CFFN 10-Q Quarterly Report March 31, 2021 | Alphaminr
Capitol Federal Financial, Inc.
ALPHAMINR

CFFN 10-Q Quarter ended March 31, 2021

Balance Sheet
Cash Flow
Income Statement
Debt
CAPITOL FEDERAL FINANCIAL, INC.
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PROXIES
DEF 14A
Filed on Jan. 28, 2025
DEF 14A
Filed on Dec. 19, 2024
DEF 14A
Filed on Jan. 23, 2024
DEF 14A
Filed on Dec. 14, 2023
DEF 14A
Filed on Jan. 24, 2023
DEF 14A
Filed on Dec. 14, 2022
DEF 14A
Filed on Dec. 14, 2021
DEF 14A
Filed on Dec. 15, 2020
DEF 14A
Filed on Dec. 18, 2019
DEF 14A
Filed on Dec. 12, 2018
DEF 14A
Filed on Dec. 13, 2017
DEF 14A
Filed on Dec. 14, 2016
DEF 14A
Filed on Dec. 14, 2015
DEF 14A
Filed on Dec. 15, 2014
DEF 14A
Filed on Dec. 17, 2013
DEF 14A
Filed on Dec. 19, 2012
DEF 14A
Filed on Dec. 22, 2011
DEF 14A
Filed on Jan. 26, 2011
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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 March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number: 001-34814
Capitol Federal Financial, Inc.
( Exact name of registrant as specified in its charter)
Maryland 27-2631712
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
700 South Kansas Avenue, Topeka, Kansas 66603
(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 class Trading Symbol(s) Name of each exchange on which registered
Common Stock,
par value $0.01 per share 		CFFN The 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 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 May 3, 2021, there were 138,809,796 shares of Capitol Federal Financial, Inc. common stock outstanding.


PART I - FINANCIAL INFORMATION Page 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)
March 31, September 30,
2021 2020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $ 121,430 and $ 172,430 )
$ 139,472 $ 185,148
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $ 2,090,720 and $ 1,529,605 )
2,095,924 1,560,950
Loans receivable, net (allowance for credit losses ("ACL") of $ 23,397 and $ 31,527 )
6,973,536 7,202,851
Federal Home Loan Bank Topeka ("FHLB") stock, at cost 74,464 93,862
Premises and equipment, net 99,088 101,875
Other assets 315,535 342,532
TOTAL ASSETS $ 9,698,019 $ 9,487,218
LIABILITIES:
Deposits $ 6,650,865 $ 6,191,408
Borrowings 1,581,955 1,789,313
Advance payments by borrowers for taxes and insurance 61,624 65,721
Income taxes payable, net 67 795
Deferred income tax liabilities, net 6,530 8,180
Other liabilities 118,383 146,942
Total liabilities 8,419,424 8,202,359
STOCKHOLDERS' EQUITY:
Preferred stock, $ .01 par value; 100,000,000 shares authorized, no shares issued or outstanding
— —
Common stock, $ .01 par value; 1,400,000,000 shares authorized, 138,809,796 and 138,956,296 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively
1,388 1,389
Additional paid-in capital 1,188,926 1,189,853
Unearned compensation, Employee Stock Ownership Plan ("ESOP") ( 32,214 ) ( 33,040 )
Retained earnings 139,448 143,162
Accumulated other comprehensive (loss) income ("AOCI"), net of tax ( 18,953 ) ( 16,505 )
Total stockholders' equity 1,278,595 1,284,859
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,698,019 $ 9,487,218
See accompanying notes to consolidated financial statements.

3

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended For the Six Months Ended
March 31, March 31,
2021 2020 2021 2020
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 57,285 $ 69,613 $ 117,979 $ 139,527
Mortgage-backed securities ("MBS") 5,429 5,866 11,139 11,968
FHLB stock 951 1,714 2,020 3,540
Investment securities 629 1,382 1,312 2,889
Cash and cash equivalents 40 380 91 1,067
Total interest and dividend income 64,334 78,955 132,541 158,991
INTEREST EXPENSE:
Deposits 12,529 17,804 26,596 35,766
Borrowings 8,732 12,483 19,059 25,860
Total interest expense 21,261 30,287 45,655 61,626
NET INTEREST INCOME 43,073 48,668 86,886 97,365
PROVISION FOR CREDIT LOSSES ( 2,964 ) 22,075 ( 4,496 ) 22,300
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 46,037 26,593 91,382 75,065
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares 7,386 — 7,386 —
Deposit service fees 2,814 2,783 5,761 5,845
Insurance commissions 888 400 1,526 1,091
Other non-interest income 1,389 1,488 2,874 3,239
Total non-interest income 12,477 4,671 17,547 10,175
NON-INTEREST EXPENSE:
Salaries and employee benefits 13,397 13,235 27,535 26,706
Information technology and related expense 4,599 4,268 8,832 8,409
Occupancy, net 3,523 3,449 6,902 6,656
Loss on interest rate swap termination 4,752 — 4,752 —
Regulatory and outside services 1,234 1,297 2,819 2,640
Advertising and promotional 1,484 1,359 2,322 2,769
Deposit and loan transaction costs 664 678 1,430 1,389
Federal insurance premium 634 — 1,255 —
Office supplies and related expense 463 592 887 1,111
Other non-interest expense 1,903 1,286 2,986 2,984
Total non-interest expense 32,653 26,164 59,720 52,664
INCOME BEFORE INCOME TAX EXPENSE 25,861 5,100 49,209 32,576
INCOME TAX EXPENSE 5,417 824 9,867 5,789
NET INCOME $ 20,444 $ 4,276 $ 39,342 $ 26,787
Basic earnings per share ("EPS") $ 0.15 $ 0.03 $ 0.29 $ 0.19
Diluted EPS $ 0.15 $ 0.03 $ 0.29 $ 0.19
Basic weighted average common shares 135,450,878 137,968,327 135,423,992 137,932,976
Diluted weighted average common shares 135,498,170 138,000,334 135,447,701 137,988,649
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 Ended For the Six Months Ended
March 31, March 31,
2021 2020 2021 2020
Net income $ 20,444 $ 4,276 $ 39,342 $ 26,787
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $ 6,756 , $( 3,332 ), $ 6,347 , and $( 3,187 )
( 20,934 ) 10,378 ( 19,794 ) 9,926
Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $( 4,309 ), $ 7,200 , $( 5,529 ), and $ 5,459
13,352 ( 22,429 ) 17,346 ( 17,005 )
Comprehensive income $ 12,862 $ ( 7,775 ) $ 36,894 $ 19,708
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 Six Months Ended March 31, 2021
Additional Unearned Total
Common Paid-In Compensation Retained Stockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2020 $ 1,389 $ 1,189,853 $ ( 33,040 ) $ 143,162 $ ( 16,505 ) $ 1,284,859
Net income 18,898 18,898
Other comprehensive income, net of tax 5,134 5,134
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13, net of tax ( 2,288 ) ( 2,288 )
ESOP activity 80 413 493
Restricted stock activity, net ( 8 ) ( 8 )
Stock-based compensation 118 118
Repurchase of common stock ( 1 ) ( 1,407 ) ( 122 ) ( 1,530 )
Cash dividends to stockholders ($ 0.215 per share)
( 29,128 ) ( 29,128 )
Balance at December 31, 2020 1,388 1,188,636 ( 32,627 ) 130,522 ( 11,371 ) 1,276,548
Net income 20,444 20,444
Other comprehensive loss, net of tax ( 7,582 ) ( 7,582 )
ESOP activity 132 413 545
Stock-based compensation 134 134
Stock options exercised 24 24
Cash dividends to stockholders ($ 0.085 per share)
( 11,518 ) ( 11,518 )
Balance at March 31, 2021 $ 1,388 $ 1,188,926 $ ( 32,214 ) $ 139,448 $ ( 18,953 ) $ 1,278,595
(Continued)
6

For the Six Months Ended March 31, 2020
Additional Unearned Total
Common Paid-In Compensation Retained Stockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2019 $ 1,414 $ 1,210,226 $ ( 34,692 ) $ 174,277 $ ( 14,899 ) $ 1,336,326
Cumulative effect of adopting ASU 2016-02, net of tax 88 88
Net income 22,511 22,511
Other comprehensive income, net of tax 4,972 4,972
ESOP activity 169 413 582
Restricted stock activity, net ( 1 ) ( 1 )
Stock-based compensation 166 166
Stock options exercised 1 612 613
Cash dividends to stockholders ($ 0.425 per share)
( 58,663 ) ( 58,663 )
Balance at December 31, 2019 1,415 1,211,172 ( 34,279 ) 138,213 ( 9,927 ) 1,306,594
Net income 4,276 4,276
Other comprehensive loss, net of tax ( 12,051 ) ( 12,051 )
ESOP activity 117 413 530
Stock-based compensation 152 152
Stock options exercised 25 25
Cash dividends to stockholders ($ 0.085 per share)
( 11,733 ) ( 11,733 )
Balance at March 31, 2020 $ 1,415 $ 1,211,466 $ ( 33,866 ) $ 130,756 $ ( 21,978 ) $ 1,287,793
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 Six Months Ended
March 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,342 $ 26,787
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends ( 2,020 ) ( 3,540 )
Provision for credit losses ( 4,496 ) 22,300
Originations of loans receivable held-for-sale ("LHFS") ( 597 ) —
Proceeds from sales of LHFS 610 —
Amortization and accretion of premiums and discounts on securities 2,607 556
Depreciation and amortization of premises and equipment 4,591 4,564
Amortization of intangible assets 843 997
Amortization of deferred amounts related to FHLB advances, net 687 95
Common stock committed to be released for allocation - ESOP 1,038 1,112
Stock-based compensation 252 318
Gain on the sale of Visa Class B shares ( 7,386 ) —
Changes in:
Other assets, net 6,731 3,649
Income taxes payable/receivable, net ( 741 ) ( 4,249 )
Deferred income tax liabilities, net ( 94 ) ( 1,800 )
Other liabilities ( 9,313 ) ( 12,413 )
Net cash provided by operating activities 32,054 38,376
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities ( 828,584 ) ( 288,319 )
Proceeds from calls, maturities and principal reductions of AFS securities 264,862 269,702
Proceeds from the redemption of FHLB stock 21,418 421
Net change in loans receivable 236,915 ( 82,595 )
Purchase of premises and equipment ( 4,972 ) ( 6,497 )
Proceeds from sale of other real estate owned ("OREO") 97 987
Proceeds from the sale of Visa Class B shares 7,386 —
Proceeds from bank-owned life insurance ("BOLI") death benefit 443 490
Net cash used in investing activities ( 302,435 ) ( 105,811 )
(Continued)
8

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Six Months Ended
March 31,
2021 2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid ( 40,646 ) ( 70,396 )
Net change in deposits 459,457 192,752
Proceeds from borrowings 470,000 1,186,600
Repayments on borrowings ( 673,000 ) ( 1,306,600 )
Change in advance payments by borrowers for taxes and insurance ( 4,097 ) ( 10,380 )
Payment of FHLB prepayment penalties ( 5,045 ) ( 4,215 )
Repurchase of common stock ( 4,568 ) —
Stock options exercised 24 638
Net cash provided by (used in) financing activities 202,125 ( 11,601 )
NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS ( 68,256 ) ( 79,036 )
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period 239,708 253,700
End of period $ 171,452 $ 174,664
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Operating lease right-of-use assets obtained $ — $ 15,658
Operating lease liabilities obtained $ — $ 15,543
See accompanying notes to consolidated financial statements. (Concluded)
9

Notes to Consolidated Financial Statements (Unaudited)

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

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $ 139.5 million and $ 185.1 million at March 31, 2021 and September 30, 2020, respectively, and restricted cash and cash equivalents of $ 32.0 million and $ 54.6 million at March 31, 2021 and September 30, 2020, respectively, which was included in other assets on the consolidated balance sheet.  The restricted cash and cash equivalents relate to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.  See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds.

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

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

Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At March 31, 2021 and September 30, 2020, the portfolio did not contain any securities classified as HTM.

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

Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported at fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income. Neither the Company nor the Bank maintained a trading securities portfolio during the six months ended March 31, 2021 or during fiscal year 2020.

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

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

Changes in the ACL on AFS debt securities are recorded as an increase or decrease in the provision for credit losses on the consolidated statements of income. Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met. Interest accrued on AFS debt securities but not received is also reversed against interest income. As of October 1, 2020 and March 31, 2021, the Company did not identify any credit losses related to the Company's AFS debt securities so there was no ACL on AFS debt securities as of those dates.

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

The Company elected the practical expedient to exclude accrued interest receivable from the amortized cost of financing receivables and AFS debt securities. Accrued interest totaled $ 19.8 million and $ 3.1 million at March 31, 2021 for loans receivable and AFS securities, respectively, and was included in other assets on the consolidated balance sheet. Additionally, an election was made not to measure ACL for accrued interest receivables.

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

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

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

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

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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 Ended For the Six Months Ended
March 31, March 31,
2021 2020 2021 2020
(Dollars in thousands, except per share amounts)
Net income $ 20,444 $ 4,276 $ 39,342 $ 26,787
Income allocated to participating securities ( 14 ) ( 3 ) ( 27 ) ( 22 )
Net income available to common stockholders $ 20,430 $ 4,273 $ 39,315 $ 26,765
Average common shares outstanding 135,409,120 137,926,574 135,403,116 137,911,988
Average committed ESOP shares outstanding 41,758 41,753 20,876 20,988
Total basic average common shares outstanding 135,450,878 137,968,327 135,423,992 137,932,976
Effect of dilutive stock options 47,292 32,007 23,709 55,673
Total diluted average common shares outstanding 135,498,170 138,000,334 135,447,701 137,988,649
Net EPS:
Basic $ 0.15 $ 0.03 $ 0.29 $ 0.19
Diluted $ 0.15 $ 0.03 $ 0.29 $ 0.19
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation 125,930 382,894 268,622 387,979

15

3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by GSEs.
March 31, 2021
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
MBS $ 1,540,307 $ 23,094 $ 13,500 $ 1,549,901
GSE debentures 544,966 53 4,486 540,533
Municipal bonds 5,447 43 — 5,490
$ 2,090,720 $ 23,190 $ 17,986 $ 2,095,924

September 30, 2020
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
MBS $ 1,149,922 $ 31,212 $ 331 $ 1,180,803
GSE debentures 369,967 414 41 370,340
Municipal bonds 9,716 91 — 9,807
$ 1,529,605 $ 31,717 $ 372 $ 1,560,950

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
March 31, 2021
Less Than 12 Months Equal to or Greater Than 12 Months
Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses
(Dollars in thousands)
MBS $ 918,238 $ 13,427 $ 8,076 $ 73
GSE debentures 465,480 4,486 — —
Municipal bonds — — — —
$ 1,383,718 $ 17,913 $ 8,076 $ 73

September 30, 2020
Less Than 12 Months Equal to or Greater Than 12 Months
Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses
(Dollars in thousands)
MBS $ 207,071 $ 330 $ 118 $ 1
GSE debentures 74,959 41 — —
Municipal bonds — — — —
$ 282,030 $ 371 $ 118 $ 1

16

The unrealized losses at March 31, 2021 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record ACL on securities in an unrealized loss position at March 31, 2021 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of March 31, 2021, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories.
Amortized Estimated
Cost Fair Value
(Dollars in thousands)
One year or less $ 4,193 $ 4,226
One year through five years 546,220 541,797
550,413 546,023
MBS 1,540,307 1,549,901
$ 2,090,720 $ 2,095,924

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 Six Months Ended
March 31, March 31,
2021 2020 2021 2020
(Dollars in thousands)
Taxable $ 597 $ 1,322 $ 1,242 $ 2,759
Non-taxable 32 60 70 130
$ 629 $ 1,382 $ 1,312 $ 2,889


The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
March 31, 2021 September 30, 2020
(Dollars in thousands)
Public unit deposits $ 311,457 $ 330,986
Federal Reserve Bank of Kansas City ("FRB of Kansas City") 75,771 259,851
Retail deposits 66,135 —
$ 453,363 $ 590,837

During the current year, the Company sold its Visa Class B shares. The proceeds and realized gain related to the sale of the Visa Class B shares were each $ 7.4 million. All other dispositions of securities during the six months ended March 31, 2021 and March 31, 2020 were the result of principal repayments, calls, or maturities.


17

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
March 31, 2021 September 30, 2020
(Dollars in thousands)
One- to four-family:
Originated $ 3,967,008 $ 3,937,310
Correspondent purchased 1,915,027 2,101,082
Bulk purchased 188,733 208,427
Construction 28,582 34,593
Total 6,099,350 6,281,412
Commercial:
Commercial real estate 664,533 626,588
Commercial and industrial 77,210 97,614
Construction 53,271 105,458
Total 795,014 829,660
Consumer:
Home equity 90,052 103,838
Other 8,743 10,086
Total 98,795 113,924
Total loans receivable 6,993,159 7,224,996
Less:
ACL 23,397 31,527
Discounts/unearned loan fees 30,295 29,190
Premiums/deferred costs ( 34,069 ) ( 38,572 )
$ 6,973,536 $ 7,202,851

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

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

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

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

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

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

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

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

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

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

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

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

19

The following table sets forth, as of March 31, 2021, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At March 31, 2021, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. In the table below, certain loans are presented in the "Current Fiscal Year" column and are reported as special mention or substandard. These loans were generally first originated in prior years but were renewed or modified in the current year.

March 31, 2021
Current Fiscal Fiscal Fiscal Fiscal Revolving
Fiscal Year Year Year Year Prior Line of
Year 2020 2019 2018 2017 Years Credit Total
(Dollars in thousands)
One- to four-family:
Originated
Pass $ 546,777 $ 765,513 $ 378,070 $ 288,036 $ 324,016 $ 1,652,657 $ — $ 3,955,069
Special Mention 241 671 247 348 640 8,129 — 10,276
Substandard — 991 901 52 260 12,752 — 14,956
Correspondent purchased
Pass 219,320 383,770 103,658 174,282 212,244 834,709 — 1,927,983
Special Mention — — 359 — — 3,564 — 3,923
Substandard — — — — — 5,864 — 5,864
Bulk purchased
Pass — — — — — 183,816 — 183,816
Special Mention — — — — — 95 — 95
Substandard — — — — — 5,619 — 5,619
766,338 1,150,945 483,235 462,718 537,160 2,707,205 — 6,107,601
Commercial:
Commercial real estate
Pass 171,301 151,602 103,851 93,911 43,492 41,108 5,670 610,935
Special Mention 50,000 — — — — 50,640 — 100,640
Substandard 1,288 674 227 688 28 — — 2,905
Commercial and industrial
Pass 31,810 18,361 8,487 3,475 1,948 785 9,593 74,459
Special Mention — — — — — — — —
Substandard — — — 91 51 — 1,450 1,592
254,399 170,637 112,565 98,165 45,519 92,533 16,713 790,531
Consumer:
Home equity
Pass 917 3,113 2,118 1,886 697 3,214 77,132 89,077
Special Mention — — 38 13 — 8 189 248
Substandard — 60 — — — 16 671 747
Other
Pass 1,843 2,880 1,654 1,244 622 233 235 8,711
Special Mention — — 2 — — — — 2
Substandard — — 9 3 4 — — 16
2,760 6,053 3,821 3,146 1,323 3,471 78,227 98,801
Total $ 1,023,497 $ 1,327,635 $ 599,621 $ 564,029 $ 584,002 $ 2,803,209 $ 94,940 $ 6,996,933

20

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at September 30, 2020 (prior to the adoption of CECL). At that date, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
September 30, 2020
Special Mention Substandard
(Dollars in thousands)
One- to four-family:
Originated $ 9,249 $ 15,729
Correspondent purchased 2,076 4,512
Bulk purchased — 5,319
Commercial:
Commercial real estate 50,957 3,541
Commercial and industrial 1,040 1,368
Consumer:
Home equity 331 581
Other — 8
$ 63,653 $ 31,058

21

Delinquency Status - The following table sets forth, as of March 31, 2021, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision. All revolving lines of credit are presented separately, regardless of origination year.
March 31, 2021
Current Fiscal Fiscal Fiscal Fiscal Revolving
Fiscal Year Year Year Year Prior Line of
Year 2020 2019 2018 2017 Years Credit Total
(Dollars in thousands)
One- to four-family:
Originated
Current $ 547,018 $ 767,175 $ 379,030 $ 288,247 $ 324,464 $ 1,665,823 $ — $ 3,971,757
30-89 — — — 137 192 3,798 — 4,127
90+/FC — — 188 52 260 3,917 — 4,417
Correspondent purchased
Current 219,320 383,770 103,847 173,572 211,843 838,669 — 1,931,021
30-89 — — 170 710 401 1,671 — 2,952
90+/FC — — — — — 3,797 — 3,797
Bulk purchased
Current — — — — — 185,979 — 185,979
30-89 — — — — — 356 — 356
90+/FC — — — — — 3,195 — 3,195
766,338 1,150,945 483,235 462,718 537,160 2,707,205 — 6,107,601
Commercial:
Commercial real estate
Current 222,234 151,603 103,851 94,336 43,520 91,562 5,670 712,776
30-89 355 — — 233 — 186 — 774
90+/FC — 673 227 30 — — — 930
Commercial and industrial
Current 31,810 18,361 8,487 3,475 1,948 785 11,010 75,876
30-89 — — — — — — 33 33
90+/FC — — — 91 51 — — 142
254,399 170,637 112,565 98,165 45,519 92,533 16,713 790,531
Consumer:
Home equity
Current 917 3,113 2,156 1,899 697 3,197 77,326 89,305
30-89 — — — — — 36 217 253
90+/FC — 60 — — — 5 449 514
Other
Current 1,843 2,876 1,651 1,244 616 215 234 8,679
30-89 — 4 5 — 6 18 1 34
90+/FC — — 9 3 4 — — 16
2,760 6,053 3,821 3,146 1,323 3,471 78,227 98,801
Total $ 1,023,497 $ 1,327,635 $ 599,621 $ 564,029 $ 584,002 $ 2,803,209 $ 94,940 $ 6,996,933
22

Delinquent and Nonaccrual Loans - The following tables present the amortized cost at March 31, 2021 and, prior to the adoption of CECL, the recorded investment, which is identical to amortized cost, at September 30, 2020, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total. At March 31, 2021 and September 30, 2020, all loans 90 or more days delinquent were on nonaccrual status.
March 31, 2021
90 or More Days Total Total
30 to 89 Days Delinquent or Delinquent Current Amortized
Delinquent in Foreclosure Loans Loans Cost
(Dollars in thousands)
One- to four-family:
Originated $ 4,127 $ 4,417 $ 8,544 $ 3,971,757 $ 3,980,301
Correspondent purchased 2,952 3,797 6,749 1,931,021 1,937,770
Bulk purchased 356 3,195 3,551 185,979 189,530
Commercial:
Commercial real estate 774 930 1,704 712,776 714,480
Commercial and industrial 33 142 175 75,876 76,051
Consumer:
Home equity 253 514 767 89,305 90,072
Other 34 16 50 8,679 8,729
$ 8,529 $ 13,011 $ 21,540 $ 6,975,393 $ 6,996,933
September 30, 2020
90 or More Days Total Total
30 to 89 Days Delinquent or Delinquent Current Recorded
Delinquent in Foreclosure Loans Loans Investment
(Dollars in thousands)
One- to four-family:
Originated $ 3,001 $ 4,347 $ 7,348 $ 3,950,387 $ 3,957,735
Correspondent purchased 3,170 2,433 5,603 2,122,085 2,127,688
Bulk purchased 2,558 2,938 5,496 203,844 209,340
Commercial:
Commercial real estate 40 1,206 1,246 728,191 729,437
Commercial and industrial 5 157 162 96,124 96,286
Consumer:
Home equity 323 296 619 103,210 103,829
Other 75 8 83 9,980 10,063
$ 9,172 $ 11,385 $ 20,557 $ 7,213,821 $ 7,234,378

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2021 and September 30, 2020 was $ 910 thousand and $ 1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 105 thousand at March 31, 2021 and $ 183 thousand at September 30, 2020.
23


The following table presents the amortized cost at March 31, 2021 and, prior to the adoption of CECL, the recorded investment at September 30, 2020, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented as of March 31, 2021, all of which were individually evaluated for loss and any identified losses have been charged off.
March 31, 2021 September 30, 2020
Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans
(Dollars in thousands)
One- to four-family:
Originated $ 6,062 $ 3,040 $ 5,037
Correspondent purchased 3,796 307 2,433
Bulk purchased 3,195 1,086 2,938
Commercial:
Commercial real estate 1,566 534 1,663
Commercial and industrial 142 91 157
Consumer:
Home equity 514 84 305
Other 16 — 8
$ 15,291 $ 5,142 $ 12,541



24

Troubled Debt Restructurings - The following tables present the amortized cost for the current period and, prior to the adoption of CECL, the recorded investment for the prior period, prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
For the Three Months Ended For the Six Months Ended
March 31, 2021 March 31, 2021
Number Pre- Post- Number Pre- Post-
of Restructured Restructured of Restructured Restructured
Contracts Outstanding Outstanding Contracts Outstanding Outstanding
(Dollars in thousands)
One- to four-family:
Originated 2 $ 871 $ 762 6 $ 1,518 $ 1,407
Correspondent purchased — — — — — —
Bulk purchased — — — — — —
Commercial:
Commercial real estate — — — — — —
Commercial and industrial — — — — — —
Consumer:
Home equity — — — — — —
Other — — — — — —
2 $ 871 $ 762 6 $ 1,518 $ 1,407

For the Three Months Ended For the Six Months Ended
March 31, 2020 March 31, 2020
Number Pre- Post- Number Pre- Post-
of Restructured Restructured of Restructured Restructured
Contracts Outstanding Outstanding Contracts Outstanding Outstanding
(Dollars in thousands)
One- to four-family:
Originated 3 $ 138 $ 140 5 $ 241 $ 242
Correspondent purchased 1 192 191 1 192 191
Bulk purchased — — — 1 75 134
Commercial:
Commercial real estate 1 837 837 1 837 837
Commercial and industrial — — — — — —
Consumer:
Home equity 2 45 44 2 45 44
Other — — — — — —
7 $ 1,212 $ 1,212 10 $ 1,390 $ 1,448

25

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
For the Three Months Ended For the Six Months Ended
March 31, 2021 March 31, 2020 March 31, 2021 March 31, 2020
Number of Amortized Number of Recorded Number of Amortized Number of Recorded
Contracts Cost Contracts Investment Contracts Cost Contracts Investment
(Dollars in thousands)
One- to four-family:
Originated — $ — — $ — — $ — 1 $ 38
Correspondent purchased — — — — — — — —
Bulk purchased — — — — — — 1 134
Commercial:
Commercial real estate — — — — — — — —
Commercial and industrial — — — — — — — —
Consumer:
Home equity — — 1 9 — — 1 9
Other — — — — — — — —
— $ — 1 $ 9 — $ — 3 $ 181



26

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

For the Three Months Ended For the Six Months Ended
September 30, 2020 March 31, 2020 March 31, 2020
Unpaid Average Interest Average Interest
Recorded Principal Related Recorded Income Recorded Income
Investment Balance ACL Investment Recognized Investment Recognized
With no related allowance recorded
One- to four-family:
Originated $ 12,385 $ 12,813 $ — $ 14,441 $ 161 $ 14,526 $ 322
Correspondent purchased 1,955 2,058 — 1,854 19 1,814 37
Bulk purchased 3,843 4,302 — 4,965 50 4,965 102
Commercial:
Commercial real estate 1,052 1,379 — 547 4 312 4
Commercial and industrial 99 244 — — — 19 —
Consumer:
Home equity 280 360 — 332 5 335 11
Other — 45 — — — — —
19,614 21,201 — 22,139 239 21,971 476
With an allowance recorded
One- to four-family:
Originated — — — — — — —
Correspondent purchased — — — — — — —
Bulk purchased — — — — — — —
Commercial:
Commercial real estate 660 660 83 — — — —
Commercial and industrial 1,269 1,268 240 2,244 42 1,282 54
Consumer:
Home equity — — — — — — —
Other — — — — — — —
1,929 1,928 323 2,244 42 1,282 54
Total
One- to four-family:
Originated 12,385 12,813 — 14,441 161 14,526 322
Correspondent purchased 1,955 2,058 — 1,854 19 1,814 37
Bulk purchased 3,843 4,302 — 4,965 50 4,965 102
Commercial:
Commercial real estate 1,712 2,039 83 547 4 312 4
Commercial and industrial 1,368 1,512 240 2,244 42 1,301 54
Consumer:
Home equity 280 360 — 332 5 335 11
Other — 45 — — — — —
$ 21,543 $ 23,129 $ 323 $ 24,383 $ 281 $ 23,253 $ 530

27

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented. Activity during the three and six months ended March 31, 2020 occurred prior to the adoption of CECL.
For the Three Months Ended March 31, 2021
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 1,538 $ 1,758 $ 852 $ 4,148 $ 21,707 $ 270 $ 26,125
Charge-offs ( 110 ) — ( 21 ) ( 131 ) — ( 7 ) ( 138 )
Recoveries 57 — — 57 8 3 68
Provision for credit losses 51 ( 53 ) ( 84 ) ( 86 ) ( 2,558 ) ( 14 ) ( 2,658 )
Ending balance $ 1,536 $ 1,705 $ 747 $ 3,988 $ 19,157 $ 252 $ 23,397

For the Six Months Ended March 31, 2021
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 6,085 $ 2,691 $ 467 $ 9,243 $ 21,800 $ 484 $ 31,527
Adoption of CECL ( 4,452 ) ( 367 ) 436 ( 4,383 ) ( 193 ) ( 185 ) ( 4,761 )
Balance at October 1, 2020 1,633 2,324 903 4,860 21,607 299 26,766
Charge-offs ( 124 ) — ( 21 ) ( 145 ) ( 515 ) ( 10 ) ( 670 )
Recoveries 91 — — 91 20 25 136
Provision for credit losses ( 64 ) ( 619 ) ( 135 ) ( 818 ) ( 1,955 ) ( 62 ) ( 2,835 )
Ending balance $ 1,536 $ 1,705 $ 747 $ 3,988 $ 19,157 $ 252 $ 23,397

For the Three Months Ended March 31, 2020
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 2,047 $ 1,200 $ 612 $ 3,859 $ 5,418 $ 158 $ 9,435
Charge-offs ( 46 ) — — ( 46 ) ( 325 ) ( 4 ) ( 375 )
Recoveries 3 — — 3 54 4 61
Provision for credit losses 4,463 2,155 ( 55 ) 6,563 15,181 331 22,075
Ending balance $ 6,467 $ 3,355 $ 557 $ 10,379 $ 20,328 $ 489 $ 31,196
28

For the Six Months Ended March 31, 2020
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 2,000 $ 1,203 $ 687 $ 3,890 $ 5,171 $ 165 $ 9,226
Charge-offs ( 64 ) — — ( 64 ) ( 349 ) ( 10 ) ( 423 )
Recoveries 3 — — 3 81 9 93
Provision for credit losses 4,528 2,152 ( 130 ) 6,550 15,425 325 22,300
Ending balance $ 6,467 $ 3,355 $ 557 $ 10,379 $ 20,328 $ 489 $ 31,196


The following is a summary of the loan portfolio and related ACL balances by loan portfolio segment disaggregated by the Company's impairment method as of September 30, 2020 (prior to the adoption of CECL).
September 30, 2020
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Recorded investment in loans:
Collectively evaluated for impairment $ 3,945,350 $ 2,125,733 $ 205,497 $ 6,276,580 $ 822,643 $ 113,612 $ 7,212,835
Individually evaluated for impairment 12,385 1,955 3,843 18,183 3,080 280 21,543
$ 3,957,735 $ 2,127,688 $ 209,340 $ 6,294,763 $ 825,723 $ 113,892 $ 7,234,378
ACL for loans:
Collectively evaluated for impairment $ 6,085 $ 2,691 $ 467 $ 9,243 $ 21,477 $ 484 $ 31,204
Individually evaluated for impairment — — — — 323 — 323
$ 6,085 $ 2,691 $ 467 $ 9,243 $ 21,800 $ 484 $ 31,527
29

The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at March 31, 2021. The key assumptions utilized in estimating the Company's ACL at March 31, 2021 are discussed below.
• Economic Forecast - Management considered several economic forecasts provided by a third party and selected the economic forecast believed to be the most appropriate considering the facts and circumstances at March 31, 2021. The forecasted economic indices applied to the model at March 31, 2021 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at March 31, 2021 was the national unemployment rate. The forecast national unemployment rate in the economic scenario selected by management at March 31, 2021 had the national unemployment rate peaking at 6.4 % at September 30, 2021 and then a gradual decline to 5.3 % at March 31, 2022 which was the end of our four quarter forecast time period.
• Forecast and reversion to mean time period - The forecasted time period for all of the economic indices was four quarters at March 31, 2021. The reversion to mean time period was eight quarters for the national unemployment rate and four quarters for all other economic indices at March 31, 2021.
• Prepayment and curtailment assumptions - The assumptions used at March 31, 2021 were generally based on actual prepayment and curtailment speeds for each respective loan pool in the model.
• Qualitative factors - The qualitative considerations by management at March 31, 2021 included the COVID-19 loan modification programs considering the payment performance of the loans that had exited their deferral periods, the balance and trending of large-dollar special mention commercial loans, and the economic uncertainties related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in certain industries, and (3) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted. Management determined a qualitative amount was not necessary at March 31, 2021 for the loans in the COVID-19 loan modification program due to the significant decrease in the dollar amount of the loans in the program and the fact that the majority of the loans that have exited the program are current on their payments. See discussion below regarding the qualitative amount at March 31, 2021 for special mention commercial loans and the economic uncertainty.

The decrease in ACL during the current quarter was primarily a result of a negative provision for credit losses of $ 2.7 million. The negative provision for credit losses was due primarily to a reduction in commercial loan ACL as a result of improvements in the economic forecast used in the model, partially offset by an increase in qualitative factors, primarily the economic uncertainty qualitative factor, along with a change in the mix of the loan portfolio during the current quarter. The balance of the one- to four-family loan portfolio decreased during the quarter, partially offset by an increase in commercial loans. The reduction in ACL related to the decrease in the balance of the one- to four-family loan portfolio during the current quarter was more than offset by the increase in ACL related to an increase in the balance of the commercial loan portfolio.

Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the periods indicated.
For the Three Months Ended March 31, 2021 For the Six Months Ended March 31, 2021
(Dollars in thousands)
Beginning balance 6,433 Beginning balance $ —
Provision for credit losses ( 306 ) Adoption of CECL 7,788
Ending balance $ 6,127 Balance at October 1, 2020 7,788
Provision for credit losses ( 1,661 )
Ending balance $ 6,127

At March 31, 2021, the Company also applied a qualitative factor for economic uncertainty related to the calculation of the reserve for off-balance sheet credit exposures; however, the impact of this qualitative factor was smaller compared to the economic uncertainty factor applied in the calculation of ACL due to consideration of the fact that the majority of off-balance sheet credit exposures are related to credits that have been underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The $ 306 thousand reduction in the reserve during the current quarter, which was recognized as a negative provision for credit losses, was due to an improvement in the economic forecast, along with a change in the mix of off-balance sheet credit exposures. The balance of off-balance sheet credit exposures increased during the current quarter due to an increase in one- to four-family off-balance sheet credit exposures, partially offset by a decrease in commercial off-balance sheet credit exposures. Even though the aggregate amount of off-balance sheet credit exposures increased during the current quarter, the related reserve decreased because one- to four-family off-balance sheet credit exposures have a significantly lower reserve rate than commercial off-balance sheet credit exposures due to differences in credit risk.
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5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At March 31, 2021 and September 30, 2020, the Bank had entered into interest rate swap agreements with a total notional amount of $ 440.0 million and $ 640.0 million, respectively, in order to hedge the variable cash flows associated with $ 440.0 million and $ 640.0 million, respectively, of adjustable-rate FHLB advances. At March 31, 2021 and September 30, 2020, the interest rate swap agreements had an average remaining term to maturity of 3.9 years and 3.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At March 31, 2021 and September 30, 2020, the interest rate swaps were in a loss position with a total fair value of $ 30.3 million and $ 53.1 million, respectively, which was reported in other liabilities on the consolidated balance sheet. During the three and six months ended March 31, 2021, $ 6.4 million and $ 9.4 million, respectively, was reclassified from AOCI. Of this amount, for the three months ended March 31, 2021, $ 2.8 million was recognized as an increase to interest expense and $ 3.6 million, net of tax, was reclassified as a result of the termination of the related interest rate swaps, as discussed below, and reported in the loss on interest rate swap termination line item within the consolidated statements of operations. During the three and six months ended March 31, 2020, $ 983 thousand and $ 1.7 million, respectively, was reclassified from AOCI as an increase to interest expense. At March 31, 2021, the Company estimated that $ 10.0 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank posted cash collateral of $ 32.0 million at March 31, 2021 and $ 54.6 million at September 30, 2020.

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

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $ 200.0 million with a weighted average contractual interest rate of 2.23 % and a weighted average remaining term of 1.3 years, and replaced these advances with fixed-rate FHLB advances totaling $ 200.0 million with a weighted average contractual interest rate of 0.69 % and a weighted average term of 5.5 years. The Bank paid penalties of $ 5.0 million to FHLB as a result of prepaying these FHLB advances. The weighted average effective interest rate of the new advances is 1.16 %. The prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.

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

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

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

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

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

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the six months ended March 31, 2021 or during fiscal year 2020. The Company's major security types, based on the nature and risks of the securities, are:

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

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from the counterparty during the six months ended March 31, 2021 or during fiscal year 2020. (Level 2)

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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 no t have any Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2021 or September 30, 2020.
March 31, 2021
Quoted Prices Significant Significant
in Active Markets Other Observable Unobservable
Carrying for Identical Assets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS $ 1,549,901 $ — $ 1,549,901 $ —
GSE debentures 540,533 — 540,533 —
Municipal bonds 5,490 — 5,490 —
$ 2,095,924 $ — $ 2,095,924 $ —
Liabilities:
Interest rate swaps $ 30,274 $ — $ 30,274 $ —

September 30, 2020
Quoted Prices Significant Significant
in Active Markets Other Observable Unobservable
Carrying for Identical Assets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS $ 1,180,803 $ — $ 1,180,803 $ —
GSE debentures 370,340 — 370,340 —
Municipal bonds 9,807 — 9,807 —
$ 1,560,950 $ — $ 1,560,950 $ —
Liabilities:
Interest rate swaps $ 53,149 $ — $ 53,149 $ —

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

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

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the six months ended March 31, 2021 and 2020 that were still held in the portfolio as of March 31, 2021 and 2020 was $ 7.4 million and $ 4.9 million, respectively.

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

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the six months ended March 31, 2021 and March 31, 2020 were downward adjustments to the book value of the collateral for lack of marketability. During the six months ended March 31, 2021, the adjustments ranged from 7 % to 50 %, with a weighted average of 23 %. During the six months ended March 31, 2020, the adjustments ranged from 10 % to 50 %, with a weighted average of 20 %. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

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

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10 %. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the six months ended March 31, 2021 and 2020 that was still held in the portfolio as of March 31, 2021 and 2020 was $ 105 thousand and $ 183 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at March 31, 2021 and 2020.

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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:
March 31, 2021
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents $ 139,472 $ 139,472 $ 139,472 $ — $ —
AFS securities 2,095,924 2,095,924 — 2,095,924 —
Loans receivable 6,973,536 7,426,188 — — 7,426,188
FHLB stock 74,464 74,464 74,464 — —
Liabilities:
Deposits 6,650,865 6,718,958 3,671,841 3,047,117 —
Borrowings 1,581,955 1,618,090 — 1,618,090 —
Interest rate swaps 30,274 30,274 — 30,274 —
September 30, 2020
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents $ 185,148 $ 185,148 $ 185,148 $ — $ —
AFS securities 1,560,950 1,560,950 — 1,560,950 —
Loans receivable 7,202,851 7,663,000 — — 7,663,000
FHLB stock 93,862 93,862 93,862 — —
Liabilities:
Deposits 6,191,408 6,259,080 3,170,164 3,088,916 —
Borrowings 1,789,313 1,840,605 — 1,840,605 —
Interest rate swaps 53,149 53,149 — 53,149 —

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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 March 31, 2021
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ 24,868 $ ( 36,239 ) $ ( 11,371 )
Other comprehensive income (loss), before reclassifications ( 20,934 ) 6,931 ( 14,003 )
Amount reclassified from AOCI, net of taxes of $( 2,072 )
— 6,421 6,421
Other comprehensive income (loss) ( 20,934 ) 13,352 ( 7,582 )
Ending balance $ 3,934 $ ( 22,887 ) $ ( 18,953 )

For the Six Months Ended March 31, 2021
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ 23,728 $ ( 40,233 ) $ ( 16,505 )
Other comprehensive income (loss), before reclassifications ( 19,794 ) 7,955 ( 11,839 )
Amount reclassified from AOCI, net of taxes of $( 3,031 )
— 9,391 9,391
Other comprehensive income (loss) ( 19,794 ) 17,346 ( 2,448 )
Ending balance $ 3,934 $ ( 22,887 ) $ ( 18,953 )

For the Three Months Ended March 31, 2020
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ 9,698 $ ( 19,625 ) $ ( 9,927 )
Other comprehensive income (loss), before reclassifications 10,378 ( 23,412 ) ( 13,034 )
Amount reclassified from AOCI, net of taxes of $( 315 )
— 983 983
Other comprehensive income (loss) 10,378 ( 22,429 ) ( 12,051 )
Ending balance $ 20,076 $ ( 42,054 ) $ ( 21,978 )

For the Six Months Ended March 31, 2020
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ 10,150 $ ( 25,049 ) $ ( 14,899 )
Other comprehensive income (loss), before reclassifications 9,926 ( 18,697 ) ( 8,771 )
Amount reclassified from AOCI, net of taxes of $( 543 )
— 1,692 1,692
Other comprehensive income (loss) 9,926 ( 17,005 ) ( 7,079 )
Ending balance $ 20,076 $ ( 42,054 ) $ ( 21,978 )

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the Company's press releases, and in other communications by the Company, which are made in good faith pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:

• our ability to maintain overhead costs at reasonable levels;
• our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;
• our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;
• our ability to access cost-effective funding;
• the expected synergies and other benefits from our acquisition activities;
• our ability to extend our commercial banking and trust asset management expertise;
• fluctuations in deposit flows;
• the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;
• the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;
• changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
• potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;
• increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
• results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;
• changes in accounting principles, policies, or guidelines;
• the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB");
• the effects of, and changes in, trade and fiscal policies and laws of the United States government;
• the effects of, and changes in, foreign and military policies of the United States government;
• inflation, interest rate, market, monetary, and currency fluctuations;
• the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;
• the willingness of users to substitute competitors' products and services for our products and services;
• our success in gaining regulatory approval of our products and services and branching locations, when required;
• the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;
• implementing business initiatives may be more difficult or expensive than anticipated;
• significant litigation;
• technological changes;
• our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyber-attacks;
• acquisitions and dispositions;
• changes in consumer spending, borrowing and saving habits; and
• our success at managing the risks involved in our business.

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This list of important factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

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

The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC.

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

Impact on Market Interest Rates as a Result of the COVID-19 Pandemic and the Company's Response

The FRB, in response to economic risk resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most of the broader market interest rates decreased significantly in response to evolving news about the COVID-19 pandemic. Many areas of consumer spending have rebounded in recent months, but some segments, such as travel and entertainment, are lagging. We continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty about the longer lasting impact on local business, as well as the travel and entertainment industries, resulting from the COVID-19 pandemic. This could cause a longer recovery time for some sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

Since the onset of the COVID-19 pandemic, the Bank has lowered its rates offered on all deposit products except retail checking and savings accounts. The impact of reducing rates offered on our certificate of deposit products has been to lower the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. Additionally, certain borrowings were repaid or restructured over the past year using funds obtained through deposit growth, which reduced interest expense on borrowings. Over this time, we lowered rates for our loan products. In late February 2021, as market interest rates began to increase, we began to increase our offered loan rates in our market areas. Despite this recent increase, the yield on the loan portfolio will likely continue to decrease in the near term due to the high levels of prepayments, refinances and endorsements, but not at the same magnitude as the past year. With significant cash inflows realized due to investment securities being called and prepayments on loans and MBS over the past year and the current yields on reinvested funds into new securities being lower than existing portfolio yields, the yield on our investments has been reduced significantly.

Summary of Results of Operation and Financial Condition

During the six month period ended March 31, 2021, the Bank completed three unique transactions that impacted operating results.
• Sold all its Visa Class B shares and recognized a gain of $7.4 million.
• Terminated $200.0 million of fixed-pay interest rate swaps with an average cost at termination of 2.62% and realized a loss of $4.8 million. The estimated earn-back period of the loss is approximately 15 months.
• Wrote down the value of a branch, which management intends to sell, by $1.2 million.

The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings. Our net interest margin could continue to decrease if our interest-earning assets
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continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Total assets at March 31, 2021 were $9.70 billion, an increase of $210.8 million, or 2.2% from September 30, 2020, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings. Total securities increased $535.0 million, or 34.3%, from $1.56 billion at September 30, 2020 to $2.10 billion at March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities.

Total loans at March 31, 2021 were $6.97 billion, a decrease of $229.3 million from September 30, 2020. The decrease was primarily in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases. During the current year six month period, the Bank originated and refinanced $649.4 million of one- to four-family and consumer loans with a weighted average rate of 2.71% and purchased $269.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.70%. The Bank also originated $157.3 million of commercial loans with a weighted average rate of 3.24% and entered into commercial loan participations of $98.1 million at a weighted average rate of 3.85%. The commercial loan portfolio totaled $795.0 million at March 31, 2021 and was composed of 83% commercial real estate loans, 10% commercial and industrial loans, and 7% commercial construction loans. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $258.2 million, was $976.0 million at March 31, 2021. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $23.1 million, was $100.3 million at March 31, 2021, of which $25.3 million related to PPP loans.

Total deposits were $6.65 billion at March 31, 2021, an increase of $459.5 million, or 7.4%, from September 30, 2020. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period.

Total borrowings were $1.58 billion at March 31, 2021, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.28 billion at both March 31, 2021 and September 30, 2020. During the current year six month period, the Company paid cash dividends totaling $40.6 million and repurchased common stock totaling $1.5 million, partially offset by net income of $39.3 million. The cash dividends paid during the current year six month period totaled $0.30 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%.

Transition from London Interbank Offered Rates ("LIBOR")
LIBOR is used extensively in the United States as a reference rate for various financial contracts, including adjustable-rate loans, asset-backed securities, and interest rate swaps. In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates. The availability of three-month, six-month and one-year LIBOR rates is currently expected to cease in June 2023.

As of March 31, 2021, the Company has identified $375.6 million of adjustable-rate one- to four-family loans in its portfolio for which the repricing index was tied to six-month or one-year LIBOR and the loan maturity date is after June 30, 2023. Our one- to four-family loan agreements generally allow the Bank to choose a new alternative reference rate based upon comparable information if the current index is no longer available. During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR. The Bank began using the one-year Constant Maturity Treasury ("CMT") index for newly originated and correspondent purchased one- to four-family adjustable-rate loans, and currently plans to replace LIBOR with the one-year CMT index for existing loans when LIBOR is no longer available. At March 31, 2021, none of the Bank's consumer or commercial loans use a repricing index tied to LIBOR.

The Bank has interest rate swaps with a notional amount of $440.0 million at March 31, 2021 that are tied to three-month LIBOR. The related FHLB advances for which the adjustable-rate cash flows are being hedged by these interest rate swaps are also tied to the three-month LIBOR. All of the advances tied to the interest rate swaps mature during calendar year 2021. The Bank intends to replace the advances at maturity with advances tied to the Secured Overnight Finance Rate ("SOFR"). Additionally, the Bank intends to work with the interest rate swap counterparties to replace LIBOR with SOFR at the same time.

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

Critical Accounting Policies

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

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

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

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

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

40

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

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

The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at March 31, 2021 and September 30, 2020.
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Financial Condition
The following table presents selected balance sheet information as of the dates indicated.
March 31, December 31, September 30, June 30, March 31,
2021 2020 2020 2020 2020
(Dollars in thousands)
Total assets $ 9,698,019 $ 9,606,964 $ 9,487,218 $ 9,558,814 $ 9,371,193
Cash and cash equivalents 139,472 168,032 185,148 396,219 118,374
AFS securities 2,095,924 1,913,866 1,560,950 1,220,054 1,236,037
Loans receivable, net 6,973,536 7,004,094 7,202,851 7,388,090 7,476,805
FHLB stock, at cost 74,464 84,693 93,862 102,782 101,575
Deposits 6,650,865 6,410,842 6,191,408 6,069,684 5,774,619
Borrowings 1,581,955 1,734,275 1,789,313 1,989,089 2,115,869
Stockholders' equity 1,278,595 1,276,548 1,284,859 1,300,520 1,287,793
Equity to total assets at end of period 13.2 % 13.3 % 13.5 % 13.6 % 13.7 %

Total assets were $9.70 billion at March 31, 2021, an increase of $91.1 million, or 0.9%, from December 31, 2020, due to an increase in securities, partially offset by a decrease in loans receivable and cash and cash equivalents. Excess operating cash and cash flows from the loan portfolio and funds from deposit growth were generally used to purchase securities during the current quarter. Total loans were $6.97 billion at March 31, 2021, a decrease of $30.6 million, or 0.4%, from December 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases during the current quarter. During the current quarter, the Bank originated and refinanced $319.8 million of one- to four-family and consumer loans with a weighted average rate of 2.66% and purchased $163.3 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.61%. The Bank also originated $119.2 million of commercial loans with a weighted average rate of 3.07% and entered into commercial loan participations of $38.1 million at a weighted rate of 3.62%. The Bank endorsed $285.2 million of loans during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million of loans during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points.

Total deposits were $6.65 billion at March 31, 2021, an increase of $240.0 million, or 3.7%, from December 31, 2020. The increase was primarily in non-maturity deposits, including a $113.8 million increase in money market accounts and a $110.0 million increase in checking accounts. Between mid-March 2021 and March 31, 2021, the Bank processed approximately $113 million of Economic Impact Payments, the majority of which were retained by the Bank as of March 31, 2021. Retail/business certificates of deposit decreased $47.6 million from December 31, 2020. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

Total borrowings decreased $152.3 million, or 8.8%, from December 31, 2020 to March 31, 2021. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.28 billion at both March 31, 2021 and December 31, 2020. During the current quarter, net income totaled $20.4 million, offset by the payment of cash dividends totaling $11.5 million and a decrease in AOCI of $7.6 million.
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Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.
March 31, 2021 December 31, 2020 September 30, 2020
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
One- to four-family:
Originated $ 3,967,008 3.29 % $ 3,946,073 3.39 % $ 3,937,310 3.50 %
Correspondent purchased 1,915,027 3.27 1,974,086 3.40 2,101,082 3.49
Bulk purchased 188,733 2.09 199,673 2.24 208,427 2.41
Construction 28,582 3.11 32,871 3.22 34,593 3.30
Total 6,099,350 3.24 6,152,703 3.36 6,281,412 3.46
Commercial:
Commercial real estate 664,533 4.04 609,936 4.23 626,588 4.29
Commercial and industrial 77,210 3.08 69,378 3.41 97,614 2.79
Construction 53,271 4.25 84,564 3.89 105,458 4.04
Total 795,014 3.96 763,878 4.12 829,660 4.08
Consumer loans:
Home equity 90,052 4.64 97,717 4.64 103,838 4.66
Other 8,743 4.36 9,328 4.40 10,086 4.40
Total 98,795 4.61 107,045 4.62 113,924 4.64
Total loans receivable 6,993,159 3.34 7,023,626 3.46 7,224,996 3.55
Less:
ACL 23,397 26,125 31,527
Discounts/unearned loan fees 30,295 28,825 29,190
Premiums/deferred costs (34,069) (35,418) (38,572)
Total loans receivable, net $ 6,973,536 $ 7,004,094 $ 7,202,851


43

Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current year-to-date period, the Bank endorsed $527.5 million of one- to four-family loans, reducing the average rate on those loans by 91 basis points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points). Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.
For the Three Months Ended
March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020
Amount Rate Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Beginning balance $ 7,023,626 3.46 % $ 7,224,996 3.55 % $ 7,407,442 3.64 % $ 7,493,280 3.74 %
Originated and refinanced:
Fixed 326,570 2.54 318,690 2.75 265,424 2.98 277,904 2.83
Adjustable 112,483 3.43 48,946 3.60 44,625 3.68 60,626 3.75
Purchased and participations:
Fixed 192,262 2.82 100,518 2.86 61,435 3.07 131,739 3.28
Adjustable 9,150 2.42 65,315 3.89 4,396 2.76 62,510 3.76
Change in undisbursed loan funds (63,925) (70,323) 13,898 (32,202)
Repayments (606,937) (664,052) (572,536) (586,434)
Principal (charge-offs)/recoveries, net (70) (464) 312 19
Ending balance $ 6,993,159 3.34 $ 7,023,626 3.46 $ 7,224,996 3.55 $ 7,407,442 3.64

For the Six Months Ended
March 31, 2021 March 31, 2020
Amount Rate Amount Rate
(Dollars in thousands)
Beginning balance $ 7,224,996 3.55 % $ 7,412,473 3.81 %
Originated and refinanced:
Fixed 645,260 2.64 406,584 3.48
Adjustable 161,429 3.48 111,072 4.20
Purchased and participations:
Fixed 292,780 2.83 248,730 3.61
Adjustable 74,465 3.71 32,786 3.00
Change in undisbursed loan funds (134,248) 14,306
Repayments (1,270,989) (732,005)
Principal charge-offs, net (534) (330)
Other — (336)
Ending balance $ 6,993,159 3.34 $ 7,493,280 3.74


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The following tables present loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together.
For the Three Months Ended
March 31, 2021 March 31, 2020
Amount Rate % of Total Amount Rate % of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family: (1)
<= 15 years $ 148,473 2.24 % 23.2 % $ 68,559 2.95 % 18.4 %
> 15 years 271,959 2.79 42.5 198,373 3.54 53.1
One- to four-family construction 25,819 2.66 4.0 13,971 3.44 3.7
Commercial:
Commercial real estate 6,133 3.55 1.0 3,872 4.71 1.0
Commercial and industrial 28,138 1.80 4.4 9,992 3.82 2.7
Commercial construction 37,495 3.62 5.8 1,522 5.40 0.4
Home equity 472 5.28 0.1 1,124 5.85 0.3
Other 343 6.10 — 1,090 5.51 0.3
Total fixed-rate 518,832 2.65 81.0 298,503 3.45 79.9
Adjustable-rate:
One- to four-family: (2)
<= 36 months 860 2.25 0.1 1,571 2.86 0.4
> 36 months 19,710 2.45 3.1 35,099 2.98 9.4
One- to four-family construction 2,748 2.50 0.4 4,007 3.00 1.1
Commercial:
Commercial real estate 54,397 3.60 8.5 17,347 4.53 4.7
Commercial and industrial 3,907 3.50 0.6 1,950 5.00 0.5
Commercial construction 27,283 3.14 4.3 508 5.50 0.1
Home equity 12,230 4.42 1.9 13,686 5.16 3.7
Other 498 3.51 0.1 763 3.96 0.2
Total adjustable-rate 121,633 3.36 19.0 74,931 3.82 20.1
Total originated, refinanced and purchased $ 640,465 2.78 100.0 % $ 373,434 3.52 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family $ 154,148 2.62 $ 125,612 3.46
Participations - commercial 38,114 3.62 — —
Total fixed-rate purchased/participations 192,262 2.82 125,612 3.46
Adjustable-rate:
Correspondent - one- to four-family 9,150 2.42 18,985 2.96
Participations - commercial — — — —
Total adjustable-rate purchased/participations 9,150 2.42 18,985 2.96
Total purchased/participation loans $ 201,412 2.80 $ 144,597 3.40
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For the Six Months Ended
March 31, 2021 March 31, 2020
Amount Rate % of Total Amount Rate % of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family: (1)
<= 15 years $ 282,463 2.30 % 24.1 % $ 153,063 2.96 % 19.1 %
> 15 years 502,134 2.85 42.8 408,843 3.56 51.2
One- to four-family construction 59,840 2.72 5.1 25,102 3.42 3.1
Commercial:
Commercial real estate 16,260 3.58 1.4 13,272 5.00 1.7
Commercial and industrial 33,582 2.08 2.8 14,039 3.90 1.8
Commercial construction 41,538 3.65 3.5 36,253 4.72 4.5
Home equity 945 5.36 0.1 2,487 5.88 0.3
Other 1,278 5.49 0.1 2,255 5.55 0.3
Total fixed-rate 938,040 2.70 79.9 655,314 3.53 82.0
Adjustable-rate:
One- to four-family: (2)
<= 36 months 1,112 2.28 0.1 3,669 2.86 0.5
> 36 months 38,442 2.53 3.3 66,308 3.02 8.3
One- to four-family construction 5,457 2.60 0.5 9,997 3.03 1.2
Commercial:
Commercial real estate 71,375 3.67 6.1 26,522 4.65 3.3
Commercial and industrial 5,045 3.62 0.4 4,475 5.08 0.6
Commercial construction 87,620 3.73 7.4 1,487 5.53 0.2
Home equity 26,020 4.41 2.2 29,969 5.47 3.7
Other 823 3.19 0.1 1,431 4.04 0.2
Total adjustable-rate 235,894 3.55 20.1 143,858 3.93 18.0
Total originated, refinanced and purchased $ 1,173,934 2.87 100.0 % $ 799,172 3.60 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family $ 254,666 2.72 $ 220,304 3.48
Participations - commercial 38,114 3.62 28,426 4.65
Total fixed-rate purchased/participations 292,780 2.83 248,730 3.61
Adjustable-rate:
Correspondent - one- to four-family 14,465 2.51 32,786 3.00
Participations - commercial 60,000 4.00 — —
Total adjustable-rate purchased/participations 74,465 3.71 32,786 3.00
Total purchased/participation loans $ 367,245 3.01 $ 281,516 3.54
(1) The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.
(2) The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.

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One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least annually, with the latest update in March 2021, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
March 31, 2021 September 30, 2020
% of Credit Average % of Credit Average
Amount Total Score LTV Balance Amount Total Score LTV Balance
(Dollars in thousands)
Originated $ 3,967,008 65.4 % 772 61 % $ 148 $ 3,937,310 63.0 % 771 62 % $ 145
Correspondent purchased 1,915,027 31.5 765 63 386 2,101,082 33.6 765 64 379
Bulk purchased 188,733 3.1 772 59 297 208,427 3.4 767 60 300
$ 6,070,768 100.0 % 770 62 188 $ 6,246,819 100.0 % 768 63 187

T he following ta bles present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year six-month period, $209.3 million were refinanced from other lenders.
For the Three Months Ended
March 31, 2021 March 31, 2020
Credit Credit
Amount LTV Score Amount LTV Score
(Dollars in thousands)
Originated $ 184,166 69 % 770 $ 133,513 75 % 764
Refinanced by Bank customers 122,105 66 769 43,470 68 758
Correspondent purchased 163,298 69 774 144,597 71 766
$ 469,569 69 771 $ 321,580 73 764
For the Six Months Ended
March 31, 2021 March 31, 2020
Credit Credit
Amount LTV Score Amount LTV Score
(Dollars in thousands)
Originated $ 405,362 70 % 769 $ 305,900 75 % 766
Refinanced by Bank customers 214,955 65 769 107,992 68 760
Correspondent purchased 269,131 69 775 253,090 71 767
$ 889,448 69 771 $ 666,982 72 765


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The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period.
For the Three Months Ended For the Six Months Ended
March 31, 2021 March 31, 2021
State Amount % of Total Rate Amount % of Total Rate
(Dollars in thousands)
Kansas $ 264,895 56.4 % 2.58 % $ 529,575 59.5 % 2.64 %
Missouri 79,316 16.9 2.62 157,466 17.7 2.65
Texas 26,302 5.6 2.59 50,604 5.7 2.72
Tennessee 32,066 6.8 2.64 48,929 5.5 2.73
Pennsylvania 33,989 7.3 2.55 44,461 5.0 2.59
Other states 33,001 7.0 2.61 58,413 6.6 2.72
$ 469,569 100.0 % 2.59 $ 889,448 100.0 % 2.65

As of March 31, 2021, there were $7.8 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There were $208.9 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2021, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.
Fixed-Rate
15 years More than Adjustable- Total
or less 15 years Rate Amount Rate
(Dollars in thousands)
Originate/refinance $ 27,948 $ 80,156 $ 8,107 $ 116,211 2.76 %
Correspondent 38,456 134,881 4,189 177,526 2.48
$ 66,404 $ 215,037 $ 12,296 $ 293,737 2.59
Rate 2.16 % 2.73 % 2.47 %


Commercial Loans - During the current year six month period, the Bank originated $157.3 million of commercial loans, including $19.5 million of PPP loans, and entered into commercial loan participations totaling $98.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $152.3 million at a weighted average rate of 3.42%. Additionally, during the current year, $39.0 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.

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The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of March 31, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.
Unpaid Undisbursed Gross Loan Outstanding % of
Count Principal Amount Amount Commitments Total Total
(Dollars in thousands)
Senior housing 33 $ 215,364 $ 50,255 $ 265,619 $ — $ 265,619 27.2 %
Retail building 133 133,738 44,808 178,546 18,868 197,414 20.2
Hotel 9 133,818 44,705 178,523 — 178,523 18.3
Office building 98 55,029 61,874 116,903 — 116,903 12.0
One- to four-family property 367 58,613 5,170 63,783 250 64,033 6.6
Multi-family 39 48,184 14,524 62,708 272 62,980 6.4
Single use building 20 42,612 4,644 47,256 7,000 54,256 5.6
Other 97 30,446 3,193 33,639 2,597 36,236 3.7
796 $ 717,804 $ 229,173 $ 946,977 $ 28,987 $ 975,964 100.0 %
Weighted average rate 4.05 % 3.88 % 4.01 % 3.63 % 4.00 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of March 31, 2021.
Unpaid Undisbursed Gross Loan Outstanding % of
Count Principal Amount Amount Commitments Total Total
(Dollars in thousands)
Kansas 628 $ 325,789 $ 19,017 $ 344,806 $ 9,487 $ 354,293 36.3 %
Texas 10 124,498 116,576 241,074 — 241,074 24.7
Missouri 132 180,446 36,701 217,147 18,000 235,147 24.1
Colorado 6 13,451 22,755 36,206 — 36,206 3.7
Arkansas 3 7,461 26,395 33,856 — 33,856 3.5
Nebraska 6 33,655 4 33,659 — 33,659 3.4
Other 11 32,504 7,725 40,229 1,500 41,729 4.3
796 $ 717,804 $ 229,173 $ 946,977 $ 28,987 $ 975,964 100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of March 31, 2021. Included in the working capital loan category are $25.3 million of PPP loans.
Unpaid Undisbursed Gross Loan Outstanding % of
Count Principal Amount Amount Commitments Total Total
(Dollars in thousands)
Working capital 636 $ 36,046 $ 16,809 $ 52,855 $ 1,115 $ 53,970 53.8 %
Equipment 118 13,815 245 14,060 1,882 15,942 15.9
Purchase/lease autos 228 15,113 57 15,170 55 15,225 15.2
Business investment 59 7,701 223 7,924 — 7,924 7.9
Other 22 4,535 2,713 7,248 — 7,248 7.2
1,063 $ 77,210 $ 20,047 $ 97,257 $ 3,052 $ 100,309 100.0 %

49

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 March 31, 2021.
Count Amount
(Dollars in thousands)
Greater than $30 million 3 $ 150,000
>$15 to $30 million 14 331,514
>$10 to $15 million 5 57,267
>$5 to $10 million 15 93,842
$1 to $5 million 109 240,461
Less than $1 million 1,713 203,189
1,859 $ 1,076,273

The Bank's commercial lending team continues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As of March 31, 2021, there were commercial loans with a gross balance, including undisbursed amounts, totaling $134.0 million with COVID-19 loan modifications that were still in their deferral period. There were $270.7 million of commercial loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

50


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

Delinquent and non-performing loans and OREO - Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2021, $2.3 million were 30 to 89 days delinquent and $1.8 million were 90 or more days delinquent as of March 31, 2021. Of the commercial COVID-19 loan modifications that had completed the deferral period by March 31, 2021, one loan for $150 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of March 31, 2021.

The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Of the loans 30 to 89 days delinquent at March 31, 2021, approximately 74% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
March 31, December 31, September 30, June 30, March 31,
2021 2020 2020 2020 2020
Number Amount Number Amount Number Amount Number Amount Number Amount
(Dollars in thousands)
One- to four-family:
Originated 45 $ 4,151 62 $ 5,844 42 $ 3,012 57 $ 5,085 92 $ 8,360
Correspondent purchased 9 2,910 13 4,694 8 3,123 10 2,919 13 4,531
Bulk purchased 5 352 9 1,750 12 2,532 19 4,536 12 2,914
Commercial 5 806 8 1,047 2 45 9 1,543 7 1,555
Consumer 17 287 30 515 26 398 21 431 43 628
81 $ 8,506 122 $ 13,850 90 $ 9,110 116 $ 14,514 167 $ 17,988
Loans 30 to 89 days delinquent
to total loans receivable, net 0.12 % 0.20 % 0.13 % 0.20 % 0.24 %

The following table presents the Company's non-performing loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At March 31, 2021, there were approximately $8.8 million of non-performing one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or may have been initiated if the foreclosure suspension had not been in place.
51

Non-Performing Loans and OREO at:
March 31, December 31, September 30, June 30, March 31,
2021 2020 2020 2020 2020
Number Amount Number Amount Number Amount Number Amount Number Amount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated 55 $ 4,433 51 $ 4,370 51 $ 4,362 47 $ 4,026 53 $ 4,517
Correspondent purchased 10 3,749 9 3,371 6 2,397 7 2,740 4 1,342
Bulk purchased 10 3,172 13 3,724 12 2,903 3 1,291 1 630
Commercial 6 1,068 5 820 5 1,360 4 709 4 716
Consumer 26 531 26 473 14 304 23 278 17 326
107 12,953 104 12,758 88 11,326 84 9,044 79 7,531
Loans 90 or more days delinquent or in foreclosure
as a percentage of total loans 0.19 % 0.18 % 0.16 % 0.12 % 0.10 %
Nonaccrual loans less than 90 Days Delinquent: (1)
One- to four-family:
Originated 9 $ 1,646 9 $ 968 9 $ 691 14 $ 1,132 13 $ 811
Correspondent purchased — — — — — — — — 1 189
Bulk purchased — — — — — — — — 1 134
Commercial 4 642 3 411 3 464 1 6 2 129
Consumer — — 1 9 1 9 1 33 2 43
13 2,288 13 1,388 13 1,164 16 1,171 19 1,306
Total non-performing loans 120 15,241 117 14,146 101 12,490 100 10,215 98 8,837
Non-performing loans as a percentage of total loans 0.22 % 0.20 % 0.17 % 0.14 % 0.12 %
OREO:
One- to four-family:
Originated (2)
2 $ 105 3 $ 129 4 $ 183 4 $ 183 5 $ 187
Total non-performing assets 122 $ 15,346 120 $ 14,275 105 $ 12,673 104 $ 10,398 103 $ 9,024
Non-performing assets as a percentage of total assets 0.16 % 0.15 % 0.13 % 0.11 % 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.
52

The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at March 31, 2021. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At March 31, 2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans 30 to 89 Loans 90 or More Days Delinquent
One- to Four-Family Days Delinquent or in Foreclosure
State Amount % of Total Amount % of Total Amount % of Total LTV
(Dollars in thousands)
Kansas $ 3,535,877 58.2 % $ 3,544 47.8 % $ 4,801 42.3 % 60 %
Missouri 1,047,079 17.3 1,136 15.3 943 8.3 45
Texas 599,169 9.9 1,853 25.0 1,440 12.7 53
Other states 888,643 14.6 880 11.9 4,170 36.7 55
$ 6,070,768 100.0 % $ 7,413 100.0 % $ 11,354 100.0 % 56

Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial special mention loans at March 31, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.7 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification.
March 31, 2021 September 30, 2020 March 31, 2020
Special Mention Substandard Special Mention Substandard Special Mention Substandard
(Dollars in thousands)
One- to four-family $ 14,299 $ 26,562 $ 11,339 $ 25,630 $ 13,678 $ 26,077
Commercial 100,655 4,497 52,006 4,914 52,515 4,538
Consumer 250 764 332 589 479 659
$ 115,204 $ 31,823 $ 63,677 $ 31,133 $ 66,672 $ 31,274

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

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

The economic forecast scenario selected by management improved at March 31, 2021 compared to December 31, 2020 which resulted in a reduction in the ACL and reserve for off-balance sheet credit exposures calculated by the model. Management applied qualitative factors to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention
53

commercial loans. These qualitative factors partially offset the reduction in the ACL related to the improvement in the economic forecast. The economic uncertainties related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in certain industries, and (3) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate.

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended March 31, 2021.
ACL Reserve for off-balance sheet credit exposures ACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at December 31, 2020 $ 26,125 $ 6,433 $ 32,558
Charge-offs (138) — (138)
Recoveries 68 — 68
Net charge-offs (70) — (70)
Provision for credit losses (2,658) (306) (2,964)
Balance at March 31, 2021 $ 23,397 $ 6,127 $ 29,524

The negative provision for credit losses was due primarily to a reduction in commercial loan ACL and reserves for off-balance sheet credit exposures as a result of improvements in the economic forecast used in the model, partially offset by an increase in qualitative factors, primarily the economic uncertainty qualitative factor, as discussed above. The gross balance of off-balance sheet credit exposures was $907.2 million as of March 31, 2021 and $688.0 million as of October 1, 2020.

54

The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
For the Three Months Ended
March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020
(Dollars in thousands)
ACL beginning balance $ 26,125 $ 31,527 $ 31,215 $ 31,196 $ 9,435
Adoption of CECL — (4,761) — — —
Charge-offs (138) (532) (15) (5) (375)
Recoveries 68 68 327 24 61
Provision for credit losses (2,658) (177) — — 22,075
ACL ending balance $ 23,397 $ 26,125 $ 31,527 $ 31,215 $ 31,196
ACL to loans receivable at end of period 0.33 % 0.37 % 0.44 % 0.42 % 0.42 %
ACL to non-performing loans at end of period 153.51 184.68 252.42 305.58 353.02
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding — 0.01 — — —
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets 0.47 3.44 (2.70) (0.20) 3.78
ACL to net charge-offs (annualized) 83.8x 14.1x
N/M (1)
N/M (1)
24.9x
For the Six Months Ended
March 31, 2021 March 31, 2020
(Dollars in thousands)
ACL beginning balance $ 31,527 $ 9,226
Adoption of CECL (4,761) —
Charge-offs (670) (423)
Recoveries 136 93
Provision for credit losses (2,835) 22,300
ACL ending balance $ 23,397 $ 31,196
Ratio of net charge-offs during the period to
average loans outstanding 0.01 % — %
Ratio of net charge-offs during the period to
average non-performing assets 3.81 3.68
ACL to net charge-offs (annualized) 21.9x 47.3x

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

55

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13.
At
March 31, December 31, October 1, September 30, June 30, March 31,
2021 2020 2020 2020 2020 2020
(Dollars in thousands)
One- to four-family:
Originated $ 1,517 $ 1,516 $ 1,609 $ 6,044 $ 6,298 $ 6,420
Correspondent purchased 1,705 1,758 2,324 2,691 3,189 3,355
Bulk purchased 747 852 903 467 506 557
Construction 19 22 25 41 48 47
Total 3,988 4,148 4,861 9,243 10,041 10,379
Commercial:
Commercial real estate 17,016 17,813 16,595 16,869 16,353 14,672
Commercial and industrial 445 553 559 1,451 1,465 1,489
Construction 1,696 3,341 4,452 3,480 2,886 4,167
Total 19,157 21,707 21,606 21,800 20,704 20,328
Consumer 252 270 299 484 470 489
Total $ 23,397 $ 26,125 $ 26,766 $ 31,527 $ 31,215 $ 31,196

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
At
March 31, December 31, October 1, September 30, June 30, March 31,
2021 2020 2020 2020 2020 2020
One- to four-family:
Originated 0.04 % 0.04 % 0.04 % 0.15 % 0.16 % 0.16 %
Correspondent purchased 0.09 0.09 0.11 0.13 0.14 0.14
Bulk purchased 0.40 0.43 0.43 0.22 0.23 0.24
Construction 0.07 0.07 0.07 0.12 0.13 0.13
Total 0.07 0.07 0.08 0.15 0.16 0.16
Commercial:
Commercial real estate 2.56 2.92 2.65 2.69 2.62 2.51
Commercial and industrial 0.58 0.80 0.57 1.49 1.47 2.40
Construction 3.18 3.95 4.22 3.30 3.30 3.30
Total 2.41 2.84 2.60 2.63 2.55 2.63
Consumer 0.26 0.25 0.26 0.42 0.40 0.39
Total 0.33 0.37 0.37 0.44 0.42 0.42

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded.
At
March 31, December 31, October 1,
2021 2020 2020
(Dollars in thousands)
One- to four-family $ 197 $ 131 $ 144
Commercial 5,887 6,261 7,584
Consumer 43 41 60
$ 6,127 $ 6,433 $ 7,788
56

Securities. Securities increased $535.0 million, or 34.3%, from September 30, 2020 to March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities. The weighted average yield on the securities portfolio decreased 34 basis points, from 1.62% at September 30, 2020 to 1.28% at March 31, 2021, due primarily to purchases at lower market yields. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 93% of our securities portfolio at March 31, 2021. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
March 31, 2021 December 31, 2020 September 30, 2020
Amount Yield WAL Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Fixed-rate securities:
MBS $ 1,384,982 1.46 % 4.1 $ 1,249,115 1.56 % 4.1 $ 945,432 1.82 % 3.7
GSE debentures 544,966 0.55 3.6 444,964 0.52 1.0 369,967 0.62 1.7
Municipal bonds 5,447 1.79 0.5 8,792 1.66 0.5 9,716 1.69 0.7
Total fixed-rate securities 1,935,395 1.20 3.9 1,702,871 1.29 3.3 1,325,115 1.49 3.1
Adjustable-rate securities:
MBS 155,325 2.24 3.2 178,101 2.44 3.3 204,490 2.49 2.9
Total securities portfolio $ 2,090,720 1.28 3.9 $ 1,880,972 1.40 3.3 $ 1,529,605 1.62 3.1


The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
March 31, 2021 December 31, 2020 September 30, 2020
(Dollars in thousands)
FNMA $ 972,833 $ 938,387 $ 809,232
FHLMC 542,502 482,173 327,167
GNMA 34,566 38,740 44,404
$ 1,549,901 $ 1,459,300 $ 1,180,803
57

Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $369.1 million, from $1.18 billion at September 30, 2020, to $1.55 billion at March 31, 2021. The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.
For the Three Months Ended
March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020
Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance - carrying value $ 1,459,300 1.67 % 4.0 $ 1,180,803 1.94 % 3.5 $ 982,587 2.35 % 3.3 $ 973,318 2.50 % 3.6
Maturities and repayments (109,141) (101,496) (95,842) (75,293)
Net amortization of (premiums)/discounts (1,572) (1,003) (608) (363)
Purchases:
Fixed-rate 223,804 1.31 5.9 379,793 1.04 5.4 297,024 1.06 5.9 77,455 1.29 5.0
Change in valuation on AFS securities (22,490) 1,203 (2,358) 7,470
Ending balance - carrying value $ 1,549,901 1.54 4.0 $ 1,459,300 1.67 4.0 $ 1,180,803 1.94 3.5 $ 982,587 2.35 3.3

For the Six Months Ended
March 31, 2021 March 31, 2020
Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance - carrying value $ 1,180,803 1.94 % 3.5 $ 936,487 2.67 % 3.5
Maturities and repayments (210,637) (138,402)
Net amortization of (premiums)/discounts (2,575) (527)
Purchases:
Fixed-rate 603,597 1.14 5.6 163,222 1.91 4.2
Change in valuation on AFS securities (21,287) 12,538
Ending balance - carrying value $ 1,549,901 1.54 4.0 $ 973,318 2.50 3.6
58

Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, increased $165.9 million, from $380.1 million at September 30, 2020, to $546.0 million at March 31, 2021. Municipal investments totaled $5.4 million at March 31, 2021. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.
For the Three Months Ended
March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020
Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance - carrying value $ 454,566 0.54 % 1.0 $ 380,147 0.65 % 1.7 $ 237,467 1.23 % 0.8 $ 262,719 1.87 % 0.3
Maturities, calls and sales (3,325) (50,900) (102,115) (125,000)
Net amortization of (premiums)/discounts (18) (14) (54) (80)
Purchases:
Fixed-rate 100,000 0.70 4.6 124,987 0.48 3.2 244,975 0.51 3.2 99,990 0.58 1.2
Change in valuation on AFS securities (5,200) 346 (126) (162)
Ending balance - carrying value $ 546,023 0.56 3.6 $ 454,566 0.54 1.0 $ 380,147 0.65 1.7 $ 237,467 1.23 0.8

For the Six Months Ended
March 31, 2021 March 31, 2020
Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance - carrying value $ 380,147 0.65 % 1.7 $ 268,376 2.11 % 0.8
Maturities, calls and sales (54,225) (131,300)
Net amortization of (premiums)/discounts (32) (29)
Purchases:
Fixed-rate 224,987 0.58 3.8 125,097 1.71 1.2
Change in valuation on AFS securities (4,854) 575
Ending balance - carrying value $ 546,023 0.56 3.6 $ 262,719 1.87 0.3
59

Liabilities

Deposits - Total deposits increased $459.5 million, or 7.4%, from September 30, 2020 to March 31, 2021. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.
March 31, 2021 December 31, 2020 September 30, 2020
% of % of % of
Amount Rate Total Amount Rate Total Amount Rate Total
(Dollars in thousands)
Non-interest-bearing checking $ 549,158 — % 8.2 % $ 494,375 — % 7.7 % $ 451,394 — % 7.3 %
Interest-bearing checking 1,009,096 0.07 15.2 953,927 0.08 14.9 865,782 0.10 14.0
Savings 511,014 0.06 7.7 455,633 0.06 7.1 433,808 0.06 7.0
Money market 1,602,573 0.24 24.1 1,488,749 0.31 23.2 1,419,180 0.37 22.9
Retail/business certificates of deposit 2,730,354 1.55 41.1 2,777,948 1.68 43.3 2,766,461 1.83 44.7
Public unit certificates of deposit 248,670 0.45 3.7 240,210 0.64 3.8 254,783 0.74 4.1
$ 6,650,865 0.73 100.0 % $ 6,410,842 0.84 100.0 % $ 6,191,408 0.95 100.0 %

The following tables set forth scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of March 31, 2021.
Amount Due
More than More than
1 year 1 year to 2 years to 3 More than Total
Rate range or less 2 years years 3 years Amount Rate
(Dollars in thousands)
0.00 – 0.99% $ 796,738 $ 154,580 $ 53,117 $ 66,028 $ 1,070,463 0.50 %
1.00 – 1.99% 509,600 251,609 76,521 134,232 971,962 1.62
2.00 – 2.99% 282,968 426,895 183,936 42,546 936,345 2.38
3.00 – 3.99% — 254 — — 254 3.00
$ 1,589,306 $ 833,338 $ 313,574 $ 242,806 $ 2,979,024 1.46
Percent of total 53.3 % 28.0 % 10.5 % 8.2 %
Weighted average rate 1.16 1.84 1.93 1.42
Weighted average maturity (in years) 0.5 1.5 2.5 3.7 1.2
Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.3

Amount Due
Over Over
3 months 3 to 6 6 to 12 Over
or less months months 12 months Total
(Dollars in thousands)
Retail/business certificates of deposit less than $100,000 $ 193,497 $ 168,680 $ 306,494 $ 793,230 $ 1,461,901
Retail/business certificates of deposit of $100,000 or more 177,109 164,749 337,191 589,404 1,268,453
Public unit certificates of deposit of $100,000 or more 86,691 87,958 66,937 7,084 248,670
$ 457,297 $ 421,387 $ 710,622 $ 1,389,718 $ 2,979,024
60

Borrowings - Total borrowings at March 31, 2021 were $1.58 billion, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from the deposit portfolio were used to pay off maturing borrowings.
The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.
For the Three Months Ended
March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020
Effective Effective Effective Effective
Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
Beginning balance $ 1,740,000 2.26 % 3.0 $ 1,790,000 2.31 % 3.0 $ 1,990,000 2.29 % 2.9 $ 2,090,000 2.25 % 3.0
Maturities and prepayments:
FHLB advances (315,000) 2.20 (350,000) 2.40 (440,000) 2.49 (200,000) 2.35
Repurchase agreements — — — — (100,000) 2.53 — —
New FHLB borrowings:
Fixed-rate 100,000 1.24 6.0 100,000 1.09 5.0 — — — — — —
Interest rate swaps (1)
65,000 2.65 3.1 200,000 2.63 1.5 340,000 2.73 3.5 100,000 3.20 8.0
Ending balance $ 1,590,000 1.94 3.3 $ 1,740,000 2.26 3.0 $ 1,790,000 2.31 3.0 $ 1,990,000 2.29 2.9

For the Six Months Ended
March 31, 2021 March 31, 2020
Effective Effective
Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
Beginning balance $ 1,790,000 2.31 % 3.0 $ 2,140,000 2.38 % 2.6
Maturities and prepayments:
FHLB advances (665,000) 2.30 (765,000) 2.43
New FHLB borrowings:
Fixed-rate 200,000 1.16 5.5 450,000 1.76 4.8
Interest rate swaps (1)
265,000 2.63 1.9 265,000 2.58 2.9
Ending balance $ 1,590,000 1.94 3.3 $ 2,090,000 2.25 3.0

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

Maturities - The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of March 31, 2021. As discussed previously, the Bank terminated interest rate swaps with a notional amount of $200.0 million during the quarter ended March 31, 2021. In the table below, the $200.0 million of adjustable-rate FHLB advances previously tied to these terminated interest rate swaps are presented in the FHLB advances column as maturing in fiscal year 2022. Subsequent to March 31, 2021, the Bank prepaid $100.0 million of adjustable-rate FHLB advances that were related to the terminated swaps and replaced them with $100.0 million of fixed-rate FHLB advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years.
Term Borrowings Amount
Maturity by FHLB Interest rate Total Contractual Effective
Fiscal Year Advances
swaps (1)
Amount Rate
Rate (2)
(Dollars in thousands)
2021 $ — $ 440,000 $ 440,000 0.33 % 2.84 %
2022 200,000 — 200,000 0.35 0.35
2023 300,000 — 300,000 1.70 1.81
2024 100,000 — 100,000 3.39 3.39
2025 250,000 — 250,000 1.82 1.94
2026 200,000 — 200,000 0.95 1.35
2027 100,000 — 100,000 0.76 1.24
$ 1,150,000 $ 440,000 $ 1,590,000 1.12 1.94

(1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $440.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.9 years at March 31, 2021.
(2) The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of March 31, 2021.
Retail/ Business Public Unit Term
Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing
Quarter End Amount Rate Amount Rate
Amount (1)
Rate Total Rate
(Dollars in thousands)
June 30, 2021 $ 370,606 1.41 % $ 86,691 0.31 % $ — — % $ 457,297 1.20 %
September 30, 2021 333,429 1.29 87,958 0.56 75,000 2.99 496,387 1.42
December 31, 2021 345,989 1.20 49,561 0.35 200,000 0.35 595,550 0.84
March 31, 2022 297,696 1.26 17,376 0.89 — — 315,072 1.24
$ 1,347,720 1.29 $ 241,586 0.45 $ 275,000 1.07 $ 1,864,306 1.15

(1) The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap. The term borrowings maturing in the December 31, 2021 quarter with a repricing rate of 0.35% are adjustable-rate advances that were previously tied to the terminated interest rate swaps discussed above. Of the $200.0 million maturing in the December 31, 2021 quarter, $100.0 million was prepaid in April 2021 and replaced with $100.0 million of advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Management may prepay the remaining $100.0 million during the June 30, 2021 quarter.
62

Stockholders' Equity. Stockholders' equity was $1.28 billion at both March 31, 2021 and September 30, 2020. During the current year six month period, the Company paid cash dividends totaling $40.6 million and repurchased common stock totaling $1.5 million, partially offset by net income of $39.3 million. The cash dividends paid during the current year six month period totaled $0.30 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%.

At March 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $73.9 million in cash on deposit at the Bank. For fiscal year 2021, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

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

The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection at that time to move capital from the Bank to the Company to pay that dividend. It is management's intention to ask for a regulatory non-objection at some point in the future to pay some level of this dividend when economic conditions are more certain. The Company paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, and 2019. The amounts represent cash dividends paid during each period. For the quarter ending June 30, 2021, the amount presented represents the dividend payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021.
Calendar Year
2021 2020 2019
Amount Per Share Amount Per Share Amount Per Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31 $ 11,518 $ 0.085 $ 11,733 $ 0.085 $ 11,700 $ 0.085
Quarter ended June 30 11,518 0.085 11,733 0.085 11,708 0.085
Quarter ended September 30 — — 11,733 0.085 11,713 0.085
Quarter ended December 31 — — 11,514 0.085 11,731 0.085
True-up dividends paid — — 17,614 0.130 46,932 0.340
True Blue dividends paid — — — — 34,446 0.250
Calendar year-to-date dividends paid $ 23,036 $ 0.170 $ 64,327 $ 0.470 $ 128,230 $ 0.930


63

Operating Results
The following table presents selected income statement and other information for the quarters indicated.
For the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2021 2020 2020 2020 2020
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable $ 57,285 $ 60,694 $ 64,315 $ 66,652 $ 69,613
MBS 5,429 5,710 5,425 5,616 5,866
FHLB stock 951 1,069 1,080 1,207 1,714
Investment securities 629 683 731 847 1,382
Cash and cash equivalents 40 51 55 59 380
Total interest and dividend income 64,334 68,207 71,606 74,381 78,955
Interest expense:
Deposits 12,529 14,067 15,299 16,533 17,804
Borrowings 8,732 10,327 10,624 11,561 12,483
Total interest expense 21,261 24,394 25,923 28,094 30,287
Net interest income 43,073 43,813 45,683 46,287 48,668
Provision for credit losses (2,964) (1,532) — — 22,075
Net interest income
(after provision for credit losses) 46,037 45,345 45,683 46,287 26,593
Non-interest income 12,477 5,070 4,985 4,439 4,671
Non-interest expense 32,653 27,067 27,176 26,164 26,164
Income tax expense 5,417 4,450 5,213 5,088 824
Net income $ 20,444 $ 18,898 $ 18,279 $ 19,474 $ 4,276
Efficiency ratio 58.78 % 55.37 % 53.64 % 51.58 % 49.05 %
Basic EPS $ 0.15 $ 0.14 $ 0.13 $ 0.14 $ 0.03
Diluted EPS 0.15 0.14 0.13 0.14 0.03

64

Comparison of Operating Results for the Three Months Ended March 31, 2021 and December 31, 2020

For the quarter ended March 31, 2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020. The increase was due primarily to an increase in non-interest income resulting mainly from the sale of Visa Class B shares, partially offset by an increase in non-interest expense due to the termination of $200.0 million of interest rate swaps. The net interest margin decreased four basis points, from 1.92% for the prior quarter to 1.88% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio average yields, along with a change in asset mix as cash flows from the loan portfolio have been invested into lower yielding securities, partially offset by a decrease in the average cost of borrowings and deposits. Our net interest margin could continue to decrease if our interest-earning assets continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 17 basis points, from 2.98% for the prior quarter to 2.81% for the current quarter, while the average balance of interest-earning assets increased $30.1 million between the two periods. 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
March 31, December 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 57,285 $ 60,694 $ (3,409) (5.6) %
MBS 5,429 5,710 (281) (4.9)
FHLB stock 951 1,069 (118) (11.0)
Investment securities 629 683 (54) (7.9)
Cash and cash equivalents 40 51 (11) (21.6)
Total interest and dividend income $ 64,334 $ 68,207 $ (3,873) (5.7)

The decrease in interest income on loans receivable was due to a 14 basis point decrease in the weighted average portfolio yield and a $96.2 million decrease in the average balance. The weighted average yield on the loans receivable portfolio decreased from 3.41% for the prior quarter to 3.27% for the current quarter, due mainly to loans repricing to lower current market rates as a result of endorsements, refinances and adjustable-rate loan rate changes, along with a decrease in commercial loan deferred fee and discount recognition related to PPP loans and other commercial loan activity. One- to four-family correspondent loan payoff activity decreased during the current quarter compared to the prior quarter; thereby reducing the amount of premium amortization and reduction in the loan portfolio yield. Correspondent loan payoff activity remains at elevated levels compared to historical norms which was the primary reason for the decrease in the average balance of the loan portfolio during the current quarter.

The decrease in interest income on the MBS portfolio was due to a 25 basis point decrease in the weighted average yield, to 1.50% for the current quarter, due primarily to an increase in the impact of net premium amortization, along with purchases at lower market yields. This was partially offset by a $142.5 million increase in the average balance as a result of purchases, primarily utilizing excess cash flows from the loan portfolio and operating cash, along with funds from growth in the deposit portfolio that were not used to pay down borrowings.

65

Interest Expense
The weighted average rate paid on interest-bearing liabilities decreased 14 basis points, from 1.20% for the prior quarter to 1.06% for the current quarter, while the average balance of interest-bearing liabilities increased $48.1 million between the two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, December 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits $ 12,529 $ 14,067 $ (1,538) (10.9) %
Borrowings 8,732 10,327 (1,595) (15.4)
Total interest expense $ 21,261 $ 24,394 $ (3,133) (12.8)
The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the retail/business certificate of deposit portfolio. The weighted average rate on the retail/business certificate of deposit portfolio decreased 15 basis points, to 1.61% for the current quarter. Management has generally reduced deposit offer rates as discussed above. See "Financial Condition - Liabilities" above for additional information on deposits.

The decrease in interest expense on borrowings was due primarily to not replacing term borrowings that matured during the current quarter and prior quarter, along with prepaying certain advances and replacing them at lower rates. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarters. The average balance of borrowings decreased $171.9 million compared to the prior quarter.

Provision for Credit Losses
For the quarter ended March 31, 2021, the Bank recorded a negative provision for credit losses of $3.0 million, compared to a negative provision for credit losses of $1.5 million for the prior quarter. The negative provision in the current quarter was composed of a $2.7 million decrease in the ACL for loans and a $305 thousand decrease in reserves for off-balance sheet credit exposures. The $3.0 million negative provision for credit losses was due primarily to continued improvements in the economic forecast used in the model. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, December 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A
Deposit service fees 2,814 2,947 (133) (4.5) %
Insurance commissions 888 638 250 39.2
Other non-interest income 1,389 1,485 (96) (6.5)
Total non-interest income $ 12,477 $ 5,070 $ 7,407 146.1

During the current quarter, the Bank sold all of its Visa Class B shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions which were higher than what was anticipated and accrued.

66

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, December 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 13,397 $ 14,138 $ (741) (5.2) %
Information technology and related expense 4,599 4,233 366 8.6
Occupancy, net 3,523 3,379 144 4.3
Loss on interest rate swap termination 4,752 — 4,752 N/A
Regulatory and outside services 1,234 1,585 (351) (22.1)
Advertising and promotional 1,484 838 646 77.1
Deposit and loan transaction costs 664 766 (102) (13.3)
Federal insurance premium 634 621 13 2.1
Office supplies and related expense 463 424 39 9.2
Other non-interest expense 1,903 1,083 820 75.7
Total non-interest expense $ 32,653 $ 27,067 $ 5,586 20.6

The decrease in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the prior quarter in appreciation of the hard work and dedication by our non-officer employees during these challenging times, along with a decrease in the number of working days compared to the prior quarter. The increase in information technology and related expense was due primarily to an increase in information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The decrease in regulatory and outside services was due mainly to the timing of external audit expenses. The increase in advertising and promotional expenses was due to the timing of campaigns. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as one of the Bank's branch locations, as management intends to sell the property.

The Company's efficiency ratio was 58.78% for the current quarter compared to 55.37% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense, partially offset by an increase in non-interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, December 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 25,861 $ 23,348 $ 2,513 10.8 %
Income tax expense 5,417 4,450 967 21.7
Net income $ 20,444 $ 18,898 $ 1,546 8.2
Effective Tax Rate 20.9 % 19.1 %

The increase in income tax expense was due mainly to a higher effective tax rate compared to the prior quarter, as well as an increase in pretax income. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns.

67

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
March 31, 2021 December 31, 2020
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans $ 6,134,527 $ 47,552 3.10 % $ 6,220,204 $ 50,005 3.22 %
Commercial loans 766,972 8,559 4.46 770,096 9,404 4.78
Consumer loans 102,613 1,174 4.64 110,048 1,285 4.65
Total loans receivable (1)
7,004,112 57,285 3.27 7,100,348 60,694 3.41
MBS (2)
1,444,554 5,429 1.50 1,302,074 5,710 1.75
Investment securities (2)(3)
466,077 629 0.54 431,493 683 0.63
FHLB stock 77,391 951 4.98 85,187 1,069 4.99
Cash and cash equivalents 158,544 40 0.10 201,468 51 0.10
Total interest-earning assets 9,150,678 64,334 2.81 9,120,570 68,207 2.98
Other non-interest-earning assets 446,265 453,422
Total assets $ 9,596,943 $ 9,573,992
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 1,459,964 183 0.05 $ 1,360,864 223 0.07
Savings 477,985 69 0.06 442,906 68 0.06
Money market 1,543,911 1,038 0.27 1,474,720 1,184 0.32
Retail/business certificates 2,753,439 10,917 1.61 2,745,836 12,178 1.76
Wholesale certificates 260,712 322 0.50 251,634 414 0.66
Total deposits 6,496,011 12,529 0.78 6,275,960 14,067 0.89
Borrowings (4)
1,603,459 8,732 2.19 1,775,380 10,327 2.30
Total interest-bearing liabilities 8,099,470 21,261 1.06 8,051,340 24,394 1.20
Other non-interest-bearing liabilities 213,602 240,476
Stockholders' equity 1,283,871 1,282,176
Total liabilities and stockholders' equity $ 9,596,943 $ 9,573,992
Net interest income (5)
$ 43,073 $ 43,813
Net interest rate spread (6)
1.75 1.78
Net interest-earning assets $ 1,051,208 $ 1,069,230
Net interest margin (7)
1.88 1.92
Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x
Selected performance ratios:
Return on average assets (annualized) 0.85 % 0.79 %
Return on average equity (annualized) 6.37 5.90
Average equity to average assets 13.38 13.39
Operating expense ratio (8)
1.36 1.13
Efficiency ratio (9)
58.78 55.37

68

(1) Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2) AFS securities are adjusted for unamortized purchase premiums or discounts.
(3) The average balance of investment securities includes an average balance of nontaxable securities of $7.5 million and $9.1 million for the quarters ended March 31, 2021 and December 31, 2020, respectively.
(4) The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2021 to the three months ended December 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended
March 31, 2021 vs. December 31, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ (862) $ (2,547) $ (3,409)
MBS 585 (866) (281)
Investment securities 52 (106) (54)
FHLB stock (118) — (118)
Cash and cash equivalents (11) — (11)
Total interest-earning assets (354) (3,519) (3,873)
Interest-bearing liabilities:
Checking 14 (53) (39)
Savings 4 (3) 1
Money market 46 (193) (147)
Certificates of deposit 53 (1,406) (1,353)
Borrowings (1,014) (581) (1,595)
Total interest-bearing liabilities (897) (2,236) (3,133)
Net change in net interest income $ 543 $ (1,283) $ (740)

69

Comparison of Operating Results for the Six Months Ended March 31, 2021 and 2020

The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.56% for the prior year period to 2.90% for the current year period, while the average balance of interest-earning assets increased $232.9 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield and partially the securities portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. 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 Six Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 117,979 $ 139,527 $ (21,548) (15.4) %
MBS 11,139 11,968 (829) (6.9)
FHLB stock 2,020 3,540 (1,520) (42.9)
Investment securities 1,312 2,889 (1,577) (54.6)
Cash and cash equivalents 91 1,067 (976) (91.5)
Total interest and dividend income $ 132,541 $ 158,991 $ (26,450) (16.6)

The decrease in interest income on loans receivable was due mainly to a 39 basis point decrease in the weighted average yield on the portfolio, from 3.73% for the prior year period to 3.34% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $407.1 million compared to the prior year period. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part, to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the COVID-19 pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity.

The decrease in interest income on the MBS portfolio was due to a 96 basis point decrease in the weighted average yield to 1.62% for the current year period as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $445.6 million increase in the average balance of the portfolio.

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

The decrease in interest income on investment securities was due to a 146 basis point decrease in the weighted average yield to 0.58% for the current year period as a result of new purchases at lower market yields, partially offset by a $165.8 million increase in the average balance of the portfolio.

70

The decrease in interest income on cash and cash equivalents was due to a decrease in the yield earned on cash held at the FRB of Kansas City, partially offset by a $46.3 million increase in the average balance.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 44 basis points, from 1.57% for the prior year period to 1.13% for the current period, while the average balance of interest-bearing liabilities increased $248.9 million. The increase in the average balance was primarily in money market and checking accounts, partially offset by a decrease in borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits $ 26,596 $ 35,766 $ (9,170) (25.6) %
Borrowings 19,059 25,860 (6,801) (26.3)
Total interest expense $ 45,655 $ 61,626 $ (15,971) (25.9)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 42 basis points, 38 basis points, and 152 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been gradually repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $514.5 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year period of $4.5 million, compared to a $22.3 million provision for credit losses during the prior year period. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A
Deposit service fees 5,761 5,845 (84) (1.4) %
Insurance commissions 1,526 1,091 435 39.9
Other non-interest income 2,874 3,239 (365) (11.3)
Total non-interest income $ 17,547 $ 10,175 $ 7,372 72.5

During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year period. The decrease in other non-interest income was mainly the result of a decrease in income from BOLI compared to the prior year period due to a reduction in the yield and lower death benefit receipts between the two periods.
71

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 27,535 $ 26,706 $ 829 3.1 %
Information technology and related expense 8,832 8,409 423 5.0
Occupancy, net 6,902 6,656 246 3.7
Loss on interest rate swap termination 4,752 — 4,752 N/A
Regulatory and outside services 2,819 2,640 179 6.8
Advertising and promotional 2,322 2,769 (447) (16.1)
Deposit and loan transaction costs 1,430 1,389 41 3.0
Federal insurance premium 1,255 — 1,255 N/A
Office supplies and related expense 887 1,111 (224) (20.2)
Other non-interest expense 2,986 2,984 2 0.1
Total non-interest expense $ 59,720 $ 52,664 $ 7,056 13.4

The increase in salaries and employee benefits was due primarily to an increase in loan commissions, an increase in full-time equivalent employees, and higher non-officer related bonuses paid in the current year period. The increase in information technology and related expense was due mainly to an increase in information technology professional services expense. During the current year period, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. Since it was management's intention to prepay the related FHLB advances, the previously-forecasted transactions subject to the cash flow hedges are no longer expected to occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. The decrease in advertising and promotional expenses was due mainly to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year period.

The Company's efficiency ratio was 57.19% for the current period compared to 48.97% for the prior year period. The change in the efficiency ratio was due to higher non-interest expense, partially offset by an increase non-interest income in the current year period compared to the prior year period. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current period was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current period, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year period.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 49,209 $ 32,576 $ 16,633 51.1 %
Income tax expense 9,867 5,789 4,078 70.4
Net income $ 39,342 $ 26,787 $ 12,555 46.9
Effective Tax Rate 20.1 % 17.8 %

72

The increase in income tax expense was due primarily to higher pretax income in the current year period, as well as a higher effective tax rate compared to the prior year period. The effective tax rate was lower in the prior year period due primarily to a discrete benefit recognized in the prior year period related to certain BOLI policies that were acquired in fiscal year 2018. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21%.

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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 indicated. 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 Six Months Ended
March 31, 2021 March 31, 2020
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans $ 6,177,836 $ 97,557 3.16 % $ 6,568,525 $ 117,199 3.57 %
Commercial loans 768,552 17,963 4.62 762,799 18,652 4.81
Consumer loans 106,371 2,459 4.64 128,491 3,676 5.72
Total loans receivable (1)
7,052,759 117,979 3.34 7,459,815 139,527 3.73
MBS (2)
1,372,531 11,139 1.62 926,969 11,968 2.58
Investment securities (2)(3)
448,595 1,312 0.58 282,759 2,889 2.04
FHLB stock 81,332 2,020 4.98 99,128 3,540 7.14
Cash and cash equivalents 180,242 91 0.10 133,908 1,067 1.57
Total interest-earning assets 9,135,459 132,541 2.90 8,902,579 158,991 3.56
Other non-interest-earning assets 449,883 441,199
Total assets $ 9,585,342 $ 9,343,778
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 1,409,870 407 0.06 $ 1,096,466 351 0.06
Savings 460,252 136 0.06 361,592 153 0.08
Money market 1,508,935 2,222 0.30 1,190,938 4,044 0.68
Retail/business certificates 2,749,596 23,094 1.68 2,686,028 28,215 2.10
Wholesale certificates 256,123 737 0.58 286,328 3,003 2.10
Total deposits 6,384,776 26,596 0.84 5,621,352 35,766 1.27
Borrowings (4)
1,690,363 19,059 2.25 2,204,903 25,860 2.33
Total interest-bearing liabilities 8,075,139 45,655 1.13 7,826,255 61,626 1.57
Other non-interest-bearing liabilities 227,189 194,698
Stockholders' equity 1,283,014 1,322,825
Total liabilities and stockholders' equity $ 9,585,342 $ 9,343,778
Net interest income (5)
$ 86,886 $ 97,365
Net interest rate spread (6)
1.77 1.99
Net interest-earning assets $ 1,060,320 $ 1,076,324
Net interest margin (7)
1.90 2.19
Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.14x
Selected performance ratios:
Return on average assets (annualized) 0.82 % 0.57 %
Return on average equity (annualized) 6.13 4.05
Average equity to average assets 13.39 14.16
Operating expense ratio (8)
1.25 1.13
Efficiency ratio (9)
57.19 48.97
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(1) Balances are adjusted for unearned loan fees and deferred costs.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2) AFS securities are adjusted for unamortized purchase premiums or discounts.
(3) The average balance of investment securities includes an average balance of nontaxable securities of $8.3 million and $16.1 million for the six months ended March 31, 2021 and March 31, 2020, respectively.
(4) The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Six Months Ended
March 31, 2021 vs. March 31, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ (7,196) $ (14,352) $ (21,548)
MBS 4,547 (5,376) (829)
Investment securities 1,149 (2,726) (1,577)
FHLB stock (568) (952) (1,520)
Cash and cash equivalents 273 (1,249) (976)
Total interest-earning assets (1,795) (24,655) (26,450)
Interest-bearing liabilities:
Checking 91 (36) 55
Savings 35 (51) (16)
Money market 872 (2,694) (1,822)
Certificates of deposit 337 (7,724) (7,387)
Borrowings (4,689) (2,112) (6,801)
Total interest-bearing liabilities (3,354) (12,617) (15,971)
Net change in net interest income $ 1,559 $ (12,038) $ (10,479)

Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020
For the quarter ended March 31, 2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $4.3 million, or $0.03 per share for the quarter ended March 31, 2020. The increase in net income was due to recording a $22.1 million provision for credit losses during the prior year quarter compared to recording a negative provision for credit losses of $3.0 million in the current quarter, partially offset by a decrease in net interest income and an increase in income tax expense. The net interest margin decreased 31 basis points, from 2.19% for the prior year quarter to 1.88% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

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Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 74 basis points, from 3.55% for the prior year quarter to 2.81% for the current quarter, while the average balance of interest-earning assets increased $264.0 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
For the Three Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 57,285 $ 69,613 $ (12,328) (17.7) %
MBS 5,429 5,866 (437) (7.4)
FHLB stock 951 1,714 (763) (44.5)
Investment securities 629 1,382 (753) (54.5)
Cash and cash equivalents 40 380 (340) (89.5)
Total interest and dividend income $ 64,334 $ 78,955 $ (14,621) (18.5)

The decrease in interest income on loans receivable was due mainly to a 45 basis point decrease in the weighted average yield, from 3.72% for the prior year quarter to 3.27% for the current quarter, along with a $476.0 million decrease in the average balance. The decrease in the weighted average yield was due primarily to an increase in premium amortization related to correspondent loans as a result of an increase in payoff and endorsement activity. The decrease in the average balance was due primarily to a decrease in the balance of correspondent one- to four-family loans.

The decrease in interest income on the MBS portfolio was due primarily to a 105 basis point decrease in the weighted average yield on the portfolio, from 2.55% for the prior year quarter to 1.50% for the current quarter resulting from the purchase of MBS at market rates lower than the existing portfolio and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $524.1 million, or 56.9%, increase in the average balance of the portfolio.

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

The decrease in interest income on investment securities was due to a 143 basis point decrease in the weighted average yield on the portfolio, from 1.97% for the prior year quarter to 0.54% for the current quarter as a result of new purchases at lower market yields, partially offset by a $185.2 million increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield on cash held at the FRB of Kansas City, partially offset by an increase in the average balance of operating cash.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 49 basis points, from 1.55% for the prior year quarter to 1.06% for the current quarter, while the average balance of interest-bearing liabilities increased $254.1 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits $ 12,529 $ 17,804 $ (5,275) (29.6) %
Borrowings 8,732 12,483 (3,751) (30.0)
Total interest expense $ 21,261 $ 30,287 $ (9,026) (29.8)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 50 basis points, 39 basis points, and 148 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been
76

gradually repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $572.7 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances and replacing them at lower rates.

Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $3.0 million, compared to a $22.1 million provision for credit losses during the prior year quarter. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A
Deposit service fees 2,814 2,783 31 1.1 %
Insurance commissions 888 400 488 122.0
Other non-interest income 1,389 1,488 (99) (6.7)
Total non-interest income $ 12,477 $ 4,671 $ 7,806 167.1

During the current quarter, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 13,397 $ 13,235 $ 162 1.2 %
Information technology and related expense 4,599 4,268 331 7.8
Occupancy, net 3,523 3,449 74 2.1
Loss on interest rate swap termination 4,752 — 4,752 N/A
Regulatory and outside services 1,234 1,297 (63) (4.9)
Advertising and promotional 1,484 1,359 125 9.2
Deposit and loan transaction costs 664 678 (14) (2.1)
Federal insurance premium 634 — 634 N/A
Office supplies and related expense 463 592 (129) (21.8)
Other non-interest expense 1,903 1,286 617 48.0
Total non-interest expense $ 32,653 $ 26,164 $ 6,489 24.8

77

The increase in information technology and related expense was due mainly to an increase in information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the FDIC during the prior year quarter. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as one of the Bank's branch locations, as management intends to sell the property.

The Company's efficiency ratio was 58.78% for the current quarter compared to 49.05% for the prior year quarter. The change in the efficiency ratio was due primarily to higher non-interest expense, partially offset by an increase in 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.
For the Three Months Ended
March 31, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 25,861 $ 5,100 $ 20,761 407.1 %
Income tax expense 5,417 824 4,593 557.4
Net income $ 20,444 $ 4,276 $ 16,168 378.1
Effective Tax Rate 20.9 % 16.2 %

The increase in income tax expense was due primarily to higher pretax income in the current quarter.
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Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
March 31, 2021 March 31, 2020
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans $ 6,134,527 $ 47,552 3.10 % $ 6,594,029 $ 58,838 3.57 %
Commercial loans 766,972 8,559 4.46 759,328 8,994 4.69
Consumer loans 102,613 1,174 4.64 126,710 1,781 5.65
Total loans receivable (1)
7,004,112 57,285 3.27 7,480,067 69,613 3.72
MBS (2)
1,444,554 5,429 1.50 920,419 5,866 2.55
Investment securities (2)(3)
466,077 629 0.54 280,911 1,382 1.97
FHLB stock 77,391 951 4.98 99,879 1,714 6.90
Cash and cash equivalents 158,544 40 0.10 105,381 380 1.43
Total interest-earning assets 9,150,678 64,334 2.81 8,886,657 78,955 3.55
Other non-interest-earning assets 446,265 454,687
Total assets $ 9,596,943 $ 9,341,344
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 1,459,964 183 0.05 $ 1,107,232 181 0.07
Savings 477,985 69 0.06 365,554 74 0.08
Money market 1,543,911 1,038 0.27 1,208,521 1,981 0.66
Retail/business certificates 2,753,439 10,917 1.61 2,691,029 14,103 2.11
Wholesale certificates 260,712 322 0.50 296,828 1,465 1.98
Total deposits 6,496,011 12,529 0.78 5,669,164 17,804 1.26
Borrowings (4)
1,603,459 8,732 2.19 2,176,166 12,483 2.29
Total interest-bearing liabilities 8,099,470 21,261 1.06 7,845,330 30,287 1.55
Other non-interest-bearing liabilities 213,602 183,018
Stockholders' equity 1,283,871 1,312,996
Total liabilities and stockholders' equity $ 9,596,943 $ 9,341,344
Net interest income (5)
$ 43,073 $ 48,668
Net interest rate spread (6)
1.75 2.00
Net interest-earning assets $ 1,051,208 $ 1,041,327
Net interest margin (7)
1.88 2.19
Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x
Selected performance ratios:
Return on average assets (annualized) 0.85 % 0.18 %
Return on average equity (annualized) 6.37 1.30
Average equity to average assets 13.38 14.06
Operating expense ratio (8)
1.36 1.12
Efficiency ratio (9)
58.78 49.05

79

(1) Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2) AFS securities are adjusted for unamortized purchase premiums or discounts.
(3) The average balance of investment securities includes an average balance of nontaxable securities of $7.5 million and $15.0 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
(4) The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8) The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2021 to the three months ended March 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended March 31,
2021 vs. 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ (4,183) $ (8,145) $ (12,328)
MBS 2,544 (2,981) (437)
Investment securities 596 (1,349) (753)
FHLB stock (342) (421) (763)
Cash and cash equivalents 126 (466) (340)
Total interest-earning assets (1,259) (13,362) (14,621)
Interest-bearing liabilities:
Checking 48 (46) 2
Savings 19 (24) (5)
Money market 434 (1,377) (943)
Certificates of deposit 129 (4,458) (4,329)
Borrowings (2,750) (1,001) (3,751)
Total interest-bearing liabilities (2,120) (6,906) (9,026)
Net change in net interest income $ 861 $ (6,456) $ (5,595)


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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, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.

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

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. See "Part I, Item 1. Business - Sources of Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for information regarding limits on the Bank's FHLB borrowings. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At March 31, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances.

The amount of FHLB borrowings outstanding at March 31, 2021 was $1.59 billion, of which $640.0 million were advances scheduled to mature in the next 12 months, including $440.0 million of one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB.

At March 31, 2021, the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At March 31, 2021, the Bank had $1.72 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs.

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of March 31, 2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At March 31, 2021, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 4% of total deposits. The Bank had pledged securities with an estimated fair value of $311.5 million as collateral for public unit certificates of deposit at March 31, 2021. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At March 31, 2021, $1.59 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $241.6 million of public unit 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.  We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing.

While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general 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.
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The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at March 31, 2021, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of March 31, 2021, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $377.0 million.
Loans (1)
MBS Investment Securities Total
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
Amounts due:
Within one year $ 151,503 3.86 % $ 1,722 2.73 % $ 4,226 1.75 % $ 157,451 3.79 %
After one year:
Over one to two years 124,686 3.80 12,432 1.50 1,264 1.95 138,382 3.58
Over two to three years 56,004 4.56 14,436 1.89 74,991 0.36 145,431 2.13
Over three to five years 160,248 4.15 51,787 2.84 465,542 0.58 677,577 1.60
Over five to ten years 738,333 3.64 291,757 1.80 — — 1,030,090 3.12
Over ten to fifteen years 1,602,985 2.97 909,136 1.27 — — 2,512,121 2.35
After fifteen years 4,159,400 3.40 268,631 1.91 — — 4,428,031 3.31
Total due after one year 6,841,656 3.36 1,548,179 1.53 541,797 0.56 8,931,632 2.87
$ 6,993,159 3.37 $ 1,549,901 1.54 $ 546,023 0.56 $ 9,089,083 2.89

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

Limitations on Dividends and Other Capital Distributions

Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings. A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.
The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company.  So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

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

The maximum balance of short-term FHLB borrowings outstanding at any month-end during the six months ended March 31, 2021 was $840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $731.7 million at a weighted average contractual rate of 0.56%. The balance of short-term FHLB borrowings outstanding at March 31, 2021 was $640.0 million, at a weighted average contractual rate of 0.34%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months.
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Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended March 31, 2021, or future periods.

Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework. As of March 31, 2021, the Bank's CBLR was 12.2% and the Company's CBLR was 13.4%, which exceeded the minimum requirements. See "Part I, Item 1. Business - Regulation and Supervision - Regulatory Capital Requirements" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for additional information related to regulatory capital.

The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of March 31, 2021, for the Bank and the Company (dollars in thousands):
Bank Company
Total equity as reported under GAAP $ 1,164,295 $ 1,278,595
AOCI 18,953 18,953
Goodwill and other intangibles, net of associated deferred taxes (13,072) (13,072)
Total tier 1 capital $ 1,170,176 $ 1,284,476

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

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

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

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

Qualitative Disclosure about Market Risk
At March 31, 2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(652.3) million, or (6.7)% of total assets, compared to $86.8 million, or 0.9% of total assets, at December 31, 2020. The decrease in the one-year gap amount was due primarily to higher interest rates as of March 31, 2021 compared to December 31, 2020. As interest rates increase, borrowers have less economic incentive to refinances 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. In addition, the decrease was due to an increase in non-maturity deposits during the quarter. In the Bank's interest rate risk model, short-term increases in non-maturity deposits are assumed to be unstable and thus are not considered to be long-term core deposits. As a result, these deposits are assumed to reprice in the short term. This resulted in an increase in the amount of liabilities repricing in the one-year horizon.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, but did increase this quarter, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of March 31, 2021, the Bank's one-year gap is projected to be $(1.32) billion, or (13.6)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(995.3) million, or (10.36)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2020.

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During the current quarter, loan repayments totaled $606.9 million and cash flows from the securities portfolio totaled $112.5 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $542.6 million, including $150.0 million in term borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of March 31, 2021 was 2.3 years. However, including the impact of interest rate swaps related to $440.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of March 31, 2021 was 3.3 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

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

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


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Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
More Than More Than
Within One Year to Three Years Over
One Year Three Years to Five Years Five Years Total
Interest-earning assets: (Dollars in thousands)
Loans receivable (1)
$ 1,759,790 $ 1,732,589 $ 1,006,908 $ 2,484,635 $ 6,983,922
Securities (2)
484,094 445,444 689,337 471,845 2,090,720
Other interest-earning assets 121,258 — — — 121,258
Total interest-earning assets 2,365,142 2,178,033 1,696,245 2,956,480 9,195,900
Interest-bearing liabilities:
Non-maturity deposits (3)
1,151,749 414,891 353,820 1,825,286 3,745,746
Certificates of deposit 1,589,306 1,147,136 242,134 448 2,979,024
Borrowings (4)
276,401 467,940 653,134 231,139 1,628,614
Total interest-bearing liabilities 3,017,456 2,029,967 1,249,088 2,056,873 8,353,384
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (652,314) $ 148,066 $ 447,157 $ 899,607 $ 842,516
Cumulative excess of interest-earning assets over
interest-bearing liabilities $ (652,314) $ (504,248) $ (57,091) $ 842,516
Cumulative excess of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
March 31, 2021 (6.73) % (5.20) % (0.59) % 8.69 %
September 30, 2020 4.58
Cumulative one-year gap - interest rates +200 bps at:
March 31, 2021 (13.58)
September 30, 2020 (6.44)

(1) Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2) MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of March 31, 2021, at amortized cost.
(3) Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.25 billion, for a cumulative one-year gap of (33.5)% of total assets.
(4) Borrowings exclude deferred prepayment penalty costs. Included in this line item are $440.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.

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Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
Change Net Interest Income At
(in Basis Points) March 31, 2021 September 30, 2020
in Interest Rates (1)
Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
(Dollars in thousands)
000 bp $ 186,156 $ — — % $ 183,596 $ — — %
+100 bp 188,988 2,832 1.52 188,084 4,488 2.44
+200 bp 188,894 2,738 1.47 188,417 4,821 2.63
+300 bp 187,566 1,410 0.76 186,441 2,845 1.55

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

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

The lower interest expense projection was offset by a lower income projection on the Bank's loan portfolio. As a result of the low level of interest rates during the current fiscal year, the Bank continued to see a decrease in the yield on loans receivable due to refinances and endorsements. In addition, the Bank experienced a decrease in the overall balance of the loans receivable portfolio, resulting in these cash flows being deployed into lower yielding securities.

The net interest income projections increase from the base case in all rising interest rate scenarios at March 31, 2021 and September 30, 2020. The increase in net interest income projection was smaller at March 31, 2021 compared to September 30, 2020, due primarily to a decrease in the gap during the quarter. The positive impact of rising interest rates is diminished as interest rates increase. Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus decreasing the positive impact of rising interest rates compared to the base case. In addition, the negative gap results in liabilities repricing at a faster pace in the rising interest rate scenarios.



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Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
Change Market Value of Portfolio Equity At
(in Basis Points) March 31, 2021 September 30, 2020
in Interest Rates (1)
Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
(Dollars in thousands)
000 bp $ 1,525,744 $ — — % $ 1,301,409 $ — — %
+100 bp 1,405,477 (120,267) (7.88) 1,290,877 (10,532) (0.81)
+200 bp 1,213,376 (312,368) (20.47) 1,157,368 (144,041) (11.07)
+300 bp 1,004,068 (521,676) (34.19) 967,997 (333,412) (25.62)

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

The percentage change in the Bank's MVPE at March 31, 2021 and September 30, 2020 was negative in all scenarios. The negative impact to the Bank's MVPE is greater at March 31, 2021 compared to September 30, 2020. This change was due primarily to an increase in the duration of the Bank's mortgage-related assets at March 31, 2021 compared to September 30, 2020. This was due in part to higher interest rates at March 31, 2021. As interest rates increase, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. In addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase as further prepayments are diminished.

On the liability side of the balance sheet, non-maturity deposit durations increased between periods due to a recalibration of the Bank's core deposit analytics model. The Bank uses historical deposit behavior to project future behavior. The Bank's core deposit analytics model is updated semi-annually or more frequently if back-testing identifies material variances between projected and actual behavior. The update resulted in longer durations on the Bank's retail core deposits, which partially offset the impact of higher interest rates on the Bank's assets.

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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 March 31, 2021. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
Amount Yield/Rate WAL % of Category % of Total
(Dollars in thousands)
Investment securities $ 546,023 0.56 % 3.6 26.0 % 5.9 %
MBS - fixed 1,389,393 1.46 4.3 66.3 14.9
MBS - adjustable 160,508 2.24 3.5 7.7 1.7
Total securities 2,095,924 1.28 4.0 100.0 % 22.5
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years 1,233,559 2.78 3.8 17.6 % 13.3
> 15 years 4,142,479 3.46 6.1 59.3 44.5
Fixed-rate commercial 440,168 4.29 4.2 6.3 4.7
All other fixed-rate loans 42,361 4.29 6.3 0.6 0.5
Total fixed-rate loans 5,858,567 3.39 5.5 83.8 63.0
Adjustable-rate one- to four-family:
<= 36 months 175,872 1.98 5.0 2.5 1.9
> 36 months 518,858 2.92 3.5 7.4 5.6
Adjustable-rate commercial 354,846 4.23 6.8 5.1 3.8
All other adjustable-rate loans 85,016 4.26 2.4 1.2 0.9
Total adjustable-rate loans 1,134,592 3.29 4.7 16.2 12.2
Total loans receivable 6,993,159 3.37 5.4 100.0 % 75.2
FHLB stock 74,464 5.15 2.3 0.8
Cash and cash equivalents 139,472 0.09 — 1.5
Total interest-earning assets $ 9,303,019 2.87 5.0 100.0 %
Non-maturity deposits $ 3,671,841 0.13 5.7 55.2 % 44.6 %
Retail/business certificates of deposit 2,730,354 1.55 1.3 41.1 33.1
Public unit certificates of deposit 248,670 0.45 0.4 3.7 3.0
Total deposits 6,650,865 0.73 3.7 100.0 % 80.7
Term borrowings 1,590,000 1.94 3.3 19.3
Total interest-bearing liabilities $ 8,240,865 0.96 3.6 100.0 %

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 March 31, 2021. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of March 31, 2021, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

89

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 March 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

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

Item 1A. Risk Factors
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, 2020.


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

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

The following table summarizes our stock repurchase activity during the three months ended March 31, 2021 and additional information regarding our stock repurchase program. The Company has $44.7 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares is through August 2021. Shares may be repurchased from time to time in the open-market or in privately negotiated transactions based upon market conditions and available liquidity.
Total Number of Approximate Dollar
Total Shares Purchased as Value of Shares
Number of Average Part of Publicly that May Yet Be
Shares Price Paid Announced Plans Purchased Under the
Purchased per Share or Programs Plans or Programs
January 1, 2021 through
January 31, 2021 — $ — — $ 44,665,205
February 1, 2021 through
February 28, 2021 — — — 44,665,205
March 1, 2021 through
March 31, 2021 — — — 44,665,205
Total — — — 44,665,205

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

Item 6. Exhibits
See Index to Exhibits.
90

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
Description of the Registrant's Securities, as filed on November 27, 2019, as Exhibit 4 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference
Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Description of Director Fee Arrangements filed on November 29, 2018 as Exhibit 10.6 to the Registrant's September 30, 2018 Form 10-K and incorporated herein by reference
Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
91

101
The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021, filed with the Securities and Exchange Commission on May 10, 2021, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at March 31, 2021 and September 30, 2020, (ii) Consolidated Statements of Income for the three and six months ended March 31, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2021 and 2020, (iv) Consolidated Statements of Stockholders' Equity for the three and six months ended March 31, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the six months ended March 31, 2021 and 2020, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104 Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
92

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: May 10, 2021 By: /s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: May 10, 2021 By: /s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

93
TABLE OF CONTENTS
Part I -- Financial InformationItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosure About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits

Exhibits

3(i) 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 3(ii) 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 4 Description of the Registrant's Securities, as filed on November 27, 2019, as Exhibit 4 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference 10.1(i) 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 10.1(ii) 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 10.1(iii) Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference 10.1(iv) 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 10.1(v) 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 10.3 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 10.4 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 10.5 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 10.6 Description of Director Fee Arrangements filed on November 29, 2018 as Exhibit 10.6 to the Registrant's September 30, 2018 Form 10-K and incorporated herein by reference 10.7 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 10.8 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 10.9 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 10.10 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 10.11 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 10.12 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 31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer 31.2 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 32 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