00014909069/302020Q3falseus-gaap:OtherAssetsus-gaap:OtherAssetsus-gaap:AccountsPayableAndOtherAccruedLiabilities00014909062019-10-012020-06-30xbrli:shares00014909062020-07-31iso4217:USD00014909062020-06-3000014909062019-09-30iso4217:USDxbrli:shares00014909062020-04-012020-06-3000014909062019-04-012019-06-3000014909062018-10-012019-06-300001490906us-gaap:DepositAccountMember2020-04-012020-06-300001490906us-gaap:DepositAccountMember2019-04-012019-06-300001490906us-gaap:DepositAccountMember2019-10-012020-06-300001490906us-gaap:DepositAccountMember2018-10-012019-06-300001490906cffn:InsuranceServicesMember2020-04-012020-06-300001490906cffn:InsuranceServicesMember2019-04-012019-06-300001490906cffn:InsuranceServicesMember2019-10-012020-06-300001490906cffn:InsuranceServicesMember2018-10-012019-06-300001490906us-gaap:CommonStockMember2019-09-300001490906us-gaap:AdditionalPaidInCapitalMember2019-09-300001490906cffn:EmployeeStockOwnershipPlanMember2019-09-300001490906us-gaap:RetainedEarningsMember2019-09-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001490906srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-09-300001490906srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2019-09-300001490906us-gaap:RetainedEarningsMember2019-10-012019-12-3100014909062019-10-012019-12-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-10-012019-12-310001490906us-gaap:AdditionalPaidInCapitalMember2019-10-012019-12-310001490906cffn:EmployeeStockOwnershipPlanMember2019-10-012019-12-310001490906us-gaap:CommonStockMember2019-10-012019-12-310001490906us-gaap:CommonStockMember2019-12-310001490906us-gaap:AdditionalPaidInCapitalMember2019-12-310001490906cffn:EmployeeStockOwnershipPlanMember2019-12-310001490906us-gaap:RetainedEarningsMember2019-12-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-3100014909062019-12-310001490906us-gaap:RetainedEarningsMember2020-01-012020-03-3100014909062020-01-012020-03-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001490906us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001490906cffn:EmployeeStockOwnershipPlanMember2020-01-012020-03-310001490906us-gaap:CommonStockMember2020-03-310001490906us-gaap:AdditionalPaidInCapitalMember2020-03-310001490906cffn:EmployeeStockOwnershipPlanMember2020-03-310001490906us-gaap:RetainedEarningsMember2020-03-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100014909062020-03-310001490906us-gaap:RetainedEarningsMember2020-04-012020-06-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001490906us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001490906cffn:EmployeeStockOwnershipPlanMember2020-04-012020-06-300001490906us-gaap:CommonStockMember2020-06-300001490906us-gaap:AdditionalPaidInCapitalMember2020-06-300001490906cffn:EmployeeStockOwnershipPlanMember2020-06-300001490906us-gaap:RetainedEarningsMember2020-06-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001490906us-gaap:CommonStockMember2018-09-300001490906us-gaap:AdditionalPaidInCapitalMember2018-09-300001490906cffn:EmployeeStockOwnershipPlanMember2018-09-300001490906us-gaap:RetainedEarningsMember2018-09-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-09-3000014909062018-09-300001490906srt:CumulativeEffectPeriodOfAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2018-09-300001490906srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember2018-09-300001490906us-gaap:RetainedEarningsMember2018-10-012018-12-3100014909062018-10-012018-12-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-10-012018-12-310001490906us-gaap:AdditionalPaidInCapitalMember2018-10-012018-12-310001490906cffn:EmployeeStockOwnershipPlanMember2018-10-012018-12-310001490906us-gaap:CommonStockMember2018-10-012018-12-310001490906us-gaap:CommonStockMember2018-12-310001490906us-gaap:AdditionalPaidInCapitalMember2018-12-310001490906cffn:EmployeeStockOwnershipPlanMember2018-12-310001490906us-gaap:RetainedEarningsMember2018-12-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-3100014909062018-12-310001490906us-gaap:RetainedEarningsMember2019-01-012019-03-3100014909062019-01-012019-03-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-03-310001490906us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-310001490906cffn:EmployeeStockOwnershipPlanMember2019-01-012019-03-310001490906us-gaap:CommonStockMember2019-03-310001490906us-gaap:AdditionalPaidInCapitalMember2019-03-310001490906cffn:EmployeeStockOwnershipPlanMember2019-03-310001490906us-gaap:RetainedEarningsMember2019-03-310001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-3100014909062019-03-310001490906us-gaap:RetainedEarningsMember2019-04-012019-06-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-04-012019-06-300001490906us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-300001490906cffn:EmployeeStockOwnershipPlanMember2019-04-012019-06-300001490906us-gaap:CommonStockMember2019-04-012019-06-300001490906us-gaap:CommonStockMember2019-06-300001490906us-gaap:AdditionalPaidInCapitalMember2019-06-300001490906cffn:EmployeeStockOwnershipPlanMember2019-06-300001490906us-gaap:RetainedEarningsMember2019-06-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-3000014909062019-06-3000014909062019-10-010001490906srt:ScenarioForecastMembersrt:MinimumMemberus-gaap:AccountingStandardsUpdate201613Member2020-09-300001490906srt:MaximumMembersrt:ScenarioForecastMemberus-gaap:AccountingStandardsUpdate201613Member2020-09-300001490906cffn:AverageCommonSharesOutstandingMember2020-04-012020-06-300001490906cffn:AverageCommonSharesOutstandingMember2019-04-012019-06-300001490906cffn:AverageCommonSharesOutstandingMember2019-10-012020-06-300001490906cffn:AverageCommonSharesOutstandingMember2018-10-012019-06-300001490906cffn:AverageCommittedEmployeeStockOwnershipPlanSharesOutstandingMember2020-04-012020-06-300001490906cffn:AverageCommittedEmployeeStockOwnershipPlanSharesOutstandingMember2019-04-012019-06-300001490906cffn:AverageCommittedEmployeeStockOwnershipPlanSharesOutstandingMember2019-10-012020-06-300001490906cffn:AverageCommittedEmployeeStockOwnershipPlanSharesOutstandingMember2018-10-012019-06-300001490906us-gaap:ResidentialMortgageBackedSecuritiesMember2020-06-300001490906us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-06-300001490906us-gaap:MunicipalBondsMember2020-06-300001490906us-gaap:ResidentialMortgageBackedSecuritiesMember2019-09-300001490906us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-09-300001490906us-gaap:MunicipalBondsMember2019-09-3000014909062018-10-012019-09-300001490906us-gaap:DebtSecuritiesMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:ConstructionLoansMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:ConstructionLoansMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:ConstructionLoansMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:ConstructionLoansMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMember2019-09-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2020-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2019-09-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2019-09-300001490906us-gaap:ConsumerPortfolioSegmentMember2020-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2019-09-30xbrli:pure0001490906us-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMembercffn:OneToFourFamilyLoansOriginatedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercffn:OneToFourFamilyLoansOriginatedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2020-06-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMembercffn:FinancingReceivables30to89DaysPastDueMember2020-06-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2020-06-300001490906us-gaap:ConsumerPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMemberus-gaap:HomeEquityMember2020-06-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:ConsumerPortfolioSegmentMember2020-06-300001490906cffn:FinancingReceivables30to89DaysPastDueMember2020-06-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMembercffn:OneToFourFamilyLoansOriginatedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercffn:OneToFourFamilyLoansOriginatedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2019-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2019-09-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMembercffn:FinancingReceivables30to89DaysPastDueMember2019-09-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2019-09-300001490906us-gaap:ConsumerPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMemberus-gaap:HomeEquityMember2019-09-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2019-09-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMembercffn:FinancingReceivables30to89DaysPastDueMember2019-09-300001490906us-gaap:ConsumerLoanMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMemberus-gaap:ConsumerPortfolioSegmentMember2019-09-300001490906cffn:FinancingReceivables30to89DaysPastDueMember2019-09-300001490906us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember2019-09-300001490906us-gaap:DoubtfulMember2020-06-300001490906us-gaap:DoubtfulMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMembercffn:OneToFourFamilyLoansOriginatedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMembercffn:OneToFourFamilyLoansOriginatedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMembercffn:OneToFourFamilyLoansOriginatedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMembercffn:OneToFourFamilyLoansOriginatedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-06-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-09-300001490906us-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:SpecialMentionMember2019-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMemberus-gaap:SubstandardMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300001490906us-gaap:SubstandardMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMemberus-gaap:SpecialMentionMember2019-09-300001490906us-gaap:SubstandardMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2019-09-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMemberus-gaap:SpecialMentionMember2020-06-300001490906us-gaap:SubstandardMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMemberus-gaap:SpecialMentionMember2019-09-300001490906us-gaap:SubstandardMemberus-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2019-09-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:SpecialMentionMemberus-gaap:HomeEquityMember2020-06-300001490906us-gaap:SubstandardMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2020-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:SpecialMentionMemberus-gaap:HomeEquityMember2019-09-300001490906us-gaap:SubstandardMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2019-09-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:SpecialMentionMember2020-06-300001490906us-gaap:SubstandardMemberus-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMemberus-gaap:SpecialMentionMember2019-09-300001490906us-gaap:SubstandardMemberus-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2019-09-300001490906us-gaap:SpecialMentionMember2020-06-300001490906us-gaap:SubstandardMember2020-06-300001490906us-gaap:SpecialMentionMember2019-09-300001490906us-gaap:SubstandardMember2019-09-30cffn:credit_scorecffn:contract0001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2020-04-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2019-10-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-04-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-10-012020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2020-04-012020-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2020-04-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2020-04-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2019-10-012020-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2020-04-012020-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2019-10-012020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2020-04-012020-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2019-04-012019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2018-10-012019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-04-012019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2018-10-012019-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2019-04-012019-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2018-10-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2019-04-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialRealEstatePortfolioSegmentMember2018-10-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2019-04-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMemberus-gaap:CommercialLoanMember2018-10-012019-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2019-04-012019-06-300001490906us-gaap:ConsumerPortfolioSegmentMemberus-gaap:HomeEquityMember2018-10-012019-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2019-04-012019-06-300001490906us-gaap:ConsumerLoanMemberus-gaap:ConsumerPortfolioSegmentMember2018-10-012019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2020-03-310001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2020-03-310001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2020-03-310001490906us-gaap:ResidentialPortfolioSegmentMember2020-03-310001490906us-gaap:CommercialPortfolioSegmentMember2020-03-310001490906us-gaap:ConsumerPortfolioSegmentMember2020-03-310001490906us-gaap:ResidentialPortfolioSegmentMember2020-04-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMember2020-04-012020-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2020-04-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:CommercialPortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2019-10-012020-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2019-03-310001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-03-310001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2019-03-310001490906us-gaap:ResidentialPortfolioSegmentMember2019-03-310001490906us-gaap:CommercialPortfolioSegmentMember2019-03-310001490906us-gaap:ConsumerPortfolioSegmentMember2019-03-310001490906us-gaap:ResidentialPortfolioSegmentMember2019-04-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMember2019-04-012019-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2019-04-012019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2019-06-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2019-06-300001490906us-gaap:ResidentialPortfolioSegmentMember2019-06-300001490906us-gaap:CommercialPortfolioSegmentMember2019-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2019-06-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansOriginatedMember2018-09-300001490906us-gaap:ResidentialPortfolioSegmentMembercffn:OneToFourFamilyLoansCorrespondentPurchasedMember2018-09-300001490906cffn:OneToFourFamilyLoansBulkPurchasedMemberus-gaap:ResidentialPortfolioSegmentMember2018-09-300001490906us-gaap:ResidentialPortfolioSegmentMember2018-09-300001490906us-gaap:CommercialPortfolioSegmentMember2018-09-300001490906us-gaap:ConsumerPortfolioSegmentMember2018-09-300001490906us-gaap:ResidentialPortfolioSegmentMember2018-10-012019-06-300001490906us-gaap:CommercialPortfolioSegmentMember2018-10-012019-06-300001490906us-gaap:ConsumerPortfolioSegmentMember2018-10-012019-06-300001490906cffn:PrepaidFHLBAdvancesMember2020-06-300001490906cffn:PrepaidFHLBAdvancesMember2019-10-012020-06-300001490906cffn:ReplacementFHLBAdvancesMember2020-06-300001490906cffn:ReplacementFHLBAdvancesMember2019-10-012020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-06-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ResidentialMortgageBackedSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:ResidentialMortgageBackedSecuritiesMember2020-06-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ResidentialMortgageBackedSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ResidentialMortgageBackedSecuritiesMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMemberus-gaap:FairValueInputsLevel1Member2020-06-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MunicipalBondsMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2020-06-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-06-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-09-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:ResidentialMortgageBackedSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:ResidentialMortgageBackedSecuritiesMember2019-09-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:ResidentialMortgageBackedSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:ResidentialMortgageBackedSecuritiesMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMemberus-gaap:FairValueInputsLevel1Member2019-09-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:MunicipalBondsMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MunicipalBondsMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMember2019-09-300001490906us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Member2019-09-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001490906us-gaap:FairValueInputsLevel3Member2020-06-300001490906us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-06-300001490906us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2019-06-300001490906us-gaap:FairValueInputsLevel3Member2019-06-300001490906us-gaap:MeasurementInputCostToSellMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMember2020-06-300001490906us-gaap:FairValueInputsLevel3Membersrt:MinimumMemberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountForLackOfMarketabilityMember2020-06-300001490906srt:MaximumMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountForLackOfMarketabilityMember2020-06-300001490906srt:WeightedAverageMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsNonrecurringMemberus-gaap:MeasurementInputDiscountForLackOfMarketabilityMember2020-06-300001490906us-gaap:CarryingReportedAmountFairValueDisclosureMember2020-06-300001490906us-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300001490906us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300001490906us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-06-300001490906us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-09-300001490906us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-09-300001490906us-gaap:FairValueInputsLevel1Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-09-300001490906us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-09-300001490906us-gaap:FairValueInputsLevel3Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-09-300001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2020-03-310001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-03-310001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2020-06-300001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2020-06-300001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2019-09-300001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-09-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-10-012020-06-300001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2019-03-310001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-03-310001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2019-06-300001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2019-06-300001490906us-gaap:AccumulatedNetInvestmentGainLossIncludingPortionAttributableToNoncontrollingInterestMember2018-09-300001490906us-gaap:AccumulatedGainLossCashFlowHedgeIncludingNoncontrollingInterestMember2018-09-300001490906us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-10-012019-06-300001490906srt:MinimumMember2020-06-300001490906srt:MaximumMember2020-06-30

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-2631712
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
700 South Kansas Avenue, Topeka,Kansas66603
(Address of principal executive offices)(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
par value $0.01 per share
CFFNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 July 31, 2020, there were 141,515,596 shares of Capitol Federal Financial, Inc. common stock outstanding.



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




PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, September 30,
20202019
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $381,946 and $198,809)
$396,219  $220,370  
Available-for-sale ("AFS") securities, at estimated fair value1,220,054  1,204,863  
Loans receivable, net (allowance for credit losses ("ACL") of $31,215 and $9,226)
7,388,090  7,416,747  
Federal Home Loan Bank Topeka ("FHLB") stock, at cost102,782  98,456  
Premises and equipment, net98,953  96,784  
Income taxes receivable, net1,655  2  
Other assets351,061  302,796  
TOTAL ASSETS$9,558,814  $9,340,018  
LIABILITIES:
Deposits$6,069,684  $5,581,867  
Borrowings1,989,089  2,239,989  
Advance payments by borrowers for taxes and insurance39,125  65,686  
Deferred income tax liabilities, net10,942  14,282  
Accounts payable and accrued expenses149,454  101,868  
Total liabilities8,258,294  8,003,692  
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, 141,511,716 and 141,440,030
shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively1,415  1,414  
Additional paid-in capital1,211,653  1,210,226  
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(33,453) (34,692) 
Retained earnings138,496  174,277  
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(17,591) (14,899) 
Total stockholders' equity1,300,520  1,336,326  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,558,814  $9,340,018  
See accompanying notes to consolidated financial statements.

3


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2020201920202019
INTEREST AND DIVIDEND INCOME:
Loans receivable$66,652  $71,434  $206,179  $213,863  
Mortgage-backed securities ("MBS")5,616  6,613  17,584  19,437  
FHLB stock1,207  1,865  4,747  5,667  
Investment securities847  1,835  3,736  4,781  
Cash and cash equivalents59  464  1,126  2,921  
Total interest and dividend income74,381  82,211  233,372  246,669  
INTEREST EXPENSE:
Deposits16,533  16,909  52,299  48,730  
Borrowings11,561  13,621  37,421  41,360  
Total interest expense28,094  30,530  89,720  90,090  
NET INTEREST INCOME46,287  51,681  143,652  156,579  
PROVISION FOR CREDIT LOSSES  450  22,300  450  
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES46,287  51,231  121,352  156,129  
NON-INTEREST INCOME:
Deposit service fees2,539  3,131  8,384  9,581  
Insurance commissions671  905  1,762  2,072  
Other non-interest income1,229  1,638  4,468  4,446  
Total non-interest income4,439  5,674  14,614  16,099  
NON-INTEREST EXPENSE:
Salaries and employee benefits13,059  13,454  39,765  39,205  
Information technology and related expense4,285  4,652  12,694  13,535  
Occupancy, net3,556  3,224  10,212  9,768  
Regulatory and outside services1,548  1,425  4,188  4,247  
Advertising and promotional1,004  1,447  3,773  3,597  
Deposit and loan transaction costs697  681  2,086  1,882  
Office supplies and related expense475  689  1,586  1,884  
Federal insurance premium287  600  287  1,787  
Other non-interest expense1,253  1,519  4,237  4,709  
Total non-interest expense26,164  27,691  78,828  80,614  
INCOME BEFORE INCOME TAX EXPENSE24,562  29,214  57,138  91,614  
INCOME TAX EXPENSE5,088  6,317  10,877  19,780  
NET INCOME$19,474  $22,897  $46,261  $71,834  
Basic earnings per share ("EPS")$0.14  $0.17  $0.34  $0.52  
Diluted EPS$0.14  $0.17  $0.34  $0.52  
Basic weighted average common shares138,018,052  137,720,480  137,961,231  137,635,099  
Diluted weighted average common shares138,018,052  137,787,528  137,992,978  137,690,434  
See accompanying notes to consolidated financial statements.
4


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2020201920202019
Net income$19,474  $22,897  $46,261  $71,834  
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on AFS securities arising during the period,
net of taxes of $(1,775), $(1,317), $(4,962) and $(3,432)
5,533  4,102  15,459  10,690  
Changes in unrealized gains (losses) on cash flow hedges,
net of taxes of $367, $3,601, $5,826 and $8,847
(1,146) (11,218) (18,151) (27,562) 
Comprehensive (loss) income$23,861  $15,781  $43,569  $54,962  
See accompanying notes to consolidated financial statements.

5


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Nine Months Ended June 30, 2020
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2019$1,414  $1,210,226  $(34,692) $174,277  $(14,899) $1,336,326  
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-0288  88  
Net income22,511  22,511  
Other comprehensive income, net of tax4,972  4,972  
ESOP activity169  413  582  
Restricted stock activity, net(1) (1) 
Stock-based compensation166  166  
Stock options exercised1  612  613  
Cash dividends to stockholders ($0.425 per share)
(58,663) (58,663) 
Balance at December 31, 2019$1,415  $1,211,172  $(34,279) $138,213  $(9,927) $1,306,594  
Net income4,276  4,276  
Other comprehensive loss, net of tax(12,051) (12,051) 
ESOP activity117  413  530  
Stock-based compensation152  152  
Stock options exercised25  25  
Cash dividends to stockholders ($0.085 per share)
(11,733) (11,733) 
Balance at March 31, 20201,415  1,211,466  (33,866) 130,756  (21,978) 1,287,793  
Net income19,474  19,474  
Other comprehensive income, net of tax4,387  4,387  
ESOP activity61  413  474  
Restricted stock activity, net(6) (6) 
Stock-based compensation132  132  
Cash dividends to stockholders ($0.085 per share)
(11,734) (11,734) 
Balance at June 30, 2020$1,415  $1,211,653  $(33,453) $138,496  $(17,591) $1,300,520  
(Continued)
6


For the Nine Months Ended June 30, 2019
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2018$1,412  $1,207,644  $(36,343) $214,569  $4,340  $1,391,622  
Cumulative effect of adopting ASU 2014-09394  394  
Net income24,383  24,383  
Other comprehensive loss, net of tax(6,217) (6,217) 
ESOP activity118  413  531  
Stock-based compensation95  95  
Stock options exercised1  466  467  
Cash dividends to stockholders ($0.475 per share)
(65,362) (65,362) 
Balance at December 31, 2018$1,413  $1,208,323  $(35,930) $173,984  $(1,877) $1,345,913  
Net income24,554  24,554  
Other comprehensive loss, net of tax(3,539) (3,539) 
ESOP activity134  413  547  
Stock-based compensation90  90  
Stock options exercised118  118  
Cash dividends to stockholders ($0.085 per share)
(11,700) (11,700) 
Balance at March 31, 20191,413  1,208,665  (35,517) 186,838  (5,416) 1,355,983  
Net income22,897  22,897  
Other comprehensive loss, net of tax(7,116) (7,116) 
ESOP activity147  413  560  
Stock-based compensation167  167  
Stock options exercised1  761  762  
Cash dividends to stockholders ($0.335 per share)
(46,154) (46,154) 
Balance at June 30, 2019$1,414  $1,209,740  $(35,104) $163,581  $(12,532) $1,327,099  
See accompanying notes to consolidated financial statements.

7


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$46,261  $71,834  
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(4,747) (5,667) 
Provision for credit losses22,300  450  
Amortization and accretion of premiums and discounts on securities999  959  
Depreciation and amortization of premises and equipment6,812  6,907  
Amortization of intangible assets1,493  1,766  
Amortization of deferred amounts related to FHLB advances, net315  6  
Common stock committed to be released for allocation - ESOP1,586  1,638  
Stock-based compensation450  352  
Changes in:
Unrestricted cash collateral (provided to)/received from derivative counterparties, net  (9,970) 
Other assets, net5,049  2,962  
Income taxes payable/receivable, net(1,649) 1,679  
Deferred income tax liabilities, net(2,507) (699) 
Accounts payable and accrued expenses(7,225) (16,691) 
Net cash provided by operating activities69,137  55,526  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities(465,764) (286,488) 
Proceeds from calls, maturities and principal reductions of AFS securities469,995  246,648  
Proceeds from calls, maturities and principal reductions of held-to-maturity ("HTM") securities  126,684  
Proceeds from the redemption of FHLB stock421  102,554  
Purchase of FHLB stock  (97,270) 
Net change in loans receivable6,120  5,533  
Purchase of premises and equipment(9,422) (8,846) 
Proceeds from sale of other real estate owned ("OREO")993  1,624  
Proceeds from bank-owned life insurance ("BOLI") death benefit490    
Net cash provided by investing activities2,833  90,439  
(Continued)
8


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Nine Months Ended
June 30,
20202019
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(82,130) (123,216) 
Net change in deposits487,817  (22,483) 
Proceeds from borrowings1,325,600  3,043,700  
Repayments on borrowings(1,572,600) (3,088,752) 
Change in advance payments by borrowers for taxes and insurance(26,561) (25,495) 
Payment of FHLB prepayment penalties(4,215)   
Stock options exercised638  1,347  
Net cash provided by (used in) financing activities128,549  (214,899) 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS200,519  (68,934) 
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period253,700  139,055  
End of period$454,219  $70,121  
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Operating lease right-of-use assets obtained$16,841  $  
Operating lease liabilities obtained$16,726  $  
See accompanying notes to consolidated financial statements.(Concluded)
9


Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, 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 $396.2 million and $220.4 million at June 30, 2020 and September 30, 2019, respectively, and restricted cash and cash equivalents of $58.0 million and $33.3 million at June 30, 2020 and September 30, 2019, 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.

Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into certain FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows. There was no FHLB advance activity reported on a net basis in the consolidated statements of cash flows during the nine months ended June 30, 2020 and 2019.

Leases - The Company leases real estate property for branches, ATMs, and certain equipment. All of the leases in which the Company is the lessee are classified as operating leases. The Company determines if an arrangement is a lease at inception and if the lease is an operating lease or a finance lease.

Operating lease right-of-use assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. The right-of-use assets associated with operating leases are recorded in other assets in the Company's consolidated balance sheets. The lease liabilities associated with operating leases are included in accounts payable and accrued expenses on the consolidated balance sheets. The period over which the right-of-use asset is amortized is generally the lesser of the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable.

The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company cannot practically determine the interest rate implicit in the lease so the Company's incremental borrowing rate is used as the discount rate for the lease. The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease. For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was applied. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Company's consolidated statements of income. For facility-related leases, the Company elected, by lease class, to not separate lease and non-lease components. Lease expense is recognized on a straight-line basis over the lease term. Variable lease expense primarily represents payments such as common area maintenance and utilities and are recognized as expense in the period when those payments are incurred. Short-term lease expense relates to leases with an initial term of 12 months or less. The Company has elected to not record a right-of-use asset or lease liability for short-term leases.

Recent Accounting Pronouncements - In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases. The ASU, as amended, revises lease accounting guidance by requiring that lessees recognize the assets and liabilities arising
10


from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. In July 2018, the FASB issued ASU 2018-11, Leases, which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition. The ASU, as amended, became effective for the Company on October 1, 2019. Upon adoption, the Company elected the modified retrospective approach and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. The optional practical expedients the Company elected include: (1) not reassessing whether any expired or existing contracts are or contain leases, (2) not reassessing the classification of any expired or existing contracts, (3) not reassessing initial direct costs for existing leases, and (4) using hindsight for leases existing at adoption date. For leases with an initial term of 12 months or less, the Company elected the short-term lease option, which entails not recognizing right-of-use assets and lease liabilities for these leases. Additionally, the Company elected, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components. Upon adoption, the Company recognized a right-of-use asset of $15.7 million and a lease liability of $15.5 million, related to the Company's non-cancellable operating lease commitments based on the present value of the expected remaining lease payments as of October 1, 2019. The cumulative-effect adjustment to retained earnings at the time of adoption totaled $88 thousand. These ASUs did not have a material impact on the Company's results of operations and cash flows at the time of adoption. The disclosures required by the ASU are included in Note 9. Leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU, as amended, replaces the incurred loss impairment methodology in current GAAP, which requires credit losses to be recognized when it is probable that a loss has been incurred, with a new impairment methodology. The new impairment 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 loan commitments, over their contractual lives. Under the new impairment methodology, expected credit losses will be 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 as per current GAAP. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU will become effective for the Company on October 1, 2020. Upon adoption, a cumulative-effect adjustment for the change in the allowance for credit losses and reserves on unfunded commitments will be recognized in retained earnings. The Company has been working with a software provider on the application and implementation of the new accounting guidance. The Company has determined its loan segmentation and the methodologies that will be utilized for each loan segment. Management is in the process of reviewing and selecting several assumptions including a reasonable and supportable forecast time period, a reversion methodology, prepayment and curtailment speeds, among others. Management is also in the process of preparing supporting documentation and developing internal controls, policies, and procedures. During the remainder of fiscal year 2020, the Company is planning more processing runs, as well as analyzing model sensitivity to various assumptions. At June 30, 2020, the Company ran the model using various assumptions and forecast scenarios. Preliminary results indicate that our ACL and reserves on unfunded commitments would be between $20 million and our current level of approximately $32 million. The ACL calculated under the new methodology could be lower than that under the existing incurred loss methodology due to having the ability to forecast improvement in economic conditions over a loan's contractual life rather than only being able to consider current conditions as is allowed under the incurred loss methodology. The preliminary results will likely change at adoption due to factors including, but not limited to, changes in current economic conditions, forecasted economic conditions, the Company's credit quality trends, and further refinement of model assumptions.

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. The effective date of this ASU for the Company is October 1, 2020, with early adoption permitted. Entities are allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. Since this ASU only requires disclosure changes, it is not expected to have a significant impact on the Company's consolidated financial condition and results of operations.

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 license). The effective date of this ASU for the Company is October 1, 2020, with early adoption permitted. The Company is currently evaluating the effect of the ASU on the Company's consolidated financial condition, results of operations and 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
11


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. The effective date of the non-hedging amendments contained in ASU 2019-04 for the Company is October 1, 2020. The Company is currently evaluating the effect of the non-hedging amendments contained in this ASU on the Company's consolidated financial condition, results of operations and disclosures.

12


2. EARNINGS PER SHARE
Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
For the Three Months EndedFor the Nine Months Ended
June 30, June 30,
2020201920202019
(Dollars in thousands, except per share amounts)
Net income$19,474  $22,897  $46,261  $71,834  
Income allocated to participating securities(16) (16) (38) (35) 
Net income available to common stockholders$19,458  $22,881  $46,223  $71,799  
Average common shares outstanding137,935,000  137,637,428  137,919,631  137,593,497  
Average committed ESOP shares outstanding83,052  83,052  41,600  41,602  
Total basic average common shares outstanding138,018,052  137,720,480  137,961,231  137,635,099  
Effect of dilutive stock options  67,048  31,747  55,335  
Total diluted average common shares outstanding138,018,052  137,787,528  137,992,978  137,690,434  
Net EPS:
Basic$0.14  $0.17  $0.34  $0.52  
Diluted$0.14  $0.17  $0.34  $0.52  
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation813,645  457,486  405,522  491,669  

13


3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States government-sponsored enterprises ("GSEs").
June 30, 2020
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$949,348  $33,304  $65  $982,587  
GSE debentures225,020  480    225,500  
Municipal bonds 11,857  110    11,967  
$1,186,225  $33,894  $65  $1,220,054  

September 30, 2019
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$923,256  $15,571  $2,340  $936,487  
GSE debentures249,828  304  178  249,954  
Municipal bonds 18,371  52  1  18,422  
$1,191,455  $15,927  $2,519  $1,204,863  

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
June 30, 2020
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
MBS$37,115  $64  $147  $1  
GSE debentures        
Municipal bonds         
$37,115  $64  $147  $1  

September 30, 2019
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
MBS$111,368  $126  $199,442  $2,214  
GSE debentures    74,812  178  
Municipal bonds 1,755  1      
$113,123  $127  $274,254  $2,392  

14


The unrealized losses at June 30, 2020 and September 30, 2019 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 generally views changes in fair value caused by changes in market yields as temporary. Therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends 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. As a result of the analysis, management has concluded that no other-than-temporary impairments existed at June 30, 2020 or September 30, 2019.
The amortized cost and estimated fair value of AFS debt securities as of June 30, 2020, 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 prepayment penalty. For this reason, MBS are not included in the maturity categories.
AmortizedEstimated
CostFair Value
(Dollars in thousands)
One year or less$5,467  $5,497  
One year through five years231,410  231,970  
236,877  237,467  
MBS949,348  982,587  
$1,186,225  $1,220,054  

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
2020201920202019
(Dollars in thousands)
Taxable$797  $1,749  $3,556  $4,516  
Non-taxable50  86  180  265  
$847  $1,835  $3,736  $4,781  


The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
June 30, 2020September 30, 2019
(Dollars in thousands)
Public unit deposits$340,751  $381,143  
Federal Reserve Bank of Kansas City ("FRB of Kansas City")315,149  6,636  
Repurchase agreements106,625  108,271  
$762,525  $496,050  

15


4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
June 30, 2020September 30, 2019
(Dollars in thousands)
One- to four-family:
Originated$3,955,668  $3,873,851  
Correspondent purchased2,268,031  2,349,877  
Bulk purchased217,652  252,347  
Construction36,595  36,758  
Total6,477,946  6,512,833  
Commercial:
Commercial real estate625,106  583,617  
Commercial and industrial 99,735  61,094  
Construction87,448  123,159  
Total812,289  767,870  
Consumer:
Home equity107,174  120,587  
Other10,033  11,183  
Total117,207  131,770  
Total loans receivable7,407,442  7,412,473  
Less:
ACL31,215  9,226  
Discounts/unearned loan fees 30,312  31,058  
Premiums/deferred costs(42,175) (44,558) 
$7,388,090  $7,416,747  

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, loan-to-value ("LTV")
16


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

The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing 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. These segments are further divided into classes for purposes of providing disaggregated information about the credit quality of 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.

The Bank's primary credit quality indicators for the one- to four-family and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial and consumer - other loan portfolios are delinquency status and asset classifications.

17


The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At June 30, 2020 and September 30, 2019, all loans 90 or more days delinquent were on nonaccrual status.
June 30, 2020
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentRecorded
Delinquentin ForeclosureLoansLoansInvestment
(Dollars in thousands)
One- to four-family:
Originated$5,058  $4,012  $9,070  $3,969,051  $3,978,121  
Correspondent purchased2,963  2,781  5,744  2,291,891  2,297,635  
Bulk purchased4,579  1,305  5,884  212,753  218,637  
Commercial:
Commercial real estate1,373  546  1,919  707,744  709,663  
Commercial and industrial 169  165  334  97,823  98,157  
Consumer:
Home equity393  249  642  106,448  107,090  
Other38  30  68  9,934  10,002  
$14,573  $9,088  $23,661  $7,395,644  $7,419,305  
September 30, 2019
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentRecorded
Delinquentin ForeclosureLoansLoansInvestment
(Dollars in thousands)
One- to four-family:
Originated$7,187  $3,261  $10,448  $3,885,335  $3,895,783  
Correspondent purchased2,762  1,023  3,785  2,377,629  2,381,414  
Bulk purchased3,624  1,484  5,108  248,376  253,484  
Commercial:
Commercial real estate762    762  702,377  703,139  
Commercial and industrial 70  173  243  60,340  60,583  
Consumer:
Home equity446  302  748  119,688  120,436  
Other78  21  99  11,035  11,134  
$14,929  $6,264  $21,193  $7,404,780  $7,425,973  

The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of June 30, 2020 and September 30, 2019 was $2.6 million and $1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table 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 $183 thousand at June 30, 2020 and $745 thousand at September 30, 2019.
18



The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.
June 30, 2020September 30, 2019
(Dollars in thousands)
One- to four-family:
Originated$4,955  $4,436  
Correspondent purchased2,971  1,023  
Bulk purchased1,305  1,551  
Commercial:
Commercial real estate546    
Commercial and industrial 165  173  
Consumer:
Home equity282  337  
Other30  21  
$10,254  $7,541  

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.

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
June 30, 2020September 30, 2019
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family:
Originated$10,611  $16,401  $12,941  $15,628  
Correspondent purchased1,667  5,168  2,349  2,785  
Bulk purchased  5,102  102  5,294  
Commercial:
Commercial real estate50,969  3,192  52,891  2,472  
Commercial and industrial 1,072  1,931  1,215  3,057  
Consumer:
Home equity318  534  280  696  
Other  30  2  24  
$64,637  $32,358  $69,780  $29,956  

19


The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and consumer home equity loans at the dates presented. Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts. Credit scores are updated at least annually, with the last update in June 2020, from a nationally recognized consumer rating agency. The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable.  The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
June 30, 2020September 30, 2019
Credit ScoreLTVCredit ScoreLTV
One- to four-family - originated77062 %76862 %
One- to four-family - correspondent76564  76565  
One- to four-family - bulk purchased 76860  76261  
Consumer - home equity75519  75419  
76862  76662  



20


Troubled Debt Restructurings ("TDRs") - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investment at the end of the periods indicated. Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2020
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated  $  $  5  $241  $242  
Correspondent purchased      1  192  191  
Bulk purchased      1  75  134  
Commercial:
Commercial real estate      1  837  837  
Commercial and industrial             
Consumer:
Home equity      2  45  44  
Other            
  $  $  10  $1,390  $1,448  
For the Three Months Ended For the Nine Months Ended
June 30, 2019June 30, 2019
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated  $  $  1  $117  $117  
Correspondent purchased            
Bulk purchased1  69  69  2  377  377  
Commercial:
Commercial real estate            
Commercial and industrial             
Consumer:
Home equity            
Other            
1  $69  $69  3  $494  $494  

21


The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
Number ofRecordedNumber ofRecordedNumber ofRecordedNumber ofRecorded
ContractsInvestmentContractsInvestmentContractsInvestmentContractsInvestment
(Dollars in thousands)
One- to four-family:
Originated  $    $  1  $38  1  $45  
Correspondent purchased                
Bulk purchased        1  134      
Commercial:
Commercial real estate                
Commercial and industrial                 
Consumer:
Home equity        1  9      
Other                
  $    $  3  $181  1  $45  

In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the Coronavirus Disease 2019 ("COVID-19") pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest, and in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period, but an option for a three- to six-month forbearance of principal and interest was also available to our borrowers. The COVID-19 loan modification programs are consistent with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or interagency guidance from the federal banking agencies on such programs, and the Company has followed such guidance when determining if a borrower's modification is subject to TDR classification. If it is determined that the modification is not short-term, not related to financial hardship resulting from COVID-19, or the customer does not meet the criteria under the guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance under the COVID-19 loan modification program are not reported as past due or placed on nonaccrual status during the forbearance time period.


22


Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented.
June 30, 2020September 30, 2019
UnpaidUnpaid
RecordedPrincipalRelatedRecordedPrincipalRelated
InvestmentBalanceACLInvestmentBalanceACL
(Dollars in thousands)
With no related allowance recorded
One- to four-family:
Originated$13,306  $13,781  $—  $14,683  $15,241  $—  
Correspondent purchased1,951  2,054  —  1,763  1,868  —  
Bulk purchased4,573  5,293  —  4,943  5,661  —  
Commercial:
Commercial real estate1,733  2,060  —      —  
Commercial and industrial 103  248  —  60  184  —  
Consumer:
Home equity289  393  —  345  462  —  
Other  35  —    29  —  
21,955  23,864  —  21,794  23,445  —  
With an allowance recorded
One- to four-family:
Originated            
Correspondent purchased            
Bulk purchased            
Commercial:
Commercial real estate            
Commercial and industrial 1,771  1,770  240        
Consumer:
Home equity            
Other            
1,771  1,770  240        
Total
One- to four-family:
Originated13,306  13,781    14,683  15,241    
Correspondent purchased1,951  2,054    1,763  1,868    
Bulk purchased4,573  5,293    4,943  5,661    
Commercial:
Commercial real estate1,733  2,060          
Commercial and industrial 1,874  2,018  240  60  184    
Consumer:
Home equity289  393    345  462    
Other  35      29    
$23,726  $25,634  $240  $21,794  $23,445  $  
23


The following information pertains to impaired loans, by class, for the periods presented.
For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2019June 30, 2020June 30, 2019
AverageInterestAverageInterestAverageInterestAverageInterest
RecordedIncomeRecordedIncomeRecordedIncomeRecordedIncome
InvestmentRecognizedInvestmentRecognizedInvestmentRecognizedInvestmentRecognized
(Dollars in thousands)
With no related allowance recorded
One- to four-family:
Originated$13,865  $150  $15,235  $163  $14,273  $472  $16,450  $515  
Correspondent purchased1,949  19  2,007  20  1,855  56  2,162  65  
Bulk purchased4,814  46  5,114  48  4,910  148  5,350  134  
Commercial:
Commercial real estate817  5      494  9      
Commercial and industrial 26        24        
Consumer:
Home equity319  4  381  6  329  15  435  22  
Other1                
21,791  224  22,737  237  21,885  700  24,397  736  
With an allowance recorded
One- to four-family:
Originated                
Correspondent purchased                
Bulk purchased                
Commercial:
Commercial real estate                
Commercial and industrial 1,875  24      1,440  78      
Consumer:
Home equity                
Other                
1,875  24      1,440  78      
Total
One- to four-family:
Originated13,865  150  15,235  163  14,273  472  16,450  515  
Correspondent purchased1,949  19  2,007  20  1,855  56  2,162  65  
Bulk purchased4,814  46  5,114  48  4,910  148  5,350  134  
Commercial:
Commercial real estate817  5      494  9      
Commercial and industrial 1,901  24      1,464  78      
Consumer:
Home equity319  4  381  6  329  15  435  22  
Other1                
$23,666  $248  $22,737  $237  $23,325  $778  $24,397  $736  
24


Allowance for Credit Losses - The Bank maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics.  Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model.  The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.  Due to the deterioration of economic conditions as a result of the COVID-19 pandemic, management increased some of the historical loss factors and qualitative factors in the formula analysis model to account for the increase in the estimated inherent losses in the loan portfolio at March 31, 2020. The significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic carried into the June 30, 2020 quarter. The increase in the historical loss factors and qualitative factors due to the deterioration of economic conditions accounts for the majority of the increase in the ACL during the current fiscal year. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology.
For the Three Months Ended June 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$6,467  $3,355  $557  $10,379  $20,328  $489  $31,196  
Charge-offs          (5) (5) 
Recoveries        17  7  24  
Provision for credit losses(121) (166) (51) (338) 359  (21)   
Ending balance$6,346  $3,189  $506  $10,041  $20,704  $470  $31,215  

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

25


For the Three Months Ended June 30, 2019
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,173  $1,392  $802  $4,367  $4,088  $164  $8,619  
Charge-offs(45)     (45)   (16) (61) 
Recoveries3      3  17  8  28  
Provision for credit losses(95) (117) (60) (272) 727  (5) 450  
Ending balance$2,036  $1,275  $742  $4,053  $4,832  $151  $9,036  
For the Nine Months Ended June 30, 2019
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,953  $1,861  $925  $5,739  $2,556  $168  $8,463  
Charge-offs(75)   (26) (101)   (28) (129) 
Recoveries8    106  114  44  94  252  
Provision for credit losses(850) (586) (263) (1,699) 2,232  (83) 450  
Ending balance$2,036  $1,275  $742  $4,053  $4,832  $151  $9,036  

The following is a summary of the loan portfolio and related ACL balances, at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method.
June 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Recorded investment in loans:
Collectively evaluated for impairment$3,964,815  $2,295,684  $214,064  $6,474,563  $804,213  $116,803  $7,395,579  
Individually evaluated for impairment13,306  1,951  4,573  19,830  3,607  289  23,726  
$3,978,121  $2,297,635  $218,637  $6,494,393  $807,820  $117,092  $7,419,305  
ACL for loans:
Collectively evaluated for impairment$6,346  $3,189  $506  $10,041  $20,464  $470  $30,975  
Individually evaluated for impairment        240    240  
$6,346  $3,189  $506  $10,041  $20,704  $470  $31,215  

26


September 30, 2019
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Recorded investment in loans:
Collectively evaluated for impairment$3,881,100  $2,379,651  $248,541  $6,509,292  $763,662  $131,225  $7,404,179  
Individually evaluated for impairment14,683  1,763  4,943  21,389  60  345  21,794  
$3,895,783  $2,381,414  $253,484  $6,530,681  $763,722  $131,570  $7,425,973  
ACL for loans:
Collectively evaluated for impairment$2,000  $1,203  $687  $3,890  $5,171  $165  $9,226  
Individually evaluated for impairment              
$2,000  $1,203  $687  $3,890  $5,171  $165  $9,226  
27


5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At June 30, 2020 and September 30, 2019, the Bank had entered into interest rate swap agreements with a total notional amount of $640.0 million in order to hedge the variable cash flows associated with $640.0 million of adjustable-rate FHLB advances. At June 30, 2020 and September 30, 2019, the interest rate swap agreements had an average remaining term to maturity of 3.8 years and 4.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At June 30, 2020 and September 30, 2019, the interest rate swaps were in a loss position with a total fair value of $57.1 million and $33.1 million, respectively, which was reported in accounts payable and accrued expenses on the consolidated balance sheet. During the three and nine months ended June 30, 2020, $1.7 million and $3.4 million, respectively, was reclassified from AOCI as an increase to interest expense. During the three and nine months ended June 30, 2019, $55 thousand and $106 thousand, respectively, was reclassified from AOCI as an increase to interest expense. At June 30, 2020, the Company estimated that $15.4 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 $58.0 million at June 30, 2020 and $33.3 million at September 30, 2019.

During the current nine month period, the Bank prepaid fixed-rate FHLB advances totaling $350.0 million with a weighted average contractual interest rate of 2.42% and a weighted average remaining term of 1.0 years, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average contractual interest rate of 1.43% and a weighted average term of 4.7 years. The Bank paid penalties totaling $4.2 million to FHLB as a result of prepaying the FHLB advances. The prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.






28


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

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

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

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

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

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the nine months ended June 30, 2020 or during fiscal year 2019. 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 accounts payable and accrued expenses 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 during the nine months ended June 30, 2020 or during fiscal year 2019. (Level 2)

29


The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company did not have any Level 3 financial instruments measured at fair value on a recurring basis at June 30, 2020 or September 30, 2019.
June 30, 2020
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$982,587  $  $982,587  $  
GSE debentures225,500    225,500    
Municipal bonds11,967    11,967    
$1,220,054  $  $1,220,054  $  
Liabilities:
Interest rate swaps$57,067  $  $57,067  $  

September 30, 2019
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$936,487  $  $936,487  $  
GSE debentures249,954    249,954    
Municipal bonds18,422    18,422    
$1,204,863  $  $1,204,863  $  
Liabilities:
Interest rate swaps$33,090  $  $33,090  $  

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

Loans Receivable - The fair value of impaired loans individually evaluated for impairment on a non-recurring basis during the nine months ended June 30, 2020 and 2019 that were still held in the portfolio as of June 30, 2020 and 2019 was $6.0 million and $4.6 million, respectively.

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 impaired
30


commercial loans individually evaluated for impairment during the nine months ended June 30, 2020 were downward adjustments to the book value of the collateral for lack of marketability. The adjustments ranged from 4% to 50%, with a weighted average of 17%. There were no impaired commercial loans individually evaluated during the nine months ended June 30, 2019.

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

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the nine months ended June 30, 2020 and 2019 that was still held in the portfolio as of June 30, 2020 and 2019 was $183 thousand and $333 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at June 30, 2020 and 2019.

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

The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
June 30, 2020
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$396,219  $396,219  $396,219  $  $  
AFS securities1,220,054  1,220,054    1,220,054    
Loans receivable7,388,090  7,845,259      7,845,259  
FHLB stock102,782  102,782  102,782      
Liabilities:
Deposits6,069,684  6,155,296  3,036,524  3,118,772    
Borrowings1,989,089  2,042,101    2,042,101    
Interest rate swaps57,067  57,067    57,067    
September 30, 2019
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$220,370  $220,370  $220,370  $  $  
AFS securities1,204,863  1,204,863    1,204,863    
Loans receivable7,416,747  7,654,586      7,654,586  
FHLB stock98,456  98,456  98,456      
Liabilities:
Deposits5,581,867  5,614,895  2,594,242  3,020,653    
Borrowings2,239,989  2,253,353  100,001  2,153,352    
Interest rate swaps33,090  33,090    33,090    

31


7. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.
 For the Three Months Ended June 30, 2020
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$20,076  $(42,054) $(21,978) 
Other comprehensive income (loss), before reclassifications5,533  (2,856) 2,677  
Amount reclassified from AOCI  1,710  1,710  
Other comprehensive income (loss)5,533  (1,146) 4,387  
Ending balance$25,609  $(43,200) $(17,591) 

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

For the Three Months Ended June 30, 2019
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$3,598  $(9,014) $(5,416) 
Other comprehensive income (loss), before reclassifications4,102  (11,273) (7,171) 
Amount reclassified from AOCI  55  55  
Other comprehensive income (loss)4,102  (11,218) (7,116) 
Ending balance$7,700  $(20,232) $(12,532) 

For the Nine Months Ended June 30, 2019
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$(2,990) $7,330  $4,340  
Other comprehensive income (loss), before reclassifications10,690  (27,668) (16,978) 
Amount reclassified from AOCI  106  106  
Other comprehensive income (loss)10,690  (27,562) (16,872) 
Ending balance$7,700  $(20,232) $(12,532) 

32


8. REVENUE RECOGNITION
Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below. During the nine months ended June 30, 2020 and 2019, revenue from contracts with customers totaled $10.9 million and $12.4 million, respectively.

Deposit Service Fees
Interchange Transaction Fees - Interchange transaction fee income primarily consists of interchange fees earned on a transactional basis through card payment networks. The performance obligation for these types of transactions is satisfied as services are rendered for each transaction and revenue is recognized daily concurrently with the transaction processing services provided to the cardholder.

In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction. The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks; therefore, interchange transaction fee income is reported net of interchange network charges. Interchange network charges totaled $2.4 million and $2.5 million for the nine months ended June 30, 2020 and 2019, respectively.

Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance and transaction-based fees such as overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs. The Company's performance obligation is satisfied over a period of time, generally a month, for account maintenance and at the time of service for transaction-based fees. Revenue is recognized after the performance obligation is satisfied. Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly).

Insurance Commissions
Commissions are received on insurance product sales. The Company acts in the capacity of an agent between the Company's customer and the insurance carrier. The Company's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective. Additionally, the Company earns performance-based incentives ("contingent insurance commissions") based on certain criteria established by the insurance carriers.

Other Non-Interest Income
Trust Asset Management Income - The Company provides trust asset management services to customers. The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end. Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.

9. LEASES
The Company leases real estate property for branches, ATMs, and certain equipment. These leases have remaining terms that range from one year to 47 years, some of which include the exercising of renewal options that the Company considers to be reasonably certain. As of June 30, 2020, a right-of-use asset of $15.5 million was included in other assets and a lease liability of $15.5 million was included in accounts payable and accrued expenses on the consolidated balance sheets.

As of June 30, 2020, for the Company's operating leases, the weighted average remaining lease term was 22.0 years and the weighted average discount rate was 2.59%.

The following table presents lease expenses and supplemental cash flow information related to the Company's leases for the periods presented.
For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2020
(Dollars in thousands)
Operating lease expense$373  $1,138  
Variable lease expense50  158  
Short-term lease expense1  17  
Cash paid for amounts included in the measurement of lease liabilities345  1,028  

33


The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of June 30, 2020:
Remainder of fiscal year 2020$231  
Fiscal year 20211,363  
Fiscal year 20221,329  
Fiscal year 20231,236  
Fiscal year 20241,027  
Fiscal year 2025858  
Thereafter16,135  
Total future minimum lease payments22,179  
Amounts representing interest(6,668) 
Present value of net future minimum lease payments$15,511  

The Company elected the modified retrospective approach for its adoption of ASU 2016-02, and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. These elections require the inclusion of ASC Topic 840 disclosures for periods that continue to be presented in accordance with ASC Topic 840. As of September 30, 2019, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year were as follows:
2020$1,298  
20211,187  
20221,069  
2023930  
2024637  
Thereafter1,115  
$6,236  

34


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 by us 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 cost savings, synergies and other benefits from our acquisition of Capital City Bancshares, Inc. ("CCB") might not be realized within the anticipated time frames or at all;
our ability to extend the commercial banking and trust asset management expertise acquired from CCB through our existing branch footprint;
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 the 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.
35



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, 2019 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, 2019, 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.

Response to and Impact of the COVID-19 Pandemic

During the current quarter, the COVID-19 pandemic continued to have an impact on our customers, employees, and business operations. Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business are summarized below.
Bank operations - In mid-March 2020, preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in Bank offices, and preventative cleaning at offices and branches. Lobby services were limited to appointment only while drive-through, mobile, and online banking became the Bank's primary channels of serving customers. Retail loan closings have been conducted with customers coming to our drive-through facilities and commercial loans have been closed in person only when necessary. All employees continue to be paid their regular salary and receive full benefits. In mid-May 2020, lobbies reopened with limitations on the number of customers in a branch at one time. We also implemented operational measures to promote social distancing when customers visit branches and installed sneeze guards. There are several other precautions being taken at our locations such as extra cleaning in high traffic/touch areas and providing locations with additional cleaning supplies, hand sanitizer and masks. In early June 2020, back-office employees started to return to the office in phases. Due to the increase in COVID-19 cases in late June into July 2020, management rolled back the changes to the lobbies that occurred mid-May and adjusted the return to office phases, where necessary, for back-office employees. Our lobby services are now again by appointment only. Management continues to monitor COVID-19 cases and will reopen lobbies when we believe it is appropriate to do so.

Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, COVID-19 loan modifications for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest and, in some cases, escrow.  COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. If it is determined that a COVID-19 loan modification is not short-term or the customer does not meet the criteria under authoritative guidance to be excluded from TDR classification, the Bank evaluates the loan modifications under its existing TDR framework. None of the Bank's COVID-19 loan modifications through June 30, 2020 have been deemed to be TDRs.
As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million, for which the borrowers had a weighted average credit score of 733, and 94 consumer loans totaling $2.6 million.  Included in these one- to four-family and consumer loan totals are 163 loans with a combined balance of $37.1 million for which the borrowers have requested additional assistance, generally another three-month payment forbearance, and the Bank either completed or was in the process of completing a second modification as of July 31, 2020. During the month of July 2020, the Bank completed or was in the process of completing a first modification for an additional $6.4 million of one- to four-family and consumer loans.

As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 229 commercial loans with a combined gross loan amount of $392.8 million, which includes undisbursed amounts.  Included in these totals are six loans with a combined gross loan amount, including undisbursed funds, of $30.6 million for which the borrowers have requested an additional three months of payment
36


deferrals and the Bank was in the process of completing the second modification as of July 31, 2020. During the month of July 2020, the Bank completed a first modification for one additional commercial loan for $19.2 million.

Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - As of June 30, 2020, the Bank had originated and funded 700 PPP loans totaling $42.6 million, with a median loan amount of $21 thousand, and received origination fees totaling $1.8 million associated with these loans. These loans are fully guaranteed by the SBA. The program ended June 30, 2020, but was extended on July 6, 2020 through August 8, 2020. Through July 31, 2020, the Bank had originated an additional $738 thousand in PPP loans. The Bank continues to accept applications for PPP loans.

Correspondent loan activity - In an effort to manage the influx of refinance requests from current customers in our local markets during the initial days of the COVID-19 pandemic, the Bank suspended its acceptance of new applications for correspondent one- to four-family loans in mid-March 2020. Correspondent applications and commitments in the pipeline at the time of the suspension continued to progress through the approval and funding process. In mid-June 2020, the Bank resumed accepting new applications for correspondent one- to four-family loans.

Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020. Based on the Company's existing capital levels, deposit inflows, loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests. Management anticipates being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized with sufficient liquidity to serve our customers.

Deposit balances have increased due primarily to the economic stimulus payments and PPP loans. As a result, management is currently faced with the challenge of excess liquidity. Due to the nature of deposit cash flows, management does not know how long the excess liquidity will be retained. As such, management has elected, for the time being, to reduce the Bank's level of borrowings using the excess liquidity from the deposit portfolio.

With earnings of $0.34 per share, year-to-date, and a cash balance at the holding company level of $89.0 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future. 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 to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.

Summary of Financial Condition and Results of Operation

Markets responded to the COVID-19 pandemic in many ways, with a dramatic lowering of interest rates in a short period of time having the most impact on the operations and performance of the Bank. With the pandemic impacting the United States later in the March 2020 quarter, the opportunity to fully respond in that quarter was somewhat limited. Since the onset of the pandemic, the Bank lowered its offered rates on deposits and restructured its borrowings. We have lowered offered rates on all retail deposit products except checking and savings accounts. Changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits, while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as higher-costing certificates of deposit reprice lower when they mature. During the prior quarter, the Bank was able to restructure the cost of $350.0 million of its FHLB advances by lowering their cost 72 basis points. During the current quarter, we realized the full benefit of that restructuring. As the Bank further monitors rates offered and the cost of borrowings, we anticipate that the average cost of our interest-bearing liabilities will continue to decrease.
During late February 2020 and through much of March 2020, rates offered on our one- to four-family loan products increased in order to control the volume of loans the Bank could process. During the current quarter, the offered rates on our one- to four-family loans decreased along with local market rates, but our ability to process the loan volumes was maintained. Given current rates offered on new loans and the recent volume of one- to four-family refinances and endorsements of terms to lower current market rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally, with significant cash inflows realized due to securities being called and prepayments on MBS increasing, the yields on reinvested funds into new securities are lower than the portfolio yield.

Considering the drastic changes in market rates and the ongoing economic uncertainty, even with the changes the Bank has made to its cost of funding, with the lower rates on new mortgage loans, refinances, endorsements and new securities also at lower rates, our net interest margin could continue to decrease with further downside risk as a result of high levels of prepayments and premium amortization on correspondent loans, as was experienced during the current quarter.

The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020 and indicated an intention to stay with this policy at the July 2020 meeting. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. Deteriorating economic conditions included more than 20
37


million people becoming unemployed in the United States in one month's time, with more than 45 million in total filing for unemployment benefits, along with immediate reductions in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others, and had a devastating impact on the economy. Since that time, many areas of consumer spending rebounded during May and June, generally locally and not related to travel and entertainment. Some economic indices began to show weakness in July. In the Bank's local markets, governments put stay-at-home orders into effect which only allow for essential businesses to remain open. Many of these stay-at-home orders have been lifted or greatly reduced. As previously described, we adjusted our operations in response to the orders and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the CARES Act have allowed. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially during the remainder of fiscal year 2020. We have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer. There is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $22.9 million, or $0.17 per share, for the quarter ended June 30, 2019. The decrease in net income was due primarily to a decrease in net interest income, partially offset by decreases in non-interest expense and income tax expense. The net interest margin decreased 22 basis points, from 2.29% for the prior year quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as result of an increase in payoff activity.

For the nine months ended June 30, 2020, the Company recognized net income of $46.3 million, or $0.34 per share, a decrease of $25.6 million, or 35.6%, from the nine-month period ended June 30, 2019. The decrease in net income was due primarily to a $21.9 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense. Net interest income decreased $12.9 million, or 8.3%, from the prior year period to $143.7 million for the current year period. The net interest margin decreased 15 basis points, from 2.30% for the prior year period to 2.15% for the current period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 17 basis points, from 2.32% for the prior year period to 2.15% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio.

Total assets were $9.56 billion at June 30, 2020 compared to $9.34 billion at September 30, 2019. The $218.8 million, or 2.3% increase was due mainly to an increase in cash and cash equivalents due to deposit growth. Management elected to keep a higher balance of cash on hand at June 30, 2020 due to the uncertainty surrounding the current economic environment, and in anticipation of paying off certain fixed-rate borrowings scheduled to mature during the fourth quarter of fiscal year 2020, depending on deposit cash flows.

Total loans were $7.39 billion at June 30, 2020 compared to $7.42 billion at September 30, 2019. The $28.7 million, or 0.4% decrease was primarily in the one- to four-family correspondent and bulk loans, partially offset by an increase in commercial real estate and commercial and industrial loans. During the current year period, the Bank originated and refinanced $720.0 million of one- to four-family and consumer loans with a weighted average rate of 3.37% and purchased $382.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.34%. The Bank also originated $136.1 million of commercial loans with a weighted average rate of 3.43% and entered into commercial real estate loan participations of $93.6 million at a weighted average rate of 4.16%. The commercial loan portfolio totaled $812.3 million at June 30, 2020 and was composed of 77% commercial real estate, 12% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $154.5 million, was $867.1 million at June 30, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.4 million, was $122.2 million at June 30, 2020.

Total deposits were $6.07 billion at June 30, 2020 compared to $5.58 billion at September 30, 2020. The $487.8 million, or 8.7% increase was primarily in non-maturity deposits which increased $442.3 million, including a $220.8 million increase in checking accounts, a $122.0 million increase in money market accounts, and a $99.4 million increase in savings accounts. The increase was due in part to Economic Impact Payments from the U.S. Government to individuals as authorized by the CARES Act, deposits from PPP loans, commercial deposit growth, and a delay in federal income tax payment due dates from April 15 to July 15. Retail/business certificates of deposit increased $51.9 million due primarily to the President's Day certificate of deposit campaign in February 2020.
38



Total borrowings at June 30, 2020 were $1.99 billion, a decrease of $250.9 million, or 11.2%, from September 30, 2019. The decrease was due to not renewing a portion of the FHLB advances that matured during the current year period and repaying the FHLB line of credit balance.

Stockholders' equity was $1.30 billion at June 30, 2020 compared to $1.34 billion at September 30, 2019. The $35.8 million decrease was due primarily to the payment of $82.1 million in cash dividends, partially offset by net income of $46.3 million during the current year period. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At June 30, 2020, this ratio was 12.2%. The cash dividends paid during the current period totaled $0.595 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and three regular quarterly cash dividends totaling $0.255 per share. On July 23, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings, are deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. The leverage strategy was not in place during the current nine-month period, due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

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 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. For a full discussion of our critical accounting policies, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
39


Financial Condition
The following table presents selected balance sheet information as of the dates indicated.
June 30, March 31, December 31, September 30, June 30,
20202020201920192019
(Dollars in thousands)
Total assets$9,558,814  $9,371,193  $9,236,572  $9,340,018  $9,286,275  
Cash and cash equivalents396,219  118,374  70,703  220,370  43,051  
AFS securities1,220,054  1,236,037  1,229,587  1,204,863  769,393  
HTM securities—  —  —  —  483,858  
Loans receivable, net7,388,090  7,476,805  7,429,207  7,416,747  7,507,468  
FHLB stock, at cost102,782  101,575  99,861  98,456  100,109  
Deposits6,069,684  5,774,619  5,585,851  5,581,867  5,580,871  
Borrowings1,989,089  2,115,869  2,189,991  2,239,989  2,239,987  
Stockholders' equity1,300,520  1,287,793  1,306,594  1,336,326  1,327,099  
Equity to total assets at end of period13.6 %13.7 %14.1 %14.3 %14.3 %
Total assets were $9.56 billion at June 30, 2020, an increase of $187.6 million, or 2.0%, from March 31, 2020, due to an increase in cash and cash equivalents, partially offset by a decrease in loans receivable. The increase in cash and cash equivalents was due mainly to deposit growth.

Total loans were $7.39 billion at June 30, 2020, a decrease of $88.7 million, or 1.2%, from March 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio, partially offset by an increase in commercial and industrial loans due primarily to the origination of PPP loans. As noted above, we suspended our acceptance of new applications for correspondent one- to four-family loans during the majority of the current quarter. During the current quarter, the Bank originated and refinanced $270.0 million of one- to four-family and consumer loans with a weighted average rate of 3.19% and purchased $129.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.18%. The Bank also originated $68.5 million of commercial loans with a weighted average rate of 2.23%, which included $42.6 million in PPP loans at a rate of 1.00%, and entered into commercial real estate loan participations of $65.2 million at a weighted average rate of 3.95%.

Total deposits were $6.07 billion at June 30, 2020, an increase of $295.1 million, or 5.1%, from March 31, 2020. The increase was primarily in non-maturity deposits, including a $148.5 million increase in checking accounts and a $112.0 million increase in money market accounts. The increase in deposits was due in part to Economic Impact Payments from the U.S. government to individuals as authorized by the CARES Act, deposits from PPP loans, commercial deposit growth, and a delay in federal income tax payment due dates from April 15 to July 15.





40


Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. Approximately 68% of the one- to four-family loan portfolio balance at June 30, 2020 was comprised of loans that had a balance of $510 thousand or less at the time of origination.
June 30, 2020March 31, 2020September 30, 2019
AmountRateAmount RateAmountRate
(Dollars in thousands)
One- to four-family:
Originated$3,955,668  3.61 %$3,944,782  3.68 %$3,873,851  3.74 %
Correspondent purchased2,268,031  3.54  2,385,907  3.60  2,349,877  3.64  
Bulk purchased217,652  2.73  228,730  2.88  252,347  2.94  
Construction36,595  3.46  35,798  3.61  36,758  4.00  
Total6,477,946  3.56  6,595,217  3.62  6,512,833  3.68  
Commercial:
Commercial real estate625,106  4.32  584,236  4.45  583,617  4.48  
Commercial and industrial 99,735  2.92  62,153  4.62  61,094  5.14  
Construction87,448  3.98  126,266  4.40  123,159  4.81  
Total812,289  4.11  772,655  4.45  767,870  4.58  
Consumer loans:
Home equity107,174  4.68  114,571  5.67  120,587  6.15  
Other10,033  4.46  10,837  4.56  11,183  4.57  
Total117,207  4.66  125,408  5.58  131,770  6.02  
Total loans receivable7,407,442  3.64  7,493,280  3.74  7,412,473  3.81  
Less:
ACL31,215  31,196  9,226  
Discounts/unearned loan fees 30,312  29,645  31,058  
Premiums/deferred costs(42,175) (44,366) (44,558) 
Total loans receivable, net$7,388,090  $7,476,805  $7,416,747  


41


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 $355.1 million of one- to four-family loans, reducing the average rate on those loans by 81 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. As noted earlier, during the initial days of the COVID-19 pandemic, correspondent one- to four-family loan application acceptance was suspended by the Bank but existing correspondent applications and commitments continued to progress through the approval and funding process. One- to four-family correspondent new loan application acceptance was resumed in mid-June 2020.
For the Three Months Ended
June 30, 2020March 31, 2020December 31, 2019September 30, 2019
AmountRateAmountRateAmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,493,280  3.74 %$7,424,834  3.77 %$7,412,473  3.81 %$7,501,741  3.83 %
Originated and refinanced:
Fixed277,904  2.83  172,891  3.44  233,693  3.52  188,753  3.60  
Adjustable60,626  3.75  55,946  4.11  55,126  4.30  59,550  4.37  
Purchased and participations:
Fixed131,739  3.28  125,612  3.46  123,118  3.77  49,161  4.12  
Adjustable62,510  3.76  18,985  2.96  13,801  3.06  12,305  3.55  
Change in undisbursed loan funds(32,202) 24,049  (9,743) 12,293  
Repayments(586,434) (328,644) (403,361) (410,624) 
Principal recoveries/(charge-offs), net19  (314) (16) (110) 
Other—  (79) (257) (596) 
Ending balance$7,407,442  3.64  $7,493,280  3.74  $7,424,834  3.77  $7,412,473  3.81  

For the Nine Months Ended
June 30, 2020June 30, 2019
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,412,473  3.81 %$7,507,645  3.74 %
Originated and refinanced:
Fixed684,488  3.22  316,581  4.39  
Adjustable171,698  4.04  260,058  4.87  
Purchased and participations:
Fixed380,469  3.50  136,974  4.83  
Adjustable95,296  3.50  64,000  4.57  
Change in undisbursed loan funds(17,896) 39,927  
Repayments(1,318,439) (822,533) 
Principal (charge-offs)/recoveries, net(311) 123  
Other(336) (1,034) 
Ending balance$7,407,442  3.64  $7,501,741  3.83  


42


The following tables present loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together.
For the Three Months Ended
June 30, 2020June 30, 2019
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family:(1)
<= 15 years $126,378  2.79 %23.7 %$21,097  3.62 %9.4 %
> 15 years205,047  3.39  38.5  103,515  4.13  46.1  
One- to four-family construction11,005  3.27  2.1  9,362  3.92  4.2  
Commercial:
Commercial real estate19,333  3.71  3.6  2,813  5.42  1.2  
Commercial and industrial46,609  1.23  8.8  5,058  4.98  2.3  
Commercial construction—  —  —  7,061  5.57  3.1  
Home equity774  5.98  0.1  1,317  6.44  0.6  
Other497  6.76  0.1  1,095  5.94  0.5  
Total fixed-rate 409,643  2.98  76.9  151,318  4.20  67.4  
Adjustable-rate:
One- to four-family:(2)
<= 36 months1,610  2.74  0.3  333  3.18  0.1  
> 36 months40,099  2.93  7.5  35,922  3.59  16.0  
One- to four-family construction932  3.06  0.2  3,079  3.48  1.4  
Commercial:
Commercial real estate16,035  4.58  3.0  3,347  5.73  1.5  
Commercial and industrial1,504  3.79  0.3  10,896  5.80  4.8  
Commercial construction50,237  4.03  9.4  1,049  6.38  0.5  
Home equity12,390  4.42  2.3  18,020  6.35  8.0  
Other329  3.48  0.1  713  3.74  0.3  
Total adjustable-rate123,136  3.75  23.1  73,359  4.73  32.6  
Total originated, refinanced and purchased$532,779  3.16  100.0 %$224,677  4.37  100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family$114,039  3.22  $23,547  4.43  
Participations - commercial17,700  3.70  5,900  5.50  
Total fixed-rate purchased/participations131,739  3.28  29,447  4.65  
Adjustable-rate:
Correspondent - one- to four-family15,010  2.87  10,018  3.85  
Participations - commercial47,500  4.04  —  —  
Total adjustable-rate purchased/participations62,510  3.76  10,018  3.85  
Total purchased/participation loans$194,249  3.44  $39,465  4.44  
43


For the Nine Months Ended
June 30, 2020June 30, 2019
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family:(1)
<= 15 years $279,441  2.88 %21.0 %$58,025  4.00 %7.4 %
> 15 years613,890  3.50  46.1  276,642  4.38  35.6  
One- to four-family construction36,107  3.38  2.7  37,641  4.38  4.8  
Commercial:
Commercial real estate32,605  4.23  2.5  25,642  6.29  3.3  
Commercial and industrial60,648  1.84  4.6  11,416  5.16  1.5  
Commercial construction36,253  4.72  2.7  36,980  4.94  4.8  
Home equity3,261  5.91  0.2  3,700  6.26  0.5  
Other2,752  5.76  0.2  3,509  5.07  0.5  
Total fixed-rate 1,064,957  3.32  80.0  453,555  4.53  58.4  
Adjustable-rate:
One- to four-family:(2)
<= 36 months5,279  2.82  0.4  8,020  3.73  1.0  
> 36 months106,407  2.99  8.0  99,069  3.87  12.7  
One- to four-family construction10,929  3.03  0.8  14,791  4.08  1.9  
Commercial:
Commercial real estate42,557  4.62  3.2  96,930  4.83  12.5  
Commercial and industrial5,979  4.75  0.4  24,846  5.61  3.2  
Commercial construction51,724  4.07  3.9  29,699  5.39  3.8  
Home equity42,359  5.16  3.2  48,896  6.35  6.3  
Other1,760  3.94  0.1  1,807  3.38  0.2  
Total adjustable-rate266,994  3.85  20.0  324,058  4.81  41.6  
Total originated, refinanced and purchased$1,331,951  3.42  100.0 %$777,613  4.64  100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family$334,343  3.39  $87,097  4.45  
Participations - commercial46,126  4.29  49,877  5.49  
Total fixed-rate purchased/participations380,469  3.50  136,974  4.83  
Adjustable-rate:
Correspondent - one- to four-family47,796  2.96  35,350  3.93  
Participations - commercial47,500  4.04  28,650  5.35  
Total adjustable-rate purchased/participations95,296  3.50  64,000  4.57  
Total purchased/participation loans$475,765  3.50  $200,974  4.75  

(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.

44


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 June 2020, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
June 30, 2020September 30, 2019
% ofCredit Average% ofCredit Average
AmountTotalScoreLTVBalanceAmountTotalScoreLTVBalance
(Dollars in thousands)
Originated$3,955,668  61.4 %770  62 %$144  $3,873,851  59.8 %768  62 %$140  
Correspondent purchased2,268,031  35.2  765  64  376  2,349,877  36.3  765  65  371  
Bulk purchased217,652  3.4  768  60  301  252,347  3.9  762  61  304  
$6,441,351  100.0 %768  63  188  $6,476,075  100.0 %767  63  186  

The following tables present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year-to-date period, $223.9 million were refinanced from other lenders. Of the loans originated and refinanced during the current year-to-date period, 77% had loan values of $510 thousand or less. Of the correspondent loans purchased during the current year-to-date period, 22% had loan values of $510 thousand or less.
For the Three Months Ended
June 30, 2020June 30, 2019
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$173,851  73 %763  $119,600  80 %761  
Refinanced by Bank customers82,171  67  767  20,143  67  748  
Correspondent purchased129,049  70  771  33,565  74  760  
$385,071  71  766  $173,308  77  759  

For the Nine Months Ended
June 30, 2020June 30, 2019
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$479,751  74 %765  $329,026  78 %757  
Refinanced by Bank customers190,163  68  763  42,715  67  747  
Correspondent purchased382,139  71  768  122,447  74  762  
$1,052,053  72  766  $494,188  76  757  

45


The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period.
For the Three Months Ended For the Nine Months Ended
June 30, 2020June 30, 2020
StateAmount% of TotalRateAmount% of TotalRate
(Dollars in thousands)
Kansas$223,073  57.9 %3.12 %$584,621  55.6 %3.25 %
Missouri63,889  16.6  3.13  183,403  17.4  3.29  
Texas45,333  11.8  3.15  148,772  14.1  3.27  
Other states52,776  13.7  3.18  135,257  12.9  3.37  
$385,071  100.0 %3.13  $1,052,053  100.0 %3.27  

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of June 30, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.
Fixed-Rate
15 yearsMore thanAdjustable-Total
or less15 yearsRateAmountRate
(Dollars in thousands)
Originate/refinance$31,346  $54,513  $10,563  $96,422  3.17 %
Correspondent14,428  34,092  5,683  54,203  3.09  
$45,774  $88,605  $16,246  $150,625  3.14  
Rate2.78 %3.37 %2.91 %

Through June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million. These modifications are summarized in the table below, along with the weighted average credit score and weighted average LTV as of June 30, 2020. Credit scores are updated at least annually, with the latest update in June 2020, 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.
Credit
CountAmountScoreLTV
(Dollars in thousands)
Originated630  $116,254  727  67 %
Correspondent purchased262  115,877  739  68  
Bulk purchased 1,240  727  71  
896  $233,371  733  68  


Commercial Loans - During the current year-to-date period, the Bank originated $136.1 million of commercial loans, of which $42.6 million were PPP loans, entered into commercial real estate loan participations totaling $93.6 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $188.1 million at a weighted average rate of 3.72%.

46


The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of June 30, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $528.9 million at a weighted average rate of 4.16% and adjustable-rate loans totaling $329.9 million at a weighted average rate of 4.43%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at June 30, 2020 having shorter terms to maturity. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.
UnpaidUndisbursedGross LoanOutstanding% of
PrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Senior housing$218,068  $39,234  $257,302  $—  $257,302  29.7 %
Hotel125,597  54,660  180,257  —  180,257  20.8  
Retail building124,206  17,697  141,903  4,183  146,086  16.8  
Multi-family60,301  21,827  82,128  —  82,128  9.5  
One- to four-family property56,634  5,251  61,885  444  62,329  7.2  
Office building53,720  2,580  56,300  2,454  58,754  6.8  
Single use building43,705  4,372  48,077  807  48,884  5.6  
Other30,323  652  30,975  352  31,327  3.6  
$712,554  $146,273  $858,827  $8,240  $867,067  100.0 %
Weighted average rate4.28 %4.23 %4.27 %4.44 %4.27 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of June 30, 2020.
UnpaidUndisbursedGross LoanOutstanding% of
PrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas$284,453  $10,651  $295,104  $3,509  $298,613  34.4 %
Missouri218,019  68,416  286,435  548  286,983  33.1  
Texas110,531  60,389  170,920  —  170,920  19.7  
Nebraska33,174  665  33,839  —  33,839  3.9  
Kentucky25,230  329  25,559  —  25,559  3.0  
California5,892  4,300  10,192  —  10,192  1.2  
Other35,255  1,523  36,778  4,183  40,961  4.7  
$712,554  $146,273  $858,827  $8,240  $867,067  100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of June 30, 2020. Including in the working capital loan category are $42.6 million of PPP loans.
UnpaidUndisbursedGross LoanOutstanding% of
PrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Working capital$56,777  $15,845  $72,622  $3,415  $76,037  62.2 %
Equipment15,370  336  15,706  106  15,812  13.0  
Business investment11,477  80  11,557  76  11,633  9.5  
Purchase/lease autos10,894  77  10,971  —  10,971  9.0  
Other5,217  2,494  7,711  —  7,711  6.3  
$99,735  $18,832  $118,567  $3,597  $122,164  100.0 %

47


The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of June 30, 2020.
CountAmount
(Dollars in thousands)
Greater than $30 million $121,677  
>$15 to $30 million13  313,741  
>$10 to $15 million 35,699  
>$5 to $10 million13  81,454  
$1 to $5 million97  210,962  
Less than $1 million1,947  225,698  
2,076  $989,231  

The Bank's commercial lending team is working proactively with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed above, through June 30, 2020, we have modified $392.8 million of commercial loans under our COVID-19 loan modification program. Through June 30, 2020, we have also processed 700 PPP loans for $42.6 million, for which we received approximately $1.8 million in fees. Approximately 60% of PPP loans processed were in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade.

The following table presents the gross loan amount, including undisbursed balances, of the Bank's commercial real estate loans by type of primary collateral, and commercial and industrial loans by business purpose, that have been modified, per the Bank's COVID-19 loan modification program, as of June 30, 2020. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment period, but a deferral of principal and interest of up to six months was also offered to our borrowers. For the majority of the borrowers with principal and interest deferrals, the payment deferral time period was three months and the maturity date for these loans was extended by three months. The information in the table below is split by type of modification and presented as a percentage of total modifications, as well as by a percentage of the total gross loan amount and undisbursed balances of the related property type or business purpose category. Included in the payment deferral category in the table below are six loans with a combined gross loan amount, including undisbursed balances, of $30.6 million that have requested additional assistance. We are in the process of completing a second modification for these loans for another three-month payment deferral time period.
Modification Type% of
InterestPayment% ofProperty Type/
OnlyDeferralTotalTotalBusiness Purpose
(Dollars in thousands)
Commercial real estate
Senior housing$115,082  $57,042  $172,124  43.8 %66.9 %
Hotel76,249  21,679  97,928  24.9  54.3  
Retail building31,174  5,815  36,989  9.4  26.1  
Multi-family7,398  —  7,398  1.9  9.0  
One- to four-family property7,721  335  8,056  2.1  13.0  
Office building16,500  7,012  23,512  6.0  41.8  
Single use building30,472  5,331  35,803  9.1  74.5  
Other2,503  —  2,503  0.6  8.1  
287,099  97,214  384,313  97.8  44.7  
Commercial and industrial
Working capital889  —  889  0.2  1.2  
Equipment4,366  —  4,366  1.1  30.8  
Business investment1,752  —  1,752  0.5  13.4  
Purchase/lease autos666  —  666  0.2  6.1  
Other804  —  804  0.2  31.4  
8,477  —  8,477  2.2  7.1  
Total$295,576  $97,214  $392,790  100.0 %40.2  

48



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, 2019.

Delinquent and non-performing loans and OREO - 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 June 30, 2020, approximately 59% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
June 30, March 31, December 31, September 30, June 30,
20202020201920192019
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated57$5,085  92$8,360  96$9,004  90  $7,223  94  $7,749  
Correspondent purchased102,919  134,531  134,117   2,721  14  3,727  
Bulk purchased194,536  122,914  143,307  16  3,581  13  2,249  
Commercial91,543  71,555  71,192   826  12  1,699  
Consumer21431  43628  40488  42  525  43  630  
116$14,514  167$17,988  170$18,108  165  $14,876  176  $16,054  
Loans 30 to 89 days delinquent
to total loans receivable, net0.20 %0.24 %0.24 %0.20 %0.21 %

The table below 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. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately three months before the properties were sold.
49


Non-Performing Loans and OREO at:
June 30, March 31, December 31, September 30, June 30,
20202020201920192019
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated47  $4,026  53  $4,517  44  $3,552  44  $3,268  58  $5,069  
Correspondent purchased 2,740   1,342   1,376   1,008   871  
Bulk purchased 1,291   630   689   1,465   2,194  
Commercial 709   716  —  —   170  —  —  
Consumer23  278  17  326  20  340  25  362  25  437  
84  9,044  79  7,531  70  5,957  83  6,273  92  8,571  
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.12 %0.10 %0.08 %0.08 %0.11 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated14  $1,132  13  $811  11  $634  16  $1,183  15  $1,057  
Correspondent purchased—  —   189  —  —  —  —  —  —  
Bulk purchased—  —   134   134   65   374  
Commercial   129   363      
Consumer 33   43  —  —   35    
16  1,171  19  1,306  18  1,131  20  1,290  20  1,442  
Total non-performing loans100  10,215  98  8,837  88  7,088  103  7,563  112  10,013  
Non-performing loans as a percentage of total loans0.14 %0.12 %0.10 %0.10 %0.13 %
OREO:
One- to four-family:
Originated(2)
 $183   $187   $414   $745   $546  
Bulk purchased—  —  —  —  —  —  —  —  —  —  
Commercial—  —  —  —  —  —   600   600  
Consumer—  —  —  —   98  —  —  —  —  
 183   187   512   1,345   1,146  
Total non-performing assets104  $10,398  103  $9,024  97  $7,600  112  $8,908  121  $11,159  
Non-performing assets as a percentage of total assets0.11 %0.10 %0.08 %0.10 %0.12 %

(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.
50


The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at June 30, 2020. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At June 30, 2020, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans 30 to 89Loans 90 or More Days Delinquent
One- to Four-FamilyDays Delinquentor in Foreclosure
StateAmount% of TotalAmount% of TotalAmount% of TotalLTV
(Dollars in thousands)
Kansas$3,582,327  55.6 %$3,822  30.5 %$3,895  48.3 %63 %
Missouri1,139,190  17.7  2,617  20.9  529  6.6  56  
Texas740,906  11.5  1,321  10.5  686  8.5  52  
Other states978,928  15.2  4,780  38.1  2,947  36.6  64  
$6,441,351  100.0 %$12,540  100.0 %$8,057  100.0 %62  

Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
June 30, 2020March 31, 2020June 30, 2019
Special MentionSubstandardSpecial MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$12,309  $26,788  $13,678  $26,077  $12,528  $25,657  
Commercial52,054  5,128  52,515  4,538  55,021  5,999  
Consumer320  564  479  659  172  696  
$64,683  $32,480  $66,672  $31,274  $67,721  $32,352  

Allowance for credit losses and Provision for credit losses - Management maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. The ACL is maintained through provisions for credit losses which are either charged to or credited to income. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics.  Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model.  The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. 

Management considered several factors when evaluating the adequacy of the ACL at June 30, 2020, such as: economic conditions including the impact of unemployment benefits created through the CARES Act, our commercial lending team's ongoing evaluation of commercial loans, the Bank's COVID-19 loan modification programs, and certain loan credit quality indicators.

There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried into the June 30, 2020 quarter. Many of the stay-at-home orders issued in March and April have been lifted or significantly reduced which resulted in some people returning to work, while not necessarily at the same level as prior to March 2020, and it benefited consumer spending, which rebounded during May and June, generally locally and not related to travel and entertainment. Unemployment benefit claims continue to be at historical levels, but the level at which individuals are filing initial unemployment benefit claims has decreased significantly from the late March/early April timeframe and is starting to level-off. Individuals that are unemployed have benefited from the Federal Pandemic Unemployment Compensation Program ("FPUC") which the CARES Act created. FPUC provides an additional $600 per week to individuals collecting regular unemployment compensation. The FPUC is scheduled to expire in late July 2020 which could result in financial strain for some households. There were other unemployment compensation benefits created under the CARES Act which have benefited individuals that have exhausted their regular unemployment insurance benefits and that are generally not eligible for regular unemployment compensation, like self-employed individuals.

In late March 2020, the commercial lending team closely analyzed the Bank's largest commercial relationships. Approximately 85% of all commercial loans have been evaluated through June 30, 2020. The commercial lending team primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns, which totaled $183.4 million at June, 30, 2020, and were primarily in the following categories: senior housing facilities, hotels, retail buildings, office buildings and single use buildings. These loan categories were among the categories with the highest usage of the Bank's COVID-19
51


loan modification program. The weighted average LTV ratios based on the unpaid principal balance of senior housing, retail building, hotel, office building, and single use building loans were 68%, 69%, 57%, 77%, and 69%, respectively, at June 30, 2020. We also considered the largest credits in these loan categories. The evaluation of most of our commercial and industrial loans concluded that many of these loans are to businesses that are deemed essential, which we believe reduces the risk of loss on these loans at this time. Management was not aware of any construction delays or other issues that would significantly delay or impact funding of commercial construction loans at June 30, 2020.

In late March 2020, the Bank began offering COVID-19 loan modifications for one- to four-family loans and consumer loans consistent with the CARES Act or interagency guidance from the federal banking agencies. This provides for a three-month payment deferral of principal, interest and, in some cases, escrow payments. Through June 30, 2020, the Bank processed COVID-19 loan modifications for $233.4 million of one- to four-family loans, or 4% of the one- to four-family loan portfolio. As of the end of June 2020, some borrowers asked for and received a second deferral of an additional three months of payments and we are anticipating there will be more requests. While the intent of the CARES Act was to keep customers current on their payments and therefore in their homes during the worst of the economic downturn, it may be masking our actual credit exposure on these loans. Because of this, it is possible that when the deferral time periods end, the Bank's credit quality indicators may worsen, which may increase the need for additional provisions for credit losses and decrease earnings.

Through June 30, 2020, the Bank processed COVID-19 loan modifications of $392.8 million for commercial loans, or 40% of the commercial loan portfolio, including undisbursed amounts. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment periods, but a deferral of principal and interest of up to six months was also offered to our borrowers. Some of the borrowers who requested and received a three-month deferral of principal and interest have requested an additional three-month deferral. We are in the process of completing those second payment deferral requests. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of our borrowers; however, as is the case with one- to four-family loans, the modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends.

There was no deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current quarter; however, as noted above, the COVID-19 loan modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. Loans 30 to 89 days delinquent were 0.20% of total loans at June 30, 2020 and 0.24% of total loans at March 31, 2020. Loans 90 days or more delinquent or in foreclosure were 0.12% of total loans at June 30, 2020 and 0.10% of total loans at March 31, 2020. Loans classified as special mention decreased $2.0 million during the current quarter to $64.7 million at June 30, 2020. Loans classified as substandard increased $1.2 million during the current quarter to $32.5 million at June 30, 2020. The weighted average credit score for our one- to four-family loan portfolio was 766 at March 31, 2020 and increased to 768 at June 30, 2020. We completed a credit score update from a nationally recognized consumer rating agency during the current quarter.

Management believes the ACL at June 30, 2020 was adequate to absorb inherent losses in the loan portfolio at that point in time based on the known facts and circumstances of the economic environment at June 30, 2020. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods, which would have an adverse affect on net income.

52


See "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Credit Losses" and "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a full discussion of our ACL methodology. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information on the ACL.

The distribution of our ACL at the dates indicated is summarized below.
At
June 30, 2020September 30, 2019
% of ACL% of % of ACL% of
Amountto TotalTotal Loans to Amountto TotalTotal Loans to
of ACLACLLoansTotal Loansof ACLACLLoansTotal Loans
(Dollars in thousands)
One- to four-family:
Originated$6,298  20.2 %$3,955,668  53.4 %$1,982  21.6 %$3,873,851  52.2 %
Correspondent purchased3,189  10.2  2,268,031  30.6  1,203  13.0  2,349,877  31.7  
Bulk purchased506  1.6  217,652  3.0  687  7.4  252,347  3.4  
Construction48  0.2  36,595  0.5  18  0.2  36,758  0.5  
Total 10,041  32.2  6,477,946  87.5  3,890  42.2  6,512,833  87.8  
Commercial:
Commercial real estate16,353  52.4  625,106  8.4  3,448  37.4  583,617  7.9  
Commercial and industrial1,465  4.7  99,735  1.4  472  5.1  61,094  0.8  
Construction2,886  9.2  87,448  1.2  1,251  13.5  123,159  1.7  
Total 20,704  66.3  812,289  11.0  5,171  56.0  767,870  10.4  
Consumer loans:
Home equity377  1.2  107,174  1.4  97  1.1  120,587  1.6  
Other consumer93  0.3  10,033  0.1  68  0.7  11,183  0.2  
Total consumer loans470  1.5  117,207  1.5  165  1.8  131,770  1.8  
$31,215  100.0 %$7,407,442  100.0 %$9,226  100.0 %$7,412,473  100.0 %

53


The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The reduction in the commercial and industrial ACL to loans ratio at June 30, 2020 compared to March 31, 2020 was due primarily to the origination of PPP loans. PPP loans are 100% guaranteed by the SBA so the Bank did not record ACL on those loans at June 30, 2020.
At
June 30, March 31, December 31, September 30, June 30,
2020 2020201920192019
One- to four-family:
Originated0.16 %0.16 %0.05 %0.05 %0.05 %
Correspondent purchased0.14  0.14  0.05  0.05  0.05  
Bulk purchased0.23  0.24  0.26  0.27  0.28  
Construction0.13  0.13  0.05  0.05  0.05  
Total 0.16  0.16  0.06  0.06  0.06  
Commercial:
Commercial real estate2.62  2.51  0.62  0.59  0.55  
Commercial and industrial 1.47  2.40  1.25  0.77  0.38  
Construction3.30  3.30  1.02  1.02  1.00  
Total 2.55  2.63  0.72  0.67  0.61  
Consumer0.40  0.39  0.12  0.13  0.11  
Total 0.42  0.42  0.13  0.12  0.12  

The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
For the Three Months Ended
June 30, 2020March 31, 2020December 31, 2019September 30, 2019June 30, 2019
(Dollars in thousands)
ACL beginning balance$31,196  $9,435  $9,226  $9,036  $8,619  
Charge-offs(5) (375) (48) (133) (61) 
Recoveries24  61  32  23  28  
Provision for credit losses—  22,075  225  300  450  
ACL ending balance$31,215  $31,196  $9,435  $9,226  $9,036  
ACL to loans receivable at end of period0.42 %0.42 %0.13 %0.12 %0.12 %
ACL to non-performing loans at end of period305.58  353.02  133.11  121.99  90.24  
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding—  —  —  —  —  
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets(0.20) 3.78  0.19  1.09  0.26  
ACL to net charge-offs (annualized)
N/M(1)
24.9x144.5x21.1x68.1x
54


For the Nine Months Ended
June 30, 2020June 30, 2019
(Dollars in thousands)
ACL beginning balance$9,226  $8,463  
Charge-offs(428) (129) 
Recoveries117  252  
Provision for credit losses22,300  450  
ACL ending balance$31,215  $9,036  
Ratio of net charge-offs during the period to
average loans outstanding during the period— %— %
Ratio of net charge-offs during the period to
average non-performing assets during the period3.22  (1.02) 
ACL to net charge-offs (annualized)75.3x
N/M(1)
(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.
55


Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 80% of our securities portfolio at June 30, 2020. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
June 30, 2020March 31, 2020September 30, 2019
AmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Fixed-rate securities:
MBS$714,730  2.22 %3.2  $690,220  2.33 %3.1  $625,840  2.46 %2.9  
GSE debentures225,020  1.20  0.8  250,080  1.88  0.3  249,828  2.15  0.7  
Municipal bonds11,857  1.68  0.7  11,887  1.66  0.9  18,371  1.63  1.0  
Total fixed-rate securities951,607  1.97  2.6  952,187  2.20  2.3  894,039  2.35  2.3  
Adjustable-rate securities:
MBS234,618  2.73  3.9  257,329  2.97  4.9  297,416  3.10  4.7  
Total securities portfolio$1,186,225  2.12  2.8  $1,209,516  2.36  2.9  $1,191,455  2.54  2.9  


The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
June 30, 2020March 31, 2020September 30, 2019
(Dollars in thousands)
Federal National Mortgage Association ("FNMA")$736,930  $735,385  $656,799  
Federal Home Loan Mortgage Corporation ("FHLMC")192,670  179,987  208,745  
Government National Mortgage Association52,987  57,946  70,943  
$982,587  $973,318  $936,487  
56


Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $46.1 million, from $936.5 million at September 30, 2019, to $982.6 million at June 30, 2020. 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 WAL are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.
For the Three Months Ended
June 30, 2020March 31, 2020December 31, 2019September 30, 2019
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$973,318  2.50 %3.6  $937,317  2.61 %3.3  $936,487  2.67 %3.5  $979,256  2.68 %3.4  
Maturities and repayments(75,293) (65,767) (72,635) (70,865) 
Net amortization of (premiums)/discounts(363) (279) (248) (270) 
Purchases:
Fixed77,455  1.29  5.0  88,863  1.80  4.5  74,359  2.05  3.8  25,214  1.93  3.2  
Valuation transferred from HTM to AFS—  —  —  3,039  
Change in valuation on AFS securities7,470  13,184  (646) 113  
Ending balance - carrying value$982,587  2.35  3.3  $973,318  2.50  3.6  $937,317  2.61  3.3  $936,487  2.67  3.5  

For the Nine Months Ended
June 30, 2020June 30, 2019
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$936,487  2.67 %3.5  $1,036,990  2.57 %3.4  
Maturities and repayments(213,695) (204,251) 
Net amortization of (premiums)/discounts(890) (1,034) 
Purchases:
Fixed240,677  1.71  4.4  52,541  2.82  4.5  
Adjustable—  —  —  84,138  2.74  4.4  
Change in valuation on AFS securities20,008  10,872  
Ending balance - carrying value$982,587  2.35  3.3  $979,256  2.68  3.4  
57


Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, decreased $30.9 million, from $268.4 million at September 30, 2019, to $237.5 million at June 30, 2020. Municipal investments totaled $11.9 million at June 30, 2020. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.
For the Three Months Ended
June 30, 2020March 31, 2020December 31, 2019September 30, 2019
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$262,719  1.87 %0.3  $292,270  2.00 %0.8  $268,376  2.11 %0.8  $273,995  2.30 %1.0  
Maturities, calls and sales(125,000) (80,125) (51,175) (80,690) 
Net amortization of (premiums)/discounts(80) (49) 20  (13) 
Purchases:
Fixed99,990  0.58  1.2  50,097  1.42  0.4  75,000  1.90  1.7  75,000  2.02  1.1  
Valuation transferred from HTM to AFS—  —  —  47  
Change in valuation on AFS securities(162) 526  49  37  
Ending balance - carrying value$237,467  1.23  0.8  $262,719  1.87  0.3  $292,270  2.00  0.8  $268,376  2.11  0.8  

For the Nine Months Ended
June 30, 2020June 30, 2019
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$268,376  2.11 %0.8  $289,942  2.05 %2.2  
Maturities, calls and sales(256,300) (169,081) 
Net amortization of (premiums)/discounts(109) 75  
Purchases:
Fixed225,087  1.20  1.2  149,809  2.65  0.8  
Change in valuation on AFS securities413  3,250  
Ending balance - carrying value$237,467  1.23  0.8  $273,995  2.30  1.0  
58


Liabilities

Deposits - The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.
June 30, 2020March 31, 2020September 30, 2019
% of% of% of
AmountRate TotalAmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$457,917  — %7.5 %$385,092  — %6.7 %$357,284  — %6.4 %
Interest-bearing checking837,304  0.10  13.8  761,589  0.10  13.2  717,121  0.09  12.8  
Savings420,924  0.07  6.9  377,212  0.08  6.5  321,494  0.05  5.8  
Money market 1,320,379  0.39  21.8  1,208,370  0.62  20.9  1,198,343  0.70  21.5  
Retail/business certificates of deposit2,744,661  1.97  45.2  2,765,142  2.11  47.9  2,692,770  2.08  48.2  
Public unit certificates of deposit288,499  1.09  4.8  277,214  1.87  4.8  294,855  2.29  5.3  
$6,069,684  1.05  100.0 %$5,774,619  1.25  100.0 %$5,581,867  1.29  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 June 30, 2020.
Amount Due
More thanMore than
1 year1 year to2 years to 3More thanTotal
Rate rangeor less2 yearsyears3 yearsAmountRate
(Dollars in thousands)
  0.00 – 0.99%$251,416  $9,922  $ $—  $261,344  0.48 %
  1.00 – 1.99%771,935  393,807  158,766  140,747  1,465,255  1.69  
  2.00 – 2.99%438,482  265,597  403,035  199,198  1,306,312  2.38  
  3.00 – 3.99%—  —  249  —  249  3.00  
$1,461,833  $669,326  $562,056  $339,945  $3,033,160  1.88  
Percent of total48.2 %22.1 %18.5 %11.2 %
Weighted average rate1.65  1.99  2.22  2.12  
Weighted average maturity (in years)0.5  1.5  2.4  3.7  1.4  
Weighted average maturity for the retail/business certificate of deposit portfolio (in years)1.5  

Amount Due
OverOver
3 months3 to 66 to 12Over
or lessmonthsmonths12 monthsTotal
(Dollars in thousands)
Retail/business certificates of deposit less than $100,000$151,227  $172,090  $339,004  $880,269  $1,542,590  
Retail/business certificates of deposit of $100,000 or more139,809  128,777  276,447  657,038  1,202,071  
Public unit certificates of deposit of $100,000 or more134,727  58,261  61,491  34,020  288,499  
$425,763  $359,128  $676,942  $1,571,327  $3,033,160  
59


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. Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.
For the Three Months Ended
June 30, 2020March 31, 2020December 31, 2019September 30, 2019
Effective Effective Effective Effective
AmountRateWAMAmountRateWAMAmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$2,090,000  2.25 %3.0  $2,090,000  2.37 %2.6  $2,140,000  2.38 %2.6  $2,140,000  2.35 %2.6  
Maturities and prepayments:
FHLB advances(200,000) 2.35  (415,000) 2.45  (350,000) 2.40  (375,000) 2.38  
New FHLB borrowings:
Fixed-rate—  —  —  350,000  1.70  4.7  100,000  1.96  5.0  100,000  2.14  4.0  
Interest rate swaps(1)
100,000  3.20  8.0  65,000  2.61  4.0  200,000  2.57  2.5  275,000  2.70  4.5  
Ending balance $1,990,000  2.29  2.9  $2,090,000  2.25  3.0  $2,090,000  2.37  2.6  $2,140,000  2.38  2.6  

For the Nine Months Ended
June 30, 2020June 30, 2019
Effective Effective
AmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$2,140,000  2.38 %2.6  $2,185,052  2.17 %2.9  
Maturities and prepayments:
FHLB advances(965,000) 2.41  (500,000) 1.88  
CCB acquisition - junior subordinated debentures assumed (redeemed)—  —  —  (10,052) 8.76  12.3  
New FHLB borrowings:
Fixed-rate450,000  1.76  4.8  100,000  3.39  5.0  
Interest rate swaps(1)
365,000  2.75  4.3  365,000  2.66  5.3  
Ending balance $1,990,000  2.29  2.9  $2,140,000  2.35  2.6  

(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.
60


Maturities - The following table presents the maturity of term borrowings (which includes FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of June 30, 2020.
Term Borrowings Amount
Maturity byInterest rateTotalContractualEffective
Fiscal YearFixed-rate
swaps(1)
AmountRate
Rate(2)
(Dollars in thousands)
2020$200,000  $340,000  $540,000  1.32 %2.50 %
2021203,000  300,000  503,000  1.28  2.45  
2022200,000  —  200,000  2.23  2.23  
2023300,000  —  300,000  1.70  1.81  
2024100,000  —  100,000  3.39  3.39  
2025250,000  —  250,000  1.82  1.94  
2026100,000  —  100,000  1.28  1.60  
$1,353,000  $640,000  $1,993,000  1.62  2.29  

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 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 3.7 years at June 30, 2020.
(2)The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

As of June 30, 2020 and throughout the current quarter, the Bank did not have a balance outstanding on its FHLB line of credit. The average outstanding balance of FHLB line of credit borrowings during the current year period was $61.3 million at an average rate of 1.85%. During the prior quarter, the Bank began utilizing its FRB of Kansas City line of credit rather than the FHLB line of credit, as the rate at the FRB of Kansas City was lower. At June 30, 2020, the Bank did not have an outstanding balance on its FRB of Kansas City line of credit. The average outstanding balance of the FRB of Kansas City line of credit borrowing during the current quarter was $396 thousand at an average rate of 0.45%, and during the current year period was $2.0 million at an average rate of 0.25%.

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 June 30, 2020.
Retail/ BusinessPublic UnitTerm
Maturity by CertificateRepricingCertificateRepricingBorrowingsRepricingRepricing
Quarter EndAmountRateAmountRateAmountRateTotalRate
(Dollars in thousands)
September 30, 2020$291,036  1.95 %$134,727  0.90 %$540,000  2.50 %$965,763  2.11 %
December 31, 2020300,867  1.83  58,261  0.98  253,000  2.44  612,128  2.00  
March 31, 2021275,383  1.94  30,810  1.48  150,000  1.97  456,193  1.92  
June 30, 2021340,068  1.53  30,681  0.67  100,000  3.20  470,749  1.83  
$1,207,354  1.80  $254,479  0.96  $1,043,000  2.48  $2,504,833  2.00  

61


Stockholders' Equity. Stockholders' equity was $1.30 billion at June 30, 2020 compared to $1.34 billion at September 30, 2019. The $35.8 million decrease was due primarily to the payment of $82.1 million in cash dividends, partially offset by net income of $46.3 million during the nine months ended June 30, 2020. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At June 30, 2020, this ratio was 12.2%. The cash dividends paid during the current year-to-date period totaled $0.595 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and three regular quarterly cash dividends totaling $0.255 per share. On July 23, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020.

At June 30, 2020, Capitol Federal Financial, Inc., at the holding company level, had $89.0 million on deposit at the Bank. For fiscal year 2020, it is currently the intent 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.

The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and historically the Company has also utilized 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 has paid a True Blue Capitol cash dividend of $0.25 per share in June of each of the past six years. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend. 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 to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2020, 2019, and 2018. The amounts represent cash dividends paid during each period. For the quarter ending September 30, 2020, the amount presented represents the dividend payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020.
Calendar Year
202020192018
AmountPer ShareAmountPer ShareAmountPer Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31$11,733  $0.085  $11,700  $0.085  $11,427  $0.085  
Quarter ended June 3011,734  0.085  11,708  0.085  11,429  0.085  
Quarter ended September 3011,734  0.085  11,713  0.085  11,430  0.085  
Quarter ended December 3111,731  0.085  11,696  0.085  
True-up dividends paid46,932  0.340  53,666  0.390  
True Blue dividends paid34,446  0.250  33,614  0.250  
Calendar year-to-date dividends paid$35,201  $0.255  $128,230  $0.930  $133,262  $0.980  

The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions, available liquidity, regulatory requirements and considerations, and other factors. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

62


Operating Results
The following table presents selected income statement and other information for the quarters indicated.
For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
20202020201920192019
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable$66,652  $69,613  $69,914  $70,366  $71,434  
MBS5,616  5,866  6,102  6,293  6,613  
FHLB stock1,207  1,714  1,826  2,156  1,865  
Investment securities847  1,382  1,507  1,585  1,835  
Cash and cash equivalents59  380  687  2,885  464  
Total interest and dividend income74,381  78,955  80,036  83,285  82,211  
Interest expense:
Deposits16,533  17,804  17,962  17,471  16,909  
Borrowings11,561  12,483  13,377  16,003  13,621  
Total interest expense28,094  30,287  31,339  33,474  30,530  
Net interest income46,287  48,668  48,697  49,811  51,681  
Provision for credit losses—  22,075  225  300  450  
Net interest income
(after provision for credit losses)46,287  26,593  48,472  49,511  51,231  
Non-interest income4,439  4,671  5,504  5,859  5,674  
Non-interest expense26,164  26,164  26,500  26,330  27,691  
Income tax expense 5,088  824  4,965  6,631  6,317  
Net income$19,474  $4,276  $22,511  $22,409  $22,897  
Efficiency ratio51.58 %49.05 %48.89 %47.30 %48.28 %
Basic EPS$0.14  $0.03  $0.16  $0.16  $0.17  
Diluted EPS0.14  0.03  0.16  0.16  0.17  




63


Comparison of Operating Results for the Nine Months Ended June 30, 2020 and 2019

The Company recognized net income of $46.3 million, or $0.34 per share, for the nine-month period ended June 30, 2020 compared to net income of $71.8 million, or $0.52 per share, for the nine-month period ended June 30, 2019. The decrease in net income was due primarily to a $21.9 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $12.9 million, or 8.3%, from the prior year period to $143.7 million for the current year period. The net interest margin decreased 15 basis points, from 2.30% for the prior year period to 2.15% for the current year period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. See additional discussion regarding the leverage strategy in the "Executive Summary" above. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 17 basis points, from 2.32% for the prior year period to 2.15% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 13 basis points, from 3.61% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets decreased $165.9 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased 14 basis points, from 3.62% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets would have decreased $89.0 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$206,179  $213,863  $(7,684) (3.6)%
MBS17,584  19,437  (1,853) (9.5) 
FHLB stock4,747  5,667  (920) (16.2) 
Investment securities3,736  4,781  (1,045) (21.9) 
Cash and cash equivalents1,126  2,921  (1,795) (61.5) 
Total interest and dividend income$233,372  $246,669  $(13,297) (5.4) 

The decrease in interest income on loans receivable was due mainly to a decrease in yield resulting from a $4.3 million increase in the amortization of premiums on correspondent loans related to increases in payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $155.4 million, or 2.3%, partially offset by a $91.2 million, or 13.3%, increase in the average balance of higher-yielding commercial loans. The weighted average yield on the loans receivable portfolio decreased 11 basis points, from 3.78% for the prior year period to 3.67% for the current year period.

The decrease in interest income on the MBS portfolio was due primarily to a $60.4 million, or 6.1%, decrease in the average balance of the portfolio due to not reinvesting all the cash flows from the portfolio, along with a 10 basis point decrease in the weighted average yield to 2.52% in the current year period. The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB. The decrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a portion of the prior year period and not being in place during the current period, along with a decrease in the yield earned on cash held at the FRB of Kansas City. See additional discussion regarding the leverage strategy in the "Executive Summary" above. The decrease in interest income on investment securities was due mainly to calls and maturities either being replaced at lower market rates or not being replaced.

64


Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased one basis point, from 1.51% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities decreased $85.5 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased two basis points, from 1.50% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities would have decreased $8.6 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$52,299  $48,730  $3,569  7.3 %
Borrowings37,421  41,360  (3,939) (9.5) 
Total interest expense$89,720  $90,090  $(370) (0.4) 

The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased 20 basis points, to 2.08% for the current year period, and the average balance increased $194.7 million, or approximately 8%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms. During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit.

The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $2.6 million from the prior year period due primarily to a decrease in the average balance of such borrowings, as certain maturing FHLB advances were not renewed and the Bank paid down its FHLB line of credit. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior year period due to the leverage strategy being in place for a portion of the prior year period and not being in place at all during the current year period.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current period of $22.3 million, compared to $450 thousand during the prior year period. The $22.3 million provision for credit losses in the current period was primarily related to the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$8,384  $9,581  $(1,197) (12.5)%
Insurance commissions1,762  2,072  (310) (15.0) 
Other non-interest income4,468  4,446  22  0.5  
Total non-interest income$14,614  $16,099  $(1,485) (9.2) 

The decrease in deposit service fees was due mainly to the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019, along with a decrease in service charge income due primarily to a decrease in consumer activity as a result of the COVID-19 pandemic. The decrease in insurance commissions was due primarily to a decrease in the amount of annual contingent insurance commissions.
65



Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Nine Months Ended
June 30, Change Expressed in:
 20202019DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$39,765  $39,205  $560  1.4 %
Information technology and related expense12,694  13,535  (841) (6.2) 
Occupancy, net10,212  9,768  444  4.5  
Regulatory and outside services4,188  4,247  (59) (1.4) 
Advertising and promotional3,773  3,597  176  4.9  
Deposit and loan transaction costs2,086  1,882  204  10.8  
Office supplies and related expense1,586  1,884  (298) (15.8) 
Federal insurance premium287  1,787  (1,500) (83.9) 
Other non-interest expense4,237  4,709  (472) (10.0) 
Total non-interest expense$78,828  $80,614  $(1,786) (2.2) 

The decrease in information technology and related expense was due mainly to the prior year period including costs related to the integration of CCB operations. The decrease in the federal insurance premium was due mainly to the Bank using an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the majority of the current period. The decrease in other non-interest expense was due primarily to a decrease in debit card fraud losses, as well as a decrease in amortization of deposit intangibles.

The Company's efficiency ratio was 49.81% for the current period compared to 46.68% for the prior year period. The change in the efficiency ratio was due to lower net interest income in the current period compared to the prior year period. 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.

Income Tax Expense
Income tax expense was $10.9 million for the current period compared to $19.8 million for the prior year period. The decrease in income tax expense was due primarily to lower pretax income in the current period. The effective tax rate was 19.0% for the current period compared to 21.6% for the prior year period. The lower effective tax rate in the current period compared to the prior year period was due mainly to the Company's permanent differences, which generally lower our tax expense, having a proportionately larger impact given the lower pretax income in the current year period. Additionally, a discrete benefit was recognized during the current period as a result of favorable federal tax guidance issued during the current period related to certain BOLI policies added in the CCB acquisition. Management anticipates the effective income tax rate for the fourth quarter of fiscal year 2020 will be approximately 21%, resulting in an effective tax rate of approximately 20% for fiscal year 2020.



66


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 Nine Months Ended
June 30, 2020June 30, 2019
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,568,665  $172,845  3.51 %$6,724,022  $182,121  3.61 %
Commercial loans775,021  28,228  4.79  683,827  25,310  4.88  
Consumer loans126,049  5,106  5.41  136,770  6,432  6.29  
Total loans receivable(1)
7,469,735  206,179  3.67  7,544,619  213,863  3.78  
MBS(2)
929,458  17,584  2.52  989,896  19,437  2.62  
Investment securities(2)(3)
257,778  3,736  1.93  281,780  4,781  2.26  
FHLB stock99,945  4,747  6.34  103,151  5,667  7.34  
Cash and cash equivalents(4)
166,272  1,126  0.89  169,641  2,921  2.27  
Total interest-earning assets(1)(2)
8,923,188  233,372  3.48  9,089,087  246,669  3.61  
Other non-interest-earning assets459,877  374,632  
Total assets$9,383,065  $9,463,719  
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $1,141,682  550  0.06  $1,073,089  451  0.06  
Savings375,858  222  0.08  348,919  156  0.06  
Money market 1,216,377  5,395  0.59  1,265,186  6,690  0.71  
Retail/business certificates2,702,272  42,096  2.08  2,507,533  35,219  1.88  
Wholesale certificates287,977  4,036  1.87  388,943  6,214  2.14  
Total deposits5,724,166  52,299  1.22  5,583,670  48,730  1.17  
Borrowings(5)
2,148,687  37,421  2.31  2,374,676  41,360  2.32  
Total interest-bearing liabilities7,872,853  89,720  1.52  7,958,346  90,090  1.51  
Other non-interest-bearing liabilities195,957  138,640  
Stockholders' equity1,314,255  1,366,733  
Total liabilities and stockholders' equity$9,383,065  $9,463,719  
Net interest income(6)
$143,652  $156,579  
Net interest rate spread(7)(8)
1.96  2.10  
Net interest-earning assets$1,050,335  $1,130,741  
Net interest margin(8)(9)
2.15  2.30  
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.14x
Selected performance ratios:
Return on average assets (annualized)(8)
0.66 %1.01 %
Return on average equity (annualized)(8)
4.69  7.01  
Average equity to average assets14.01  14.44  
Operating expense ratio(10)
1.12  1.14  
Efficiency ratio(8)(11)
49.81  46.68  
Pre-tax yield on leverage strategy(12)
—  0.03  
67


(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 $14.7 million and $22.2 million for the nine months ended June 30, 2020 and June 30, 2019, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the nine months ended June 30, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $73.5 million for the nine months ended June 30, 2019.
(5)There were no borrowings related to the leverage strategy during the nine months ended June 30, 2020. Included in this line item, for the nine months ended June 30, 2019, are borrowings related to the leverage strategy with an average outstanding balance of $76.9 million and interest paid of $1.4 million, at a weighted average rate of 2.36%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.30 billion and interest paid of $40.0 million, at a weighted average rate of 2.32%. 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.
(6)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.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the small amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Nine Months Ended
June 30, 2020June 30, 2019
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Return on average assets (annualized)0.66 %— %0.66 %1.01 %(0.01)%1.02 %
Return on average equity (annualized)4.69  —  4.69  7.01  —  7.01  
Net interest margin2.15  —  2.15  2.30  (0.02) 2.32  
Net interest rate spread1.96  —  1.96  2.10  (0.02) 2.12  
Efficiency Ratio49.81  —  49.81  46.68  —  46.68  
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

68


Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Nine Months Ended
June 30, 2020 vs. June 30, 2019
Increase (Decrease) Due to
VolumeRateTotal
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(1,284) $(6,400) $(7,684) 
MBS(1,160) (693) (1,853) 
Investment securities(385) (660) (1,045) 
FHLB stock(169) (751) (920) 
Cash and cash equivalents (57) (1,738) (1,795) 
Total interest-earning assets(3,055) (10,242) (13,297) 
Interest-bearing liabilities:
Checking 31  68  99  
Savings13  53  66  
Money market(246) (1,049) (1,295) 
Certificates of deposit1,422  3,277  4,699  
Borrowings(4,008) 69  (3,939) 
Total interest-bearing liabilities(2,788) 2,418  (370) 
Net change in net interest income$(267) $(12,660) $(12,927) 

Comparison of Operating Results for the Three Months Ended June 30, 2020 and 2019
For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $22.9 million, or $0.17 per share for the quarter ended June 30, 2019. The decrease in net income was due to a decrease in net interest income and non-interest income, partially offset by a decrease in non-interest expense and income tax expense. The net interest margin decreased 22 basis points, from 2.29% for the prior year quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as result of an increase in payoff activity.

69


Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 32 basis points, from 3.64% for the prior year quarter to 3.32% for the current quarter, and the average balance of interest-earning assets decreased $55.1 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2020 2019 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$66,652  $71,434  $(4,782) (6.7)%
MBS5,616  6,613  (997) (15.1) 
FHLB stock1,207  1,865  (658) (35.3) 
Investment securities847  1,835  (988) (53.8) 
Cash and cash equivalents59  464  (405) (87.3) 
Total interest and dividend income$74,381  $82,211  $(7,830) (9.5) 

The decrease in interest income on loans receivable was due mainly to a 23 basis point decrease in yield, from 3.78% for the prior year quarter to 3.55% for the current quarter, due primarily to a $2.5 million increase in premium amortization related to correspondent loans as a result of an increase in payoff activity. The decrease in interest income on the MBS portfolio was due primarily to a 24 basis point decrease in the weighted average yield on the portfolio, from 2.64% for the prior year quarter to 2.40% for the current quarter resulting from the purchase of MBS at market rates lower than the existing portfolio, along with a $67.2 million, or 6.7%, decrease in the average balance of the portfolio as a result of not reinvesting all of the cash flows from the portfolio. The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior year quarter. The decrease in interest income on investment securities was due to an 89 basis point decrease in the weighted average yield on the portfolio, from 2.52% for the prior year quarter to 1.63% for the current quarter resulting from calls and maturities being replaced at market rates lower than the existing portfolio, along with an $83.2 million, or 28.6%, decrease in the average balance of the portfolio as a result of not reinvesting all of the cash flows from 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 13 basis points, from 1.54% for the prior year quarter to 1.41% for the current quarter, while the average balance of interest-bearing liabilities increased $54.8 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2020 2019 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$16,533  $16,909  $(376) (2.2)%
Borrowings11,561  13,621  (2,060) (15.1) 
Total interest expense$28,094  $30,530  $(2,436) (8.0) 

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the wholesale certificate of deposit portfolio and the money market portfolio, partially offset by an increase in the average balance and weighted average rate paid on the retail/business certificates of deposit. The weighted average rate of the retail/business certificate of deposit portfolio increased nine basis points, to 2.04% for the current quarter, and the average balance increased $210.7 million, or approximately 8%. Late in the prior year quarter, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit.

The decrease in interest expense on borrowings was due primarily to lower usage of the Bank's FHLB line of credit, along with the replacement of certain FHLB advances at lower market rates and not replacing certain maturing FHLB advances.
70



Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter, compared to a provision for credit losses during the prior year quarter of $450 thousand. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2020 2019 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$2,539  $3,131  $(592) (18.9)%
Insurance commissions671  905  (234) (25.9) 
Other non-interest income1,229  1,638  (409) (25.0) 
Total non-interest income$4,439  $5,674  $(1,235) (21.8) 

The decrease in deposit service fees was due mainly to a decrease in service charge income as a result of a decrease in consumer activity stemming primarily from the COVID-19 pandemic.  The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and an increase in the related accruals during the prior year quarter, and no such increase in accruals during the current quarter. The decrease in other non-interest income was due primarily to a decrease in loan fee income, a decrease in income associated with interest rate swap collateral, and a decrease in income from BOLI resulting from a decrease in yield on the Bank's BOLI policies.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, Change Expressed in:
2020 2019 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,059  $13,454  $(395) (2.9)%
Information technology and related expense4,285  4,652  (367) (7.9) 
Occupancy, net3,556  3,224  332  10.3  
Regulatory and outside services1,548  1,425  123  8.6  
Advertising and promotional1,004  1,447  (443) (30.6) 
Deposit and loan transaction costs697  681  16  2.3  
Office supplies and related expense475  689  (214) (31.1) 
Federal insurance premium287  600  (313) (52.2) 
Other non-interest expense1,253  1,519  (266) (17.5) 
Total non-interest expense$26,164  $27,691  $(1,527) (5.5) 

The decrease in information technology and related expense was due mainly to the prior year quarter including costs related to the integration of CCB operations. The increase in occupancy, net was due primarily to safety measures implemented at the Bank's branches related to the COVID-19 pandemic. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules and postponements of campaigns during the current quarter as a result of the COVID-19 pandemic. The decrease in office supplies and related expense was due primarily to the prior year quarter including costs related to the integration of CCB customers and operations. The decrease in federal insurance premium was due mainly to the Bank utilizing an assessment credit
71


from the FDIC during the current quarter. The decrease in other non-interest expense was due primarily to decreases in OREO operations expense, amortization of deposit intangibles, and debit card fraud losses.

The Company's efficiency ratio was 51.58% for the current quarter compared to 48.28% for the prior year quarter. The change in the efficiency ratio was due mainly to a decrease in net interest income.

Income Tax Expense
Income tax expense was $5.1 million for the current quarter compared to $6.3 million for the prior year quarter. The decrease in income tax expense was due primarily to lower pretax income in the current quarter. The effective tax rate for the current quarter was 20.7% compared to 21.6% for the prior year quarter.
72


Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2020June 30, 2019
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,568,945  $55,646  3.39 %$6,631,716  $59,813  3.61 %
Commercial loans799,600  9,576  4.74  783,024  9,522  4.81  
Consumer loans121,139  1,430  4.75  133,573  2,099  6.30  
Total loans receivable(1)
7,489,684  66,652  3.55  7,548,313  71,434  3.78  
MBS(2)
934,464  5,616  2.40  1,001,622  6,613  2.64  
Investment securities(2)(3)
207,541  847  1.63  290,755  1,835  2.52  
FHLB stock101,588  1,207  4.78  101,408  1,865  7.38  
Cash and cash equivalents(4)
231,354  59  0.10  77,603  464  2.36  
Total interest-earning assets(1)(2)
8,964,631  74,381  3.32  9,019,701  82,211  3.64  
Other non-interest-earning assets499,291  386,218  
Total assets$9,463,922  $9,405,919  
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,232,611  199  0.06  $1,092,612  157  0.06  
Savings404,545  69  0.07  332,269  43  0.05  
Money market1,267,535  1,350  0.43  1,273,559  2,249  0.71  
Retail/business certificates2,734,940  13,882  2.04  2,524,213  12,248  1.95  
Wholesale certificates291,292  1,033  1.43  388,877  2,212  2.28  
Total deposits5,930,923  16,533  1.12  5,611,530  16,909  1.21  
Borrowings(5)
2,035,637  11,561  2.27  2,300,222  13,621  2.36  
Total interest-bearing liabilities7,966,560  28,094  1.41  7,911,752  30,530  1.54  
Other non-interest-bearing liabilities200,339  131,796  
Stockholders' equity1,297,023  1,362,371  
Total liabilities and stockholders' equity$9,463,922  $9,405,919  
Net interest income(6)
$46,287  $51,681  
Net interest rate spread(7)(8)
1.91  2.10  
Net interest-earning assets$998,071  $1,107,949  
Net interest margin(8)(9)
2.07  2.29  
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.14x
Selected performance ratios:
Return on average assets (annualized)(8)
0.82 %0.97 %
Return on average equity (annualized)(8)
6.01  6.72  
Average equity to average assets13.70  14.48  
Operating expense ratio(10)
1.11  1.18  
Efficiency ratio(8)(11)
51.58  48.28  

73


(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $11.9 million and $21.1 million for the three months ended June 30, 2020 and June 30, 2019, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the quarters ended June 30, 2020 and June 30, 2019.
(5)There were no borrowings related to the leverage strategy during the quarters ended June 30, 2020 and June 30, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(6)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.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The leverage strategy was not in place during the quarters ended June 30, 2020 and June 30, 2019.
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2020 to the three months ended June 30, 2019. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended June 30,
2020 vs. 2019
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(550) $(4,232) $(4,782) 
MBS(427) (570) (997) 
Investment securities(442) (546) (988) 
FHLB stock (661) (658) 
Cash and cash equivalents 326  (731) (405) 
Total interest-earning assets(1,090) (6,740) (7,830) 
Interest-bearing liabilities:
Checking 22  20  42  
Savings11  15  26  
Money market(10) (888) (898) 
Certificates of deposit558  (104) 454  
Borrowings(1,144) (916) (2,060) 
Total interest-bearing liabilities(563) (1,873) (2,436) 
Net change in net interest income$(527) $(4,867) $(5,394) 


Comparison of Operating Results for the Three Months Ended June 30, 2020 and March 31, 2020

For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $4.3 million, or $0.03 per share, for the quarter ended March 31, 2020. The increase was due primarily to recording a $22.1 million provision for credit losses during the prior quarter, and no provision for credit losses in the current quarter. This was partially offset by an increase in income tax expense and a decrease in net interest income compared to the prior quarter. The net interest
74


margin decreased 12 basis points, from 2.19% for the prior quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as a result of an increase in payoff activity.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 23 basis points, from 3.55% for the prior quarter to 3.32% for the current quarter, while the average balance of interest-earning assets increased $78.0 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
June 30, March 31, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$66,652  $69,613  $(2,961) (4.3)%
MBS5,616  5,866  (250) (4.3) 
FHLB stock1,207  1,714  (507) (29.6) 
Investment securities847  1,382  (535) (38.7) 
Cash and cash equivalents59  380  (321) (84.5) 
Total interest and dividend income$74,381  $78,955  $(4,574) (5.8) 

The weighted average yield on the loans receivable portfolio decreased 17 basis points, from 3.72% for the prior quarter to 3.55% for the current quarter, due mainly to a $2.1 million increase in premium amortization related to correspondent loans as a result of an increase in payoff activity. The decrease in interest income on the MBS portfolio and the investment securities portfolio was due primarily to the purchase of securities at market rates lower than the existing portfolios. The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior quarter. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield earned on cash held at the FRB of Kansas City.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 14 basis points, from 1.55% for the prior quarter to 1.41% for the current quarter, while the average balance of interest-bearing liabilities increased $121.2 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
June 30, March 31, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$16,533  $17,804  $(1,271) (7.1)%
Borrowings11,561  12,483  (922) (7.4) 
Total interest expense$28,094  $30,287  $(2,193) (7.2) 
The decrease in interest expense on deposits was due to a decrease in the weighted average rate paid on money market accounts, wholesale certificates of deposit, and retail/business certificates of deposit, partially offset by an increase in the average balance of deposits. Management generally reduced deposit offer rates throughout the quarter as discussed above.

The decrease in interest expense on borrowings was due primarily to a full quarter impact of the replacement of certain FHLB advances at lower market rates. During the prior quarter, the Bank prepaid fixed-rate FHLB advances totaling $350.0 million with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted average effective rate of 1.70%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances. Additionally, the Bank reduced the usage of its FHLB line of credit compared to the prior quarter, and did not replace a $100 million FHLB advance, at a rate of 1.61%, that matured during the current quarter.

75


Provision for Credit Losses
The Bank did not record a provision for credit losses during the current quarter, compared to a provision for credit losses during the prior quarter of $22.1 million. The $22.1 million provision for credit losses in the prior quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$2,539  $2,783  $(244) (8.8)%
Insurance commissions671  400  271  67.8  
Other non-interest income1,229  1,488  (259) (17.4) 
Total non-interest income$4,439  $4,671  $(232) (5.0) 

The decrease in deposit service fees was due mainly to a decrease in service charge income as a result of a decrease in consumer activity stemming primarily from the COVID-19 pandemic.  The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and downward adjustments to the related accruals during the prior quarter, and no such adjustments during the current quarter. Contingent insurance commissions are performance-based incentives based on certain criteria established by the insurance carriers. These commissions are accrued based on management's expectations and are adjusted when the funds are received. The decrease in other non-interest income was due primarily to a decrease in income associated with interest rate swap collateral, a decrease in commercial loan late fees, and a decrease in income from BOLI resulting from a decrease in yield on the Bank's BOLI policies.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,059  $13,235  $(176) (1.3)%
Information technology and related expense4,285  4,268  17  0.4  
Occupancy, net3,556  3,449  107  3.1  
Regulatory and outside services1,548  1,297  251  19.4  
Advertising and promotional1,004  1,359  (355) (26.1) 
Deposit and loan transaction costs697  678  19  2.8  
Office supplies and related expense475  592  (117) (19.8) 
Federal insurance premium287  —  287  N/A
Other non-interest expense1,253  1,286  (33) (2.6) 
Total non-interest expense$26,164  $26,164  $—  —  

The increase in regulatory and outside services was due primarily to the timing of external audit services. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules and postponements of campaigns during the current quarter as a result of the COVID-19 pandemic. The increase in the federal insurance premium was due mainly to the Bank recognizing a federal insurance premium accrual as the remaining assessment credit from the FDIC was utilized during the current
76


quarter. We anticipate the federal insurance premium for the fourth quarter of fiscal year 2020 will be approximately $620 thousand, or $333 thousand higher than the current quarter.

The Company's efficiency ratio was 51.58% for the current quarter compared to 49.05% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter compared to the prior quarter.

Income Tax Expense
Income tax expense was $5.1 million for the current quarter, compared to $824 thousand for the prior quarter. The effective tax rate was 20.7% for the current quarter compared to 16.2% for the prior quarter. The effective tax rate was higher in the current quarter due primarily to the Company's permanent differences, which generally lower our income tax expense, having a proportionately smaller impact given the higher pretax income in the current quarter compared to the prior quarter.
77


Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
June 30, 2020March 31, 2020
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,568,945  $55,646  3.39 %$6,594,029  $58,838  3.57 %
Commercial loans799,600  9,576  4.74  759,328  8,994  4.69  
Consumer loans121,139  1,430  4.75  126,710  1,781  5.65  
Total loans receivable(1)
7,489,684  66,652  3.55  7,480,067  69,613  3.72  
MBS(2)
934,464  5,616  2.40  920,419  5,866  2.55  
Investment securities(2)(3)
207,541  847  1.63  280,911  1,382  1.97  
FHLB stock101,588  1,207  4.78  99,879  1,714  6.90  
Cash and cash equivalents(4)
231,354  59  0.10  105,381  380  1.43  
Total interest-earning assets(1)(2)
8,964,631  74,381  3.32  8,886,657  78,955  3.55  
Other non-interest-earning assets499,291  454,687  
Total assets$9,463,922  $9,341,344  
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,232,611  199  0.06  $1,107,232  181  0.07  
Savings404,545  69  0.07  365,554  74  0.08  
Money market1,267,535  1,350  0.43  1,208,521  1,981  0.66  
Retail/business certificates2,734,940  13,882  2.04  2,691,029  14,103  2.11  
Wholesale certificates291,292  1,033  1.43  296,828  1,465  1.98  
Total deposits5,930,923  16,533  1.12  5,669,164  17,804  1.26  
Borrowings(5)
2,035,637  11,561  2.27  2,176,166  12,483  2.29  
Total interest-bearing liabilities7,966,560  28,094  1.41  7,845,330  30,287  1.55  
Other non-interest-bearing liabilities200,339  183,018  
Stockholders' equity1,297,023  1,312,996  
Total liabilities and stockholders' equity$9,463,922  $9,341,344  
Net interest income(6)
$46,287  $48,668  
Net interest rate spread(7)(8)
1.91  2.00  
Net interest-earning assets$998,071  $1,041,327  
Net interest margin(8)(9)
2.07  2.19  
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)(8)
0.82 %0.18 %
Return on average equity (annualized)(8)
6.01  1.30  
Average equity to average assets13.70  14.06  
Operating expense ratio(10)
1.11  1.12  
Efficiency ratio(8)(11)
51.58  49.05  

78


(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 $11.9 million and $15.0 million for the quarters ended June 30, 2020 and March 31, 2020, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the quarters ended June 30, 2020 and March 31, 2020.
(5)There were no FHLB borrowings related to the leverage strategy during the quarters ended June 30, 2020 and March 31, 2020. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(6)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.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The leverage strategy was not in place during the quarters ended June 30, 2020 and March 31, 2020.
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2020 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
June 30, 2020 vs. March 31, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$176  $(3,137) $(2,961) 
MBS88  (338) (250) 
Investment securities(324) (211) (535) 
FHLB stock29  (536) (507) 
Cash and cash equivalents 217  (538) (321) 
Total interest-earning assets186  (4,760) (4,574) 
Interest-bearing liabilities:
Checking 20  (3) 17  
Savings (12) (5) 
Money market93  (723) (630) 
Certificates of deposit198  (851) (653) 
Borrowings(495) (427) (922) 
Total interest-bearing liabilities(177) (2,016) (2,193) 
Net change in net interest income$363  $(2,744) $(2,381) 



79


Liquidity and Capital Resources

Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intent 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. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of regulatory total assets without the pre-approval of FHLB senior management. 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 a trend in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At June 30, 2020, the Bank had total borrowings, at par, of $1.99 billion, or approximately 21% of total assets.

The amount of FHLB borrowings outstanding at June 30, 2020 was $1.89 billion, of which $943.0 million were advances scheduled to mature in the next 12 months, including $640.0 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 June 30, 2020, the ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 20%.

At June 30, 2020, the Bank had repurchase agreements of $100.0 million, or approximately 1% of total assets, all of which were scheduled to mature during July 2020. The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank has pledged securities with an estimated fair value of $106.6 million as collateral for repurchase agreements as of June 30, 2020. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At June 30, 2020, the Bank had $760.1 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs. 

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of June 30, 2020, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At June 30, 2020, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 5% of total deposits. The Bank had pledged securities with an estimated fair value of $340.8 million as collateral for public unit certificates of deposit at June 30, 2020. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At June 30, 2020, $1.46 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $254.5 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.

80


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.


81


The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at June 30, 2020, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of June 30, 2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $227.8 million.
Loans(1)
MBSInvestment SecuritiesTotal
AmountYieldAmountYieldAmountYieldAmountYield
(Dollars in thousands)
Amounts due:
Within one year $252,076  4.21 %$4,750  2.57 %$5,497  1.50 %$262,323  4.12 %
After one year:
Over one to two years110,918  3.15  3,201  2.65  5,438  1.81  119,557  3.07  
Over two to three years58,637  4.47  31,793  1.62  51,038  0.47  141,468  2.39  
Over three to five years127,392  4.63  24,283  1.84  175,494  1.42  327,169  2.70  
Over five to ten years777,567  3.73  294,924  2.37  —  —  1,072,491  3.35  
Over ten to fifteen years1,320,741  3.36  392,988  2.24  —  —  1,713,729  3.10  
After fifteen years4,760,111  3.66  230,648  2.64  —  —  4,990,759  3.61  
Total due after one year7,155,366  3.63  977,837  2.34  231,970  1.22  8,365,173  3.41  
$7,407,442  3.65  $982,587  2.35  $237,467  1.23  $8,627,496  3.43  

(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.
82


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, 2019. 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, 2019. 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 nine months ended June 30, 2020 was $1.24 billion, and the average balance of short-term FHLB borrowings outstanding during this period was $1.09 billion at a weighted average contractual rate of 1.83%. The balance of short-term FHLB borrowings outstanding at June 30, 2020 was $943.0 million, at a weighted average contractual rate of 1.17%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months.

Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended June 30, 2020, 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"). In September 2019, the regulatory agencies, including the OCC and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is a minimum of 8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank elected the CBLR framework during the current quarter. As of June 30, 2020, the Bank's CBLR was 12.4% and the Company's CBLR was 13.8%, which exceeded the minimum requirements.

83


The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of June 30, 2020, for the Bank and the Company (dollars in thousands):
BankCompany
Total equity as reported under GAAP$1,169,620  $1,300,520  
AOCI17,591  17,591  
Goodwill and other intangibles, net of associated deferred taxes(13,981) (13,981) 
Total tier 1 capital$1,173,230  $1,304,130  



84


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, 2019. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.

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

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

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

Qualitative Disclosure about Market Risk
At June 30, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $857.3 million, or 8.97% of total assets, compared to $508.6 million, or 5.43% of total assets, at March 31, 2020. The increase in the one-year gap amount was due primarily to a higher balance of cash and a lower balance of borrowings as of June 30, 2020 compared to March 31, 2020

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 June 30, 2020, the Bank's one-year gap is projected to be $53.6 million, or 0.56% 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 $(312.8) million, or (3.34)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2020.

During the current quarter, loan repayments totaled $586.4 million and cash flows from the securities portfolio totaled $200.3 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $768.9 million, including
85


$200.0 million in FHLB 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 June 30, 2020 was 1.8 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of June 30, 2020 was 2.9 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities. The Bank may renew the upcoming advances to lower costing term advances based upon our assessment of deposit flows, lending opportunities and our liquidity position at that time.

The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested in higher-yielding assets as interest rates rise.

In addition to these wholesale strategies, the Bank has sought to increase non-maturity deposits. Non-maturity deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical 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 the current year, the Bank has decreased the 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.


86


Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
More ThanMore Than
WithinOne Year toThree YearsOver
One Year Three Years to Five Years Five Years Total
Interest-earning assets:(Dollars in thousands)
Loans receivable(1)
$1,982,093  $2,121,554  $1,215,262  $2,079,489  $7,398,398  
Securities(2)
592,334  309,028  143,989  140,874  1,186,225  
Other interest-earning assets381,730  —  —  —  381,730  
Total interest-earning assets2,956,157  2,430,582  1,359,251  2,220,363  8,966,353  
Interest-bearing liabilities:
Non-maturity deposits(3)
234,048  336,181  277,343  2,277,919  3,125,491  
Certificates of deposit1,461,834  1,231,382  339,478  466  3,033,160  
Borrowings(4)
403,000  675,000  615,000  339,971  2,032,971  
Total interest-bearing liabilities2,098,882  2,242,563  1,231,821  2,618,356  8,191,622  
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities$857,275  $188,019  $127,430  $(397,993) $774,731  
Cumulative excess of interest-earning assets over
interest-bearing liabilities$857,275  $1,045,294  $1,172,724  $774,731  
Cumulative excess of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
June 30, 20208.97 %10.94 %12.27 %8.11 %
September 30, 20195.21  
Cumulative one-year gap - interest rates +200 bps at:
June 30, 20200.56  
September 30, 2019(3.88) 

(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of June 30, 2020, 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 $2.03 billion, for a cumulative one-year gap of (21.3)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $640.0 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.

87


Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
ChangeNet Interest Income At
(in Basis Points)June 30, 2020September 30, 2019
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$193,341  $—  — %$193,329  $—  — %
+100 bp201,074  7,733  4.00  194,093  764  0.40  
+200 bp201,481  8,140  4.21  192,111  (1,218) (0.63) 
+300 bp200,529  7,188  3.72  188,752  (4,577) (2.37) 

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

The net interest income projection was relatively unchanged in the base case scenario at June 30, 2020 compared to September 30, 2019. The one-year gap was higher at June 30, 2020 compared to September 30, 2019 due to lower interest rates at June 30, 2020, resulting in a higher amount of assets repricing. In the rising interest rate scenarios, interest income is higher at June 30, 2020 due a higher amount of assets repricing in these scenarios than at September 30, 2019. During the current fiscal year, the Bank also modified $350.0 million of term borrowings into new long-term borrowings with a lower cost. As a result, the cost on the Bank's term borrowings portfolio decreased 12 basis points and they are no longer projected to reprice in the 12-month horizon. The Bank was also able to lower the cost of its deposit portfolio by two basis points due to lower money market rates and a decrease in the interest rates offered on retail/business certificates of deposit. In addition, during the second quarter management changed the way that future certificate of deposit rates are forecasted in the Bank's interest rate risk model. This change was made to more closely align the forecasted rates with the current rates offered, thus lowering the projected interest expense.

The net interest income projections increase from the base case in all rising interest rate scenarios at June 30, 2020. The net interest income projection was more adversely impacted in the rising interest rate scenarios at September 30, 2019 compared to June 30, 2020, due primarily to higher interest rates at September 30, 2019. In addition, the modification of $350.0 million of borrowings during the current fiscal year lengthened the Bank's liabilities, thus reducing the risk to higher interest rates. The positive impact of rising interest rates diminished as interest rates increase until turning negative in the +200 basis point and +300 basis point scenarios at September 30, 2019. Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus increasing the negative impact of rising interest rates.



88


Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
ChangeMarket Value of Portfolio Equity At
(in Basis Points)June 30, 2020September 30, 2019
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$1,054,207  $—  — %$1,283,429  $—  — %
+100 bp1,157,315  103,108  9.78  1,286,446  3,017  0.24  
+200 bp1,093,330  39,123  3.71  1,162,151  (121,278) (9.45) 
+300 bp968,281  (85,926) (8.15) 992,060  (291,369) (22.70) 

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

The percentage change in the Bank's MVPE at June 30, 2020 was positive in the +100 and +200 basis point scenarios and negative in the +300 basis point scenario. At September 30, 2019 the percentage change in the Bank's MVPE was negative in the +200 and +300 basis point scenarios. This change was due primarily to lower interest rates at June 30, 2020 and the modification of $350.0 million of borrowings during the current fiscal year into long-term liabilities which reduced the Bank's risk to higher interest rates. 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 the +100 and +200 basis point scenarios, the market value of liabilities decrease at a faster pace than the market value of assets due to having a longer duration in these scenarios. The longer duration makes the market value of these liabilities more sensitive to changes in interest rates. In the +300 basis point scenario, prepayment speeds on mortgage-related assets and call projections on investment securities decrease to a point where the durations of assets are longer, and thus more sensitive to rising interest rates. This results in a larger decrease in the market value of assets than liabilities in this scenario.

89


The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of June 30, 2020. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
AmountYield/RateWAL% of Category% of Total
(Dollars in thousands)
Investment securities$237,467  1.23 %0.6  19.4 %2.6 %
MBS - fixed741,364  2.22  3.2  60.8  8.1  
MBS - adjustable241,223  2.73  2.5  19.8  2.6  
Total securities1,220,054  2.12  2.5  100.0 %13.3  
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years 1,113,247  3.04  3.5  15.0 %12.2  
> 15 years4,413,013  3.77  5.1  59.6  48.4  
Fixed-rate commercial542,857  4.18  3.6  7.3  5.9  
All other fixed-rate loans47,426  4.70  3.5  0.7  0.5  
Total fixed-rate loans6,116,543  3.68  4.7  82.6  67.0  
Adjustable-rate one- to four-family:
<= 36 months198,477  2.47  2.6  2.7  2.2  
> 36 months716,614  3.20  2.2  9.7  7.9  
Adjustable-rate commercial269,432  4.81  6.1  3.6  3.0  
All other adjustable-rate loans106,376  4.25  1.7  1.4  1.2  
Total adjustable-rate loans1,290,899  3.51  3.0  17.4  14.3  
Total loans receivable7,407,442  3.65  4.4  100.0 %81.3  
FHLB stock102,782  4.68  1.9  1.1  
Cash and cash equivalents396,219  0.10  —  4.3  
Total interest-earning assets$9,126,497  3.30  3.9  100.0 %
Non-maturity deposits$3,036,524  0.21  15.0  50.0 %37.7 %
Retail/business certificates of deposit2,744,661  1.97  1.5  45.2  34.0  
Public unit certificates of deposit288,499  1.09  0.4  4.8  3.6  
Total deposits6,069,684  1.05  8.2  100.0 %75.3  
Term borrowings1,993,000  2.29  2.9  24.7  
Total interest-bearing liabilities$8,062,684  1.35  6.9  100.0 %

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of June 30, 2020. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of June 30, 2020, 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.

90


Changes in Internal Control Over Financial Reporting
Management reviewed the Company's internal control over financial reporting in consideration of operational changes as a result of COVID-19.  There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended June 30, 2020 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, 2019; however, in light of recent developments relating to the COVID-19 pandemic, the Company is supplementing its risk factors in this Form 10-Q.

The Impact of the COVID-19 Pandemic on Our Customers, Employees and Business Operations Has Had, and Will Likely Continue to Have, a Significant Adverse Effect on Our Business, Results of Operations and Financial Condition

The COVID-19 pandemic has created a global public-health crisis that has resulted in widespread market volatility and deteriorating economic conditions for households and businesses. The deteriorating economic conditions, most of which are unprecedented, include more than 20 million people becoming unemployed in the United States in one month's time, more than 45 million total filing for unemployment benefits, cuts in consumer spending in almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others. In the Bank's local markets, governments put stay-at-home orders into effect in March and April which only allow for essential businesses to remain open. Many of these stay-at-home orders have been lifted or greatly reduced.

In response to the COVID-19 pandemic, as an essential business, the Company implemented business continuity measures, including activating its Crisis Management Team to put into action our business continuity plan, monitoring potential business interruptions, making further improvements to our information technology allowing nearly half of our employees to work from home, and conducting regular discussions with our third-party service providers providing services to facilities that are open. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. Preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in the office, and preventative cleaning at offices and branches. Additionally, from mid-March to mid-May, lobby services were limited to appointment only. Due to an increase in COVID-19 cases in late June into July, management decided to change lobby services to appointment only. These actions have resulted in changes to our business operations, but have not significantly impacted most business operations. Depending on the severity and length of the COVID-19 pandemic, which is impossible to predict, we could experience significant disruptions in our business operations if key personnel or a significant number of employees were to become unavailable due to the effects of, and restrictions resulting from, the COVID-19 pandemic, as well as decreased demand for our products and services.

There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. The unknown economic recovery time resulting from the COVID-19 pandemic creates risks that loan modification programs made available to our customers will be insufficient to prevent or reduce delinquencies or help our customers stay in business. Businesses that do not take advantage of loan modification programs offered by the Bank could also be at risk of becoming delinquent or going out of business, and this risk could remain even for those businesses that do avail themselves of those programs. The PPP loans made by the Bank are guaranteed by the SBA and, if used by the borrower for authorized purposes, may be fully forgiven. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from the Bank.

Since the commencement of the PPP, several larger banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approach the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other
91


aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.

It is likely that many of our individual borrowers have become unemployed and may not be able to continue making mortgage payments under the terms of their loans. Included in the CARES Act were Economic Impact Payments to individuals meeting certain income requirements. Individuals began receiving those payments in mid-April 2020. Additionally, individuals that are unemployed have benefited from the FPUC and other unemployment compensation benefits provided through the CARES Act. The FPUC provided an additional $600 per week to individuals collecting regular unemployment compensation. This benefit expired in late July 2020. The financial support provided to individuals by the CARES Act may help mitigate the risk that some borrowers become delinquent or delay the potential for default until they can return to work. However, it is uncertain how long borrowers may need some form of assistance or forbearance and what type of future assistance, if any, the U.S. Government will provide.

Asset quality may deteriorate and the amount of our ACL may not be sufficient for future loan losses we may experience. This could require us to increase our reserves and recognize more expense in future periods. The changes in market rates of interest and the impact that has on our ability to price our products may reduce our net interest income in the future or negatively impact the demand for our products. There is some risk that operational costs could increase as we maintain existing facilities in accordance with health guidelines as well as potentially continuing to have staff work remotely.

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

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 June 30, 2020 and additional information regarding our stock repurchase program. The Company has $70.0 million of common stock authorized under its stock repurchase plan. There is no expiration for this repurchase plan. Shares may be repurchased from time to time in the open-market based upon market conditions and available liquidity.
Total Number ofApproximate Dollar
TotalShares Purchased asValue of Shares
Number of Average Part of Publiclythat May Yet Be
Shares Price PaidAnnounced PlansPurchased Under the
Purchasedper Shareor ProgramsPlans or Programs
April 1, 2020 through
April 30, 2020—  $—  —  $70,000,000  
May 1, 2020 through
May 31, 2020—  —  —  70,000,000  
June 1, 2020 through
June 30, 2020—  —  —  70,000,000  
Total—  —  —  70,000,000  

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

92


Item 6. Exhibits
See Index to Exhibits.
93


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
Employment Agreement with Robert D. Kobbeman, as amended, filed on November 29, 2018 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 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
94


101The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020, filed with the Securities and Exchange Commission on August 7, 2020, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at June 30, 2020 and September 30, 2019, (ii) Consolidated Statements of Income for the three and nine months ended June 30, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended June 30, 2020 and 2019, (iv) Consolidated Statements of Stockholders' Equity for the three and nine months ended June 30, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the nine months ended June 30, 2020 and 2019, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
95


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CAPITOL FEDERAL FINANCIAL, INC.
Date: August 7, 2020By:/s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: August 7, 2020By:/s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

96