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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2026-08-07 compared with 2026-05-08 · 50 added, 47 removed, 158 unchanged (38% of the section changed)

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Although management finds these assumptions reasonable, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and MVPE indicated in the below tables could vary substantially if different assumptions were used or actual experience differs from the assumptions.

To illustrate this point, the projected cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities within the next 12 months as a percentage of total assets ("one-year gap") is also provided for up/down 200 basis point scenarios, as of March 31, 2026.

Qualitative Disclosure about Market Risk

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The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates.

Certain assets, such as adjustable-rate loans, often have features that restrict changes in interest rates on a short-term basis and over the life of the asset.

Certain assets, such as adjustable-rate loans, often have features that limit changes in interest rates on a short-term basis and over the life of the asset.

In the event of a change in interest rates, prepayment rates would likely deviate significantly from those assumed in calculating the gap table below.

A positive gap means more cash flows from assets are expected to mature or reprice than cash flows from liabilities and suggests that, generally, in a rising rate environment, earnings should increase.

A negative gap means more cash flows from liabilities are expected to mature or reprice than cash flows from assets and suggests that, generally, in a rising rate environment, earnings should decrease.

A positive gap means more cash flows from interest-earning assets are expected to mature or reprice than cash flows from interest-bearing liabilities and suggests that, generally, in a rising rate environment, earnings would increase.

A negative gap means more cash flows from interest-bearing liabilities are expected to mature or reprice than cash flows from interest-earning assets and suggests that, generally, in a rising rate environment, earnings would decrease.

However, the gap position should not be viewed in isolation as a

measure of earnings sensitivity relative to a given change in interest rates as it does not incorporate the effects of other key behavioral assumptions, like deposit betas, that influence earnings.

For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.

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liabilities as a percent of total Bank assets at:

June 30, 2026 (11.7 %) (14.9 %) (5.9 %) 5.2 %

March 31, 2026 (8.1)

December 31, 2025 (12.6)

September 30, 2025 (10.1)

Cumulative one-year gap - interest rates +200 bps at:

June 30, 2026 (13.2)

March 31, 2026 (10.3)

December 31, 2025 (14.9)

September 30, 2025 (12.2)

Cumulative one-year gap - interest rates -200 bps at:

June 30, 2026 (6.9)

March 31, 2026 (3.6)

December 31, 2025 (8.4)

September 30, 2025 (5.8)

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(2) MBS reflect projected prepayments at amortized cost.

All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of March 31, 2026, at amortized cost.

All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2026, at amortized cost.

(3) Although the Bank's non-maturity deposits are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities.

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(4) Borrowings exclude deferred prepayment penalty costs.

Included in this line item is a $100.0 million FHLB adjustable-rate advance that is tied to an interest rate swap.

Included in this line item is a $100.0 million FHLB adjustable-rate advance that is tied to a pay-fixed interest rate swap.

The repricing of this liability is projected to occur at the maturity date of the interest rate swap, which will occur in June 2028.

At March 31, 2026, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(792.4) million, or (8.1%) of total assets, compared to $(983.6) million, or (10.1%) of total assets, at September 30, 2025.

The change in the one-year gap amount was due primarily to an increase in the amount of projected asset cash

flows coming due in one year, as of March 31, 2026, compared to September 30, 2025, partially offset by an increase in the amount of comparable liability cash flows.

The increase in projected assets cash flows was primarily within the Bank's commercial fixed-rate loan portfolio due to the origination of short-term fixed-rate loans during the current year and, to a lesser extent, the seasoning of its existing fixed-rate commercial loan portfolio, as well as to an increase in the amount of cash and cash equivalents as of March 31, 2026.

The increase in projected liability cash flows was primarily in the deposit portfolio as the Bank's non-maturity deposits increased between the two periods and its certificate of deposit portfolio continued to become more seasoned with a WAM of 0.7 years as of March 31, 2026, compared to a WAM of 0.8 years as of September 30, 2025.

The amount of interest-bearing liabilities expected to reprice in a given period typically is not significantly impacted by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty.

If interest rates were to increase 200 basis points, as of March 31, 2026, the Bank's one-year gap would have been projected to be $(1.01) billion, or (10.3%) of total assets.

If interest rates were to decrease 200 basis points, as of March 31, 2026, the Bank's one-year gap would have been projected to be $(354.9) million, or (3.6%) of total assets.

At June 30, 2026, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $1.13 billion, or (11.7%) of total assets, compared to $(983.6) million, or (10.1%) of total assets, at September 30, 2025.

The change in the one-year gap amount was due primarily to an increase in the amount of projected liability cash flows coming due in one year, as of June 30, 2026, compared to September 30, 2025, partially offset by an increase in the amount of comparable asset cash flows.

The increase in projected liability cash flows was in the deposit portfolio as the Bank's non-maturity deposits increased between the two periods and the amount of cash flows from its certificate of deposit portfolio projected to reprice within one year increased as of June 30, 2026 compared to September 30, 2025.

The increase in projected assets cash flows was within the Bank's commercial loan portfolio due to the origination of both adjustable and short-term fixed-rate loans during the current year and, to a lesser extent, the seasoning of its existing fixed-rate commercial loan portfolio.

This increase was partially offset by decreases in the amount of cash and cash equivalents as of June 30, 2026, and the balance of the Bank's one- to four-family loan portfolio.

The amount of interest-bearing liabilities expected to reprice in a given period is not entirely impacted by changes in interest rates as the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty.

If interest rates were to increase 200 basis points, as of June 30, 2026, the Bank's one-year gap would have been projected to be $(1.28) billion, or (13.2%) of total assets.

If interest rates were to decrease 200 basis points, as of June 30, 2026, the Bank's one-year gap would have been projected to be $(669.0) million, or (6.9%) of total assets.

The changes in the gap amounts compared to when there is no change in rates was due to changes in the anticipated net cash flows primarily as a result of projected prepayments on mortgage-related assets in each rate environment.

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Cash flows from mortgage-related assets and callable agency debentures can vary significantly as a result of changes in interest rates.

As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or endorsing their mortgage to a lower interest rate.

Similarly, agency debt issuers are more likely to exercise embedded call options and issue new securities at a lower interest rate.

The Bank did not hold any callable agency debentures as of March 31, 2026 or September 30, 2025.

As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or modifying their mortgage to a lower interest rate.

Similarly, agency debt issuers are more likely to exercise embedded call options and reissue securities at a lower interest rate.

The Bank did not hold any callable agency debentures as of June 30, 2026 or September 30, 2025.

For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates.

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Change Net Interest Income At

(in Basis Points) March 31, 2026 September 30, 2025

(in Basis Points) June 30, 2026 September 30, 2025

in Interest Rates (1)

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(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

In general, increases/(decreases) in the Bank's net interest income projections under the various interest rate scenarios presented are due to the degree in which cash flows are realized and the rates projected to be earned on funds received through loan and securities repayments, in each scenario, are greater/(less) than the rates projected to be paid on deposits and borrowings over the next 12 months.

The net interest income projection was higher in the base case scenario at March 31, 2026 compared to September 30, 2025, due primarily to an increase in the average rate of the Bank's loan portfolio and a decrease in the balance of FHLB borrowings, as the Bank paid off certain maturing borrowings, made payments on its amortizing borrowings, and restructured certain fixed-rate FHLB borrowings during the current fiscal year.

As of March 31, 2026, projected net interest income increased more in each of the increasing rate scenarios presented and decreased more in each of the decreasing rate scenarios presented, compared to September 30, 2025.

In general, increases/(decreases) in the Bank's net interest income projections under the various interest rate scenarios presented are due to the degree in which cash flows are realized and the rates projected to be earned on loan and securities repayments, in each scenario, are greater/(less) than the rates projected to be paid on deposits and borrowings over the next 12 months.

The net interest income projection was higher in the base case scenario at June 30, 2026 compared to September 30, 2025, due primarily to an increase in the average rate of the Bank's loan portfolio and a decrease in the balance of FHLB borrowings, as the Bank paid off certain maturing borrowings, made payments on its amortizing borrowings, and restructured certain fixed-rate FHLB borrowings during the current fiscal year.

As of June 30, 2026, projected net interest income increased marginally in each of the increasing rate scenarios presented and decreased marginally in each of the decreasing rate scenarios presented, compared to September 30, 2025.

The marginal changes in net interest income sensitivity was largely a result of continued growth in the Bank's commercial loan portfolio.

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The market value of an asset or liability reflects the present value of all the projected cash flows over its remaining life, discounted at market interest rates.

As interest rates rise, generally the market value for both financial assets and liabilities decrease.

Generally, as interest rates rise, the market values of financial assets and liabilities decrease.

The opposite is generally true as interest rates fall.

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The market value of shorter term-to-maturity and floating/adjustable-rate financial instruments are less sensitive to changes in interest rates than are longer term-to-maturity and fixed-rate financial instruments.

As a result, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to display less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives).

The average life of our mortgage-related assets varies under different interest rate environments because borrowers have the ability to prepay their mortgage loans.

As a result, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to exhibit less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives).

The average life of our mortgage-related assets varies under different interest rate environments because borrowers have an option to prepay their mortgage loans.

Therefore, as interest rates decrease, the WAL of mortgage-related assets typically decreases as well.

As interest rates increase, the WAL typically increases, which also increases the sensitivity of these assets in higher rate environments.

As interest rates increase, the WAL typically increases, which also increases the market value sensitivity of these assets in higher rate environments.

The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates.

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Change Market Value of Portfolio Equity At

(in Basis Points) March 31, 2026 September 30, 2025

(in Basis Points) June 30, 2026 September 30, 2025

in Interest Rates (1)

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(1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The Bank's estimated MVPE remained largely unchanged, increasing from $1.16 billion at September 30, 2025 to $1.18 billion at March 31, 2026.

Compositional changes on the balance sheet, including within the Bank's loan portfolio as it continues to redirect cash flows from its one- to four-family loan portfolio into the commercial loan portfolio, coupled with decreases (or tightening) in discount spreads applied to its mortgage-related assets, drove the marginal increase in MVPE.

This increase was partially offset by a

general steepening of the benchmark yield curve resulting from a decrease in interest rates along the short-end of the yield curve and increases in interest rates along the intermediate- and long-ends of the yield curve as of March 31, 2026.

The Bank's estimated MVPE increased from $1.16 billion at September 30, 2025 to $1.19 billion at June 30, 2026.

Compositional changes on the balance sheet, including within the Bank's loan portfolio as it continues to redirect a significant portion of cash flows from its one- to four-family loan portfolio into its commercial loan portfolio, coupled with decreases (or tightening) in discount spreads applied to its mortgage-related assets, drove the overall marginal increase in MVPE.

The increase was partially offset by a general steepening of the benchmark yield curve resulting from a decrease in interest rates along the short-end of the yield curve and

increases in interest rates along the intermediate- and long-end of the yield curve as of June 30, 2026.

The Bank generally has more interest-bearing liability cash flows tied to the short-end of the yield curve than it does interest-earning asset cash flows, and more interest-earning asset cash flows tied to the long-end of the yield curve.

During times of elevated interest rates, such as the current rate environment, the estimated market value of the Bank's fixed-rate one- to four-family loan portfolio in the base case scenario is decreased as the weighted average rate of the portfolio continues to be less than current market rates.

The Bank's commercial loans have been, predominately, originated more recently at current market rates, resulting in greater estimated market values in the base case compared to the Bank's one- to four-family loans.

To the extent that the balance of the Bank's one- to four-family loan portfolio, with overall average rates less than current market rates, continues to decrease and the balance of its commercial loans, with average rates closer to or above current market rates, continues to increase, the estimated market value of the Bank's overall loan portfolio, in the base case scenario, is expected to continue to increase.

During times of elevated market interest rates, such as the current rate environment, the estimated market value of the Bank's fixed-rate one- to four-family loan portfolio, in the base case scenario, is reduced as the weighted average rate of the portfolio is lower than current market rates.

The Bank's commercial loans have been, predominately, originated more recently than its one- to four-family loan portfolio and at more favorable, current market rates, resulting in higher market values, in the base case, compared to the Bank's one- to four-family loans.

To the extent that the balance of the Bank's one- to four-family loan portfolio, with overall average rates less than current market rates, continues to decrease and the balance of its commercial loan portfolio, with average rates closer to or above current market rates, continues to increase, then the estimated market value of the Bank's overall loan portfolio is expected to continue to increase.

Changes to the slope and/or relative levels of benchmark interest rates can also have a material impact on the estimated market value of the Bank's loan portfolio.

In the increasing interest rate scenarios, the sensitivity reflects the negative impacts of increasing rates on the market value of the Bank's loan and securities portfolios more so than on its deposit and borrowing portfolios.

This is because, as interest rates increase, fixed-rate borrowers generally have less economic incentive to prepay or to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets and longer average lives.

As interest rates increase in the rising interest rate scenarios, prepayments on mortgage-related assets are more likely to decrease and increasingly only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other major events as there is less economic incentive for them to prepay their debt, resulting in an increase in the estimated average lives of those mortgage-related assets.

Similarly, call projections for callable agency debentures decrease as interest rates rise, which results in cash flows related to those assets moving closer to their contractual maturity dates.

The longer expected average lives of those assets increase the sensitivity of their market value to changes in interest rates.

In the decreasing interest rate scenarios, the Bank's MVPE increases due to a larger increase in the estimated market value of the Bank's assets than its liabilities.

This is mainly due to the Bank's mortgage-related assets having greater cash flow sensitivity in these rate scenarios compared to our liabilities.

Cashflows from these assets increase in these rate environments, in general, because borrowers who obtained fixed-rate credit in a higher interest rate environment would have an economic incentive to prepay or to refinance their mortgages.

However, due to the majority of our loans having interest rates less than current market rates, the impact of projected prepayment speed increases due to a decrease in interest rates is not as significant.

The resulting shorter average lives discounted at comparably lower rates generally equates to an increase in their market value in lower interest rate environments.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2026.

In the increasing and decreasing interest rate scenarios presented above, the resulting changes to the Bank's MVPE are primarily due to its financial assets, in aggregate, having a greater effective duration than its financial liabilities.

Meaning, given a parallel change in interest rates, the resulting impact on the estimated market values of the Bank's financial assets will be greater than on its financial liabilities.

The Bank's financial assets have a greater effective duration, in aggregate, than do its financial liabilities primarily because of its one- to four-family loan portfolio, which is largely comprised of long-term fixed-rate loans.

The longer the expected average lives of these assets the greater the sensitivity of their market value to changes in interest rates.

The estimated amount and percentage change in the Bank's MVPE across the increasing interest rate scenarios is not entirely symmetrical with the results across like decreasing interest rate scenarios (the sensitivity of the Bank's MVPE in the decreasing rate scenarios is less than in the increasing rate scenarios).

This illustrates the effects negative convexity has on the market value of the Bank's mortgage-related assets, which largely contain embedded options like the ability to prepay or refinance a mortgage without a penalty.

Cash flows from these assets typically increase in decreasing rate environments because borrowers who obtained fixed-rate mortgages in a higher interest rate environment have an economic incentive to prepay or to refinance.

Increased cash flows on mortgage-related assets in lower rate environments shortens the lives of those assets.

Shorter average-lived assets are less sensitive to changes in interest rates, causing their market values to decrease less or increase if rates move low enough relative to the coupon rate on those mortgage-related assets in decreasing rate environments.

The opposite generally occurs in increasing interest rate scenarios.

Due to the majority of the Bank's one- to four-family loan portfolio currently having interest rates well below current market rates, the impact of projected prepayment speed increases resulting from a given decrease in interest rates is not as pronounced.

Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield.

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

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk