436,131 302,624 144,010 76,263 114,172 44,829 — 1,503,732 Consumer: Home equity Current 7,331 4,378 4,540 1,437 814 2,133 72,721 6,084 99,438 30-89 — — 35 — — — 349 87 471 90+/FC — 19 — — — 18 115 186 338 Other Current 4,109 2,728 1,641 327 101 95 344 — 9,345 30-89 3 9 100 58 — — 2 — 172 90+/FC 80 14 — — 4 — — — 98 11,523 7,148 6,316 1,822 919 2,246 73,531 6,357 109,862 Total $ 639,789 $ 1,096,101 $ 1,372,917 $ 1,529,818 $ 827,047 $ 2,339,984 $ 118,360 $ 6,357 $ 7,930,373 86 September 30, 2023 Revolving Line of 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) One- to four-family: Originated Current $ 318,211 $ 598,283 $ 875,563 $ 567,975 $ 253,546 $ 1,407,090 $ — $ — $ 4,020,668 30-89 358 898 644 1,437 820 5,960 — — 10,117 90+/FC 292 155 — — 209 1,587 — — 2,243 Correspondent purchased Current 346,084 518,650 608,573 247,346 62,652 643,739 — — 2,427,044 30-89 308 — 1,069 564 449 2,862 — — 5,252 90+/FC — — — — — 3,454 — — 3,454 Bulk purchased Current — — — — — 136,577 — — 136,577 30-89 — — — — — 153 — — 153 90+/FC — — — — — 942 — — 942 665,253 1,117,986 1,485,849 817,322 317,676 2,202,364 — — 6,606,450 Commercial: Commercial real estate Current 404,867 301,164 208,942 81,478 82,027 79,188 10,448 — 1,168,114 30-89 36 — — — — — — — 36 90+/FC 916 — — 594 219 237 — — 1,966 Commercial and industrial Current 43,397 23,166 11,740 3,228 2,690 748 27,684 — 112,653 30-89 — — — — 2 — 57 — 59 90+/FC — — — 73 1 82 62 — 218 449,216 324,330 220,682 85,373 84,939 80,255 38,251 — 1,283,046 Consumer: Home equity Current 5,428 5,631 1,955 990 746 2,195 71,986 6,312 95,243 30-89 73 39 — 79 — 50 239 125 605 90+/FC — — — — — 15 81 11 107 Other Current 4,737 2,613 765 338 132 129 412 — 9,126 30-89 17 80 22 4 1 — — 1 125 90+/FC 6 — — — — — — — 6 10,261 8,363 2,742 1,411 879 2,389 72,718 6,449 105,212 Total $ 1,124,730 $ 1,450,679 $ 1,709,273 $ 904,106 $ 403,494 $ 2,285,008 $ 110,969 $ 6,449 $ 7,994,708 87 Gross Charge-Offs - Since the adoption of ASU 2022-02 on October 1, 2023, the Company has been 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 year ended September 30, 2024. Revolving Lines 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) One- to four-family: Originated $ — $ — $ — $ — $ — $ — $ — $ — $ — Correspondent purchased — — — — — — — — — Bulk purchased — — — — — — — — — — — — — — — — — — Commercial: Commercial real estate 50 — — — — 30 — — 80 Commercial and Industrial — — — — — — — — — 50 — — — — 30 — — 80 Consumer: Home Equity 46 1 — — — — — — 47 Other — 9 15 — — 9 — — 33 46 10 15 — — 9 — — 80 Total $ 96 $ 10 $ 15 $ — $ — $ 39 $ — $ — $ 160 88 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 September 30, 2024 and 2023, all loans 90 or more days delinquent were on nonaccrual status. September 30, 2024 90 or More Days Total Total 30 to 89 Days Delinquent or Delinquent Current Amortized Delinquent in Foreclosure Loans Loans Cost (Dollars in thousands) One- to four-family: Originated $ 8,864 $ 2,271 $ 11,135 $ 3,938,911 $ 3,950,046 Correspondent purchased 3,089 4,090 7,179 2,231,964 2,239,143 Bulk purchased 69 1,539 1,608 125,982 127,590 Commercial: Commercial real estate 2,993 1,163 4,156 1,369,898 1,374,054 Commercial and industrial 391 82 473 129,205 129,678 Consumer: Home equity 471 338 809 99,438 100,247 Other 172 98 270 9,345 9,615 $ 16,049 $ 9,581 $ 25,630 $ 7,904,743 $ 7,930,373 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) One- to four-family: Originated $ 10,117 $ 2,243 $ 12,360 $ 4,020,668 $ 4,033,028 Correspondent purchased 5,252 3,454 8,706 2,427,044 2,435,750 Bulk purchased 153 942 1,095 136,577 137,672 Commercial: Commercial real estate 36 1,966 2,002 1,168,114 1,170,116 Commercial and industrial 59 218 277 112,653 112,930 Consumer: Home equity 605 107 712 95,243 95,955 Other 125 6 131 9,126 9,257 $ 16,347 $ 8,936 $ 25,283 $ 7,969,425 $ 7,994,708 The amortized cost of mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process as of September 30, 2024 and 2023 was $ 1.6 million and $ 2.5 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 $ 55 thousand at September 30, 2024 and $ 219 thousand at September 30, 2023. 89 The following table presents the amortized cost at September 30, 2024 and September 30, 2023, by class, of loans classified as nonaccrual. Nonaccrual loans with no ACL were individually evaluated for loss and any losses have been charged off. 2024 2023 Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans Nonaccrual Loans with No ACL (Dollars in thousands) One- to four-family: Originated $ 2,271 $ 764 $ 2,457 $ 471 Correspondent purchased 4,090 182 3,739 285 Bulk purchased 1,539 812 942 630 Commercial: Commercial real estate 1,495 901 1,984 446 Commercial and industrial 335 335 218 155 Consumer: Home equity 338 — 107 3 Other 98 16 6 — $ 10,166 $ 3,010 $ 9,453 $ 1,990 Loan Modifications - The following table presents the amortized cost basis of loans as of September 30, 2024 that were both experiencing financial difficulties and modified during the year ended September 30, 2024, by class of financing receivable and by type of modification. Also presented in the table is the percentage of the amortized cost basis of loans as of September 30, 2024 that were modified for borrowers experiencing financial difficulties as compared to the amortized cost basis of each class of financing receivable as of September 30, 2024. During the year ended September 30, 2024, there was a $ 50 thousand charge-off related to a commercial real estate loan modified during the year ended September 30, 2024. The Company has not committed to lend additional amounts to borrowers included in these tables. Term Extension, Term Payment Extension Delay, and Total Interest and Interest Class of Principal Rate Payment Term Payment Rate Financing Forgiveness Reduction Delay Extension Delay Reduction Total Receivable (Dollars in thousands) One- to four-family: Originated $ — $ — $ — $ 1,547 $ 6,992 $ — $ 8,539 0.22 % Correspondent — — — 338 1,716 — 2,054 0.09 Bulk purchased — — — — — — — — — — — 1,885 8,708 — 10,593 0.17 Commercial: Commercial real estate — — 8,196 — 192 — 8,388 0.61 Commercial and industrial — — — — 653 12 665 0.51 — — 8,196 — 845 12 9,053 0.60 Consumer loans: Home equity — — 89 — — — 89 0.09 Other — — — — — — — — — — 89 — — — 89 0.08 Total $ — $ — $ 8,285 $ 1,885 $ 9,553 $ 12 $ 19,735 0.25 90 Financial effect of loan modifications - The table below presents the financial effects of loan modifications during the year ended September 30, 2024, including the weighted average term extension, weighted average payment delay, and weighted average interest rate reduction. For the Year Ended September 30, 2024 Term Payment Interest Rate Extension Delays Reduction One- to four-family: Originated 33 months 4 months N/A Correspondent 36 months 4 months N/A Commercial: Commercial real estate 24 months 6 months N/A Commercial and industrial 6 months 6 months 0.50 % Consumer home equity N/A 7 months N/A Performance of loan modifications - The following table provides information about the subsequent performance during the year ended September 30, 2024 of loans modified for borrowers experiencing financial difficulty. For the Year Ended September 30, 2024 30 to 89 Days Delinquent 90 or More Days Delinquent or in Foreclosure Total Delinquent Loans Current Loans Total Amortized Cost (Dollars in thousands) One- to four-family: Originated $ 1,800 $ 720 $ 2,520 $ 6,019 $ 8,539 Correspondent 284 425 709 1,345 2,054 Bulk purchased — — — — — Commercial: Commercial real estate 142 50 192 8,196 8,388 Commercial & industrial 227 — 227 438 665 Consumer loans: Home equity — — — 89 89 Other — — — — — $ 2,453 $ 1,195 $ 3,648 $ 16,087 $ 19,735 91 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. The following tables present the amortized cost for the periods presented, prior to restructuring and immediately after restructuring in all loans restructured during the years presented. For the Year Ended September 30, 2023 Number Pre- Post- of Restructured Restructured Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family: Originated 1 $ 110 $ 110 Correspondent purchased 1 282 285 Bulk purchased 1 239 257 Commercial: Commercial real estate — — — Commercial and industrial — — — Consumer: Home equity 1 38 38 Other — — — 4 $ 669 $ 690 For the Year Ended September 30, 2022 Number Pre- Post- of Restructured Restructured Contracts Outstanding Outstanding (Dollars in thousands) One- to four-family: Originated 3 $ 156 $ 156 Correspondent purchased — — — Bulk purchased — — — Commercial: Commercial real estate — — — Commercial and industrial 2 124 124 Consumer: Home equity 1 19 19 Other — — — 6 $ 299 $ 299 92 The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured. For the Years Ended September 30, 2023 September 30, 2022 Number of Amortized Number of Amortized Contracts Cost Contracts Cost (Dollars in thousands) One- to four-family: Originated 1 $ 8 2 $ 697 Correspondent purchased — — — — Bulk purchased — — — — Commercial: Commercial real estate — — — — Commercial and industrial — — — — Consumer: Home equity — — 1 19 Other — — — — 1 $ 8 3 $ 716 Allowance for Credit Losses - The following table summarizes ACL activity, by loan portfolio segment, for the periods presented. For the Year Ended September 30, 2024 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) 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 — — — — ( 80 ) ( 80 ) ( 160 ) Recoveries 28 — — 28 5 16 49 Provision for credit losses ( 514 ) ( 1,112 ) ( 75 ) ( 1,701 ) 1,047 21 ( 633 ) Ending balance $ 1,666 $ 1,861 $ 146 $ 3,673 $ 19,154 $ 208 $ 23,035 For the Year Ended September 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 — — — — ( 75 ) ( 40 ) ( 115 ) Recoveries 6 — — 6 1 2 9 Provision for credit losses 77 238 1 316 7,134 44 7,494 Ending balance $ 2,149 $ 2,972 $ 207 $ 5,328 $ 18,180 $ 251 $ 23,759 93 For the Year Ended September 30, 2022 One- to Four-Family Correspondent Bulk Originated Purchased Purchased Total Commercial Consumer Total (Dollars in thousands) Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823 Charge-offs ( 9 ) — — ( 9 ) ( 40 ) ( 21 ) ( 70 ) Recoveries 138 — — 138 101 17 256 Provision for credit losses 325 672 ( 98 ) 899 ( 4,593 ) 56 ( 3,638 ) Ending balance $ 2,066 $ 2,734 $ 206 $ 5,006 $ 11,120 $ 245 $ 16,371 The key assumptions in the Company's ACL model at September 30, 2024 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 September 30, 2024. The key assumptions utilized in estimating the Company's ACL at September 30, 2024 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 September 30, 2024. The forecasted economic indices applied to the model at September 30, 2024 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 September 30, 2024 was the national unemployment rate. The forecasted national unemployment rate in the economic scenario selected by management at September 30, 2024 had the national unemployment rate gradually increasing to 4.1 % by September 30, 2025, 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 September 30, 2024. • Prepayment and curtailment assumptions - The assumptions used at September 30, 2024 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 - Management applied qualitative factors at September 30, 2024 to account for large dollar commercial loan concentrations and potential downside market risk with the recent housing price appreciation related to one-to four-family loans. These qualitative factors were applied to account for credit risks not fully reflected in the discounted cash flow model. ◦ The Company's commercial real estate and construction loans generally have low LTV ratios and strong DSCRs which serve as indicators that losses in the commercial real estate and construction loan portfolios might be unlikely; however, because there is uncertainty surrounding the nature, timing and amount of expected losses, management believes that in the event of a realized loss within the large dollar commercial loan pools, the magnitude of such a loss is likely to be significant. The large dollar commercial loan concentration qualitative factor addresses the risk associated with a large dollar relationship deteriorating due to a loss event. As part of its analysis, management considered external data including historical loss information for the industry and commercial real estate price index trending information from a variety of reputable sources to help determine the amount of this qualitative factor. ◦ For one- to four-family loans, management believes there is potential downside market risk with the recent housing price appreciation related to, in particular, newer originations and developed a qualitative factor to account for this risk. To determine the appropriate amount of the one- to four-family loan qualitative factor as of September 30, 2024, management considered external historical home price index trending information, along with the Bank's recent origination/purchase activity, historical loan loss experience and portfolio balance trending, the one-to four-family loan portfolio composition with regard to loan size, and management's knowledge of the Bank's loan portfolio and the one- to four-family lending industry. This qualitative factor replaced the economic uncertainties qualitative factor that was in place at September 30, 2023 and was less than the amount of the economic uncertainty qualitative factor at September 30, 2024 resulting in a decrease in ACL for one- to four-family loans compared to the prior year. 94 Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in the reserve for off-balance sheet credit exposures during the periods indicated. At September 30, 2024 and 2023, the Bank's off-balance sheet credit exposures totaled $ 826.5 million and $ 837.7 million, respectively. The increase in the reserve for off-balance sheet credit exposures during the current year was due to an increase in the balance of commercial off-balance sheet credits along with an increase in the ACL to loan ratio, specifically for commercial construction loans. For the Years Ended September 30, 2024 September 30, 2023 (Dollars in thousands) Beginning balance $ 4,095 $ 4,751 Adoption of ASU 2022-02 16 — Provision for credit losses 1,892 ( 656 ) Ending balance $ 6,003 $ 4,095 5. PREMISES, EQUIPMENT AND LEASES A summary of the net carrying value of premises and equipment at September 30, 2024 and 2023 was as follows: 2024 2023 (Dollars in thousands) Land $ 16,070 $ 16,045 Building and improvements 128,730 123,830 Furniture, fixtures and equipment 54,485 52,364 Total premises and equipment 199,285 192,239 Less accumulated depreciation 107,822 100,708 Premises and equipment, net $ 91,463 $ 91,531 At September 30, 2024, the Company's operating leases had remaining terms that ranged from 0.1 years to 33 years, some of which included the assumed exercise of renewal options that the Company considers to be reasonably certain. A right-of-use asset of $ 8.5 million and $ 11.3 million was included in other assets and a lease liability of $ 8.9 million and $ 11.6 million was included in other liabilities for the Company's operating leases on the consolidated balance sheets, as of September 30, 2024 and September 30, 2023 respectively. As of September 30, 2024, for the Company's operating leases, the weighted average remaining lease term was 24.1 years and the weighted average discount rate was 2.69 %. The following table presents lease expenses and supplemental cash flow information related to the Company's operating leases for the years indicated. For the Year Ended September 30, 2024 2023 2022 (Dollars in thousands) Operating lease expense $ 1,141 $ 1,307 $ 1,397 Variable lease expense 176 189 164 Short-term lease expense 2 41 2 Cash paid for amounts included in the measurement of lease liabilities 1,130 1,211 1,312 The Company entered into finance leases during the current year. The Company's finance leases as of September 30, 2024 had remaining terms that ranged from 3 years to 23 years. A finance lease right-of-use asset of $ 1.0 million was included in premises and equipment, net and a finance lease liability of $ 1.1 million was included in borrowings on the consolidated balance sheets, as of September 30, 2024. As of September 30, 2024, for the Company's finance leases, the weighted average remaining lease term was 20.0 years and the weighted average discount rate was 5.17 %. During the year ended September 30, 2024, amortization expense of finance lease right-of-use assets, interest expense on finance lease liabilities, and cash paid for amounts included in the measurement of finance lease liabilities was $ 59 thousand, $ 53 thousand and $ 73 thousand, respectively. 95 The following table presents future minimum payments, for operating and finance leases with initial or remaining terms in excess of one year as of September 30, 2024: Operating Finance Total (Dollars in thousands) Fiscal year 2025 $ 715 $ 91 $ 806 Fiscal year 2026 648 91 739 Fiscal year 2027 636 91 727 Fiscal year 2028 603 94 697 Fiscal year 2029 435 83 518 Thereafter 9,727 1,386 11,113 Total future minimum lease payments 12,764 1,836 14,600 Amounts representing interest ( 3,842 ) ( 754 ) ( 4,596 ) Present value of net future minimum lease payments $ 8,922 $ 1,082 $ 10,004 6. LOW INCOME HOUSING PARTNERSHIPS The Bank's investment in low income housing partnerships, which is included in other assets in the consolidated balance sheets, was $ 131.4 million and $ 121.8 million at September 30, 2024 and 2023, respectively. The Bank's obligations related to unfunded commitments, which are included in other liabilities in the consolidated balance sheets, were $ 74.3 million and $ 63.6 million at September 30, 2024 and 2023, respectively. The majority of the commitments at September 30, 2024 are projected to be funded through the end of calendar year 2027 . For fiscal years 2024, 2023, and 2022, the net income tax benefit associated with these investments, which consists of proportional amortization expense and affordable housing tax credits and other related tax benefits, was reported in income tax expense in the consolidated statements of income. The amount of proportional amortization expense recognized during fiscal years 2024, 2023 and 2022 was $ 10.4 million , $ 10.1 million and $ 9.3 million , respectively, and the amount of affordable housing tax credits and other related tax benefits was $ 12.6 million , $ 12.4 million and $ 11.6 million , respectively, resulting in a net income tax benefit of $ 2.2 million, $ 2.3 million and $ 2.3 million, respectively. There were no impairment losses during fiscal years 2024, 2023, or 2022 resulting from the forfeiture or ineligibility of tax credits or other circumstances. 96 7. INTANGIBLE ASSETS Changes in the carrying amount of the Company's intangible assets associated with an acquisition in fiscal year 2018, which are included in other assets on the consolidated balance sheet, are presented in the following table. Core Deposit and Goodwill Other Intangibles (Dollars in thousands) Balance at September 30, 2021 $ 9,324 $ 3,961 Less: Amortization — ( 1,372 ) Balance at September 30, 2022 9,324 2,589 Less: Amortization — ( 1,069 ) Balance at September 30, 2023 9,324 1,520 Less: Amortization — ( 774 ) Balance at September 30, 2024 $ 9,324 $ 746 As of September 30, 2024, there was no impairment recorded on goodwill or other intangible assets. The estimated amortization expense for the next five years related to the core deposit and other intangible assets as of September 30, 2024 is presented in the following table (dollars in thousands): 2025 $ 523 2026 223 2027 — 2028 — 2029 — 97 8. DEPOSITS AND BORROWED FUNDS Deposits - Non-interest-bearing deposits totaled $ 549.6 million and $ 558.3 million as of September 30, 2024 and 2023, respectively. Certificates of deposit with a minimum denomination of $250 thousand were $ 516.3 million and $ 521.0 million as of September 30, 2024 and 2023, respectively. Deposits in excess of $250 thousand may not be fully insured by the Federal Deposit Insurance Corporation. Borrowings - Borrowings at September 30, 2024 consisted of $ 2.18 billion in FHLB advances, of which $ 1.98 billion were fixed-rate advances and $ 200.0 million were variable-rate advances, and $ 1.1 million 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"). There were no borrowings against the variable-rate FHLB line of credit at September 30, 2024 or 2023. Additionally, the Bank is authorized to borrow from the FRB of Kansas City's "discount window" but there were no such borrowings at September 30, 2024 or 2023. FHLB advances and BTFP borrowings at September 30, 2024 and 2023 were comprised of the following: 2024 2023 (Dollars in thousands) FHLB advances $ 2,180,656 $ 2,382,828 BTFP borrowings — 500,000 Deferred prepayment penalty - FHLB advances ( 2,173 ) ( 3,703 ) $ 2,178,483 $ 2,879,125 Weighted average contractual interest rate on FHLB advances 3.41 % 3.41 % Weighted average effective interest rate on FHLB advances (1) 3.29 3.06 Weighted average contractual interest rate on BTFP borrowings — 4.70 (1) The effective interest rate includes the net impact of deferred amounts and interest rate swaps related to the adjustable-rate FHLB advances. FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB and certain securities, when necessary. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40 % of a borrowing institution's regulatory total assets without the pre-approval of FHLB senior management. The Bank's borrowing limit approved by FHLB senior management was 50 % as of September 30, 2024 and became 45 % starting November 1, 2024. At September 30, 2024, the ratio of the par value of the Bank's FHLB borrowings to the Bank's Call Report total assets was 23 %. The amount that could be borrowed under the BTFP was based upon the par value of securities pledged as collateral, the term could be up to one year in length, and the borrowings could be prepaid without penalty. Advances could be requested under the BTFP until March 11, 2024. Subsequent to September 30, 2023, the Bank repaid the $ 500.0 million of BTFP borrowings and did not enter into any additional BTFP borrowings after that point in time. At September 30, 2024 and 2023, the Bank had entered into interest rate swap agreements with a total notional amount of $ 200.0 million and $ 365.0 million, respectively, in order to hedge the variable cash flows associated with $ 200.0 million and $ 365.0 million, respectively, of adjustable-rate FHLB advances. At September 30, 2024 and 2023, the interest rate swap agreements had an average remaining term to maturity of 2.3 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 September 30, 2024 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $ 2.1 million and $ 13.0 million, respectively, which was reported in other assets on the consolidated balance sheet. During fiscal year 2024 and 2023, $ 6.1 million and $ 5.6 million, respectively, was reclassified from AOCI as a decrease to interest expense. At September 30, 2024, the Company estimated that $ 1.8 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 98 posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank held cash collateral of $ 2.1 million at September 30, 2024 and $ 14.0 million at September 30, 2023. Periodically, management has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the cost to purchase FHLB stock to meet FHLB stock holding requirements, at the FRB of Kansas City ("leverage strategy"). The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. Leverage strategy borrowings are repaid prior to each quarter end. The leverage strategy was not in place during the current year due to the strategy being unprofitable, but it was in place at points during the prior year. 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. Scheduled Repayment of Borrowed Funds and Maturity of Certificates of Deposit - The following table presents the scheduled repayment of term borrowings, at par, and the maturity of certificates of deposit as of September 30, 2024. With the exception of amortizing FHLB advances, FHLB advances are payable at maturity. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates. At September 30, 2024, the Bank's FHLB advances had maturities ranging from October 2024 to August 2029. Certificates of Deposit Borrowings Amount (Dollars in thousands) 2025 650,000 2,204,587 2026 575,000 515,572 2027 477,500 138,893 2028 310,656 94,600 2029 167,500 11,455 Thereafter — 203 $ 2,180,656 $ 2,965,310 99 9. INCOME TAXES Income tax expense (benefit) for the years ended September 30, 2024, 2023, and 2022 consisted of the following: 2024 2023 2022 (Dollars in thousands) Current: Federal $ 12,153 $ 6,789 $ 17,105 State 394 1,435 3,598 12,547 8,224 20,703 Deferred: Federal 1,316 ( 39,209 ) 1,632 State 2,230 ( 6,311 ) 415 3,546 ( 45,520 ) 2,047 $ 16,093 $ ( 37,296 ) $ 22,750 The Company's effective tax rates were 29.7 %, 26.8 %, and 21.2 % for the years ended September 30, 2024, 2023, and 2022, respectively. The differences between such effective rates and the statutory Federal income tax rate computed on income before income tax expense resulted from the following: 2024 2023 2022 Amount % Amount % Amount % (Dollars in thousands) Federal income tax expense computed at statutory Federal rate $ 11,362 21.0 % $ ( 29,180 ) 21.0 % $ 22,513 21.0 % Increases (decreases) in taxes resulting from: Pre-1988 bad debt recapture 5,406 10.0 — — — — State taxes, net of Federal tax effect 2,497 4.8 ( 5,412 ) 3.9 3,399 3.2 Low income housing tax credits, net ( 2,244 ) ( 4.2 ) ( 2,303 ) 1.6 ( 2,238 ) ( 2.1 ) ESOP related expenses, net ( 448 ) ( 0.8 ) ( 652 ) 0.5 ( 641 ) ( 0.6 ) Other ( 480 ) ( 1.1 ) 251 ( 0.2 ) ( 283 ) ( 0.3 ) $ 16,093 29.7 % $ ( 37,296 ) 26.8 % $ 22,750 21.2 % Pre-1988 bad debt recapture - Prior to the Small Business Job Protection Act (the "1996 Act"), the Bank was permitted to deduct, up to a specified formula limit, a certain percentage of income as bad debts, for which the Bank was not required to establish a deferred tax liability. The difference between actual bad debts and the formula limit bad debt amount ("excess reserves") was recorded in the Bank's retained earnings. As a result of the 1996 Act, savings institutions, like the Bank, were required to use the specific charge-off method in computing bad debts on their tax returns beginning with their 1996 Federal tax returns. The 1996 Act required the recapture of excess reserves over the base year, which was September 30, 1988 for the Bank. The excess reserves established prior to September 30, 1988 are to remain in retained earnings ("pre-1988 bad debt reserves") subject to recapture by the Bank on the occurrence of certain distributions in excess of current earnings and profits accumulated in tax years beginning after December 31, 1951 ("accumulated earnings and profits"). For tax purposes, if current and accumulated earnings and profits are negative, distributions from the Bank to Capitol Federal Financial, Inc. would be deemed to be drawn out of the Bank's pre-1988 bad debt reserve requiring a payment of income tax at the then-current rate by the Bank on the amount of earnings deemed to be removed from the pre-1988 bad debt reserves for such distributions ("pre-1988 bad debt recapture"). 100 The net loss associated with the strategic securities transaction ("securities strategy") that was recognized in fiscal year 2023 net income will be recognized in the Company's fiscal year 2024 income tax return due to the sale of the securities occurring in October 2023 (in fiscal 2024). As a result, the Company will report a taxable net loss on its September 30, 2024 income tax return, resulting in negative current and accumulated earnings and profits for the Bank for the current fiscal year. This required the Bank to draw upon the pre-1988 bad debt reserves for distributions from the Bank to the Company during the current fiscal year and resulted in income tax expense in fiscal year 2024 equivalent to the distributions paid by the Bank times the Bank's current statutory tax rate of 21 %. During the year ended September 30, 2024, the Bank recorded $ 5.4 million of income tax expense related to these distributions. The Bank estimates its pre-1988 bad debt reserves to be $ 75.9 million at September 30, 2024, which equates to an unrecorded deferred tax liability of $ 15.9 million at September 30, 2024. The components of the net deferred income tax assets (liabilities) as of September 30, 2024 and 2023 were as follows: 2024 2023 (Dollars in thousands) Deferred income tax assets: Net operating loss carry forward $ 30,459 $ — Low income housing tax credit carry forward 12,813 — ACL 4,837 4,989 Lease liabilities 2,156 2,835 ESOP compensation 1,522 1,510 Reserve for off-balance sheet credit exposures 1,451 999 Salaries, deferred compensation and employee benefits 1,431 1,269 Net purchase discounts related to acquired loans 116 149 Low income housing partnerships 6 92 Net loss on securities transactions — 47,006 Unrealized loss on AFS securities — 368 Other 829 912 Gross deferred income tax assets 55,620 60,129 Valuation allowance ( 27 ) ( 30 ) Gross deferred income tax asset, net of valuation allowance 55,593 60,099 Deferred income tax liabilities: FHLB stock dividends 18,871 17,547 Unrealized gain on AFS securities 6,382 — ACL 2,741 2,936 Premises and equipment 2,317 3,164 Lease right-of-use assets 2,043 2,748 Unrealized gain on interest rate swaps 508 3,176 Deposit intangible 200 411 Other 553 512 Gross deferred income tax liabilities 33,615 30,494 Net deferred tax assets $ 21,978 $ 29,605 During the year ended September 30, 2024, the Company reversed the $ 47.0 million deferred tax asset as of September 30, 2023 related to the net loss on the securities transaction and recorded a deferred tax asset for the anticipated taxable net loss in the current fiscal year. The deferred tax asset related to the taxable net loss, or net operating loss, was $ 30.5 million at September 30, 2024. The gross federal and state net operating loss amount at September 30, 2024 was $ 126.0 million and will carryforward indefinitely . In addition, the Company recorded a deferred tax asset in the current fiscal year related to its low income housing tax credits that are currently not utilized due to income tax return income limitations. The related deferred tax asset at September 30, 2024 was $ 12.8 million. Federal tax credits carry forward for 20 years. 101 The State of Kansas allows for a bad debt deduction on savings and loan institutions' privilege tax returns of up to 5% of Kansas taxable income. Due to the low level of net loan charge-offs experienced by the Bank historically, at times, the Bank's bad debt deduction on the Kansas privilege tax return has been in excess of actual net charge-offs, resulting in a state deferred tax liability, which is presented separately from the federal deferred tax asset related to ACL. 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 September 30, 2024 and 2023, the Company had a valuation allowance of $ 27 thousand and $ 30 thousand, respectively, related to the net operating losses generated by the Company's consolidated Kansas corporate income tax return as management believes there will not be sufficient taxable income to fully utilize these deferred tax assets before they begin to expire in 2028 and thereafter. For this reason, a valuation allowance was recorded for the related amounts at September 30, 2024 and 2023. No additional valuation allowances were recorded for the Company's other deferred tax assets as management believes 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. For the years ended September 30, 2024, 2023, and 2022 the Company had no unrecognized tax benefits. The Company files income tax returns in the U.S. federal jurisdiction and the state of Kansas, as well as other states where it has either established nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of loan interest income derived from sources within a given state. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by tax authorities for fiscal years ending before 2021 . 10. EMPLOYEE STOCK OWNERSHIP PLAN The ESOP trust acquired 3,024,574 shares ( 6,846,728 shares post-corporate reorganization) of common stock in the Company's initial public offering and 4,726,000 shares of common stock in the Company's corporate reorganization in December 2010. Both acquisitions of common stock were made with proceeds from loans from the Company, secured by shares of the Company's stock purchased in each offering. The Bank has agreed to make cash contributions to the ESOP trust on an annual basis sufficient to enable the ESOP trust to make the required annual loan payments to the Company on September 30 th of each year. The loan for the shares acquired in the initial public offering matured on September 30, 2013 . The loan for the shares acquired in the corporate reorganization matures on September 30, 2040 . As annual loan payments are made on each September 30 th , shares are released from collateral and allocated to qualified employees based on the proportion of their qualifying compensation to total qualifying compensation. On September 30, 2024, 165,198 shares were released from collateral. On September 30, 2025, 165,198 shares will be released from collateral. As ESOP shares are committed to be released from collateral, the Company records compensation expense. Dividends on unallocated ESOP shares are applied to the debt service payments of the loan secured by the unallocated shares. Dividends on unallocated ESOP shares in excess of the debt service payment are recorded as compensation expense and distributed to participants or participants' ESOP accounts. Compensation expense related to the ESOP was $ 927 thousand for the year ended September 30, 2024, $ 1.2 million for the year ended September 30, 2023, and $ 1.7 million for the year ended September 30, 2022. Of these amounts, $ 725 thousand and $ 472 thousand of income, and $ 88 thousand of expense related to the difference between the market price of the Company's common stock when the shares were acquired by the ESOP trust ($10 per share) and the average market price of the Company's common stock during the years ended September 30, 2024, 2023, and 2022, respectively. The market price of the Company's common stock averaged below $10 per share during the years ended September 30, 2024 and 2023, which is why income rather than expense was recognized for market price differences for those years. There was no compensation expense for dividends on unallocated ESOP shares in excess of the debt service payments for the years ended September 30, 2024, 2023, or 2022. 102 Shares may be withdrawn from the ESOP trust due to diversification (a participant may begin to diversify at least 25 % of their ESOP shares at age 50 ), retirement, termination, or death of the participant. The following is a summary of shares held in the ESOP trust as of September 30, 2024 and 2023: 2024 2023 (Dollars in thousands) Allocated ESOP shares 4,239,629 4,223,478 Unreleased ESOP shares 2,643,168 2,808,366 Total ESOP shares 6,882,797 7,031,844 Fair value of unreleased ESOP shares $ 16,401 $ 13,396 11. STOCK-BASED COMPENSATION The Company has a Stock Option Plan, a Restricted Stock Plan, and an Equity Incentive Plan, all of which are considered share-based plans. The Stock Option Plan and Restricted Stock Plan expired in April 2015. No additional grants can be made from these two plans; however, awards granted under these two plans remain outstanding until they are individually vested, forfeited or expire. The objectives of the Equity Incentive Plan are to provide additional compensation to certain officers, directors and key employees by facilitating their acquisition of an equity interest in the Company and enable the Company to retain personnel of experience and ability in key positions of responsibility. Stock Option Plans – There are currently 61,565 stock options outstanding as a result of grants awarded from the Stock Option Plan. The Equity Incentive Plan had 5,907,500 stock options originally eligible to be granted and, as of September 30, 2024, the Company had 4,443,029 stock options still available for future grants under this plan. The Equity Incentive Plan will expire on January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan will remain outstanding until they are individually vested, forfeited, or expire. The Company may issue incentive and nonqualified stock options under the Equity Incentive Plan. The incentive stock options expire no later than 10 years from the date of grant, and the nonqualified stock options expire no later than 15 years from the date of grant. The vesting period of stock options under the Equity Incentive Plan generally has ranged from 3 to 5 years. The stock option exercise price cannot be less than the market value at the date of the grant as defined by each plan. The fair value of stock option grants is estimated on the date of the grant using the Black-Scholes option pricing model. At September 30, 2024, the Company had 316,374 stock options outstanding with a weighted average exercise price of $ 12.48 and a weighted average contractual life of 1.7 years, all of which were exercisable. The exercise price may be paid in cash, shares of common stock, or a combination of both. New shares are issued by the Company upon the exercise of stock options. Restricted Stock Plans – The Equity Incentive Plan had 2,363,000 shares originally eligible to be granted as restricted stock and, as of September 30, 2024, the Company had 1,449,175 shares available for future grants of restricted stock under this plan. As noted above, this plan will expire on January 24, 2027 and no additional grants may be made after expiration, but awards granted under this plan will remain outstanding until they are individually vested or forfeited. The vesting period of the restricted stock awards under the Equity Incentive Plan has generally ranged from 3 to 5 years. At September 30, 2024, the Company had 131,258 unvested shares of restricted stock with a weighted average grant date fair value of $ 6.51 per share. Compensation expense is calculated based on the fair market value of the Company's common stock at the date of the grant, as defined by the plan, and is recognized over the vesting period. Compensation expense attributable to restricted stock awards during the years ended September 30, 2024, 2023, and 2022 totaled $ 348 thousand, $ 327 thousand, and $ 492 thousand, respectively. The fair value of restricted stock that vested during the years ended September 30, 2024, 2023, and 2022 totaled $ 213 thousand, $ 285 thousand, and $ 408 thousand, respectively. As of September 30, 2024, there was $ 682 thousand of unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted average period of 2.9 years. 103 12. COMMITMENTS AND CONTINGENCIES The following table summarizes the Bank's loan commitments as of September 30, 2024 and 2023: 2024 2023 (Dollars in thousands) Originate fixed-rate $ 44,191 $ 44,767 Originate adjustable-rate 130,419 29,343 Purchase/participate fixed-rate 24,500 1,246 Purchase/participate adjustable-rate 38,739 520 $ 237,849 $ 75,876 Commitments to originate loans are commitments to lend to a customer. Commitments to purchase/participate in loans represent commitments to purchase loans from correspondent lenders on a loan-by-loan basis or participate in commercial loans with a lead bank. The Bank evaluates each borrower's creditworthiness on a case-by-case basis. Commitments generally have expiration dates or other termination clauses, and one- to four-family loan commitments may require the payment of a fee. Some of the commitments are expected to expire without being fully drawn upon; therefore, the amount of total commitments disclosed in the table above does not necessarily represent future cash requirements. As of September 30, 2024 and 2023, there were no significant loan-related commitments that met the definition of derivatives or commitments to sell mortgage loans. As of September 30, 2024 and 2023, the Bank had approved but unadvanced lines of credit of $ 278.1 million and $ 293.9 million, respectively. In the normal course of business, the Company and the Bank are named defendants in various lawsuits and counterclaims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits are expected to have a material adverse effect on the Company's consolidated financial statements for the year ended September 30, 2024, or future periods. 13. REGULATORY CAPITAL REQUIREMENTS The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly additional discretionary, actions by regulators that, if undertaken, could have a material adverse effect on the Company's financial statements. Under regulatory capital adequacy guidelines, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Additionally, the Bank must meet specific capital guidelines to be considered well capitalized per the regulatory framework for prompt corrective action. The Company's and Bank's capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors. The Bank and the Company must maintain certain minimum capital ratios as set forth in the table below for capital adequacy purposes. At September 30, 2024, the Bank and Company met the requirements to elect the community bank leverage ratio ("CBLR"). Qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules and to have met the well capitalized ratio requirements. Management believes that as of September 30, 2024, the Bank and Company met all capital adequacy requirements to which they were subject and that there have been no conditions or events subsequent to September 30, 2024 that would have changed this assessment. At September 30, 2023, the Bank did not meet the requirements to elect the CBLR and the Company met the requirements but did not elect the CBLR. Since the Bank did not then meet the CBLR requirements it was required at September 30, 2023 to maintain a capital conservation buffer of 2.50% above certain minimum risk-based capital ratios for capital adequacy purposes in order to be considered well capitalized and to avoid certain restrictions on capital distributions and other payments, including dividends, share repurchases, and certain compensation. The Bank and Company met all capital adequacy requirements as of September 30, 2023 to which they were subject, including the capital conservation buffer. 104 To Be Well Capitalized Under Prompt For Capital Corrective Action Actual Adequacy Purposes Provisions Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) Bank As of September 30, 2024 CBLR $ 874,067 9.2 % $ 853,970 9.0 % N/A N/A As of September 30, 2023 Tier 1 leverage $ 903,969 8.5 % $ 423,358 4.0 % $ 529,197 5.0 % Common Equity Tier 1 ("CET1") capital 903,969 16.0 254,670 4.5 367,856 6.5 Tier 1 capital 903,969 16.0 339,559 6.0 452,746 8.0 Total capital 931,823 16.5 452,746 8.0 565,932 10.0 Company As of September 30, 2024 CBLR $ 957,481 10.1 % $ 853,927 9.0 % N/A N/A As of September 30, 2023 Tier 1 leverage $ 1,024,880 9.7 % $ 423,312 4.0 % N/A N/A CET1 capital 1,024,880 18.1 254,681 4.5 N/A N/A Tier 1 capital 1,024,880 18.1 339,574 6.0 N/A N/A Total capital 1,052,734 18.6 452,766 8.0 N/A N/A Generally, savings institutions, such as the Bank, may make capital distributions during any calendar year equal to the earnings of the previous two calendar years and current year-to-date earnings. It is generally required that the Bank remain well capitalized before and after the proposed distribution. The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank. So long as the Bank continues to remain well capitalized after each capital distribution and operates in a safe and sound manner, it is management's belief that the regulators will continue to allow the Bank to distribute its net income to the Company, although no assurance can be given in this regard. In conjunction with the Company's corporate reorganization in December 2010, a "liquidation account" was established for the benefit of certain depositors of the Bank in an amount equal to Capitol Federal Savings Bank MHC's ownership interest in the retained earnings of Capitol Federal Financial as of June 30, 2010. (Prior to the corporate reorganization, Capitol Federal Financial was the Bank's mid-tier holding company and Capitol Federal Savings Bank MHC, a mutual holding company, owned a majority of the stock of Capitol Federal Financial.) As of September 30, 2024, the balance of this liquidation account was $ 70.9 million. Under applicable federal banking regulations, neither the Company nor the Bank is permitted to pay dividends to its stockholders if stockholders' equity would be reduced below the amount of the liquidation account at that time. 105 14. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair Value Measurements – The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments. The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are: • Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets. • Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. • Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument. The Company bases the fair value of its financial instruments on the price that would be received from the sale of an instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis. AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The 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 years ended September 30, 2024 and 2023. The Company's major security types, based on the nature and risks of the securities, are: • 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. (Level 2) • GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2) • Corporate Bonds and Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2) Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value on the consolidated balance sheet in other assets if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 8. Deposits and Borrowed Funds" for additional information. The estimated fair values of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from the counterparty during the years ended September 30, 2024 and 2023. (Level 2) 106 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 not have any Level 3 financial instruments measured at fair value on a recurring basis at September 30, 2024 or 2023. September 30, 2024 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 783,573 $ — $ 783,573 $ — GSE debentures 69,305 — 69,305 — Corporate bonds 3,388 — 3,388 — 856,266 — 856,266 — Interest rate swaps 2,103 — 2,103 — $ 858,369 $ — $ 858,369 $ — September 30, 2023 Quoted Prices Significant Significant in Active Markets Other Observable Unobservable Carrying for Identical Assets Inputs Inputs Value (Level 1) (Level 2) (Level 3) (Dollars in thousands) Assets: AFS Securities: MBS $ 900,734 $ — $ 900,734 $ — GSE debentures 479,428 — 479,428 — Corporate bonds 3,378 — 3,378 — Municipal bonds 942 — 942 — $ 1,384,482 $ — $ 1,384,482 $ — Interest rate swaps 13,018 — 13,018 — $ 1,397,500 $ — $ 1,397,500 $ — The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis. The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date. Loans Receivable – Collateral dependent assets are assets evaluated on an individual basis. Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis. The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during fiscal years 2024 and 2023 that were still held in the portfolio as of September 30, 2024 and 2023 was $ 8.9 million and $ 4.0 million, respectively. Fair values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3. The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10 %. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal. For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on 107 knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the year ended September 30, 2024 were downward adjustments to the book value of the collateral for lack of marketability. During fiscal year 2024, the adjustments ranged from 5 % to 100 %, with a weighted average of 40 %. During fiscal year 2023, the adjustments ranged from 5 % to 100 %, with a weighted average of 20 %. 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 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 one- to four-family OREO was the appraisal or listing price. The fair value of one- to four-family OREO measured on a non-recurring basis during fiscal year 2024 that was still held in the portfolio as of September 30, 2024 was $ 55 thousand. There was no one- to four-family OREO measured on a non-recurring basis during fiscal year 2023 that was still held in the portfolio as of September 30, 2023. The one- to four-family OREO held at September 30, 2023 was measured during fiscal year 2022. The carrying value of the properties equaled the fair value of the properties at September 30, 2024 and 2023. 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 commercial OREO measured on a non-recurring basis during the years ended September 30, 2024 and 2023. Fair Value Disclosures – The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates. The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows: September 30, 2024 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 217,307 $ 217,307 $ 217,307 $ — $ — AFS securities 856,266 856,266 — 856,266 — Loans receivable 7,907,338 7,660,535 — — 7,660,535 FHLB stock 101,175 101,175 101,175 — — Interest rate swaps 2,103 2,103 — 2,103 — Liabilities: Deposits 6,129,982 6,135,652 3,164,672 2,970,980 — Borrowings 2,179,564 2,169,403 — 2,169,403 — 108 September 30, 2023 Carrying Estimated Fair Value Amount Total Level 1 Level 2 Level 3 (Dollars in thousands) Assets: Cash and cash equivalents $ 245,605 $ 245,605 $ 245,605 $ — $ — AFS securities 1,384,482 1,384,482 — 1,384,482 — Loans receivable 7,970,949 7,358,462 — — 7,358,462 FHLB stock 110,714 110,714 110,714 — — Interest rate swaps 13,018 13,018 — 13,018 — Liabilities: Deposits 6,051,220 6,004,975 3,321,028 2,683,947 — Borrowings 2,879,125 2,802,849 — 2,802,849 — 15. ACCUMULATED OTHER COMPREHENSIVE INCOME The following tables present the changes in the components of AOCI, net of tax, for the years presented. For the Year Ended September 30, 2024 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ ( 1,142 ) $ 9,842 $ 8,700 Other comprehensive income (loss), before reclassifications 22,362 ( 2,135 ) 20,227 Amount reclassified from AOCI, net of taxes of $ 1,967 — ( 6,112 ) ( 6,112 ) Reclassification adjustment on AFS securities included in net income, net of taxes of $ 383 ( 1,188 ) — ( 1,188 ) Other comprehensive income (loss) 21,174 ( 8,247 ) 12,927 Ending balance $ 20,032 $ 1,595 $ 21,627 For the Year Ended September 30, 2023 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ ( 155,119 ) $ 9,486 $ ( 145,633 ) Other comprehensive income, before reclassifications 8,355 5,957 14,312 Amount reclassified from AOCI, net of taxes of $ 1,808 — ( 5,601 ) ( 5,601 ) Reclassification adjustment on AFS securities included in net income, net of taxes of $( 47,000 ) 145,622 — 145,622 Other comprehensive income 153,977 356 154,333 Ending balance $ ( 1,142 ) $ 9,842 $ 8,700 109 For the Year Ended September 30, 2022 Unrealized Unrealized Gains (Losses) Gains (Losses) on AFS on Cash Flow Total Securities Hedges AOCI (Dollars in thousands) Beginning balance $ 4,651 $ ( 20,956 ) $ ( 16,305 ) Other comprehensive income (loss), before reclassifications ( 159,770 ) 25,339 ( 134,431 ) Amount reclassified from AOCI, net of taxes of $( 1,647 ) — 5,103 5,103 Other comprehensive income (loss) ( 159,770 ) 30,442 ( 129,328 ) Ending balance $ ( 155,119 ) $ 9,486 $ ( 145,633 ) 16. REVENUE RECOGNITION Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below. During fiscal years 2024, 2023 and 2022, revenue from contracts with customers totaled $ 15.3 million, $ 17.6 million and $ 18.1 million, respectively. Deposit Service Fees Interchange Transaction Fees - Interchange transaction fee income primarily consists of interchange fees earned on a transactional basis through card payment networks. The performance obligation for these types of transactions is satisfied as services are rendered for each transaction and revenue is recognized daily concurrently with the transaction processing services provided to the cardholder. In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction. The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks; therefore, interchange transaction fee income is reported net of interchange network charges. Interchange network charges totaled $ 4.2 million, $ 4.0 million and $ 3.6 million for fiscal years 2024, 2023 and 2022, respectively. Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance fees and transaction-based fees such as those for overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs. The Company's performance obligation is satisfied over a period of time, generally a month, for account maintenance and at the time of service for transaction-based fees. Revenue is recognized after the performance obligation is satisfied. Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly). Insurance Commissions Commissions are received on insurance product sales. The Company acts in the capacity of an agent between the Company's customer and the insurance carrier. The Company's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective. Additionally, the Company earns performance-based incentives ("contingent insurance commissions") based on certain criteria established by the insurance carriers. Contingent insurance commissions are accrued based upon management's expectations. Other Non-Interest Income Trust Asset Management Income - The Company provides trust asset management services to customers. The Company primarily earns fees for these services over time as the services are provided and the Company assesses fees at each month end. Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month. 110 17. PARENT COMPANY FINANCIAL INFORMATION (PARENT COMPANY ONLY) The Company serves as the holding company for the Bank (see "Note 1. Summary of Significant Accounting Policies"). The Company's (parent company only) balance sheets at the dates presented, and the related statements of income and cash flows for each of the years presented are as follows: BALANCE SHEETS SEPTEMBER 30, 2024 and 2023 (Dollars in thousands, except per share amounts) 2024 2023 ASSETS: Cash and cash equivalents $ 50,110 $ 83,400 Investment in the Bank 948,800 923,143 Note receivable - ESOP 32,731 34,273 Receivable from the Bank — 2,438 Income taxes receivable, net 423 331 Other assets 519 540 TOTAL ASSETS $ 1,032,583 $ 1,044,125 LIABILITIES: Deferred income tax liabilities, net $ 58 $ 60 Payable to the Bank, net 51 — Other liabilities 204 11 Total liabilities 313 71 STOCKHOLDERS' EQUITY: Preferred stock, $ .01 par value; 100,000,000 shares authorized, no shares issued or outstanding — — Common stock, $ .01 par value; 1,400,000,000 shares authorized, 132,735,565 and 135,936,375 shares issued and outstanding as of September 30, 2024 and 2023, respectively 1,327 1,359 Additional paid-in capital 1,146,851 1,166,643 Unearned compensation - ESOP ( 26,431 ) ( 28,083 ) Accumulated deficit ( 111,104 ) ( 104,565 ) AOCI, net of tax 21,627 8,700 Total stockholders' equity 1,032,270 1,044,054 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,032,583 $ 1,044,125 111 STATEMENTS OF INCOME YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands) 2024 2023 2022 INTEREST AND DIVIDEND INCOME: Dividend income from the Bank $ 25,745 $ 86,217 $ 111,745 Interest income from other investments 2,442 2,236 1,484 Total interest and dividend income 28,187 88,453 113,229 NON-INTEREST EXPENSE: Salaries and employee benefits 994 906 843 Regulatory and outside services 382 275 259 Other non-interest expense 697 694 614 Total non-interest expense 2,073 1,875 1,716 INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE AND EQUITY IN UNDISTRIBUTED (EXCESS OF DISTRIBUTION OVER) EARNINGS OF SUBSIDIARY 26,114 86,578 111,513 INCOME TAX (BENEFIT) EXPENSE ( 5 ) 71 ( 49 ) INCOME BEFORE (EXCESS OF DISTRIBUTION OVER)/EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARY 26,119 86,507 111,562 EQUITY IN/(EXCESS OF DISTRIBUTION OVER) UNDISTRIBUTED EARNINGS OF SUBSIDIARY 11,891 ( 188,166 ) ( 27,109 ) NET INCOME (LOSS) $ 38,010 $ ( 101,659 ) $ 84,453 112 STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 2024, 2023, and 2022 (Dollars in thousands) 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 38,010 $ ( 101,659 ) $ 84,453 Adjustments to reconcile net income to net cash provided by operating activities: (Equity in)/Equity in excess of distribution over earnings of subsidiary ( 11,891 ) 188,166 27,109 Depreciation of equipment 23 45 46 Provision for deferred income taxes ( 2 ) ( 12 ) ( 10 ) Changes in: Receivable from/payable to the Bank 2,489 ( 2,519 ) 18,239 Income taxes receivable/payable ( 92 ) 123 13 Other assets ( 11 ) ( 2 ) ( 10 ) Other liabilities 193 11 — Net cash provided by operating activities 28,719 84,153 129,840 CASH FLOWS FROM INVESTING ACTIVITIES: Principal collected on note receivable from ESOP 1,542 1,494 1,446 Net cash provided by investing activities 1,542 1,494 1,446 CASH FLOWS FROM FINANCING ACTIVITIES: Net payment from subsidiary related to restricted stock awards 419 401 269 Cash dividends paid ( 44,522 ) ( 83,172 ) ( 103,131 ) Repurchase of common stock ( 19,448 ) ( 23,453 ) — Net cash used in financing activities ( 63,551 ) ( 106,224 ) ( 102,862 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 33,290 ) ( 20,577 ) 28,424 CASH AND CASH EQUIVALENTS: Beginning of year 83,400 103,977 75,553 End of year $ 50,110 $ 83,400 $ 103,977 113 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.