What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-08-07 · 433 added, 715 removed, 635 unchanged (64% of the section changed)

6 unchanged sentences

• our ability to maintain overhead costs at reasonable levels;

• our ability to originate a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;

• our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;

• our ability to generate a sufficient volume of loans in order to maintain the balance of the portfolio at a level desired by management;

• our ability to invest funds in wholesale or secondary markets at favorable yields;

• our ability to access cost-effective funding and maintain sufficient liquidity;

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

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

• fluctuations in deposit flows;

• transactions or activities that may result in the recapture of base-year, tax basis bad debt reserves;

• transactions or activities that would result in the recapture of base-year, tax basis bad debt reserves;

• the future earnings and capital levels of the Bank, the impact of the pre-1988 bad debt recapture and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the Company's income tax expense and the Company's ability to pay dividends in accordance with its dividend policy and/or repurchase shares;

34 unchanged sentences

Available Information

Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com.

SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.

Critical Accounting Estimates

Our most critical accounting estimates are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements.

These estimates are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions about highly uncertain matters.

Our most critical accounting estimate is our methodology used to determine the ACL and reserve for off-balance sheet credit exposures.

This estimate is important to the presentation of our financial condition and results of operations, involves a high degree of complexity, and requires management to make difficult and subjective judgments that may require assumptions about highly uncertain matters.

The use of different judgments, assumptions, and estimates could affect reported results materially.

These critical accounting estimates and their application are reviewed at least annually by the audit committee of our Board of Directors.

This critical accounting estimate and its application is reviewed at least annually by the audit committee of our Board of Directors.

For a full discussion of our critical accounting estimates, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

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The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.

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

Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities, $192.6 million of which was reflected in the Company's financial statements for the quarter and fiscal year ended September 30, 2023.

The securities strategy was designed to allow the Company to improve its earnings stream going forward, beginning in the current fiscal year, by redeploying most of the proceeds into current market rate securities and to provide liquidity to deleverage the balance sheet utilizing the remaining proceeds.

The Company recognized net income of $15.4 million, or $0.12 per share, for the current year quarter, compared to net income of $2.5 million, or $0.02 per share, for the prior year quarter.

The lower net income in the prior year quarter was primarily a result of the impairment loss on the securities associated with the securities strategy.

See additional discussion regarding the securities strategy in the "Securities Strategy to Improve Earnings" section below.

Excluding the effects of the net loss associated with the securities strategy, EPS would have been $0.10 for the prior year quarter.

The increase in EPS excluding the effects of the net loss associated with the securities strategy was due primarily to higher net interest income in the current year quarter.

The net interest margin increased 15 basis points, from 1.71% for the prior year quarter to 1.86% for the current year quarter, due mainly to higher yields on loans and securities, which outpaced the increase in the cost of deposits, largely in retail certificates of deposit, along with the continued shift of loan balances from the one- to four-family loan portfolio to the higher yielding commercial loan portfolio.

The Company's efficiency ratio was 57.86% for the current year quarter compared to 92.86% for the prior year quarter.

Excluding the net losses from the securities strategy, the efficiency ratio would have been 64.73% for the prior year quarter.

The improvement in the efficiency ratio, excluding the net losses from the securities strategy, was due primarily to higher net interest income and lower non-interest expense in the current year quarter compared to the prior year quarter.

The Company's operating expense ratio (annualized) for the current year quarter was 1.14% compared to 1.18% for the prior year quarter, due mainly to lower non-interest expense in the current year quarter.

The loan portfolio was $7.95 billion at December 31, 2024, a $46.2 million increase from September 30, 2024.

The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current year quarter.

During the current year quarter the commercial portfolio grew by 36.5% on an annualized basis.

Management does not expect that rate of commercial loan growth to continue, but does expect continued growth during the current fiscal year.

Total deposits were $6.21 billion at December 31, 2024, a $76.1 million increase from September 30, 2024.

The increase was primarily in retail savings accounts due to the Bank's high-yield savings account offering, along with an increase in retail checking accounts, partially offset by a decrease in retail certificates of deposit.

Management continued to focus on retaining and growing deposits through its high-yield savings account offering.

Total borrowings were $2.16 billion at December 31, 2024, a $15.8 million decrease from September 30, 2024.

The decrease was due to principal payments made on the Bank's amortizing FHLB advances.

Management estimates that the Bank had $2.91 billion in additional liquidity available at December 31, 2024 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

Stockholders' equity totaled $1.03 billion at December 31, 2024, a decrease of $5.3 million from September 30, 2024.

As of December 31, 2024, the Bank's capital ratios exceeded the well-capitalized requirements.

The Bank's community bank leverage ratio ("CBLR") as of December 31, 2024 was 9.4%.

The Bank's asset quality remains strong, reflected in the continued low level of loan delinquency and charge-off ratios.

At December 31, 2024, loans 30 to 89 days delinquent were 0.40% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans receivable, net.

See "Asset Quality - Delinquent and nonaccrual loans and OREO" below for additional discussion.

During the current year quarter, net recoveries were $7 thousand.

At December 31, 2024, the gap between the Bank's amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.58) billion, or (16.6)% of total assets, compared to $(1.51) billion, or (15.8)% of total assets, at September 30, 2024.

As of December 31, 2024, the Bank exceeded internal policy thresholds for sensitivity to changes in interest rates.

See additional discussion in "Part I, Item 3.

Quantitative and Qualitative Disclosures About Market Risk."

Securities Strategy to Improve Earnings

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

Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities of $192.6 million which was reflected in the Company's financial statements for the quarter and fiscal year ended September 30, 2023.

The securities strategy allowed the Company to improve its earnings stream going forward, beginning in the quarter ended December 31, 2023, by redeploying most of the proceeds into then current market rate securities and to provide liquidity to deleverage the balance sheet utilizing the remaining proceeds.

During the quarter ended December 31, 2023, the Company completed the sale of securities and recognized $13.3 million ($10.0 million net of tax), or $0.08 per share, of additional loss related to the sale of the securities.

See additional information regarding the impact of the securities strategy on our financial measurements in "Comparison of Operating Results for the Nine Months Ended June 30, 2024 and June 30, 2023 - Average Balance Sheet" below.

See additional information regarding the impact of the securities strategy on our financial measurements in "Average Balance Sheets" below.

The $1.30 billion of securities sold had a weighted average yield of 1.22% and an average duration of 3.6 years.

With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a cost of 4.70%, and deposited the remaining cash with the FRB earning interest

at the reserve balance rate, pending its use to fund commercial activity or other Bank operations.

See additional discussion related to commercial loan activity in the "Financial Condition" and "Financial Condition - Loans Receivable" sections below.

The Company recognized net income of $26.0 million, or $0.20 per share, for the current year period, compared to net income of $38.7 million, or $0.29 per share, for the prior year period.

The lower net income for the current year period was primarily a result of the $10.0 million (net of tax) of net losses associated with the securities strategy, a decrease in deposit service fees, a decrease in net interest income, and an increase in income tax expense largely related to the pre-1988 bad debt recapture, partially offset by a lower provision for credit losses and a decrease in non-interest expense.

Excluding the effects of the net loss associated with the securities strategy, EPS would have been $0.28 for the current year period.

The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.02 per share in the current year period.

See additional discussion related to the pre-1988 bad debt recapture in the "Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024" section below.

Periodically at management's discretion, we have utilized a 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 (the "leverage strategy").

See additional information regarding the leverage strategy in the "Financial Condition - Borrowings" section below.

When the leverage strategy is in place, it increases assets and liabilities and reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.

The net interest margin increased 27 basis points, from 1.50% for the prior year period to 1.77% for the current year period, due primarily to the leverage strategy being in place during the prior year period but not in place during the current year period.

The leverage strategy negatively impacted the net interest margin for the prior year period by 16 basis points.

The remaining improvement in the net interest margin absent the leverage strategy when compared to the prior year period, was due to higher yields on securities and loans which outpaced the increase in the cost of deposits, largely in retail certificates of deposit.

The Company's efficiency ratio was 69.77% for the current year period compared to 61.78% for the prior year period.

Excluding the net loss from the securities strategy, the efficiency ratio would have been 62.87% for the current year period.

The change in the efficiency ratio, excluding the securities strategy, was due primarily to lower non-interest income in the current year period compared to the prior year period.

The Company's operating expense ratio (annualized) for the current year period was 1.18% compared to 1.03% for the prior year period, due mainly to lower average assets in the current year period.

The leverage strategy was in place at times during the prior year period, which increased assets, but was not in place during the current year period.

Total assets were $9.60 billion at June 30, 2024, a $574.7 million decrease from September 30, 2023, due primarily to the securities strategy.

The loan portfolio was $7.93 billion at June 30, 2024, a $37.9 million decrease from September 30, 2023, due mainly to a $214.4 million decrease in one- to four-family loans, partially offset by a $177.9 million increase in commercial loans.

As a result of rising interest rates and lack of housing inventory, there has been a slowdown in the housing market which has reduced the demand for residential loans and directly impacted the Bank's one- to four-family loan portfolio.

Origination and refinance activity has slowed considerably, and there has been a reduction in one- to four-family loan balances through scheduled repayments and loan payoffs.

Additionally, during the current quarter, the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future.

Management expects the Bank's one- to four-family loan portfolio will continue to decrease as cash flows generated from the one- to four-family portfolio are used to fund commercial loan growth.

Total deposits were $6.13 billion at June 30, 2024, an increase of $78.4 million from September 30, 2023.

The increase in deposits was primarily in retail certificates of deposit, all in the 14 months or shorter term category, partially offset by a decrease in retail money market accounts as some customers elected to move funds to the Bank's certificate of deposit offerings or the Bank's higher yielding savings account offering.

Management continues to competitively price certain short-term retail certificate of deposit products so that if market rates were to decrease in the near future, the Bank would be able to more quickly reprice those balances to lower market rates at maturity.

Total borrowings were $2.29 billion at June 30, 2024, a decrease of $587.5 million from September 30, 2023.

The decrease was due primarily to $500.0 million of borrowings under the BTFP that were paid off during the quarter ended December 31, 2023 in conjunction with the securities strategy.

Management estimates that the Bank had $3.00 billion in additional liquidity available at June 30, 2024, based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

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

At June 30, 2024, loans 30 to 89 days delinquent were 0.21% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.11% of total loans receivable, net.

During the current year period, net charge-offs ("NCOs") were $58 thousand.

At June 30, 2024, the gap between the amount of the Bank's interest-earning assets and its interest-bearing liabilities projected to reprice within one year was $(1.40) billion, or (14.6)% of total assets, compared to $(1.19) billion, or (11.7)% of total assets, at

September 30, 2023.

The change in the one-year gap amount was due to a net increase in the amount of liability cash flows coming due in one year, partially offset by an increase in the amount of interest-earning asset cash flows coming due in one year as of June 30, 2024, compared to September 30, 2023.

The net increase in liability cash flows coming due in one year primarily related to the Bank's retail certificate of deposit portfolio, partially offset by a decrease in borrowings coming due in one year as the Bank repaid its BTFP amount outstanding in conjunction with the securities strategy.

The increase in the one-year cash flow for retail certificates of deposit was due to the Bank continuing to offer higher rates on shorter-term certificates of deposit.

The increase in interest-earning assets projected to mature or reprice within one year was due primarily to an increase in the amount of loans expected to mature or reprice, as well as to an increase in the balance of cash between periods.

The Bank's Digital Transformation and Business Initiatives

With the implementation of our new core system and its ancillary systems ("digital transformation") in August 2023, we improved our internal and customer-facing technology.

The digital transformation implemented technology needed to enhance our customers' experience, deepen our wallet share with existing customers, and attract new customers.

In addition to the technology improvements, management has adjusted staffing in several areas to align with the Bank's strategy to grow and enhance commercial banking and lending.

Pairing improved technology, products and services with the right organizational structure has provided benefits in each customer segment:

consumer, small business and commercial.

The Bank has gained immediate traction with the new and improved True Blue Online ("TBO"), the Bank's digital banking platform for consumers and small businesses.

Those gains include:

a Mobile app store ratings have improved by over 100% for Android year-over-year and approximately 25% for iOS since the digital transformation,

b Volume of deposit accounts opened online through the digital channel is 60% higher in the current fiscal year compared to the prior fiscal year,

c Over 27,000 new users of our credit score service in TBO since August 2023, and

d Continued growth in person-to-person payment volume following the integration of Zelle into TBO:

i Settlement volume is up 37% quarter over quarter and 97% compared to the same quarter in 2023, and

ii Transaction volume is up 32% quarter over quarter and 121% compared to the same quarter in 2023.

During the current quarter, we continued to improve our consumer banking products and services, leveraging technology from the digital transformation.

We are now accepting credits from two instant payment networks:

RTP® and FedNow®, enabling our deposit customers to receive credits in seconds.

Our small business customers now have access to improved digital services, and management has realigned staffing to focus on growing small business banking.

We are in the process of adding more small business services into TBO to continue deposit and fee income growth in this area.

For commercial banking, alignment of technology, people, products and services is crucial to our objective of capturing complete banking relationships as we continue to strategically grow this business.

The technology implemented with the digital transformation provides more flexibility for structuring commercial loan transactions and has allowed us to build digital banking services to meet our customers' deposit and payment requirements to grow deposit and treasury management fee income.

During the current quarter several new treasury management services were added in response to the needs of customers in the sales pipeline.

With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a weighted average cost of 4.70%, and held the remaining cash at the FRB of Kansas City earning interest at the reserve balance rate until such time as it could be used to fund commercial activity or for other Bank operations.

Strategic Banking Initiatives

Management continues to focus on strategically growing commercial banking through the alignment of technology, people, products and services.

We believe we will be successful in this initiative as we are focusing on the financial needs of growing companies and small and middle-market businesses and pairing these companies with experienced relationship managers who offer a broad range of customized services, digital platforms and sophisticated cash management tools tailored to their businesses.

Leveraging our new technology and organizational structure to quickly respond to customer needs in the sales pipeline is central to our growth strategy for commercial deposits.

Management has continued to adjust staffing in numerous areas of the Bank, including deposit operations, lending, and commercial banking, to ensure resources are aligned with our priorities and strategies.

Commercial loan growth will continue to be driven by prospecting, maintaining and expanding current relationships.

Strong credit quality remains a priority for the Bank as it grows commercial lending.

During the second quarter of fiscal year 2025, we intend to implement and begin utilizing commercial loan pricing and profitability software which is expected to provide consistent pricing and profitability based on the full customer banking relationship.

The software is also expected to provide market insight regarding competitor pricing to assist loan officers when preparing a loan offering for a customer.

We continue to see small business banking as an opportunity for deposit and loan growth.

In the second quarter of fiscal year 2025, we plan to launch new checking products and digital banking services for small businesses.

Additionally, we have hired a team of bankers focused on the deposit and loan needs of small businesses in our area.

In retail banking, the Bank continues investing in digital banking as part of our strategy to attract and retain deposits, including a new deposit account onboarding platform implemented in November 2024 and digital banking enhancements for debit cardholders projected to be implemented in the fourth quarter of fiscal year 2025.

Financial Condition

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

Annualized Annualized

June 30, March 31, Percent September 30, Percent

2024 2024 Change 2023 Change

December 31, September 30, Percent

2024 2024 Change

(Dollars and shares in thousands)

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Average number of diluted shares outstanding 129,973 129,918 0.2

During the current quarter, total assets decreased $118.5 million, to $9.60 billion at June 30, 2024, due primarily to a decrease in cash which was used to pay off certain borrowings that matured and to fund deposit withdrawals and other Bank operations.

The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current quarter, with $115.4 million in commercial loan growth (34% annualized), partially offset by a $59.9 million decrease in one- to four-family loans due primarily to a $52.1 million decrease in one- to four-family correspondent loans.

Total liabilities were $8.58 billion at June 30, 2024, a decrease of $114.3 million from March 31, 2024, due primarily to a $59.4 million decrease in borrowings as not all maturing FHLB borrowings were replaced.

Total deposits were $6.13 billion at June 30, 2024, a $12.1 million decrease from March 31, 2024.

The decrease was primarily in retail money market and checking accounts, partially offset by an increase in retail certificates of deposit in terms of 14 months or less and the high yield savings account.

Loans receivable, net increased $46.2 million during the current year quarter.

The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current year quarter, with $137.5 million in commercial loan growth, partially offset by a $90.8 million reduction in one- to four-family loans due primarily to decreases of $48.7 million and $34.1 million in one- to four-family correspondent loans and one- to four-family originated loans, respectively.

As a result of continued high interest rates and lack of housing inventory which has reduced housing market transactions, our single-family origination and refinance activity has slowed considerably, and there has been a reduction in one- to four-family loan balances through scheduled repayments and loan payoffs.

Additionally, the Bank suspended its one- to four-family correspondent lending channels during fiscal year 2024 for the foreseeable future.

Management expects the Bank's one- to four-family originated loan portfolio will decrease as the affordability of housing remains challenging and there is limited supply of homes for sale.

Cash flows generated from the one- to four-family portfolio are currently being used to fund commercial loan growth.

Deposits increased $76.1 million during the current quarter, primarily in retail savings accounts due to the Bank's high-yield savings account offering and retail checking accounts, partially offset by a decrease in retail certificates of deposit.

Management has continued to focus on retaining and growing deposits through its high-yield savings account, which had an annual percentage yield of 4.30% for balances over $10 thousand as of December 31, 2024.

The high-yield savings account balance was $171.7 million as of December 31, 2024 compared to $96.2 million and $520 thousand as of September 30, 2024 and December 31, 2023, respectively.

Loans Receivable.

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

June 30, 2024 March 31, 2024 September 30, 2023

December 31, 2024 September 30, 2024 December 31, 2023

Amount Rate Amount Rate Amount Rate

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

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2024 June 30, 2023

Amount Rate Amount Rate Amount Rate

For the Three Months Ended

December 31, 2024 December 31, 2023

Amount Rate Amount Rate

(Dollars in thousands)

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Repayments (248,760) (210,611)

Principal (charge-offs)/recoveries, net (57) (58) (26)

Principal recoveries/ (charge-offs), net 7 (1)

Other — (225)

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Loan originations, purchases/participations, and refinances are reported together.

For the Nine Months Ended

June 30, 2024 June 30, 2023

For the Three Months Ended

December 31, 2024 December 31, 2023

Amount Rate % of Total Amount Rate % of Total

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Total purchased/participation loans $ 69,790 7.21 $ 3,497 5.91

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average LTV ratio, and average balance per loan as of June 30, 2024.

Credit scores were updated in September 2024 from a nationally recognized consumer rating agency.

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$ 6,213,850 100.0 % 3.58 770 60 214

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

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2024

Credit Credit

Amount Rate LTV Score Amount Rate LTV Score

The following table presents origination activity in our one- to four-family loan portfolio, excluding endorsement activity, along with the weighted average rate, weighted average LTV and weighted average credit score for the three months ended December 31, 2024.

Amount Rate LTV Score

(Dollars in thousands)

Originated $ 101,341 6.44 % 75 % 770 $ 212,689 6.53 % 74 % 769

Correspondent purchased — — — — 3,497 5.91 70 765

$ 81,545 5.95 % 73 % 766

As of June 30, 2024, the Bank had one- to four-family loan origination and refinance commitments of $58.6 million at a weighted average rate of 6.57%.

There were no one- to four-family correspondent loan purchase commitments at June 30, 2024, as during the current quarter the Bank suspended purchasing one- to four-family loans from correspondent lenders for the foreseeable future.

Commercial Loans - During the nine months ended June 30, 2024, the Bank originated and entered into commercial loan participations totaling $290.1 million, including $135.4 million in commercial construction loans, $87.5 million in commercial real estate loans, and $67.2 million in commercial and industrial loans.

During that period, the Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $241.0 million at a weighted average rate of 6.42%, which included $194.3 million, $29.5 million, and $17.2 million of disbursements on new and existing commercial construction, commercial real estate, and commercial and industrial loans, respectively.

As of June 30, 2024, March 31, 2024, and September 30, 2023, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $169.0 million, $164.8 million and $158.5 million, respectively, and commitments totaled $1.1 million, $2.9 million and $2.6 million, respectively.

Of the $169.0 million outstanding at June 30, 2024, $76.9 million, or 46%, of the portfolio related to working capital loans, $45.0 million, or 27%, related to financing/leasing/purchasing vehicles and equipment, and $38.5 million, or 23%, related to purchasing/refinancing business and/or assets.

The following table presents the amount and weighted average rate of one- to four-family loan origination and refinance commitments as of December 31, 2024.

(Dollars in thousands)

$ 42,023 6.47 %

Commercial Loans - The table below presents commercial loan origination and purchase activity during the three months ended December 31, 2024.

Originated Participation Total

Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

Commercial real estate $ 120,745 6.79 % $ 26,804 7.04 % $ 147,549 6.84 %

Commercial and industrial 26,686 7.41 — — 26,686 7.41

Commercial construction 24,055 7.77 42,986 7.31 67,041 7.47

$ 171,486 7.02 $ 69,790 7.21 $ 241,276 7.08

The following table presents commercial loan disbursements, excluding lines of credit, during the three months ended December 31, 2024.

(Dollars in thousands)

Commercial real estate $ 147,268 6.61 %

Commercial and industrial 10,200 7.33

Commercial construction 46,968 6.24

$ 204,436 6.56

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated.

As of June 30, 2024, the Bank had six commercial real estate and commercial construction loan commitments, totaling $59.1 million, at a weighted average rate of 7.57%.

As of December 31, 2024, the Bank had five commercial real estate and commercial construction loan commitments, totaling $53.7 million, at a weighted average rate of 7.32%.

We anticipate fully funding the majority of the undisbursed amounts as most are not cancellable by the Bank.

Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of June 30, 2024, management anticipates funding approximately $98 million during the September 2024 quarter, $70 million during the December 2024 quarter, $66 million during the March 2025 quarter, and $128 million during the June 2025 quarter or later.

At June 30, 2024, the unpaid principal balance of non-owner occupied commercial real estate loans was $828.6 million and the unpaid principal balance of owner occupied commercial real estate loans was $144.6 million, which are included in the table below.

June 30, 2024 March 31, 2024 September 30, 2023

Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of December 31, 2024, management anticipates funding approximately $87.5 million during the March 2025 quarter, $91.4 million during the June 2025 quarter, $73.8 million during the September 2025 quarter, and $94.3 million during the December 2025 quarter or later.

At December 31, 2024, the unpaid principal balance of non-owner occupied commercial real estate loans was $1.02 billion and the unpaid principal balance of owner occupied commercial real estate loans was $166.1 million, which are included in the table below.

December 31, 2024 September 30, 2024 December 31, 2023

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

1 unchanged sentence

(Dollars in thousands)

Hotel 23 $ 387,305 $ 45,342 $ 432,647 $ 323,396 $ 231,987

Multi-family 37 206,681 179,660 386,341 359,707 302,908

Retail building 139 268,734 58,744 327,478 342,713 352,499

Senior housing 37 342,049 3,763 345,812 332,334 330,077

Hotel 17 282,176 22,046 304,222 245,336 233,012

Retail building 134 273,496 62,639 336,135 316,261 349,028

Office building 78 127,738 672 128,410 127,961 129,348

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The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.

June 30, 2024 March 31, 2024 September 30, 2023

December 31, 2024 September 30, 2024 December 31, 2023

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

4 unchanged sentences

Missouri 132 259,886 45,949 305,835 313,146 326,593

California 3 80,569 882 81,451 15,040 —

Colorado 10 46,060 14,745 60,805 50,017 49,428

New York 1 60,000 — 60,000 60,000 —

Tennessee 1 33,397 946 34,343 34,520 42,136

Arkansas 4 33,181 253 33,434 33,529 33,046

Nebraska 8 32,262 27,144 59,406 32,422 37,799

Tennessee 3 37,840 2,942 40,782 35,973 39,569

Other 26 118,397 47,458 165,855 95,081 77,025

769 $ 1,515,226 $ 298,353 $ 1,813,579 $ 1,663,182 $ 1,540,995

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by aggregate gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount and average loan amount, as of June 30, 2024.

For loans over $50.0 million, $143.1 million were multi-family loans located in Kansas and Missouri, $116.0 million related to hotels in New York and Texas, and $60.0 million related to an office building in Texas.

The current weighted average LTV based on the total projected disbursed loan amounts and the weighted average actual/projected DSCR for loans over $50 million was 57% and 1.37x respectively, as of June 30, 2024.

Count Amount Amount

The following table presents the Bank's commercial real estate and commercial construction loans by unpaid principal balance, aggregated by type of primary collateral and state, along with weighted average LTV ratio and weighted average DSCR as of December 31, 2024.

The LTV ratio is calculated using the gross loan amount (composed of unpaid principal and undisbursed amounts) as of December 31, 2024 and the most current collateral value available, which is most often the value at origination/purchase.

For existing real estate, the "as is" value is used.

If the property is to be constructed, the "as completed" value of the collateral is utilized.

The DSCR is calculated based on historical borrower performance, or projected borrower performance for newly formed entities with no performance history.

The DSCR presented in the table below is based on the DSCR at the time of origination unless an updated DSCR has been calculated at the time of subsequent loan renewals or reviews of borrower financials.

Weighted Weighted

Kansas Texas Missouri California Other Total LTV DSCR

(Dollars in thousands)

Greater than $50 million 5 $ 319,146 $ 63,829

Hotel $ 42,272 $ 140,576 $ 9,596 $ 77,601 $ 117,260 $ 387,305 54.8 % 1.58x

Senior housing 176,266 — 109,431 — 56,352 342,049 70.8 1.48

Retail building 86,884 69,651 49,011 — 67,950 273,496 63.0 1.91

Multi-family 122,647 17,926 45,481 — 20,627 206,681 64.3 1.24

Office building 58,079 60,467 8,844 — 348 127,738 52.0 2.69

Other 104,543 901 37,523 2,968 32,022 177,957 59.0 2.99

$ 590,691 $ 289,521 $ 259,886 $ 80,569 $ 294,559 $ 1,515,226 61.4 1.83

Weighted LTV 64.3 % 55.1 % 66.6 % 48.6 % 61.0 % 61.4 %

Weighted DSCR 1.96x 1.51x 2.10x 2.08x 1.58x 1.83x

For loans and commitments over $50.0 million, $181.8 million related to hotels in California, New York, and Texas, $143.1 million related to multi-family properties located in Kansas, and $60.0 million related to an office building in Texas.

Average Weighted Weighted

Count Amount Amount LTV DSCR

(Dollars in thousands)

Greater than $50 million 6 $ 384,910 $ 64,152 55.9 % 1.49x

>$30 to $50 million 6 210,870 35,145 65.9 1.41

6 unchanged sentences

774 $ 1,867,328 $ 2,413 62.3 1.75

The following table summarizes the Bank's commercial and industrial loans by loan purpose as of the dates indicated.

As of December 31, 2024, the Bank also had two commercial and industrial loan commitments totaling $981 thousand, at a weighted average rate of 7.95%.

December 31, 2024 September 30,

2024 December 31,

Unpaid Undisbursed Gross Loan Gross Loan Gross Loan

Count Principal Amount Amount Amount Amount

(Dollars in thousands)

Working capital 164 $ 47,978 $ 38,208 $ 86,186 $ 74,097 $ 75,461

Purchase/refinance business assets 57 41,562 504 42,066 37,950 39,418

Finance/lease vehicle 252 26,655 — 26,655 28,318 21,180

Purchase equipment 70 8,998 14,474 23,472 15,457 13,167

Other 21 6,074 2,069 8,143 7,735 8,000

564 $ 131,267 $ 55,255 $ 186,522 $ 163,557 $ 157,226

6.66 % 7.23 % 6.83 % 6.89 % 6.90 %

Asset Quality

2 unchanged sentences

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

Of the loans 30 to 89 days delinquent at June 30, 2024, 56% were 59 days or less delinquent.

Of the loans 30 to 89 days delinquent at December 31, 2024, 81% were 59 days or less delinquent.

The increase in 30-89 day delinquent commercial real estate loans as of December 31, 2024 was due primarily to a $15.5 million Community Reinvestment Act loan.

The borrower is in the process of obtaining tax credit funding which will service the loan until the project is stabilized.

The tax credit funding is anticipated to be received by the borrower during the quarter ended March 31, 2025.

Loans Delinquent for 30 to 89 Days at:

June 30, March 31, September 30,

2024 2024 2023

Number Amount Number Amount Number Amount

December 31, September 30,

Number Amount Number Amount

(Dollars in thousands)

3 unchanged sentences

Bulk purchased 1 32 2 68

Construction — — — — 4 1,123

Commercial real estate 7 18,373 11 2,996

10 unchanged sentences

Nonaccrual Loans and OREO at:

June 30, March 31, September 30,

2024 2024 2023

Number Amount Number Amount Number Amount

December 31, September 30,

Number Amount Number Amount

(Dollars in thousands)

11 unchanged sentences

Nonaccrual loans less than 90 Days Delinquent:

One- to four-family:

Originated — $ — — $ — 2 $ 215

Correspondent purchased — — — — 1 282

Bulk purchased — — — — — —

Commercial real estate 6 $ 1,096 3 $ 326

Commercial and industrial 1 125 2 252

Consumer — — — — — —

7 1,221 5 578

3 unchanged sentences

Originated (2)

— $ — 1 $ 67 — $ —

Correspondent purchased — — — — 1 219

— — 1 67 1 219

Total non-performing assets 77 $ 11,361 77 $ 10,147

Non-performing assets as a percentage of total assets 0.12 % 0.11 %

(1) Includes loans required to be reported as nonaccrual pursuant to accounting and/or internal policies, even if the loans are current.

(1) Includes loans required to be reported as nonaccrual pursuant to internal policies, even if the loans are current.

(2) Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents the states where the properties securing ten percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at June 30, 2024.

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

At June 30, 2024, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

At December 31, 2024, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

Loans 30 to 89 Loans 90 or More Days Delinquent

7 unchanged sentences

Classified loans.

The following table presents loans classified as special mention or substandard at the dates presented.

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

The increase in commercial special mention loans at June 30, 2024 compared to September 30, 2023 was due mainly to two loans moving to special mention during the current year period as certain underlying economic considerations related to the loans are being monitored by management.

June 30, 2024 March 31, 2024 September 30, 2023

Special Mention Substandard Special Mention Substandard Special Mention Substandard

The following table presents the amortized cost of loans classified as special mention or substandard at the dates presented.

Included in the commercial real estate substandard loans at December 31, 2024 is a participation loan for $39.1 million related to a hotel in Texas.

The property is taking longer than projected to stabilize and the borrower is not meeting the debt service coverage loan covenant required by the loan agreement.

The LTV ratio on this loan was 47.5% as of December 31, 2024.

As the hotel continues to increase occupancy and interest rates decrease on this adjustable-rate loan, it is expected that cash flows from the operation of the hotel will improve sufficiently to allow the debt service coverage to be sufficient to meet the DSCR covenant within the loan agreement without additional support.

The loan was not delinquent as of December 31, 2024.

December 31, 2024 September 30, 2024

Special Mention Substandard Special Mention Substandard

(Dollars in thousands)

One- to four-family $ 12,481 $ 22,255 $ 17,528 $ 22,715

Commercial 23,212 2,531 19,886 1,969 16,407 1,293

Commercial real estate 15,106 42,249 16,169 2,302

Commercial and industrial 1,795 435 413 335

Consumer 219 512 326 487

1 unchanged sentence

Allowance for Credit Losses.

The Bank utilizes a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments.

Management applied qualitative factors at December 31, 2024 to account for large dollar commercial loan concentrations and potential risk of loss in market value for newer one- to four-family loans.

These qualitative factors were applied to account for credit risks not fully reflected in the discounted cash flow model.

See "Part II, Item 8.

Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 1.

Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024 and "Part 1, Item 1.

Loans Receivable and Allowance for Credit Losses" within this Quarterly Report on Form 10-Q for additional information related to the key assumptions used in the discounted cash flow model and the qualitative factors.

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

Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of June 30, 2024.

The increase in the ACL to loans receivable ratio at June 30, 2024 compared to March 31, 2024 and September 30, 2023 was due primarily to changes in the loan portfolio mix, due specifically to commercial loan growth.

Commercial loans generally have higher expected credit losses compared to one- to four-family loans.

The increase in the ratio of the ACL to total loans as of December 31, 2024 from September 30, 2024 was primarily the result of commercial loan growth during the quarter.

The ratio of ACL to loans receivable has been generally consistent over the past two quarters and, given the economic outlook at December 31, 2024, management expects it to remain relatively consistent through the remainder of this fiscal year.

Distribution of ACL Ratio of ACL to Loans Receivable

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

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

2024 2024 2024 2024

12 unchanged sentences

Total $ 24,997 $ 23,035 0.31 0.29

Historically, the Bank has maintained very low delinquency ratios and net charge-off ("NCO") rates.

Over the past two years, the Bank's highest ratio of commercial loans 90 days or more delinquent to total commercial loans at a quarter end was 0.17%.

The highest such ratio for one- to four-family originated and correspondent loans, combined, was 0.12%.

The amount of total net recoveries during the current quarter was $7 thousand.

During the 10-year period ended December 31, 2024, the Bank recognized $1.2 million of total NCOs.

As of December 31, 2024, the ACL balance was $25.0 million and the reserve for off-balance sheet credit exposures totaled $4.7 million.

Management believes that this level of ACL and reserve for off-balance sheet credit exposures is adequate for the risk characteristics in our loan portfolio as of December 31, 2024.

The Bank's commercial real estate ACL ratios in aggregate, continue to be higher than those of our peers.

The following tables present the average and median commercial real estate ACL ratios for the Bank and two of the Bank's peer groups for the periods noted.

The Office of the Comptroller of the Currency ("OCC") peer group consists of all savings banks greater than $1 billion in assets and the asset size peer group consists of all banks between $5 billion and $15 billion in asset size.

The peer group information is sourced from the respective peers' Call Reports.

Average December

2023 September

2023 December

2024 September

2024 December

Bank 1.30 % 1.28 % 1.45 % 1.57 % 1.58 % 1.60 % 1.57 % 1.32 % 1.32 %

OCC 0.92 % 1.21 % 1.22 % 1.21 % 1.14 % 1.10 % 1.11 % 1.10 % N/A

Asset Size 1.19 % 1.17 % 1.19 % 1.23 % 1.16 % 1.16 % 1.16 % 1.18 % N/A

Median December

2023 September

2023 December

2024 September

2024 December

Bank 1.30 % 1.28 % 1.45 % 1.57 % 1.58 % 1.60 % 1.57 % 1.32 % 1.32 %

OCC 0.84 % 1.00 % 0.98 % 1.06 % 1.02 % 0.98 % 1.02 % 0.99 % N/A

Asset Size 1.16 % 1.13 % 1.12 % 1.12 % 1.10 % 1.14 % 1.08 % 1.09 % N/A

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

On October 1, 2023, the Bank adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which eliminated the accounting guidance for TDRs by creditors.

Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which eliminated the accounting guidance for troubled debt restructurings by creditors.

The Company applied a modified retrospective approach when adopting ASU 2022-02, resulting in a cumulative-effect adjustment which is reflected in the table below ("ASU 2022-02 Adoption").

Summary of Significant Accounting Policies" for additional information regarding the adoption of ASU 2022-02.

At or For the Nine Months Ended

June 30, 2024 June 30, 2023

At or For the Three Months Ended

December 31, 2024 December 31, 2023

(Dollars in thousands)

10 unchanged sentences

ACL to loans receivable, net at end of period 0.31 0.30

ACL to NCOs (annualized) 332x 667x

The ratio of NCOs to average non-performing assets was higher at the end of the current year period due primarily to higher NCOs compared to the prior year period.

The ratio of ACL to nonaccrual loans was lower at the end of the current year period compared to the end of the prior year period due mainly to a higher balance of nonaccrual loans compared to the prior year period, partially offset by a higher ACL balance at June 30, 2024.

The ratio of ACL to loans receivable, net was higher at the end of the current year period compared to the end of the prior year period due primarily to changes in the loan portfolio mix, specifically commercial loan growth.

The ratio of ACL to NCOs was lower at the end of the current year period compared to the end of the prior year period due mainly to higher NCOs, partially offset by a higher ACL balance.

ACL at end of period to NCOs during the period (annualized) N/M (1)

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

The ratio of NCOs to average non-performing assets was a negative percentage in the current year quarter compared to a positive percentage in the prior year quarter, due primarily to a net recovery in the current year quarter and a NCO in the prior year quarter.

The ratio of ACL to nonaccrual loans was lower at the end of the current year quarter compared to the end of the prior year quarter due mainly to a higher balance of nonaccrual loans compared to the prior year quarter, partially offset by a higher ACL balance at December 31, 2024.

The ratio of ACL to loans receivable, net was higher at the end of the current year quarter compared to the end of the prior year quarter due primarily to changes in the loan portfolio mix, specifically commercial loan growth.

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

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

For the Nine Months Ended

June 30, 2024 June 30, 2023

For the Three Months Ended

December 31, 2024 December 31, 2023

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

14 unchanged sentences

$ (7) $ 7,981,231 — $ 1 $ 7,988,923 —

While management utilizes its best judgment and information available, the adequacy of the ACL is determined by certain factors outside of the Company's control, such as the performance of our loan portfolio, changes in the economic environment including economic uncertainty, changes in interest rates, and the views of regulatory authorities toward classification of assets and the level of ACL.

Additionally, the level of ACL may fluctuate based on the balance and mix of the loan portfolio.

If actual results reflect significant underperformance compared to our assumptions and/or if one or more of our assumptions, such as the economic forecast, represents a more negative outlook in a future period, there could be additions to our ACL and an increase in the provision for credit losses.

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

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

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

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated.

The majority of our securities are government guaranteed or issued by GSEs.

Overall, fixed-rate securities comprised 94% of our securities portfolio at June 30, 2024.

Overall, fixed-rate securities comprised 95% of our securities portfolio at December 31, 2024.

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

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

The change in the portfolio yield at June 30, 2024 and March 31, 2024 compared to September 30, 2023 was primarily related to the securities strategy.

June 30, 2024 March 31, 2024 September 30, 2023

Amount Yield WAL Amount Yield WAL Amount Yield WAL

December 31, 2024 September 30, 2024

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

MBS $ 774,655 5.64 % 4.9 $ 756,775 5.63 % 5.7

Treasury bills — — — 99,408 5.38 0.1 — — —

GSE debentures 71,915 5.37 2.6 69,077 5.63 0.4

Corporate bonds 4,000 5.12 7.4 4,000 5.12 7.6

Municipal bonds — — — — — — 942 2.55 6.9

$ 850,570 5.62 % 4.8 $ 829,852 5.63 % 5.2

2 unchanged sentences

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

For the Nine Months Ended

June 30, 2024 June 30, 2023

For the Three Months Ended

December 31, 2024 December 31, 2023

Amount Yield WAL Amount Yield WAL

5 unchanged sentences

Purchases 71,416 4.89 6.7 668,310 5.72 3.8

Net loss from securities transactions (13,345) —

Net loss from securities sales — (13,345)

Change in valuation on AFS securities (15,483) 20,360

Ending balance - carrying value $ 861,501 5.62 4.8 $ 740,462 5.67 3.9

Total liabilities were $8.58 billion at June 30, 2024, compared to $9.13 billion at September 30, 2023.

The decrease was due primarily to a decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP.

Total liabilities were $8.51 billion at December 31, 2024, compared to $8.50 billion at September 30, 2024.

The increase was due primarily to a $76.1 million increase in deposits, partially offset by a $35.7 million decrease in advances by borrowers due to the payment of property taxes during the current quarter, and a $15.8 million decrease in borrowings due to principal payments made on the Bank's amortizing advances.

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

The amount of commercial non-maturity deposits included in the table below at June 30, 2024, March 31, 2024, and September 30, 2023 was $247.5 million, $251.8 million, and $267.3 million, respectively.

The increase in the deposit portfolio rate at June 30, 2024 compared to March 31, 2024, and September 30, 2023 was due mainly to higher rates on retail certificates of deposit.

June 30, 2024 March 31, 2024 September 30, 2023

The increase in the deposit portfolio balance at December 31, 2024 compared to September 30, 2024 was primarily in the Bank's high-yield savings account offering and retail checking accounts, partially offset by a decrease in retail certificates of deposit.

The decrease in the deposit portfolio rate at December 31, 2024 compared to September 30, 2024 was due mainly to lower rates on retail certificates of deposit and retail money market accounts.

December 31, 2024 September 30, 2024 December 31, 2023

% of % of % of

5 unchanged sentences

Money market 1,235,788 1.19 19.9 1,226,962 1.46 20.0 1,360,349 1.96 22.6

Certificates of deposit 2,914,464 4.15 46.9 2,965,310 4.25 48.4 2,738,827 3.79 45.5

$ 6,206,117 2.34 100.0 % $ 6,129,982 2.45 100.0 % $ 6,021,595 2.20 100.0 %

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio, split between retail non-maturity deposits, commercial non-maturity deposits, and certificates of deposit at the dates presented.

December 31, 2024 September 30, 2024 December 31, 2023

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

(Dollars in thousands)

Retail non-maturity deposits:

Non-interest-bearing checking $ 434,432 — % 7.0 % $ 418,790 — % 6.8 % $ 428,368 — % 7.1 %

Interest-bearing checking 819,644 0.09 13.2 799,407 0.10 13.0 841,350 0.08 14.0

Savings 607,803 1.22 9.8 537,506 0.83 8.8 468,003 0.12 7.8

Money market 1,145,615 1.09 18.5 1,149,212 1.37 18.7 1,296,977 1.92 21.5

Total 3,007,494 0.69 48.5 2,904,915 0.73 47.4 3,034,698 0.86 50.4

Commercial non-maturity deposits:

Non-interest-bearing checking 122,083 — 2.0 130,806 — 2.1 127,014 — 2.1

Interest-bearing checking 68,643 1.75 1.1 48,135 2.40 0.8 54,316 1.63 0.9

Savings 3,260 0.05 0.1 3,066 0.05 0.1 3,370 0.05 0.1

Money market 90,173 2.50 1.5 77,750 2.72 1.3 63,370 2.70 1.1

Total 284,159 1.22 4.6 259,757 1.26 4.2 248,070 1.05 4.1

Certificates of deposit:

Retail certificates of deposit 2,799,418 4.14 45.1 2,830,579 4.23 46.2 2,569,391 3.75 42.7

1 unchanged sentence

Public unit certificates of deposit 58,482 4.48 0.9 76,495 4.62 1.2 120,284 4.54 2.0

Total 2,914,464 4.15 47.0 2,965,310 4.25 48.4 2,738,827 3.79 45.5

$ 6,206,117 2.34 100.0 % $ 6,129,982 2.45 100.0 % $ 6,021,595 2.20 100.0 %

Management has focused on retaining and growing deposits through the introduction of a high-yield savings account early in fiscal year 2024 which has a current rate of 4.21% for balances over $10 thousand.

The high-yield savings account balance was $58.2 million as of June 30, 2024.

A portion of the decrease in the money market portfolio during the current year period has been attributable to the growth in this product, along with the growth in retail certificates of deposit.

Management has sought to grow certificates of deposit with terms of 14 months or less by offering market competitive rates.

We have focused on terms that will allow us to price down certificates of deposit if the FRB reduces overnight rates.

Our certificate of deposit retention rate has been approximately 90% over the past 12-months.

As of June 30, 2024, approximately $751.2 million (or approximately 12%) of the Bank's Call Report deposit balance was uninsured, of which approximately $440.0 million related to commercial and retail deposit accounts and the remainder was mainly comprised of fully collateralized public unit deposits and intercompany accounts.

The following table presents the amount, weighted average rate, and percent of total for total retail deposits, commercial deposits, and public unit certificates of deposit for the periods noted.

December 31, 2024 September 30, 2024 December 31, 2023

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

(Dollars in thousands)

Total retail deposits $ 5,806,912 2.35 % 93.6 % $ 5,735,494 2.46 % 93.6 % $ 5,604,089 2.19 % 93.1 %

Total commercial deposits 340,723 1.72 5.5 317,993 1.84 5.2 297,222 1.50 4.9

Public unit certificates of deposit 58,482 4.48 0.9 76,495 4.62 1.2 120,284 4.54 2.0

$ 6,206,117 2.34 100.0 % $ 6,129,982 2.45 100.0 % $ 6,021,595 2.20 100.0 %

As of December 31, 2024, approximately $757.8 million (or approximately 12%) of the Bank's Call Report deposit balance was uninsured, of which approximately $461.5 million related to commercial and retail deposit accounts and with the remainder mainly comprised of fully collateralized public unit deposits and intercompany accounts.

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

Total borrowings at June 30, 2024 were $2.29 billion, which was comprised of $1.99 billion in fixed-rate FHLB advances, $300.0 million in FHLB variable-rate advances tied to interest rate swaps, and $1.1 million in finance leases.

The following table presents the maturity of term borrowings, which consist of FHLB advances, along with associated weighted average contractual and effective rates as of June 30, 2024.

Total borrowings at December 31, 2024 were $2.16 billion, which was comprised of $1.96 billion in fixed-rate FHLB advances, $200.0 million in FHLB variable-rate advances tied to interest rate swaps, and $1.1 million in finance leases.

The following table presents the maturity of term borrowings, which consist of FHLB advances, along with associated weighted average contractual and effective rates as of December 31, 2024.

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

16 unchanged sentences

The beginning and ending WAMs represent the remaining maturity at each date presented.

During the current year nine month period, BTFP borrowings were paid off with the proceeds received from the securities strategy.

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2024 June 30, 2023

Effective Effective Effective

Amount Rate WAM Amount Rate WAM Amount Rate WAM

During the prior year quarter, Federal Reserve's Bank Term Funding Program ("BTFP") borrowings were paid off with the proceeds received from the securities strategy.

For the Three Months Ended

December 31, 2024 December 31, 2023

Effective Effective

Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

4 unchanged sentences

Ending balance $ 2,164,488 3.37 1.6 $ 2,375,410 3.13 2.0

Leverage Strategy

Periodically, the Bank 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 purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB of Kansas City.

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.

The profitability of the leverage strategy is attributable to net income derived from the dividends received on the increased FHLB stock holdings, plus the net interest rate spread between the yield on the leverage strategy cash at the FRB of Kansas City and the rate paid on the leverage strategy FHLB borrowings, less applicable Federal Deposit Insurance Corporation ("FDIC") premiums and estimated income tax expense.

Leverage strategy borrowings are repaid prior to each quarter end so there is no impact to quarter end capital ratios.

The leverage strategy was not in place at any time during the current year period due to the strategy being unprofitable, but it was in place at points during the prior year period.

During the prior year period, the average balance of cash associated with the leverage strategy was $1.10 billion and interest earned on that cash was $34.7 million, the average balance of FHLB stock associated with the leverage strategy was $52.0 million and dividends earned on that stock were $3.4 million, and the average balance of FHLB borrowings associated with the leverage strategy was $1.16 billion and the related interest expense was $36.5 million.

Additionally, the Company recognized $368 thousand of FDIC premiums and $209 thousand of income tax expense during the prior year period related to the leverage strategy.

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.

Maturities of Interest-Bearing Liabilities.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing FHLB advances for the next four quarters as of June 30, 2024.

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

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

2025 2025 2025 2025 Total

11 unchanged sentences

Repricing Rate 4.06 % 4.30 % 4.01 % 3.63 % 4.03 %

The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2024.

The following table sets forth the WAM information for our certificates of deposit, in years, as of December 31, 2024.

Retail certificates of deposit 0.8

3 unchanged sentences

Stockholders' Equity.

Stockholders' equity totaled $1.02 billion at June 30, 2024, a decrease of $23.4 million from September 30, 2023.

During the current year period, the Company repurchased $19.3 million of shares and paid regular quarterly cash dividends totaling $33.5 million, or $0.255 per share.

On July 23, 2024, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.0 million, payable on August 16, 2024 to stockholders of record as of the close of business on August 2, 2024.

Stockholders' equity totaled $1.03 billion at December 31, 2024 a decrease of $5.3 million from September 30, 2024 due primarily to a decrease in AOCI, net of tax, partially offset by a decrease in accumulated deficit.

The decrease in AOCI, net of tax, was due to a decrease in unrealized gains on AFS securities as a result of an increase in market interest rates during the current quarter.

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

As of June 30, 2024, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates.

As of December 31, 2024, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank exceeded internal policy thresholds for sensitivity to changes in interest rates.

See "Liquidity and Capital Resources" below for additional information regarding the Bank's regulatory capital requirements.

As of June 30, 2024, the Bank's community bank leverage ratio ("CBLR") was 9.1%.

During the current year period, the Company repurchased 3,280,110 shares of common stock at an average price of $5.87 per share.

There were no shares repurchased during the current quarter as the Company considered the level of cash at the holding company to be appropriate in light of its continuing evaluation of the corporate and tax implications of distributing earnings from the Bank to the Company as a result of the pre-1988 bad debt recapture requirements at the Bank level.

The Company has $77.0 million authorized for repurchase under existing stock repurchase plans.

These plans have no expiration date;

however, the FRB's existing approval for the Company to repurchase shares up to $2.0 million expires in August 2024 and $75.0 million expires in February 2025.

As of December 31, 2024, the Bank's CBLR was 9.4%.

The Company currently has $75.0 million authorized for repurchase under an existing stock repurchase plan.

The FRB's current approval for the Company to repurchase shares up to the $75.0 million authorization expires in February 2025.

The Company has notified the FRB of its intent to extend the stock repurchase plan another year, through February 2026.

Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors.

At June 30, 2024, Capitol Federal Financial, Inc., at the holding company level, had $49.1 million in cash on deposit at the Bank.

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

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

Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

Based on the Company's accumulated earnings and profits at the beginning of its tax year and the expected current year tax earnings and profits deficit as a result of the losses associated with the securities strategy ("See Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024 - Income Tax Expense" below), all dividends paid to stockholders by the Company during fiscal year 2024 will be treated as a return of capital, pursuant to Internal Revenue Code Section 301(c)(2), which reduces the tax basis in the shares of the holder by the amount of the dividend received.

Stockholders should consult their own tax advisors to determine the income tax consequences of their specific situation.

The Company is providing this for informational purposes only and not as legal or tax advice.

Based on current tax earnings and profits projections for fiscal year 2025, the Company anticipates that the majority, if not all, of the dividend payments to Company stockholders in fiscal year 2025 will be treated as dividends for tax purposes.

There were no share repurchases during the current quarter.

During the quarter ended December 31, 2024, the Company paid regular quarterly cash dividends totaling $11.1 million, or $0.085 per share.

On January 28, 2025 the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.1 million, payable on February 21, 2025 to stockholders of record as of the close of business on February 7, 2025.

At December 31, 2024, Capitol Federal Financial, Inc., at the holding company level, had $39.1 million in cash on deposit at the Bank.

Given the amount of cash at the holding company level, and in an effort to limit the tax associated with the pre-1988 bad debt recapture, it is currently the intention of management and the Board of Directors to not distribute earnings from the Bank to the Company during fiscal year 2025.

See additional information regarding the pre-1988 bad debt recapture in "Comparison of Operating Results for the Three Months Ended December 31, 2024 and September 30, 2024 - Income Tax Expense" below.

It is currently anticipated that the Bank will have sufficient taxable income during fiscal year 2025 to replenish tax accumulated earnings and profits to a positive level, allowing the Bank to make earnings distributions to the Company during fiscal year 2026 and not be taxed on those distributions.

For fiscal year 2025, it is the intention of the Company's Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year.

To the extent that earnings in fiscal year 2025 exceed $0.34 per share, the Board of Directors may consider the payment of additional dividends.

Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, the Bank's taxable current earnings and accumulated earnings and profits, and the amount of cash at the holding company level.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2025, 2024, and 2023.

The amounts represent cash dividends paid during each period.

For the quarter ended September 30, 2024, the amount presented represents the dividend payable on August 16, 2024 to stockholders of record as of the close of business on August 2, 2024.

For the quarter ended March 31, 2025, the amount presented represents the dividend payable on February 21, 2025 to stockholders of record as of the close of business on February 7, 2025.

Calendar Year

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Quarter ended December 31 — — 11,061 0.085 11,308 0.085

True-up dividends paid — — — — 37,701 0.280

True Blue Capitol dividends paid — — — — 27,143 0.200

Calendar year-to-date dividends paid $ 11,062 $ 0.085 $ 44,275 $ 0.340 $ 45,271 $ 0.340

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For the Three Months Ended

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

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

2024 2024 2024 2024 2023

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MBS 11,024 10,412 9,585 7,794 5,859

Cash and cash equivalents 3,875 4,513 4,778 6,139 10,009

FHLB stock 2,352 2,418 2,477 2,528 2,586

Cash and cash equivalents 1,871 2,562 3,875 4,513 4,778

Investment securities 981 1,634 2,255 2,332 2,528

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Income tax (benefit) expense 3,667 7,150 5,963 3,455 (475)

Net income (loss) $ 9,648 $ 13,762 $ 2,543 $ (140,390) $ 8,302

Net income $ 15,431 $ 12,057 $ 9,648 $ 13,762 $ 2,543

Efficiency ratio 57.86 % 59.29 % 62.07 % 61.89 % 92.86 %

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Diluted EPS 0.12 0.09 0.07 0.11 0.02

Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024

For the quarter ended June 30, 2024, the Company recognized net income of $9.6 million, or $0.07 per share, compared to net income of $13.8 million, or $0.11 per share, for the quarter ended March 31, 2024.

The lower net income in the current quarter was due primarily to higher income tax expense, mainly from income tax expense on the quarterly earnings distribution from the Bank to the holding company due to the Bank's pre-1988 bad debt recapture, and a higher provision for credit losses due largely to commercial loan growth.

The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.03 per share in the current quarter.

See additional discussion regarding the Bank's pre-1988 bad debt recapture in the "Income Tax Expense" section below.

The net interest margin decreased five basis points, from 1.82% for the prior quarter to 1.77% for the current quarter due mainly to increases in the cost and average balance of retail certificates of deposit outpacing net interest margin improvements from the securities and loan portfolios.

Interest and Dividend Income

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2024 2024 Dollars Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 76,803 $ 76,122 $ 681 0.9 %

MBS 9,585 7,794 1,791 23.0

Cash and cash equivalents 3,875 4,513 (638) (14.1)

FHLB stock 2,477 2,528 (51) (2.0)

Investment securities 2,255 2,332 (77) (3.3)

Total interest and dividend income $ 94,995 $ 93,289 $ 1,706 1.8

The increase in interest income on loans receivable was due to an increase in the weighted average yield, partially offset by a lower average portfolio balance compared to the prior quarter due largely to a decrease in the one-to four-family correspondent loan portfolio.

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

The increase in interest income on MBS was due to an increase in average balance compared to the prior quarter as a result of the full quarter impact of purchases made late in the prior quarter as well as purchases made during the current quarter.

The decrease in interest income on cash and cash equivalents was due to a decrease in the average balance as excess operating cash during the current quarter was, in part, reinvested into the MBS portfolio.

Interest Expense

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2024 2024 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

Deposits $ 36,233 $ 33,415 $ 2,818 8.4 %

Borrowings 18,438 18,554 (116) (0.6)

Total interest expense $ 54,671 $ 51,969 $ 2,702 5.2

The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and the average balance of the retail certificate of deposit portfolio.

Provision for Credit Losses

For the quarter ended June 30, 2024, the Bank recorded a provision for credit losses of $1.5 million, compared to a provision for credit losses of $301 thousand for the prior quarter.

The provision for credit losses in the current quarter was comprised of a $1.3 million increase in the ACL for loans, along with a $195 thousand increase in the reserve for off-balance sheet credit exposures.

The provision for credit losses associated with the ACL was due primarily to commercial loan growth.

Non-Interest Income

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2024 2024 Dollars Percent

(Dollars in thousands)

NON-INTEREST INCOME:

Deposit service fees $ 2,706 $ 2,451 $ 255 10.4 %

Insurance commissions 905 735 170 23.1

Other non-interest income 1,098 1,457 (359) (24.6)

Total non-interest income $ 4,709 $ 4,643 $ 66 1.4

The increase in deposit service fees was due primarily to increased debit card usage, which generated additional interchange and service charge income during the current quarter.

The increase in insurance commissions was mainly a result of rate increases within the insurance market on both existing and new business.

The decrease in other non-interest income was due mainly to a decrease in income on BOLI related to the receipt of death benefits in the prior quarter while none were received in the current quarter.

Non-Interest Expense

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2024 2024 Dollars Percent

(Dollars in thousands)

NON-INTEREST EXPENSE:

Salaries and employee benefits $ 13,307 $ 12,887 $ 420 3.3 %

Information technology and related expense 5,364 4,954 410 8.3

Occupancy, net 3,263 3,481 (218) (6.3)

Federal insurance premium 1,352 1,727 (375) (21.7)

Regulatory and outside services 1,322 1,380 (58) (4.2)

Advertising and promotional 951 1,271 (320) (25.2)

Deposit and loan transaction costs 726 867 (141) (16.3)

Office supplies and related expense 405 419 (14) (3.3)

Other non-interest expense 1,260 1,459 (199) (13.6)

Total non-interest expense $ 27,950 $ 28,445 $ (495) (1.7)

The increase in salaries and employee benefits was due mainly to merit and other salary adjustments during the current quarter and an increase in loan commissions due to an increase in one- to four-family loan origination volume compared to the prior quarter.

The increase in information technology and related expense was due primarily to higher software related expenses mainly related to new agreements and agreement renewals at higher costs.

The decrease in the federal insurance premium was due to the actual FDIC assessment being lower than projected for the prior quarter, which was reflected in the current quarter when it was paid.

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

The decrease in deposit and loan transaction costs was due primarily to expenses related to calendar year-end processing in the prior quarter.

The decrease in other non-interest expense was due mainly to a reduction in customer fraud losses compared to the prior quarter.

The Company's efficiency ratio was 62.07% for the current quarter compared to 61.89% for the prior quarter.

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

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

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

The Company's operating expense ratio (annualized) for the current quarter was 1.17% compared to 1.19% for the prior quarter, due to lower non-interest expense compared to the prior quarter.

The operating expense ratio is a measure of a financial institution's total non-interest expense as a percentage of average assets.

The ratio provides

insight into how efficiently the Company is managing its expenses in relation to its assets, without the impact of changes in interest rates which factors into the efficiency ratio.

Income Tax Expense

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

For the Three Months Ended

June 30, March 31, Change Expressed in:

2024 2024 Dollars Percent

(Dollars in thousands)

Income before income tax expense $ 15,611 $ 17,217 $ (1,606) (9.3) %

Income tax expense 5,963 3,455 2,508 72.6

Net income $ 9,648 $ 13,762 $ (4,114) (29.9)

Effective Tax Rate 38.2 % 20.1 %

The increase in income tax expense and the higher effective tax rate in the current quarter was due primarily to recording $2.9 million of income taxes on the current quarter distribution of earnings from the Bank to the Company, compared to $508 thousand of income taxes on the distribution of earnings from the Bank to the Company during the prior quarter.

The distribution of earnings during the current quarter was consistent with distributions in prior periods as 100% of the Bank's quarterly earnings were distributed to the Company.

The income tax on the earnings distribution from the Bank to the Company was due to the recapture of a portion of the Bank's bad debt reserves which were established prior to September 30, 1988, and are included in the Bank's retained earnings ("pre-1988 bad debt reserves").

It is anticipated that a taxable net loss will be reported on the Company's September 30, 2024 federal tax return due to the net losses associated with the securities strategy which will result in the Bank and Company having a negative current and accumulated earnings and profit tax position.

This requires the Bank to draw upon the pre-1988 bad debt reserves for any distributions from the Bank to the Company during the current fiscal year.

The Bank is required to pay taxes on the reductions to the pre-1988 bad debt reserves equal to the current corporate tax rate at the time of the distribution of the amount of Bank earnings paid to the Company ("pre-1988 bad debt recapture").

It is anticipated that the Bank will be required to record income tax expense on earnings distributions from the Bank to the Company for the remainder of fiscal year 2024 due to the amount of remaining pre-1988 bad debt reserves, which was $85.5 million, or $18.0 million tax effected, as of June 30, 2024.

Management anticipates the effective tax rate for the fourth quarter of fiscal year 2024 will be approximately 30% which includes the pre-1988 bad debt recapture for the quarterly earnings projected to be paid from the Bank to the Company during the fourth quarter of fiscal year 2024, assuming regulatory approval is received for the distribution.

Management continues to evaluate the timing and amount of capital distributions from the Bank to the holding company during the remainder of the current fiscal year and in future periods in connection with the tax issues associated with the pre-1988 bad debt reserves.

There is some uncertainty related to how the Bank's current earnings and profits, beginning in fiscal year 2025, should be treated in relation to distributions from the Bank to the Company and the associated impact, if any, to the pre-1988 bad debt reserves.

Management anticipates the effective tax rate for fiscal year 2025 may be in the 30% to 33% range if the Bank is required to record income tax expense on all the distributions from the Bank to the Company during fiscal year 2025.

Average Balance Sheet

Average Balance Sheets

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown.

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For the Three Months Ended

June 30, 2024 March 31, 2024

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

December 31, 2024 September 30, 2024 December 31, 2023

Average Interest Average Interest Average Interest

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

Amount Paid Rate Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

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7,981,231 81,394 4.05 7,939,973 79,841 4.00 7,988,923 75,941 3.78

675,506 9,585 5.68 538,882 7,794 5.78

MBS(2) 781,252 11,024 5.64 736,695 10,412 5.65 526,733 5,859 4.45

Investment securities (2)(3)

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FHLB stock 99,151 2,352 9.41 101,942 2,418 9.44 108,648 2,586 9.44

106,122 2,477 9.39 107,562 2,528 9.45

Cash and cash equivalents 154,752 1,871 4.73 187,484 2,562 5.35 346,220 4,778 5.40

283,939 3,875 5.40 330,751 4,513 5.40

Total interest-earning assets 9,088,947 97,622 4.27 9,081,950 96,867 4.24 9,237,397 91,692 3.95

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Borrowings 2,171,476 18,047 3.30 2,227,278 18,585 3.31 2,467,410 19,656 3.15

2,297,228 18,438 3.22 2,360,776 18,554 3.15

Total interest-bearing liabilities 7,789,841 55,392 2.82 7,791,873 56,043 2.86 7,927,114 52,099 2.61

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Net interest margin (5)

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

1.86 1.80 1.71

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

Selected performance ratios:

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Return on average equity (annualized) (7)(10)

5.98 4.69 0.98

Average equity to average assets 10.80 10.79 10.68

Operating expense ratio (annualized) (11)

Operating expense ratio (8)

1.14 1.13 1.18

Efficiency ratio (9)(10)

57.86 59.29 92.86

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

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

(3) There were no nontaxable securities included in the average balance of investment securities for the quarters ended June 30, 2024 or March 31, 2024.

(4) There was no FHLB stock related to the leverage strategy for the quarters ended June 30, 2024 and March 31, 2024.

(5) There was no cash and cash equivalents related to the leverage strategy during the quarters ended June 30, 2024 and March 31, 2024.

(6) There was no FHLB borrowings related to the leverage strategy for the quarters ended June 30, 2024 and March 31, 2024.

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

(3) There were no nontaxable securities in the average balance securities for the quarters ended December 31, 2024 or September 30, 2024.

The average balance of investment securities includes an average balance of nontaxable securities of $201 thousand for the quarter ended December 31, 2023.

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

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

(10) The table below provides a reconciliation between performance measures presented in accordance with GAAP and the same performance measures absent the impact of the net loss on the securities transactions associated with the securities strategy, which are not presented in accordance with GAAP.

The securities strategy was non-recurring in nature;

therefore, management believes it is meaningful to investors to present certain financial measures without the securities strategy to better evaluate the Company's core operations.

See information regarding the securities strategy in the "Executive Summary" discussion above.

For the Three Months Ended

December 31, 2023

Actual Securities Strategy

(GAAP) Strategy (Non-GAAP)

Return on average assets 0.10 % (0.42 %) 0.52 %

Return on average equity 0.98 (3.89) 4.87

Efficiency Ratio 92.86 28.13 64.73

$ 0.02 $ (0.08) $ 0.10

(11) EPS is calculated as net income divided by average shares outstanding.

Management believes EPS is an important measure to investors as it shows the Company's earnings in relation to the Company's outstanding shares.

Rate/Volume Analysis

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2024 to the three months ended March 31, 2024.

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

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

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

For the Three Months Ended

June 30, 2024 vs.

March 31, 2024

Increase (Decrease) Due to

Volume Rate Total

December 31, 2024 vs.

September 30, 2024 December 31, 2024 vs.

December 31, 2023

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

Volume Rate Total Volume Rate Total

(Dollars in thousands)

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Net change in net interest income $ 1,003 $ 403 $ 1,406 $ 1,405 $ 1,232 $ 2,637

Comparison of Operating Results for the Nine Months Ended June 30, 2024 and 2023

The Company recognized net income of $26.0 million, or $0.20 per share, for the current year period, compared to net income of $38.7 million, or $0.29 per share, for the prior year period.

In the first quarter of fiscal year 2024, the Bank incurred $13.3 million ($10.0 million net of tax) of net losses related to the securities strategy discussed in the "Executive Summary" section above.

The lower net income for the current year period was primarily a result of the net loss associated with the securities strategy, a decrease in deposit service fees, a decrease in net interest income, and an increase in income tax expense largely related to the pre-1988 bad debt recapture, partially offset by a lower provision for credit losses and a decrease in non-interest expense.

Excluding the effects of the net loss associated with the securities strategy, EPS would have been $0.28 for the current year period.

The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.02 per share in the current year period.

The leverage strategy negatively impacted the net interest margin for the prior year period by 16 basis points.

The remaining improvement in the net interest margin absent the leverage strategy when compared to the prior year period, was due to higher yields earned on securities and loans which outpaced the increase in the cost of deposits, largely in retail certificates of deposit.

Comparison of Operating Results for the Three Months Ended December 31, 2024 and September 30, 2024

For the quarter ended December 31, 2024, the Company recognized net income of $15.4 million, or $0.12 per share, compared to net income of $12.1 million, or $0.09 per share, for the quarter ended September 30, 2024.

The higher net income in the current quarter was due primarily to lower income tax expense compared to the prior quarter due mainly to income tax expense associated with the pre-1988 bad debt recapture during the prior quarter.

There was no similar tax expense in the current quarter.

See additional discussion regarding the pre-1988 bad debt recapture in the "Income Tax Expense" section below.

The net interest margin increased six basis points, from 1.80% for the prior quarter to 1.86% for the current quarter due mainly to growth in the higher yielding commercial loan portfolio.

Interest and Dividend Income

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

For the Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2024 2024 Dollars Percent

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MBS 11,024 10,412 612 5.9

Cash and cash equivalents 13,166 37,657 (24,491) (65.0)

FHLB stock 2,352 2,418 (66) (2.7)

Cash and cash equivalents 1,871 2,562 (691) (27.0)

Investment securities 981 1,634 (653) (40.0)

Total interest and dividend income $ 97,622 $ 96,867 $ 755 0.8

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

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

The increase in the average balance was mainly in the commercial loan portfolio which was partially offset by a decrease in the average balance of the one-to four-family loan portfolio.

See additional discussion in the "Financial Condition" and "Financial Condition - Loans Receivable" sections above.

The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield, partially offset by a decrease in the average balance, both a result of the securities strategy.

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

See additional information regarding the leverage strategy in the "Financial Condition - Borrowings" section above.

Interest income on cash and cash equivalents related to the leverage strategy decreased $34.7 million and dividend income on FHLB stock related to the leverage strategy decreased $3.4 million compared to the prior year period.

Interest income on cash and cash equivalents not associated with the leverage strategy increased $10.2 million due largely to an increase in the average balance of cash and cash equivalents as a result of the securities strategy.

The increase in interest income on loans receivable was due mainly to an increase in the average balance of the commercial loan portfolio, along with an increase in the weighted average yield on the overall loan portfolio.

See additional discussion regarding the composition of the loan portfolio in the "Executive Summary" section above.

The increase in interest income on MBS was due to an increase in average balance primarily as a result of purchases made early in the current quarter using excess cash.

The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the average balance as excess operating cash was used to fund MBS purchases and commercial loan activities and to pay semi-annual escrow payments for customers during the current quarter.

The decrease in interest income on investment securities was due primarily to a decrease in the average balance as a result of certain called securities not being replaced in their entirety.

Interest Expense

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

For the Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2024 2024 Dollars Percent

4 unchanged sentences

Total interest expense $ 55,392 $ 56,043 $ (651) (1.2)

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

Interest expense on borrowings associated with the leverage strategy decreased $36.5 million compared to the prior year period due to the leverage strategy being in place during the prior year period and not being in place during the current year period.

Interest expense on borrowings not associated with the leverage strategy decreased $3.4 million due mainly to a reduction in the average outstanding balance of the FHLB line of credit compared to the prior year period and a decrease in borrowings under the BTFP, which were repaid during the first quarter of fiscal year 2024.

The decrease was partially offset by new borrowings added between periods at market interest rates higher than the overall portfolio rate, to replace maturing advances and to fund operational needs.

The decrease in interest expense on deposits was due to a decrease in the weighted average rate on money market accounts, retail certificates of deposit and checking accounts, which was almost entirely offset by an increase in the weighted average rate on savings accounts due to growth in the Bank's high-yield savings account.

The decrease in borrowings expense was due primarily to the maturity of a $50.0 million advance late in the prior quarter that was not renewed, as well as to a reduction in borrowings outstanding during the current quarter as a result of principal payments made on the Bank's amortizing advances.

Provision for Credit Losses

The Bank recorded a provision for credit losses of $1.9 million during the current year period, compared to a provision for credit losses of $5.9 million for the prior year period.

The provision for credit losses in the current year period was comprised of a $2.1 million increase in the ACL for loans, partially offset by a $238 thousand release in the reserve for off-balance sheet credit exposures.

The provision for credit losses associated with the ACL was due primarily to commercial loan growth.

For the quarter ended December 31, 2024, the Bank recorded a provision for credit losses of $677 thousand, compared to a provision release of $637 thousand for the prior quarter.

The provision in the current quarter was comprised of a $2.0 million increase in the ACL for loans, partially offset by a $1.3 million decrease in the reserve for off-balance sheet credit exposures.

The increase in ACL was due mainly to commercial loan growth during the current quarter.

The decrease in the reserve for off-balance sheet credit exposures was due primarily to a decrease in the balance of commercial off-balance sheet credit exposures between quarters due mainly to the funding of commercial commitments during the current quarter.

Non-Interest Income

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

For the Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2024 2024 Dollars Percent

3 unchanged sentences

Insurance commissions 776 754 22 2.9

Net loss from securities transactions (13,345) — (13,345) N/A

Other non-interest income 1,210 1,202 8 0.7

Total non-interest income $ 4,693 $ 4,786 $ (93) (1.9)

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after completion of the Bank's digital transformation project.

The net loss from securities transactions relates to the securities strategy, with no similar transaction in the prior year period.

Non-Interest Expense

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

For the Nine Months Ended

June 30, Change Expressed in:

For the Three Months Ended

December 31, September 30, Change Expressed in:

2024 2024 Dollars Percent

4 unchanged sentences

Occupancy, net 3,333 3,442 (109) (3.2)

Federal insurance premium 4,939 3,289 1,650 50.2

Regulatory and outside services 1,113 1,398 (285) (20.4)

Federal insurance premium 1,038 1,113 (75) (6.7)

Advertising and promotional 822 1,054 (232) (22.0)

3 unchanged sentences

Total non-interest expense $ 27,148 $ 27,040 $ 108 0.4

The decrease in salaries and employee benefits was a result of a decrease in full-time equivalent employees between the two periods as a result of management's decision to not backfill non-critical employees through natural attrition, along with a reduction in loan commissions, partially offset by lower capitalized payroll costs than the prior year due to the digital transformation project in the prior year.

In connection with management's decision to not backfill non-critical employees, beginning in fiscal year 2023, the Bank moved to a new branch staffing model comprised of decision makers and well-rounded employees that is intended to add an elevated experience for customers who choose in-person banking activities.

The decrease in information technology and related expense was due mainly to lower third-party project management expenses due to the Bank's digital transformation project during the prior year period along with the discontinuation of other costs associated with the previous core system, partially offset by higher software licensing expenses resulting from new agreements associated with the digital transformation project.

The increase in the federal insurance premium was due primarily to an increase in the FDIC assessment rate as a result of the way the rate is adjusted for the occurrence of a net loss during the quarter ending September 30, 2023.

The decrease in advertising and promotional expense was due primarily to the timing of campaigns between the periods.

The increase in deposit and loan transaction costs was due primarily to the outsourcing of statement processing related to the digital transformation, partially offset by a reduction in other costs due to the digital transformation.

The decrease in office supplies and related expense was due primarily to the outsourcing of statement processing related to the digital transformation, and the timing of office supply purchases between periods.

The increase in other non-interest expense was due mainly to an increase in customer fraud losses.

The Company's efficiency ratio was 69.77% for the current year period compared to 61.78% for the prior year period.

Excluding the net losses from the securities strategy, the efficiency ratio would have been 62.87% for the current year period.

The change in the efficiency ratio, excluding the securities strategy, was due primarily to lower non-interest income in the current year period compared to the prior year period.

The Company's operating expense ratio (annualized) for the current year period was 1.18% compared to 1.03% for the prior year period, due mainly to lower average assets in the current year period.

The leverage strategy was in place at times during the prior year period, which increased assets, but was not in place during the current year period.

The increase in salaries and employee benefits was due primarily to the accrual of incentive compensation during the current quarter related to the Bank's short-term performance plan.

The prior quarter included a reduction in incentive compensation due to the Company's financial results for fiscal year 2024 being lower than projected.

The decrease in regulatory and outside services was due primarily to the timing of audit and other outside services.

More services were provided during the prior quarter compared to the current quarter.

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

Overall, management is expecting a 4.0% increase in non-interest expenses for fiscal year 2025 compared to fiscal year 2024.

The Company's efficiency ratio was 57.86% for the current quarter compared to 59.29% for the prior quarter.

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

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

A lower value generally indicates that it is costing the financial institution less money to generate revenue.

Income Tax Expense

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

For the Nine Months Ended

June 30, Change Expressed in:

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

For the Three Months Ended

December 31, September 30, Change Expressed in:

2024 2024 Dollars Percent

4 unchanged sentences

Effective Tax Rate 19.2 % 37.2 %

The increase in income tax expense and the higher effective tax rate in the current year period was due primarily to recording income taxes on the current year distributions of earnings from the Bank to the Company in association with the pre-1988 bad debt recapture, partially offset by a $3.3 million tax benefit related to the $13.3 million net loss on the securities sale associated with the securities strategy.

Average Balance Sheet

Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown.

Average outstanding balances are derived from average daily balances.

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

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

For the Nine Months Ended

June 30, 2024 June 30, 2023

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,994,694 $ 105,823 3.53 % $ 4,051,068 $ 101,249 3.33 %

Correspondent purchased 2,367,032 57,788 3.26 2,419,202 56,578 3.12

Bulk purchased 133,783 2,160 2.15 144,514 1,374 1.27

Total one- to four-family loans 6,495,509 165,771 3.40 6,614,784 159,201 3.21

Commercial loans 1,343,241 56,285 5.51 1,117,549 41,089 4.85

Consumer loans 106,670 6,810 8.53 102,600 5,766 7.51

Total loans receivable (1)

7,945,420 228,866 3.83 7,834,933 206,056 3.50

580,178 23,238 5.34 1,173,959 14,121 1.60

Investment securities (2)(3)

202,392 7,115 4.69 525,035 2,671 0.68

FHLB stock (4)

107,448 7,591 9.44 170,652 11,025 8.64

Cash and cash equivalents (5)

320,398 13,166 5.40 1,182,559 37,657 4.20

Total interest-earning assets 9,155,836 279,976 4.06 10,887,138 271,530 3.32

Other non-interest-earning assets 461,030 261,221

Total assets $ 9,616,866 $ 11,148,359

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 879,536 1,389 0.21 $ 982,372 1,056 0.14

Savings 480,656 854 0.24 536,363 343 0.09

Money market 1,322,851 17,702 1.79 1,622,486 12,513 1.03

Retail certificates 2,643,182 76,603 3.87 2,193,096 34,567 2.11

Commercial certificates 52,961 1,596 4.02 38,970 608 2.09

Wholesale certificates 116,590 3,947 4.52 126,567 3,402 3.59

Total deposits 5,495,776 102,091 2.48 5,499,854 52,489 1.28

Borrowings (6)

2,375,474 56,648 3.18 3,829,154 96,504 3.35

Total interest-bearing liabilities 7,871,250 158,739 2.69 9,329,008 148,993 2.13

Non-interest-bearing deposits 533,454 569,239

Other non-interest-bearing liabilities 179,929 175,176

Stockholders' equity 1,032,233 1,074,936

Total liabilities and stockholders' equity $ 9,616,866 $ 11,148,359

Net interest income (7)

$ 121,237 $ 122,537

Net interest-earning assets $ 1,284,586 $ 1,558,130

Net interest margin (8)

Ratio of interest-earning assets to interest-bearing liabilities 1.16x 1.17x

Selected performance ratios:

Return on average assets (annualized) (9)(14)

0.36 % 0.46 %

Return on average equity (annualized) (10)(14)

Average equity to average assets 10.73 9.64

Operating expense ratio (annualized) (11)

Efficiency ratio (12)(14)

Pre-tax yield on leverage strategy (13)

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

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

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

(3) The average balance of investment securities includes an average balance of nontaxable securities of $68 thousand and $1.1 million for the nine month periods ended June 30, 2024 and June 30, 2023, respectively.

(4) There was no FHLB stock related to the leverage strategy for the nine month period ended June 30, 2024.

Included in this line, for the nine month period ended June 30, 2023, is FHLB stock related to the leverage strategy with an average outstanding balance of $52.0 million and dividend income of $3.4 million, at a weighted average yield of 8.65%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $118.7 million and dividend income of $7.7 million, at a weighted average yield of 8.63%.

(5) There was no cash and cash equivalents related to the leverage strategy during the nine month period ended June 30, 2024.

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.10 billion and interest income of $34.7 million, at a weighted average yield of 4.14% during the nine month period ended June 30, 2023.

(6) There were no borrowings related to the leverage strategy during the nine month period ended June 30, 2024.

Included in this line, for the nine month period ended June 30, 2023, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.16 billion and interest paid of $36.5 million, at a weighted average rate of 4.17%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.67 billion and interest paid of $60.0 million, at a weighted average rate of 2.99%.

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

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

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

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

Management believes the net interest margin is important to investors as it is a profitability measure for financial institutions.

(9) Return on average assets represents annualized net income as a percentage of total average assets.

Management believes that the return on average assets is important to investors as it shows the Company's profitability in relation to the Company's average assets.

(10) Return on average equity represents annualized net income as a percentage of total average equity.

Management believes that the return on average equity is important to investors as it shows the Company's profitability in relation to the Company's average equity.

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

Management believes the operating expense ratio is important to investors as it provides insight into how efficiently the Company is managing its expenses in relation to its assets.

It is a financial measurement ratio that does not take into consideration changes in interest rates.

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

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

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

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

Management believes this ratio is important to investors as it provides the yield the Company is earning on the leverage strategy transaction.

(14) The table below provides a reconciliation between performance measures presented in accordance with GAAP and the same performance measures absent the impact of the net loss on the securities transactions associated with the securities strategy, which are not presented in accordance with GAAP.

The securities strategy was non-recurring in nature;

therefore management believes it is meaningful to investors to present certain financial measures without the securities strategy to better evaluate the Company's core operations.

See information regarding the securities strategy in the "Executive Summary" discussion above.

For the Nine Months Ended

June 30, 2024

Actual Securities Strategy

(GAAP) Strategy (Non-GAAP)

Return on average assets (annualized) 0.36 % (0.14) % 0.50 %

Return on average equity (annualized) 3.35 (1.31) 4.66

Efficiency Ratio 69.77 6.90 62.87

$ 0.20 $ (0.08) $ 0.28

(15) EPS is calculated as net income divided by average shares outstanding.

Management believes EPS is an important measure to investors as it shows the Company's earnings in relation to the Company's outstanding shares.

Rate/Volume Analysis

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

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

For the Nine Months Ended

June 30, 2024 vs.

June 30, 2023

Increase (Decrease) Due to

Volume Rate Total

(Dollars in thousands)

Interest-earning assets:

Loans receivable $ 5,993 $ 16,817 $ 22,810

MBS (10,110) 19,227 9,117

Investment securities (2,555) 6,999 4,444

FHLB stock (4,355) 921 (3,434)

Cash and cash equivalents (33,056) 8,565 (24,491)

Total interest-earning assets (44,083) 52,529 8,446

Interest-bearing liabilities:

Checking (119) 452 333

Savings (39) 550 511

Money market (2,638) 7,828 5,190

Certificates of deposit 8,633 34,935 43,568

Borrowings (45,882) 6,026 (39,856)

Total interest-bearing liabilities (40,045) 49,791 9,746

Net change in net interest income $ (4,038) $ 2,738 $ (1,300)

Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023

For the quarter ended June 30, 2024, the Company recognized net income of $9.6 million, or $0.07 per share, compared to net income of $8.3 million, or $0.06 per share for the quarter ended June 30, 2023.

The increase in net income was due primarily to an increase in net interest income partially offset by higher income tax expense, mainly from income tax expense on the quarterly earnings distribution from the Bank to the holding company due to the Bank's pre-1988 bad debt recapture.

The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.03 per share in the current year quarter.

The net interest margin increased 45 basis points, from 1.32% for the prior year quarter to 1.77% for the current quarter, due primarily to higher yields on securities and loans and a lower average balance on borrowings, which outpaced the increase in the cost of deposits, largely retail certificates of deposit.

The leverage strategy was in place during the prior year quarter, but was not in place during the current quarter.

The leverage strategy negatively impacted the net interest margin for the prior year quarter by seven basis points.

Income tax expense was higher in the prior quarter due primarily to recording $2.0 million of federal income tax expense associated with the Bank's pre-1988 bad debt recapture during the quarter, along with higher state income tax expense mainly related to the tax treatment of the bad debt recapture.

The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.02 per share in the prior quarter.

The income tax on the earnings distribution from the Bank to the Company during the prior quarter was due to the recapture of a portion of the Bank's bad debt reserves which were established prior to September 30, 1988, and are included in the Bank's retained earnings ("pre-1988 bad debt reserves").

A taxable net loss was reported on the Company's September 30, 2024 federal tax return due to net losses associated with the securities strategy (defined in the "Executive Summary - Securities Strategy to Improve Earnings" section above), which resulted in the Bank and Company having a negative current and accumulated earnings and profit tax position.

This required the Bank to draw upon the pre-1988 bad debt reserves for distributions from the Bank to the Company and to pay taxes on the reduction to the pre-1988 bad debt reserves at the current corporate tax rate as of time of such distribution ("pre-1988 bad debt recapture").

It is the intention of management and the Board of Directors to not make distributions from the Bank to the Company during fiscal year 2025 to limit the tax associated with the pre-1988 bad debt recapture.

It is currently anticipated that the Bank will have sufficient taxable income during fiscal year 2025 to replenish the Bank's tax accumulated earnings and profits to a positive level allowing the Bank to make earnings distributions to the Company beginning in fiscal year 2026 and not have those distributions subject to the pre-1988 bad debt recapture tax.

Comparison of Operating Results for the Three Months Ended December 31, 2024 and 2023

The Company recognized net income of $15.4 million, or $0.12 per share, for the current quarter, compared to net income of $2.5 million, or $0.02 per share, for the prior year quarter.

The lower net income in the prior year quarter was primarily a result of the impairment loss on the securities associated with the securities strategy.

See additional discussion regarding the securities strategy in the "Executive Summary - Securities Strategy to Improve Earnings" section above.

The securities associated with the securities strategy were sold in the prior year quarter, and in that quarter the Company incurred $13.3 million ($10.0 million net of tax) of net losses related to the sale of those securities.

Excluding the effects of the net loss associated with the securities strategy, EPS would have been $0.10 for the prior year quarter.

The increase in EPS excluding the effects of the net loss associated with the securities strategy was due primarily to higher net interest income in the current quarter.

The net interest margin increased 15 basis points, from 1.71% for the prior year quarter to 1.86% for the current quarter.

The increase was due mainly to higher yields on loans and securities, which outpaced the increase in the cost of deposits, largely in retail certificates of deposit, along with the continued shift of loan balances from the one- to four-family loan portfolio to the higher yielding commercial loan portfolio.

Interest and Dividend Income

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2024 2023 Dollars Percent

3 unchanged sentences

MBS 11,024 5,859 5,165 88.2

Cash and cash equivalents 3,875 10,009 (6,134) (61.3)

FHLB stock 2,352 2,586 (234) (9.0)

Cash and cash equivalents 1,871 4,778 (2,907) (60.8)

Investment securities 981 2,528 (1,547) (61.2)

Total interest and dividend income $ 97,622 $ 91,692 $ 5,930 6.5

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

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

The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield, partially offset by a decrease in the average balance, both mainly a result of the securities strategy.

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

Interest income on cash and cash equivalents related to the leverage strategy decreased $7.5 million and dividend income on FHLB stock related to the leverage strategy decreased $610 thousand compared to the prior year quarter.

Interest income on cash and cash equivalents not associated with the leverage strategy increased $1.4 million due primarily to an increase in the average balance of cash which was mainly a result of the securities strategy.

The increase in interest income on loans receivable was due largely to an increase in the weighted average yield, along with an increase in the average balance of the portfolio primarily as a result of growth in the commercial loan portfolio as the loan portfolio mix continued to shift from one- to four-family loans to commercial loans.

The increase in the weighted average yield was due primarily to originations at higher market rates between periods, as well as disbursements on commercial real estate and commercial construction loans at rates higher than the overall portfolio rate.

The increase in interest income on MBS securities was due mainly to an increase in the average balance of the portfolio, along with an increase in the weighted average yield compared to the prior year quarter.

The increase in the average balance was due mainly to securities purchases between periods.

The higher weighted average yield was due mainly to the securities strategy, as the proceeds from the sale of securities during the prior year quarter were reinvested into higher yielding securities, and due to additional securities purchases between periods at higher yields than the prior year quarter.

Interest income on cash and cash equivalents decreased due largely to a decrease in the average balance of cash and cash equivalents, as a result of cash balances being drawn down during the prior fiscal year to fund loans and other operational needs.

The decrease in interest income on investment securities was due primarily to a decrease in average balance, partially offset by an increase in the weighted average yield, both due to the securities strategy.

Additionally, the investment securities purchased with the proceeds from the securities strategy were invested into shorter term securities which were largely called or matured during fiscal year 2024.

Interest Expense

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

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

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2024 2023 Dollars Percent

4 unchanged sentences

Total interest expense $ 55,392 $ 52,099 $ 3,293 6.3

The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid and the average balance of the retail certificate of deposit portfolio.

Interest expense on borrowings associated with the leverage strategy decreased $7.9 million compared to the prior year quarter due to the leverage strategy being in place during the prior year quarter and not being in place during the current year quarter.

Interest expense on borrowings not associated with the leverage strategy decreased $5.1 million due primarily to a decrease in borrowings under the Federal Reserve's BTFP, which were repaid during the quarter ended December 31, 2023 in association with the securities strategy.

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

To a lesser extent, an increase in the average balance of retail certificates of deposit also increased interest expense on deposits.

The decrease in interest expense on borrowings was due to a decrease in the average balance, which was partially offset by higher interest rates on the borrowings that were replaced during fiscal year 2024.

The decrease in the average balance of borrowings was due to a decrease in borrowings under the BTFP, which were repaid during the prior year quarter using some of the proceeds resulting from the securities strategy, along with some FHLB borrowings that matured between periods and were not replaced.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $1.5 million, compared to a provision of $1.3 million during the prior year quarter.

See Comparison of "Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024" above for additional discussion regarding the provision for credit losses during the current quarter.

The Company recorded a provision for credit losses of $677 thousand during the current quarter, compared to a provision for credit losses of $123 thousand for the prior year quarter.

See "Comparison of Operating Results for the Three Months Ended December 31, 2024 and September 30, 2024" above for additional information regarding the provision for credit losses during the current quarter.

Non-Interest Income

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2024 2023 Dollars Percent

3 unchanged sentences

Insurance commissions 776 863 (87) (10.1)

Net loss from securities transactions — (13,345) 13,345 100.0

Other non-interest income 1,210 1,013 197 19.4

Total non-interest income $ 4,693 $ (8,894) $ 13,587 152.8

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the Bank's digital transformation project.

The decrease in other non-interest income was due mainly to a decrease in income on BOLI related to the receipt of death benefits in the prior year quarter while none were received in the current year quarter, along with a decrease in the fair value of a loan-related financial derivative.

The net loss from securities transactions in the prior year quarter related to the securities strategy.

The increase in other non-interest income was due mainly to a net loss on financial derivatives related to a lending relationship in the prior year quarter, largely driven by changes in market interest rates.

The financial derivatives related to the lending relationship matured during the fourth quarter of fiscal year 2024 so there was no such activity in the current quarter.

Non-Interest Expense

1 unchanged sentence

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2024 2023 Dollars Percent

4 unchanged sentences

Occupancy, net 3,333 3,372 (39) (1.2)

Federal insurance premium 1,352 1,231 121 9.8

Regulatory and outside services 1,113 1,643 (530) (32.3)

Federal insurance premium 1,038 1,860 (822) (44.2)

Advertising and promotional 822 988 (166) (16.8)

3 unchanged sentences

Total non-interest expense $ 27,148 $ 28,508 $ (1,360) (4.8)

The decrease in information technology and related expenses was due mainly to lower third-party project management expenses associated with the digital transformation project during the prior year quarter along with other costs no longer incurred that were associated with the previous system, partially offset by higher software licensing expenses resulting from new agreements associated with the digital transformation project.

The decrease in advertising and promotional expense was due primarily to the timing of campaigns between the periods.

The increase in salaries and employee benefits was mainly attributable to salary adjustments between periods to remain market competitive.

The decrease in information technology and related expense was due mainly to lower third-party project management expenses due to the Bank's new core system and ancillary systems ("digital transformation") project during the prior year quarter, along with lower software licensing expenses.

The decrease in regulatory and outside services was due to the prior year quarter including expenses related to the digital transformation project, along with a reduction in rates and usage related to certain outside services during the current year quarter.

The decrease in the federal insurance premium was due primarily to a decrease in the Federal Deposit Insurance Corporation ("FDIC") assessment rate as a result of the way the assessment rate was adjusted in fiscal year 2024 for the occurrence of the Bank's net loss during the quarter ended September 30, 2023.

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

The decrease in other non-

interest expense was due mainly to the maturity of an interest rate swap agreement during the current quarter which reduced the expense associated with the collateral held in relation to the interest rate swap and due to decreases in other miscellaneous expenses.

The Company's efficiency ratio was 57.86% for the current quarter compared to 92.86% for the prior year quarter.

The improvement in the efficiency ratio was due primarily to higher net interest income and lower non-interest expense in the current quarter.

The Company's operating expense ratio (annualized) for the current quarter was 1.17% compared to 1.09% for the prior year quarter, due mainly to lower average assets in the current quarter, partially offset by lower non-interest expense.

The decrease in average assets was due primarily to the securities strategy, which lowered the average balance of securities compared to the prior year quarter, along with the leverage strategy being in place at times during the prior year quarter, which increased assets.

The leverage strategy was not in place during the current year quarter.

Excluding the net losses from the securities strategy, the efficiency ratio would have been 64.73% for the prior year quarter.

Income Tax Expense

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

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

For the Three Months Ended

June 30, Change Expressed in:

December 31, Change Expressed in:

2024 2023 Dollars Percent

(Dollars in thousands)

Income before income tax expense $ 15,611 $ 9,904 $ 5,707 57.6 %

Income tax expense 5,963 1,602 4,361 272.2

Income before income tax expense (benefit) $ 19,098 $ 2,068 $ 17,030 823.5 %

Income tax expense (benefit) 3,667 (475) 4,142 872.0

Net income $ 15,431 $ 2,543 $ 12,888 506.8

Effective Tax Rate 19.2 % (23.0 %)

The higher income tax expense in the current year quarter was due primarily to recording $2.9 million of income taxes on the current quarter distribution of earnings from the Bank to the Company, along with higher pretax income in the current quarter.

The income tax expense on the distribution of earnings is also the main reason for the increase in the effective tax rate between periods as there was no such income tax expense on distributions in the prior year quarter.

See Comparison of "Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024" above for additional discussion.

Average Balance Sheet

Average outstanding balances are derived from average daily balances.

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

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

For the Three Months Ended

June 30, 2024 June 30, 2023

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans:

Originated $ 3,970,881 $ 35,612 3.59 % $ 4,052,906 $ 34,224 3.38 %

Correspondent purchased 2,317,550 18,854 3.25 2,491,016 19,937 3.20

Bulk purchased 130,876 731 2.23 141,985 527 1.49

Total one- to four-family loans 6,419,307 55,197 3.44 6,685,907 54,688 3.27

Commercial loans 1,371,631 19,311 5.57 1,180,906 15,172 5.08

Consumer loans 107,793 2,295 8.56 102,390 2,058 8.06

Total loans receivable (1)

7,898,731 76,803 3.88 7,969,203 71,918 3.60

675,506 9,585 5.68 1,126,953 4,562 1.62

Investment securities (2)(3)

163,765 2,255 5.51 525,012 895 0.68

FHLB stock (4)

106,122 2,477 9.39 146,482 3,260 8.93

Cash and cash equivalents (5)

283,939 3,875 5.40 769,434 10,009 5.15

Total interest-earning assets 9,128,063 94,995 4.15 10,537,084 90,644 3.43

Other non-interest-earning assets 451,143 271,898

Total assets $ 9,579,206 $ 10,808,982

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 874,477 508 0.23 $ 949,909 398 0.17

Savings 494,614 491 0.40 521,831 143 0.11

Money market 1,268,261 5,259 1.67 1,485,672 6,295 1.70

Retail certificates 2,751,521 28,106 4.11 2,339,477 15,685 2.69

Commercial certificates 58,059 623 4.31 44,083 307 2.80

Wholesale certificates 106,680 1,246 4.70 155,157 1,617 4.18

Total deposits 5,553,612 36,233 2.62 5,496,129 24,445 1.78

Borrowings (6)

2,297,228 18,438 3.22 3,520,594 31,449 3.57

Total interest-bearing liabilities 7,850,840 54,671 2.80 9,016,723 55,894 2.48

Non-interest-bearing deposits 534,901 556,682

Other non-interest-bearing liabilities 169,555 161,360

Stockholders' equity 1,023,910 1,074,217

Total liabilities and stockholders' equity $ 9,579,206 $ 10,808,982

Net interest income (7)

$ 40,324 $ 34,750

Net interest-earning assets $ 1,277,223 $ 1,520,361

Net interest margin (8)

Ratio of interest-earning assets to interest-bearing liabilities 1.16x 1.17x

Selected performance ratios:

Return on average assets (annualized) (9)

0.40 % 0.31 %

Return on average equity (annualized) (10)

Average equity to average assets 10.69 9.94

Operating expense ratio (annualized) (11)

Efficiency ratio (12)

Pre-tax yield on leverage strategy (13)

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

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

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

(3) There were no nontaxable securities included in the average balance of investment securities for the three months ended June 30, 2024.

The average balance of investment securities includes an average balance of nontaxable securities of $1.0 million for the three months ended June 30, 2023.

(4) There was no FHLB stock related to the leverage strategy for the three months ended June 30, 2024.

Included in this line, for the three months ended June 30, 2023 is FHLB stock related to the leverage strategy with an average outstanding balance of $27.2 million and dividend income of $610 thousand, at a weighted average yield of 9.00%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $119.3 million and dividend income of $2.7 million, at a weighted average yield of 8.91%.

(5) There was no cash and cash equivalents related to the leverage strategy during the three months ended June 30, 2024.

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $577.2 million and interest income of $7.5 million, at a weighted average yield of 5.15% during the three months ended June 30, 2023.

(6) There was no FHLB borrowings related to the leverage strategy for the three months ended June 30, 2024.

Included in this line, for the three months ended June 30, 2023 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $604.4 million and interest paid of $7.9 million, at a weighted average rate of 5.20%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.92 billion and interest paid of $23.5 million, at a weighted average rate of 3.23%.