Capitol Federal Financial, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the Company's press releases, and in other communications by the Company, which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements: • our ability to maintain overhead costs at reasonable levels; • 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; • our ability to extend our commercial banking and trust asset management expertise across our market areas; • fluctuations in deposit flows; • 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; • the strength of the U.S. economy in general and the strength and/or the availability of labor in the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans, originated commercial loans, and entered into commercial loan participations; • changes in real estate values, unemployment levels, general economic trends, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL and may adversely affect our business; • increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets; • results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL; • changes in accounting principles, policies, or guidelines; • the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB"); • the effects of, and changes in, trade and fiscal policies and laws of the United States government; • the effects of, and changes in, foreign and military policies of the United States government; • inflation, interest rate, market, monetary, and currency fluctuations and the effects of a potential economic recession or slower economic growth; • the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment; • the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services; • the willingness of users to substitute competitors' products and services for our products and services; • our success in gaining regulatory approval of our products and services and branching locations, when required; • the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry; • the ability to attract and retain skilled employees; • implementing business initiatives may be more difficult or expensive than anticipated; • significant litigation; • technological changes; • our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyberattacks; • changes in consumer spending, borrowing and saving habits; and • our success at managing the risks involved in our business. 32 This list of factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank. As used in this Form 10-Q, unless we specify or the context indicates otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation, and its subsidiaries. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc. The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company except where the context indicates otherwise. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2024, filed with the SEC. 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, https://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 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. 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. Executive Summary The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety. The Company recognized net income of $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. 33 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 "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 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. 34 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. 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. 35 Financial Condition The following table summarizes the Company's financial condition at the dates indicated. Annualized December 31, September 30, Percent 2024 2024 Change (Dollars and shares in thousands) Total assets $ 9,538,167 $ 9,527,608 0.4 % AFS securities 861,501 856,266 2.4 Loans receivable, net 7,953,556 7,907,338 2.3 Deposits 6,206,117 6,129,982 5.0 Borrowings 2,163,775 2,179,564 (2.9) Stockholders' equity 1,026,939 1,032,270 (2.1) Equity to total assets at end of period 10.8 % 10.8 % Average number of basic shares outstanding 129,973 129,918 0.2 Average number of diluted shares outstanding 129,973 129,918 0.2 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. 36 Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. December 31, 2024 September 30, 2024 December 31, 2023 Amount Rate Amount Rate Amount Rate (Dollars in thousands) One- to four-family: Originated $ 3,907,809 3.64 % $ 3,941,952 3.60 % $ 3,986,479 3.44 % Correspondent purchased 2,163,847 3.48 2,212,587 3.48 2,360,843 3.45 Bulk purchased 123,029 2.97 127,161 2.80 134,504 2.10 Construction 19,165 6.35 22,970 6.05 43,631 4.47 Total 6,213,850 3.58 6,304,670 3.55 6,525,457 3.42 Commercial: Commercial real estate 1,353,482 5.48 1,191,624 5.43 1,019,431 5.27 Commercial and industrial 131,267 6.66 129,678 6.66 113,686 6.46 Construction 161,744 6.14 187,676 6.40 196,493 5.41 Total 1,646,493 5.64 1,508,978 5.65 1,329,610 5.39 Consumer loans: Home equity 103,006 8.31 99,988 8.90 96,952 8.84 Other 9,680 5.77 9,615 5.72 9,670 5.32 Total 112,686 8.09 109,603 8.62 106,622 8.52 Total loans receivable 7,973,029 4.07 7,923,251 4.02 7,961,689 3.82 Less: ACL 24,997 23,035 24,178 Deferred loan fees/discounts 30,973 30,336 30,653 Premiums/deferred costs (36,497) (37,458) (40,652) Total loans receivable, net $ 7,953,556 $ 7,907,338 $ 7,947,510 Loan Activity - The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity presented in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate. For the Three Months Ended December 31, 2024 December 31, 2023 Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,923,251 4.02 % $ 7,984,381 3.76 % Originated and refinanced 265,731 6.76 101,402 7.00 Purchased and participations 69,790 7.21 3,497 5.91 Change in undisbursed loan funds (36,990) 83,246 Repayments (248,760) (210,611) Principal recoveries/ (charge-offs), net 7 (1) Other — (225) Ending balance $ 7,973,029 4.07 $ 7,961,689 3.82 37 The following table presents loan origination, refinance, and purchase/participation activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases/participations, and refinances are reported together. For the Three Months Ended December 31, 2024 December 31, 2023 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family $ 64,912 5.90 % 19.4 % $ 37,167 6.89 % 35.5 % One- to four-family construction 10,824 5.96 3.2 9,308 6.84 8.9 Commercial: Real estate 28,494 7.03 8.5 747 7.76 0.7 Commercial and industrial 16,875 7.49 5.0 2,605 7.06 2.5 Construction 1,135 8.00 0.3 132 9.00 0.1 Home equity 1,744 8.42 0.5 2,630 9.01 2.5 Consumer other 400 7.48 0.1 1,084 6.83 1.0 Total fixed-rate 124,384 6.44 37.0 53,673 7.01 51.2 Adjustable-rate: One- to four-family 2,928 6.38 0.9 18,486 6.65 17.6 One- to four-family construction 2,881 6.63 0.9 8,040 6.60 7.7 Commercial: Real estate 119,055 6.79 35.5 9,350 5.00 8.9 Commercial and industrial 9,811 7.28 2.9 3,555 7.88 3.4 Construction 65,906 7.47 19.6 3,947 8.41 3.8 Home equity 8,979 8.67 2.7 7,179 9.39 6.8 Consumer other 1,577 6.07 0.5 669 4.65 0.6 Total adjustable-rate 211,137 7.09 63.0 51,226 6.92 48.8 Total originated, refinanced and purchased/participations $ 335,521 6.85 100.0 % $ 104,899 6.96 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent purchased - one- to four-family $ — — $ 2,978 6.43 Participations and purchases - commercial 24,500 7.00 — — Total fixed-rate purchased/participations 24,500 7.00 2,978 6.43 Adjustable-rate: Correspondent purchased - one- to four-family — — 519 2.93 Participations and purchases - commercial 45,290 7.32 — — Total adjustable-rate purchased/participations 45,290 7.32 519 2.93 Total purchased/participation loans $ 69,790 7.21 $ 3,497 5.91 38 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 December 31, 2024. Credit scores were updated in September 2024 from a nationally recognized consumer rating agency. 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. In most cases, the most recent appraisal was obtained at the time of origination. % of Credit Average Amount Total Rate Score LTV Balance (Dollars in thousands) Originated $ 3,907,809 62.9 % 3.64 % 771 58 % $ 169 Correspondent purchased 2,163,847 34.8 3.48 767 62 401 Bulk purchased 123,029 2.0 2.97 773 53 279 Construction 19,165 0.3 6.35 780 46 355 $ 6,213,850 100.0 % 3.58 770 60 214 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. Credit Amount Rate LTV Score (Dollars in thousands) $ 81,545 5.95 % 73 % 766 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. Amount Rate (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. Amount Rate (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 39 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 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 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 Count Principal Amount Amount Amount Amount (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 Senior housing 37 342,049 3,763 345,812 332,334 330,077 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 One- to four-family property 315 59,480 4,399 63,879 63,416 65,583 Single use building 31 39,799 262 40,061 43,438 43,815 Warehouse/manufacturing 48 34,272 297 34,569 34,656 36,056 Other 66 44,406 1,319 45,725 62,013 52,193 769 $ 1,515,226 $ 298,353 $ 1,813,579 $ 1,663,182 $ 1,540,995 Weighted average rate 5.55 % 6.77 % 5.75 % 5.77 % 5.44 % The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated. December 31, 2024 September 30, 2024 December 31, 2023 Unpaid Undisbursed Gross Loan Gross Loan Gross Loan Count Principal Amount Amount Amount Amount (Dollars in thousands) Kansas 566 $ 590,691 $ 118,471 $ 709,162 $ 713,437 $ 662,756 Texas 20 289,521 40,762 330,283 348,066 347,825 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 — 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 40 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) 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 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 December 31, 2024. 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 >$20 to $30 million 17 413,149 24,303 68.2 1.34 >$15 to $20 million 8 134,805 16,851 62.6 1.67 >$10 to $15 million 11 128,264 11,660 66.5 1.61 >$5 to $10 million 29 205,966 7,102 64.4 1.84 $1 to $5 million 113 262,671 2,325 60.1 2.13 Less than $1 million 584 126,693 217 53.9 3.80 774 $ 1,867,328 $ 2,413 62.3 1.75 41 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, 2023 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 Delinquent and nonaccrual loans and OREO. The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. 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 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: December 31, September 30, 2024 2024 Number Amount Number Amount (Dollars in thousands) One- to four-family: Originated 79 $ 9,768 69 $ 8,884 Correspondent purchased 11 2,988 12 3,049 Bulk purchased 1 32 2 68 Commercial: Commercial real estate 7 18,373 11 2,996 Commercial and industrial 1 125 4 391 Consumer 35 679 35 642 134 $ 31,965 133 $ 16,030 Loans 30 to 89 days delinquent to total loans receivable, net 0.40 % 0.20 % 42 The following table presents the Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO. Nonaccrual Loans and OREO at: December 31, September 30, 2024 2024 Number Amount Number Amount (Dollars in thousands) Loans 90 or More Days Delinquent or in Foreclosure: One- to four-family: Originated 26 $ 2,338 29 $ 2,274 Correspondent purchased 8 3,843 8 4,024 Bulk purchased 4 1,256 5 1,535 Commercial: Commercial real estate 7 2,038 7 1,163 Commercial and industrial 3 309 2 82 Consumer 22 356 20 436 70 10,140 71 9,514 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.13 % 0.12 % Nonaccrual loans less than 90 Days Delinquent: (1) Commercial: Commercial real estate 6 $ 1,096 3 $ 326 Commercial and industrial 1 125 2 252 7 1,221 5 578 Total nonaccrual loans 77 11,361 76 10,092 Nonaccrual loans as a percentage of total loans 0.14 % 0.13 % OREO: One- to four-family: Originated (2) — $ — 1 $ 55 — — 1 55 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 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. 43 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 December 31, 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 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 One- to Four-Family Days Delinquent or in Foreclosure State Amount % of Total Amount % of Total Amount % of Total LTV (Dollars in thousands) Kansas $ 3,449,689 55.5 % $ 8,593 67.2 % $ 2,265 30.5 % 54 % Missouri 1,069,498 17.2 2,515 19.7 572 7.7 65 Other states 1,694,663 27.3 1,680 13.1 4,600 61.8 56 $ 6,213,850 100.0 % $ 12,788 100.0 % $ 7,437 100.0 % 56 Classified loans. 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: Commercial real estate 15,106 42,249 16,169 2,302 Commercial and industrial 1,795 435 413 335 Consumer 219 512 326 487 $ 29,601 $ 65,451 $ 34,436 $ 25,839 44 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. Note 4. 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. 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 December 31, September 30, December 31, September 30, 2024 2024 2024 2024 (Dollars in thousands) One- to four-family: Originated $ 2,028 $ 1,650 0.05 % 0.04 % Correspondent purchased 1,583 1,861 0.07 0.08 Bulk purchased 131 146 0.11 0.11 Construction 15 16 0.08 0.07 Total 3,757 3,673 0.06 0.06 Commercial: Real estate 17,812 15,719 1.32 1.32 Commercial and industrial 1,209 1,186 0.92 0.91 Construction 1,978 2,249 1.22 1.20 Total 20,999 19,154 1.28 1.27 Consumer 241 208 0.21 0.19 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 2022 March 2023 June 2023 September 2023 December 2023 March 2024 June 2024 September 2024 December 2024 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 2022 March 2023 June 2023 September 2023 December 2023 March 2024 June 2024 September 2024 December 2024 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 45 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 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"). At or For the Three Months Ended December 31, 2024 December 31, 2023 (Dollars in thousands) Balance at beginning of period $ 23,035 $ 23,759 ASU 2022-02 Adoption 20 Charge-offs (17) (7) Recoveries 24 6 Net (charge-offs) recoveries 7 (1) Provision for credit losses 1,955 400 Balance at end of period $ 24,997 $ 24,178 Ratio of NCOs during the period to average non-performing assets (0.07) % 0.01 % ACL to nonaccrual loans at end of period 220.02 237.34 ACL to loans receivable, net at end of period 0.31 0.30 ACL at end of period to NCOs during the period (annualized) N/M (1) 6,474x (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. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories. 46 The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated. For the Three Months Ended December 31, 2024 December 31, 2023 NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans (Dollars in thousands) One- to four-family: Originated $ (3) $ 3,905,333 — % $ (5) $ 3,985,425 — % Correspondent — 2,212,300 — — 2,413,900 — Bulk purchased — 126,095 — — 136,609 — Construction — 20,094 — — 40,114 — Total (3) 6,263,822 — (5) 6,576,048 — Commercial: Real estate (19) 1,304,100 — — 1,015,756 — Commercial and industrial (1) 131,021 — (1) 114,561 — Construction — 171,627 — — 176,600 — Total (20) 1,606,748 — (1) 1,306,917 — Consumer: Home equity 15 101,335 0.01 2 96,315 — Other 1 9,326 0.01 5 9,643 0.05 Total 16 110,661 0.01 7 105,958 0.01 $ (7) $ 7,981,231 — $ 1 $ 7,988,923 — 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. Securities. 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 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. 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 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 $ 850,570 5.62 % 4.8 $ 829,852 5.63 % 5.2 47 The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio. 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 Three Months Ended December 31, 2024 December 31, 2023 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 856,266 5.63 % 5.2 $ 1,384,482 1.35 % 3.8 Maturities and repayments (51,574) (49,604) Proceeds from sale — (1,272,512) Net amortization of (premiums)/discounts 876 2,771 Purchases 71,416 4.89 6.7 668,310 5.72 3.8 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 Liabilities. 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. Deposits. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. The 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 Amount Rate Total Amount Rate Total Amount Rate Total (Dollars in thousands) Non-interest-bearing checking $ 556,515 — % 9.0 % $ 549,596 — % 9.0 % $ 555,382 — % 9.2 % Interest-bearing checking 888,287 0.22 14.3 847,542 0.23 13.8 895,665 0.17 14.9 Savings 611,063 1.21 9.9 540,572 0.82 8.8 471,372 0.12 7.8 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. 48 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 Commercial certificates of deposit 56,564 4.27 0.9 58,236 4.40 1.0 49,152 3.80 0.8 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 % 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. 49 Borrowings. 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. Maturity by Contractual Effective Fiscal Year Amount Rate Rate (1) (Dollars in thousands) 2025 $ 450,000 3.07 % 2.76 % 2026 575,000 2.81 2.95 2027 525,000 3.25 3.35 2028 355,738 4.59 4.16 2029 158,750 4.45 4.45 2030 100,000 4.20 4.20 $ 2,164,488 3.45 3.37 (1) The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. Line of credit borrowings and finance leases are excluded from the table. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. 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) Beginning balance $ 2,180,656 3.29 % 1.6 $ 2,882,828 3.34 % 1.8 Maturities and repayments (216,168) 3.42 (157,418) 3.46 New FHLB borrowings 200,000 4.27 3.7 150,000 4.66 3.7 BTFP, net — — — (500,000) 4.70 — Ending balance $ 2,164,488 3.37 1.6 $ 2,375,410 3.13 2.0 50 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 December 31, 2024. March 31, June 30, September 30, December 31, 2025 2025 2025 2025 Total (Dollars in thousands) Retail/Commercial Certificates: Amount $ 631,527 $ 675,472 $ 373,511 $ 447,877 $ 2,128,387 Repricing Rate 4.54 % 4.60 % 4.27 % 3.95 % 4.39 % Public Unit Certificates: Amount $ 17,856 $ 8,341 $ 9,961 $ 9,735 $ 45,893 Repricing Rate 4.90 % 4.51 % 4.46 % 3.92 % 4.53 % Term Borrowings: Amount $ 150,000 $ 200,000 $ 100,000 $ 200,000 $ 650,000 Repricing Rate 1.93 % 3.27 % 2.97 % 2.89 % 2.80 % Total Amount $ 799,383 $ 883,813 $ 483,472 $ 657,612 $ 2,824,280 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 December 31, 2024. Retail certificates of deposit 0.8 Commercial certificates of deposit 0.6 Public unit certificates of deposit 0.6 Total certificates of deposit 0.8 51 Stockholders' Equity. 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 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 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. 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 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 2025 2024 2023 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31 $ 11,062 $ 0.085 $ 11,127 $ 0.085 $ 11,319 $ 0.085 Quarter ended June 30 — — 11,044 0.085 11,321 0.085 Quarter ended September 30 — — 11,043 0.085 11,323 0.085 Quarter ended December 31 — — 11,061 0.085 11,308 0.085 Calendar year-to-date dividends paid $ 11,062 $ 0.085 $ 44,275 $ 0.340 $ 45,271 $ 0.340 52 Operating Results The following table presents selected income statement and other information for the quarters indicated. For the Three Months Ended December 31, September 30, June 30, March 31, December 31, 2024 2024 2024 2024 2023 (Dollars in thousands, except per share data) Interest and dividend income: Loans receivable $ 81,394 $ 79,841 $ 76,803 $ 76,122 $ 75,941 MBS 11,024 10,412 9,585 7,794 5,859 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 Total interest and dividend income 97,622 96,867 94,995 93,289 91,692 Interest expense: Borrowings 18,047 18,585 18,438 18,554 19,656 Deposits 37,345 37,458 36,233 33,415 32,443 Total interest expense 55,392 56,043 54,671 51,969 52,099 Net interest income 42,230 40,824 40,324 41,320 39,593 Provision for credit losses 677 (637) 1,472 301 123 Net interest income (after provision for credit losses) 41,553 41,461 38,852 41,019 39,470 Non-interest income 4,693 4,786 4,709 4,643 (8,894) Non-interest expense 27,148 27,040 27,950 28,445 28,508 Income tax (benefit) expense 3,667 7,150 5,963 3,455 (475) Net income $ 15,431 $ 12,057 $ 9,648 $ 13,762 $ 2,543 Efficiency ratio 57.86 % 59.29 % 62.07 % 61.89 % 92.86 % Operating expense ratio (annualized) 1.14 % 1.13 % 1.17 % 1.19 % 1.18 % Basic EPS $ 0.12 $ 0.09 $ 0.07 $ 0.11 $ 0.02 Diluted EPS 0.12 0.09 0.07 0.11 0.02 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. 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. 53 For the Three Months Ended 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 Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans: Originated $ 3,925,427 $ 36,375 3.71 % $ 3,956,014 $ 36,188 3.66 % $ 4,025,539 $ 35,060 3.48 % Correspondent purchased 2,212,300 18,089 3.27 2,262,838 18,705 3.31 2,413,900 19,660 3.26 Bulk purchased 126,095 895 2.84 128,520 839 2.61 136,609 694 2.03 Total one- to four-family loans 6,263,822 55,359 3.54 6,347,372 55,732 3.51 6,576,048 55,414 3.37 Commercial loans 1,606,748 23,756 5.79 1,483,197 21,756 5.74 1,306,917 18,267 5.47 Consumer loans 110,661 2,279 8.19 109,404 2,353 8.56 105,958 2,260 8.46 Total loans receivable (1) 7,981,231 81,394 4.05 7,939,973 79,841 4.00 7,988,923 75,941 3.78 MBS(2) 781,252 11,024 5.64 736,695 10,412 5.65 526,733 5,859 4.45 Investment securities (2)(3) 72,561 981 5.41 115,856 1,634 5.64 266,873 2,528 3.79 FHLB stock 99,151 2,352 9.41 101,942 2,418 9.44 108,648 2,586 9.44 Cash and cash equivalents 154,752 1,871 4.73 187,484 2,562 5.35 346,220 4,778 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 Other non-interest-earning assets 463,322 458,253 466,084 Total assets $ 9,552,269 $ 9,540,203 $ 9,703,481 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 865,738 531 0.24 $ 853,921 590 0.27 $ 886,530 445 0.20 Savings 567,533 1,422 0.99 531,579 972 0.73 472,819 138 0.12 Money market 1,245,714 4,212 1.34 1,243,150 4,630 1.48 1,364,565 6,737 1.96 Retail certificates 2,812,034 29,755 4.20 2,789,666 29,601 4.22 2,555,375 23,199 3.60 Commercial certificates 57,859 636 4.36 59,020 651 4.39 49,558 463 3.70 Wholesale certificates 69,487 789 4.50 87,259 1,014 4.62 130,857 1,461 4.43 Total deposits 5,618,365 37,345 2.64 5,564,595 37,458 2.68 5,459,704 32,443 2.36 Borrowings 2,171,476 18,047 3.30 2,227,278 18,585 3.31 2,467,410 19,656 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 Non-interest-bearing deposits 544,548 534,912 537,144 Other non-interest-bearing liabilities 186,227 184,320 202,743 Stockholders' equity 1,031,653 1,029,098 1,036,480 Total liabilities and stockholders' equity $ 9,552,269 $ 9,540,203 $ 9,703,481 Net interest income (4) $ 42,230 $ 40,824 $ 39,593 Net interest-earning assets $ 1,299,106 $ 1,290,077 $ 1,310,283 Net interest margin (5) 1.86 1.80 1.71 Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.17x 1.17x Selected performance ratios: Return on average assets (annualized) (6)(10) 0.65 % 0.51 % 0.10 % 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 (8) 1.14 1.13 1.18 Efficiency ratio (9)(10) 57.86 59.29 92.86 54 (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 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. 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. (5) 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. (6) 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. (7) 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. (8) 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. (9) 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. (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 Without Securities 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 EPS (11) $ 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. 55 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 periods indicated. 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 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) Interest-earning assets: Loans receivable $ 1,112 $ 441 $ 1,553 $ 1,693 $ 3,760 $ 5,453 MBS 629 (17) 612 3,320 1,845 5,165 Investment securities (588) (65) (653) (2,337) 790 (1,547) FHLB stock (66) — (66) (225) (9) (234) Cash and cash equivalents (416) (275) (691) (2,375) (532) (2,907) Total interest-earning assets 671 84 755 76 5,854 5,930 Interest-bearing liabilities: Checking 69 381 450 (11) 97 86 Savings 8 (67) (59) 33 1,251 1,284 Money market 10 (428) (418) (547) (1,978) (2,525) Certificates of deposit 37 (123) (86) 1,964 4,093 6,057 Borrowings (456) (82) (538) (2,768) 1,159 (1,609) Total interest-bearing liabilities (332) (319) (651) (1,329) 4,622 3,293 Net change in net interest income $ 1,003 $ 403 $ 1,406 $ 1,405 $ 1,232 $ 2,637 56 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 Three Months Ended December 31, September 30, Change Expressed in: 2024 2024 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 81,394 $ 79,841 $ 1,553 1.9 % MBS 11,024 10,412 612 5.9 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 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 Three Months Ended December 31, September 30, Change Expressed in: 2024 2024 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 37,345 $ 37,458 $ (113) (0.3) % Borrowings 18,047 18,585 (538) (2.9) Total interest expense $ 55,392 $ 56,043 $ (651) (1.2) 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. 57 Provision for Credit Losses 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 Three Months Ended December 31, September 30, Change Expressed in: 2024 2024 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,707 $ 2,830 $ (123) (4.3) % Insurance commissions 776 754 22 2.9 Other non-interest income 1,210 1,202 8 0.7 Total non-interest income $ 4,693 $ 4,786 $ (93) (1.9) 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 December 31, September 30, Change Expressed in: 2024 2024 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 14,232 $ 13,086 $ 1,146 8.8 % Information technology and related expense 4,550 4,637 (87) (1.9) Occupancy, net 3,333 3,442 (109) (3.2) 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) Deposit and loan transaction costs 591 584 7 1.2 Office supplies and related expense 399 506 (107) (21.1) Other non-interest expense 1,070 1,220 (150) (12.3) Total non-interest expense $ 27,148 $ 27,040 $ 108 0.4 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. 58 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 December 31, September 30, Change Expressed in: 2024 2024 Dollars Percent (Dollars in thousands) Income before income tax expense $ 19,098 $ 19,207 $ (109) (0.6) % Income tax expense 3,667 7,150 (3,483) (48.7) Net income $ 15,431 $ 12,057 $ 3,374 28.0 Effective Tax Rate 19.2 % 37.2 % 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. 59 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 December 31, Change Expressed in: 2024 2023 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 81,394 $ 75,941 $ 5,453 7.2 % MBS 11,024 5,859 5,165 88.2 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 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 time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2024 2023 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 37,345 $ 32,443 $ 4,902 15.1 % Borrowings 18,047 19,656 (1,609) (8.2) 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 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. 60 Provision for Credit Losses 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 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 December 31, Change Expressed in: 2024 2023 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,707 $ 2,575 $ 132 5.1 % 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 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 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 December 31, Change Expressed in: 2024 2023 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 14,232 $ 12,992 $ 1,240 9.5 % Information technology and related expense 4,550 5,369 (819) (15.3) Occupancy, net 3,333 3,372 (39) (1.2) 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) Deposit and loan transaction costs 591 542 49 9.0 Office supplies and related expense 399 361 38 10.5 Other non-interest expense 1,070 1,381 (311) (22.5) Total non-interest expense $ 27,148 $ 28,508 $ (1,360) (4.8) 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- 61 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. 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 quarter compared to 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 effective tax rate. For the Three Months Ended December 31, Change Expressed in: 2024 2023 Dollars Percent (Dollars in thousands) 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 %) In the prior year quarter, absent the income tax benefit associated with the net loss on the securities strategy, the effective tax rate would have been 18.0% and income tax expense would have been $2.8 million. Income tax expense was higher in the current quarter compared to the prior year quarter, excluding the income tax benefit associated with the net losses on the securities strategy, due to higher pretax income in the current quarter, along with a slightly higher effective tax rate in the current quarter. 62 Liquidity and Capital Resources Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents and AFS securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage long-term liquidity needs and the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios that meet or exceed the regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings. We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios. In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at the FHLB, in addition to the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management. The Bank's FHLB borrowing limit was 45% of Bank Call Report total assets as of December 31, 2024, as approved by FHLB senior management. FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral. At December 31, 2024, the amount of securities pledged for the discount window was $102.6 million. At December 31, 2024, there were no borrowings from the FRB of Kansas City's discount window. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal overnight borrowing. If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. Recently, the Bank started entering into fully-amortizing FHLB advances that require periodic payments of principal over the term of the advance. This type of advance allows the Bank the opportunity to start repricing its liability cash flows sooner in a down-rate environment and generally provides for favorable pricing when compared to similar long-term bullet advances with comparable average lives as a result of the current term structure of interest rates. The Bank's internal policy limits total borrowings to 55% of total assets. At December 31, 2024, the Bank had total borrowings, at par, of $2.16 billion, or approximately 23% of total assets. The borrowings balance was composed primarily of FHLB advances, of which, $734.7 million is scheduled to be repaid (amortizing advances) or mature in the next 12 months. Management estimated 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. At December 31, 2024, the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank has the ability to utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At December 31, 2024, the Bank had $777.6 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs. The Bank also has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of December 31, 2024, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At December 31, 2024, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 1% of total deposits. The Bank had pledged securities with an estimated fair value of $80.9 million as collateral for public unit certificates of deposit at December 31, 2024. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity. At December 31, 2024, $2.17 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $45.9 million of public unit certificates of deposit and $47.6 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard. Due 63 to the nature of public unit certificates of deposit and commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit. While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. We anticipate we will continue to have sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments. Limitations on Dividends and Other Capital Distributions OCC regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings (to the extent not previously distributed). A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution. The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining regulatory capital ratios greater than the required percentages) and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard. Management continues to evaluate the timing and amount of capital distributions to be made 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 Bank's pre-1988 bad debt recapture. See additional discussion regarding the Bank's pre-1988 bad debt recapture in "Comparison of Operating Results for the Three Months Ended December 31, 2024 and September 30, 2024". Regulatory Capital Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio of 9.0% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well-capitalized category under the agencies' PCA framework. As of December 31, 2024, the Bank's CBLR was 9.4% and the Company's CBLR was 10.1%, which exceeded the minimum requirements. The Bank's risk-based tier 1 capital ratio at December 31, 2024 was 16.1%. 64