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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, 2023
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 shareCFFNThe 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 3, 2023, there were 136,186,969 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,
20232022
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $308,127 and $27,467)
$329,409 $49,194 
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $1,624,837 and $1,768,490)
1,444,867 1,563,307 
Loans receivable, net (allowance for credit losses ("ACL") of $22,399 and $16,371)
7,963,360 7,464,208 
Federal Home Loan Bank Topeka ("FHLB") stock, at cost116,012 100,624 
Premises and equipment, net91,713 94,820 
Income taxes receivable, net5,894 1,266 
Deferred income tax assets, net26,889 33,884 
Other assets315,983 317,594 
TOTAL ASSETS$10,294,127 $9,624,897 
LIABILITIES:
Deposits$6,092,840 $6,194,866 
Borrowings2,986,162 2,132,154 
Advances by borrowers40,982 80,067 
Other liabilities112,858 121,311 
Total liabilities9,232,842 8,528,398 
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, 136,158,569 and 138,858,884 shares issued and outstanding as of June 30, 2023 and September 30, 2022, respectively
1,361 1,388 
Additional paid-in capital1,167,979 1,190,213 
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(28,497)(29,735)
Retained earnings47,148 80,266 
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(126,706)(145,633)
Total stockholders' equity1,061,285 1,096,499 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$10,294,127 $9,624,897 
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,
2023202220232022
INTEREST AND DIVIDEND INCOME:
Loans receivable$71,918 $56,886 $206,056 $168,086 
Cash and cash equivalents10,009 3,968 37,657 4,931 
Mortgage-backed securities ("MBS")4,562 5,048 14,121 14,494 
FHLB stock3,260 2,695 11,025 6,166 
Investment securities895 815 2,671 2,423 
Total interest and dividend income90,644 69,412 271,530 196,100 
INTEREST EXPENSE:
Borrowings31,449 11,644 96,504 27,961 
Deposits24,445 7,787 52,489 25,443 
Total interest expense55,894 19,431 148,993 53,404 
NET INTEREST INCOME34,750 49,981 122,537 142,696 
PROVISION FOR CREDIT LOSSES1,324 937 5,875 (5,690)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES33,426 49,044 116,662 148,386 
NON-INTEREST INCOME:
Deposit service fees3,404 3,601 9,987 10,331 
Insurance commissions888 788 2,560 2,042 
Other non-interest income1,522 1,726 3,702 4,664 
Total non-interest income5,814 6,115 16,249 17,037 
NON-INTEREST EXPENSE:
Salaries and employee benefits13,200 14,581 39,687 42,332 
Information technology and related expense6,118 4,343 16,977 13,268 
Occupancy, net3,556 3,721 10,598 10,593 
Regulatory and outside services1,436 1,572 4,274 4,212 
Advertising and promotional1,447 1,068 3,613 3,626 
Federal insurance premium1,231 784 3,289 2,200 
Deposit and loan transaction costs615 664 1,916 2,050 
Office supplies and related expense546 494 1,810 1,464 
Other non-interest expense1,187 1,163 3,576 3,299 
Total non-interest expense29,336 28,390 85,740 83,044 
INCOME BEFORE INCOME TAX EXPENSE9,904 26,769 47,171 82,379 
INCOME TAX EXPENSE1,602 5,617 8,440 17,418 
NET INCOME$8,302 $21,152 $38,731 $64,961 
Basic earnings per share ("EPS")$0.06 $0.16 $0.29 $0.48 
Diluted EPS$0.06 $0.16 $0.29 $0.48 
Basic weighted average common shares133,198,755 135,724,658 133,668,764 135,675,959 
Diluted weighted average common shares133,198,755 135,724,658 133,668,764 135,675,959 
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,
2023202220232022
Net income$8,302 $21,152 $38,731 $64,961 
Other comprehensive income (loss), net of tax:
Changes in unrealized gains/losses on AFS securities, net of taxes of $3,475, $10,043, $(6,151), and $34,710
(10,765)(31,117)19,062 (107,544)
Changes in unrealized gains/losses on cash flow hedges, net of taxes of $(872), $(1,646), $43, and $(7,076)
2,702 5,099 (135)21,924 
Comprehensive income (loss)$239 $(4,866)$57,658 $(20,659)
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, 2023
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2022$1,388 $1,190,213 $(29,735)$80,266 $(145,633)$1,096,499 
Net income16,240 16,240 
Other comprehensive income, net of tax13,031 13,031 
ESOP activity(72)413 341 
Stock-based compensation89 89 
Repurchase of common stock(27)(22,169)(22,196)
Cash dividends to stockholders ($0.365 per share)
(49,209)(49,209)
Balance at December 31, 2022$1,361 $1,168,061 $(29,322)$47,297 $(132,602)$1,054,795 
Net income14,189 14,189 
Other comprehensive income, net of tax13,959 13,959 
ESOP activity(76)412 336 
Stock-based compensation74 74 
Cash dividends to stockholders ($0.085 per share)
(11,319)(11,319)
Balance at March 31, 2023$1,361 $1,168,059 $(28,910)$50,167 $(118,643)$1,072,034 
Net income8,302 8,302 
Other comprehensive loss, net of tax(8,063)(8,063)
ESOP activity(155)413 258 
Stock-based compensation75 75 
Cash dividends to stockholders ($0.085 per share)
(11,321)(11,321)
Balance at June 30, 2023$1,361 $1,167,979 $(28,497)$47,148 $(126,706)$1,061,285 
(Continued)

6

For the Nine Months Ended June 30, 2022
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2021$1,388 $1,189,633 $(31,387)$98,944 $(16,305)$1,242,273 
Net income22,186 22,186 
Other comprehensive loss, net of tax(7,021)(7,021)
ESOP activity74 413 487 
Restricted stock activity, net(3)(3)
Stock-based compensation123 123 
Cash dividends to stockholders ($0.305 per share)
(41,385)(41,385)
Balance at December 31, 2021$1,388 $1,189,827 $(30,974)$79,745 $(23,326)$1,216,660 
Net income21,623 21,623 
Other comprehensive loss, net of tax(52,581)(52,581)
ESOP activity48 413 461 
Stock-based compensation124 124 
Cash dividends to stockholders ($0.085 per share)
(11,535)(11,535)
Balance at March 31, 2022$1,388 $1,189,999 $(30,561)$89,833 $(75,907)$1,174,752 
Net income21,152 21,152 
Other comprehensive loss, net of tax(26,018)(26,018)
ESOP activity(5)413 408 
Restricted stock activity, net(3)(3)
Stock-based compensation126 126 
Cash dividends to stockholders ($0.285 per share)
(38,677)(38,677)
Balance at June 30, 2022$1,388 $1,190,117 $(30,148)$72,308 $(101,925)$1,131,740 
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,
20232022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income38,731 64,961 
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(11,025)(6,166)
Provision for credit losses5,875 (5,690)
Originations of loans receivable held-for-sale ("LHFS")(218)(1,089)
Proceeds from sales of LHFS215 1,113 
Amortization and accretion of premiums and discounts on securities2,296 4,027 
Depreciation and amortization of premises and equipment6,816 7,020 
Amortization of intangible assets821 1,049 
Amortization of deferred amounts related to FHLB advances, net1,262 1,347 
Common stock committed to be released for allocation - ESOP935 1,356 
Stock-based compensation238 373 
Changes in:
Unrestricted cash collateral from derivative counterparties, net1,070 2,620 
Other assets, net912 6,307 
Income taxes payable/receivable, net(4,660)(2,921)
Deferred income tax liabilities, net878 2,182 
Other liabilities(10,083)(13,095)
Net cash provided by operating activities34,063 63,394 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities— (86,993)
Proceeds from calls, maturities and principal reductions of AFS securities141,357 261,160 
Proceeds from the redemption of FHLB stock263,807 188,618 
Purchase of FHLB stock(268,170)(196,727)
Net change in loans receivable(510,851)(151,805)
Proceeds from sale of participating interest in loans receivable5,563 — 
Purchase of premises and equipment(4,397)(4,492)
Proceeds from sale of other real estate owned ("OREO")533 503 
Proceeds from bank-owned life insurance ("BOLI") death benefit720 1,023 
Net cash (used in) provided by investing activities(371,438)11,287 
(Continued)
8

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20232022
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(71,849)(91,597)
Net change in deposits(102,026)(267,513)
Proceeds from borrowings4,293,870 1,079,402 
Repayments on borrowings(3,441,124)(793,702)
Change in advances by borrowers(39,085)(16,774)
Repurchase of common stock(22,196)— 
Net cash provided by (used in) financing activities617,590 (90,184)
NET INCREASE / (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH280,215 (15,503)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period49,194 70,292 
End of period329,409 54,789 
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, 2022, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents of $329.4 million and $49.2 million at June 30, 2023 and September 30, 2022, respectively. At times, the Company holds restricted cash, which is reported in other assets on the consolidated balance sheet, related to collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.  There was no restricted cash at June 30, 2023 or September 30, 2022. See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds.

Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows.

Recent Accounting Pronouncements - In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables within the scope of Accounting Standards Codification ("ASC") 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. This ASU is effective for the Company on October 1, 2023. While the adoption of this ASU is expected to result in enhanced disclosures, the Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial condition or results of operations.
10

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,
2023202220232022
(Dollars in thousands, except per share amounts)
Net income$8,302 $21,152 $38,731 $64,961 
Income allocated to participating securities(4)(11)(18)(35)
Net income available to common stockholders$8,298 $21,141 $38,713 $64,926 
Total basic average common shares outstanding133,198,755 135,724,658 133,668,764 135,675,959 
Effect of dilutive stock options— — — — 
Total diluted average common shares outstanding133,198,755 135,724,658 133,668,764 135,675,959 
Net EPS:
Basic$0.06 $0.16 $0.29 $0.48 
Diluted$0.06 $0.16 $0.29 $0.48 
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation368,803 507,115 373,473 531,305 
11

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 United States Government-Sponsored Enterprises ("GSEs").
June 30, 2023
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,099,824 $66 $135,171 $964,719 
GSE debentures519,983 — 44,224 475,759 
Corporate bonds4,000 — 623 3,377 
Municipal bonds 1,030 — 18 1,012 
$1,624,837 $66 $180,036 $1,444,867 
September 30, 2022
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,243,270 $365 $155,011 $1,088,624 
GSE debentures519,977 — 50,150 469,827 
Corporate bonds4,000 — 305 3,695 
Municipal bonds 1,243 — 82 1,161 
$1,768,490 $365 $205,548 $1,563,307 

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, 2023
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$74,190 $2,282 $877,286 $132,889 
GSE debentures— — 475,759 44,224 
Corporate bonds1,723 277 1,654 346 
Municipal bonds 1,012 18 — — 
$76,925 $2,577 $1,354,699 $177,459 
September 30, 2022
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$338,013 $22,563 $715,281 $132,448 
GSE debentures— — 469,827 50,150 
Corporate bonds3,695 305 — — 
Municipal bonds 1,161 82 — — 
$342,869 $22,950 $1,185,108 $182,598 
12

The unrealized losses at June 30, 2023 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record an ACL on securities in an unrealized loss position at June 30, 2023 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, 2023, 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$25,000 $24,501 
One year through five years494,983 451,258 
Five years through ten years5,030 4,389 
525,013 480,148 
MBS1,099,824 964,719 
$1,624,837 $1,444,867 

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,
2023202220232022
(Dollars in thousands)
Taxable$889 $813 $2,651 $2,393 
Non-taxable6 2 20 30 
$895 $815 $2,671 $2,423 

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
June 30, 2023September 30, 2022
(Dollars in thousands)
Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings$693,853 $46,283 
Public unit deposits204,686 125,496 
FHLB advances— 572,913 
$898,539 $744,692 
.

13

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
June 30, 2023September 30, 2022
(Dollars in thousands)
One- to four-family:
Originated$3,992,730 $3,988,469 
Correspondent purchased2,441,772 2,201,886 
Bulk purchased139,571 147,939 
Construction73,166 66,164 
Total6,647,239 6,404,458 
Commercial:
Commercial real estate924,142 745,301 
Commercial and industrial 106,609 79,981 
Construction193,308 141,062 
Total1,224,059 966,344 
Consumer:
Home equity94,810 92,203 
Other8,632 8,665 
Total103,442 100,868 
Total loans receivable7,974,740 7,471,670 
Less:
ACL22,399 16,371 
Deferred loan fees/discounts31,557 29,736 
Premiums/deferred costs(42,576)(38,645)
$7,963,360 $7,464,208 

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 concentration in one- to four-family loans and geographic concentrations of these loans in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function.

The underwriting standards for loans purchased from correspondent lenders 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 in participation with a lead bank. The Bank has geographic concentrations of these loans in Kansas, Missouri and Texas. 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
14

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, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 85% of the appraised value of the property securing the loans and the minimum 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. 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 commercial and industrial loans. As a result of these additional complexities, variables and risks, commercial and industrial loans require more thorough underwriting and servicing than other types of loans.

Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the 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. 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 the originated class and commercial construction loans are included in the commercial real estate class. As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status.

Loan Classification - In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any 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 nonaccrual loan categories.
•Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.
•Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

15

The following tables set forth, as of the dates indicated, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At June 30, 2023 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. The commercial special mention loans presented in the "Current Fiscal Year" column are related to three loans in a single commercial relationship where the borrower has experienced some performance issues, but is beginning to trend in a positive direction.
June 30, 2023
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2022202120202019YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Pass$246,776 $588,085 $895,532 $583,237 $259,986 $1,454,283 $— $4,027,899 
Special Mention292 1,339 791 1,076 1,139 8,507 — 13,144 
Substandard— 155 109 559 732 7,363 — 8,918 
Correspondent purchased
Pass335,623 523,658 621,396 253,451 64,274 665,666 — 2,464,068 
Special Mention309 167 1,386 420 358 2,150 — 4,790 
Substandard— 229 — — 168 3,127 — 3,524 
Bulk purchased
Pass— — — — — 136,828 — 136,828 
Special Mention— — — — — — — — 
Substandard— — — — — 3,237 — 3,237 
583,000 1,113,633 1,519,214 838,743 326,657 2,281,161 — 6,662,408 
Commercial:
Commercial real estate
Pass294,232 260,807 229,427 122,602 82,804 80,446 10,747 1,081,065 
Special Mention2,495 28,441 — — — — — 30,936 
Substandard— — — 594 219 286 — 1,099 
Commercial and industrial
Pass26,765 24,093 13,291 3,788 2,931 871 20,275 92,014 
Special Mention13,468 — — — — — 936 14,404 
Substandard— 11 — 73 — 83 — 167 
336,960 313,352 242,718 127,057 85,954 81,686 31,958 1,219,685 
Consumer:
Home equity
Pass4,152 5,802 2,093 1,202 858 2,339 77,968 94,414 
Special Mention— 46 — — — 73 234 353 
Substandard— — — — 17 15 236 268 
Other
Pass3,423 3,044 1,038 423 168 202 328 8,626 
Special Mention— — — 5 — — — 5 
Substandard— — — — — — — — 
7,575 8,892 3,131 1,630 1,043 2,629 78,766 103,666 
Total$927,535 $1,435,877 $1,765,063 $967,430 $413,654 $2,365,476 $110,724 $7,985,759 

16

September 30, 2022
FiscalFiscalFiscalFiscalFiscalRevolving
YearYearYearYearYearPriorLine of
20222021202020192018YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Pass$563,460 $930,019 $624,274 $281,342 $212,037 $1,406,444 $— $4,017,576 
Special Mention47 457 1,111 518 428 7,641 — 10,202 
Substandard158 — 278 1,106 256 8,968 — 10,766 
Correspondent purchased
Pass494,854 651,363 273,626 69,752 104,150 627,390 — 2,221,135 
Special Mention— — — 355 1,186 1,197 — 2,738 
Substandard— — — 168 513 4,783 — 5,464 
Bulk purchased
Pass— — — — — 144,840 — 144,840 
Special Mention— — — — — — — — 
Substandard— — — — — 3,637 — 3,637 
1,058,519 1,581,839 899,289 353,241 318,570 2,204,900 — 6,416,358 
Commercial:
Commercial real estate
Pass366,794 221,001 111,689 86,456 41,322 46,383 7,436 881,081 
Special Mention565 — — — — — — 565 
Substandard436 — 594 221 239 30 — 1,520 
Commercial and industrial
Pass38,442 17,453 5,708 4,212 919 630 11,413 78,777 
Special Mention— — — — — — — — 
Substandard— — 78 — 73 10 1,052 1,213 
406,237 238,454 118,069 90,889 42,553 47,053 19,901 963,156 
Consumer:
Home equity
Pass6,447 2,375 1,486 982 992 2,020 77,448 91,750 
Special Mention— 66 — — — — 233 299 
Substandard— — — 18 — 3 331 352 
Other
Pass4,207 1,977 843 408 651 201 369 8,656 
Special Mention— — 7 — — — — 7 
Substandard1 — — — — — — 1 
10,655 4,418 2,336 1,408 1,643 2,224 78,381 101,065 
Total$1,475,411 $1,824,711 $1,019,694 $445,538 $362,766 $2,254,177 $98,282 $7,480,579 

17

Delinquency Status - The following tables set forth, as of the dates indicated, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision as of the dates indicated. All revolving lines of credit are presented separately, regardless of origination year.
June 30, 2023
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2022202120202019YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$246,776 $589,424 $896,210 $583,892 $261,057 $1,464,668 $— $4,042,027 
30-89292 — 222 696 800 4,345 — 6,355 
90+/FC— 155 — 284 — 1,140 — 1,579 
Correspondent purchased
Current335,623 523,658 620,223 253,305 64,274 666,621 — 2,463,704 
30-89309 167 2,559 566 358 2,840 — 6,799 
90+/FC— 229 — — 168 1,482 — 1,879 
Bulk purchased
Current— — — — — 138,916 — 138,916 
30-89— — — — — — — — 
90+/FC— — — — — 1,149 — 1,149 
583,000 1,113,633 1,519,214 838,743 326,657 2,281,161 — 6,662,408 
Commercial:
Commercial real estate
Current296,415 289,248 229,427 122,602 82,804 80,466 10,747 1,111,709 
30-89312 — — — — 10 — 322 
90+/FC— — — 594 219 256 — 1,069 
Commercial and industrial
Current40,233 24,104 13,291 3,788 2,931 871 20,960 106,178 
30-89— — — — — — 251 251 
90+/FC— — — 73 — 83 — 156 
336,960 313,352 242,718 127,057 85,954 81,686 31,958 1,219,685 
Consumer:
Home equity
Current4,152 5,808 2,093 1,146 858 2,415 78,132 94,604 
30-89— 40 — 56 17 — 266 379 
90+/FC— — — — — 12 40 52 
Other
Current3,419 2,964 1,038 425 166 202 328 8,542 
30-894 80 — 3 2 — — 89 
90+/FC— — — — — — — — 
7,575 8,892 3,131 1,630 1,043 2,629 78,766 103,666 
Total$927,535 $1,435,877 $1,765,063 $967,430 $413,654 $2,365,476 $110,724 $7,985,759 

18

September 30, 2022
FiscalFiscalFiscalFiscalFiscalRevolving
YearYearYearYearYearPriorLine of
20222021202020192018YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$563,507 $930,476 $625,110 $282,598 $212,549 $1,417,268 $— $4,031,508 
30-89— — 553 — 64 3,506 — 4,123 
90+/FC158 — — 368 108 2,279 — 2,913 
Correspondent purchased
Current494,854 651,363 273,626 70,107 105,336 629,150 — 2,224,436 
30-89— — — — — 1,117 — 1,117 
90+/FC— — — 168 513 3,103 — 3,784 
Bulk purchased
Current— — — — — 146,399 — 146,399 
30-89— — — — — 921 — 921 
90+/FC— — — — — 1,157 — 1,157 
1,058,519 1,581,839 899,289 353,241 318,570 2,204,900 — 6,416,358 
Commercial:
Commercial real estate
Current367,795 221,001 111,689 86,456 41,322 46,383 7,436 882,082 
30-89— — — — — — — — 
90+/FC— — 594 221 239 30 — 1,084 
Commercial and industrial
Current38,442 17,453 5,786 4,212 919 630 12,465 79,907 
30-89— — — — — — — — 
90+/FC— — — — 73 10 — 83 
406,237 238,454 118,069 90,889 42,553 47,053 19,901 963,156 
Consumer:
Home equity
Current6,447 2,441 1,429 1,000 980 1,999 77,633 91,929 
30-89— — 57 — 12 24 226 319 
90+/FC— — — — — — 153 153 
Other
Current4,205 1,964 844 404 651 201 368 8,637 
30-892 13 6 4 — — 1 26 
90+/FC1 — — — — — — 1 
10,655 4,418 2,336 1,408 1,643 2,224 78,381 101,065 
Total$1,475,411 $1,824,711 $1,019,694 $445,538 $362,766 $2,254,177 $98,282 $7,480,579 
19

Delinquent and Nonaccrual Loans - The following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans. At June 30, 2023 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status.
June 30, 2023
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$6,355 $1,579 $7,934 $4,042,027 $4,049,961 
Correspondent purchased6,799 1,879 8,678 2,463,704 2,472,382 
Bulk purchased— 1,149 1,149 138,916 140,065 
Commercial:
Commercial real estate322 1,069 1,391 1,111,709 1,113,100 
Commercial and industrial 251 156 407 106,178 106,585 
Consumer:
Home equity379 52 431 94,604 95,035 
Other89 — 89 8,542 8,631 
$14,195 $5,884 $20,079 $7,965,680 $7,985,759 
September 30, 2022
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$4,123 $2,913 $7,036 $4,031,508 $4,038,544 
Correspondent purchased1,117 3,784 4,901 2,224,436 2,229,337 
Bulk purchased921 1,157 2,078 146,399 148,477 
Commercial:
Commercial real estate— 1,084 1,084 882,082 883,166 
Commercial and industrial — 83 83 79,907 79,990 
Consumer:
Home equity319 153 472 91,929 92,401 
Other26 1 27 8,637 8,664 
$6,506 $9,175 $15,681 $7,464,898 $7,480,579 

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2023 and September 30, 2022 was $2.2 million and $2.0 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 $328 thousand at September 30, 2022. There was no residential OREO held as of June 30, 2023.

20

The following table presents the amortized cost at June 30, 2023 and September 30, 2022, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented, all of which were individually evaluated for loss and any identified losses have been charged off.
June 30, 2023September 30, 2022
Nonaccrual LoansNonaccrual Loans with No ACLNonaccrual LoansNonaccrual Loans with No ACL
(Dollars in thousands)
One- to four-family:
Originated$1,873 $530 $3,135 $1,018 
Correspondent purchased1,879 — 3,784 304 
Bulk purchased1,405 1,093 1,157 630 
Commercial:
Commercial real estate1,099 446 1,084 449 
Commercial and industrial 156 156 161 161 
Consumer:
Home equity89 37 172 19 
Other— — 1 — 
$6,501 $2,262 $9,494 $2,581 

TDRs - The following tables present the amortized cost 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, 2023June 30, 2023
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated1 $110 $110 1 $110 $110 
Correspondent purchased— — — — — — 
Bulk purchased— — — 1 239 257 
Commercial:
Commercial real estate— — — — — — 
Commercial and industrial — — — — — — 
Consumer:
Home equity1 38 38 1 38 38 
Other— — — — — — 
2 $148 $148 3 $387 $405 

21

For the Three Months Ended For the Nine Months Ended
June 30, 2022June 30, 2022
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated—$— $— 2$124 $124 
Correspondent purchased—— — —— — 
Bulk purchased—— — —— — 
Commercial:
Commercial real estate—— — —— — 
Commercial and industrial —— — 2124 124 
Consumer:
Home equity—— — 119 19 
Other—— — —— — 
—$— $— 5$267 $267 

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, 2023June 30, 2022June 30, 2023June 30, 2022
Number ofAmortizedNumber ofAmortizedNumber ofAmortizedNumber ofAmortized
ContractsCostContractsCostContractsCostContractsCost
(Dollars in thousands)
One- to four-family:
Originated— $— — $— 1 $8 1 $684 
Correspondent purchased— — — — — — — — 
Bulk purchased— — — — — — — — 
Commercial:
Commercial real estate— — — — — — — — 
Commercial and industrial — — — — — — — — 
Consumer:
Home equity— — 1 19 — — 1 19 
Other— — — — — — — — 
— $— 1 $19 1 $8 2 $703 

22

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented.

For the Three Months Ended June 30, 2023
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,139 $3,074 $221 $5,434 $14,222 $233 $19,889 
Charge-offs— — — — — (11)(11)
Recoveries1 — — 1 — — 1 
Provision for credit losses15 7 18 40 2,463 17 2,520 
Ending balance$2,155 $3,081 $239 $5,475 $16,685 $239 $22,399 

For the Nine Months Ended June 30, 2023
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,066 $2,734 $206 $5,006 $11,120 $245 $16,371 
Charge-offs— — — — — (31)(31)
Recoveries2 — — 2 1 2 5 
Provision for credit losses87 347 33 467 5,564 23 6,054 
Ending balance$2,155 $3,081 $239 $5,475 $16,685 $239 $22,399 

For the Three Months Ended June 30, 2022
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$1,709 $2,129 $241 $4,079 $11,031 $202 $15,312 
Charge-offs— — — — — (10)(10)
Recoveries126 — — 126 52 7 185 
Provision for credit losses69 308 (17)360 407 29 796 
Ending balance$1,904 $2,437 $224 $4,565 $11,490 $228 $16,283 

For the Nine Months Ended June 30, 2022
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$1,612 $2,062 $304 $3,978 $15,652 $193 $19,823 
Charge-offs(4)— — (4)(10)(16)(30)
Recoveries137 — — 137 101 12 250 
Provision for credit losses159 375 (80)454 (4,253)39 (3,760)
Ending balance$1,904 $2,437 $224 $4,565 $11,490 $228 $16,283 

23

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, 2023. The key assumptions utilized in estimating the Company's ACL at June 30, 2023 are discussed below.
•Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at June 30, 2023. The forecasted economic indices applied to the model at June 30, 2023 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, 2023 was the national unemployment rate. The forecasted national unemployment rate in the economic scenario selected by management at June 30, 2023 had the national unemployment rate gradually increasing to 4.0% by June 30, 2024 which was the end of our four quarter forecast time period.
•Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at June 30, 2023.
•Prepayment and curtailment assumptions - The assumptions used at June 30, 2023 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model. During the current year, there was a slowdown in portfolio prepayment speeds which reduced the projected prepayment speeds used in the model for generally all loan categories.
•Qualitative factors - The qualitative factors applied by management at June 30, 2023 included the following:
◦The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the economic forecasts; and
◦Other management considerations related to commercial real estate loans that were not captured via the model assumptions.

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. At June 30, 2023 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $909.7 million and $992.6 million, respectively.
For the Three Months Ended For the Nine Months Ended
June 30, 2023June 30, 2022June 30, 2023June 30, 2022
(Dollars in thousands)
Beginning balance$5,768 $3,672 $4,751 $5,743 
(Release)/provision for credit losses(1,196)141 (179)(1,930)
Ending balance$4,572 $3,813 $4,572 $3,813 




5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - As of June 30, 2023 and September 30, 2022, the Bank held interest rate swap agreements with an aggregate notional amount of $365.0 million in order to hedge the variable cash flows associated with $365.0 million of adjustable-rate FHLB advances. At June 30, 2023 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.3 years and 3.1 years, respectively. The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At June 30, 2023 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $12.4 million and $12.5 million respectively, which was reported in other assets on the consolidated balance sheet. During the three and nine month periods ended June 30, 2023, $1.7 million and $3.7 million, respectively, was reclassified from AOCI as a decrease to interest expense. During the three and nine month periods ended June 30, 2022, $1.3 million and $4.8 million was reclassified from AOCI as an increase to interest expense. At June 30, 2023, the Company estimated that $8.9 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank held cash collateral of $13.1 million and $12.1 million at June 30, 2023 and September 30, 2022, respectively.

During the current nine month period, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involved borrowing on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at quarter end, or earlier if the strategy was not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, were deposited at the FRB of Kansas City.

24

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 ASC 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.

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

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

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

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

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The 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, 2023 or during fiscal year 2022. 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)
•Corporate Bonds and Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2)

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value 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 adjustments to 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, 2023 or during fiscal year 2022. (Level 2)

25

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, 2023 or September 30, 2022.
June 30, 2023
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$964,719 $— $964,719 $— 
GSE debentures475,759 — 475,759 — 
Corporate bonds3,377 — 3,377 — 
Municipal bonds1,012 — 1,012 — 
1,444,867 — 1,444,867 — 
Interest rate swaps12,369 — 12,369 — 
$1,457,236 $— $1,457,236 $— 

September 30, 2022
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$1,088,624 $— $1,088,624 $— 
GSE debentures469,827 — 469,827 — 
Corporate bonds3,695 — 3,695 — 
Municipal bonds1,161 — 1,161 — 
1,563,307 — 1,563,307 — 
Interest rate swaps12,547 — 12,547 — 
$1,575,854 $— $1,575,854 $— 

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

Loans Receivable - Collateral dependent assets are assets evaluated on an individual basis. Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis. The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the nine months ended June 30, 2023 and 2022 that were still held in the portfolio as of June 30, 2023 and 2022 was $3.9 million and $4.3 million, respectively. Fair values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

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

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on 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, 2023 and June 30, 2022 were downward adjustments to the book value of the
26

collateral for lack of marketability. During the nine months ended June 30, 2023, the adjustments ranged from 8% to 100%, with a weighted average of 21%. During the nine months ended June 30, 2022, the adjustments ranged from 9% to 56%, with a weighted average of 21%. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at 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. There was no OREO measured on a non-recurring basis during the nine months ended June 30, 2023. The fair value of OREO measured on a non-recurring basis during the nine months ended June 30, 2022 that was still held in the portfolio as of June 30, 2022 was $258 thousand. The carrying value of the properties equaled the fair value of the properties at June 30, 2023 and 2022.

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, 2023
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$329,409 $329,409 $329,409 $— $— 
AFS securities1,444,867 1,444,867 — 1,444,867 — 
Loans receivable7,963,360 7,547,542 — — 7,547,542 
FHLB stock116,012 116,012 116,012 — — 
Interest rate swaps12,369 12,369 — 12,369 — 
Liabilities:
Deposits6,092,840 6,041,135 3,452,891 2,588,244 — 
Borrowings2,986,162 2,913,752 — 2,913,752 — 
September 30, 2022
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$49,194 $49,194 $49,194 $— $— 
AFS securities1,563,307 1,563,307 — 1,563,307 — 
Loans receivable7,464,208 6,889,211 — — 6,889,211 
FHLB stock100,624 100,624 100,624 — — 
Interest rate swaps12,547 12,547 — 12,547 — 
Liabilities:
Deposits6,194,866 6,124,835 3,991,114 2,133,721 — 
Borrowings2,132,154 1,910,779 75,000 1,835,779 — 

27

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, 2023
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$(125,292)$6,649 $(118,643)
Other comprehensive income (loss), before reclassifications(10,765)4,369 (6,396)
Amount reclassified from AOCI, net of taxes of $538
— (1,667)(1,667)
Other comprehensive income (loss)(10,765)2,702 (8,063)
Ending balance$(136,057)$9,351 $(126,706)
 For the Nine Months Ended June 30, 2023
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$(155,119)$9,486 $(145,633)
Other comprehensive income (loss), before reclassifications19,062 3,589 22,651 
Amount reclassified from AOCI, net of taxes of $1,202
— (3,724)(3,724)
Other comprehensive income (loss)19,062 (135)18,927 
Ending balance$(136,057)$9,351 $(126,706)
For the Three Months Ended June 30, 2022
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$(71,776)$(4,131)$(75,907)
Other comprehensive income (loss), before reclassifications(31,117)3,798 (27,319)
Amount reclassified from AOCI, net of taxes of $(420)
— 1,301 1,301 
Other comprehensive income (loss)(31,117)5,099 (26,018)
Ending balance$(102,893)$968 $(101,925)

For the Nine Months Ended June 30, 2022
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$4,651 $(20,956)$(16,305)
Other comprehensive income (loss), before reclassifications(107,544)17,127 (90,417)
Amount reclassified from AOCI, net of taxes of $(1,548)
— 4,797 4,797 
Other comprehensive income (loss)(107,544)21,924 (85,620)
Ending balance$(102,893)$968 $(101,925)

28

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 and maintain sufficient liquidity;
•the expected synergies and other benefits from our acquisition activities might not be realized to the extent anticipated, within the anticipated time frames, or at all;
•our ability to extend our commercial banking and trust asset management expertise across our market areas;
•fluctuations in deposit flows;
•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 and/or the availability of labor in the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans, originated commercial loans, and entered into commercial loan participations;
•changes in real estate values, unemployment levels, general economic trends, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
•increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
•results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;
•changes in accounting principles, policies, or guidelines;
•the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB");
•the effects of, and changes in, trade and fiscal policies and laws of the United States government;
•the effects of, and changes in, foreign and military policies of the United States government;
•inflation, interest rate, market, monetary, and currency fluctuations and the effects of a potential economic recession or slower economic growth;
•the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment;
•the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;
•the willingness of users to substitute competitors' products and services for our products and services;
•our success in gaining regulatory approval of our products and services and branching locations, when required;
•the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;
•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;
•changes in consumer spending, borrowing and saving habits; and
•our success at managing the risks involved in our business.
29


This list of factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

As used in this Form 10-Q, unless we specify or the context indicates otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation, and its subsidiaries. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc.

The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company except where the context indicates otherwise. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, 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 $38.7 million, or $0.29 per share, for the current year period compared to net income of $65.0 million, or $0.48 per share, for the prior year period. The decrease in net income was due primarily to lower net interest income, along with recording a provision for credit losses of $5.9 million for the current year period compared to a release of provision of $5.7 million for the prior year period, partially offset by lower income tax expense. The net interest margin decreased 32 basis points, from 1.82% for the prior year period to 1.50% for the current year period. Excluding the effects of the leverage strategy discussed in the "Financial Condition - Borrowings" section below, the net interest margin decreased 38 basis points, from 2.04% for the prior year period to 1.66% for the current year period. The decrease in the net interest margin was due mainly to an increase in the cost of borrowings and deposits, which exceeded the increase in loan yields. Net interest margin compression is anticipated to continue, and the margin is expected to compress more in the near term. See additional discussion in the "Fiscal Year 2023 Outlook" section below.

Total assets were $10.29 billion at June 30, 2023, a $669.2 million increase from September 30, 2022. The increase was mainly composed of a $499.2 million increase in the loan portfolio and a $280.2 million increase in operating cash, partially offset by a $118.4 million decrease in securities. The growth in assets was funded with additional borrowings. The increase in the loan portfolio was primarily in one- to four-family correspondent loans and commercial real estate loans. Total deposits were $6.09 billion at June 30, 2023, a decrease of $102.0 million from September 30, 2022. The decrease in deposits since September 30, 2022 was mainly in non-maturity deposits, largely money market accounts, partially offset by an increase in retail certificates of deposit and public unit certificates of deposit. Total borrowings were $2.99 billion at June 30, 2023, an increase of $854.0 million from September 30, 2022. The increase in borrowings was composed of $500.0 million in borrowings from the Federal Reserve's Bank Term Funding Program ("BTFP") with a term of one year and a net increase of $354.0 million in FHLB borrowings. While it is still management's expectation that we will stay under $10 billion in total assets at September 30, 2023, that threshold was exceeded at both March 31, 2023 and June 30, 2023. There are increased direct costs, additional regulatory burdens with indirect costs, and lost revenue, mainly related to interchange fees, associated with the Bank being over $10 billion in total assets at certain points in time and for consecutive periods of time. Being over $10 billion in total assets at both June 30, 2023 and March 31, 2023 did not result in any additional regulatory requirements, increased direct or indirect costs, or lost revenues.

We are working to limit the growth in total assets and are evaluating funding options as FHLB borrowings mature and assessing other balance sheet management opportunities. We expect to reduce the size of the one- to four-family correspondent loan portfolio over the coming months and use that cash to pay down borrowings. Slower growth or no growth in our one- to four-family originated loan portfolio will help to conserve cash as well. There were $75.4 million and $86.2 million in one-to four-family originated commitments at June 30, 2023 and March 31, 2023 respectively, and $3.2 million and $14.9 million of one-to four-family correspondent commitments at June 30, 2023 and March 31, 2023 respectively. The Bank continues to receive good commercial loan opportunities from strong borrowers and as these opportunities present themselves, we may sell select securities at a loss to provide capacity in the balance sheet to fund these loan opportunities and/or to help stay under $10 billion in assets. At June 30, 2023, there was $418.2 million of undisbursed funds related to commercial real estate and construction loans and $17.8 million of commercial real estate and construction commitments. Funding deposit run-off continues to be a challenge and could require the use of longer-term funding.

30

The Bank's asset quality remained strong, reflected in low delinquency and charge-off ratios. At June 30, 2023, loans 30 to 89 days delinquent were 0.18% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.07% of total loans receivable, net. During the current quarter and current year periods, net charge-offs ("NCOs") were $10 thousand and $26 thousand, respectively.

At June 30, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.00) billion, or (9.7)% of total assets, compared to $(803.5) million, or (8.0)% of total assets, at March 31, 2023. The change in the one-year gap amount was due primarily to an increase in the amount of liability cash flows coming due in one year at June 30, 2023 compared to March 31, 2023, partially offset by an increase in the amount of asset cash flows coming due for the same time period. This was due primarily to an increase in the amount of certificates of deposit and borrowings scheduled to mature within one year as of June 30, 2023 compared to March 31, 2023.

Management implemented a new core processing system ("digital transformation") for the Bank in early August 2023. We expect the new platform will allow us to introduce new products and services quickly, to drive better efficiencies and provide a more personalized experience for our customers. Our customers will experience a more modern internet banking experience, including both desktop and mobile, which will offer real-time alerts. Our customers will also have multiple options for real-time payments, which should better position the Bank for faster payment channels in the future.


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

Critical Accounting Estimates
Our most critical accounting estimates are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements. These estimates are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting estimates and their application are reviewed at least annually by the audit committee of our Board of Directors. For a full discussion of our critical accounting estimates, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Financial Condition
The following table summarizes the Company's financial condition at the dates indicated.
AnnualizedAnnualized
June 30, March 31, PercentSeptember 30, Percent
20232023Change2022Change
(Dollars and shares in thousands)
Total assets$10,294,127 $10,085,770 8.3 %$9,624,897 9.3 %
AFS securities1,444,867 1,505,808 (16.2)1,563,307 (10.1)
Loans receivable, net7,963,360 7,958,567 0.2 7,464,208 8.9 
Deposits6,092,840 6,144,435 (3.4)6,194,866 (2.2)
Borrowings2,986,162 2,696,604 43.0 2,132,154 53.4 
Stockholders' equity1,061,285 1,072,034 (4.0)1,096,499 (4.3)
Equity to total assets at end of period10.3 %10.6 %11.4 %
Average number of basic shares outstanding133,199 133,150 0.1 135,773 (2.5)
Average number of diluted shares outstanding133,199 133,150 0.1 135,773 (2.5)

During the current quarter, total assets increased by $208.4 million largely due to an increase in operating cash related to proceeds from BTFP borrowings being held in cash as management evaluates funding and balance sheet management options. While the total loan portfolio balance remained relatively unchanged during the current quarter, there was a shift in the mix as commercial loans
31

increased $42.5 million, partially offset by a $36.1 million decrease in one- to four-family loans, including a $26.9 million decrease in one- to four-family correspondent loans. The Bank continues to reduce purchases of correspondent loans with the intention of correspondent purchases being near zero, which will further reduce the balance of that portfolio. The securities portfolio decreased $60.9 million during the current quarter as cash flows from securities were used for other operational needs.

Total deposits decreased $51.6 million during the current quarter, due primarily to a $217.6 million decrease in non-maturity deposits, partially offset by a $123.8 million increase in retail certificates of deposit and a $41.9 million increase in public unit certificates of deposit. Total borrowings increased $289.6 million during the current quarter. The increase in borrowings was due primarily to proceeds from new BTFP borrowings totaling $500.0 million, partially offset by a reduction in FHLB borrowings as the FHLB line of credit balance was paid off and a maturing $100.0 million FHLB advance was not renewed. Management continues to evaluate funding and balance sheet management options and may pay down additional maturing FHLB advances using proceeds from BTFP borrowings.

Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. The loan portfolio rate increased 10 basis points and 34 basis points during the current quarter and current year nine-month period, respectively, due primarily to one- to four-family correspondent and commercial loan growth at interest rates higher than the existing portfolios, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates. The average prepayment speed on one- to four-family loans was 6% during the current quarter, 5% during the quarter ended March 31, 2023, and 7% during the quarter ended September 30, 2022.
June 30, 2023March 31, 2023September 30, 2022
AmountRateAmount RateAmountRate
(Dollars in thousands)
One- to four-family:
Originated$3,992,730 3.33 %$4,003,823 3.28 %$3,988,469 3.20 %
Correspondent purchased2,441,772 3.41 2,468,647 3.39 2,201,886 3.10 
Bulk purchased139,571 1.60 142,527 1.36 147,939 1.24 
Construction73,166 3.42 68,355 3.21 66,164 2.90 
Total6,647,239 3.33 6,683,352 3.28 6,404,458 3.12 
Commercial:
Commercial real estate924,142 5.00 874,718 4.48 745,301 4.30 
Commercial and industrial 106,609 6.07 90,200 5.40 79,981 4.30 
Construction193,308 5.54 216,685 6.30 141,062 5.34 
Total1,224,059 5.18 1,181,603 4.89 966,344 4.45 
Consumer loans:
Home equity94,810 8.60 92,506 8.17 92,203 6.28 
Other8,632 4.96 8,664 4.66 8,665 4.21 
Total103,442 8.30 101,170 7.87 100,868 6.10 
Total loans receivable7,974,740 3.67 7,966,125 3.57 7,471,670 3.33 
Less:
ACL22,399 19,889 16,371 
Deferred loan fees/discounts31,557 30,830 29,736 
Premiums/deferred costs(42,576)(43,161)(38,645)
Total loans receivable, net$7,963,360 $7,958,567 $7,464,208 

32

Loan Activity - The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity 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 EndedFor the Nine Months Ended
June 30, 2023June 30, 2023June 30, 2022
AmountRateAmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,966,125 3.57 %$7,471,670 3.33 %$7,096,073 3.21 %
Originated and refinanced235,060 6.61 780,458 5.77 787,635 3.44 
Purchased and participations62,369 6.69 613,274 5.54 476,068 3.06 
Change in undisbursed loan funds396 (145,788)(45,115)
Repayments(289,200)(739,192)(1,068,621)
Principal (charge-offs)/recoveries, net(10)(26)220 
Other— (5,656)(509)
Ending balance$7,974,740 3.67 $7,974,740 3.67 $7,245,751 3.21 
33

The following table presents 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 Nine Months Ended
June 30, 2023June 30, 2022
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family$341,893 5.28 %24.5 %$726,704 3.09 %57.5 %
One- to four-family construction30,783 5.50 2.2 106,636 3.07 8.4 
Commercial:
Real estate16,373 7.17 1.2 43,939 3.91 3.5 
Commercial and industrial31,725 8.04 2.3 13,039 3.77 1.0 
Construction148,930 5.89 10.7 68,998 3.27 5.5 
Home equity4,342 8.03 0.3 3,984 5.40 0.3 
Other3,225 6.84 0.2 2,826 5.53 0.2 
Total fixed-rate 577,271 5.68 41.4 966,126 3.17 76.4 
Adjustable-rate:
One- to four-family316,460 4.91 22.7 104,354 3.13 8.3 
One- to four-family construction22,537 5.09 1.6 15,255 2.95 1.2 
Commercial:
Real estate220,322 5.57 15.8 79,851 4.08 6.3 
Commercial and industrial53,099 7.26 3.8 31,413 3.81 2.5 
Construction157,528 6.12 11.3 19,742 4.02 1.6 
Home equity45,433 8.27 3.3 45,686 4.53 3.6 
Other1,082 4.02 0.1 1,276 2.89 0.1 
Total adjustable-rate816,461 5.66 58.6 297,577 3.72 23.6 
Total originated, refinanced and purchased$1,393,732 5.67 100.0 %$1,263,703 3.30 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent purchased - one- to four-family$190,076 5.14 $346,462 2.99 
Participations and purchases - commercial19,016 9.43 69,057 3.25 
Total fixed-rate purchased/participations209,092 5.53 415,519 3.04 
Adjustable-rate:
Correspondent purchased - one- to four-family212,123 4.85 47,549 3.10 
Participations and purchases - commercial192,059 6.32 13,000 3.85 
Total adjustable-rate purchased/participations404,182 5.55 60,549 3.26 
Total purchased/participation loans$613,274 5.54 $476,068 3.06 

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average LTV ratio, and average balance per loan as of June 30, 2023. Credit scores are updated at least annually, with the latest update in September 2022, 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.
% ofCredit Average
AmountTotalRateScoreLTVBalance
(Dollars in thousands)
Originated$3,992,730 60.7 %3.33 %771 60 %$163 
Correspondent purchased2,441,772 37.1 3.41 766 65 417 
Bulk purchased139,571 2.2 1.60 771 56 287 
$6,574,073 100.0 %3.32 769 62 213 
34

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated. The majority of the correspondent loans purchased during the current quarter were from applications in the pipeline at March 31, 2023 as the Bank continues to reduce correspondent purchases to near zero.
For the Three Months EndedFor the Nine Months Ended
June 30, 2023June 30, 2023
CreditCredit
AmountRateLTVScoreAmountRateLTVScore
(Dollars in thousands)
Originated$98,257 5.78 %77 %767 $309,474 5.28 %76 %766 
Correspondent purchased35,508 4.61 71 772 402,199 4.99 76 769 
$133,765 5.47 76 768 $711,673 5.12 76 768 

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, 2023, along with associated weighted average rates. It is expected that some of the loan commitments will expire unfunded; accordingly, the amounts reflected in the table below are not necessarily indicative of our future cash needs.
AmountRate
(Dollars in thousands)
Originate/refinance$75,445 5.98 %
Correspondent3,156 5.77 
$78,601 5.97 

Commercial Loans - During the current quarter and nine months ended June 30, 2023, the Bank originated $117.7 million and $416.9 million of commercial loans, respectively, and entered into commercial loan participations totaling $26.9 million and $211.1 million, respectively. The Bank also processed commercial loan disbursements, excluding lines of credit, during the current quarter and nine months ended June 30, 2023 of $105.8 million and $402.3 million, respectively, at a weighted average rate of 7.27% and 5.90%, respectively.

As of June 30, 2023, March 31, 2023, and September 30, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $144.8 million, $130.3 million and $100.4 million, respectively, and commitments totaled $230 thousand, $7.0 million and $458 thousand, respectively.

35

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of June 30, 2023, the Bank had four commercial real estate and commercial construction loan commitments, totaling $17.8 million, at a weighted average rate of 6.83%. 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. Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of June 30, 2023, management anticipates funding approximately $89 million during the September 2023 quarter, $97 million during the December 2023 quarter, $64 million during the March 2024 quarter, and $167 million during the June 2024 quarter or later.
June 30, 2023March 31, 2023September 30, 2022
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Retail building143 $257,763 $85,466 $343,229 $343,725 $230,153 
Senior housing35 280,453 30,139 310,592 325,475 328,259 
Multi-family41 75,242 234,381 309,623 233,498 122,735 
Hotel13 213,444 21,419 234,863 235,714 181,546 
Office building85 116,251 18,066 134,317 131,698 109,653 
One- to four-family property384 63,697 7,289 70,986 71,704 68,907 
Single use building29 30,043 16,434 46,477 43,171 41,908 
Other116 80,557 4,978 85,535 103,201 53,054 
846 $1,117,450 $418,172 $1,535,622 $1,488,186 $1,136,215 
Weighted average rate5.09 %6.04 %5.35 %5.14 %4.56 %

The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.
June 30, 2023March 31, 2023September 30, 2022
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Kansas621 $443,903 $201,532 $645,435 $573,346 $423,797 
Missouri177 249,706 88,662 338,368 363,432 296,443 
Texas15 258,774 75,290 334,064 335,724 280,840 
Colorado8 40,929 14,184 55,113 55,194 34,377 
Tennessee2 24,038 18,501 42,539 42,568 — 
Nebraska8 34,710 3,039 37,749 37,867 32,992 
Other15 65,390 16,964 82,354 80,055 67,766 
846 $1,117,450 $418,172 $1,535,622 $1,488,186 $1,136,215 

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, 2023.
CountAmount
(Dollars in thousands)
Greater than $30 million9 $437,982 
>$15 to $30 million19 399,391 
>$10 to $15 million10 120,173 
>$5 to $10 million30 217,742 
$1 to $5 million138 331,248 
Less than $1 million1,261 191,887 
1,467 $1,698,423 

36

Asset Quality

Delinquent and nonaccrual loans and OREO. The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at June 30, 2023, approximately 76% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
June 30, March 31, September 30,
202320232022
NumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated67$6,377 45$4,116 48$4,134 
Correspondent purchased206,704 103,436 71,104 
Bulk purchased—— 3287 3913 
Commercial6573 5389 —— 
Consumer22469 22352 24345 
115$14,123 85$8,580 82$6,496 
Loans 30 to 89 days delinquent
to total loans receivable, net0.18 %0.11 %0.09 %

37

The following table presents the Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO.
Nonaccrual Loans and OREO at:
June 30, March 31, September 30,
202320232022
NumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated16 $1,582 15 $1,084 29 $2,919 
Correspondent purchased8 1,854 7 1,803 12 3,737 
Bulk purchased3 1,149 3 1,212 3 1,148 
Commercial8 1,225 7 1,152 8 1,167 
Consumer3 51 7 51 9 154 
38 5,861 39 5,302 61 9,125 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.07 %0.07 %0.12 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated3 $295 2 $187 3 $222 
Correspondent purchased— — — — — — 
Bulk purchased1 257 1 257 — — 
Commercial2 29 3 104 1 77 
Consumer1 37 — — 1 19 
7 618 6 548 5 318 
Total nonaccrual loans45 6,479 45 5,850 66 9,443 
Nonaccrual loans as a percentage of total loans0.08 %0.07 %0.13 %
OREO:
One- to four-family:
Originated(2)
— $— 2 $160 4 $307 
Consumer— — — — 1 21 
— — 2 160 5 328 
Total non-performing assets45 $6,479 47 $6,010 71 $9,771 
Non-performing assets as a percentage of total assets0.06 %0.06 %0.10 %

(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.


38

The following table presents the states where the properties securing ten percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at June 30, 2023. 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, 2023, 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$3,556,171 54.1 %$5,835 44.6 %$1,535 33.5 %48 %
Missouri1,127,244 17.1 2,914 22.3 354 7.7 74 
Other states1,890,658 28.8 4,332 33.1 2,696 58.8 46 
$6,574,073 100.0 %$13,081 100.0 %$4,585 100.0 %49 

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, 2023 compared to March 31, 2023 was due mainly to three loans in a single commercial relationship where the borrower has experienced some performance issues, but is beginning to trend in a positive direction. The increase in commercial special mention loans between September 30, 2022 and March 31, 2023 was due mainly to two loans in a single commercial relationship, unrelated to the relationship discussed above, with certain underlying economic considerations showing signs of deterioration. Management continues to closely monitor the borrower's performance for both lending relationships.
June 30, 2023March 31, 2023September 30, 2022
Special MentionSubstandardSpecial MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$17,935 $15,747 $17,368 $15,636 $12,950 $19,953 
Commercial45,377 1,265 28,441 1,881 565 2,733 
Consumer358 269 296 237 306 354 
$63,670 $17,281 $46,105 $17,754 $13,821 $23,040 

Allowance for Credit Losses. The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The increase in commercial ACL to loans receivable ratio during the current quarter was due primarily to a forecast reflecting worse economic conditions compared to the forecast utilized in the model in the prior quarter and a slow down in prepayment speeds, which lengthen the remaining term of the portfolio. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of June 30, 2023.
Distribution of ACLRatio of ACL to Loans Receivable
June 30, March 31, September 30, June 30, March 31, September 30,
202320232022202320232022
(Dollars in thousands)
One- to four-family:
Originated$2,090 $2,081 $2,012 0.05 %0.05 %0.05 %
Correspondent purchased3,081 3,074 2,734 0.13 0.12 0.12 
Bulk purchased238 221 206 0.17 0.16 0.14 
Construction65 58 54 0.09 0.08 0.08 
Total 5,474 5,434 5,006 0.08 0.08 0.08 
Commercial:
Real estate13,436 11,219 8,729 1.45 1.28 1.17 
Commercial and industrial 929 520 490 0.87 0.58 0.61 
Construction2,321 2,483 1,901 1.20 1.15 1.35 
Total 16,686 14,222 11,120 1.36 1.20 1.15 
Consumer239 233 245 0.23 0.23 0.24 
Total $22,399 $19,889 $16,371 0.28 0.25 0.22 
39

The following table presents ACL activity and related ratios at the dates and for the periods indicated. The ratio of NCOs to average non-performing assets during the current year period was positive due to charge-offs exceeding recoveries, while the prior year period was negative due to recoveries exceeding charge-offs. The ratio of ACL to nonaccrual loans was higher at the end of the current year period compared to the end of the prior year period due mainly to higher ACL at June 30, 2023, along with a lower balance of nonaccrual loans compared to the prior year period. The ratio of ACL to loans receivable, net was higher at the end of the current year period compared to the end of the prior year due to a higher ACL balance, mainly related to commercial loans. The ratio of ACL to NCOs for the prior year period was not meaningful as recoveries exceeded loan charge-offs, compared to the current year period where loan charge-offs exceeded recoveries. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
At or For the Nine Months Ended
June 30, 2023June 30, 2022
(Dollars in thousands)
Balance at beginning of period$16,371 $19,823 
Charge-offs(31)(30)
Recoveries5 250 
Net recoveries (charge-offs)(26)220 
Provision for credit losses6,054 (3,760)
Balance at end of period$22,399 $16,283 
Ratio of NCOs during the period
to average non-performing assets0.31 %(1.96)%
ACL to nonaccrual loans at end of period345.72 188.48 
ACL to loans receivable, net at end of period0.28 0.22 
ACL to NCOs (annualized)667xN/M


The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.
For the Nine Months Ended
June 30, 2023June 30, 2022
NCOsAverage Loans% of Average LoansNCOsAverage Loans% of Average Loans
(Dollars in thousands)
One- to four-family:
Originated$(2)$3,985,686 — %$(133)$3,928,131 — %
Correspondent— 2,419,202 — — 2,040,934 — 
Bulk purchased— 144,514 — — 162,151 — 
Construction— 65,382 — — 45,053 — 
Total(2)6,614,784 — (133)6,176,269 — 
Commercial:
Real estate(1)842,324 — (101)678,705 (0.01)
Commercial and industrial — 87,713 — 10 73,550 0.01 
Construction— 187,512 — — 114,601 — 
Total(1)1,117,549 — (91)866,856 (0.01)
Consumer:
Home equity16 93,800 0.02 (2)84,135 — 
Other13 8,800 0.15 6 7,844 0.08 
Total29 102,600 0.03 4 91,979 — 
$26 $7,834,933 — $(220)$7,135,104 — 
40

While management utilizes its best judgment and information available, the adequacy of the ACL is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the views of regulatory authorities toward classification of assets and the level of ACL. Additionally, the level of ACL may fluctuate based on the balance and mix of the loan portfolio. If actual results reflect significant underperformance compared to our assumptions and/or if one or more of our assumptions, such as the economic forecast, represents a more negative outlook in a future period, there could be additions to our ACL and an increase in the provision for credit losses.

Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 96% of our securities portfolio at June 30, 2023. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.
June 30, 2023March 31, 2023September 30, 2022
AmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
MBS$1,099,824 1.65%4.9$1,146,526 1.63%5.2$1,243,270 1.57%4.7
GSE debentures519,983 0.642.1519,981 0.642.4519,977 0.612.9
Corporate bonds4,000 5.128.94,000 5.129.14,000 5.129.6
Municipal bonds1,030 2.554.61,031 2.554.91,243 2.636.5
$1,624,837 1.33%4.0$1,671,538 1.33%4.3$1,768,490 1.29%4.2

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.
For the Nine Months Ended
June 30, 2023June 30, 2022
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,563,307 1.29 %4.2$2,014,608 1.16 %3.5
Maturities and repayments(141,357)(261,160)
Net amortization of (premiums)/discounts(2,296)(4,027)
Purchases— — —86,993 2.56 4.3
Change in valuation on AFS securities25,213 (142,254)
Ending balance - carrying value$1,444,867 1.33 4.0$1,694,160 1.29 4.1
41

Liabilities. Total liabilities were $9.23 billion at June 30, 2023, compared to $8.53 billion at September 30, 2022. The increase was due to new borrowings, partially offset by a decrease in deposits.

Deposits. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. The weighted average rate on the deposit portfolio increased 54 basis points during the current quarter and 120 basis points during the current year due primarily to retail certificates of deposit repricing to higher offered rates, as well as an increase in rates offered on money market accounts and public unit certificates of deposit. Total commercial deposits were $273.3 million, or 4.5%, of total deposits at June 30, 2023.
June 30, 2023March 31, 2023September 30, 2022
% of% of% of
AmountRate TotalAmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$567,764 — %9.3 %$594,265 — %9.7 %$591,387 — %9.5 %
Interest-bearing checking938,722 0.19 15.4 1,001,559 0.16 16.3 1,027,222 0.07 16.6 
Savings509,975 0.12 8.4 539,428 0.07 8.8 552,743 0.06 8.9 
Money market 1,436,429 1.94 23.6 1,535,234 0.80 25.0 1,819,761 0.47 29.4 
Retail certificates of deposit2,423,665 3.00 39.8 2,299,829 2.54 37.4 2,073,542 1.34 33.5 
Commercial certificates of deposit43,840 3.25 0.7 43,590 2.71 0.7 36,275 0.97 0.6 
Public unit certificates of deposit172,445 4.26 2.8 130,530 4.01 2.1 93,936 1.61 1.5 
$6,092,840 1.83 100.0 %$6,144,435 1.29 100.0 %$6,194,866 0.63 100.0 %

The $51.6 million decrease in deposits during the current quarter was mainly in money market and interest-bearing checking account balances, partially offset by an increase in the retail certificate of deposit portfolio and public unit certificate of deposit portfolio. Early during the current quarter, management increased the rates offered on the Bank's money market accounts in an effort to slow the outflow of these balances, which appears to have been successful when comparing the money market account outflows for the current quarter to the previous two quarters during fiscal year 2023. The increase in retail certificates of deposit was primarily in the short-term and intermediate-term categories while the long-term certificate of deposit category (36 months or greater) decreased during the current quarter. A large portion of the growth in retail certificates of deposit was from customer transfers from existing deposits within the Bank. On average, approximately 81% of the retail certificates of deposits that matured over the past 12 months were retained by the Bank.

The $102.0 million decrease in deposits between September 30, 2022 and June 30, 2023 was due primarily to a reduction in non-maturity deposits which decreased $538.2 million, largely money market accounts, partially offset by a $350.1 million increase in retail certificates of deposit and a $78.5 million increase in public unit certificates of deposit. During the March 2023 quarter, the Bank held a certificate of deposit promotional campaign which resulted in $177.3 million in new retail certificates of deposit with the majority of the funds coming from customer transfers from existing deposits within the Bank. The additional decrease in non-maturity deposit balances was likely due to customers moving funds to alternative, higher yielding investment products, and/or withdrawing funds for customer spending.

As of June 30, 2023, approximately $676.8 million of the Bank's deposit portfolio was uninsured, or approximately 11% of the Bank's Call Report deposit balance, of which approximately $311.8 million related to commercial and retail deposit accounts and the remainder was mainly comprised of fully collateralized public unit deposits and intercompany accounts. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Borrowings. Historically, the Bank has primarily used long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The new FHLB borrowings during the current fiscal year had a weighted average maturity ("WAM") of 3.2 years, which is generally a shorter term than what management has selected in prior periods in anticipation that, when rates begin to decrease, these borrowings can be repaid or repriced to lower cost options. In consideration of the current interest rate environment, management intends to continue selecting shorter-term borrowings in the near term. The fixed-rate borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period.

Total borrowings at June 30, 2023 were $2.99 billion, which was comprised of $2.13 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $500.0 million in BTFP borrowings. Borrowings at June 30, 2023 increased $289.6 million and $854.0 million from March 31, 2023 and September 30, 2022, respectively, to fund loan growth and deposit outflows. The increase in borrowings from March 31, 2023 was due mainly to proceeds from new BTFP borrowings totaling $500.0 million with a term of one year and a rate of 4.70%, partially offset by a reduction in FHLB borrowings as the FHLB line of
42

credit was paid off and a $100.0 million FHLB advance was not renewed. The increase in borrowings from September 30, 2022 was composed of $500.0 million in BTFP borrowings and a net increase of $354.0 million in FHLB borrowings.

The following table presents the maturity of term borrowings, which consist of FHLB advances and BTFP borrowings, along with associated weighted average contractual and effective rates as of June 30, 2023. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.
Maturity byContractualEffective
Fiscal YearAmountRate
Rate(1)
(Dollars in thousands)
2023$100,000 2.14 %2.14 %
2024990,000 4.26 3.78 
2025650,000 3.26 2.95 
2026575,000 2.81 2.95 
2027440,000 3.02 3.13 
2028235,246 4.82 3.90 
$2,990,246 3.55 3.30 

(1)The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. 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 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 EndedFor the Nine Months Ended
June 30, 2023June 30, 2023June 30, 2022
Effective Effective Effective
AmountRateWAMAmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$2,497,664 2.93 %2.3 $2,062,500 2.44 %2.5 $1,590,000 1.88 %3.3 
Maturities and repayments(107,418)1.98 (222,254)1.89 (100,000)3.14 
New FHLB borrowings100,000 4.17 2.5650,000 4.47 3.2350,000 3.49 3.8
BTFP, net500,000 4.70 1.0 500,000 4.70 1.0 — — — 
Ending balance $2,990,246 3.30 2.0 $2,990,246 3.30 2.0 $1,840,000 2.12 2.6 


Leverage Strategy
At times during the current year period, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from these borrowings, net of the required FHLB stock holdings, at the FRB of Kansas City. The borrowings were repaid prior to quarter end. The average balance of leverage strategy borrowings was $604.4 million and $979.2 million during the quarters ended June 30, 2023 and March 31, 2023, respectively, and $1.16 billion for the nine months ended June 30, 2023. At times during the current quarter, the leverage strategy was not profitable and therefore was not utilized, resulting in a decrease in the average outstanding balance of leverage strategy borrowings compared to the prior quarter. Net income attributable to the leverage strategy was $86 thousand and $959 thousand for the quarter and nine months ended June 30, 2023, respectively. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the strategy.
43

Maturities of Interest-Bearing Liabilities. The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing term borrowings for the next four quarters as of June 30, 2023.
September 30,December 31,March 31,June 30,
2023202320242024Total
(Dollars in thousands)
Retail/Commercial Certificates:
Amount$253,836 $266,356 $263,365 $369,749 $1,153,306 
Repricing Rate1.76 %2.58 %2.84 %3.64 %2.80 %
Public Unit Certificates:
Amount$28,758 $42,717 $15,250 $30,420 $117,145 
Repricing Rate3.44 %4.30 %4.22 %4.42 %4.11 %
Term Borrowings:
Amount$100,000 $150,000 $65,000 $600,000 $915,000 
Repricing Rate2.14 %3.42 %2.67 %4.25 %3.77 %
Total
Amount$382,594 $459,073 $343,615 $1,000,169 $2,185,451 
Repricing Rate1.98 %3.01 %2.87 %4.03 %3.27 %


The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2023.
Retail certificates of deposit1.5 
Commercial certificates of deposit1.1 
Public unit certificates of deposit0.7 
Total certificates of deposit1.4 
44

Stockholders' Equity. Stockholders' equity at June 30, 2023 was $1.06 billion, a decrease of $35.2 million from September 30, 2022. During the nine months ended June 30, 2023, the Company paid cash dividends totaling $71.8 million. These cash dividends totaled $0.535 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and three regular quarterly cash dividends of $0.085 per share.

Accumulated other comprehensive loss was $126.7 million at June 30, 2023, of which $136.1 million was attributable to unrealized losses on AFS securities, partially offset by $9.4 million of unrealized gains on derivatives. Unrealized loss on AFS securities changed at June 30, 2023 from $125.3 million at March 31, 2023 and $155.1 million at September 30, 2022, due mainly to changes in market interest rates.
On July 25, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on August 18, 2023 to stockholders of record as of the close of business on August 4, 2023. 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, 2023, this ratio was 9.1%. Excluding the impact of unrealized losses on AFS securities, this ratio would have been approximately 120 basis points higher.
Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of June 30, 2023, the Bank's community bank leverage ratio ("CBLR") was 9.6%, which exceeded the minimum requirement of 9.0%. The CBLR is based on average assets. The leverage strategy increases average assets. which in turn reduces the Bank's CBLR. As of June 30, 2023 the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates, and the Bank's risk-based tier 1 capital ratio was 18.6%.

There remains $22.5 million authorized under the Company's existing stock repurchase plan. Shares of the Company's common stock 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 of Kansas City's existing approval for the Company to repurchase shares expires in August 2023. The Company has requested a further extension of the FRB's approval.

At June 30, 2023, Capitol Federal Financial, Inc., at the holding company level, had $87.3 million in cash on deposit at the Bank. The balance of cash at the holding company level is available for the Company to utilize for dividend payments, share repurchases, or for other business strategies at the discretion of the Company. The Company seeks to maintain an amount of cash at the holding company level that exceeds the total of two consecutive regular quarterly dividends. For fiscal year 2023, it is the intention of the Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, as well as any of the Company's earnings in excess of that amount. Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

The Company seeks multiple ways to provide stockholder value. This has been done primarily through the payment of cash dividends and stock repurchases. 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 has paid a True Blue Capital dividend in years past. 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 Company earnings and regulatory capital levels and the related requirements, in determining the amount, if any, and timing of the True Blue Capitol dividend.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2023, 2022, and 2021. The amounts represent cash dividends paid during each period. For the quarter ending September 30, 2023, the amount presented represents the dividend payable on August 18, 2023 to stockholders of record as of the close of business on August 4, 2023.
45

Calendar Year
202320222021
AmountPer ShareAmountPer ShareAmountPer Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31$11,319 $0.085 $11,535 $0.085 $11,518 $0.085 
Quarter ended June 3011,321 0.085 11,534 0.085 11,516 0.085 
Quarter ended September 3011,323 0.085 11,534 0.085 11,518 0.085 
Quarter ended December 31— — 11,508 0.085 11,535 0.085 
True-up dividends paid— — 37,701 0.280 29,850 0.220 
True Blue Capitol dividends paid— — 27,143 0.200 54,210 0.400 
Calendar year-to-date dividends paid$33,963 $0.255 $110,955 $0.820 $130,147 $0.960 
46

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,
20232023202220222022
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable$71,918 $69,319 $64,819 $60,445 $56,886 
Cash and cash equivalents10,009 10,977 16,671 13,373 3,968 
MBS4,562 4,748 4,811 4,912 5,048 
FHLB stock3,260 3,607 4,158 3,865 2,695 
Investment securities895 895 881 845 815 
Total interest and dividend income90,644 89,546 91,340 83,440 69,412 
Interest expense:
Borrowings31,449 31,447 33,608 24,529 11,644 
Deposits24,445 16,140 11,904 9,013 7,787 
Total interest expense55,894 47,587 45,512 33,542 19,431 
Net interest income34,750 41,959 45,828 49,898 49,981 
Provision for credit losses1,324 891 3,660 1,060 937 
Net interest income
(after provision for credit losses)33,426 41,068 42,168 48,838 49,044 
Non-interest income5,814 5,083 5,352 5,793 6,115 
Non-interest expense29,336 28,631 27,773 29,807 28,390 
Income tax expense 1,602 3,331 3,507 5,332 5,617 
Net income$8,302 $14,189 $16,240 $19,492 $21,152 
Efficiency ratio72.32 %60.86 %54.27 %53.52 %50.61 %
Basic EPS$0.06 $0.11 $0.12 $0.14 $0.16 
Diluted EPS0.06 0.11 0.12 0.14 0.16 


47

Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023

For the quarter ended June 30, 2023, the Company recognized net income of $8.3 million, or $0.06 per share, compared to net income of $14.2 million, or $0.11 per share, for the quarter ended March 31, 2023. The decrease in net income was due primarily to higher deposit interest expense in the current quarter, partially offset by lower income tax expense. The net interest margin decreased 24 basis points, from 1.56% for the prior quarter to 1.32% for the current quarter. Excluding the effects of the leverage strategy discussed in the Financial Condition - Borrowings" section above, the net interest margin decreased 32 basis points, from 1.71% for the prior quarter to 1.39% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of deposits. Management anticipates the reduction in the net interest margin will continue in the near term. See additional discussion in "Fiscal Year 2023 Outlook" below.

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. The weighted average yield on loans receivable increased nine basis points and the weighted average yield on cash and cash equivalents increased 61 basis points compared to the prior quarter.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20232023DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$71,918 $69,319 $2,599 3.7 %
Cash and cash equivalents10,009 10,977 (968)(8.8)
MBS4,562 4,748 (186)(3.9)
FHLB stock3,260 3,607 (347)(9.6)
Investment securities895 895 — — 
Total interest and dividend income$90,644 $89,546 $1,098 1.2 

The increase in interest income on loans receivable was due to an increase in the weighted average yield, along with an increase in the average balance of commercial loans and correspondent one-to four-family loans. The increase in the weighted average yield was due primarily to originations and purchases/participations at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the average balance of cash associated with the leverage strategy compared to the prior quarter due to a reduction in the leverage strategy usage in the current quarter, partially offset by an increase in the average balance of operating cash, as proceeds from the BTFP have been held in cash as management evaluates funding and balance sheet management options, and an increase in the yield earned on balances held at the FRB of Kansas City due to higher market interest rates. The decrease in dividend income on FHLB stock was due mainly to a decrease in the average balance of FHLB stock associated with the leverage strategy, partially offset by an increase in the dividend rate paid by FHLB.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. The weighted average rate paid on deposits increased 59 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 23 basis points compared to the prior quarter.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20232023DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$31,449 $31,447 $2 — %
Deposits24,445 16,140 8,305 51.5 
Total interest expense$55,894 $47,587 $8,307 17.5 

During the current quarter, interest expense on borrowings associated with the leverage strategy decreased $3.3 million due to a reduction in usage of the leverage strategy. This was almost entirely offset by an increase in interest expense on borrowings not
48

associated with the leverage strategy, due primarily to BTFP borrowings, which have been held in cash as management evaluates funding and balance sheet management options. The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and average balance of the certificate of deposit portfolio and an increase in the weighted average rate paid on money market accounts. Early in the current quarter, management increased the rates offered on the Bank's money market accounts in an effort to slow the outflow of deposit balances.

Provision for Credit Losses
For the quarter ended June 30, 2023, the Bank recorded a provision for credit losses of $1.3 million, compared to a provision for credit losses of $891 thousand for the prior quarter. The provision for credit losses in the current quarter was comprised of a $2.5 million increase in the ACL for loans, partially offset by a $1.2 million decrease in the reserve for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to worsening economic forecast conditions compared to the prior quarter, commercial loan growth, and a reduction in prepayment speeds related to the commercial loan portfolio. The release of provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to refining our methodology to account for the estimated credit losses on unfunded commercial construction-to-permanent loans and commitments for the time period after construction is expected to be completed.

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:
20232023DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,404 $3,122 $282 9.0 %
Insurance commissions888 877 11 1.3 
Other non-interest income1,522 1,084 438 40.4 
Total non-interest income$5,814 $5,083 $731 14.4 

The increase in other non-interest income was due mainly to an increase in income on BOLI related to the receipt of death benefits during the current quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20232023DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,200 $12,789 $411 3.2 %
Information technology and related expense6,118 5,789 329 5.7 
Occupancy, net3,556 3,568 (12)(0.3)
Regulatory and outside services1,436 1,305 131 10.0 
Advertising and promotional1,447 1,333 114 8.6 
Federal insurance premium1,231 1,246 (15)(1.2)
Deposit and loan transaction costs615 690 (75)(10.9)
Office supplies and related expense546 631 (85)(13.5)
Other non-interest expense1,187 1,280 (93)(7.3)
Total non-interest expense$29,336 $28,631 $705 2.5 

49

The increase in salaries and employee benefits was mainly related to merit increases during the current quarter. The increase in information technology and related expense was due primarily to an increase in professional services related to the Company's digital transformation, discussed below, and other technology-related projects.

The Company's efficiency ratio was 72.32% for the current quarter compared to 60.86% for the prior quarter. The change in the efficiency ratio was due primarily to lower net 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 higher value indicates that it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20232023DollarsPercent
(Dollars in thousands)
Income before income tax expense$9,904 $17,520 $(7,616)(43.5)%
Income tax expense1,602 3,331 (1,729)(51.9)
Net income$8,302 $14,189 $(5,887)(41.5)
Effective Tax Rate16.2 %19.0 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter and partially to a lower effective tax rate. The decrease in effective tax rate was due primarily to lower projected pretax income, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

50

Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2023March 31, 2023
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$4,052,906 $34,224 3.38 %$4,050,515 $33,660 3.32 %
Correspondent purchased2,491,016 19,937 3.20 2,462,960 19,380 3.15 
Bulk purchased141,985 527 1.49 144,438 413 1.14 
Total one- to four-family loans6,685,907 54,688 3.27 6,657,913 53,453 3.21 
Commercial loans1,180,906 15,172 5.08 1,147,681 13,924 4.85 
Consumer loans102,390 2,058 8.06 102,649 1,942 7.67 
Total loans receivable(1)
7,969,203 71,918 3.60 7,908,243 69,319 3.51 
MBS(2)
1,126,953 4,562 1.62 1,173,366 4,748 1.62 
Investment securities(2)(3)
525,012 895 0.68 525,012 895 0.68 
FHLB stock(4)
146,482 3,260 8.93 167,567 3,607 8.73 
Cash and cash equivalents(5)
769,434 10,009 5.15 967,586 10,977 4.54 
Total interest-earning assets10,537,084 90,644 3.43 10,741,774 89,546 3.34 
Other non-interest-earning assets271,898 263,916 
Total assets$10,808,982 $11,005,690 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$949,909 398 0.17 $989,440 368 0.15 
Savings521,831 143 0.11 541,324 101 0.08 
Money market1,485,672 6,295 1.70 1,620,451 3,184 0.80 
Retail certificates2,339,477 15,685 2.69 2,176,103 11,115 2.07 
Commercial certificates44,083 307 2.80 38,575 197 2.07 
Wholesale certificates155,157 1,617 4.18 127,037 1,175 3.75 
Total deposits5,496,129 24,445 1.78 5,492,930 16,140 1.19 
Borrowings(6)
3,520,594 31,449 3.57 3,700,022 31,447 3.42 
Total interest-bearing liabilities9,016,723 55,894 2.48 9,192,952 47,587 2.09 
Non-interest-bearing deposits556,682 574,495 
Other non-interest-bearing liabilities161,360 172,481 
Stockholders' equity1,074,217 1,065,762 
Total liabilities and stockholders' equity$10,808,982 $11,005,690 
Net interest income(7)
$34,750 $41,959 
Net interest-earning assets$1,520,361 $1,548,822 
Net interest margin(8)(9)
1.32 1.56 
Ratio of interest-earning assets to interest-bearing liabilities1.17x1.17x
Selected performance ratios:
Return on average assets (annualized)(9)
0.31 %0.52 %
Return on average equity (annualized)(9)
3.09 5.33 
Average equity to average assets9.94 9.68 
Operating expense ratio (annualized)(10)
1.09 1.04 
Efficiency ratio(9)(11)
72.32 60.86 
Pre-tax yield on leverage strategy(12)
0.07 0.06 

51

(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 $1.0 million for each of the quarters ended June 30, 2023 and March 31, 2023, respectively.
(4)Included in this line, for the quarter ended June 30, 2023, is FHLB stock related to the leverage strategy with an average outstanding balance of $27.2 million and dividend income of $610 thousand at a weighted average yield of 9.00%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $119.3 million and dividend income of $2.7 million at a weighted average yield of 8.91%. Included in this line for the quarter ended March 31, 2023 is FHLB stock related to the leverage strategy with an average outstanding balance of $44.1 million and dividend income of $951 thousand, at a weighted average yield of 8.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $123.5 million and dividend income of $2.7 million, at a weighted average yield of 8.72%.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $577.2 million and $935.1 million during the quarters ended June 30, 2023 and March 31, 2023 respectively.
(6)Included in this line, for the quarter ended June 30, 2023, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $604.4 million and interest paid of $7.9 million, at a weighted average rate of 5.20%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.92 billion and interest paid of $23.5 million, at a weighted average rate of 3.23%. Included in this line for the quarter ended March 31, 2023 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $979.2 million and interest paid of $11.3 million at a weighted average rate of 4.60%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.72 billion and interest paid of $20.2 million at a weighted average rate of 3.00%. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(7)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(8)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Three Months Ended
June 30, 2023March 31, 2023
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets3.43 %0.11 %3.32 %3.34 %0.14 %3.20 %
Cost of interest-bearing liabilities2.48 0.20 2.28 2.09 0.30 1.79 
Return on average assets (annualized)0.31 (0.01)0.32 0.52 (0.04)0.56 
Return on average equity (annualized)3.09 0.03 3.06 5.33 0.05 5.28 
Net interest margin1.32 (0.07)1.39 1.56 (0.15)1.71 
Efficiency Ratio72.32 (0.12)72.44 60.86 (0.07)60.93 
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)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.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

52

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, 2023 to the three months ended March 31, 2023. 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, 2023 vs. March 31, 2023
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$682 $1,917 $2,599 
MBS(188)2 (186)
Investment securities— — — 
FHLB stock(432)85 (347)
Cash and cash equivalents (2,363)1,395 (968)
Total interest-earning assets(2,301)3,399 1,098 
Interest-bearing liabilities:
Checking (14)44 30 
Savings(3)45 42 
Money market(281)3,392 3,111 
Certificates of deposit1,163 3,959 5,122 
Borrowings(4,558)4,560 2 
Total interest-bearing liabilities(3,693)12,000 8,307 
Net change in net interest income$1,392 $(8,601)$(7,209)



Comparison of Operating Results for the Nine Months Ended June 30, 2023 and 2022

The Company recognized net income of $38.7 million, or $0.29 per share, for the current year period compared to net income of $65.0 million, or $0.48 per share, for the prior year period. The decrease in net income was due primarily to lower net interest income, along with recording a provision for credit losses of $5.9 million for the current year period compared to a release of provision of $5.7 million for the prior year period, partially offset by lower income tax expense. The net interest margin decreased 32 basis points, from 1.82% for the prior year period to 1.50% for the current year period. Excluding the effects of the leverage strategy, the net interest margin decreased 38 basis points, from 2.04% for the prior year period to 1.66% for the current year period. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, which exceeded the increase in loan yields.

53

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20232022DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$206,056 $168,086 $37,970 22.6 %
Cash and cash equivalents37,657 4,931 32,726 663.7
MBS14,121 14,494 (373)(2.6)
FHLB stock11,025 6,166 4,859 78.8 
Investment securities2,671 2,423 248 10.2 
Total interest and dividend income$271,530 $196,100 $75,430 38.5 

The increase in interest income on loans receivable was due to an increase in the average balance and weighted average yield of the loan portfolio. The increase in the average balance was mainly in the correspondent one-to four-family and commercial real estate loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents was due mainly to a higher yield on cash related to an increase in FRB interest rates. The increase in dividend income on FHLB stock was due mainly to a higher FHLB dividend rate compared to the prior year period, along with an increase in the average balance of FHLB stock due to an increase in FHLB borrowings.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20232022DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$96,504 $27,961 $68,543 245.1 %
Deposits52,489 25,443 27,046 106.3 
Total interest expense$148,993 $53,404 $95,589 179.0 

The increase in interest expense on borrowings was due primarily to an increase in the average balance and weighted average rate on borrowings not associated with the leverage strategy, along with an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year period. Interest expense on borrowings not associated with the leverage strategy increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational needs. Interest expense on borrowings associated with the leverage strategy increased $31.6 million compared to the prior year period. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily certificates of deposit and money market accounts, partially offset by a decrease in the average balance of these portfolios.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current year period of $5.9 million, compared to a release of provision of $5.7 million during the prior year period. The provision for credit losses in the current year period was comprised of a $6.1 million increase in the ACL for loans and a $179 thousand decrease in reserves for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to worsening economic forecast conditions, along with a reduction in the projected prepayment speeds used in the model for all loan categories.

54

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:
20232022DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$9,987 $10,331 $(344)(3.3)%
Insurance commissions2,560 2,042 518 25.4 
Other non-interest income3,702 4,664 (962)(20.6)
Total non-interest income$16,249 $17,037 $(788)(4.6)

The increase in insurance commissions was due primarily to annual contingent insurance commissions received being higher than anticipated and the related accrual adjustments, along with overall commissions being higher in the current year due mainly to growth and strong retention on personal policies and continued success growing our commercial policies. The decrease in other non-interest income was due mainly to the prior year period including gains on a loan-related financial derivative agreement, with no such gains in the current year period, along with a decrease in income on BOLI compared to the prior year period due to a reduction in the yield and death benefits received between the two periods.

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:
 20232022DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$39,687 $42,332 $(2,645)(6.2)%
Information technology and related expense16,977 13,268 3,709 28.0 
Occupancy, net10,598 10,593 5 — 
Regulatory and outside services4,274 4,212 62 1.5 
Advertising and promotional3,613 3,626 (13)(0.4)
Federal insurance premium3,289 2,200 1,089 49.5 
Deposit and loan transaction costs1,916 2,050 (134)(6.5)
Office supplies and related expense1,810 1,464 346 23.6 
Other non-interest expense3,576 3,299 277 8.4 
Total non-interest expense$85,740 $83,044 $2,696 3.2 

The decrease in salaries and employee benefits was attributable mainly to a decrease in incentive compensation, along with a reduction in loan commissions due to a reduction in loan origination activity, and an increase in capitalized payroll costs related to the digital transformation project. The increase in information technology and related expenses was due mainly to third-party project management expenses associated with the digital transformation project, along with higher software licensing expenses due to agreement renewals at higher costs. The increase in federal insurance premium expense was due mainly to an increase in the Federal Deposit Insurance Corporation ("FDIC") assessment rate. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete, as well as to an increase in supplies and postage expense. The increase in other non-interest expense was due mainly to expenses associated with the collateral received on the Bank's interest rate swap agreements.

The Company's efficiency ratio was 61.78% for the current year period compared to 51.99% for the prior year period. The change in the efficiency ratio was due primarily to lower net interest income in the current year period.

55

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and effective tax rate.
For the Nine Months Ended
June 30, Change Expressed in:
20232022DollarsPercent
(Dollars in thousands)
Income before income tax expense$47,171 $82,379 $(35,208)(42.7)%
Income tax expense8,440 17,418 (8,978)(51.5)
Net income$38,731 $64,961 $(26,230)(40.4)
Effective Tax Rate17.9 %21.1 %

The decrease in income tax expense was due primarily to lower pretax income in the current year period and partially to a decrease in the effective tax rate. The decrease in the effective tax rate was due primarily to lower projected pretax income in the current year, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

Fiscal Year 2023 Outlook
The rapid increase in short-term rates led by the Federal Reserve and the resulting inverted yield curve has caused decreases in the Bank's net interest margin. There has been a runoff in deposit balances, so management increased certificate of deposit and money market account rates prior to June 30, 2023 to help mitigate the outflow. Higher mortgage loan rates have made the purchase of homes less affordable, which lowers the likelihood of existing one- to four-family loans at lower rates being paid off as a result of housing turnover. These dynamics have caused our balance sheet to change faster than what would typically occur in more stable rate environments. Net interest margin compression is anticipated to continue, and the margin is expected to compress more in the near term, possibly up to 10 basis points during the September 30, 2023 quarter. The continued net interest margin compression is due to the Federal Reserve continuing to increase short-term interest rates, which is impacting the shape of the yield curve, the pace at which liabilities are repricing compared to assets, and deposit funds moving from lower costing deposit accounts to certificates of deposit. Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate; however, the pace at which the interest rate increases are occurring for liabilities is more than offsetting the benefit of the higher loan rates. As with managing the size of the balance sheet discussed above, management continues to evaluate funding options and plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repaid or repriced to lower cost alternatives.

Management implemented a digital transformation for the Bank in early August 2023. The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. Management anticipates information technology and related expenses will be approximately $5 million higher in fiscal year 2023 compared to fiscal year 2022 due to the digital transformation. In addition, it is expected there will be approximately $1 million more of information technology and related expenses in fiscal year 2023 related to projects outside of the digital transformation and due to general cost increases. Overall, it is anticipated that information technology and related expenses will be approximately $6 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24 million for the year. In fiscal year 2024, information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due primarily to a reduction in professional service costs. Previously, management expected salaries and employee benefits to be approximately $1 million lower in fiscal year 2023 compared to fiscal year 2022 and now salaries and employee benefits are expected to be approximately $3 million lower in fiscal year 2023. This is due to several factors such as open positions remaining unfilled, reduced incentive compensation expectations, and a lower merit increase than was projected at September 30, 2022. Federal insurance premium expense is anticipated to be approximately $1.3 million higher in fiscal year 2023 compared to fiscal year 2022, due to the increase in the assessment rate that began in January 2023. Management anticipates the effective tax rate for fiscal year 2023 will be approximately 18%. This is lower than the previously provided projection of 19%, due mainly to lower projected pretax income as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

56

Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Nine Months Ended
June 30, 2023June 30, 2022
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$4,051,068 $101,249 3.33 %$3,973,184 $96,583 3.24 %
Correspondent purchased2,419,202 56,578 3.12 2,040,934 39,832 2.60 
Bulk purchased144,514 1,374 1.27 162,151 1,578 1.30 
Total one- to four-family loans6,614,784 159,201 3.21 6,176,269 137,993 2.98 
Commercial loans1,117,549 41,089 4.85 866,856 26,898 4.09 
Consumer loans102,600 5,766 7.51 91,979 3,195 4.64 
Total loans receivable(1)
7,834,933 206,056 3.50 7,135,104 168,086 3.14 
MBS(2)
1,173,959 14,121 1.60 1,379,334 14,494 1.40 
Investment securities(2)(3)
525,035 2,671 0.68 522,706 2,423 0.62 
FHLB stock(4)
170,652 11,025 8.64 132,657 6,166 6.21 
Cash and cash equivalents(5)
1,182,559 37,657 4.20 1,305,949 4,931 0.50 
Total interest-earning assets10,887,138 271,530 3.32 10,475,750 196,100 2.49 
Other non-interest-earning assets261,221 362,229 
Total assets$11,148,359 $10,837,979 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$982,372 1,056 0.14 $1,063,280 535 0.07 
Savings536,363 343 0.09 539,152 215 0.05 
Money market1,622,486 12,513 1.03 1,835,666 2,653 0.19 
Retail certificates2,193,096 34,567 2.11 2,236,551 21,230 1.27 
Commercial certificates38,970 608 2.09 123,398 584 0.63 
Wholesale certificates126,567 3,402 3.59 170,051 226 0.18 
Total deposits5,499,854 52,489 1.28 5,968,098 25,443 0.57 
Borrowings(6)
3,829,154 96,504 3.35 2,918,291 27,961 1.27 
Total interest-bearing liabilities9,329,008 148,993 2.13 8,886,389 53,404 0.80 
Non-interest-bearing deposits569,239 571,685 
Other non-interest-bearing liabilities175,176 177,081 
Stockholders' equity1,074,936 1,202,824 
Total liabilities and stockholders' equity$11,148,359 $10,837,979 
Net interest income(7)
$122,537 $142,696 
Net interest-earning assets$1,558,130 $1,589,361 
Net interest margin(8)(9)
1.50 1.82 
Ratio of interest-earning assets to interest-bearing liabilities1.17x1.18x
Selected performance ratios:
Return on average assets (annualized)(9)
0.46 %0.80 %
Return on average equity (annualized)(9)
4.80 7.20 
Average equity to average assets9.64 11.10 
Operating expense ratio (annualized)(10)
1.03 1.02 
Efficiency ratio(9)(11)
61.78 51.99 
Pre-tax yield on leverage strategy(12)
0.13 0.23 
57

(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 $1.1 million and $2.1 million for the nine months ended June 30, 2023 and June 30, 2022, respectively.
(4)Included in this line, for the nine months ended June 30, 2023 and June 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $52.0 million and $58.2 million, and dividend income of $3.4 million and $2.7 million at a weighted average yield of 8.65% and 6.12% and FHLB stock not related to the leverage strategy with an average outstanding balance of $118.7 million and $74.5 million and dividend income of $7.7 million and $3.5 million at a weighted average yield of 8.63% and 6.29%, respectively.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.10 billion and $1.23 billion during the nine months ended June 30, 2023 and June 30, 2022, respectively.
(6)Included in this line, for the nine months ended June 30, 2023 and June 30, 2022 respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.16 billion and $1.30 billion, with interest paid of $36.5 million and $4.9 million, at a weighted average rate of 4.17% and 0.50%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.67 billion and $1.62 billion and interest paid of $60.0 million and $23.0 million, at a weighted average rate of 2.99% and 1.89%. 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.
(7)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(8)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Nine Months Ended
June 30, 2023June 30, 2022
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets3.32 %0.13 %3.19 %2.49 %(0.25)%2.74 %
Cost of interest-bearing liabilities2.13 0.29 1.84 0.80 (0.05)0.85 
Return on average assets (annualized)0.46 (0.04)0.50 0.80 (0.08)0.88 
Return on average equity (annualized)4.80 0.11 4.69 7.20 0.20 7.00 
Net interest margin1.50 (0.16)1.66 1.82 (0.22)2.04 
Efficiency Ratio61.78 (0.42)62.20 51.99 (0.65)52.64 
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)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.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

58

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, 2023 vs. June 30, 2022
Increase (Decrease) Due to
VolumeRateTotal
(Dollars in thousands)
Interest-earning assets:
Loans receivable$19,170 $18,800 $37,970 
MBS(2,316)1,943 (373)
Investment securities11 237 248 
FHLB stock2,057 2,802 4,859 
Cash and cash equivalents (509)33,235 32,726 
Total interest-earning assets18,413 57,017 75,430 
Interest-bearing liabilities:
Checking (44)564 520 
Savings(1)129 128 
Money market(343)10,203 9,860 
Certificates of deposit(1,587)18,125 16,538 
Borrowings18,242 50,301 68,543 
Total interest-bearing liabilities16,267 79,322 95,589 
Net change in net interest income$2,146 $(22,305)$(20,159)


Comparison of Operating Results for the Three Months Ended June 30, 2023 and 2022
For the quarter ended June 30, 2023, the Company recognized net income of $8.3 million, or $0.06 per share, compared to net income of $21.2 million, or $0.16 per share for the quarter ended June 30, 2022. The decrease in net income was due primarily to a decrease in net interest income partially offset by lower income tax expense. The net interest margin decreased 47 basis points, from 1.79% for the prior year quarter to 1.32% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin decreased 72 basis points, from 2.11% for the prior year quarter to 1.39% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of deposits and borrowings, which exceeded the increase in loan yields.

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$71,918 $56,886 $15,032 26.4 %
Cash and cash equivalents10,009 3,968 6,041 152.2 
MBS4,562 5,048 (486)(9.6)
FHLB stock3,260 2,695 565 21.0 
Investment securities895 815 80 9.8 
Total interest and dividend income$90,644 $69,412 $21,232 30.6 
59


The increase in interest income on loans receivable was due to an increase in the weighted average yield and the average balance of the loan portfolio. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in the average balance was primarily in the correspondent one-to four-family and commercial loan portfolios. The increase in interest income on cash and cash equivalents was due to a higher yield on cash related to an increase in FRB interest rates, partially offset by a lower average balance. The increase in dividend income on FHLB stock was due to a higher FHLB dividend rate compared to the prior year quarter.

Interest Expense
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:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$31,449 $11,644 $19,805 170.1 %
Deposits24,445 7,787 16,658 213.9 
Total interest expense$55,894 $19,431 $36,463 187.7 

The increase in interest expense on borrowings was due primarily to an increase in the weighted average rate and average balance on borrowings not associated with the leverage strategy, along with an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year quarter. The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid on the deposit portfolio, mainly certificates of deposit and money market accounts.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $1.3 million, compared to a of provision of $937 thousand during the prior year quarter. See "Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023" above for additional discussion regarding the provision for credit losses during the current quarter.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,404 $3,601 $(197)(5.5)%
Insurance commissions888 788 100 12.7 
Other non-interest income1,522 1,726 (204)(11.8)
Total non-interest income$5,814 $6,115 $(301)(4.9)

The decrease in other non-interest income was due mainly to the prior year quarter including gains on a loan-related financial derivative agreement, with no such gains in the current quarter.

60

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:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,200 $14,581 $(1,381)(9.5)%
Information technology and related expense6,118 4,343 1,775 40.9 
Occupancy, net3,556 3,721 (165)(4.4)
Regulatory and outside services1,436 1,572 (136)(8.7)
Advertising and promotional1,447 1,068 379 35.5 
Federal insurance premium1,231 784 447 57.0 
Deposit and loan transaction costs615 664 (49)(7.4)
Office supplies and related expense546 494 52 10.5 
Other non-interest expense1,187 1,163 24 2.1 
Total non-interest expense$29,336 $28,390 $946 3.3 

The decrease in salaries and employee benefits was attributable mainly to lower incentive compensation, along with lower loan commissions due to a reduction in loan origination activity in the current year. The increase in information technology and related expenses was due mainly to third-party project management expenses and other expenses associated with the digital transformation project, along with higher software licensing expenses due to agreement renewals at higher costs. The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships. The increase in federal insurance premium expense was due mainly to an increase in the FDIC assessment rate.

The Company's efficiency ratio was 72.32% for the current quarter compared to 50.61% for the prior year quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.
For the Three Months Ended
June 30, Change Expressed in:
20232022DollarsPercent
(Dollars in thousands)
Income before income tax expense$9,904 $26,769 $(16,865)(63.0)%
Income tax expense1,602 5,617 (4,015)(71.5)
Net income$8,302 $21,152 $(12,850)(60.8)
Effective Tax Rate16.2 %21.0 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate. The decrease in the effective tax rate was due primarily to lower projected pretax income, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.
61

Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2023June 30, 2022
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$4,052,906 $34,224 3.38 %$3,982,602 $32,168 3.23 %
Correspondent purchased2,491,016 19,937 3.20 2,060,947 14,027 2.72 
Bulk purchased141,985 527 1.49 154,663 464 1.20 
Total one- to four-family loans6,685,907 54,688 3.27 6,198,212 46,659 3.01 
Commercial loans1,180,906 15,172 5.08 890,455 9,104 4.05 
Consumer loans102,390 2,058 8.06 92,790 1,123 4.85 
Total loans receivable(1)
7,969,203 71,918 3.60 7,181,457 56,886 3.16 
MBS(2)
1,126,953 4,562 1.62 1,343,891 5,048 1.50 
Investment securities(2)(3)
525,012 895 0.68 522,147 815 0.62 
FHLB stock(4)
146,482 3,260 8.93 166,879 2,695 6.48 
Cash and cash equivalents(5)
769,434 10,009 5.15 1,930,539 3,968 0.81 
Total interest-earning assets10,537,084 90,644 3.43 11,144,913 69,412 2.49 
Other non-interest-earning assets271,898 293,882 
Total assets$10,808,982 $11,438,795 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$949,909 398 0.17 $1,068,329 180 0.07 
Savings521,831 143 0.11 556,553 74 0.05 
Money market1,485,672 6,295 1.70 1,861,302 952 0.21 
Retail certificates2,339,477 15,685 2.69 2,169,262 6,383 1.18 
Commercial certificates44,083 307 2.80 84,231 129 0.61 
Wholesale certificates155,157 1,617 4.18 113,101 69 0.24 
Total deposits5,496,129 24,445 1.78 5,852,778 7,787 0.53 
Borrowings(6)
3,520,594 31,449 3.57 3,687,592 11,644 1.26 
Total interest-bearing liabilities9,016,723 55,894 2.48 9,540,370 19,431 0.81 
Non-interest-bearing deposits556,682 586,876 
Other non-interest-bearing liabilities161,360 147,938 
Stockholders' equity1,074,217 1,163,611 
Total liabilities and stockholders' equity$10,808,982 $11,438,795 
Net interest income(7)
$34,750 $49,981 
Net interest-earning assets$1,520,361 $1,604,543 
Net interest margin(8)(9)
1.32 1.79 
Ratio of interest-earning assets to interest-bearing liabilities1.17x1.17x
Selected performance ratios:
Return on average assets (annualized)(9)
0.31 %0.74 %
Return on average equity (annualized)(9)
3.09 7.27 
Average equity to average assets9.94 10.17 
Operating expense ratio (annualized)(10)
1.09 0.99 
Efficiency ratio(9)(11)
72.32 50.61 
Pre-tax yield on leverage strategy(12)
0.07 0.31 

62

(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 $1.0 million and $326 thousand for the three months ended June 30, 2023 and June 30, 2022, respectively.
(4)Included in this line, for the three months ended June 30, 2023 and June 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $27.2 million and $89.4 million, respectively, and dividend income of $610 thousand and $1.4 million, respectively, at a weighted average yield of 9.00% and 6.48%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $119.3 million and $77.5 million, respectively, and dividend income of $2.7 million and $1.3 million, respectively, at a weighted average yield of 8.91% and 6.48%, respectively.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $577.2 million and $1.89 billion during the three months ended June 30, 2023 and June 30, 2022, respectively.
(6)Included in this line, for the three months ended June 30, 2023 and June 30, 2022, respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $604.4 million and $1.99 billion, respectively, and interest paid of $7.9 million and $3.7 million, respectively, at a weighted average rate of 5.20% and 0.73%, respectively, and borrowings not related to the leverage strategy with an average outstanding balance of $2.92 billion and $1.70 billion, respectively, and interest paid of $23.5 million and $8.0 million, respectively, at a weighted average rate of 3.23% and 1.87%, respectively. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(7)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(8)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Three Months Ended
June 30, 2023June 30, 2022
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets3.43 %0.11 %3.32 %2.49 %(0.30)%2.79 %
Cost of interest-bearing liabilities2.48 0.20 2.28 0.81 (0.03)0.84 
Return on average assets (annualized)0.31 (0.01)0.32 0.74 (0.10)0.84 
Return on average equity (annualized)3.09 0.03 3.06 7.27 0.42 6.85 
Net interest margin1.32 (0.07)1.39 1.79 (0.32)2.11 
Efficiency Ratio72.32 (0.12)72.44 50.61 (1.31)51.92 
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)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.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.
63

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, 2023 to the three months ended June 30, 2022. 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,
2023 vs. 2022
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$7,321 $7,711 $15,032 
MBS(858)372 (486)
Investment securities5 75 80 
FHLB stock(360)925 565 
Cash and cash equivalents (3,676)9,717 6,041 
Total interest-earning assets2,432 18,800 21,232 
Interest-bearing liabilities:
Checking (22)240 218 
Savings(5)73 68 
Money market(230)5,573 5,343 
Certificates of deposit512 10,517 11,029 
Borrowings3,123 16,682 19,805 
Total interest-bearing liabilities3,378 33,085 36,463 
Net change in net interest income$(946)$(14,285)$(15,231)


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Liquidity and Capital Resources

Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents and AFS securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage long-term liquidity needs and the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios that meet or exceed the regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.

We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios.

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB, the FRB of Kansas City's discount window, and the newly established BTFP. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management. The Bank's FHLB borrowing limit was 50% of Bank Call Report total assets as of June 30, 2023, as approved by the president of FHLB. FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs. Additionally, FHLB borrowings may exceed 40% of Bank Call Report total assets as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the short-term FHLB borrowings in conjunction with the leverage strategy can be repaid at maturity, if necessary or desired. 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. At June 30, 2023, the fair value of securities pledged for the discount window was $149.8 million. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing, which was last completed during the first quarter of fiscal year 2023. There were no borrowings from the discount window during the current quarter. The amount that can be borrowed under the BTFP is based upon the par value of securities pledged as collateral, the term can be up to one year in length, and the borrowings can be prepaid without penalty. At June 30, 2023, the amount of securities pledged, at par, for the BTFP was $615.2 million. During the quarter ended June 30, 2023, the Bank repaid its borrowings on the FHLB line of credit and borrowed $500.0 million under the BTFP as the BTFP rate was more favorable than the rates offered on the FHLB line of credit or the rate on a one-year FHLB advance at that point in time.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At June 30, 2023, the Bank had total borrowings, at par, of $2.99 billion, or approximately 29% of total assets. The borrowings balance was composed of $2.49 billion of FHLB advances and $500.0 million related to the BTFP. Of this amount, $444.7 million of FHLB advances and all BTFP borrowings were scheduled to mature in the next 12 months. Management estimated that the Bank had $2.68 billion in additional liquidity available at June 30, 2023 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

At June 30, 2023, 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. 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, 2023, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At June 30, 2023, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 3% of total deposits. The Bank had pledged securities with an estimated fair value of $204.7 million as collateral for public unit certificates of deposit at June 30, 2023. 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.

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At June 30, 2023, $1.27 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $117.1 million of public unit certificates of deposit and $26.9 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard.  Due to the nature of public unit certificates of deposit and commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit.

While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. We anticipate we will continue to have sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

Limitations on Dividends and Other Capital Distributions

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 CBLR greater than the required percentage, which is currently 9.0%), 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.

Regulatory Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio of 9% 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, 2023, the Bank's CBLR was 9.6% and the Company's CBLR was 10.7%, both of which exceeded the minimum requirements.

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Item 3. Quantitative and Qualitative Disclosures 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 fiscal year ended September 30, 2022. 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.

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 one with 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. The MVPE ratio continues to be an important measurement for management as we consider the changes in market rates, liquidity needs and portfolio balances. MVPE represents a long-term view of the interest sensitivity of the Bank's balance sheet while our net interest income projections inform management of the short-term impacts of pricing decisions. 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

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 rates would likely deviate significantly from those assumed in calculating the gap table below. A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests in a rising rate environment, that earnings should increase. A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, that earnings should decrease. For additional information
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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)
$1,378,847 $1,808,644 $1,428,040 $3,364,345 $7,979,876 
Securities(2)
276,160 707,996 227,568 413,113 1,624,837 
Other interest-earning assets307,564 — — — 307,564 
Total interest-earning assets1,962,571 2,516,640 1,655,608 3,777,458 9,912,277 
Interest-bearing liabilities:
Non-maturity deposits(3)
740,124 415,984 354,165 2,029,932 3,540,205 
Certificates of deposit1,277,007 946,931 415,844 168 2,639,950 
Borrowings(4)
946,166 1,337,478 714,571 27,798 3,026,013 
Total interest-bearing liabilities2,963,297 2,700,393 1,484,580 2,057,898 9,206,168 
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities$(1,000,726)$(183,753)$171,028 $1,719,560 $706,109 
Cumulative excess (deficiency) of interest-earning assets over
interest-bearing liabilities$(1,000,726)$(1,184,479)$(1,013,451)$706,109 
Cumulative excess (deficiency) of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
June 30, 2023(9.7)%(11.5)%(9.9)%6.9 %
March 31, 2023(8.0)
September 30, 2022(11.9)
Cumulative one-year gap - interest rates +200 bps at:
June 30, 2023(11.6)
March 31, 2023(8.6)
September 30, 2022(12.1)

(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. All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2023, 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 $3.80 billion, for a cumulative one-year gap of (36.9)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $365.0 million of FHLB adjustable-rate advances tied to interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.

At June 30, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.00) billion, or (9.7)% of total assets, compared to $(803.5) million, or (8.0)% of total assets, at March 31, 2023. The change in the one-year gap amount was due primarily to an increase in the amount of liability cash flows coming due in one year at June 30, 2023 compared to March 31, 2023, partially offset by an increase in the amount of asset cash flows coming due for the same time period. This was due primarily to an increase in the amount of certificates of deposit and borrowings scheduled to mature within one year as of June 30, 2023 compared to March 31, 2023.

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
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terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of June 30, 2023, the Bank's one-year gap is projected to be $(1.19) billion, or (11.6)% 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 as a result of lower prepayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(862.4) million, or (8.6)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2023.

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. 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, 2023September 30, 2022
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
 -200 bp$117,810 $(11,008)(8.55)%$182,458 $(775)(0.42)%
 -100 bp123,830 (4,988)(3.87)183,363 130 0.07 
  000 bp128,818 — — 183,233 — — 
+100 bp133,093 4,275 3.32 182,737 (496)(0.27)
+200 bp137,043 8,225 6.39 182,081 (1,152)(0.63)
+300 bp140,998 12,180 9.46 181,394 (1,839)(1.00)

(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, 2023 compared to September 30, 2022 due primarily to higher interest expense projections on the Bank's liabilities compared to the increase in the interest income projections on the Bank's assets. This was primarily driven by faster increases in the cost of liabilities during the first nine months of fiscal year 2023, compared to the increase in asset yields. The increase in the cost of liabilities was due mainly to an increase in the balance and rate of the certificate of deposit portfolio, an increase in the rates paid on money market accounts, and an increase in the balance of higher-costing borrowings since September 30, 2022. This was partially offset by higher projected income on loans receivable due to a higher balance and yield on the portfolio compared to September 30, 2022.

In the rising and declining interest rate scenarios, the variability of net interest income projections has become more significant due to the composition of the balance sheet and the elevated interest rate environment. At June 30, 2023, the Bank's balance of cash and cash equivalents was $329.4 million with an average yield of 4.82% compared to a balance of $49.2 million with an average yield of 1.75% at September 30, 2022. As a result, in each interest rate scenario, there was a greater impact on net interest income at June 30, 2023 compared to September 30, 2022 due to the higher cash balance. Additionally, due to compositional changes in the Bank's deposit portfolio between periods (increase in certificates of deposit and decrease in non-maturity deposits), the impact from instantaneous, parallel and permanent changes in the various interest rate scenarios was less pronounced. Generally, however, the increase in net interest income in the rising rate scenarios is due to the degree to which loan repayments that are projected to reprice upward is greater than the projected increase in deposit rates in the next 12 months. In the declining rate scenarios, loan repayments are repriced at rates that do not offset the higher cost of liabilities that are not expected to reprice in the next 12 months.

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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. 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, 2023September 30, 2022
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
 -200 bp$1,244,834 $292,679 30.74 %$1,299,340 $404,353 45.18 %
 -100 bp1,091,181 139,026 14.60 1,024,167 129,180 14.43 
  000 bp952,155 — — 894,987 — — 
+100 bp810,744 (141,411)(14.85)759,165 (135,822)(15.18)
+200 bp669,838 (282,317)(29.65)625,864 (269,123)(30.07)
+300 bp533,599 (418,556)(43.96)500,730 (394,257)(44.05)

(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, 2023 compared to September 30, 2022 was negative in all rising interest rate scenarios. The negative impact to the Bank's MVPE, as a percentage change, was slightly lower at June 30, 2023 compared to September 30, 2022 due primarily to higher MVPE at June 30, 2023. The higher MVPE was due, in part, to the increase in the balance of certificates of deposit and borrowings between periods, which resulted in less of an increase in the market value of those portfolios compared to September 30, 2022, coupled with an increase in the balance of the loan portfolio. As a result of long-term rates being relatively unchanged at each period end, the impact of interest rates on the market value of the loan portfolio was fairly muted; therefore, the impacts of the other factors resulted in an increase to our MVPE in the base case and led to lower sensitivity to changes in rates.

As interest rates increase, borrowers have less economic incentive to prepay or to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising interest rate scenarios, prepayments 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 longer expected average lives of these assets increases the sensitivity of their market value to changes in interest rates.

In the increasing rate scenarios, the sensitivity reflects the negative impacts of rates on the value of the Bank's loan and securities portfolio more so than on the deposit and borrowing portfolio. In the decreasing interest rate scenarios, the Bank's MVPE increased due to a larger increase in the market value of the Bank's assets than the Bank's liabilities. This is because the Bank's mortgage-related assets continue to have a longer duration in these interest rate scenarios which results in greater sensitivity in market value as interest rates change.
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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, 2023. 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.
AmountYield/RateWAL% of Category% of Total
(Dollars in thousands)
Securities$1,444,867 1.33 %4.2 14.7 %
Loans receivable:
Fixed-rate one- to four-family5,666,144 3.26 6.9 71.1 %57.4 
Fixed-rate commercial422,245 4.42 3.3 5.3 4.3 
All other fixed-rate loans81,175 4.14 7.5 1.0 0.8 
Total fixed-rate loans6,169,564 3.35 6.7 77.4 62.5 
Adjustable-rate one- to four-family907,929 3.58 4.0 11.4 9.2 
Adjustable-rate commercial801,814 5.69 7.7 10.0 8.1 
All other adjustable-rate loans95,433 8.08 3.0 1.2 1.0 
Total adjustable-rate loans1,805,176 4.76 5.6 22.6 18.3 
Total loans receivable7,974,740 3.67 6.4 100.0 %80.8 
FHLB stock116,012 8.97 2.3 1.2 
Cash and cash equivalents329,409 4.82 — 3.3 
Total interest-earning assets$9,865,028 3.43 5.8 100.0 %
Non-maturity deposits$2,885,126 1.05 6.6 52.2 %33.9 %
Retail certificates of deposit2,423,665 3.00 1.5 43.9 28.5 
Commercial certificates of deposit43,840 3.25 1.1 0.8 0.5 
Public unit certificates of deposit172,445 4.26 0.7 3.1 2.0 
Total interest-bearing deposits5,525,076 2.02 4.1 100.0 %64.9 
Term borrowings2,990,246 3.30 2.0 35.1 
Total interest-bearing liabilities$8,515,322 2.47 3.4 100.0 %

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, 2023. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2023, 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.

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, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings
In the normal course of business, the Company and the Bank are involved as plaintiff or defendant in various legal actions. 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.

On November 2, 2022, the Bank was served a putative class action lawsuit, captioned Jennifer Harding, et al. vs. Capitol Federal Savings Bank (Case No. 2022-CV-00598), filed in the Third Judicial District Court, Shawnee County, Kansas against the Bank, alleging the Bank improperly charged overdraft fees on (1) debit card transactions that were authorized for payment on sufficient funds but later settled against a negative account balance (commonly known as "authorize positive purportedly settle negative" or "APPSN" transactions) and (2) merchant re-presentments of previously rejected payment requests. The complaint asserts a breach of contract claim (including breach of an implied covenant of good faith and fair dealing) for each practice and seeks restitution for alleged improper fees, alleged actual damages, costs and disbursements, and injunction relief. On April 5, 2023, the court granted the Bank's motion to dismiss the complaint, with prejudice. The plaintiff has appealed this decision.

Item 1A. Risk Factors
There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022; however, in light of recent developments with a third-party service provider, the Company is supplementing its risk factors in this Form 10-Q.

One of the Bank's third-party service providers reported experiencing a security breach that resulted in our customers' data being compromised.
During June 2023, a third-party service provider (the "Service Provider") to the Bank confirmed to the Bank that files with personally identifiable information related to Bank customers had been compromised during a security incident experienced by the Service Provider (the "Incident"). The Bank uses the Service Provider to process transactions. The Incident resulted from a zero-day vulnerability in a managed file sharing software called MOVEit. MOVEit is used by thousands of organizations around the world for securely transferring sensitive and confidential information and other data. The vulnerability was exploited in a large-scale, cyber campaign that impacted government agencies, universities, and corporations around the world.

As a result of the Incident, an unauthorized party was able to obtain access to certain Bank customers' data in the Service Provider's possession that contained social security numbers, account numbers, and other personally identifiable information. The Bank confirmed the Service Provider has fixed the vulnerability noted above and the Bank has implemented additional security procedures when sharing files with the Service Provider. When the Bank received notice of the Incident from the Service Provider, the Bank promptly enacted response protocols. The Service Provider has provided appropriate notifications to potentially affected customers. The Bank is working with the Service Provider to identify any others potentially impacted by the Incident. The Bank is not aware of any other third-party incidents related to the MOVEit vulnerability that has affected personally identifiable information associated with Bank customers.

We may incur certain expenses related to the Incident and the Bank remains subject to risks and uncertainties as a result of the Incident, including adverse effects on our business and reputation, litigation risk and additional regulatory scrutiny. We currently believe the Incident will not have a material adverse effect on the Company or the Bank's operations or financial results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See "Liquidity and Capital Resources - Limitations on Dividends and Other Capital Distributions" 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.

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The following table summarizes our stock repurchase activity during the three months ended June 30, 2023 and additional information regarding our stock repurchase program. As of June 30, 2023, the Company had $22.5 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 2023. 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, 2023 through
April 30, 2023— $— — $22,469,207 
May 1, 2023 through
May 31, 2023— — — 22,469,207 
June 1, 2023 through
June 30, 2023— — — 22,469,207 
Total— — — 22,469,207 

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 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 23, 2022 as Exhibit 10.6 to the Registrant's September 30, 2022 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
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101
The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023, filed with the Securities and Exchange Commission on August 9, 2023, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at June 30, 2023 and September 30, 2022, (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2023 and 2022, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2023 and 2022, (iv) Consolidated Statements of Stockholders' Equity for the three and nine months ended June 30, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the nine months ended June 30, 2023 and 2022, 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, 2023
By:/s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: August 9, 2023By:/s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

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