UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended September 30, 2001
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 0-24118

CAPITOL FEDERAL FINANCIAL (Exact name of registrant as specified in its charter)

United States

(State or other jurisdiction of incorporation or organization)

48-1212142

(I.R.S. Employer Identification No.)

700 Kansas Avenue, Topeka, Kansas

(Address of principal executive offices)

66603

(Zip Code)


Registrant's telephone number, including area code: (785) 235-1341

Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)

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 X . NO ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average of the closing bid and asked price of such stock on the Nasdaq National Market as of December 7, 2001, was $453.4 million. (The exclusion from such amount of the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an affiliate of the registrant.)
As of December 7, 2001, there were issued and outstanding 74,543,114 shares of the Registrant's common stock.

DOCUMENTS INCORPORATED BY REFERENCE

	Parts II and IV of Form 10-K - Portions of the Annual Report to Stockholders for the year ended September 30, 2001.
Part III of Form 10-K - Portions of the proxy statement for the Annual Meeting of Stockholders for the year ended September 30, 2001.

FORWARD-LOOKING STATEMENTS

Capitol Federal Financial (the "Company"), and its wholly-owned subsidiary, Capitol Federal Savings Bank ("Capitol Federal Savings" or the "Bank"), may from time to time make written or oral "forward-looking statements", including statements contained in their filings with the Securities and Exchange Commission ("SEC"). These forward-looking statements may be included in this Annual Report on Form 10-K and the exhibits attached to it, in the Company's reports to stockholders 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, that 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 financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in the forward-looking statements:

our ability to continue to maintain overhead costs among the lowest in the industry;
our ability to continue to originate a significant volume of one- to four-family mortgage loans in our market area;
the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
inflation, interest rate, market and monetary fluctuations;
the timely development of and acceptance of our 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, when required;
the impact of changes in financial services' laws and regulations, including laws concerning taxes, banking, securities and insurance;
technological changes;
acquisitions;
changes in consumer spending and saving habits; and
our success at managing the risks involved in our business.

This list of important factors is not all inclusive. 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.

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PART I

Item 1. Description of Business

General
The Company is a federally chartered mid-tier holding company that completed its initial public offering in March 1999 in the reorganization of the Bank from a federally chartered mutual savings and loan association into the federal mutual holding company form of organization. Pursuant to the reorganization, the Bank converted to a federally chartered stock savings bank as a wholly-owned subsidiary of the Company, which is majority owned by Capitol Federal Savings Bank MHC (the "MHC"), a federally chartered mutual holding company. The Company's common stock is traded on the Nasdaq-Amex National Market under the symbol "CFFN."

The Bank is the only operating subsidiary of the Company. The Bank is a federally-chartered and insured savings bank headquartered in Topeka, Kansas and is examined and regulated by the Office of Thrift Supervision ("OTS"), its primary regulator. It is also regulated by the Federal Deposit Insurance Corporation ("FDIC"). We serve primarily the entire metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and a portion of the metropolitan area of greater Kansas City through 27 full service and seven limited service banking offices. At September 30, 2001, we had total assets of $8.64 billion, deposits of $4.29 billion and total equity of $1.05 billion.

We have been, and intend to continue to be, a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. We attract retail deposits from the general public and invest those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences. We also originate a limited amount of loans secured by first mortgages on nonowner-occupied one-to four-family residences, consumer loans, permanent and construction loans secured by commercial real estate, multi-family real estate loans and land acquisition and development loans. While our primary business is the origination of one- to four-family residential mortgage loans funded through retail deposits, we purchase whole loans and invest in certain investment and mortgage-related securities funded through retail deposits and the Federal Home Loan Bank of Topeka ("FHLB") advances. < /P> Our revenues are derived principally from interest on loans and mortgage-related and investment securities.

We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include passbook and statement savings accounts, money market deposit accounts, NOW and non-interest bearing checking accounts and certificates of deposit with varied terms ranging from 91 days to 96 months.

Our executive offices are located at 700 Kansas Avenue, Topeka, Kansas 66603, and our telephone number at that address is (785) 235-1341.

Market Area
We intend to continue to be a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. We primarily serve the entire metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia and Salina, Kansas and a portion of the metropolitan area of greater Kansas City. We may originate loans outside of these areas on occasion, and we do purchase whole loans secured by properties located outside of these areas from correspondent lenders, to the extent such loans meet our underwriting criteria.

Lending Activities
General. Our primary lending activity is the origination of loans secured by first mortgages on one- to four-family residential properties. We also make consumer loans and a limited number of loans secured by multi-family dwellings or commercial properties and land acquisition and development loans. Our mortgage loans carry either a fixed or an adjustable rate of interest. Mortgage loans are generally long-term and amortize on a monthly basis with principal and interest due each month. At September 30, 2001, our net loan portfolio totaled $5.42 billion, which constituted 62.7% of our total assets.

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All originated loans are generated by our own employees or loan agents, with larger loans subject to approval by the board of directors. Loans over $450,000 must be underwritten by two underwriters. Any mortgage loan over $750,000 must be approved by the asset and liability management committee and loans over $1.5 million must be approved by the board of directors. For loans requiring board approval, management is responsible for presenting to the board information about the creditworthiness of the borrower and the estimated value of the subject property. Information pertaining to the creditworthiness of the borrower generally consists of a summary of the borrower's credit history, employment, employment stability, net worth and income. The estimated value of the property must be supported by an independent appraisal report prepared in accordance with our appraisal policy.

At September 30, 2001, the maximum amount which we could have loaned to any one borrower and the borrower's related entities was approximately $139.6 million. At that date, we had no loans or groups of loans to related borrowers with outstanding balances in excess of this amount. Our largest lending relationship to a single borrower or a group of related borrowers consisted of 18 multi-family projects and one commercial real estate projects located throughout Kansas, totaling $23.6 million at September 30, 2001. Most of the multifamily loans qualify for the low income housing tax credit program. We have over 20 years experience with this group of borrowers who usually build and manage their own properties. No single loan in this group exceeded $3.0 million at that date. All of these loans were current and performing in accordance with their terms at September 30, 2001.

The second largest lending relationship at September 30, 2001, consisted of two loans totaling $16.8 million. The largest of these was a $14.0 million line of credit to be used solely for the acquisition and development of a 320 acre residential housing community located in Overland Park, Kansas. The loan balance at September 30, 2001 was $4.3 million. This loan which was originated in 1995, had an original term of five years with one automatic extension of three years, has an adjustable interest rate with a minimum and maximum rate and had a 100% loan-to-value ratio at origination. Principal repayments are not on a monthly schedule, but are required from the sale of each building lot. Interest payments are funded from loan proceeds. The borrowers have provided additional collateral in the form of $750,000 in certificates of deposit placed in escrow in the Bank, in addition to personal guarantees of up to $2.3 million. The loan te rms require additional contingent interest payments to the Bank of 25% of the net profits of the development, if any. At September 30, 2001, seven of a planned eight phases have been developed, with 426 lots sold. The remaining loan to this group of related borrowers had a balance of $2.8 million at September 30, 2001. Each of the loans to this group of borrowers was current and performing in accordance with its terms at September 30, 2001.

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Our Loan Portfolio. The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for loans in process, deferred fees and discounts and allowances for losses) as of the dates indicated.

	September 30,
	2001		2000		1999		1998		1997
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
	(Dollars in Thousands)
Real Estate Loans:
One- to four-family	$ 5,166,660	94.66%	$ 5,206,237	95.02%	$ 4,083,148	94.45%	$ 3,504,799	93.98%	$ 3,145,799	94.35%
Multi-family	48,991	0.90	50,767	0.93	31,114	0.72	40,361	1.08	26,688	0.80
Commercial	7,966	0.15	13,206	0.24	11,415	0.27	9,069	0.24	5,924	0.18
Construction and development	44,712	0.82	38,192	0.70	56,660	1.31	52,086	1.40	51,157	1.53
Total real estate loans	5,268,329	96.53	5,308,402	96.89	4,182,337	96.75	3,606,315	96.70	3,229,568	96.86
Other Loans:
Consumer Loans:
Savings	14,466	0.26	13,964	0.25	15,281	0.35	16,446	0.44	16,314	0.49
Home improvement	1,970	0.04	2,373	0.04	2,072	0.05	2,776	0.08	3,341	0.10
Automobile	10,346	0.19	10,728	0.20	7,122	0.16	5,758	0.15	4,120	0.12
Home equity	161,239	2.95	142,654	2.60	115,779	2.68	97,829	2.62	80,640	2.42
Other	1,678	0.03	842	0.02	330	0.01	420	0.01	294	0.01
Total consumer loans	189,699	3.47	170,561	3.11	140,584	3.25	123,229	3.30	104,709	3.14
Commercial business loans	25	---	30	---	---	---	10	---	---	---
Total other loans	189,724	3.47	170,591	3.11	140,584	3.25	123,239	3.30	104,709	3.14
Total loans receivable	5,458,053	100.00%	5,478,993	100.00%	4,322,921	100.00%	3,729,554	100.00%	3,334,277	100.00%
Less:
Loans in process	20,057		16,891		29,043		21,690		21,872
Deferred fees and discounts	16,652		15,061		14,271		12,490		11,824
Allowance for losses	4,837		4,596		4,407		4,081		1,639
Total loans receivable, net	$ 5,416,507		$ 5,442,445		$ 4,275,200		$ 3,691,293		$ 3,298,942

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The following table shows the composition of our loan portfolio by fixed- and adjustable-rate at the dates indicated.

	September 30,
	2001		2000		1999		1998		1997
	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent	Amount	Percent
	(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
One- to four-family	$ 3,325,203	60.92%	$ 2,812,848	51.34%	$ 2,618,998	60.58%	$ 2,010,809	53.92%	$ 1,403,790	42.10%
Multi-family	47,411	0.87	35,719	0.65	28,467	0.66	34,266	0.92	19,069	0.57
Commercial	5,146	0.10	8,123	0.15	5,556	0.13	8,208	0.22	4,667	0.14
Construction and development	30,936	0.57	16,006	0.29	29,976	0.69	19,829	0.53	9,404	0.28
Total real estate loans	3,408,696	62.46	2,872,696	52.43	2,682,997	62.06	2,073,112	55.59	1,436,930	43.09

Consumer	46,846	0.85	41,641	0.76	33,028	0.76	29,915	0.80	27,152	0.81
Commercial business	25	---	30	---	---	---	10	---	---	---
Total fixed-rate loans	3,455,567	63.31	2,914,367	53.19	2,716,025	62.82	2,103,037	56.39	1,464,082	43.90

Adjustable-Rate Loans:
Real estate:
One- to four-family	1,841,457	33.74	2,393,389	43.68	1,464,150	33.87	1,493,990	40.06	1,742,009	52.25
Multi-family	1,580	0.03	15,048	0.28	2,647	0.06	6,095	0.16	7,619	0.23
Commercial	2,820	0.05	5,083	0.09	5,859	0.14	861	0.02	1,257	0.04
Construction and development	13,776	0.25	22,186	0.41	26,684	0.62	32,257	0.87	41,753	1.25
Total real estate loans	1,859,633	34.07	2,435,706	44.46	1,499,340	34.69	1,533,203	41.11	1,792,638	53.77

Consumer	142,853	2.62	128,920	2.35	107,556	2.49	93,314	2.50	77,557	2.33
Total adjustable-rate loans	2,002,486	36.69	2,564,626	46.81	1,606,896	37.18	1,626,517	43.61	1,870,195	56.10
Total loans	5,458,053	100.00%	5,478,993	100.00%	4,322,921	100.00%	3,729,554	100.00%	3,334,277	100.00%

Less:
Loans in process	20,057		16,891		29,043		21,690		21,872
Deferred fees and discounts	16,652		15,061		14,271		12,490		11,824
Allowance for loan losses	4,837		4,596		4,407		4,081		1,639
Total loans receivable, net	$ 5,416,507		$ 5,442,445		$ 4,275,200		$ 3,691,293		$ 3,298,942

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The following schedule presents the contractual maturity of our loan portfolio at September 30, 2001. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

	Real Estate
	One- to Four-Family		Multi-family and Commercial		Construction and Development		Consumer		Commercial Business		Total
Due During Years Ending September 30	Amount	Weighted Average Rate	Amount	Weighted Average Rate	Amount	Weighted Average Rate	Amount	Weighted Average Rate	Amount	Weighted Average Rate	Amount	Weighted Average Rate
	(Dollars in Thousands)
2002⁽¹⁾	$ 2,429	8.32%	$ 5	9.00%	$ 43,200	6.43%	$ 12,052	7.37%	$ ---	---%	$ 57,686	6.71%
2003	3,594	7.56	---	---	1,512	6.76	88	7.19	---	---	5,194	7.32
2004	5,810	7.48	4,623	7.92	---	---	12,469	8.59	---	---	22,902	8.17
2005 to 2006	12,246	7.83	1,660	8.44	---	---	8,009	8.68	25	10.50	21,940	8.19
2007 to 2008	63,166	7.44	8,478	7.53	---	---	11,727	9.20	---	---	83,371	7.70
2009 to 2023	1,175,883	7.04	25,803	7.68	---	---	107,819	7.38	---	---	1,309,505	7.08
2024 and beyond	3,903,532	7.18	16,388	8.09	---	---	37,535	7.19	---	---	3,957,455	7.18

⁽¹⁾ Includes demand loans, loans having no stated maturity and overdraft loans.

The total amount of loans due after September 30, 2002 which have predetermined interest rates is $3.40 billion, while the total amount of loans due after such date which have floating or adjustable interest rates is $2.00 billion.

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One- to Four-Family Residential Real Estate Lending. Residential loan originations are generated by referrals from real estate brokers and builders, our marketing efforts and existing and walk-in customers. We focus our lending efforts primarily on the origination of loans secured by first mortgages on owner-occupied one- to four-family residences in our market areas. In order to generate additional lending volume, we purchase whole loans generally throughout the Midwest. These purchases allow us to attain geographic diversification and manage credit concentration risks in the loan portfolio. At September 30, 2001, one- to four-family residential mortgage loans totaled $5.17 billion, or 94.7% of our gross loan portfolio

We generally underwrite our one- to four-family loans based on the applicant's employment and credit history, and the appraised value of the subject property. Presently, we lend up to 97% of the lesser of the appraised value or purchase price for one- to four-family residential loans. For loans with a loan-to-value ratio in excess of 80%, we require private mortgage insurance in order to reduce our loss exposure. Properties securing our one- to four-family loans are appraised by either staff appraisers or independent fee appraisers approved by the board of directors. We require our borrowers to obtain title and hazard insurance, and flood insurance, if necessary, in an amount not less than the value of the property and improvements.

We currently originate one- to four-family mortgage loans on either a fixed- or adjustable-rate basis, as consumer demand dictates. Our pricing strategy for mortgage loans includes setting interest rates that are competitive with Fannie Mae and Freddie Mac and local financial institutions, and consistent with our internal needs. Adjustable-rate mortgage ("ARM") loans are offered with either a one-year, three-year or five-year term to the initial repricing date. After the initial period, the interest rate for each ARM loan generally adjusts annually for the remainder of the term of the loan. We use a number of different indices to reprice our ARM loans. During the 2001 and 2000 fiscal years, we originated $200.7 million and $466.0 million of one- to four-family ARM loans, and $907.2 million and $438.5 million of one- to four-family fixed-rate mortgage loans, respectively. See "Management's Discussion and Analysis of Financial Condit ion and Results of Operations - Asset and Liability Management and Market Risk" in the Annual Report to Stockholders attached as Exhibit 13 to this Annual Report on Form 10-K.

Fixed-rate loans secured by one- to four-family residences have contractual maturities of up to 30 years, and are fully amortizing, with payments due monthly. These loans normally remain outstanding, however, for a substantially shorter period of time because of refinancing and other prepayments. A significant change in the current level of interest rates could alter the average life of a residential loan in our portfolio considerably. Our one- to four-family loans are generally not assumable, do not contain prepayment penalties and do not permit negative amortization of principal. Our real estate loans generally contain a "due on sale" clause allowing us to declare the unpaid principal balance due and payable upon the sale of the security property.

Our one- to four-family residential ARM loans are fully amortizing loans with contractual maturities of up to 30 years, with payments due monthly. Our ARM loans generally provide for specified minimum and maximum interest rates, with a lifetime cap and floor, and a periodic adjustment on the interest rate over the rate in effect on the date of origination. As a consequence of using caps, the interest rates on these loans may not be as rate sensitive as is our cost of funds. Our ARM loans are not automatically convertible into fixed-rate loans. We do allow borrowers to pay an endorsement fee to convert an ARM loan to a fixed rate loan.

In order to remain competitive in our market areas, we currently originate ARM loans at initial rates below the fully indexed rate. We qualify borrowers based on this initial discounted rate for our three and five year ARMs, and at 2% over the initial rate for one-year ARMs.

ARM loans can pose different credit risks than fixed-rate loans, primarily because as interest rates rise, the borrower's payment rises, increasing the potential for default. Historically, we have not experienced difficulty with the repayment of these loans in a rising rate environment. See "- Asset Quality -- Non-performing Assets" and "-- Classified Assets." At September 30, 2001, our one- to four-family ARM loan portfolio totaled $1.84 billion, or 33.7% of our gross loan portfolio. At that date the fixed-rate one- to four-family mortgage loan portfolio totaled $3.33 billion, or 60.9% of our gross loan portfolio.

Multi-family and Commercial Real Estate Lending. We offer a variety of multi-family and commercial real estate loans. These loans are secured primarily by multi-family dwellings, small retail establishments and small office buildings located in our market areas. At September 30, 2001, multi-family and commercial real estate loans totaled $57.0 million or 1.1% of our gross loan portfolio.

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Our loans secured by multi-family and commercial real estate are originated with either a fixed or adjustable interest rate. The interest rate on adjustable-rate loans is based on a variety of indices, generally determined through negotiation with the borrower. Loan-to-value ratios on our multi-family and commercial real estate loans usually do not exceed 80% of the appraised value of the property securing the loan. These loans typically require monthly payments and have maximum maturities of 25 years. While maximum maturities may extend to 30 years, loans frequently have shorter maturities and may not be fully amortizing, requiring balloon payments of unamortized principal at maturity.

Loans secured by multi-family and commercial real estate are granted based on the income producing potential of the property and the financial strength of the borrower. The net operating income, which is the income derived from the operation of the property less all operating expenses, must be sufficient to cover the payments related to the outstanding debt. We generally require personal guarantees of the borrowers covering a portion of the debt in addition to the security property as collateral for such loans. We generally require an assignment of rents or leases in order to be assured that the cash flow from the project will be used to repay the debt. Appraisals on properties securing multi-family and commercial real estate loans are performed by independent state certified fee appraisers approved by the board of directors. See "-- Loan Originations, Purchases, Sales and Repayments."

We do not generally maintain a tax or insurance escrow account for loans secured by multi-family and commercial real estate. In order to monitor the adequacy of cash flows on income-producing properties of $1.0 million or more, the borrower is notified annually to provide financial information including rental rates and income, maintenance costs and an update of real estate property tax payments, as well as personal financial information.

Loans secured by multi-family and commercial real estate properties are generally larger and involve a greater degree of credit risk than one- to four-family residential mortgage loans. Such loans typically involve large balances to single borrowers or groups of related borrowers. Because payments on loans secured by multi-family and commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy. If the cash flow from the project is reduced, or if leases are not obtained or renewed, the borrower's ability to repay the loan may be impaired. See "- Asset Quality -- Non-performing Loans."

Construction and Development Lending. We originate construction loans primarily secured by existing commercial real estate or building lots. We also make a limited number of construction loans to individuals for the construction of their residences. Presently, all of these loans are secured by property located within our market areas. At September 30, 2001, we had $44.7 million in construction loans outstanding, representing 0.8% of our gross loan portfolio. Construction loans are obtained principally through continued business with builders who have previously borrowed from us. The application process includes submission of complete plans, specifications and costs of the project to be constructed. These items are used as a basis to determine the appraised value of the subject property. Loans are based on the lesser of current appraised value and/or the cost of construction, including the land and the building. We also conduct regular inspections of the construction project being financed.

We occasionally originate acquisition and development loans, primarily to borrowers having significant experience and longstanding relationships with us. At September 30, 2001, Capitol Federal Savings had two acquisition and development loans with an outstanding balance of $7.1 million.

Loans secured by building lots or raw land held for development are generally granted with terms of up to five years and are available with either fixed or adjustable interest rates and on individually negotiated terms. During the development or construction phase, the borrower pays interest only, which payments may be funded from the loan proceeds. These loans may require monthly payments or may be established as line of credit loans with no fixed repayment schedule. On line of credit loans, repayment is required as building lots are sold. In addition to the agreed upon interest rate on these loans, we may negotiate a contingent interest payment based on the profitability of the project.

Loan-to-value ratios on our construction and development loans typically do not exceed 80% of the appraised value of the project on an as completed basis, although our largest acquisition and development loan was originated with a 100% loan-to-value ratio and a 25% contingent interest payment based on net profits of the project, if any. See "- Lending Activities -- General."

Loans secured by building lots or raw land for development are granted based on both the financial strength of the borrower and the value of the underlying property. We generally obtain phase 1 environmental reports

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on construction loans and acquisition and development loans of $1.0 million or more, and require personal guarantees from the borrowers for all or a portion of the debt. We also require updated financial statements from the borrowers on an ongoing basis.

Because of the uncertainties inherent in estimating construction and development costs and the market for the project upon completion, it is relatively difficult to evaluate accurately the total loan funds required to complete a project, the related loan-to-value ratios and the likelihood of ultimate success of the project. These loans also involve many of the same risks discussed above regarding multi-family and commercial real estate loans and tend to be more sensitive to general economic conditions than many other types of loans. In addition, payment of interest from loan proceeds can make it difficult to monitor the progress of a project.

Consumer Lending. Consumer loans generally have shorter terms to maturity or reprice more frequently, which reduces our exposure to changes in interest rates, and usually carry higher rates of interest than do one- to four-family residential mortgage loans. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities. At September 30, 2001, our consumer loan portfolio totaled $189.7 million, or 3.5% of our gross loan portfolio.

We offer a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, student loans and loans secured by savings deposits. We also offer a very limited amount of unsecured loans. We currently originate all of our consumer loans in our market areas. Our home equity loans, including lines of credit and home improvement loans comprised approximately 3.0% of our total loan portfolio at September 30, 2001. These loans may be originated in amounts, together with the amount of the existing first mortgage, of up to 100% of the value of the property securing the loan. In order to minimize risk of loss, home equity loans in excess of 80% of the value of the property are partially insured against loss. The term to maturity on our home equity and home improvement loans may be up to 15 years. Home equity lines of credit have no stated term to maturity and require the payment of 2% of the outstanding loan balance per month, which amount may be reborrowed at any time. Other consumer loan terms vary according to the type of collateral, length of contract and creditworthiness of the borrower. The majority of our consumer loan portfolio is comprised of home equity lines of credit, which have interest rates that adjust monthly based upon changes in the prime rate.

We do not originate any consumer loans on an indirect basis. Indirect loans are contracts purchased from retailers of goods or services which have extended credit to their customers.

Our underwriting standards for consumer loans include a determination of the applicant's payment history on other debts and an assessment of their ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of the 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.

Consumer loans may entail greater risk than do one- to four-family residential mortgage loans, particularly in the case of consumer loans which are secured by rapidly depreciable assets, such as automobiles.

Loan Originations, Purchases, Sales and Repayments. We originate loans through referrals from real estate brokers and builders, our marketing efforts, and our existing and walk-in customers. While we originate both adjustable-rate and fixed-rate loans, our ability to originate loans is dependent upon customer demand for loans in our market areas. Demand is affected by local competition and the interest rate environment. During fiscal year 2001 our dollar volume of fixed-rate, one- to four-family loans exceeded the dollar volume of the same type of adjustable-rate loans, compared to the prior fiscal year when the dollar volume of one- to four-family adjustable-rate loans exceeded the dollar volume of the same type of fixed-rate loans. During fiscal year 2001 the Company experienced a significant increase in the prepayment of principal on loans and mortgage-related securities compared to the previous year as a result of interest rates decreasing during the year. The increase in prepayments was due primarily to borrowers refinancing existing loans to new loans with lower rates of interest.

In an effort to offset the impact of repayments and to retain our customers, we offer existing loan customers the opportunity to modify their original loan terms to terms generally consistent with those offered in our market areas. This program helps ensure that we maintain the relationship with the customer and significantly reduces the amount of time it takes for a borrower to obtain current market pricing and terms without having to refinance their loan. An existing borrower pays a fee for the loan modification priced equivalent to a new loan, with a minimum fee of $650.00 up to a maximum of 1 percent of the loan balance, capped at $950.00. During fiscal year 2001 the Bank modified 2,551 loans with a principal balance of $344.4 million.

While our primary business is the origination of one- to four-family mortgage loans, competition from other lenders in our market areas, to a certain extent, limits the volume of loans we have been able to originate and place in our portfolio. As a result we have purchased mortgage loans and investment and mortgage-related securities to supplement our loan portfolios. These whole loan purchases also serve to reduce our risk of geographic concentration. We sell a limited amount of loans and some of our loans are not originated according to secondary market guidelines.

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Purchased whole loans are originated by one or two lenders who have a regional or national presence. By contractual agreement, the loan product is originated for us to our specifications. Each loan is underwritten by a third party underwriter who is under contract with us. We set prices for the loan product at least once each week. Mortgage servicing for purchased whole loans is retained by the originating lender.

In periods of economic uncertainty, the ability of financial institutions, including us, to originate or purchase large dollar volumes of real estate loans may be substantially reduced or restricted, with a resultant decrease in interest income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations" in the Annual Report to Stockholders attached as Exhibit 13 to this Annual Report on Form 10-K.

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The following table shows our loan origination, loan purchases, purchase of mortgage related securities, loan sales and repayment activities for the periods indicated.

	Year Ended September 30,
	2001	2000	1999
	(In Thousands)
Originations by type:
Adjustable rate:
Real estate - one- to four-family	$ 200,664	$ 466,013	$ 306,322
- multi-family	---	1,750	4,855
- commercial	---	---	---
Non-real estate - consumer	124,320	112,274	96,147
- commercial business	---	---	---
Total adjustable-rate	324,984	580,037	407,324
Fixed rate:
Real estate - one- to four-family	907,200	438,464	905,720
- multi-family	---	5,103	---
- commercial	270	---	---
Non-real estate - consumer	39,862	36,586	31,835
Total fixed-rate	947,332	480,153	937,555
Total loans originated	1,272,316	1,060,190	1,344,879

Purchases:
Real estate - one- to four-family	113,219	773,940	215,942
- multi-family	---	---	---
- commercial	---	---	---
Non-real estate - consumer	---	21	17
Total loans purchased	113,219	773,961	215,959
Mortgage-related securities available for sale (excluding REMICs and CMOs)	496,377	---	962,182
Mortgage-related securities held to Maturity (excluding REMICs and CMOs)	250,792	34,871	103,426
REMICs and CMOs	---	782,894	833,166
Total purchased	860,388	1,591,726	2,114,733

Sales and Repayments:
Real estate - one- to four-family	9,778	---	15,306
Non-real estate - consumer (student loans)	10,763	8,882	12,818
Total loans sold	20,541	8,882	28,124
Mortgage-related securities	---	---	---
Total sales	20,541	8,882	28,124
Principal repayments	2,081,280	1,025,856	1,624,735
Total reductions	2,101,821	1,034,738	1,652,859

Decrease in other items, net	169,879	108,055	218,719

Net increase/(decrease)	$(138,996)	$1,509,123	$1,588,034

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Asset Quality

When a borrower fails to make a loan payment on or before the due date, a late charge notice is mailed 15 days after the due date. When the loan is 30 days past due, we mail a delinquent notice to the borrower. All delinquent accounts are reviewed by a collection officer, who attempts to cause the delinquency to be cured by contacting the borrower. If the loan becomes 60 days delinquent, the collection officer will generally send a personal letter to the borrower requesting payment of the delinquent amount in full, or the establishment of an acceptable repayment plan to bring the loan current within the next 90 days. If the account becomes 90 days delinquent, and an acceptable repayment plan has not been agreed upon, the collection officer will generally refer the account to legal counsel, with instructions to prepare a notice of intent to foreclose. The notice of intent to foreclose allows the borrower up to 30 days to bring the acco unt current. During this 30 day period, the collection officer may accept a written repayment plan from the borrower which would bring the account current within the next 90 days. Once the loan becomes 120 days delinquent, and an acceptable repayment plan has not been agreed upon, the collection officer, after receiving approval from the appropriate officer as designated by our board of directors, will turn over the account to our legal counsel with instructions to initiate foreclosure.

Delinquent Loans. The following table sets forth our loans delinquent 30 - 89 days by type, number, amount and percentage of type at September 30, 2001.

	Loans Delinquent for 30-89 Days
	Number	Amount	Percent of Total Delinquent Loans
	(Dollars in Thousands)
Real Estate:
One- to four-family	418	$34,483	93.34%
Multi-family	1	1,698	4.60
Commercial	---	---	---
Construction and development	---	---	---
Consumer	70	762	2.06
Commercial business	---	---	---

Total	489	$36,943	100.00%

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Non-performing Assets. The table below sets forth the amounts and categories of non-performing assets in our loan portfolio. Loans are placed on non-accrual status when the collection of principal and/or interest becomes doubtful. At all dates presented, we had no troubled debt restructurings which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than prevailing market rates. Real estate owned includes assets acquired in settlement of loans.

	September 30,
	2001	2000	1999	1998	1997
	(Dollars in Thousands)

Non-accruing loans:
One- to four-family	$ 6,384	$ 3,321	$ 4,921	$ 6,048	$ 4,989
Multi-family	---	---	---	---	---
Commercial real estate	---	---	---	---	1,042
Construction and development	---	---	---	---	---
Consumer	276	134	55	181	78
Commercial business	---	---	---	---	---
Total	6,660	3,455	4,976	6,229	6,109

Accruing loans delinquent more than 90 days:
One- to four-family	---	---	---	---	---
Multi-family	---	---	---	---	---
Commercial real estate	---	---	---	---	---
Construction and development	---	---	---	---	---
Consumer	---	---	---	---	---
Commercial business	---	---	---	---	---
Total	---	---	---	---	---

Real estate owned:
One- to four-family	1,031	1,094	1,073	1,964	2,435
Multi-family	---	---	---	---	---
Commercial real estate	---	---	---	---	---
Construction and development	---	---	---	---	---
Consumer	---	---	---	---	---
Commercial business	---	---	---	---	---
Total	1,031	1,094	1,073	1,964	2,435

Total non-performing assets	$ 7,691	$ 4,549	$ 6,049	$8,193	$8,544
Total as a percentage of total assets	.09%	.06%	.09%	0.15%	0.17%

For the year ended September 30, 2001, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $75,000. The amount that was included in interest income on these loans was $173,000 for the year ended September 30, 2001.

Non-performing Loans. At September 30, 2001 we had $6.7 million in non-performing loans, which constituted 0.12% of our gross loan portfolio. At that date, there were no non-performing loans to any one borrower or group of related borrowers that exceeded $1.0 million, either individually or in the aggregate.

Other Loans of Concern. In addition to the non-performing assets set forth in the table above, as of September 30, 2001, there was also an aggregate of $2.8 million in net book value of loans with respect to which known information about the possible credit problems of the borrowers have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. These loans have been considered in management's determination of the adequacy of our allowance for loan losses.

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Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the OTS to be of lesser quality, as "substandard," "doubtful" or "loss." An asset 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" assets include those characterized by the "distinct possibility" that the insured institution will sustain "some loss" if the deficiencies are not corrected. Assets classified as "doubtful" have all of the weaknesses inherent in those classified "substandard," with the added characteristic that the weaknesses present make "collection or liquidation in full," on the basis of currently existing facts, conditions, and values, "highly questionable and improbable." Assets classified as "loss" are those considered "uncollectible" and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish allowances for loan losses in an amount deemed prudent by management and approved by the board of directors. Allowances represent loss allowances which have been established to recognize the inherent risk associated with lending activities, but which, unlike specific allowances, have not been allocated to specific problem assets. When an insured institution classifies problem assets as "loss," it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge off such amount. An institution's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the OTS and the FDIC, which may order the establishment of additional loss allowances.

In connection with the filing of our periodic reports with the OTS and in accordance with our asset classification policy, we regularly review the problem assets in our portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of management's review of our assets, at September 30, 2001, we had classified $10.7 million of our assets as substandard, none as doubtful and none as loss. The amount classified substandard represented 1.0% of stockholders' equity and 0.1% of our assets at September 30, 2001.

Provision for Loan Losses. We recorded a provision for loan losses in fiscal 2001 of $75,000, compared to $494,000 in fiscal 2000 and $395,000 in fiscal 1999. The provision for loan losses is charged to income to bring our allowance for loan losses to a level deemed appropriate by management based on the factors discussed below under "- Allowance for Loan Losses." The provision for loan losses in fiscal 2001 was based on management's review of such factors which indicated that the allowance for loan losses was adequate to cover losses inherent in the loan portfolio as of September 30, 2001.

Allowance for Loan Losses. We maintain an allowance for loan losses to absorb losses known and inherent in the loan portfolio. The allowance is based on ongoing, quarterly assessments of the estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and portfolio segments and economic conditions that may lead to a concern about the loan portfolio. In addition, the allowance incorporates the results of measuring impaired loans as provided in Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." These accounting standards prescribe the measurement methods, income recognition an d disclosures related to impaired loans.

The formula allowance is calculated by applying loss factors to outstanding loans based on the internal risk evaluation of such loans or pools of loans. Changes in risk evaluations of both performing and nonperforming loans affect the amount of the formula allowance. Loss factors are based both on our historical loss experience and on significant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date. Loss factors for loans on residential properties with greater than four units and loans on construction and development and commercial properties are computed based on an evaluation of inherent losses on these loans. Loan loss factors for portfolio segments are based on expected net charge-offs for one year and are applied to loans that are homogeneous in nature, such as one- to four-family residential loans and consumer loans.

The appropriateness of the allowance is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting our key lending areas and other conditions, such as credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments and recent loss experience in particular segments of the portfolio that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectibility of those loans. Senior management reviews these conditions quarterly in discussions with

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our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions areis not evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management's evaluation of the loss related to this condition is reflected in the unallocated allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits or portfolio segments.

The allowance for loan losses is based on estimates of losses inherent in the loan portfolio. The amounts actually observed in respect of these losses can vary significantly from the estimated amounts. Our methodology as described permits adjustments to any loss factor used in the computation of the formula allowance in the event that, in management's judgment, significant factors which affect the collectibility of the portfolio as of the evaluation date are not reflected in the current loss factors. By assessing the estimated losses inherent in our loan portfolios on a quarterly basis, we can adjust specific and inherent loss estimates based upon more recent information that has become available. No changes were made to the formula allowance during fiscal year 2001.

At September 30, 2001, our allowance for loan losses was $4.8 million or 0.09% of the total loan portfolio and approximately 72.6% of total non-accruing loans. This compares with an allowance for loan losses of $4.6 million or 0.08% of the total loan portfolio and approximately 133.0% of total non-accruing loans as of September 30, 2000.

During fiscal year 2001, our single-family residential loan portfolio decreased by $39.6 million from fiscal year 2000. Non-accruing single-family loans increased by $3.1 million, or 93.9%, from $3.3 million at September 30, 2000 to $6.4 million at September 30, 2001. The provision for loan losses in fiscal 2001 of $75,000, represents 0.06% of pretax earnings. In determining our provision for loan losses, we reviewed, among other factors, the ratio of our non-performing loans to total loans and compared this to our ratio of allowance for loan losses to net loans receivable.

During 2001, our multi-family and commercial loan portfolio decreased by approximately 11.0% to $57.0 million. Our provision for credit losses on these loans was 1.0% of the portfolio. The portfolio of construction and development loans increased by approximately 17.1% to $44.7 million. We maintained our provision at approximately 1.0% of the portfolio.

Assessing the adequacy of the allowance for loan losses is inherently subjective as it requires making material estimates, including the amount and timing of future cash flows expected to be received on impaired loans, that may be susceptible to significant change. In the opinion of management, the allowance when taken as a whole, is adequate to absorb reasonable estimated loan losses inherent in our loan portfolios.

Based upon the foregoing analysis of our reserving methodology, it is management's belief that the increase in the formula allowance provided for the additional losses inherent in the portfolio. Historical net charge-offs are not necessarily indicative of the amount of net charge-offs that the Bank will realize in the future resulting from an increase in the single family residential loan portfolio.

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The following table sets forth an analysis of our allowance for loan losses.

	Year Ended September 30,
	2001	2000	1999	1998	1997
	(Dollars in Thousands)

Balance at beginning of period	$ 4,596	$ 4,407	$ 4,081	$ 1,639	$ 1,583

Charge offs:
One- to four-family	49	48	44	20	---
Multi-family	---	250	---	---	---
Commercial real estate	---	---	---	---	---
Construction and development	---	---	---	---	---
Consumer	42	13	25	---	---
Commercial business	---	---	---	---	---
Total charge-offs	91	311	69	20	---
Recoveries	257	6	---	---	---
Net charge-offs (recoveries)	(166)	305	69	20	---
Provisions charged to operations	75	494	395	2,462	56
Balance at end of period	$ 4,837	$ 4,596	$ 4,407	$ 4,081	$ 1,639

Ratio of net charge-offs during the period to average loans outstanding during the period	---%	0.01%	---%	---%	---%

Ratio of net charge-offs during the period to average non-performing assets	(2.71)%	5.76%	.97%	0.06%	---%

Allowance as a percentage of non-accruing loans	72.63%	133.02%	88.57%	65.52%	26.83%
Allowance as a percentage of total loans (end of period)	0.09%	0.08%	0.10%	0.11%	0.05%

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The distribution of our allowance for loan losses at the dates indicated is summarized as follows:

	September 30,
	2001			2000			1999			1998			1997
	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category to Total Loans	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category to Total Loans	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category to Total Loans	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category to Total Loans	Amount of Loan Loss Allowance	Loan Amounts by Category	Percent of Loans in Each Category to Total Loans
	(Dollars in Thousands)

One- to four-family	$ 3,970	$ 5,150,125	95.00%	$ 3,837	$ 5,192,055	95.32%	$ 3,635	$ 4,069,704	95.10%	$ 3,222	$ 3,496,699	94.62%	$ 1,208	$ 3,137,101	95.05%
Multi-family	267	48,512	.90	204	50,365	.93	146	30,889	.72	200	40,091	1.09	66	26,416	0.80
Commercial real estate	36	7,844	.14	39	13,172	.24	42	5,574	.13	77	9,006	0.24	18	5,864	0.18
Construction and Development	319	25,139	.46	211	20,858	.38	375	32,856	.77	348	31,610	0.86	67	30,900	0.93
Consumer	223	189,699	3.50	252	170,561	3.13	207	140,584	3.28	174	117,958	3.19	41	100,300	3.04
Commercial business	---	25	---	---	30	---	---	---	---	---	10	---	---	---	---
Unallocated	22	---	---	53	---	---	2	---	---	60	---	---	239	---	---
Total	$ 4,837	$ 5,421,344	100.00%	$ 4,596	$ 5,447,041	100.00%	$ 4,407