Capitol Federal Financial, Inc. - FORM 8-K - EX-99 - PRESS RELEASE ANNOUNCING EARNINGS

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8-K - CURRENT REPORT, ITEMS 2.02 AND 9.01 - Capitol Federal Financial, Inc.	cffn-20210729.htm

NEWS RELEASE

FOR IMMEDIATE RELEASE

July 29, 2021

CAPITOL FEDERAL FINANCIAL, INC.®

REPORTS THIRD QUARTER FISCAL YEAR 2021 RESULTS

Topeka, KS - Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended June 30, 2021. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 will be filed with the Securities and Exchange Commission ("SEC") on or about August 9, 2021 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

•net income of $18.2 million;

•basic and diluted earnings per share of $0.13;

•net interest margin of 1.84%;

•paid dividends of $65.7 million, or $0.485 per share, including a $0.40 per share True Blue® Capitol dividend; and

•on July 20, 2021, announced a cash dividend of $0.085 per share, payable on August 20, 2021 to stockholders of record as of the close of business on August 6, 2021.

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

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

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 15 basis points, from 2.81% for the prior quarter to 2.66% for the current quarter, while the average balance of interest-earning assets increased $125.8 million between the two periods. The decrease in the weighted average yield was due primarily to a decrease in the one- to four-family loan portfolio yield. The increase in the average balance was due primarily to a $152.1 million increase in the average balance of the mortgage-backed securities ("MBS") and investment securities portfolios and a $38.0 million increase in the average balance of the loans receivable portfolio, partially offset by a $60.7 million decrease in the average balance of cash and cash equivalents. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.


	For the Three Months Ended
	June 30,		March 31,		Change Expressed in:
	2021		2021		Dollars		Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	54,779	$	57,285	$	(2,506)	(4.4)	%
MBS	5,360		5,429		(69)		(1.3)
Federal Home Loan Bank Topeka ("FHLB") stock	944		951		(7)		(0.7)
Investment securities	763		629		134		21.3
Cash and cash equivalents	26		40		(14)		(35.0)
Total interest and dividend income	$	61,872	$	64,334	$	(2,462)	(3.8)

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

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

Interest Expense

The weighted average rate paid on interest-bearing liabilities decreased 12 basis points, from 1.06% for the prior quarter to 0.94% for the current quarter, while the average balance of interest-bearing liabilities increased $121.1 million between the two periods due to an increase in the average balance of checking, savings and money market accounts, partially offset by a decrease in the average balance of retail/commercial certificates of deposit. 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:
	2021		2021		Dollars		Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	11,475	$	12,529	$	(1,054)	(8.4)	%
Borrowings	7,826		8,732		(906)		(10.4)
Total interest expense	$	19,301	$	21,261	$	(1,960)	(9.2)

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on and a decrease in the average balance of the retail/commercial certificate of deposit portfolio. The weighted average rate on the retail/commercial certificate of deposit portfolio decreased 12 basis points, to 1.49% for the current quarter, and the average balance decreased $74.5 million. See the Financial Condition section below for additional information on deposits.

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

Provision for Credit Losses

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

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:
	2021		2021		Dollars		Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	3,227	$	2,814	$	413	14.7	%
Gain on sale of Visa Class B shares	—		7,386		(7,386)		(100.0)
Insurance commissions	723		888		(165)		(18.6)
Other non-interest income	1,286		1,389		(103)		(7.4)
Total non-interest income	$	5,236	$	12,477	$	(7,241)	(58.0)

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

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:
	2021		2021		Dollars		Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	13,867	$	13,397	$	470	3.5	%
Information technology and related expense	4,736		4,599		137		3.0
Occupancy, net	3,504		3,523		(19)		(0.5)
Loss on interest rate swap termination	—		4,752		(4,752)		(100.0)
Regulatory and outside services	1,469		1,234		235		19.0
Advertising and promotional	1,407		1,484		(77)		(5.2)
Deposit and loan transaction costs	693		664		29		4.4
Federal insurance premium	633		634		(1)		(0.2)
Office supplies and related expense	402		463		(61)		(13.2)
Other non-interest expense	891		1,903		(1,012)		(53.2)
Total non-interest expense	$	27,602	$	32,653	$	(5,051)	(15.5)

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

The Company's efficiency ratio was 57.73% for the current quarter compared to 58.78% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense, partially offset by a decrease in non-interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense, relative to the net interest margin.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.


	For the Three Months Ended
	June 30,			March 31,			Change Expressed in:
	2021			2021			Dollars		Percent
	(Dollars in thousands)
Income before income tax expense	$	22,896		$	25,861		$	(2,965)	(11.5)	%
Income tax expense	4,709			5,417			(708)		(13.1)
Net income	$	18,187		$	20,444		$	(2,257)	(11.0)

Effective Tax Rate	20.6		%	20.9		%

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

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

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

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.48% for the prior year period to 2.82% for the current year period, while the average balance of interest-earning assets increased $259.3 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.


	For the Nine Months Ended
	June 30,				Change Expressed in:
	2021		2020		Dollars		Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	172,758	$	206,179	$	(33,421)	(16.2)	%
MBS	16,499		17,584		(1,085)		(6.2)
FHLB stock	2,964		4,747		(1,783)		(37.6)
Investment securities	2,075		3,736		(1,661)		(44.5)
Cash and cash equivalents	117		1,126		(1,009)		(89.6)
Total interest and dividend income	$	194,413	$	233,372	$	(38,959)	(16.7)

The decrease in interest income on loans receivable was due mainly to a 41 basis point decrease in the weighted average yield on the portfolio, from 3.67% for the prior year period to 3.26% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to increases in payoff and endorsement activity, as well as endorsements and refinances of one- to four-family originated loans to lower market rates, adjustable-rate loans repricing to lower market rates, and the origination and purchase of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $420.5 million compared to the prior year period. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the Coronavirus Disease 2019 ("COVID-19") pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity.

The decrease in interest income on the MBS portfolio was due to a 98 basis point decrease in the weighted average yield to 1.54% for the current year period as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $495.5 million increase in the average balance of the portfolio.

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

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

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

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased 45 basis points, from 1.52% for the prior year period to 1.07% for the current period, while the average balance of interest-bearing liabilities increased $250.8 million. The increase in the average balance was primarily in money market and checking accounts, partially offset by a decrease in the average balance of borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.


	For the Nine Months Ended
	June 30,				Change Expressed in:
	2021		2020		Dollars		Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	38,071	$	52,299	$	(14,228)	(27.2)	%
Borrowings	26,885		37,421		(10,536)		(28.2)
Total interest expense	$	64,956	$	89,720	$	(24,764)	(27.6)

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

The decrease in interest expense on borrowings was due primarily to a $494.1 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with liquidity generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $7.2 million, compared to a $22.3 million provision for credit losses during the prior year period. See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures at June 30, 2021 in the Asset Quality section below.

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:
	2021		2020		Dollars		Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	8,988	$	8,384	$	604	7.2	%
Gain on sale of Visa Class B shares	7,386		—		7,386		N/A
Insurance commissions	2,249		1,762		487		27.6
Other non-interest income	4,160		4,468		(308)		(6.9)
Total non-interest income	$	22,783	$	14,614	$	8,169	55.9

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

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:
	2021		2020		Dollars		Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	41,402	$	39,765	$	1,637	4.1	%
Information technology and related expense	13,568		12,694		874		6.9
Occupancy, net	10,406		10,212		194		1.9
Loss on interest rate swap termination	4,752		—		4,752		N/A
Regulatory and outside services	4,288		4,188		100		2.4
Advertising and promotional	3,729		3,773		(44)		(1.2)
Deposit and loan transaction costs	2,123		2,086		37		1.8
Federal insurance premium	1,888		287		1,601		557.8
Office supplies and related expense	1,289		1,586		(297)		(18.7)
Other non-interest expense	3,877		4,237		(360)		(8.5)
Total non-interest expense	$	87,322	$	78,828	$	8,494	10.8

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

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

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.


	For the Nine Months Ended
	June 30,						Change Expressed in:
	2021			2020			Dollars		Percent
	(Dollars in thousands)

Income before income tax expense	$	72,105		$	57,138		$	14,967	26.2	%
Income tax expense	14,576			10,877			3,699		34.0
Net income	$	57,529		$	46,261		$	11,268	24.4

Effective Tax Rate	20.2		%	19.0		%

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

Financial Condition as of June 30, 2021

Most areas of consumer spending have continued to rebound in recent months, but some segments, such as travel and entertainment, are lagging more than the overall economy. We continue to work with both our retail and commercial customers to help them manage their debt during this uneven economic recovery. There is uncertainty about the long-term impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for some sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

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

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

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

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

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

Total deposits increased $446.9 million, or 7.2%, from September 30, 2020 to June 30, 2021. The increase was in non-maturity deposits, which increased $586.6 million, including a $269.2 million increase in money market accounts, a $238.2 million increase in checking accounts, and a $79.2 million increase in savings accounts. Retail certificates of deposit decreased $210.5 million, partially offset by a $71.8 million increase in commercial certificates of deposit during the current year period.

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

Stockholders' equity at June 30, 2021 was $1.24 billion, a decrease of $47.2 million, or 3.7%, from September 30, 2020. During the current year nine month period, the Company paid cash dividends totaling $106.4 million and repurchased common stock totaling $1.5 million, partially offset by net income of $57.5 million. The cash dividends paid during the current year nine month period totaled $0.785 per share and consisted of a $0.40 per share True Blue Capitol cash dividend, a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and three regular quarterly cash dividends of $0.085 per share. Given the state of economic uncertainty, the Company elected to defer the annual True Blue dividend in June 2020. In June 2021, the Company paid a True Blue Capitol cash dividend of $0.40 per share. The $0.40 per share True Blue Capitol cash dividend represents a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend for fiscal year 2021. On July 20, 2021, the Company announced a regular

quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 20, 2021 to stockholders of record as of the close of business on August 6, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At June 30, 2021, this ratio was 11.5%.

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

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

The following table presents the balance of stockholders' equity and related information as of the dates presented.


	June 30,			September 30,			June 30,
	2021			2020			2020
	(Dollars in thousands)
Stockholders' equity	$	1,237,624		$	1,284,859		$	1,300,520
Equity to total assets at end of period	12.8		%	13.5		%	13.6		%

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2021.


Total shares outstanding			138,833,184
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock			(3,267,063)
Net shares outstanding			135,566,121

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. 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 community bank leverage ratio ("CBLR") requirement is a minimum of 8.5% for calendar year 2021 and 9% thereafter. As of June 30, 2021, the Bank's CBLR was 11.5%, which exceeded the minimum requirement.

The following table presents a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory tier 1 capital as of June 30, 2021 (dollars in thousands):


Total Bank equity as reported under GAAP	$	1,112,326
AOCI	13,338
Goodwill and other intangibles, net of associated deferred taxes	(12,651)
Total tier 1 capital	$	1,113,013

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning 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. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's market area; the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

For further information contact:


Kent Townsend						Investor Relations
Executive Vice President,						(785) 270-6055
Chief Financial Officer and Treasurer						investorrelations@capfed.com
(785) 231-6360
ktownsend@capfed.com

SUPPLEMENTAL FINANCIAL INFORMATION



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)


	June 30,		March 31,		September 30,
	2021		2021		2020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $74,346, $121,430 and $172,430)	$	95,305	$	139,472	$	185,148

Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $2,002,957, $2,090,720 and $1,529,605)	2,015,705		2,095,924		1,560,950

Loans receivable, net (ACL of $20,724, $23,397 and $31,527)	7,033,827		6,973,536		7,202,851

FHLB stock, at cost	73,630		74,464		93,862
Premises and equipment, net	99,551		99,088		101,875

Income taxes receivable, net	891		—		—
Other assets	330,756		315,535		342,532
TOTAL ASSETS	$	9,649,665	$	9,698,019	$	9,487,218

LIABILITIES:
Deposits	$	6,638,294	$	6,650,865	$	6,191,408
Borrowings	1,582,400		1,581,955		1,789,313

Advance payments by borrowers for taxes and insurance	47,330		61,624		65,721
Income taxes payable, net	—		67		795
Deferred income tax liabilities, net	7,922		6,530		8,180
Other liabilities	136,095		118,383		146,942
Total liabilities	8,412,041		8,419,424		8,202,359

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding	—		—		—
Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,833,184, 138,809,796 and 138,956,296 shares issued and outstanding as of June 30, 2021, March 31, 2021, and September 30, 2020, respectively	1,388		1,388		1,389
Additional paid-in capital	1,189,466		1,188,926		1,189,853
Unearned compensation, ESOP	(31,801)		(32,214)		(33,040)
Retained earnings	91,909		139,448		143,162
AOCI, net of tax	(13,338)		(18,953)		(16,505)
Total stockholders' equity	1,237,624		1,278,595		1,284,859
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,649,665	$	9,698,019	$	9,487,218



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)


	For the Three Months Ended				For the Nine Months Ended
	June 30,		March 31,			June 30,
	2021		2021			2021		2020
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	54,779	$	57,285		$	172,758	$	206,179
MBS	5,360		5,429			16,499		17,584
FHLB stock	944		951			2,964		4,747
Investment securities	763		629			2,075		3,736
Cash and cash equivalents	26		40			117		1,126
Total interest and dividend income	61,872		64,334			194,413		233,372

INTEREST EXPENSE:
Deposits	11,475		12,529			38,071		52,299
Borrowings	7,826		8,732			26,885		37,421

Total interest expense	19,301		21,261			64,956		89,720

NET INTEREST INCOME	42,571		43,073			129,457		143,652

PROVISION FOR CREDIT LOSSES	(2,691)		(2,964)			(7,187)		22,300
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES	45,262		46,037			136,644		121,352

NON-INTEREST INCOME:
Deposit service fees	3,227		2,814			8,988		8,384
Gain on sale of Visa Class B shares	—		7,386			7,386		—
Insurance commissions	723		888			2,249		1,762


Other non-interest income	1,286		1,389			4,160		4,468
Total non-interest income	5,236		12,477			22,783		14,614

NON-INTEREST EXPENSE:
Salaries and employee benefits	13,867		13,397			41,402		39,765
Information technology and related expense	4,736		4,599			13,568		12,694
Occupancy, net	3,504		3,523			10,406		10,212
Loss on interest rate swap termination	—		4,752			4,752		—
Regulatory and outside services	1,469		1,234			4,288		4,188
Advertising and promotional	1,407		1,484			3,729		3,773
Deposit and loan transaction costs	693		664			2,123		2,086
Federal insurance premium	633		634			1,888		287
Office supplies and related expense	402		463			1,289		1,586


Other non-interest expense	891		1,903			3,877		4,237
Total non-interest expense	27,602		32,653			87,322		78,828
INCOME BEFORE INCOME TAX EXPENSE	22,896		25,861			72,105		57,138
INCOME TAX EXPENSE	4,709		5,417			14,576		10,877
NET INCOME	$	18,187	$	20,444		$	57,529	$	46,261

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.


	For the Three Months Ended				For the Nine Months Ended
	June 30,		March 31,			June 30,
	2021		2021			2021		2020
	(Dollars in thousands, except per share amounts)
Net income	$	18,187	$	20,444		$	57,529	$	46,261
Income allocated to participating securities	(12)		(14)			(39)		(38)
Net income available to common stockholders	$	18,175	$	20,430		$	57,490	$	46,223

Average common shares outstanding	135,421,817		135,409,120			135,409,349		137,919,631
Average committed ESOP shares outstanding	83,052		41,758			41,602		41,600
Total basic average common shares outstanding	135,504,869		135,450,878			135,450,951		137,961,231

Effect of dilutive stock options	32,283		47,292			26,615		31,747

Total diluted average common shares outstanding	135,537,152		135,498,170			135,477,566		137,992,978

Net earnings per share:
Basic	$	0.13	$	0.15		$	0.42	$	0.34
Diluted	$	0.13	$	0.15		$	0.42	$	0.34

Antidilutive stock options, excluded from the diluted
average common shares outstanding calculation	93,565		125,930			210,529		405,522

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.


	June 30, 2021						March 31, 2021						September 30, 2020
					% of						% of						% of
	Amount		Rate		Total		Amount		Rate		Total		Amount		Rate		Total
	(Dollars in thousands)
One- to four-family:
Originated	$	3,977,129	3.23	%	56.4	%	$	3,967,008	3.29	%	56.7	%	$	3,937,310	3.50	%	54.5	%
Correspondent purchased	1,953,185		3.09		27.7		1,915,027		3.27		27.4		2,101,082		3.49		29.1
Bulk purchased	179,019		1.90		2.5		188,733		2.09		2.7		208,427		2.41		2.9
Construction	30,325		2.96		0.4		28,582		3.11		0.4		34,593		3.30		0.5
Total	6,139,658		3.14		87.0		6,099,350		3.24		87.2		6,281,412		3.46		87.0
Commercial:
Commercial real estate	680,664		3.99		9.7		664,533		4.04		9.5		626,588		4.29		8.7
Commercial and industrial	73,713		3.24		1.0		77,210		3.08		1.1		97,614		2.79		1.4
Construction	60,614		4.11		0.9		53,271		4.25		0.8		105,458		4.04		1.4
Total	814,991		3.93		11.6		795,014		3.96		11.4		829,660		4.08		11.5
Consumer loans:
Home equity	88,587		4.63		1.3		90,052		4.64		1.3		103,838		4.66		1.4
Other	8,389		4.26		0.1		8,743		4.36		0.1		10,086		4.40		0.1
Total	96,976		4.60		1.4		98,795		4.61		1.4		113,924		4.64		1.5
Total loans receivable	7,051,625		3.26		100.0	%	6,993,159		3.34		100.0	%	7,224,996		3.55		100.0	%

Less:
ACL	20,724						23,397						31,527
Discounts/unearned loan fees	30,593						30,295						29,190
Premiums/deferred costs	(33,519)						(34,069)						(38,572)
Total loans receivable, net	$	7,033,827					$	6,973,536					$	7,202,851

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 nine-month period, the Bank endorsed $699.2 million of one- to four-family loans, reducing the average rate on those loans by 93 basis points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points, and $171.7 million were endorsed during the June 30, 2021 quarter, reducing the average rate on those loans by 98 basis points). Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.


	For the Three Months Ended
	June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020
	Amount		Rate		Amount		Rate		Amount		Rate		Amount		Rate
	(Dollars in thousands)
Beginning balance	$	6,993,159	3.34	%	$	7,023,626	3.46	%	$	7,224,996	3.55	%	$	7,407,442	3.64	%
Originated and refinanced:
Fixed	279,170		2.78		326,570		2.54		318,690		2.75		265,424		2.98
Adjustable	71,216		3.58		112,483		3.43		48,946		3.60		44,625		3.68
Purchased and participations:
Fixed	232,335		2.54		192,262		2.82		100,518		2.86		61,435		3.07
Adjustable	20,499		5.36		9,150		2.42		65,315		3.89		4,396		2.76

Change in undisbursed loan funds	(33,512)				(63,925)				(70,323)				13,898
Repayments	(511,222)				(606,937)				(664,052)				(572,536)
Principal recoveries/(charge-offs), net	52				(70)				(464)				312
Other	(72)				—				—				—
Ending balance	$	7,051,625	3.26		$	6,993,159	3.34		$	7,023,626	3.46		$	7,224,996	3.55



	For the Nine Months Ended
	June 30, 2021				June 30, 2020
	Amount		Rate		Amount		Rate
	(Dollars in thousands)
Beginning balance	$	7,224,996	3.55	%	$	7,412,473	3.81	%
Originated and refinanced:
Fixed	924,430		2.69		684,488		3.22
Adjustable	232,645		3.51		171,698		4.04
Purchased and participations:
Fixed	525,115		2.70		380,469		3.50
Adjustable	94,964		4.07		95,296		3.50

Change in undisbursed loan funds	(167,760)				(17,896)
Repayments	(1,782,211)				(1,318,439)
Principal charge-offs, net	(482)				(311)
Other	(72)				(336)
Ending balance	$	7,051,625	3.26		$	7,407,442	3.64

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 loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores were updated in March 2021 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.


	June 30, 2021									September 30, 2020
			% of		Credit			Average					% of		Credit			Average
	Amount		Total		Score	LTV		Balance			Amount		Total		Score	LTV		Balance
	(Dollars in thousands)
Originated	$	3,977,129	65.1	%	772	61	%	$	150		$	3,937,310	63.0	%	771	62	%	$	145
Correspondent purchased	1,953,185		32.0		766	63		396			2,101,082		33.6		765	64		379
Bulk purchased	179,019		2.9		773	59		295			208,427		3.4		767	60		300
	$	6,109,333	100.0	%	770	62		191			$	6,246,819	100.0	%	768	63		187

The following table presents 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 originated line item for the current year period are $287.8 million of loans that were refinanced from other lenders.


	For the Three Months Ended					For the Nine Months Ended
	June 30, 2021					June 30, 2021
					Credit					Credit
	Amount		LTV		Score	Amount		LTV		Score
	(Dollars in thousands)
Originated	$	207,706	73	%	766	$	613,068	71	%	768
Refinanced by Bank customers	73,453		67		761	288,408		66		767
Correspondent purchased	235,834		68		773	504,965		69		774

	$	516,993	70		769	$	1,406,441	69		770

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, 2021						June 30, 2021
State	Amount		% of Total		Rate		Amount		% of Total		Rate
	(Dollars in thousands)
Kansas	$	237,868	46.0	%	2.74	%	$	767,443	54.6	%	2.67	%
Missouri	79,200		15.3		2.72		236,666		16.8		2.67
Texas	54,766		10.6		2.50		105,370		7.5		2.61
Pennsylvania	44,959		8.7		2.50		89,420		6.4		2.54
Tennessee	29,063		5.6		2.53		77,992		5.5		2.65
Other states	71,137		13.8		2.53		129,550		9.2		2.61
	$	516,993	100.0	%	2.65		$	1,406,441	100.0	%	2.65

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of June 30, 2021, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.


	Fixed-Rate
	15 years			More than			Adjustable-			Total
	or less			15 years			Rate			Amount		Rate
	(Dollars in thousands)



Originate/refinance	$	23,472		$	77,739		$	4,617		$	105,828	2.81	%




Correspondent	23,105			117,205			1,604			141,914		2.63




	$	46,577		$	194,944		$	6,221		$	247,742	2.71

Rate	2.25		%	2.82		%	2.52		%

As of June 30, 2021, there were $5.3 million of one- to-four family loans with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period. There were $195.5 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by June 30, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

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

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of June 30, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.


		Unpaid			Undisbursed			Gross Loan			Outstanding						% of
	Count	Principal			Amount			Amount			Commitments			Total			Total
		(Dollars in thousands)
Senior housing	34	$	221,351		$	43,271		$	264,622		$	2,200		$	266,822		26.5	%
Hotel	10	135,255			59,887			195,142			—			195,142			19.3
Retail building	130	149,313			43,123			192,436			750			193,186			19.2
Office building	95	51,200			60,462			111,662			520			112,182			11.1
Multi-family	42	52,642			13,431			66,073			14,583			80,656			8.0
One- to four-family property	379	58,298			7,587			65,885			618			66,503			6.6
Single use building	23	42,383			4,927			47,310			9,005			56,315			5.6
Other	100	30,836			3,910			34,746			2,677			37,423			3.7
	813	$	741,278		$	236,598		$	977,876		$	30,353		$	1,008,229		100.0	%

Weighted average rate		4.00		%	4.03		%	4.01		%	4.15		%	4.01		%

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of June 30, 2021.


		Unpaid		Undisbursed		Gross Loan		Outstanding				% of
	Count	Principal		Amount		Amount		Commitments		Total		Total
		(Dollars in thousands)
Kansas	637	$	323,816	$	20,705	$	344,521	$	14,541	$	359,062	35.6	%
Texas	11	126,557		131,063		257,620		—		257,620		25.6
Missouri	138	201,517		30,674		232,191		14,312		246,503		24.4
Colorado	7	14,197		22,000		36,197		—		36,197		3.6
Arkansas	3	9,309		24,539		33,848		—		33,848		3.4
Nebraska	6	33,560		4		33,564		—		33,564		3.3
Other	11	32,322		7,613		39,935		1,500		41,435		4.1
	813	$	741,278	$	236,598	$	977,876	$	30,353	$	1,008,229	100.0	%

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of June 30, 2021. Included in the working capital line item are $18.3 million of PPP loans.


		Unpaid		Undisbursed		Gross Loan		Outstanding				% of
	Count	Principal		Amount		Amount		Commitments		Total		Total
		(Dollars in thousands)
Working capital	529	$	29,483	$	17,140	$	46,623	$	—	$	46,623	47.9	%
Purchase/lease autos	249	17,153		49		17,202		—		17,202		17.6
Equipment	116	13,161		406		13,567		1,424		14,991		15.4
Business investment	57	7,350		214		7,564		450		8,014		8.2
Other	26	6,566		4,017		10,583		—		10,583		10.9

	977	$	73,713	$	21,826	$	95,539	$	1,874	$	97,413	100.0	%

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of June 30, 2021.


	Count	Amount
	(Dollars in thousands)
Greater than $30 million	3	$	150,000
>$15 to $30 million	15	347,216
>$10 to $15 million	6	69,055
>$5 to $10 million	14	88,662
$1 to $5 million	108	243,940
Less than $1 million	1,644	206,769
	1,790	$	1,105,642

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

Asset Quality

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

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of 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. Of the loans 30 to 89 days delinquent at June 30, 2021, approximately 78% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and other loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current. Non-performing assets include non-performing loans and OREO. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At June 30, 2021, there were $7.8 million of non-performing one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension was not in place.


	Loans Delinquent for 30 to 89 Days at:
	June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
One- to four-family:
Originated	51	$	5,141		45	$	4,151		62	$	5,844		42	$	3,012		57	$	5,085
Correspondent purchased	9	3,650			9	2,910			13	4,694			8	3,123			10	2,919
Bulk purchased	6	958			5	352			9	1,750			12	2,532			19	4,536
Commercial	1	35			5	806			8	1,047			2	45			9	1,543

Consumer	25	354			17	287			30	515			26	398			21	431
	92	$	10,138		81	$	8,506		122	$	13,850		90	$	9,110		116	$	14,514
30 to 89 days delinquent loans
to total loans receivable, net		0.14		%		0.12		%		0.20		%		0.13		%		0.20		%


	Non-Performing Loans and OREO at:
	June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated	53	$	3,696		55	$	4,433		51	$	4,370		51	$	4,362		47	$	4,026
Correspondent purchased	12	4,230			10	3,749			9	3,371			6	2,397			7	2,740
Bulk purchased	7	2,596			10	3,172			13	3,724			12	2,903			3	1,291
Commercial	7	1,278			6	1,068			5	820			5	1,360			4	709
Consumer	23	445			26	531			26	473			14	304			23	278
	102	12,245			107	12,953			104	12,758			88	11,326			84	9,044

Loans 90 or more days delinquent or in foreclosure
as a percentage of total loans		0.17		%		0.19		%		0.18		%		0.16		%		0.12		%

Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated	7	$	1,392		9	$	1,646		9	$	968		9	$	691		14	$	1,132
Correspondent purchased	—	—			—	—			—	—			—	—			—	—
Bulk purchased	1	131			—	—			—	—			—	—			—	—
Commercial	3	403			4	642			3	411			3	464			1	6
Consumer	—	—			—	—			1	9			1	9			1	33
	11	1,926			13	2,288			13	1,388			13	1,164			16	1,171
Total non-performing loans	113	14,171			120	15,241			117	14,146			101	12,490			100	10,215

Non-performing loans as a percentage of total loans		0.20		%		0.22		%		0.20		%		0.17		%		0.14		%

OREO:
One- to four-family:
Originated(2)	3	$	177		2	$	105		3	$	129		4	$	183		4	$	183







Total non-performing assets	116	$	14,348		122	$	15,346		120	$	14,275		105	$	12,673		104	$	10,398

Non-performing assets as a percentage of total assets		0.15		%		0.16		%		0.15		%		0.13		%		0.11		%

(1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current.

(2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial special mention loans at June 30, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.0 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic considerations that management is monitoring in association with these loans resulting in the special mention classification.


	June 30, 2021				September 30, 2020				June 30, 2020
	Special Mention		Substandard		Special Mention		Substandard		Special Mention		Substandard
	(Dollars in thousands)
One- to four-family	$	14,885	$	24,439	$	11,339	$	25,630	$	12,309	$	26,788
Commercial	100,019		4,057		52,006		4,914		52,054		5,128
Consumer	237		670		332		589		320		564
	$	115,141	$	29,166	$	63,677	$	31,133	$	64,683	$	32,480

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

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

The economic forecast scenarios selected by management improved at June 30, 2021 compared to March 31, 2021 which resulted in a reduction in the ACL calculated by the model. Management applied qualitative factors at both June 30, 2021 and March 31, 2021 to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention commercial loans. The total ACL amount assigned to these qualitative factors also decreased at June 30, 2021 compared to March 31, 2021. The economic uncertainties were related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted, and (3) the unevenness of the recovery in certain industries.

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended June 30, 2021.


	ACL		Reserve for off-balance sheet credit exposures		ACL and Reserve for off-balance sheet credit exposures
	(Dollars in thousands)
Balance at March 31, 2021	$	23,397	$	6,127	$	29,524

Charge-offs	(19)		—		(19)
Recoveries	71		—		71
Net charge-offs	52		—		52
Provision for credit losses	(2,725)		34		(2,691)
Balance at June 30, 2021	$	20,724	$	6,161	$	26,885

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

The following tables present ACL activity and related ratios at the dates and for the periods indicated.


	For the Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2021			2021			2020			2020			2020
	(Dollars in thousands)
Balance at beginning of period	$	23,397		$	26,125		$	31,527		$	31,215		$	31,196
Adoption of CECL	—			—			(4,761)			—			—
Charge-offs:
One- to four-family	(18)			(131)			(14)			—			—





Commercial	—			—			(515)			—			—




Consumer	(1)			(7)			(3)			(15)			(5)



Total charge-offs	(19)			(138)			(532)			(15)			(5)
Recoveries:
One- to four-family	49			57			34			303			—





Commercial	18			8			12			12			17




Consumer	4			3			22			12			7



Total recoveries	71			68			68			327			24
Net recoveries (charge-offs)	52			(70)			(464)			312			19
Provision for credit losses	(2,725)			(2,658)			(177)			—			—
Balance at end of period	$	20,724		$	23,397		$	26,125		$	31,527		$	31,215

Ratio of net charge-offs during the period
to average loans outstanding during the period	—		%	—		%	0.01		%	—		%	—		%
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets	(0.35)			0.47			3.44			(2.70)			(0.20)
ACL to non-performing loans at end of period	146.23			153.51			184.68			252.42			305.58
ACL to loans receivable at end of period	0.29			0.33			0.37			0.44			0.42
ACL to net charge-offs (annualized)	N/M(1)			83.8x			14.1x			N/M(1)			N/M(1)



	For the Nine Months Ended
	June 30,
	2021			2020
	(Dollars in thousands)
Balance at beginning of period	$	31,527		$	9,226
Adoption of CECL	(4,761)			—
Charge-offs:
One- to four-family	(163)			(64)





Commercial	(515)			(349)




Consumer	(11)			(15)



Total charge-offs	(689)			(428)
Recoveries:
One- to four-family	140			3





Commercial	38			98




Consumer	29			16



Total recoveries	207			117
Net (charge-offs) recoveries	(482)			(311)
Provision for credit losses	(5,560)			22,300
Balance at end of period	$	20,724		$	31,215

Ratio of net charge-offs during the period
to average loans outstanding during the period	0.01		%	—		%
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets	3.56			3.22


ACL to net charge-offs (annualized)	32.3x			75.3x

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

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13.


	At
	June 30,		March 31,		December 31,		October 1,		September 30,		June 30,
	2021		2021		2020		2020		2020		2020
	(Dollars in thousands)
One- to four-family:
Originated	$	1,515	$	1,517	$	1,516	$	1,609	$	6,044	$	6,298
Correspondent purchased	1,739		1,705		1,758		2,324		2,691		3,189
Bulk purchased	674		747		852		903		467		506
Construction	20		19		22		25		41		48
Total	3,948		3,988		4,148		4,861		9,243		10,041
Commercial:
Commercial real estate	14,784		17,016		17,813		16,595		16,869		16,353
Commercial and industrial	345		445		553		559		1,451		1,465
Construction	1,404		1,696		3,341		4,452		3,480		2,886
Total	16,533		19,157		21,707		21,606		21,800		20,704
Consumer	243		252		270		299		484		470
Total	$	20,724	$	23,397	$	26,125	$	26,766	$	31,527	$	31,215

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.


	At
	June 30,		March 31,		December 31,		October 1,		September 30,		June 30,
	2021		2021		2020		2020		2020		2020
One- to four-family:
Originated	0.04	%	0.04	%	0.04	%	0.04	%	0.15	%	0.16	%
Correspondent purchased	0.09		0.09		0.09		0.11		0.13		0.14
Bulk purchased	0.38		0.40		0.43		0.43		0.22		0.23
Construction	0.07		0.07		0.07		0.07		0.12		0.13
Total	0.06		0.07		0.07		0.08		0.15		0.16
Commercial:
Commercial real estate	2.17		2.56		2.92		2.65		2.69		2.62
Commercial and industrial	0.47		0.58		0.80		0.57		1.49		1.47
Construction	2.32		3.18		3.95		4.22		3.30		3.30
Total	2.03		2.41		2.84		2.60		2.63		2.55
Consumer	0.25		0.26		0.25		0.26		0.42		0.40
Total	0.29		0.33		0.37		0.37		0.44		0.42

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The amount is reported in the other liabilities line item on the consolidated balance sheet. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded.


	At
	June 30,		March 31,		December 31,		October 1,
	2021		2021		2020		2020
	(Dollars in thousands)
One- to four-family	$	229	$	197	$	131	$	144
Commercial	5,880		5,887		6,261		7,584
Consumer	52		43		41		60
	$	6,161	$	6,127	$	6,433	$	7,788

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 93% of our securities portfolio at June 30, 2021. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.


	June 30, 2021					March 31, 2021					September 30, 2020
	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Fixed-rate securities:
MBS	$	1,365,635	1.39	%	3.9	$	1,384,982	1.46	%	4.1	$	945,432	1.82	%	3.7
U.S. government-sponsored enterprise debentures	494,968		0.59		3.9	544,966		0.55		3.6	369,967		0.62		1.7
Municipal bonds	5,133		1.79		0.4	5,447		1.79		0.5	9,716		1.69		0.7
Total fixed-rate securities	1,865,736		1.18		3.9	1,935,395		1.20		3.9	1,325,115		1.49		3.1

Adjustable-rate securities:
MBS	137,221		2.05		3.4	155,325		2.24		3.2	204,490		2.49		2.9


Total securities portfolio	$	2,002,957	1.24		3.8	$	2,090,720	1.28		3.9	$	1,529,605	1.62		3.1

MBS: The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.


	For the Three Months Ended
	June 30, 2021					March 31, 2021					December 31, 2020					September 30, 2020
	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	1,549,901	1.54	%	4.0	$	1,459,300	1.67	%	4.0	$	1,180,803	1.94	%	3.5	$	982,587	2.35	%	3.3
Maturities and repayments	(110,996)					(109,141)					(101,496)					(95,842)
Net amortization of (premiums)/discounts	(1,689)					(1,572)					(1,003)					(608)
Purchases:
Fixed-rate	75,234		1.36		5.5	223,804		1.31		5.9	379,793		1.04		5.4	297,024		1.06		5.9



Change in valuation on AFS securities	6,578					(22,490)					1,203					(2,358)
Ending balance - carrying value	$	1,519,028	1.45		3.8	$	1,549,901	1.54		4.0	$	1,459,300	1.67		4.0	$	1,180,803	1.94		3.5


	For the Nine Months Ended
	June 30, 2021					June 30, 2020
	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	1,180,803	1.94	%	3.5	$	936,487	2.67	%	3.5
Maturities and repayments	(321,633)					(213,695)
Net amortization of (premiums)/discounts	(4,264)					(890)
Purchases:
Fixed-rate	678,831		1.16		5.6	240,677		1.71		4.4



Change in valuation on AFS securities	(14,709)					20,008
Ending balance - carrying value	$	1,519,028	1.45		3.8	$	982,587	2.35		3.3

Investment Securities: 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, 2021					March 31, 2021					December 31, 2020					September 30, 2020
	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	546,023	0.56	%	3.6	$	454,566	0.54	%	1.0	$	380,147	0.65	%	1.7	$	237,467	1.23	%	0.8
Maturities, calls and sales	(100,300)					(3,325)					(50,900)					(102,115)
Net amortization of (premiums)/discounts	(12)					(18)					(14)					(54)
Purchases:
Fixed-rate	50,000		0.73		3.2	100,000		0.70		4.6	124,987		0.48		3.2	244,975		0.51		3.2



Change in valuation on AFS securities	966					(5,200)					346					(126)
Ending balance - carrying value	$	496,677	0.60		3.8	$	546,023	0.56		3.6	$	454,566	0.54		1.0	$	380,147	0.65		1.7


	For the Nine Months Ended
	June 30, 2021					June 30, 2020
	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	380,147	0.65	%	1.7	$	268,376	2.11	%	0.8
Maturities, calls and sales	(154,525)					(256,300)
Net amortization of (premiums)/discounts	(44)					(109)
Purchases:
Fixed-rate	274,987		0.60		3.7	225,087		1.20		1.2



Change in valuation on AFS securities	(3,888)					413
Ending balance - carrying value	$	496,677	0.60		3.8	$	237,467	1.23		0.8

Deposit Portfolio

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, 2021						March 31, 2021						September 30, 2020
					% of						% of						% of
	Amount		Rate		Total		Amount		Rate		Total		Amount		Rate		Total
	(Dollars in thousands)
Non-interest-bearing checking	$	540,669	—	%	8.2	%	$	549,158	—	%	8.2	%	$	451,394	—	%	7.3	%
Interest-bearing checking	1,014,665		0.08		15.3		1,009,096		0.07		15.2		865,782		0.10		14.0
Savings	513,054		0.06		7.7		511,014		0.06		7.7		433,808		0.06		7.0
Money market	1,688,337		0.25		25.4		1,602,573		0.24		24.1		1,419,180		0.37		22.9
Retail certificates of deposit	2,412,806		1.50		36.4		2,512,791		1.62		37.8		2,623,336		1.88		42.4
Commercial certificates of deposit	214,956		0.71		3.2		217,563		0.77		3.3		143,125		1.05		2.3
Public unit certificates of deposit	253,807		0.36		3.8		248,670		0.45		3.7		254,783		0.74		4.1
	$	6,638,294	0.66		100.0	%	$	6,650,865	0.73		100.0	%	$	6,191,408	0.95		100.0	%

The following table presents scheduled maturity information for our certificates of deposit, along with associated weighted average rates, as of June 30, 2021.


	Amount Due
				More than			More than
	1 year			1 year to			2 years to 3			More than			Total
Rate range	or less			2 years			years			3 years			Amount		Rate
	(Dollars in thousands)
Retail certificates of deposit:
0.00 – 0.99%	$	550,417		$	179,058		$	67,469		$	84,122		$	881,066	0.52	%
1.00 – 1.99%	343,680			170,719			111,402			77,336			703,137		1.69
2.00 – 2.99%	246,706			388,924			161,803			30,914			828,347		2.40
3.00 – 3.99%	—			256			—			—			256		3.00

Commercial certificates of deposit:
0.00 – 0.99%	172,807			4,795			464			781			178,847		0.54
1.00 – 1.99%	19,503			10,104			343			907			30,857		1.41
2.00 – 2.99%	2,016			2,401			662			172			5,251		2.31


Public unit certificates of deposit:
0.00 – 0.99%	196,575			25,501			—			—			222,076		0.10
1.00 – 1.99%	16,096			—			—			—			16,096		1.69
2.00 – 2.99%	15,307			—			329			—			15,636		2.65


	$	1,563,107		$	781,758		$	342,472		$	194,232		$	2,881,569	1.34

Percent of total	54.3		%	27.1		%	11.9		%	6.7		%
Weighted average rate	1.07			1.71			1.80			1.25
Weighted average maturity (in years)	0.5			1.4			2.5			3.8			1.2
Weighted average maturity for the retail portfolio (in years)													1.3
Weighted average maturity for the commercial portfolio (in years)													0.6
Weighted average maturity for the public unit portfolio (in years)													0.4

Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of June 30, 2021.


	Term Borrowings Amount
Maturity by	FHLB		Interest rate		Contractual		Effective
Fiscal Year	Advances		swaps(1)		Rate		Rate(2)
	(Dollars in thousands)
2021	$	—	$	340,000	0.28	%	2.73	%
2022	—		100,000		0.24		3.14
2023	300,000		—		1.70		1.81
2024	150,000		—		2.44		2.44
2025	300,000		—		1.66		1.75
2026	250,000		—		0.96		1.27
2027	150,000		—		0.93		1.24
	$	1,150,000	$	440,000	1.18		2.00

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $440.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.6 years at June 30, 2021.

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

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and term borrowings for the next four quarters as of June 30, 2021.


	Retail/Commercial				Public Unit				Term
Maturity by	Certificate		Repricing		Certificate		Repricing		Borrowings		Repricing				Repricing
Quarter End	Amount		Rate		Amount		Rate		Amount(1)		Rate		Total		Rate
	(Dollars in thousands)
September 30, 2021	$	339,552	1.26	%	$	98,464	0.51	%	$	75,000	2.99	%	$	513,016	1.37	%
December 31, 2021	376,966		1.12		74,062		0.26		—		—		451,028		0.98
March 31, 2022	299,872		1.24		24,876		0.65		—		—		324,748		1.19
June 30, 2022	318,740		1.15		30,575		0.09		—		—		349,315		1.06
	$	1,335,130	1.19		$	227,977	0.39		$	75,000	2.99		$	1,638,107	1.16

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

The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.


	For the Three Months Ended
	June 30, 2021					March 31, 2021					December 31, 2020					September 30, 2020
			Effective					Effective					Effective					Effective
	Amount		Rate		WAM	Amount		Rate		WAM	Amount		Rate		WAM	Amount		Rate		WAM
	(Dollars in thousands)
Beginning balance	$	1,590,000	1.94	%	3.3	$	1,740,000	2.26	%	3.0	$	1,790,000	2.31	%	3.0	$	1,990,000	2.29	%	2.9
Maturities and prepayments:
FHLB advances	(300,000)		1.30			(315,000)		2.20			(350,000)		2.40			(440,000)		2.49
Repurchase agreements	—		—			—		—			—		—			(100,000)		2.53

New FHLB borrowings:
Fixed-rate	200,000		0.90		4.5	100,000		1.24		6.0	100,000		1.09		5.0	—		—		—
Interest rate swaps(1)	100,000		3.14		7.0	65,000		2.65		3.1	200,000		2.63		1.5	340,000		2.73		3.5

Ending balance	$	1,590,000	2.00		3.5	$	1,590,000	1.94		3.3	$	1,740,000	2.26		3.0	$	1,790,000	2.31		3.0


	For the Nine Months Ended
	June 30, 2021					June 30, 2020
			Effective					Effective
	Amount		Rate		WAM	Amount		Rate		WAM
	(Dollars in thousands)
Beginning balance	$	1,790,000	2.31	%	3.0	$	2,140,000	2.38	%	2.6
Maturities and prepayments:
FHLB advances	(965,000)		1.99			(965,000)		2.41


New FHLB borrowings:
Fixed-rate	400,000		1.03		5.0	450,000		1.76		4.8
Interest rate swaps(1)	365,000		2.77		3.3	365,000		2.75		4.3

Ending balance	$	1,590,000	2.00		3.5	$	1,990,000	2.29		2.9

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

Average Rates and Lives

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

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

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

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

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

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

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of June 30, 2021. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.


	Amount		Yield/Rate		WAL	% of Category		% of Total
	(Dollars in thousands)
Investment securities	$	496,677	0.60	%	4.0	24.7	%	5.4	%
MBS - fixed	1,377,325		1.39		4.0	68.3		14.9
MBS - adjustable	141,703		2.05		3.7	7.0		1.5
Total securities	2,015,705		1.24		3.9	100.0	%	21.8
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years	1,266,125		2.71		3.6	18.0	%	13.7
> 15 years	4,219,769		3.35		5.6	59.8		45.7
Fixed-rate commercial	437,323		4.30		4.1	6.2		4.8
All other fixed-rate loans	43,150		4.09		6.1	0.6		0.5
Total fixed-rate loans	5,966,367		3.29		5.1	84.6		64.7
Adjustable-rate one- to four-family:
<= 36 months	168,705		1.81		4.9	2.4		1.8
> 36 months	454,734		2.86		3.2	6.4		4.9
Adjustable-rate commercial	377,668		4.08		6.7	5.4		4.1
All other adjustable-rate loans	84,151		4.25		2.5	1.2		0.9
Total adjustable-rate loans	1,085,258		3.23		4.6	15.4		11.7
Total loans receivable	7,051,625		3.28		5.0	100.0	%	76.4
FHLB stock	73,630		5.20		2.6			0.8
Cash and cash equivalents	95,305		0.12		—			1.0
Total interest-earning assets	$	9,236,265	2.82		4.7			100.0	%

Non-maturity deposits	$	3,756,725	0.14		5.8	56.6	%	45.7	%
Retail certificates of deposit	2,412,806		1.50		1.3	36.4		29.3
Commercial certificates of deposit	214,956		0.71		0.6	3.2		2.6
Public unit certificates of deposit	253,807		0.36		0.4	3.8		3.1
Total deposits	6,638,294		0.66		3.8	100.0	%	80.7
Term borrowings	1,590,000		2.00		3.5			19.3


Total interest-bearing liabilities	$	8,228,294	0.92		3.7			100.0	%

Average Balance Sheets

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.


			For the Nine Months Ended
			June 30, 2021									June 30, 2020
			Average		Interest							Average		Interest
			Outstanding		Earned/			Yield/				Outstanding		Earned/			Yield/
			Amount		Paid			Rate				Amount		Paid			Rate
Assets:			(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated			$	3,963,088	$	104,482		3.52	%			$	3,946,543	$	113,228		3.83	%
Correspondent purchased			2,006,257		35,124			2.33				2,386,194		54,780			3.06
Bulk purchased			195,678		2,870			1.96				235,928		4,837			2.73
Total one- to four-family loans			6,165,023		142,476			3.08				6,568,665		172,845			3.51
Commercial loans			780,941		26,707			4.51				775,021		28,228			4.79
Consumer loans			103,241		3,575			4.63				126,049		5,106			5.41
Total loans receivable(1)			7,049,205		172,758			3.26				7,469,735		206,179			3.67
MBS(2)			1,424,914		16,499			1.54				929,458		17,584			2.52
Investment securities(2)(3)			476,755		2,075			0.58				257,778		3,736			1.93
FHLB stock			78,784		2,964			5.03				99,945		4,747			6.34
Cash and cash equivalents			152,792		117			0.10				166,272		1,126			0.89
Total interest-earning assets			9,182,450		194,413			2.82				8,923,188		233,372			3.48
Other non-interest-earning assets			443,370									459,877
Total assets			$	9,625,820								$	9,383,065

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking			$	1,455,468	588			0.05				$	1,141,682	550			0.06
Savings			478,011		209			0.06				375,858		222			0.08
Money market			1,554,947		3,220			0.28				1,216,377		5,395			0.59
Retail/commercial certificates			2,726,035		33,032			1.62				2,702,272		42,096			2.08
Wholesale certificates			254,606		1,022			0.54				287,977		4,036			1.87
Total deposits			6,469,067		38,071			0.79				5,724,166		52,299			1.22



Borrowings(4)			1,654,544		26,885			2.16				2,148,687		37,421			2.31
Total interest-bearing liabilities			8,123,611		64,956			1.07				7,872,853		89,720			1.52
Other non-interest-bearing liabilities			219,204									195,957
Stockholders' equity			1,283,005									1,314,255
Total liabilities and stockholders' equity	$	9,625,820								$	9,383,065

Net interest income(5)					$	129,457								$	143,652
Net interest rate spread(6)								1.75									1.96
Net interest-earning assets			$	1,058,839								$	1,050,335
Net interest margin(7)								1.88									2.15

Ratio of interest-earning assets to interest-bearing liabilities					1.13x									1.13x

Selected performance ratios:
Return on average assets (annualized)					0.80		%							0.66		%
Return on average equity (annualized)					5.98									4.69
Average equity to average assets								13.33									14.01
Operating expense ratio(8)								1.21									1.12
Efficiency ratio(9)								57.36									49.81



	For the Three Months Ended
	June 30, 2021						March 31, 2021
	Average		Interest				Average		Interest
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Amount		Paid		Rate		Amount		Paid		Rate
Assets:	(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated	$	3,982,990	$	33,727	3.39	%	$	3,956,867	$	34,794	3.52	%
Correspondent purchased	1,971,209		10,367		2.10		1,981,735		11,826		2.39
Bulk purchased	185,198		826		1.78		195,925		932		1.90
Total one- to four-family loans	6,139,397		44,920		2.93		6,134,527		47,552		3.10
Commercial loans	805,721		8,744		4.29		766,972		8,559		4.46
Consumer loans	96,980		1,115		4.61		102,613		1,174		4.64
Total loans receivable(1)	7,042,098		54,779		3.11		7,004,112		57,285		3.27
MBS(2)	1,529,679		5,360		1.40		1,444,554		5,429		1.50
Investment securities(2)(3)	533,076		763		0.57		466,077		629		0.54
FHLB stock	73,689		944		5.14		77,391		951		4.98
Cash and cash equivalents	97,890		26		0.11		158,544		40		0.10
Total interest-earning assets	9,276,432		61,872		2.66		9,150,678		64,334		2.81
Other non-interest-earning assets	430,639						446,265
Total assets	$	9,707,071					$	9,596,943

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	$	1,546,665	182		0.05		$	1,459,964	183		0.05
Savings	513,528		72		0.06		477,985		69		0.06
Money market	1,646,970		998		0.24		1,543,911		1,038		0.27
Retail/commercial certificates	2,678,914		9,938		1.49		2,753,439		10,917		1.61
Wholesale certificates	251,571		285		0.45		260,712		322		0.50
Total deposits	6,637,648		11,475		0.69		6,496,011		12,529		0.78



Borrowings(4)	1,582,905		7,826		1.97		1,603,459		8,732		2.19
Total interest-bearing liabilities	8,220,553		19,301		0.94		8,099,470		21,261		1.06
Other non-interest-bearing liabilities	203,532						213,602
Stockholders' equity	1,282,986						1,283,871
Total liabilities and stockholders' equity	$	9,707,071					$	9,596,943

Net interest income(5)			$	42,571					$	43,073
Net interest rate spread(6)					1.72						1.75
Net interest-earning assets	$	1,055,879					$	1,051,208
Net interest margin(7)					1.84						1.88
Ratio of interest-earning assets to interest-bearing liabilities					1.13x						1.13x

Selected performance ratios:
Return on average assets (annualized)					0.75	%					0.85	%
Return on average equity (annualized)					5.67						6.37
Average equity to average assets					13.22						13.38
Operating expense ratio(8)					1.14						1.36
Efficiency ratio(9)					57.73						58.78

(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 $7.2 million and $14.7 million for the nine months ended June 30, 2021 and June 30, 2020, respectively, and $5.1 million and $7.5 million for the quarters ended June 30, 2021 and March 31, 2021, respectively.

(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.

(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.

(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Capitol Federal Financial, Inc. - FORM 8-K - EX-99 - PRESS RELEASE ANNOUNCING EARNINGS - July 29, 2021

Attached files

Capitol Federal Financial, Inc. Reports