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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-2631712
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
700 South Kansas Avenue,Topeka,Kansas66603
(Address of principal executive offices)(Zip Code)

(785) 235-1341
(Registrant's telephone number, including area code)
_____________________________________
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
par value $0.01 per share		CFFNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒            Accelerated filer ☐        Non-accelerated filer ☐
Smaller reporting company ☐        Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 2, 2021, there were 138,833,184 shares of Capitol Federal Financial, Inc. common stock outstanding.


PART I - FINANCIAL INFORMATIONPage Number
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.



PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, September 30,
20212020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $74,346 and $172,430)
$95,305 $185,148 
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $2,002,957 and $1,529,605)
2,015,705 1,560,950 
Loans receivable, net (allowance for credit losses ("ACL") of $20,724 and $31,527)
7,033,827 7,202,851 
Federal Home Loan Bank Topeka ("FHLB") stock, at cost73,630 93,862 
Premises and equipment, net99,551 101,875 
Income taxes receivable, net891 — 
Other assets330,756 342,532 
TOTAL ASSETS$9,649,665 $9,487,218 
LIABILITIES:
Deposits$6,638,294 $6,191,408 
Borrowings1,582,400 1,789,313 
Advance payments by borrowers for taxes and insurance47,330 65,721 
Income taxes payable, net— 795 
Deferred income tax liabilities, net7,922 8,180 
Other liabilities136,095 146,942 
Total liabilities8,412,041 8,202,359 
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding
— — 
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,833,184 and 138,956,296 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively
1,388 1,389 
Additional paid-in capital1,189,466 1,189,853 
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(31,801)(33,040)
Retained earnings91,909 143,162 
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(13,338)(16,505)
Total stockholders' equity1,237,624 1,284,859 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,649,665 $9,487,218 
See accompanying notes to consolidated financial statements.

3

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2021202020212020
INTEREST AND DIVIDEND INCOME:
Loans receivable$54,779 $66,652 $172,758 $206,179 
Mortgage-backed securities ("MBS")5,360 5,616 16,499 17,584 
FHLB stock944 1,207 2,964 4,747 
Investment securities763 847 2,075 3,736 
Cash and cash equivalents26 59 117 1,126 
Total interest and dividend income61,872 74,381 194,413 233,372 
INTEREST EXPENSE:
Deposits11,475 16,533 38,071 52,299 
Borrowings7,826 11,561 26,885 37,421 
Total interest expense19,301 28,094 64,956 89,720 
NET INTEREST INCOME42,571 46,287 129,457 143,652 
PROVISION FOR CREDIT LOSSES(2,691)— (7,187)22,300 
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES45,262 46,287 136,644 121,352 
NON-INTEREST INCOME:
Deposit service fees3,227 2,539 8,988 8,384 
Gain on sale of Visa Class B shares— — 7,386 — 
Insurance commissions723 671 2,249 1,762 
Other non-interest income1,286 1,229 4,160 4,468 
Total non-interest income5,236 4,439 22,783 14,614 
NON-INTEREST EXPENSE:
Salaries and employee benefits13,867 13,059 41,402 39,765 
Information technology and related expense4,736 4,285 13,568 12,694 
Occupancy, net3,504 3,556 10,406 10,212 
Loss on interest rate swap termination— — 4,752 — 
Regulatory and outside services1,469 1,548 4,288 4,188 
Advertising and promotional1,407 1,004 3,729 3,773 
Deposit and loan transaction costs693 697 2,123 2,086 
Federal insurance premium633 287 1,888 287 
Office supplies and related expense402 475 1,289 1,586 
Other non-interest expense891 1,253 3,877 4,237 
Total non-interest expense27,602 26,164 87,322 78,828 
INCOME BEFORE INCOME TAX EXPENSE22,896 24,562 72,105 57,138 
INCOME TAX EXPENSE4,709 5,088 14,576 10,877 
NET INCOME$18,187 $19,474 $57,529 $46,261 
Basic earnings per share ("EPS")$0.13 $0.14 $0.42 $0.34 
Diluted EPS$0.13 $0.14 $0.42 $0.34 
Basic weighted average common shares135,504,869 138,018,052 135,450,951 137,961,231 
Diluted weighted average common shares135,537,152 138,018,052 135,477,566 137,992,978 
See accompanying notes to consolidated financial statements.
4

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2021202020212020
Net income$18,187 $19,474 $57,529 $46,261 
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $(1,841), $(1,775), $4,506, and $(4,962)
5,703 5,533 (14,091)15,459 
Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $29, $367, $(5,500), and $5,826
(88)(1,146)17,258 (18,151)
Comprehensive income$23,802 $23,861 $60,696 $43,569 
See accompanying notes to consolidated financial statements.

5

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Nine Months Ended June 30, 2021
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2020$1,389 $1,189,853 $(33,040)$143,162 $(16,505)$1,284,859 
Net income18,898 18,898 
Other comprehensive income, net of tax5,134 5,134 
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13, net of tax(2,288)(2,288)
ESOP activity80 413 493 
Restricted stock activity, net(8)(8)
Stock-based compensation118 118 
Repurchase of common stock(1)(1,407)(122)(1,530)
Cash dividends to stockholders ($0.215 per share)
(29,128)(29,128)
Balance at December 31, 20201,388 1,188,636 (32,627)130,522 (11,371)1,276,548 
Net income20,444 20,444 
Other comprehensive loss, net of tax(7,582)(7,582)
ESOP activity132 413 545 
Stock-based compensation134 134 
Stock options exercised24 24 
Cash dividends to stockholders ($0.085 per share)
(11,518)(11,518)
Balance at March 31, 20211,388 1,188,926 (32,214)139,448 (18,953)1,278,595 
Net income18,187 18,187 
Other comprehensive income, net of tax5,615 5,615 
ESOP activity118 413 531 
Restricted stock activity, net(5)(5)
Stock-based compensation127 127 
Stock options exercised300 300 
Cash dividends to stockholders ($0.485 per share)
(65,726)(65,726)
Balance at June 30, 2021$1,388 $1,189,466 $(31,801)$91,909 $(13,338)$1,237,624 
(Continued)
6

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Nine Months Ended June 30, 2020
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2019$1,414 $1,210,226 $(34,692)$174,277 $(14,899)$1,336,326 
Cumulative effect of adopting ASU 2016-02, net of tax88 88 
Net income22,511 22,511 
Other comprehensive income, net of tax4,972 4,972 
ESOP activity169 413 582 
Restricted stock activity, net(1)(1)
Stock-based compensation166 166 
Stock options exercised1 612 613 
Cash dividends to stockholders ($0.425 per share)
(58,663)(58,663)
Balance at December 31, 20191,415 1,211,172 (34,279)138,213 (9,927)1,306,594 
Net income4,276 4,276 
Other comprehensive loss, net of tax(12,051)(12,051)
ESOP activity117 413 530 
Stock-based compensation152 152 
Stock options exercised25 25 
Cash dividends to stockholders ($0.085 per share)
(11,733)(11,733)
Balance at March 31, 20201,415 1,211,466 (33,866)130,756 (21,978)1,287,793 
Net income19,474 19,474 
Other comprehensive income, net of tax4,387 4,387 
ESOP activity61 413 474 
Restricted stock activity, net(6)(6)
Stock-based compensation132 132 
Cash dividends to stockholders ($0.085 per share)
(11,734)(11,734)
Balance at June 30, 2020$1,415 $1,211,653 $(33,453)$138,496 $(17,591)$1,300,520 
See accompanying notes to consolidated financial statements.(Concluded)

7

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$57,529 $46,261 
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(2,964)(4,747)
Provision for credit losses(7,187)22,300 
Originations of loans receivable held-for-sale ("LHFS")(597)— 
Proceeds from sales of LHFS610 — 
Amortization and accretion of premiums and discounts on securities4,308 999 
Depreciation and amortization of premises and equipment6,938 6,812 
Amortization of intangible assets1,264 1,493 
Amortization of deferred amounts related to FHLB advances, net1,132 315 
Common stock committed to be released for allocation - ESOP1,569 1,586 
Stock-based compensation379 450 
Gain on the sale of Visa Class B shares(7,386)— 
Changes in:
Other assets, net8,776 5,049 
Income taxes payable/receivable, net(1,703)(1,649)
Deferred income tax liabilities, net(511)(2,507)
Other liabilities(10,780)(7,225)
Net cash provided by operating activities51,377 69,137 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities(953,818)(465,764)
Proceeds from calls, maturities and principal reductions of AFS securities476,158 469,995 
Proceeds from the redemption of FHLB stock24,225 421 
Purchase of FHLB stock(1,029)— 
Net change in loans receivable179,277 6,120 
Purchase of premises and equipment(8,108)(9,422)
Proceeds from sale of other real estate owned ("OREO")97 993 
Proceeds from the sale of Visa Class B shares7,386 — 
Proceeds from sale of assets held-for-sale977 — 
Proceeds from bank-owned life insurance ("BOLI") death benefit443 490 
Net cash (used in) provided by investing activities(274,392)2,833 
(Continued)
8

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(106,372)(82,130)
Net change in deposits446,886 487,817 
Proceeds from borrowings803,800 1,325,600 
Repayments on borrowings(1,006,800)(1,572,600)
Change in advance payments by borrowers for taxes and insurance(18,391)(26,561)
Payment of FHLB prepayment penalties(5,076)(4,215)
Repurchase of common stock(4,569)— 
Stock options exercised324 638 
Net cash provided by financing activities109,802 128,549 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS(113,213)200,519 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period239,708 253,700 
End of period$126,495 $454,219 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Operating lease right-of-use assets obtained$— $16,841 
Operating lease liabilities obtained$— $16,726 
See accompanying notes to consolidated financial statements.(Concluded)
9

Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $95.3 million and $185.1 million at June 30, 2021 and September 30, 2020, respectively, and restricted cash and cash equivalents of $31.2 million and $54.6 million at June 30, 2021 and September 30, 2020, respectively, which was included in other assets on the consolidated balance sheet.  The restricted cash and cash equivalents relate to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.  See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds.

Securities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSEs"), including Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association ("GNMA"), and municipal bonds. Securities are classified as held-to maturity ("HTM"), AFS, or trading based on management's intention for holding the securities on the date of purchase. Generally, classifications are made in response to liquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase.

Accrued interest receivable for all securities is reported in other assets on the consolidated balance sheet. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude accrued interest from all required disclosures of amortized cost was elected. Additionally, an election was made to not measure ACL for accrued interest receivables. Interest accrued but not received is reversed against interest income.

Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At June 30, 2021 and September 30, 2020, the portfolio did not contain any securities classified as HTM.

Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with unrealized gains and non-credit losses reported as a component of AOCI within stockholders' equity, net of deferred income taxes. The amortization of premiums and discounts are recognized as adjustments to interest income over the life of the securities using the level-yield method. Gains or losses on the disposition of AFS securities are recognized using the specific identification method. The Company primarily uses prices obtained from third-party pricing services to determine the fair value of securities. See additional discussion of fair value of AFS securities in "Note 6. Fair Value of Financial Instruments."

Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported at fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income. Neither the Company nor the Bank maintained a trading securities portfolio during the nine months ended June 30, 2021 or during fiscal year 2020.

Allowance for Credit Losses on AFS Debt Securities - Management monitors AFS debt securities for impairment on an ongoing basis and performs a formal review quarterly. If an AFS debt security is in an unrealized loss position at the time of the quarterly review, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost. If either condition is met, the entire loss in fair value is recognized in current earnings. If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. In making this assessment, management considers the security structure, the cause(s) and severity of the loss, expectations of future performance including recent events specific to the issuer or industry including
10

the issuer's financial condition and current ability to make future payments in a timely manner, and external credit ratings and recent downgrades in such ratings. Management's assessment involves a high degree of subjectivity and judgment that is based on information available at a point in time. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss has occurred, and an ACL is recorded, which became effective October 1, 2020 when the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses. The ACL is limited by the amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit losses is recognized in other comprehensive income. Prior to the adoption of ASU 2016-13, management assessed all known facts and circumstances to determine whether an other-than-temporary loss should be recognized for impaired securities. If an other-than-temporary impairment had occurred, the difference between the amortized cost and fair value was recognized as a loss in earnings and the security was written down to fair value.

Changes in the ACL on AFS debt securities are recorded as an increase or decrease in the provision for credit losses on the consolidated statements of income. Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met. Interest accrued on AFS debt securities but not received is also reversed against interest income. As of October 1, 2020 and June 30, 2021, the Company did not identify any credit losses related to the Company's AFS debt securities so there was no ACL on AFS debt securities as of those dates.

Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at amortized cost, excluding accrued interest. Amortized cost is the amount of unpaid principal, net of undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs. Net loan origination fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method. Loans are presented on the consolidated balance sheet net of the ACL on loans.

Interest on loans is accrued based on the principal amount outstanding. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost was elected. Additionally, an election was made to not measure ACL for accrued interest receivables.

Loan endorsements - Certain existing one- to four- family loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank, without being required to complete the standard application and underwriting process. The fee received for each endorsement is deferred and amortized as an adjustment to interest income over the life of the loan.  If the change in loan terms resulting from the endorsement is deemed to be more than minor, the loan is treated as a new loan and all existing unamortized deferred loan origination fees and costs are recognized at the time of endorsement.  If the change in loan terms is deemed to be minor, the fee received for the endorsement is added to the net remaining unamortized deferred fee or deferred cost balance.

Coronavirus Disease 2019 ("COVID-19") loan modifications - In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic ("COVID-19 loan modifications"). The Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or Interagency guidance when determining if a borrower's modification is subject to troubled debt restructuring ("TDR") classification. If it is determined that the modification does not meet the criteria under the CARES Act or Interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance as a result of COVID-19 loan modifications are not reported as past due or placed on nonaccrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans. Loans reported as COVID-19 loan modifications include all loans modified under the programs, including loans classified as TDRs.

Troubled debt restructurings - For borrowers experiencing financial difficulties, the Bank may grant a concession to the borrower.  Such concessions generally involve extensions of loan maturity dates, the granting of periods during which reduced payment amounts are required, and/or reductions in interest rates.  The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan amount. In the case of commercial loans, the Bank does not forgive principal or interest or commit to lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.

Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date. The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.
11


Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears. We also report certain TDR loans as nonaccrual loans that are required to be reported as such pursuant to regulatory reporting requirements. Loans on which the accrual of income has been discontinued are designated as nonaccrual and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed. A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due or, in the case of a TDR loan, the borrower has made the required consecutive loan payments. A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio, and the loan is well secured and within policy.

Allowance for Credit Losses on Loans Receivable - The ACL is a valuation amount that is deducted from the amortized cost basis of loans. It represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date and is determined using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts, along with the application of qualitative factors when necessary. The ACL is recorded upon origination or purchase of a loan and is updated at subsequent reporting dates. Changes in the ACL are recorded through increases or decreases to the provision for credit losses in the consolidated statements of income. The ACL is an estimate that requires significant judgment including projections of the macroeconomic environment. The macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.

The Bank's ACL is measured on a collective ("pool") basis, with loans aggregated into pools based on similar risk characteristics such as collateral type, historical loss experience, loan-to-value ("LTV") for one- to four-family loans, and payment sources for commercial loans. Loans that do not share similar risk characteristics are evaluated on an individual basis. Charge-offs against the related ACL amounts for any loan type may be recorded at any time if the Bank has knowledge of the existence of a probable loss.

One- to four-family loans and consumer home equity loans are deemed to be collateral dependent and individually evaluated for loss when the loan is generally 180 days delinquent, and any identified losses are charged-off at that time. Losses are based on new collateral values obtained through appraisals, less estimated costs to sell. Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount. If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan. When a non-real estate secured consumer loan is 120 days delinquent, any identified losses are charged-off. For commercial loans, loans are individually evaluated for loss if management determines they exhibit unique risk characteristics. Specific allocations of ACL are established and/or losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information regarding the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement. In the case of secured loans, the loan is deemed to be collateral dependent when this occurs, and the specific allocation of ACL and/or charge-off amount is based on a comparison of the amounts due from the borrower and calculated current fair value of the collateral after consideration of estimated costs to sell.

The primary credit risk characteristics inherent in the one- to four-family and consumer loan portfolios are a decline in economic conditions, elevated levels of unemployment or underemployment, and declines in residential real estate values. Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, charge-offs, and provisions for credit losses. Although the commercial loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient. Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is more limited than that for a residential property. Therefore, the Bank could hold the property for an extended period of time, or be forced to sell at a discounted price, resulting in additional losses. Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life. Generally, the historical time periods are at least one economic cycle. These historical loss rates are compared to historical data related to economic variables including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis. Each quarter, the Company's ACL model pairs the results of the regression analysis with an economic forecast of these same macroeconomic variables, which is provided by a third party, in order to project future loss
12

rates. The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to long-term historical averages at the macroeconomic variable level using a straight-line method. The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for expected prepayments and curtailments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a TDR will be executed. In the case of revolving lines of credit, since the rate of principal reduction is generally at the discretion of the borrower, remaining contractual lives are calculated by estimating future cash flows expected to be received from the borrower until the outstanding balance has been reduced to zero.

Using all of these inputs, the ACL model generates aggregated estimated cash flows for the time period that remains in each loan's contractual life. These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of future cash flows compared to the amortized cost basis of the loan pool.

Additionally, qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs and/or other ACL processes, as deemed appropriate by management's current assessment of risks related to loan portfolio attributes and external factors. Such qualitative factor considerations include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates. Management assesses the potential impact of such items and adjusts the modeled ACL as deemed appropriate based upon the assessment.

Reserve for Off-Balance Sheet Credit Exposures - The Company's off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Expected credit losses on these amounts are calculated using the same methodology that is applied in the ACL model; however, the estimate of credit risk for off-balance sheet credit exposures also takes into consideration the likelihood that funding of the unfunded amount/commitment will occur. The reserve for these off-balance sheet credit exposures is recorded as a liability and is presented in other liabilities on the consolidated balance sheet. Changes to the reserve on off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the consolidated statements of income.

Recent Accounting Pronouncements - In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU, as amended, replaces the incurred loss methodology in GAAP, which required credit losses to be recognized when it is probable that a loss has been incurred, with an expected credit loss methodology, which is commonly known as the current expected credit loss ("CECL") methodology. The CECL methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and off-balance sheet credit exposures, over their remaining contractual lives. Under the CECL methodology, expected credit losses are measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amended the credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities are now recorded through the ACL rather than as a direct write-down. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU, as amended, became effective for the Company on October 1, 2020.

The Company adopted the ASU, as amended, on October 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Financial results for reporting periods beginning on or after October 1, 2020 are reported in accordance with the new ASU, as amended, while prior period amounts continue to be reported in accordance with previous GAAP. Upon adoption, the Company recorded a cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures of $2.3 million, net of tax of $739 thousand, which was recognized as a decrease in
13

retained earnings. The following table presents the impact of the cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures.
September 30,
2020
October 1, 2020
Balance
Cumulative-Effect Adjustment
Balance
(Dollars in thousands)
ACL
One- to four-family:
Originated
$6,085 $(4,452)$1,633 
Correspondent purchased
2,691 (367)2,324 
Bulk purchased
467 436 903 
Commercial:
Commercial real estate
20,349 699 21,048 
Commercial and industrial
1,451 (892)559 
Consumer:
Home equity
370 (289)81 
Other
114 104 218 
Total ACL
31,527 (4,761)26,766 
Reserve for off-balance sheet credit exposures
— 7,788 7,788 
ACL and reserve for off-balance sheet credit exposures
$31,527 $3,027 $34,554 

The Company elected the practical expedient to exclude accrued interest receivable from the amortized cost of financing receivables and AFS debt securities. Accrued interest totaled $19.1 million and $3.1 million at June 30, 2021 for loans receivable and AFS securities, respectively, and was included in other assets on the consolidated balance sheet. Additionally, an election was made not to measure ACL for accrued interest receivables.

The enhanced disclosures required by the ASU, as amended, are included in the relevant significant accounting policies above and in "Note 4. Loans Receivable and Allowance for Credit Losses."

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosures Requirements for Fair Value Measurement. This ASU eliminates, modifies and adds certain disclosure requirements for fair value measurements. The ASU adds disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASU, which was adopted on October 1, 2020, did not have a material impact on the Company's consolidated financial condition, results of operations, or disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software licenses). The ASU was adopted by the Company on October 1, 2020. The Company includes hosting arrangements that are service contracts in its evaluation of projects for capitalization. The adoption of this ASU did not have a material impact on the Company's consolidated financial condition, results of operations, or disclosures.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU makes clarifications and corrections to the application of the guidance contained in each of the amended topics. According to the provisions of the ASU, entities that have not adopted ASU 2017-12 prior to the issuance of ASU 2019-04 must adopt the provisions of both ASUs at the same time. Since the Company previously adopted ASU 2017-12, the related provisions included in ASU 2019-04 were adopted at the same time. The Company adopted the non-hedging amendments contained in ASU 2019-04, including amendments related to ASU 2016-13, on October 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial condition, results of operations, or disclosures. For additional information regarding the impact of adopting ASU 2016-13, see ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments above.

14

2. EARNINGS PER SHARE
Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2021202020212020
(Dollars in thousands, except per share amounts)
Net income$18,187 $19,474 $57,529 $46,261 
Income allocated to participating securities(12)(16)(39)(38)
Net income available to common stockholders$18,175 $19,458 $57,490 $46,223 
Average common shares outstanding135,421,817 137,935,000 135,409,349 137,919,631 
Average committed ESOP shares outstanding83,052 83,052 41,602 41,600 
Total basic average common shares outstanding135,504,869 138,018,052 135,450,951 137,961,231 
Effect of dilutive stock options32,283 — 26,615 31,747 
Total diluted average common shares outstanding135,537,152 138,018,052 135,477,566 137,992,978 
Net EPS:
Basic$0.13 $0.14 $0.42 $0.34 
Diluted$0.13 $0.14 $0.42 $0.34 
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation93,565 813,645 210,529 405,522 

15

3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by GSEs.
June 30, 2021
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,502,856 $22,210 $6,038 $1,519,028 
GSE debentures494,968 13 3,466 491,515 
Municipal bonds 5,133 29 — 5,162 
$2,002,957 $22,252 $9,504 $2,015,705 

September 30, 2020
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,149,922 $31,212 $331 $1,180,803 
GSE debentures369,967 414 41 370,340 
Municipal bonds 9,716 91 — 9,807 
$1,529,605 $31,717 $372 $1,560,950 

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
June 30, 2021
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$770,670 $5,973 $9,018 $65 
GSE debentures466,503 3,466 — — 
Municipal bonds — — — — 
$1,237,173 $9,439 $9,018 $65 

September 30, 2020
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$207,071 $330 $118 $1 
GSE debentures74,959 41 — — 
Municipal bonds — — — — 
$282,030 $371 $118 $1 

16

The unrealized losses at June 30, 2021 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record ACL on securities in an unrealized loss position at June 30, 2021 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of June 30, 2021, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories.
AmortizedEstimated
CostFair Value
(Dollars in thousands)
One year or less$4,421 $4,448 
One year through five years470,680 467,344 
Five years through ten years25,000 24,885 
500,101 496,677 
MBS1,502,856 1,519,028 
$2,002,957 $2,015,705 

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
2021202020212020
(Dollars in thousands)
Taxable$740 $797 $1,982 $3,556 
Non-taxable23 50 93 180 
$763 $847 $2,075 $3,736 


The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
June 30, 2021September 30, 2020
(Dollars in thousands)
Public unit deposits$303,275 $330,986 
Federal Reserve Bank of Kansas City ("FRB of Kansas City")71,061 259,851 
Commercial deposits68,132 — 
$442,468 $590,837 

During the current year, the Company sold its Visa Class B shares. The proceeds and realized gain related to the sale of the Visa Class B shares were each $7.4 million. All other dispositions of securities during the nine months ended June 30, 2021 and June 30, 2020 were the result of principal repayments, calls, or maturities.


17

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
June 30, 2021September 30, 2020
(Dollars in thousands)
One- to four-family:
Originated$3,977,129 $3,937,310 
Correspondent purchased1,953,185 2,101,082 
Bulk purchased179,019 208,427 
Construction30,325 34,593 
Total6,139,658 6,281,412 
Commercial:
Commercial real estate680,664 626,588 
Commercial and industrial 73,713 97,614 
Construction60,614 105,458 
Total814,991 829,660 
Consumer:
Home equity88,587 103,838 
Other8,389 10,086 
Total96,976 113,924 
Total loans receivable7,051,625 7,224,996 
Less:
ACL20,724 31,527 
Discounts/unearned loan fees 30,593 29,190 
Premiums/deferred costs(33,519)(38,572)
$7,033,827 $7,202,851 

Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function.

The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters.

The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.

Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, LTV ratios on commercial
18

real estate loans generally do not exceed 85% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15. For commercial construction loans, LTV ratios generally do not exceed 80% of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15, but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. With the exception of Paycheck Protection Program ("PPP") loans, which are unsecured, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these loans. As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans.

Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by deposits. The Bank also originates a very limited amount of unsecured consumer loans. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.

Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. See discussion regarding the credit risks for these loan segments in Note 1. Summary of Significant Accounting Policies - Allowance for Credit Losses. These segments are further divided into classes for purposes of providing disaggregated credit quality information about the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family construction loans are included in either the originated class or correspondent purchased class, and commercial construction loans are included in the commercial real estate class. As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status.

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

•Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories.
•Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.
•Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

19

The following table sets forth, as of June 30, 2021, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At June 30, 2021, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. In the table below, certain commercial loans are presented in the "Current Fiscal Year" column and are reported as special mention or substandard. These loans were generally first originated in prior years but were renewed or modified in the current year.

June 30, 2021
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2020201920182017YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Pass$774,522 $737,008 $352,275 $270,074 $298,371 $1,535,915 $— $3,968,165 
Special Mention417 347 451 347 447 8,253 — 10,262 
Substandard— 986 863 52 192 11,322 — 13,415 
Correspondent purchased
Pass452,366 353,955 95,110 150,762 182,693 729,492 — 1,964,378 
Special Mention722 — 357 — — 3,554 — 4,633 
Substandard— — 169 — — 6,076 — 6,245 
Bulk purchased
Pass— — — — — 175,150 — 175,150 
Special Mention— — — — — — — — 
Substandard— — — — — 4,610 — 4,610 
1,228,027 1,092,296 449,225 421,235 481,703 2,474,372 — 6,146,858 
Commercial:
Commercial real estate
Pass207,489 151,517 96,558 93,332 42,091 38,941 5,074 635,002 
Special Mention50,000 — — — — 50,008 — 100,008 
Substandard1,246 660 226 681 11 35 — 2,859 
Commercial and industrial
Pass34,504 12,164 8,035 3,174 1,425 690 11,587 71,579 
Special Mention— — — — — — — — 
Substandard— — — 86 48 — 1,064 1,198 
293,239 164,341 104,819 97,273 43,575 89,674 17,725 810,646 
Consumer:
Home equity
Pass2,042 2,820 1,732 1,655 653 2,716 76,158 87,776 
Special Mention— — 38 12 — — 186 236 
Substandard— — — — — 15 641 656 
Other
Pass2,963 1,962 1,382 1,055 516 183 303 8,364 
Special Mention— — 1 — — — — 1 
Substandard— 4 6 1 3 — — 14 
5,005 4,786 3,159 2,723 1,172 2,914 77,288 97,047 
Total$1,526,271 $1,261,423 $557,203 $521,231 $526,450 $2,566,960 $95,013 $7,054,551 

20

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at September 30, 2020 (prior to the adoption of CECL). At that date, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
September 30, 2020
Special MentionSubstandard
(Dollars in thousands)
One- to four-family:
Originated$9,249 $15,729 
Correspondent purchased2,076 4,512 
Bulk purchased— 5,319 
Commercial:
Commercial real estate50,957 3,541 
Commercial and industrial 1,040 1,368 
Consumer:
Home equity331 581 
Other— 8 
$63,653 $31,058 

21

Delinquency Status - The following table sets forth, as of June 30, 2021, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision. All revolving lines of credit are presented separately, regardless of origination year.
June 30, 2021
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2020201920182017YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$774,815 $738,341 $353,473 $270,107 $298,585 $1,547,709 $— $3,983,030 
30-89124 — — 314 233 4,461 — 5,132 
90+/FC— — 116 52 192 3,320 — 3,680 
Correspondent purchased
Current452,366 353,955 95,467 150,762 181,762 732,948 — 1,967,260 
30-89722 — — — 931 2,050 — 3,703 
90+/FC— — 169 — — 4,124 — 4,293 
Bulk purchased
Current— — — — — 176,164 — 176,164 
30-89— — — — — 971 — 971 
90+/FC— — — — — 2,625 — 2,625 
1,228,027 1,092,296 449,225 421,235 481,703 2,474,372 — 6,146,858 
Commercial:
Commercial real estate
Current258,735 151,517 96,558 93,750 42,102 88,949 5,074 736,685 
30-89— — — — — 35 — 35 
90+/FC— 660 226 263 — — — 1,149 
Commercial and industrial
Current34,504 12,164 8,035 3,174 1,425 690 12,651 72,643 
30-89— — — — — — — — 
90+/FC— — — 86 48 — — 134 
293,239 164,341 104,819 97,273 43,575 89,674 17,725 810,646 
Consumer:
Home equity
Current2,042 2,760 1,770 1,667 653 2,692 76,336 87,920 
30-89— 60 — — — 34 222 316 
90+/FC— — — — — 5 427 432 
Other
Current2,960 1,962 1,384 1,055 509 155 303 8,328 
30-893 — — — 7 28 — 38 
90+/FC— 4 5 1 3 — — 13 
5,005 4,786 3,159 2,723 1,172 2,914 77,288 97,047 
Total$1,526,271 $1,261,423 $557,203 $521,231 $526,450 $2,566,960 $95,013 $7,054,551 
22

Delinquent and Nonaccrual Loans - The following tables present the amortized cost at June 30, 2021 and, prior to the adoption of CECL, the recorded investment, which is identical to amortized cost, at September 30, 2020, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total. At June 30, 2021 and September 30, 2020, all loans 90 or more days delinquent were on nonaccrual status.
June 30, 2021
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$5,132 $3,680 $8,812 $3,983,030 $3,991,842 
Correspondent purchased3,703 4,293 7,996 1,967,260 1,975,256 
Bulk purchased971 2,625 3,596 176,164 179,760 
Commercial:
Commercial real estate35 1,149 1,184 736,685 737,869 
Commercial and industrial — 134 134 72,643 72,777 
Consumer:
Home equity316 432 748 87,920 88,668 
Other38 13 51 8,328 8,379 
$10,195 $12,326 $22,521 $7,032,030 $7,054,551 
September 30, 2020
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentRecorded
Delinquentin ForeclosureLoansLoansInvestment
(Dollars in thousands)
One- to four-family:
Originated$3,001 $4,347 $7,348 $3,950,387 $3,957,735 
Correspondent purchased3,170 2,433 5,603 2,122,085 2,127,688 
Bulk purchased2,558 2,938 5,496 203,844 209,340 
Commercial:
Commercial real estate40 1,206 1,246 728,191 729,437 
Commercial and industrial 5 157 162 96,124 96,286 
Consumer:
Home equity323 296 619 103,210 103,829 
Other75 8 83 9,980 10,063 
$9,172 $11,385 $20,557 $7,213,821 $7,234,378 

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2021 and September 30, 2020 was $946 thousand and $1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $177 thousand at June 30, 2021 and $183 thousand at September 30, 2020.
23


The following table presents the amortized cost at June 30, 2021 and, prior to the adoption of CECL, the recorded investment at September 30, 2020, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented as of June 30, 2021, all of which were individually evaluated for loss and any identified losses have been charged off.
June 30, 2021September 30, 2020
Nonaccrual LoansNonaccrual Loans with No ACLNonaccrual Loans
(Dollars in thousands)
One- to four-family:
Originated$5,070 $2,510 $5,037 
Correspondent purchased4,293 307 2,433 
Bulk purchased2,757 1,451 2,938 
Commercial:
Commercial real estate1,544 520 1,663 
Commercial and industrial 134 86 157 
Consumer:
Home equity432 84 305 
Other13 — 8 
$14,243 $4,958 $12,541 



24

Troubled Debt Restructurings - The following tables present the amortized cost for the current period and, prior to the adoption of CECL, the recorded investment for the prior period, prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
For the Three Months Ended For the Nine Months Ended
June 30, 2021June 30, 2021
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated— $— $— 6 $1,518 $1,407 
Correspondent purchased— — — — — — 
Bulk purchased— — — — — — 
Commercial:
Commercial real estate— — — — — — 
Commercial and industrial — — — — — — 
Consumer:
Home equity— — — — — — 
Other— — — — — — 
— $— $— 6 $1,518 $1,407 

For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2020
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated— $— $— 5 $241 $242 
Correspondent purchased— — — 1 192 191 
Bulk purchased— — — 1 75 134 
Commercial:
Commercial real estate— — — 1 837 837 
Commercial and industrial — — — — — — 
Consumer:
Home equity— — — 2 45 44 
Other— — — — — — 
— $— $— 10 $1,390 $1,448 

25

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
For the Three Months Ended For the Nine Months Ended
June 30, 2021June 30, 2020June 30, 2021June 30, 2020
Number ofAmortizedNumber ofRecordedNumber ofAmortizedNumber ofRecorded
ContractsCostContractsInvestmentContractsCostContractsInvestment
(Dollars in thousands)
One- to four-family:
Originated— $— — $— — $— 1 $38 
Correspondent purchased— — — — — — — — 
Bulk purchased— — — — — — 1 134 
Commercial:
Commercial real estate— — — — — — — — 
Commercial and industrial — — — — — — — — 
Consumer:
Home equity— — — — — — 1 9 
Other— — — — — — — — 
— $— — $— — $— 3 $181 



26

Impaired Loans - The following information pertains to impaired loans, by class, as of the date and for the period presented (prior to the adoption of CECL). Prior to the adoption of CECL, a loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement.

For the Three Months Ended For the Nine Months Ended
September 30, 2020June 30, 2020June 30, 2020
UnpaidAverageInterestAverageInterest
RecordedPrincipalRelatedRecordedIncomeRecordedIncome
InvestmentBalanceACLInvestmentRecognizedInvestmentRecognized
With no related allowance recorded
One- to four-family:
Originated$12,385 $12,813 $— $13,865 $150 $14,273 $472 
Correspondent purchased1,955 2,058 — 1,949 19 1,855 56 
Bulk purchased3,843 4,302 — 4,814 46 4,910 148 
Commercial:
Commercial real estate1,052 1,379 — 817 5 494 9 
Commercial and industrial 99 244 — 26 — 24 — 
Consumer:
Home equity280 360 — 319 4 329 15 
Other— 45 — 1 — — — 
19,614 21,201 — 21,791 224 21,885 700 
With an allowance recorded
One- to four-family:
Originated— — — — — — — 
Correspondent purchased— — — — — — — 
Bulk purchased— — — — — — — 
Commercial:
Commercial real estate660 660 83 — — — — 
Commercial and industrial 1,269 1,268 240 1,875 24 1,440 78 
Consumer:
Home equity— — — — — — — 
Other— — — — — — — 
1,929 1,928 323 1,875 24 1,440 78 
Total
One- to four-family:
Originated12,385 12,813 — 13,865 150 14,273 472 
Correspondent purchased1,955 2,058 — 1,949 19 1,855 56 
Bulk purchased3,843 4,302 — 4,814 46 4,910 148 
Commercial:
Commercial real estate1,712 2,039 83 817 5 494 9 
Commercial and industrial 1,368 1,512 240 1,901 24 1,464 78 
Consumer:
Home equity280 360 — 319 4 329 15 
Other— 45 — 1 — — — 
$21,543 $23,129 $323 $23,666 $248 $23,325 $778 

27

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented. Activity during the three and nine months ended June 30, 2020 occurred prior to the adoption of CECL.
For the Three Months Ended June 30, 2021
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$1,536 $1,705 $747 $3,988 $19,157 $252 $23,397 
Charge-offs(18)— — (18)— (1)(19)
Recoveries49 — — 49 18 4 71 
Provision for credit losses(32)34 (73)(71)(2,642)(12)(2,725)
Ending balance$1,535 $1,739 $674 $3,948 $16,533 $243 $20,724 

For the Nine Months Ended June 30, 2021
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$6,085 $2,691 $467 $9,243 $21,800 $484 $31,527 
Adoption of CECL(4,452)(367)436 (4,383)(193)(185)(4,761)
Balance at October 1, 20201,633 2,324 903 4,860 21,607 299 26,766 
Charge-offs(142)— (21)(163)(515)(11)(689)
Recoveries140 — — 140 38 29 207 
Provision for credit losses(96)(585)(208)(889)(4,597)(74)(5,560)
Ending balance$1,535 $1,739 $674 $3,948 $16,533 $243 $20,724 

For the Three Months Ended June 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$6,467 $3,355 $557 $10,379 $20,328 $489 $31,196 
Charge-offs— — — — — (5)(5)
Recoveries— — — — 17 7 24 
Provision for credit losses(121)(166)(51)(338)359 (21)— 
Ending balance$6,346 $3,189 $506 $10,041 $20,704 $470 $31,215 
28

For the Nine Months Ended June 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,000 $1,203 $687 $3,890 $5,171 $165 $9,226 
Charge-offs(64)— — (64)(349)(15)(428)
Recoveries3 — — 3 98 16 117 
Provision for credit losses4,407 1,986 (181)6,212 15,784 304 22,300 
Ending balance$6,346 $3,189 $506 $10,041 $20,704 $470 $31,215 


The following is a summary of the loan portfolio and related ACL balances by loan portfolio segment disaggregated by the Company's impairment method as of September 30, 2020 (prior to the adoption of CECL).
September 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Recorded investment in loans:
Collectively evaluated for impairment$3,945,350 $2,125,733 $205,497 $6,276,580 $822,643 $113,612 $7,212,835 
Individually evaluated for impairment12,385 1,955 3,843 18,183 3,080 280 21,543 
$3,957,735 $2,127,688 $209,340 $6,294,763 $825,723 $113,892 $7,234,378 
ACL for loans:
Collectively evaluated for impairment$6,085 $2,691 $467 $9,243 $21,477 $484 $31,204 
Individually evaluated for impairment— — — — 323 — 323 
$6,085 $2,691 $467 $9,243 $21,800 $484 $31,527 
29

The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at June 30, 2021. The key assumptions utilized in estimating the Company's ACL at June 30, 2021 are discussed below.
•Economic Forecast - Management considered several economic forecasts provided by a third party and selected the economic forecast believed to be the most appropriate considering the facts and circumstances at June 30, 2021. The forecasted economic indices applied to the model at June 30, 2021 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at June 30, 2021 was the national unemployment rate. The forecast national unemployment rate in the economic scenario selected by management at June 30, 2021 had the national unemployment rate gradually declining to 3.7% at June 30, 2022 which was the end of our four quarter forecast time period.
•Forecast and reversion to mean time period - The forecasted time period for all of the economic indices was four quarters at June 30, 2021. The reversion to mean time period was also four quarters for all of the economic indices at June 30, 2021.
•Prepayment and curtailment assumptions - The assumptions used at June 30, 2021 were generally based on actual prepayment and curtailment speeds for each respective loan pool in the model.
•Qualitative factors - The qualitative factors applied by management at June 30, 2021 included the balance and trending of large-dollar special mention commercial loans, and the economic uncertainties related to (1) the job market, specifically, the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying individuals, (2) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted, and (3) the unevenness of the recovery in certain industries.

The decrease in ACL during the current quarter was primarily a result of a negative provision for credit losses of $2.7 million. The negative provision for credit losses was due primarily to a reduction in the commercial loan ACL related to a decrease in the commercial loan economic uncertainty qualitative factor as a result of improved economic conditions compared to the prior quarter.

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

For the Three Months Ended June 30, 2021For the Nine Months Ended June 30, 2021
(Dollars in thousands)
Beginning balance$6,127 Beginning balance$— 
Provision for credit losses34 Adoption of CECL7,788 
Ending balance$6,161 Balance at October 1, 20207,788 
Provision for credit losses(1,627)
Ending balance$6,161 



30

5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At June 30, 2021 and September 30, 2020, the Bank had entered into interest rate swap agreements with a total notional amount of $440.0 million and $640.0 million, respectively, in order to hedge the variable cash flows associated with $440.0 million and $640.0 million, respectively, of adjustable-rate FHLB advances. At June 30, 2021 and September 30, 2020, the interest rate swap agreements had an average remaining term to maturity of 3.6 years and 3.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At June 30, 2021 and September 30, 2020, the interest rate swaps were in a loss position with a total fair value of $30.4 million and $53.1 million, respectively, which was reported in other liabilities on the consolidated balance sheet. During the three and nine months ended June 30, 2021, $2.1 million and $11.5 million, respectively, was reclassified from AOCI. Of this amount, for the nine months ended June 30, 2021, $7.9 million was recognized as an increase to interest expense and $3.6 million, net of tax, was reclassified as a result of the termination of the related interest rate swaps, as discussed below, and reported in the loss on interest rate swap termination line item within the consolidated statements of operations. During the three and nine months ended June 30, 2020, $1.7 million and $3.4 million, respectively, was reclassified from AOCI as an increase to interest expense. At June 30, 2021, the Company estimated that $9.6 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank posted cash collateral of $31.2 million at June 30, 2021 and $54.6 million at September 30, 2020.

During the current fiscal year, the Bank terminated interest rate swaps with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. Since it was management's intention to prepay the related FHLB advances, it is no longer probable that the original forecasted transactions subject to the cash flow hedges will occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses, net of tax, totaling $3.6 million ($4.8 million pretax) from AOCI into earnings.

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $400.0 million with a weighted average contractual interest rate of 1.29% and a weighted average remaining term of 0.9 years, and replaced these advances with fixed-rate FHLB advances totaling $400.0 million with a weighted average contractual interest rate of 0.80% and a weighted average term of 5.0 years. The Bank paid penalties of $5.1 million to FHLB as a result of prepaying these FHLB advances. The weighted average effective interest rate of the new advances is 1.03%. The majority of the prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.

31

6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements - The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.

The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are:

•Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.

The Company bases its fair values on the price that would be received from the sale of a financial instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis.

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the nine months ended June 30, 2021 or during fiscal year 2020. The Company's major security types, based on the nature and risks of the securities, are:

•GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2)
•MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2)
•Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2)

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from the counterparty during the nine months ended June 30, 2021 or during fiscal year 2020. (Level 2)

32

The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company did not have any Level 3 financial instruments measured at fair value on a recurring basis at June 30, 2021 or September 30, 2020.
June 30, 2021
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,519,028 $— $1,519,028 $— 
GSE debentures491,515 — 491,515 — 
Municipal bonds5,162 — 5,162 — 
$2,015,705 $— $2,015,705 $— 
Liabilities:
Interest rate swaps$30,391 $— $30,391 $— 

September 30, 2020
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,180,803 $— $1,180,803 $— 
GSE debentures370,340 — 370,340 — 
Municipal bonds9,807 — 9,807 — 
$1,560,950 $— $1,560,950 $— 
Liabilities:
Interest rate swaps$53,149 $— $53,149 $— 

The Company's significant Level 3 measurements that are measured on a non-recurring basis pertain to the Company's loans receivable and OREO. The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis. The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date.

Loans Receivable - With the adoption of CECL, collateral dependent assets are assets evaluated as part of the ACL on an individual basis. Those collateral dependent assets for which there is an associated ACL are considered financial assets measured at fair value on a non-recurring basis. Prior to the adoption of CECL, loans identified as impaired were considered financial assets measured at fair value on a non-recurring basis. The valuation method for collateral dependent assets and impaired loans is identical.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the nine months ended June 30, 2021 and 2020 that were still held in the portfolio as of June 30, 2021 and 2020 was $7.4 million and $6.0 million, respectively.

33

The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10%. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal.

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the nine months ended June 30, 2021 and June 30, 2020 were downward adjustments to the book value of the collateral for lack of marketability. During the nine months ended June 30, 2021, the adjustments ranged from 7% to 50%, with a weighted average of 22%. During the nine months ended June 30, 2020, the adjustments ranged from 4% to 50%, with a weighted average of 17%. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

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

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the nine months ended June 30, 2021 and 2020 that was still held in the portfolio as of June 30, 2021 and 2020 was $177 thousand and $183 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at June 30, 2021 and 2020.

34

Fair Value Disclosures - The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates.

The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
June 30, 2021
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$95,305 $95,305 $95,305 $— $— 
AFS securities2,015,705 2,015,705 — 2,015,705 — 
Loans receivable7,033,827 7,455,382 — — 7,455,382 
FHLB stock73,630 73,630 73,630 — — 
Liabilities:
Deposits6,638,294 6,698,075 3,756,725 2,941,350 — 
Borrowings1,582,400 1,616,452 — 1,616,452 — 
Interest rate swaps30,391 30,391 — 30,391 — 
September 30, 2020
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$185,148 $185,148 $185,148 $— $— 
AFS securities1,560,950 1,560,950 — 1,560,950 — 
Loans receivable7,202,851 7,663,000 — — 7,663,000 
FHLB stock93,862 93,862 93,862 — — 
Liabilities:
Deposits6,191,408 6,259,080 3,170,164 3,088,916 — 
Borrowings1,789,313 1,840,605 — 1,840,605 — 
Interest rate swaps53,149 53,149 — 53,149 — 

35

7. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.
 For the Three Months Ended June 30, 2021
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$3,934 $(22,887)$(18,953)
Other comprehensive income (loss), before reclassifications5,703 (2,212)3,491 
Amount reclassified from AOCI, net of taxes of $(686)
— 2,124 2,124 
Other comprehensive income (loss)5,703 (88)5,615 
Ending balance$9,637 $(22,975)$(13,338)

 For the Nine Months Ended June 30, 2021
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$23,728 $(40,233)$(16,505)
Other comprehensive income (loss), before reclassifications(14,091)5,743 (8,348)
Amount reclassified from AOCI, net of taxes of $(3,717)
— 11,515 11,515 
Other comprehensive income (loss)(14,091)17,258 3,167 
Ending balance$9,637 $(22,975)$(13,338)

For the Three Months Ended June 30, 2020
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$20,076 $(42,054)$(21,978)
Other comprehensive income (loss), before reclassifications5,533 (2,856)2,677 
Amount reclassified from AOCI, net of taxes of $(549)
— 1,710 1,710 
Other comprehensive income (loss)5,533 (1,146)4,387 
Ending balance$25,609 $(43,200)$(17,591)

For the Nine Months Ended June 30, 2020
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$10,150 $(25,049)$(14,899)
Other comprehensive income (loss), before reclassifications15,459 (21,553)(6,094)
Amount reclassified from AOCI, net of taxes of $(1,092)
— 3,402 3,402 
Other comprehensive income (loss)15,459 (18,151)(2,692)
Ending balance$25,609 $(43,200)$(17,591)

36

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 originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;
•our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;
•our ability to access cost-effective funding;
•the expected synergies and other benefits from our acquisition activities;
•our ability to extend our commercial banking and trust asset management expertise;
•fluctuations in deposit flows;
•the future earnings and capital levels of the Bank 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 ability of the Company to pay dividends in accordance with its dividend policy;
•the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;
•changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
•potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;
•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;
•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;
•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 cyber-attacks;
•acquisitions and dispositions;
•changes in consumer spending, borrowing and saving habits; and
•our success at managing the risks involved in our business.

37

This list of important 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, 2020 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. 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, 2020, filed with the SEC.

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 $57.5 million, or $0.42 per share, for the nine month period ended June 30, 2021 compared to net income of $46.3 million, or $0.34 per share, for the nine month period ended June 30, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $7.2 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $14.2 million, or 9.9%, from the prior year period to $129.5 million for the current year period. Net interest margin decreased 27 basis points, from 2.15% for the prior year period to 1.88% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Total assets were $9.65 billion at June 30, 2021, an increase of $162.4 million, or 1.7% from September 30, 2020, due mainly to an increase in securities, partially offset by decreases in loans receivable and cash and cash equivalents. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings. Total securities increased $454.7 million, or 29.1%, from September 30, 2020 to June 30, 2021, including a $338.2 million increase in MBS and a $116.5 million increase in investment securities.

Total loans were $7.03 billion at June 30, 2021, a decrease of $169.0 million from September 30, 2020. The decrease was primarily in the one- to four-family correspondent loan portfolio. During the current year nine month period, the Bank originated and refinanced $948.6 million of one- to four-family and consumer loans with a weighted average rate of 2.75% and purchased $505.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.63%. The Bank also originated $208.5 million of commercial loans with a weighted average rate of 3.30% and entered into commercial loan participations of $115.1 million at a weighted average rate of 4.17%. The commercial loan portfolio totaled $815.0 million at June 30, 2021 and was composed of 84% commercial real estate loans, 9% commercial and industrial loans, and 7% commercial construction loans. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $267.0 million, was $1.01 billion at June 30, 2021. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $23.7 million, was $97.4 million at June 30, 2021, of which $18.3 million related to PPP loans.

Total deposits were $6.64 billion at June 30, 2021, an increase of $446.9 million, or 7.2%, from September 30, 2020. The increase was primarily in non-maturity deposits, which increased $586.6 million, along with a $71.8 million increase in commercial certificates of deposit, partially offset by a $210.5 million decrease in retail certificates of deposit.

Total borrowings at June 30, 2021 were $1.58 billion, a decrease of $206.9 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from deposit growth were used to pay off maturing borrowings.

Stockholders' equity at June 30, 2021 was $1.24 billion, a decrease of $47.2 million, or 3.7%, from September 30, 2020. During the current year nine month period, the Company paid cash dividends totaling $106.4 million and repurchased common stock totaling $1.5 million, partially offset by net income of $57.5 million. The cash dividends paid during the current year nine month period totaled
38

$0.785 per share and consisted of a $0.40 per share True Blue Capitol cash dividend, a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and three regular quarterly cash dividends of $0.085 per share. On July 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 20, 2021 to stockholders of record as of the close of business on August 6, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At June 30, 2021, this ratio was 11.5%.


Available Information
Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.

Critical Accounting Policies

Our most critical accounting policies are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements.  These policies are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters.  The use of different judgments, assumptions, and estimates could affect reported results materially.  These critical accounting policies and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application.

Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures. The ACL is a valuation amount that is deducted from the amortized cost basis of loans and represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. The reserve for off-balance sheet credit exposures is reported as a liability and is presented in other liabilities on the consolidated balance sheet. The ACL and reserve for off-balance sheet credit exposures is maintained through provisions for credit losses which are either charged or credited to income.
  
The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in forecasted macroeconomic conditions that could result in fluctuations in the amount of the recorded ACL. The reserve for off-balance sheet credit exposures is calculated using the same methodology as the ACL; however, the estimate of credit risk for off-balance sheet credit exposures takes into consideration the likelihood that funding of the commitment will occur.
At each quarter end, the Company prepares an ACL model to calculate expected credit losses. The Company aggregates loans into pools in the ACL model based on similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the ACL model. The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Using all of these inputs and assumptions, the ACL model generates aggregated estimated cash flows for the time period that remains for each loan's contractual life. The cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at the present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of the future cash flows compared to the amortized cost basis of the loan pool.

Management considers qualitative factors when evaluating the adequacy of the ACL and reserve for off-balance sheet credit exposures calculated by the ACL model. The qualitative factors considered include such items as: changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates. Management may increase or decrease the ACL and reserve for off-balance sheet credit exposures based on the evaluation of the qualitative factors.

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 portfolios, changes in the economic environment, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserves for off-balance sheet credit exposures. Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.
39


See "Allowance for Credit Losses" and "Reserve for Off-Balance Sheet Credit Exposures" within "Note 1. Summary of Significant Accounting Policies" above for additional information.

Fair Value Measurements.  The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value, with Level 1 (quoted prices for identical assets in an active market) being considered the most reliable, and Level 3 having the most unobservable inputs and therefore being considered the least reliable.  The Company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.  The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The Company's AFS securities are measured at fair value on a recurring basis.  Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity.  The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities. Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.  All AFS securities are classified as Level 2.

The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at June 30, 2021 or September 30, 2020.
40

Financial Condition
The following table presents selected balance sheet information as of the dates indicated.
June 30, March 31, December 31, September 30, June 30,
20212021202020202020
(Dollars in thousands)
Total assets$9,649,665 $9,698,019 $9,606,964 $9,487,218 $9,558,814 
Cash and cash equivalents95,305 139,472 168,032 185,148 396,219 
AFS securities2,015,705 2,095,924 1,913,866 1,560,950 1,220,054 
Loans receivable, net7,033,827 6,973,536 7,004,094 7,202,851 7,388,090 
FHLB stock, at cost73,630 74,464 84,693 93,862 102,782 
Deposits6,638,294 6,650,865 6,410,842 6,191,408 6,069,684 
Borrowings1,582,400 1,581,955 1,734,275 1,789,313 1,989,089 
Stockholders' equity1,237,624 1,278,595 1,276,548 1,284,859 1,300,520 
Equity to total assets at end of period12.8 %13.2 %13.3 %13.5 %13.6 %

Total assets were $9.65 billion at June 30, 2021, a decrease of $48.4 million, or 0.5%, from March 31, 2021, due primarily to decreases in securities and cash, partially offset by an increase in loans receivable. The Company paid $65.7 million in dividends during the current quarter which reduced excess operating cash. Cash flows from the securities portfolio were generally used to fund loan growth during the current quarter.

Total loans were $7.03 billion at June 30, 2021, an increase of $60.3 million, or 0.9%, from March 31, 2021. The increase was mainly in the one- to four-family correspondent loan portfolio and commercial real estate portfolio. During the current quarter, the Bank originated and refinanced $299.2 million of one- to four-family and consumer loans with a weighted average rate of 2.85% and purchased $235.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.54%. The Bank also originated $51.2 million of commercial loans with a weighted average rate of 3.48% and entered into commercial loan participations of $17.0 million at a weighted average rate of 6.00%.

Total deposits were $6.64 billion at June 30, 2021, a decrease of $12.6 million, or 0.2%, from March 31, 2021. The decrease was due primarily to a $100.0 million decrease in retail certificates of deposit, partially offset by an $85.8 million increase in money market accounts, as customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.
41

Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.
June 30, 2021March 31, 2021September 30, 2020
AmountRateAmount RateAmountRate
(Dollars in thousands)
One- to four-family:
Originated$3,977,129 3.23 %$3,967,008 3.29 %$3,937,310 3.50 %
Correspondent purchased1,953,185 3.09 1,915,027 3.27 2,101,082 3.49 
Bulk purchased179,019 1.90 188,733 2.09 208,427 2.41 
Construction30,325 2.96 28,582 3.11 34,593 3.30 
Total6,139,658 3.14 6,099,350 3.24 6,281,412 3.46 
Commercial:
Commercial real estate680,664 3.99 664,533 4.04 626,588 4.29 
Commercial and industrial 73,713 3.24 77,210 3.08 97,614 2.79 
Construction60,614 4.11 53,271 4.25 105,458 4.04 
Total814,991 3.93 795,014 3.96 829,660 4.08 
Consumer loans:
Home equity88,587 4.63 90,052 4.64 103,838 4.66 
Other8,389 4.26 8,743 4.36 10,086 4.40 
Total96,976 4.60 98,795 4.61 113,924 4.64 
Total loans receivable7,051,625 3.26 6,993,159 3.34 7,224,996 3.55 
Less:
ACL20,724 23,397 31,527 
Discounts/unearned loan fees 30,593 30,295 29,190 
Premiums/deferred costs(33,519)(34,069)(38,572)
Total loans receivable, net$7,033,827 $6,973,536 $7,202,851 


42

Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, 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. During the current year-to-date period, the Bank endorsed $699.2 million of one- to four-family loans, reducing the average rate on those loans by 93 basis points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points, and $171.7 million were endorsed during the June 30, 2021 quarter, reducing the average rate on those loans by 98 basis points). Commercial loan renewals are not included in the activity 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
June 30, 2021March 31, 2021December 31, 2020September 30, 2020
AmountRateAmountRateAmountRateAmountRate
(Dollars in thousands)
Beginning balance $6,993,159 3.34 %$7,023,626 3.46 %$7,224,996 3.55 %$7,407,442 3.64 %
Originated and refinanced:
Fixed279,170 2.78 326,570 2.54 318,690 2.75 265,424 2.98 
Adjustable71,216 3.58 112,483 3.43 48,946 3.60 44,625 3.68 
Purchased and participations:
Fixed232,335 2.54 192,262 2.82 100,518 2.86 61,435 3.07 
Adjustable20,499 5.36 9,150 2.42 65,315 3.89 4,396 2.76 
Change in undisbursed loan funds(33,512)(63,925)(70,323)13,898 
Repayments(511,222)(606,937)(664,052)(572,536)
Principal recoveries/(charge-offs), net52 (70)(464)312 
Other(72)— — — 
Ending balance$7,051,625 3.26 $6,993,159 3.34 $7,023,626 3.46 $7,224,996 3.55 

For the Nine Months Ended
June 30, 2021June 30, 2020
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,224,996 3.55 %$7,412,473 3.81 %
Originated and refinanced:
Fixed924,430 2.69 684,488 3.22 
Adjustable232,645 3.51 171,698 4.04 
Purchased and participations:
Fixed525,115 2.70 380,469 3.50 
Adjustable94,964 4.07 95,296 3.50 
Change in undisbursed loan funds(167,760)(17,896)
Repayments(1,782,211)(1,318,439)
Principal charge-offs, net(482)(311)
Other(72)(336)
Ending balance$7,051,625 3.26 $7,407,442 3.64 


43

The following tables present loan origination, refinance, and purchase 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, and refinances are reported together.
For the Three Months Ended
June 30, 2021June 30, 2020
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family:(1)
<= 15 years $112,335 2.18 %18.6 %$126,378 2.79 %23.7 %
> 15 years346,115 2.79 57.4 205,047 3.39 38.5 
One- to four-family construction39,012 2.83 6.5 11,005 3.27 2.1 
Commercial:
Commercial real estate2,221 3.94 0.4 19,333 3.71 3.6 
Commercial and industrial9,000 2.72 1.5 46,609 1.23 8.8 
Commercial construction627 3.75 0.1 — — — 
Home equity1,150 5.55 0.2 774 5.98 0.1 
Other1,045 5.35 0.2 497 6.76 0.1 
Total fixed-rate 511,505 2.67 84.9 409,643 2.98 76.9 
Adjustable-rate:
One- to four-family:(2)
<= 36 months1,133 2.34 0.2 1,610 2.74 0.3 
> 36 months12,786 2.50 2.1 40,099 2.93 7.5 
One- to four-family construction5,612 2.68 0.9 932 3.06 0.2 
Commercial:
Commercial real estate33,973 3.57 5.6 16,035 4.58 3.0 
Commercial and industrial4,447 3.96 0.7 1,504 3.79 0.3 
Commercial construction17,935 5.91 3.0 50,237 4.03 9.4 
Home equity15,187 4.47 2.5 12,390 4.42 2.3 
Other642 3.77 0.1 329 3.48 0.1 
Total adjustable-rate91,715 3.98 15.1 123,136 3.75 23.1 
Total originated, refinanced and purchased$603,220 2.87 100.0 %$532,779 3.16 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family$232,335 2.54 $114,039 3.22 
Participations - commercial— — 17,700 3.70 
Total fixed-rate purchased/participations232,335 2.54 131,739 3.28 
Adjustable-rate:
Correspondent - one- to four-family3,499 2.24 15,010 2.87 
Participations - commercial17,000 6.00 47,500 4.04 
Total adjustable-rate purchased/participations20,499 5.36 62,510 3.76 
Total purchased/participation loans$252,834 2.77 $194,249 3.44 
44

For the Nine Months Ended
June 30, 2021June 30, 2020
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family:(1)
<= 15 years $394,798 2.26 %22.2 %$279,441 2.88 %21.0 %
> 15 years848,249 2.83 47.7 613,890 3.50 46.1 
One- to four-family construction98,852 2.76 5.6 36,107 3.38 2.7 
Commercial:
Commercial real estate18,481 3.62 1.1 32,605 4.23 2.5 
Commercial and industrial42,582 2.22 2.4 60,648 1.84 4.6 
Commercial construction42,165 3.65 2.4 36,253 4.72 2.7 
Home equity2,095 5.47 0.1 3,261 5.91 0.2 
Other2,323 5.43 0.1 2,752 5.76 0.2 
Total fixed-rate 1,449,545 2.69 81.6 1,064,957 3.32 80.0 
Adjustable-rate:
One- to four-family:(2)
<= 36 months2,245 2.31 0.1 5,279 2.82 0.4 
> 36 months51,228 2.52 2.9 106,407 2.99 8.0 
One- to four-family construction11,069 2.64 0.6 10,929 3.03 0.8 
Commercial:
Commercial real estate105,348 3.63 5.9 42,557 4.62 3.2 
Commercial and industrial9,492 3.78 0.5 5,979 4.75 0.4 
Commercial construction105,555 4.10 6.0 51,724 4.07 3.9 
Home equity41,207 4.43 2.3 42,359 5.16 3.2 
Other1,465 3.45 0.1 1,760 3.94 0.1 
Total adjustable-rate327,609 3.67 18.4 266,994 3.85 20.0 
Total originated, refinanced and purchased$1,777,154 2.87 100.0 %$1,331,951 3.42 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family$487,001 2.63 $334,343 3.39 
Participations - commercial38,114 3.62 46,126 4.29 
Total fixed-rate purchased/participations525,115 2.70 380,469 3.50 
Adjustable-rate:
Correspondent - one- to four-family17,964 2.46 47,796 2.96 
Participations - commercial77,000 4.44 47,500 4.04 
Total adjustable-rate purchased/participations94,964 4.07 95,296 3.50 
Total purchased/participation loans$620,079 2.91 $475,765 3.50 
(1)The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.
(2)The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.

45

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 credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least annually, with the latest update in March 2021, 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.
June 30, 2021September 30, 2020
% ofCredit Average% ofCredit Average
AmountTotalScoreLTVBalanceAmountTotalScoreLTVBalance
(Dollars in thousands)
Originated$3,977,129 65.1 %772 61 %$150 $3,937,310 63.0 %771 62 %$145 
Correspondent purchased1,953,185 32.0 766 63 396 2,101,082 33.6 765 64 379 
Bulk purchased179,019 2.9 773 59 295 208,427 3.4 767 60 300 
$6,109,333 100.0 %770 62 191 $6,246,819 100.0 %768 63 187 

The following tables present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year nine month period, $287.8 million were refinanced from other lenders.
For the Three Months Ended
June 30, 2021June 30, 2020
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$207,706 73 %766 $173,851 73 %763 
Refinanced by Bank customers73,453 67 761 82,171 67 767 
Correspondent purchased235,834 68 773 129,049 70 771 
$516,993 70 769 $385,071 71 766 
For the Nine Months Ended
June 30, 2021June 30, 2020
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$613,068 71 %768 $479,751 74 %765 
Refinanced by Bank customers288,408 66 767 190,163 68 763 
Correspondent purchased504,965 69 774 382,139 71 768 
$1,406,441 69 770 $1,052,053 72 766 


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The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period.
For the Three Months Ended For the Nine Months Ended
June 30, 2021June 30, 2021
StateAmount% of TotalRateAmount% of TotalRate
(Dollars in thousands)
Kansas$237,868 46.0 %2.74 %$767,443 54.6 %2.67 %
Missouri79,200 15.3 2.72 236,666 16.8 2.67 
Texas54,766 10.6 2.50 105,370 7.5 2.61 
Pennsylvania44,959 8.7 2.50 89,420 6.4 2.54 
Tennessee29,063 5.6 2.53 77,992 5.5 2.65 
Other states71,137 13.8 2.53 129,550 9.2 2.61 
$516,993 100.0 %2.65 $1,406,441 100.0 %2.65 

As of June 30, 2021, there were $5.3 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There were $195.5 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by June 30, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of June 30, 2021, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.
Fixed-Rate
15 yearsMore thanAdjustable-Total
or less15 yearsRateAmountRate
(Dollars in thousands)
Originate/refinance$23,472 $77,739 $4,617 $105,828 2.81 %
Correspondent23,105 117,205 1,604 141,914 2.63 
$46,577 $194,944 $6,221 $247,742 2.71 
Rate2.25 %2.82 %2.52 %


Commercial Loans - During the current year nine-month period, the Bank originated $208.5 million of commercial loans, including $22.8 million of PPP loans, and entered into commercial loan participations totaling $115.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $208.7 million at a weighted average rate of 3.45%. Additionally, during the current year nine-month period, $48.3 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.

47

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of June 30, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Senior housing34 $221,351 $43,271 $264,622 $2,200 $266,822 26.5 %
Hotel10 135,255 59,887 195,142 — 195,142 19.3 
Retail building130 149,313 43,123 192,436 750 193,186 19.2 
Office building95 51,200 60,462 111,662 520 112,182 11.1 
Multi-family42 52,642 13,431 66,073 14,583 80,656 8.0 
One- to four-family property379 58,298 7,587 65,885 618 66,503 6.6 
Single use building23 42,383 4,927 47,310 9,005 56,315 5.6 
Other100 30,836 3,910 34,746 2,677 37,423 3.7 
813 $741,278 $236,598 $977,876 $30,353 $1,008,229 100.0 %
Weighted average rate4.00 %4.03 %4.01 %4.15 %4.01 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of June 30, 2021.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas637 $323,816 $20,705 $344,521 $14,541 $359,062 35.6 %
Texas11 126,557 131,063 257,620 — 257,620 25.6 
Missouri138 201,517 30,674 232,191 14,312 246,503 24.4 
Colorado7 14,197 22,000 36,197 — 36,197 3.6 
Arkansas3 9,309 24,539 33,848 — 33,848 3.4 
Nebraska6 33,560 4 33,564 — 33,564 3.3 
Other11 32,322 7,613 39,935 1,500 41,435 4.1 
813 $741,278 $236,598 $977,876 $30,353 $1,008,229 100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of June 30, 2021. Included in the working capital line item are $18.3 million of PPP loans.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Working capital529 $29,483 $17,140 $46,623 $— $46,623 47.9 %
Purchase/lease autos249 17,153 49 17,202 — 17,202 17.6 
Equipment116 13,161 406 13,567 1,424 14,991 15.4 
Business investment57 7,350 214 7,564 450 8,014 8.2 
Other26 6,566 4,017 10,583 — 10,583 10.9 
977 $73,713 $21,826 $95,539 $1,874 $97,413 100.0 %

48

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of June 30, 2021.
CountAmount
(Dollars in thousands)
Greater than $30 million3 $150,000 
>$15 to $30 million15 347,216 
>$10 to $15 million6 69,055 
>$5 to $10 million14 88,662 
$1 to $5 million108 243,940 
Less than $1 million1,644 206,769 
1,790 $1,105,642 

As of June 30, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $133.9 million with COVID-19 loan modifications that were still in their deferral period and making interest-only payments. There were $261.9 million of commercial loans with COVID-19 loan modifications that were out of their deferral period by June 30, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

49


Asset Quality. The Bank's traditional one- to four-family underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets within this loan category compared to national levels. Of particular importance is the complete and full documentation required for each loan the Bank originates, participates in or purchases. This allows the Bank to make an informed credit decision based upon a thorough assessment of the borrower's ability to repay the loan. The Bank performs more extensive due diligence when underwriting commercial loans than loans secured by one- to four-family residential properties due to the larger loan amounts, the more complex sources of repayment and the riskier nature of such loans. When participating in a commercial loan, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. See additional discussion regarding underwriting standards in "Part I, Item 1. Business - Lending Practices and Underwriting Standards" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020.

Delinquent and non-performing loans and OREO - Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by June 30, 2021, $4.4 million were 30 to 89 days delinquent and $2.1 million were 90 or more days delinquent as of June 30, 2021. None of the commercial COVID-19 loan modifications that had completed the deferral period by June 30, 2021 were delinquent as of June 30, 2021.

The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at June 30, 2021, approximately 78% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
June 30, March 31, December 31, September 30, June 30,
20212021202020202020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated51$5,141 45$4,151 62$5,844 42 $3,012 57 $5,085 
Correspondent purchased93,650 92,910 134,694 8 3,123 10 2,919 
Bulk purchased6958 5352 91,750 12 2,532 19 4,536 
Commercial135 5806 81,047 2 45 9 1,543 
Consumer25354 17287 30515 26 398 21 431 
92$10,138 81$8,506 122$13,850 90 $9,110 116 $14,514 
Loans 30 to 89 days delinquent
to total loans receivable, net0.14 %0.12 %0.20 %0.13 %0.20 %

The following table presents the Company's non-performing 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. Non-performing 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 non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At June 30, 2021, there were $7.8 million of non-performing one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place.
50

Non-Performing Loans and OREO at:
June 30, March 31, December 31, September 30, June 30,
20212021202020202020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated53 $3,696 55 $4,433 51 $4,370 51 $4,362 47 $4,026 
Correspondent purchased12 4,230 10 3,749 9 3,371 6 2,397 7 2,740 
Bulk purchased7 2,596 10 3,172 13 3,724 12 2,903 3 1,291 
Commercial7 1,278 6 1,068 5 820 5 1,360 4 709 
Consumer23 445 26 531 26 473 14 304 23 278 
102 12,245 107 12,953 104 12,758 88 11,326 84 9,044 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.17 %0.19 %0.18 %0.16 %0.12 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated7 $1,392 9 $1,646 9 $968 9 $691 14 $1,132 
Correspondent purchased— — — — — — — — — — 
Bulk purchased1 131 — — — — — — — — 
Commercial3 403 4 642 3 411 3 464 1 6 
Consumer— — — — 1 9 1 9 1 33 
11 1,926 13 2,288 13 1,388 13 1,164 16 1,171 
Total non-performing loans113 14,171 120 15,241 117 14,146 101 12,490 100 10,215 
Non-performing loans as a percentage of total loans0.20 %0.22 %0.20 %0.17 %0.14 %
OREO:
One- to four-family:
Originated(2)
3 $177 2 $105 3 $129 4 $183 4 $183 
Total non-performing assets116 $14,348 122 $15,346 120 $14,275 105 $12,673 104 $10,398 
Non-performing assets as a percentage of total assets0.15 %0.16 %0.15 %0.13 %0.11 %

(1)Includes 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.
(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.
51

The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at June 30, 2021. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At June 30, 2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans 30 to 89Loans 90 or More Days Delinquent
One- to Four-FamilyDays Delinquentor in Foreclosure
StateAmount% of TotalAmount% of TotalAmount% of TotalLTV
(Dollars in thousands)
Kansas$3,534,330 57.8 %$5,126 52.6 %$3,757 35.7 %56 %
Missouri1,042,747 17.1 1,667 17.1 825 7.9 39 
Texas578,503 9.5 — — 2,550 24.2 58 
Other states953,753 15.6 2,956 30.3 3,390 32.2 65 
$6,109,333 100.0 %$9,749 100.0 %$10,522 100.0 %58 

Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. The increase in commercial special mention loans at June 30, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.0 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic considerations that management is monitoring in association with these loans resulting in the special mention classification.
June 30, 2021September 30, 2020June 30, 2020
Special MentionSubstandardSpecial MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$14,885 $24,439 $11,339 $25,630 $12,309 $26,788 
Commercial100,019 4,057 52,006 4,914 52,054 5,128 
Consumer237 670 332 589 320 564 
$115,141 $29,166 $63,677 $31,133 $64,683 $32,480 

Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures - As discussed previously, ASU 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating ACL under GAAP with a new impairment methodology, commonly known as the CECL methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and loan commitments over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption of the ASU, the Company recorded a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand), which reduced the ACL by $4.8 million, to $26.8 million, and established a reserve for off-balance sheet credit exposures of $7.8 million, which is recorded in other liabilities in the consolidated balance sheet. The Bank's off-balance sheet credit exposures are comprised of unfunded portions of existing loans and commitments to originate or purchase new loans that are not unconditionally cancellable by the Bank.

The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The credit loss estimate for off-balance sheet credit exposures also takes into consideration the likelihood that the commitment will be funded. The economic indices used for the reasonable and supportable forecasted time period are the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product. Management considers several economic forecast scenarios provided by a third party and selects the scenario(s) believed to be the most appropriate considering the facts and circumstances at quarter end. Management also considers several qualitative factors. The qualitative factors account for items not included in historical loss rates, the macroeconomic forecast, and/or other model inputs/assumptions. Any changes to the ACL and reserves on off-balance sheet credit exposures are recorded through increases/decreases in the provision for credit losses on the consolidated statements of income.

The economic forecast scenarios selected by management improved at June 30, 2021 compared to March 31, 2021 which resulted in a reduction in the ACL calculated by the model. Management applied qualitative factors at both June 30, 2021 and March 31, 2021 to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention commercial
52

loans. The total ACL amount assigned to these qualitative factors also decreased at June 30, 2021 compared to March 31, 2021. The economic uncertainties were related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted, and (3) the unevenness of the recovery in certain industries.

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended June 30, 2021.
ACLReserve for off-balance sheet credit exposuresACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at March 31, 2021$23,397 $6,127 $29,524 
Charge-offs(19)— (19)
Recoveries71 — 71 
Net charge-offs52 — 52 
Provision for credit losses(2,725)34 (2,691)
Balance at June 30, 2021$20,724 $6,161 $26,885 

The negative provision for credit losses in the current quarter was due primarily to a reduction in the commercial loan ACL related to a decrease in the commercial loan economic uncertainty qualitative factor due to improved economic conditions compared to March 31, 2021.

53

The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
For the Three Months Ended
June 30, 2021March 31, 2021December 31, 2020September 30, 2020June 30, 2020
(Dollars in thousands)
ACL beginning balance$23,397 $26,125 $31,527 $31,215 $31,196 
Adoption of CECL— — (4,761)— — 
Charge-offs(19)(138)(532)(15)(5)
Recoveries71 68 68 327 24 
Provision for credit losses(2,725)(2,658)(177)— — 
ACL ending balance$20,724 $23,397 $26,125 $31,527 $31,215 
ACL to loans receivable at end of period0.29 %0.33 %0.37 %0.44 %0.42 %
ACL to non-performing loans at end of period146.23 153.51 184.68 252.42 305.58 
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding— — 0.01 — — 
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets(0.35)0.47 3.44 (2.70)(0.20)
ACL to net charge-offs (annualized)
N/M(1)
83.8x14.1x
N/M(1)
N/M(1)
For the Nine Months Ended
June 30, 2021June 30, 2020
(Dollars in thousands)
ACL beginning balance$31,527 $9,226 
Adoption of CECL(4,761)— 
Charge-offs(689)(428)
Recoveries207 117 
Provision for credit losses(5,560)22,300 
ACL ending balance$20,724 $31,215 
Ratio of net charge-offs during the period to
average loans outstanding0.01 %— %
Ratio of net charge-offs during the period to
average non-performing assets3.56 3.22 
ACL to net charge-offs (annualized)32.3x75.3x

(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.

54

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13.
At
June 30, March 31, December 31, October 1,September 30, June 30,
202120212020202020202020
(Dollars in thousands)
One- to four-family:
Originated$1,515 $1,517 $1,516 $1,609 $6,044 $6,298 
Correspondent purchased1,739 1,705 1,758 2,324 2,691 3,189 
Bulk purchased674 747 852 903 467 506 
Construction20 19 22 25 41 48 
Total 3,948 3,988 4,148 4,861 9,243 10,041 
Commercial:
Commercial real estate14,784 17,016 17,813 16,595 16,869 16,353 
Commercial and industrial 345 445 553 559 1,451 1,465 
Construction1,404 1,696 3,341 4,452 3,480 2,886 
Total 16,533 19,157 21,707 21,606 21,800 20,704 
Consumer243 252 270 299 484 470 
Total $20,724 $23,397 $26,125 $26,766 $31,527 $31,215 

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
At
June 30, March 31, December 31, October 1,September 30, June 30,
2021 20212020202020202020
One- to four-family:
Originated0.04 %0.04 %0.04 %0.04 %0.15 %0.16 %
Correspondent purchased0.09 0.09 0.09 0.11 0.13 0.14 
Bulk purchased0.38 0.40 0.43 0.43 0.22 0.23 
Construction0.07 0.07 0.07 0.07 0.12 0.13 
Total 0.06 0.07 0.07 0.08 0.15 0.16 
Commercial:
Commercial real estate2.17 2.56 2.92 2.65 2.69 2.62 
Commercial and industrial 0.47 0.58 0.80 0.57 1.49 1.47 
Construction2.32 3.18 3.95 4.22 3.30 3.30 
Total 2.03 2.41 2.84 2.60 2.63 2.55 
Consumer0.25 0.26 0.25 0.26 0.42 0.40 
Total 0.29 0.33 0.37 0.37 0.44 0.42 

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded.
At
June 30, March 31, December 31, October 1,
2021202120202020
(Dollars in thousands)
One- to four-family$229 $197 $131 $144 
Commercial5,880 5,887 6,261 7,584 
Consumer52 43 41 60 
$6,161 $6,127 $6,433 $7,788 
55

Securities. Securities increased $454.7 million, or 29.1%, from September 30, 2020, composed of a $338.2 million increase in MBS and a $116.5 million increase in investment securities. The weighted average yield on the securities portfolio decreased 38 basis points, from 1.62% at September 30, 2020 to 1.24% at June 30, 2021, due primarily to purchases at lower market yields. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 93% of our securities portfolio at June 30, 2021. 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 taxable equivalent basis.
June 30, 2021March 31, 2021September 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Fixed-rate securities:
MBS$1,365,635 1.39 %3.9 $1,384,982 1.46 %4.1 $945,432 1.82 %3.7 
GSE debentures494,968 0.59 3.9 544,966 0.55 3.6 369,967 0.62 1.7 
Municipal bonds5,133 1.79 0.4 5,447 1.79 0.5 9,716 1.69 0.7 
Total fixed-rate securities1,865,736 1.18 3.9 1,935,395 1.20 3.9 1,325,115 1.49 3.1 
Adjustable-rate securities:
MBS137,221 2.05 3.4 155,325 2.24 3.2 204,490 2.49 2.9 
Total securities portfolio$2,002,957 1.24 3.8 $2,090,720 1.28 3.9 $1,529,605 1.62 3.1 


The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
June 30, 2021March 31, 2021September 30, 2020
(Dollars in thousands)
FNMA$924,039 $972,833 $809,232 
FHLMC564,984 542,502 327,167 
GNMA30,005 34,566 44,404 
$1,519,028 $1,549,901 $1,180,803 
56

Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $338.2 million, from $1.18 billion at September 30, 2020, to $1.52 billion at June 30, 2021. The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.
For the Three Months Ended
June 30, 2021March 31, 2021December 31, 2020September 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,549,901 1.54 %4.0 $1,459,300 1.67 %4.0 $1,180,803 1.94 %3.5 $982,587 2.35 %3.3 
Maturities and repayments(110,996)(109,141)(101,496)(95,842)
Net amortization of (premiums)/discounts(1,689)(1,572)(1,003)(608)
Purchases:
Fixed-rate75,234 1.36 5.5 223,804 1.31 5.9 379,793 1.04 5.4 297,024 1.06 5.9 
Change in valuation on AFS securities6,578 (22,490)1,203 (2,358)
Ending balance - carrying value$1,519,028 1.45 3.8 $1,549,901 1.54 4.0 $1,459,300 1.67 4.0 $1,180,803 1.94 3.5 

For the Nine Months Ended
June 30, 2021June 30, 2020
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,180,803 1.94 %3.5 $936,487 2.67 %3.5 
Maturities and repayments(321,633)(213,695)
Net amortization of (premiums)/discounts(4,264)(890)
Purchases:
Fixed-rate678,831 1.16 5.6 240,677 1.71 4.4 
Change in valuation on AFS securities(14,709)20,008 
Ending balance - carrying value$1,519,028 1.45 3.8 $982,587 2.35 3.3 
57

Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, increased $116.5 million, from $380.1 million at September 30, 2020, to $496.7 million at June 30, 2021. Municipal investments totaled $5.1 million at June 30, 2021. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.
For the Three Months Ended
June 30, 2021March 31, 2021December 31, 2020September 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$546,023 0.56 %3.6 $454,566 0.54 %1.0 $380,147 0.65 %1.7 $237,467 1.23 %0.8 
Maturities, calls and sales(100,300)(3,325)(50,900)(102,115)
Net amortization of (premiums)/discounts(12)(18)(14)(54)
Purchases:
Fixed-rate50,000 0.73 3.2 100,000 0.70 4.6 124,987 0.48 3.2 244,975 0.51 3.2 
Change in valuation on AFS securities966 (5,200)346 (126)
Ending balance - carrying value$496,677 0.60 3.8 $546,023 0.56 3.6 $454,566 0.54 1.0 $380,147 0.65 1.7 

For the Nine Months Ended
June 30, 2021June 30, 2020
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$380,147 0.65 %1.7 $268,376 2.11 %0.8 
Maturities, calls and sales(154,525)(256,300)
Net amortization of (premiums)/discounts(44)(109)
Purchases:
Fixed-rate274,987 0.60 3.7 225,087 1.20 1.2 
Change in valuation on AFS securities(3,888)413 
Ending balance - carrying value$496,677 0.60 3.8 $237,467 1.23 0.8 
58

Liabilities

Deposits - Total deposits were $6.64 billion, an increase of $446.9 million, or 7.2%, from September 30, 2020. The increase was in non-maturity deposits, which increased $586.6 million, including a $269.2 million increase in money market accounts, a $238.2 million increase in checking accounts, and a $79.2 million increase in savings accounts. Retail certificates of deposit decreased $210.5 million from September 30, 2020, which was partially offset by a $71.8 million increase in commercial certificates of deposit. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.
June 30, 2021March 31, 2021September 30, 2020
% of% of% of
AmountRate TotalAmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$540,669 — %8.2 %$549,158 — %8.2 %$451,394 — %7.3 %
Interest-bearing checking1,014,665 0.08 15.3 1,009,096 0.07 15.2 865,782 0.10 14.0 
Savings513,054 0.06 7.7 511,014 0.06 7.7 433,808 0.06 7.0 
Money market 1,688,337 0.25 25.4 1,602,573 0.24 24.1 1,419,180 0.37 22.9 
Retail certificates of deposit2,412,806 1.50 36.4 2,512,791 1.62 37.8 2,623,336 1.88 42.4 
Commercial certificates of deposit214,956 0.71 3.2 217,563 0.77 3.3 143,125 1.05 2.3 
Public unit certificates of deposit253,807 0.36 3.8 248,670 0.45 3.7 254,783 0.74 4.1 
$6,638,294 0.66 100.0 %$6,650,865 0.73 100.0 %$6,191,408 0.95 100.0 %

The following tables set forth scheduled maturity information for our certificates of deposit, along with associated weighted average rates, as of June 30, 2021.
Amount Due
More thanMore than
1 year1 year to2 years to 3More thanTotal
Rate rangeor less2 yearsyears3 yearsAmountRate
(Dollars in thousands)
Retail certificates of deposit:
0.00 – 0.99%$550,417 $179,058 $67,469 $84,122 $881,066 0.52 %
1.00 – 1.99%343,680 170,719 111,402 77,336 703,137 1.69 
2.00 – 2.99%246,706 388,924 161,803 30,914 828,347 2.40 
3.00 – 3.99%— 256 — — 256 3.00 
Commercial certificates of deposit:
0.00 – 0.99%172,807 4,795 464 781 178,847 0.54 
1.00 – 1.99%19,503 10,104 343 907 30,857 1.41 
2.00 – 2.99%2,016 2,401 662 172 5,251 2.31 
Public unit certificates of deposit:
0.00 – 0.99%196,575 25,501 — — 222,076 0.10 
1.00 – 1.99%16,096 — — — 16,096 1.69 
2.00 – 2.99%15,307 — 329 — 15,636 2.65 
$1,563,107 $781,758 $342,472 $194,232 $2,881,569 1.34 
Percent of total54.3 %27.1 %11.9 %6.7 %
Weighted average rate1.07 1.71 1.80 1.25 
Weighted average maturity (in years)0.5 1.4 2.5 3.8 1.2 
Weighted average maturity for the retail portfolio (in years)1.3 
Weighted average maturity for the commercial portfolio (in years)0.6 
Weighted average maturity for the public unit portfolio (in years)0.4 

59

Amount Due
OverOver
3 months3 to 66 to 12Over
or lessmonthsmonths12 monthsTotal
(Dollars in thousands)
Retail certificates of deposit less than $100,000$168,367 $167,204 $326,201 $740,425 $1,402,197 
Retail certificates of deposit of $100,000 or more128,925 128,177 221,929 531,578 1,010,609 
Commercial certificates of deposit less than $100,0002,961 3,025 4,377 4,223 14,586 
Commercial certificates of deposit of $100,000 or more39,299 78,560 66,105 16,406 200,370 
Public unit certificates of deposit of $100,000 or more98,464 74,062 55,451 25,830 253,807 
$438,016 $451,028 $674,063 $1,318,462 $2,881,569 
60

Borrowings - Total borrowings at June 30, 2021 were $1.58 billion, a decrease of $206.9 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from deposit growth were used to pay off maturing borrowings.
The following tables present 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. FHLB advances are presented at par. 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. For new borrowings, the WAMs presented are as of the date of issue.
For the Three Months Ended
June 30, 2021March 31, 2021December 31, 2020September 30, 2020
Effective Effective Effective Effective
AmountRateWAMAmountRateWAMAmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$1,590,000 1.94 %3.3 $1,740,000 2.26 %3.0 $1,790,000 2.31 %3.0 $1,990,000 2.29 %2.9 
Maturities and prepayments:
FHLB advances(300,000)1.30 (315,000)2.20 (350,000)2.40 (440,000)2.49 
Repurchase agreements— — — — — — (100,000)2.53 
New FHLB borrowings:
Fixed-rate200,000 0.90 4.5 100,000 1.24 6.0 100,000 1.09 5.0 — — — 
Interest rate swaps(1)
100,000 3.14 7.0 65,000 2.65 3.1 200,000 2.63 1.5 340,000 2.73 3.5 
Ending balance $1,590,000 2.00 3.5 $1,590,000 1.94 3.3 $1,740,000 2.26 3.0 $1,790,000 2.31 3.0 

For the Nine Months Ended
June 30, 2021June 30, 2020
Effective Effective
AmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$1,790,000 2.31 %3.0 $2,140,000 2.38 %2.6 
Maturities and prepayments:
FHLB advances(965,000)1.99 (965,000)2.41 
New FHLB borrowings:
Fixed-rate400,000 1.03 5.0 450,000 1.76 4.8 
Interest rate swaps(1)
365,000 2.77 3.3 365,000 2.75 4.3 
Ending balance $1,590,000 2.00 3.5 $1,990,000 2.29 2.9 

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.
61

Maturities - The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of June 30, 2021.
Term Borrowings Amount
Maturity byFHLBInterest rateTotalContractualEffective
Fiscal YearAdvances
swaps(1)
AmountRate
Rate(2)
(Dollars in thousands)
2021$— $340,000 $340,000 0.28 %2.73 %
2022— 100,000 100,000 0.24 3.14 
2023300,000 — 300,000 1.70 1.81 
2024150,000 — 150,000 2.44 2.44 
2025300,000 — 300,000 1.66 1.75 
2026250,000 — 250,000 0.96 1.27 
2027150,000 — 150,000 0.93 1.24 
$1,150,000 $440,000 $1,590,000 1.18 2.00 

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $440.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.6 years at June 30, 2021.
(2)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 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 term borrowings for the next four quarters as of June 30, 2021.
Retail/CommercialPublic UnitTerm
Maturity by CertificateRepricingCertificateRepricingBorrowingsRepricingRepricing
Quarter EndAmountRateAmountRate
Amount(1)
RateTotalRate
(Dollars in thousands)
September 30, 2021$339,552 1.26 %$98,464 0.51 %$75,000 2.99 %$513,016 1.37 %
December 31, 2021376,966 1.12 74,062 0.26 — — 451,028 0.98 
March 31, 2022299,872 1.24 24,876 0.65 — — 324,748 1.19 
June 30, 2022318,740 1.15 30,575 0.09 — — 349,315 1.06 
$1,335,130 1.19 $227,977 0.39 $75,000 2.99 $1,638,107 1.16 

(1)The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap.
62

Stockholders' Equity. Stockholders' equity at June 30, 2021 was $1.24 billion, a decrease of $47.2 million, or 3.7%, from September 30, 2020. During the current year nine month period, the Company paid cash dividends totaling $106.4 million and repurchased common stock totaling $1.5 million, partially offset by net income of $57.5 million. The cash dividends paid during the current year nine month period totaled $0.785 per share and consisted of a $0.40 per share True Blue Capitol cash dividend, a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and three regular quarterly cash dividends of $0.085 per share. On July 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 20, 2021 to stockholders of record as of the close of business on August 6, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At June 30, 2021, this ratio was 11.5%.

At June 30, 2021, Capitol Federal Financial, Inc., at the holding company level, had $84.7 million in cash on deposit at the Bank. For fiscal year 2021, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the FRB's existing approval for the Company to repurchase shares extends through August 2021. The Company plans to request a further extension of the FRB's approval.

The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. Given the state of economic uncertainty, the Company elected to defer the annual True Blue dividend in June 2020. In June 2021, the Company paid a True Blue Capitol cash dividend of $0.40 per share. The $0.40 per share True Blue Capitol cash dividend represents a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend for fiscal year 2021. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, and 2019. The amounts represent cash dividends paid during each period. For the quarter ending September 30, 2021, the amount presented represents the dividend payable on August 20, 2021 to stockholders of record as of the close of business on August 6, 2021.
Calendar Year
202120202019
AmountPer ShareAmountPer ShareAmountPer Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31$11,518 $0.085 $11,733 $0.085 $11,700 $0.085 
Quarter ended June 3011,516 0.085 11,733 0.085 11,708 0.085 
Quarter ended September 3011,520 0.085 11,733 0.085 11,713 0.085 
Quarter ended December 31— — 11,514 0.085 11,731 0.085 
True-up dividends paid— — 17,614 0.130 46,932 0.340 
True Blue dividends paid54,210 0.400 — — 34,446 0.250 
Calendar year-to-date dividends paid$88,764 $0.655 $64,327 $0.470 $128,230 $0.930 


63

Operating Results
The following table presents selected income statement and other information for the quarters indicated.
For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
20212021202020202020
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable$54,779 $57,285 $60,694 $64,315 $66,652 
MBS5,360 5,429 5,710 5,425 5,616 
FHLB stock944 951 1,069 1,080 1,207 
Investment securities763 629 683 731 847 
Cash and cash equivalents26 40 51 55 59 
Total interest and dividend income61,872 64,334 68,207 71,606 74,381 
Interest expense:
Deposits11,475 12,529 14,067 15,299 16,533 
Borrowings7,826 8,732 10,327 10,624 11,561 
Total interest expense19,301 21,261 24,394 25,923 28,094 
Net interest income42,571 43,073 43,813 45,683 46,287 
Provision for credit losses(2,691)(2,964)(1,532)— — 
Net interest income
(after provision for credit losses)45,262 46,037 45,345 45,683 46,287 
Non-interest income5,236 12,477 5,070 4,985 4,439 
Non-interest expense27,602 32,653 27,067 27,176 26,164 
Income tax expense 4,709 5,417 4,450 5,213 5,088 
Net income$18,187 $20,444 $18,898 $18,279 $19,474 
Efficiency ratio57.73 %58.78 %55.37 %53.64 %51.58 %
Basic EPS$0.13 $0.15 $0.14 $0.13 $0.14 
Diluted EPS0.13 0.15 0.14 0.13 0.14 

64

Comparison of Operating Results for the Three Months Ended June 30, 2021 and March 31, 2021

For the quarter ended June 30, 2021, the Company recognized net income of $18.2 million, or $0.13 per share, compared to net income of $20.4 million, or $0.15 per share, for the quarter ended March 31, 2021. The decrease in net income was due primarily to a decrease in non-interest income due mainly to the prior quarter including a $7.4 million gain on the sale of the Bank's Visa Class B shares, partially offset by a decrease in non-interest expense due mainly to a $4.8 million loss in the prior quarter due to the Bank terminating $200.0 million of its interest rate swaps. Net interest margin decreased four basis points, from 1.88% for the prior quarter to 1.84% for the current quarter. The decrease in net interest margin was due mainly to a decrease in the loan portfolio average yield, partially offset by a decrease in the average cost of deposits and borrowings. Our net interest margin could continue to decrease if our interest-earning assets continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 15 basis points, from 2.81% for the prior quarter to 2.66% for the current quarter, while the average balance of interest-earning assets increased $125.8 million between the two periods. The decrease in the weighted average yield was due primarily to a decrease in the one- to four-family loan portfolio yield. The increase in the average balance was due primarily to a $152.1 million increase in the average balance of the MBS and investment securities portfolios and a $38.0 million increase in the average balance of the loans receivable portfolio, partially offset by a $60.7 million decrease in the average balance of cash and cash equivalents. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$54,779 $57,285 $(2,506)(4.4)%
MBS5,360 5,429 (69)(1.3)
FHLB stock944 951 (7)(0.7)
Investment securities763 629 134 21.3 
Cash and cash equivalents26 40 (14)(35.0)
Total interest and dividend income$61,872 $64,334 $(2,462)(3.8)

The decrease in interest income on loans receivable was due to a 16 basis point decrease in the weighted average portfolio yield, partially offset by a $38.0 million increase in the average balance. The weighted average yield on the loans receivable portfolio decreased from 3.27% for the prior quarter to 3.11% for the current quarter, due mainly to an increase in one- to four-family correspondent loan endorsement activity, which increased the amount of premium amortization related to these loans, along with a reduction in one- to four-family originated loan endorsement activity, which decreased the amount of deferred fee recognition related to these loans. Additionally, the yield decreased due to the origination and purchase of one- to four-family loans at rates lower than the overall portfolio. One- to four-family correspondent loan payoff activity in the current quarter was lower than the prior quarter; thereby reducing the amount of premium amortization and reduction in the loan portfolio yield. Correspondent loan payoff activity remains at elevated levels compared to historical norms. The yield on the loan portfolio will likely continue to decrease in the near term due to the high levels of prepayments, refinances and endorsements.

The decrease in interest income on MBS was due to a 10 basis point decrease in the weighted average portfolio yield, which was largely offset by an $85.1 million increase in the average balance of the portfolio. The increase in interest income on investment securities was due primarily to a $67.0 million increase in the average balance of the portfolio.

65

Interest Expense
The weighted average rate paid on interest-bearing liabilities decreased 12 basis points, from 1.06% for the prior quarter to 0.94% for the current quarter, while the average balance of interest-bearing liabilities increased $121.1 million between the two periods due to an increase in the average balance of checking, savings and money market accounts, partially offset by a decrease in the average balance of retail/commercial certificates of deposit and a decrease in the average balance of borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$11,475 $12,529 $(1,054)(8.4)%
Borrowings7,826 8,732 (906)(10.4)
Total interest expense$19,301 $21,261 $(1,960)(9.2)
The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on and a decrease in the average balance of the retail/commercial certificate of deposit portfolio. The weighted average rate on the retail/commercial certificate of deposit portfolio decreased 12 basis points, to 1.49% for the current quarter, and the average balance decreased $74.5 million.

During the prior quarter, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to variable-rate FHLB advances totaling $200.0 million. During the current quarter, the Bank prepaid the aforementioned variable-rate FHLB advances and replaced them with $200.0 million of fixed-rate FHLB advances. The decrease in interest expense on borrowings compared to the prior quarter was due primarily to a full quarterly impact of this activity and the related reduction in the effective cost of these borrowings.

Provision for Credit Losses
For the quarter ended June 30, 2021, the Bank recorded a negative provision for credit losses of $2.7 million, compared to a negative provision for credit losses of $3.0 million for the prior quarter. The negative provision in the current quarter was composed of a $2.7 million decrease in the ACL for loans, partially offset by a $34 thousand increase in reserves for off-balance sheet credit exposures. The $2.7 million negative provision for credit losses in the current quarter was due primarily to more favorable economic conditions at June 30, 2021 compared to March 31, 2021, largely related to commercial loans. See "Financial Condition - Asset Quality" above for additional discussion regarding the Bank's ACL and reserves for off-balance sheet credit exposures at June 30, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,227 $2,814 $413 14.7 %
Gain on sale of Visa Class B shares— 7,386 (7,386)(100.0)
Insurance commissions723 888 (165)(18.6)
Other non-interest income1,286 1,389 (103)(7.4)
Total non-interest income$5,236 $12,477 $(7,241)(58.0)

The increase in deposit service fees was due primarily to increases in debit card income and service charge income as a result of higher transaction volume in the current quarter. During the prior quarter, the Bank sold all of its Visa Class B shares, resulting in a $7.4 million gain. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions during the prior quarter, which were higher than what was anticipated and accrued.

66

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,867 $13,397 $470 3.5 %
Information technology and related expense4,736 4,599 137 3.0 
Occupancy, net3,504 3,523 (19)(0.5)
Loss on interest rate swap termination— 4,752 (4,752)(100.0)
Regulatory and outside services1,469 1,234 235 19.0 
Advertising and promotional1,407 1,484 (77)(5.2)
Deposit and loan transaction costs693 664 29 4.4 
Federal insurance premium633 634 (1)(0.2)
Office supplies and related expense402 463 (61)(13.2)
Other non-interest expense891 1,903 (1,012)(53.2)
Total non-interest expense$27,602 $32,653 $(5,051)(15.5)

The increase in salaries and employee benefits was due primarily to merit increases during the current quarter. During the prior quarter, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million resulting in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. The increase in regulatory and outside services was due mainly to the timing of external audit expenses. The decrease in other non-interest expense was due primarily to the write-down of a property during the prior quarter that previously served as one of the Bank's branch locations, as management intends to sell the property. During the current quarter there was a partial reversal of the write-down due to receiving updated pricing information for the property.

The Company's efficiency ratio was 57.73% for the current quarter compared to 58.78% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense, partially offset by a decrease in non-interest income. 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 indicates that the financial institution is generating revenue with a proportionally lower level of expense, relative to the net interest margin.

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.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
Income before income tax expense$22,896 $25,861 $(2,965)(11.5)%
Income tax expense4,709 5,417 (708)(13.1)
Net income$18,187 $20,444 $(2,257)(11.0)
Effective Tax Rate20.6 %20.9 %

The decrease in income tax expense was due mainly to a decrease in pretax income. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 20%.

67

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2021March 31, 2021
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,982,990 $33,727 3.39 %$3,956,867 $34,794 3.52 %
Correspondent purchased1,971,209 10,367 2.10 1,981,735 11,826 2.39 
Bulk purchased185,198 826 1.78 195,925 932 1.90 
Total one- to four-family loans6,139,397 44,920 2.93 6,134,527 47,552 3.10 
Commercial loans805,721 8,744 4.29 766,972 8,559 4.46 
Consumer loans96,980 1,115 4.61 102,613 1,174 4.64 
Total loans receivable(1)
7,042,098 54,779 3.11 7,004,112 57,285 3.27 
MBS(2)
1,529,679 5,360 1.40 1,444,554 5,429 1.50 
Investment securities(2)(3)
533,076 763 0.57 466,077 629 0.54 
FHLB stock73,689 944 5.14 77,391 951 4.98 
Cash and cash equivalents97,890 26 0.11 158,544 40 0.10 
Total interest-earning assets9,276,432 61,872 2.66 9,150,678 64,334 2.81 
Other non-interest-earning assets430,639 446,265 
Total assets$9,707,071 $9,596,943 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,546,665 182 0.05 $1,459,964 183 0.05 
Savings513,528 72 0.06 477,985 69 0.06 
Money market1,646,970 998 0.24 1,543,911 1,038 0.27 
Retail/commercial certificates2,678,914 9,938 1.49 2,753,439 10,917 1.61 
Wholesale certificates251,571 285 0.45 260,712 322 0.50 
Total deposits6,637,648 11,475 0.69 6,496,011 12,529 0.78 
Borrowings(4)
1,582,905 7,826 1.97 1,603,459 8,732 2.19 
Total interest-bearing liabilities8,220,553 19,301 0.94 8,099,470 21,261 1.06 
Other non-interest-bearing liabilities203,532 213,602 
Stockholders' equity1,282,986 1,283,871 
Total liabilities and stockholders' equity$9,707,071 $9,596,943 
Net interest income(5)
$42,571 $43,073 
Net interest rate spread(6)
1.72 1.75 
Net interest-earning assets$1,055,879 $1,051,208 
Net interest margin(7)
1.84 1.88 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)0.75 %0.85 %
Return on average equity (annualized)5.67 6.37 
Average equity to average assets13.22 13.38 
Operating expense ratio(8)
1.14 1.36 
Efficiency ratio(9)
57.73 58.78 

68

(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $5.1 million and $7.5 million for the quarters ended June 30, 2021 and March 31, 2021, respectively.
(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)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.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(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.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2021 to the three months ended March 31, 2021. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended
June 30, 2021 vs. March 31, 2021
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$422 $(2,928)$(2,506)
MBS310 (379)(69)
Investment securities94 40 134 
FHLB stock(40)33 (7)
Cash and cash equivalents (16)2 (14)
Total interest-earning assets770 (3,232)(2,462)
Interest-bearing liabilities:
Checking 11 (14)(3)
Savings6 (2)4 
Money market71 (110)(39)
Certificates of deposit(275)(741)(1,016)
Borrowings(103)(803)(906)
Total interest-bearing liabilities(290)(1,670)(1,960)
Net change in net interest income$1,060 $(1,562)$(502)

69

Comparison of Operating Results for the Nine Months Ended June 30, 2021 and 2020

The Company recognized net income of $57.5 million, or $0.42 per share, for the nine month period ended June 30, 2021 compared to net income of $46.3 million, or $0.34 per share, for the nine month period ended June 30, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $7.2 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $14.2 million, or 9.9%, from the prior year period to $129.5 million for the current year period. Net interest margin decreased 27 basis points, from 2.15% for the prior year period to 1.88% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.48% for the prior year period to 2.82% for the current year period, while the average balance of interest-earning assets increased $259.3 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$172,758 $206,179 $(33,421)(16.2)%
MBS16,499 17,584 (1,085)(6.2)
FHLB stock2,964 4,747 (1,783)(37.6)
Investment securities2,075 3,736 (1,661)(44.5)
Cash and cash equivalents117 1,126 (1,009)(89.6)
Total interest and dividend income$194,413 $233,372 $(38,959)(16.7)

The decrease in interest income on loans receivable was due mainly to a 41 basis point decrease in the weighted average yield on the portfolio, from 3.67% for the prior year period to 3.26% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to increases in payoff and endorsement activity, as well as endorsements and refinances of one- to four-family originated loans to lower market rates, adjustable-rate loans repricing to lower market rates, and the origination and purchase of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $420.5 million compared to the prior year period. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the COVID-19 pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity.

The decrease in interest income on the MBS portfolio was due to a 98 basis point decrease in the weighted average yield to 1.54% for the current year period as a result of the purchase of MBS at market rates lower than the existing portfolio and an increase in the impact of premium amortization, partially offset by a $495.5 million increase in the average balance of the portfolio.

The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

The decrease in interest income on investment securities was due to a 135 basis point decrease in the weighted average yield to 0.58% for the current year period as a result of new purchases at lower market yields, partially offset by a $219.0 million increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due primarily to a decrease in the yield earned on cash held at the FRB of Kansas City.

70

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 45 basis points, from 1.52% for the prior year period to 1.07% for the current period, while the average balance of interest-bearing liabilities increased $250.8 million. The increase in the average balance was primarily in money market and checking accounts, partially offset by a decrease in the average balance of borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$38,071 $52,299 $(14,228)(27.2)%
Borrowings26,885 37,421 (10,536)(28.2)
Total interest expense$64,956 $89,720 $(24,764)(27.6)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/commercial certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 46 basis points, 31 basis points, and 133 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/commercial certificates of deposit have been repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $494.1 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with liquidity generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year period of $7.2 million, compared to a $22.3 million provision for credit losses during the prior year period. See "Financial Condition - Asset Quality" above for additional discussion regarding the Bank's ACL and reserves for off-balance sheet credit exposures at June 30, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$8,988 $8,384 $604 7.2 %
Gain on sale of Visa Class B shares7,386 — 7,386 N/A
Insurance commissions2,249 1,762 487 27.6 
Other non-interest income4,160 4,468 (308)(6.9)
Total non-interest income$22,783 $14,614 $8,169 55.9 

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume. During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to higher annual contingent insurance commissions received in the current year period compared to the prior year period. The decrease in other non-interest income was mainly the result of lower income from BOLI compared to the prior year period due to a reduction in the yield due to lower market rates and lower death benefit receipts between the two periods.

71

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
 20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$41,402 $39,765 $1,637 4.1 %
Information technology and related expense13,568 12,694 874 6.9 
Occupancy, net10,406 10,212 194 1.9 
Loss on interest rate swap termination4,752 — 4,752 N/A
Regulatory and outside services4,288 4,188 100 2.4 
Advertising and promotional3,729 3,773 (44)(1.2)
Deposit and loan transaction costs2,123 2,086 37 1.8 
Federal insurance premium1,888 287 1,601 557.8
Office supplies and related expense1,289 1,586 (297)(18.7)
Other non-interest expense3,877 4,237 (360)(8.5)
Total non-interest expense$87,322 $78,828 $8,494 10.8 

The increase in salaries and employee benefits was due primarily to an increase in officer bonus accruals, as well as an increase in loan commissions related to higher loan origination activity. The increase in information technology and related expense was due mainly to an increase in software licensing expense and information technology professional services expense. As discussed previously, during the current year period, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million resulting in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year period.

The Company's efficiency ratio was 57.36% for the current period compared to 49.81% for the prior year period. The change in the efficiency ratio was due to higher non-interest expense and lower net interest income, partially offset by an increase in non-interest income in the current year period compared to the prior year period. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current year period related to higher non-interest expense was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current year period, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year period.

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.
For the Nine Months Ended
June 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$72,105 $57,138 $14,967 26.2 %
Income tax expense14,576 10,877 3,699 34.0 
Net income$57,529 $46,261 $11,268 24.4 
Effective Tax Rate20.2 %19.0 %

The increase in income tax expense was due primarily to higher pretax income in the current year period, as well as a higher effective tax rate compared to the prior year period. The effective tax rate was lower in the prior year period due primarily to a discrete benefit recognized in the prior year period related to certain BOLI policies that were acquired in fiscal year 2018.

72

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Nine Months Ended
June 30, 2021June 30, 2020
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,963,088 $104,482 3.52 %$3,946,543 $113,228 3.83 %
Correspondent purchased2,006,257 35,124 2.33 2,386,194 54,780 3.06 
Bulk purchased195,678 2,870 1.96 235,928 4,837 2.73 
Total one- to four-family loans6,165,023 142,476 3.08 6,568,665 172,845 3.51 
Commercial loans780,941 26,707 4.51 775,021 28,228 4.79 
Consumer loans103,241 3,575 4.63 126,049 5,106 5.41 
Total loans receivable(1)
7,049,205 172,758 3.26 7,469,735 206,179 3.67 
MBS(2)
1,424,914 16,499 1.54 929,458 17,584 2.52 
Investment securities(2)(3)
476,755 2,075 0.58 257,778 3,736 1.93 
FHLB stock78,784 2,964 5.03 99,945 4,747 6.34 
Cash and cash equivalents152,792 117 0.10 166,272 1,126 0.89 
Total interest-earning assets9,182,450 194,413 2.82 8,923,188 233,372 3.48 
Other non-interest-earning assets443,370 459,877 
Total assets$9,625,820 $9,383,065 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,455,468 588 0.05 $1,141,682 550 0.06 
Savings478,011 209 0.06 375,858 222 0.08 
Money market1,554,947 3,220 0.28 1,216,377 5,395 0.59 
Retail/commercial certificates2,726,035 33,032 1.62 2,702,272 42,096 2.08 
Wholesale certificates254,606 1,022 0.54 287,977 4,036 1.87 
Total deposits6,469,067 38,071 0.79 5,724,166 52,299 1.22 
Borrowings(4)
1,654,544 26,885 2.16 2,148,687 37,421 2.31 
Total interest-bearing liabilities8,123,611 64,956 1.07 7,872,853 89,720 1.52 
Other non-interest-bearing liabilities219,204 195,957 
Stockholders' equity1,283,005 1,314,255 
Total liabilities and stockholders' equity$9,625,820 $9,383,065 
Net interest income(5)
$129,457 $143,652 
Net interest rate spread(6)
1.75 1.96 
Net interest-earning assets$1,058,839 $1,050,335 
Net interest margin(7)
1.88 2.15 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)0.80 %0.66 %
Return on average equity (annualized)5.98 4.69 
Average equity to average assets13.33 14.01 
Operating expense ratio(8)
1.21 1.12 
Efficiency ratio(9)
57.36 49.81 
73

(1)Balances are adjusted for unearned loan fees and deferred costs.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $7.2 million and $14.7 million for the nine months ended June 30, 2021 and June 30, 2020, respectively.
(4)The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)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.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(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.

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 Nine Months Ended
June 30, 2021 vs. June 30, 2020
Increase (Decrease) Due to
VolumeRateTotal
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(10,905)$(22,516)$(33,421)
MBS7,269 (8,354)(1,085)
Investment securities1,956 (3,617)(1,661)
FHLB stock(906)(877)(1,783)
Cash and cash equivalents (85)(924)(1,009)
Total interest-earning assets(2,671)(36,288)(38,959)
Interest-bearing liabilities:
Checking 134 (96)38 
Savings52 (65)(13)
Money market1,216 (3,390)(2,174)
Certificates of deposit(149)(11,930)(12,079)
Borrowings(6,751)(3,785)(10,536)
Total interest-bearing liabilities(5,498)(19,266)(24,764)
Net change in net interest income$2,827 $(17,022)$(14,195)

Comparison of Operating Results for the Three Months Ended June 30, 2021 and 2020
For the quarter ended June 30, 2021, the Company recognized net income of $18.2 million, or $0.13 per share, compared to net income of $19.5 million, or $0.14 per share for the quarter ended June 30, 2020. The decrease in net income was due primarily to a decrease in net interest income, partially offset by a negative provision for credit losses of $2.7 million in the current quarter. Net interest margin decreased 23 basis points, from 2.07% for the prior year quarter to 1.84% for the current quarter. The decrease in net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio were used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

74

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.32% for the prior year quarter to 2.66% for the current quarter, while the average balance of interest-earning assets increased $311.8 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$54,779 $66,652 $(11,873)(17.8)%
MBS5,360 5,616 (256)(4.6)
FHLB stock944 1,207 (263)(21.8)
Investment securities763 847 (84)(9.9)
Cash and cash equivalents26 59 (33)(55.9)
Total interest and dividend income$61,872 $74,381 $(12,509)(16.8)

The decrease in interest income on loans receivable was due mainly to a 44 basis point decrease in the weighted average yield, from 3.55% for the prior year quarter to 3.11% for the current quarter, along with a $447.6 million decrease in the average balance. The decrease in the weighted average yield was due primarily to endorsements and refinances of one- to four-family originated loans to lower market rates, an increase in premium amortization related to correspondent loans as a result of an increase in payoff and endorsement activity, and the origination and purchase of new loans at lower market rates. The decrease in the average balance was due primarily to a decrease in the balance of correspondent one- to four-family loans.

The decrease in interest income on the MBS portfolio was due primarily to a 100 basis point decrease in the weighted average yield on the portfolio, from 2.40% for the prior year quarter to 1.40% for the current quarter resulting from the purchase of MBS at market rates lower than the existing portfolio and an increase in the impact of premium amortization, partially offset by a $595.2 million, or 63.7%, increase in the average balance of the portfolio.

The decrease in dividend income on FHLB stock was due to a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 47 basis points, from 1.41% for the prior year quarter to 0.94% for the current quarter, while the average balance of interest-bearing liabilities increased $254.0 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$11,475 $16,533 $(5,058)(30.6)%
Borrowings7,826 11,561 (3,735)(32.3)
Total interest expense$19,301 $28,094 $(8,793)(31.3)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/commercial certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 55 basis points, 19 basis points, and 98 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/commercial certificates of deposit have been repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $452.7 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced. Additionally, the decrease in interest expense on borrowings was due to the impact of the termination of interest rate swaps associated with $200.0 million of FHLB advances, as previously discussed.
75

Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $2.7 million, compared to no provision for credit losses during the prior year quarter. See "Financial Condition - Asset Quality" above for additional discussion regarding the Bank's ACL and reserves for off-balance sheet credit exposures at June 30, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,227 $2,539 $688 27.1 %
Insurance commissions723 671 52 7.7 
Other non-interest income1,286 1,229 57 4.6 
Total non-interest income$5,236 $4,439 $797 18.0 

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume compared to the prior year quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,867 $13,059 $808 6.2 %
Information technology and related expense4,736 4,285 451 10.5 
Occupancy, net3,504 3,556 (52)(1.5)
Regulatory and outside services1,469 1,548 (79)(5.1)
Advertising and promotional1,407 1,004 403 40.1 
Deposit and loan transaction costs693 697 (4)(0.6)
Federal insurance premium633 287 346 120.6
Office supplies and related expense402 475 (73)(15.4)
Other non-interest expense891 1,253 (362)(28.9)
Total non-interest expense$27,602 $26,164 $1,438 5.5 

The increase in salaries and employee benefits was due primarily to an increase in officer bonus accruals, as well as to merit increases during the current quarter. The increase in information technology and related expense was due mainly to an increase in software licensing expense. The increase in advertising and promotional expense was due to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the FDIC during the prior year quarter. The decrease in other non-interest expense was due primarily to a partial reversal of a write-down of a property that previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 57.73% for the current quarter compared to 51.58% for the prior year quarter. The change in the efficiency ratio was due primarily to lower net interest income, along with an increase in non-interest expense.

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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.
For the Three Months Ended
June 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$22,896 $24,562 $(1,666)(6.8)%
Income tax expense4,709 5,088 (379)(7.4)
Net income$18,187 $19,474 $(1,287)(6.6)
Effective Tax Rate20.6 %20.7 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter.
77

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2021June 30, 2020
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,982,990 $33,727 3.39 %$3,966,034 $37,701 3.80 %
Correspondent purchased1,971,209 10,367 2.10 2,376,900 16,436 2.77 
Bulk purchased185,198 826 1.78 226,011 1,509 2.67 
Total one- to four-family loans6,139,397 44,920 2.93 6,568,945 55,646 3.39 
Commercial loans805,721 8,744 4.29 799,600 9,576 4.74 
Consumer loans96,980 1,115 4.61 121,139 1,430 4.75 
Total loans receivable(1)
7,042,098 54,779 3.11 7,489,684 66,652 3.55 
MBS(2)
1,529,679 5,360 1.40 934,464 5,616 2.40 
Investment securities(2)(3)
533,076 763 0.57 207,541 847 1.63 
FHLB stock73,689 944 5.14 101,588 1,207 4.78 
Cash and cash equivalents97,890 26 0.11 231,354 59 0.10 
Total interest-earning assets9,276,432 61,872 2.66 8,964,631 74,381 3.32 
Other non-interest-earning assets430,639 499,291 
Total assets$9,707,071 $9,463,922 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,546,665 182 0.05 $1,232,611 199 0.06 
Savings513,528 72 0.06 404,545 69 0.07 
Money market1,646,970 998 0.24 1,267,535 1,350 0.43 
Retail/commercial certificates2,678,914 9,938 1.49 2,734,940 13,882 2.04 
Wholesale certificates251,571 285 0.45 291,292 1,033 1.43 
Total deposits6,637,648 11,475 0.69 5,930,923 16,533 1.12 
Borrowings(4)
1,582,905 7,826 1.97 2,035,637 11,561 2.27 
Total interest-bearing liabilities8,220,553 19,301 0.94 7,966,560 28,094 1.41 
Other non-interest-bearing liabilities203,532 200,339 
Stockholders' equity1,282,986 1,297,023 
Total liabilities and stockholders' equity$9,707,071 $9,463,922 
Net interest income(5)
$42,571 $46,287 
Net interest rate spread(6)
1.72 1.91 
Net interest-earning assets$1,055,879 $998,071 
Net interest margin(7)
1.84 2.07 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)0.75 %0.82 %
Return on average equity (annualized)5.67 6.01 
Average equity to average assets13.22 13.70 
Operating expense ratio(8)
1.14 1.11 
Efficiency ratio(9)
57.73 51.58 

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(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $5.1 million and $11.9 million for the three months ended June 30, 2021 and June 30, 2020, respectively.
(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)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.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(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.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2021 to the three months ended June 30, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended June 30,
2021 vs. 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(3,695)$(8,178)$(11,873)
MBS2,676 (2,932)(256)
Investment securities719 (803)(84)
FHLB stock(352)89 (263)
Cash and cash equivalents (36)3 (33)
Total interest-earning assets(688)(11,821)(12,509)
Interest-bearing liabilities:
Checking 44 (61)(17)
Savings17 (14)3 
Money market333 (685)(352)
Certificates of deposit(458)(4,234)(4,692)
Borrowings(2,079)(1,656)(3,735)
Total interest-bearing liabilities(2,143)(6,650)(8,793)
Net change in net interest income$1,455 $(5,171)$(3,716)


79

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, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, 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 the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios in excess of 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 FHLB and the FRB of Kansas City's discount window. See "Part I, Item 1. Business - Sources of Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for information regarding limits on the Bank's FHLB borrowings. 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 and certain other characteristics of those securities. 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, 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. The Bank's internal policy limits total borrowings to 55% of total assets. At June 30, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances.

The amount of FHLB borrowings outstanding at June 30, 2021 was $1.59 billion, of which $440.0 million were advances scheduled to mature in the next 12 months, all of which were one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB.

At June 30, 2021, 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 could 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 June 30, 2021, the Bank had $1.64 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs. 

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of June 30, 2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At June 30, 2021, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 4% of total deposits. The Bank had pledged securities with an estimated fair value of $303.3 million as collateral for public unit certificates of deposit at June 30, 2021. 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 June 30, 2021, $1.56 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $228.0 million of public unit certificates of deposit and $194.3 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.  The same is anticipated for our commercial certificates of deposit; however, due to the nature of these funds, retention rates are not as predictable as for retail certificates of deposit. We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing.

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
80

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.
The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at June 30, 2021, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of June 30, 2021, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $302.0 million.
Loans(1)
MBSInvestment SecuritiesTotal
AmountYieldAmountYieldAmountYieldAmountYield
(Dollars in thousands)
Amounts due:
Within one year $171,672 3.83 %$622 2.62 %$4,448 1.77 %$176,742 3.77 %
After one year:
Over one to two years110,445 3.82 13,549 1.63 714 1.94 124,708 3.57 
Over two to three years65,355 4.45 7,844 1.84 24,968 0.32 98,167 3.19 
Over three to five years148,675 4.16 46,236 2.80 441,662 0.58 636,573 1.58 
Over five to ten years747,141 3.60 278,592 1.73 24,885 0.96 1,050,618 3.04 
Over ten to fifteen years1,654,269 2.87 899,029 1.20 — — 2,553,298 2.28 
After fifteen years4,154,068 3.30 273,156 1.78 — — 4,427,224 3.20 
Total due after one year6,879,953 3.27 1,518,406 1.45 492,229 0.59 8,890,588 2.81 
$7,051,625 3.28 $1,519,028 1.45 $496,677 0.60 $9,067,330 2.83 

(1)The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment. All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction.

Limitations on Dividends and Other Capital Distributions

Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers 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 a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), 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.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The Company, in the normal course of business, makes commitments to buy or sell assets, to extend credit, or to incur or fund liabilities. There have been no material changes in commitments, contractual obligations or off-balance sheet arrangements from September 30, 2020. For additional information, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements, Commitments and Contractual Obligations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020. We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

81

The maximum balance of short-term FHLB borrowings outstanding at any month-end during the nine months ended June 30, 2021 was $840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $657.0 million at a weighted average contractual rate of 0.50%. The balance of short-term FHLB borrowings outstanding at June 30, 2021 was $440.0 million, at a weighted average contractual rate of 0.27%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months.
Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended June 30, 2021, or future periods.

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 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 June 30, 2021, the Bank's CBLR was 11.5% and the Company's CBLR was 12.8%, which exceeded the minimum requirements. See "Part I, Item 1. Business - Regulation and Supervision - Regulatory Capital Requirements" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for additional information related to regulatory capital.

The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of June 30, 2021, for the Bank and the Company (dollars in thousands):
BankCompany
Total equity as reported under GAAP$1,112,326 $1,237,624 
AOCI13,338 13,338 
Goodwill and other intangibles, net of associated deferred taxes(12,651)(12,651)
Total tier 1 capital$1,113,013 $1,238,311 

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Item 3. Quantitative and Qualitative Disclosure about Market Risk
Asset and Liability Management and Market Risk
For a complete discussion of the Bank's asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Bank's portfolios, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the year ended September 30, 2020. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.

The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.

On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local and correspondent lending markets. Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.

The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.

Qualitative Disclosure about Market Risk
At June 30, 2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(478.2) million, or (5.0)% of total assets, compared to $(652.3) million, or (6.7)% of total assets, at March 31, 2021. The change in the one-year gap amount was due primarily to a decrease in the amount of liabilities projected to reprice at June 30, 2021. During the current quarter, the Bank replaced $200.0 million of adjustable-rate FHLB advances with long-term fixed-rate advances with maturities greater than one year. In addition, the amount of assets projected to reprice decreased due to a lower balance of cash and investment securities at June 30, 2021 compared to March 31, 2021. This was somewhat offset by lower interest rates as of June 30, 2021 compared to March 31, 2021. As interest rates decrease, borrowers have more economic incentive to refinance their mortgages, resulting in higher projected cash flows on these assets.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically 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 June 30, 2021, the Bank's one-year gap is projected to be $(1.12) billion, or (11.7)% of total assets. The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(1.32) billion, or (13.6)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2021.

83

During the current quarter, loan repayments totaled $511.2 million and cash flows from the securities portfolio totaled $211.3 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $457.3 million. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of June 30, 2021 was 2.6 years. However, including the impact of interest rate swaps related to $440.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of June 30, 2021 was 3.5 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

In addition to these wholesale strategies, the Bank has benefited from an increase in non-maturity deposits. As market interest rates rise, rates paid on non-maturity deposits are not expected to increase as quickly. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout previous interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. Additionally, as we expand the commercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.

With the significant decrease in interest rates during calendar year 2020, the Bank decreased its rates on certificates of deposit and money market accounts on pace with competitors in its market areas, and the low rate environment has continued midway through calendar year 2021. The Bank will continue to adjust rates as market conditions allow.


84

Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. 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, have features that restrict 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 and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. 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.
More ThanMore Than
WithinOne Year toThree YearsOver
One Year Three Years to Five Years Five Years Total
Interest-earning assets:(Dollars in thousands)
Loans receivable(1)
$1,807,012 $1,833,258 $1,075,888 $2,326,068 $7,042,226 
Securities(2)
448,380 451,779 688,717 414,081 2,002,957 
Other interest-earning assets74,271 — — — 74,271 
Total interest-earning assets2,329,663 2,285,037 1,764,605 2,740,149 9,119,454 
Interest-bearing liabilities:
Non-maturity deposits(3)
1,168,381 425,917 367,335 1,879,815 3,841,448 
Certificates of deposit1,563,106 1,124,692 193,406 365 2,881,569 
Borrowings(4)
76,401 517,940 753,134 281,139 1,628,614 
Total interest-bearing liabilities2,807,888 2,068,549 1,313,875 2,161,319 8,351,631 
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities$(478,225)$216,488 $450,730 $578,830 $767,823 
Cumulative excess of interest-earning assets over
interest-bearing liabilities$(478,225)$(261,737)$188,993 $767,823 
Cumulative excess of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
June 30, 2021(4.96)%(2.71)%1.96 %7.96 %
September 30, 20204.58 
Cumulative one-year gap - interest rates +200 bps at:
June 30, 2021(11.66)
September 30, 2020(6.44)

(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2021, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.15 billion, for a cumulative one-year gap of (32.7)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $440.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.

85

Change in Net Interest Income. 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. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
ChangeNet Interest Income At
(in Basis Points)June 30, 2021September 30, 2020
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$181,925 $— — %$183,596 $— — %
+100 bp186,620 4,695 2.58 188,084 4,488 2.44 
+200 bp188,318 6,393 3.51 188,417 4,821 2.63 
+300 bp188,490 6,565 3.61 186,441 2,845 1.55 

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

The net interest income projection was lower in the base case scenario at June 30, 2021 compared to September 30, 2020 due to a decrease in the interest income projection on the Bank's loan portfolio. As a result of the low level of interest rates during the current fiscal year, the Bank continued to see a decrease in the yield on loans receivable due to refinances and endorsements. In addition, the Bank experienced a decrease in the overall balance of the loans receivable portfolio, resulting in these cash flows being deployed into lower yielding securities.

The decrease in interest income was somewhat offset by a decrease in the interest expense projection on deposits and borrowings. The decrease in the deposit expense projection was due primarily to a decrease in the cost of deposits at June 30, 2021 compared to September 30, 2020. This was partially offset by an increase in the balance of deposits. The decrease in projected expense on borrowings was due primarily to the restructuring of the borrowings portfolio and a lower balance of borrowings compared to September 30, 2020. The Bank terminated two interest rate swaps during the March 31, 2021 quarter, and replaced them with lower costing fixed-rate advances. This resulted in a decrease in the effective cost of the borrowings portfolio. In addition, the Bank modified $200.0 million of fixed-rate advances during the fiscal year into lower costing long-term fixed-rate advances.

Despite a negative gap, net interest income increases in all rising interest rate scenarios due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the interest rate change. This assumption is based on a historical analysis of the Bank's deposit pricing behavior.

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Change in MVPE. 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. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
ChangeMarket Value of Portfolio Equity At
(in Basis Points)June 30, 2021September 30, 2020
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$1,398,908 $— — %$1,301,409 $— — %
+100 bp1,302,643 (96,265)(6.88)1,290,877 (10,532)(0.81)
+200 bp1,121,229 (277,679)(19.85)1,157,368 (144,041)(11.07)
+300 bp920,241 (478,667)(34.22)967,997 (333,412)(25.62)

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

The percentage change in the Bank's MVPE at June 30, 2021 and September 30, 2020 was negative in all scenarios. The negative impact to the Bank's MVPE is greater at June 30, 2021 compared to September 30, 2020. This change was due primarily to an increase in the duration of the Bank's mortgage-related assets at June 30, 2021 compared to September 30, 2020. This was due in part to higher interest rates at June 30, 2021. As interest rates increase, borrowers have less economic incentive 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. As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. In addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase as further prepayments are expected to be diminished.

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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 June 30, 2021. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
AmountYield/RateWAL% of Category% of Total
(Dollars in thousands)
Investment securities$496,677 0.60 %4.0 24.7 %5.4 %
MBS - fixed1,377,325 1.39 4.0 68.3 14.9 
MBS - adjustable141,703 2.05 3.7 7.0 1.5 
Total securities2,015,705 1.24 3.9 100.0 %21.8 
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years 1,266,125 2.71 3.6 18.0 %13.7 
> 15 years4,219,769 3.35 5.6 59.8 45.7 
Fixed-rate commercial437,323 4.30 4.1 6.2 4.8 
All other fixed-rate loans43,150 4.09 6.1 0.6 0.5 
Total fixed-rate loans5,966,367 3.29 5.1 84.6 64.7 
Adjustable-rate one- to four-family:
<= 36 months168,705 1.81 4.9 2.4 1.8 
> 36 months454,734 2.86 3.2 6.4 4.9 
Adjustable-rate commercial377,668 4.08 6.7 5.4 4.1 
All other adjustable-rate loans84,151 4.25 2.5 1.2 0.9 
Total adjustable-rate loans1,085,258 3.23 4.6 15.4 11.7 
Total loans receivable7,051,625 3.28 5.0 100.0 %76.4 
FHLB stock73,630 5.20 2.6 0.8 
Cash and cash equivalents95,305 0.12 — 1.0 
Total interest-earning assets$9,236,265 2.82 4.7 100.0 %
Non-maturity deposits$3,756,725 0.14 5.8 56.6 %45.7 %
Retail certificates of deposit2,412,806 1.50 1.3 36.4 29.3 
Commercial certificates of deposit214,956 0.71 0.6 3.2 2.6 
Public unit certificates of deposit253,807 0.36 0.4 3.8 3.1 
Total deposits6,638,294 0.66 3.8 100.0 %80.7 
Term borrowings1,590,000 2.00 3.5 19.3 
Total interest-bearing liabilities$8,228,294 0.92 3.7 100.0 %

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of June 30, 2021. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2021, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

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Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
The Company and the Bank are involved as plaintiff or defendant in various legal actions arising in the normal course of business. In our opinion, after consultation with legal counsel, we believe it unlikely that such pending legal actions will have a material adverse effect on our financial condition, results of operations or liquidity.

Item 1A. Risk Factors
With the exception of the risk factors listed below, there have been no changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020:

The impact of the COVID-19 pandemic on our customers, employees and business operations has had, and will likely continue to have, an adverse effect on our business, results of operations and financial condition.
The COVID-19 pandemic created a global public-health crisis that resulted in challenging economic conditions for households and businesses. The economic impact of the COVID-19 pandemic impacted a broad range of industries. Many areas of consumer spending have rebounded since the initial onset of the COVID-19 pandemic.

There is uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. The Bank continues to have commercial and retail borrowers that have deferred payments on their loans, and we recognize that those borrowers in the hotel and convention center industries are experiencing a slower recovery than certain other industries. The Bank has deferred foreclosures on one- to four-family loans as a result of federal and state foreclosure moratoriums, and when foreclosures resume, we could experience losses on the impacted loans. The Bank has been forced to leave staff positions unfilled, as qualified candidates for open positions have been difficult to find, but we believe this may improve when the additional federal unemployment assistance programs expire. The changes in market rates of interest and their impact on our ability to price our products may continue to reduce our net interest income or negatively impact the demand for our products.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.

An economic downturn, especially one affecting our geographic market areas and certain regions of the country where we have correspondent loans secured by one- to four-family properties or commercial real estate participation loans, could adversely impact our business and financial results.
Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage loans secured by residential properties. As we have grown our commercial real estate lending portfolio, we have continued to maintain relationships not only in our local markets but in geographically diverse markets. As a result, we are particularly exposed to downturns in regional housing and commercial real estate markets and, to a lesser extent, the U.S. housing and commercial real estate markets, along with changes in the levels of unemployment or underemployment. We monitor the current status and trends of local and national employment levels and trends and current conditions in the real estate and housing markets, as well as commercial real estate markets, in our local market areas and certain areas where we have correspondent loans and commercial participation loans. Adverse conditions in our local economies and in certain areas where we have correspondent loans and commercial participation loans, such as inflation, unemployment, recession, natural disasters or pandemics, or other factors beyond our control, could impact the ability of our borrowers to repay their loans. Any one or a combination of these events may have an adverse impact on borrowers' ability to repay their loans, which could result in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions. Decreases in local real estate values could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure.

89

The expected discontinuation of LIBOR, and the identification and use of alternative replacement reference rates, may adversely affect our results of operations and subject the Company to litigation risk.
LIBOR is used extensively in the United States as a reference rate for various financial contracts, including adjustable-rate loans, asset-backed securities, and interest rate swaps. In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020, authorities announced a plan to extend the date that most U.S. LIBOR values would cease being published from December 31, 2021 to June 30, 2023. The announcement means the continuation of LIBOR cannot be guaranteed after June 30, 2023.

In the United States, the Alternative Reference Rate Committee ("ARRC"), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference interest rates to replace LIBOR. The Secured Overnight Finance Rate ("SOFR") has emerged as the ARRC's preferred alternative rate for LIBOR; however, other market alternatives have been developed. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market. The use of SOFR continues to steadily grow. At this time, it is not possible to predict how markets will respond to alternative reference rates as markets continue to transition away from LIBOR.

The Company's LIBOR steering committee is composed of individuals from lending, compliance/risk, treasury and legal. The LIBOR steering committee has been charged with overseeing the coordination of the Company's enterprise-wide LIBOR transition program and evaluating and mitigating the risks associated with the transition from LIBOR. The LIBOR transition program includes a comprehensive review by management of the financial products, agreements, contracts and business processes that may use LIBOR as a reference rate. As financial products, agreements, contracts and business processes that use LIBOR are identified, the LIBOR steering committee works with management to develop a strategy to transition away from LIBOR. During the strategy development process, management and the LIBOR steering committee considers the financial, customer/counterparty, regulatory and legal impacts of all proposed strategies.

As of June 30, 2021, the Company has identified $302.2 million of adjustable-rate one- to four-family loans for which the repricing index was tied to LIBOR and the loan maturity date is after December 31, 2021. The majority of these loans have maturity dates after June 30, 2023. Our one- to four-family loan agreements generally allow the Bank to choose a new alternative reference rate based upon comparable information if the current index is no longer available. During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR. The Bank began using the one-year Constant Maturity Treasury ("CMT") index for newly originated and correspondent purchased one- to four-family adjustable-rate loans. At June 30, 2021, none of the Bank's consumer or commercial loans use a repricing index tied to LIBOR. The Bank has interest rate swaps maturing after December 31, 2021 with a notional amount of $440.0 million at June 30, 2021 that are tied to LIBOR. The Bank's swap agreements are governed by the International Swap Dealers Association ("ISDA"). ISDA is in the process of developing fallback language for swap agreements and is expected to establish a protocol to allow counterparties to modify legacy trades to include the new fallback language.

In July 2021, the Bank began to preemptively transition its FHLB advances and interest rate swaps that were tied to LIBOR to SOFR instruments. The early transition was driven by the FHLB policy that no longer allows LIBOR-based advances with a maturity beyond December 31, 2021.

The market transition away from LIBOR to an alternative reference rate is complex. If LIBOR rates are no longer available, and we are required to implement replacement reference rates for the calculation of interest rates under our loan agreements with borrowers, we may incur significant expense in effecting the transition and we may be subject to disputes or litigation with our borrowers over the appropriateness or comparability to LIBOR of the replacement reference rates. The replacement reference rates could also result in a reduction in our interest income. We may also receive inquiries and other actions from regulators with respect to the Company's preparation and readiness for the replacement of LIBOR with alternative reference rates.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See "Liquidity and Capital Resources - Capital" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding OCC restrictions on dividends from the Bank to the Company.

90

The following table summarizes our stock repurchase activity during the three months ended June 30, 2021 and additional information regarding our stock repurchase program. The Company has $44.7 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares is through August 2021. Shares may be repurchased from time to time in the open-market or in privately negotiated transactions based upon market conditions and available liquidity.
Total Number ofApproximate Dollar
TotalShares Purchased asValue of Shares
Number of Average Part of Publiclythat May Yet Be
Shares Price PaidAnnounced PlansPurchased Under the
Purchasedper Shareor ProgramsPlans or Programs
April 1, 2021 through
April 30, 2021— $— — $44,665,205 
May 1, 2021 through
May 31, 2021— — — 44,665,205 
June 1, 2021 through
June 30, 2021— — — 44,665,205 
Total— — — 44,665,205 

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

Item 6. Exhibits
See Index to Exhibits.
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INDEX TO EXHIBITS
Exhibit
Number		Document
Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference
Bylaws of Capitol Federal Financial, Inc., as amended, filed on March 30, 2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference
Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference
Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Description of Director Fee Arrangements filed on November 29, 2018 as Exhibit 10.6 to the Registrant's September 30, 2018 Form 10-K and incorporated herein by reference
Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
92

101
The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the Securities and Exchange Commission on August 9, 2021, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at June 30, 2021 and September 30, 2020, (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2021 and 2020, (iv) Consolidated Statements of Stockholders' Equity for the three and nine months ended June 30, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the nine months ended June 30, 2021 and 2020, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CAPITOL FEDERAL FINANCIAL, INC.
Date: August 9, 2021By:/s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: August 9, 2021By:/s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

94