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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
Maryland27-2631712
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
700 South Kansas Avenue,Topeka,Kansas66603
(Address of principal executive offices)(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareCFFNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒            Accelerated filer ☐        Non-accelerated filer ☐
Smaller reporting company ☐        Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 2, 2023, there were 136,144,725 shares of Capitol Federal Financial, Inc. common stock outstanding.


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



PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
December 31, September 30,
20222022
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $20,243 and $27,467)
$49,686 $49,194 
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $1,716,608 and $1,768,490)
1,528,686 1,563,307 
Loans receivable, net (allowance for credit losses ("ACL") of $19,189 and $16,371)
7,783,358 7,464,208 
Federal Home Loan Bank Topeka ("FHLB") stock, at cost124,119 100,624 
Premises and equipment, net93,507 94,820 
Income taxes receivable, net124 1,266 
Deferred income tax assets, net29,924 33,884 
Other assets320,356 317,594 
TOTAL ASSETS$9,929,760 $9,624,897 
LIABILITIES:
Deposits$6,074,549 $6,194,866 
Borrowings2,645,195 2,132,154 
Advances by borrowers36,207 80,067 
Other liabilities119,014 121,311 
Total liabilities8,874,965 8,528,398 
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding
— — 
Common stock, $.01 par value; 1,400,000,000 shares authorized, 136,134,225 and 138,858,884 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively
1,361 1,388 
Additional paid-in capital1,168,061 1,190,213 
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(29,322)(29,735)
Retained earnings47,297 80,266 
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(132,602)(145,633)
Total stockholders' equity1,054,795 1,096,499 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,929,760 $9,624,897 
See accompanying notes to consolidated financial statements.

3

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended
December 31,
20222021
INTEREST AND DIVIDEND INCOME:
Loans receivable$64,819 $55,788 
Cash and cash equivalents16,671 14 
Mortgage-backed securities ("MBS")4,811 4,625 
FHLB stock4,158 1,231 
Investment securities881 808 
Total interest and dividend income91,340 62,466 
INTEREST EXPENSE:
Borrowings33,608 7,585 
Deposits11,904 9,267 
Total interest expense45,512 16,852 
NET INTEREST INCOME45,828 45,614 
PROVISION FOR CREDIT LOSSES3,660 (3,439)
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES42,168 49,053 
NON-INTEREST INCOME:
Deposit service fees3,461 3,430 
Insurance commissions795 711 
Other non-interest income1,096 1,365 
Total non-interest income5,352 5,506 
NON-INTEREST EXPENSE:
Salaries and employee benefits13,698 13,728 
Information technology and related expense5,070 4,432 
Occupancy, net3,474 3,379 
Regulatory and outside services1,533 1,368 
Advertising and promotional833 1,064 
Federal insurance premium812 639 
Office supplies and related expense633 468 
Deposit and loan transaction costs611 697 
Other non-interest expense1,109 919 
Total non-interest expense27,773 26,694 
INCOME BEFORE INCOME TAX EXPENSE19,747 27,865 
INCOME TAX EXPENSE3,507 5,679 
NET INCOME$16,240 $22,186 
Basic earnings per share ("EPS")$0.12 $0.16 
Diluted EPS$0.12 $0.16 
Basic weighted average common shares134,640,932 135,627,043 
Diluted weighted average common shares134,640,932 135,627,043 
See accompanying notes to consolidated financial statements.
4

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months Ended
December 31,
20222021
Net income$16,240 $22,186 
Other comprehensive income (loss), net of tax:
Changes in unrealized gains/losses on AFS securities, net of taxes of $(4,211) and $3,544
13,050 (10,982)
Changes in unrealized gains/losses on cash flow hedges, net of taxes of $5 and $(1,277)
(19)3,961 
Comprehensive income$29,271 $15,165 
See accompanying notes to consolidated financial statements.

5

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended December 31, 2022
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2022$1,388 $1,190,213 $(29,735)$80,266 $(145,633)$1,096,499 
Net income16,240 16,240 
Other comprehensive income, net of tax13,031 13,031 
ESOP activity(72)413 341 
Stock-based compensation89 89 
Repurchase of common stock(27)(22,169)(22,196)
Cash dividends to stockholders ($0.365 per share)
(49,209)(49,209)
Balance at December 31, 2022$1,361 $1,168,061 $(29,322)$47,297 $(132,602)$1,054,795 

For the Three Months Ended December 31, 2021
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2021$1,388 $1,189,633 $(31,387)$98,944 $(16,305)$1,242,273 
Net income22,186 22,186 
Other comprehensive loss, net of tax(7,021)(7,021)
ESOP activity74 413 487 
Restricted stock activity, net(3)(3)
Stock-based compensation123 123 
Cash dividends to stockholders ($0.305 per share)
(41,385)(41,385)
Balance at December 31, 2021$1,388 $1,189,827 $(30,974)$79,745 $(23,326)$1,216,660 

6

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Three Months Ended
December 31,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income16,240 22,186 
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(4,158)(1,231)
Provision for credit losses3,660 (3,439)
Originations of loans receivable held-for-sale ("LHFS")— (678)
Proceeds from sales of LHFS— 285 
Amortization and accretion of premiums and discounts on securities837 1,764 
Depreciation and amortization of premises and equipment2,298 2,341 
Amortization of intangible assets274 350 
Amortization of deferred amounts related to FHLB advances, net459 453 
Common stock committed to be released for allocation - ESOP341 487 
Stock-based compensation89 123 
Changes in:
Unrestricted cash collateral received from derivative counterparties, net530 — 
Other assets, net(2,527)1,452 
Income taxes payable/receivable, net1,117 2,807 
Deferred income tax liabilities, net(245)438 
Other liabilities(4,314)(7,069)
Net cash provided by operating activities14,601 20,269 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls, maturities and principal reductions of AFS securities51,045 107,665 
Proceeds from the redemption of FHLB stock90,423 1,224 
Purchase of FHLB stock(109,760)(1,833)
Net change in loans receivable(327,583)(12,387)
Proceeds from sale of participating interest in loans receivable5,563 — 
Purchase of premises and equipment(1,093)(1,526)
Proceeds from sale of other real estate owned ("OREO")296 120 
Net cash (used in) provided by investing activities(291,109)93,263 
(Continued)
7

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Three Months Ended
December 31,
20222021
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(49,209)(41,385)
Net change in deposits(120,317)50,608 
Proceeds from borrowings2,000,100 293,702 
Repayments on borrowings(1,487,518)(293,702)
Change in advances by borrowers(43,860)(34,502)
Repurchase of common stock(22,196)— 
Net cash provided by (used in) financing activities277,000 (25,279)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH492 88,253 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period49,194 70,292 
End of period49,686 158,545 
See accompanying notes to consolidated financial statements.(Concluded)
8

Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents of $49.7 million and $49.2 million at December 31, 2022 and September 30, 2022, respectively. At times, the Company holds restricted cash, which is reported in other assets on the consolidated balance sheet, related to collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.  There was no restricted cash at December 31, 2022 or September 30, 2022. See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds.

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

Recent Accounting Pronouncements - In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, this ASU requires that an entity disclose current-period gross write-offs by year of origination for financing receivables within the scope of Accounting Standards Codification ("ASC") 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. This ASU is effective for the Company on October 1, 2023. While the adoption of this ASU is expected to result in enhanced disclosures, the Company does not expect the adoption of this ASU to have a material impact on the Company's consolidated financial condition or results of operations.
9

2. EARNINGS PER SHARE
Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
For the Three Months Ended
December 31,
20222021
(Dollars in thousands, except per share amounts)
Net income$16,240 $22,186 
Income allocated to participating securities(7)(12)
Net income available to common stockholders$16,233 $22,174 
Total basic average common shares outstanding134,640,932 135,627,043 
Effect of dilutive stock options— — 
Total diluted average common shares outstanding134,640,932 135,627,043 
Net EPS:
Basic$0.12 $0.16 
Diluted$0.12 $0.16 
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation378,026 543,761 
10

3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States Government-Sponsored Enterprises ("GSEs").
December 31, 2022
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,191,597 $208 $139,550 $1,052,255 
GSE debentures519,979 — 48,199 471,780 
Corporate bonds4,000 — 359 3,641 
Municipal bonds 1,032 — 22 1,010 
$1,716,608 $208 $188,130 $1,528,686 
September 30, 2022
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,243,270 $365 $155,011 $1,088,624 
GSE debentures519,977 — 50,150 469,827 
Corporate bonds4,000 — 305 3,695 
Municipal bonds 1,243 — 82 1,161 
$1,768,490 $365 $205,548 $1,563,307 

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
December 31, 2022
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$299,745 $17,402 $724,667 $122,148 
GSE debentures— — 471,780 48,199 
Corporate bonds3,641 359 — — 
Municipal bonds 1,010 22 — — 
$304,396 $17,783 $1,196,447 $170,347 
September 30, 2022
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$338,013 $22,563 $715,281 $132,448 
GSE debentures— — 469,827 50,150 
Corporate bonds3,695 305 — — 
Municipal bonds 1,161 82 — — 
$342,869 $22,950 $1,185,108 $182,598 
11

The unrealized losses at December 31, 2022 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record an ACL on securities in an unrealized loss position at December 31, 2022 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of December 31, 2022, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories.
AmortizedEstimated
CostFair Value
(Dollars in thousands)
One year or less$25,000 $24,006 
One year through five years494,979 447,774 
Five years through ten years5,032 4,651 
525,011 476,431 
MBS1,191,597 1,052,255 
$1,716,608 $1,528,686 

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
For the Three Months Ended
December 31,
20222021
(Dollars in thousands)
Taxable$874 $790 
Non-taxable7 18 
$881 $808 

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
December 31, 2022September 30, 2022
(Dollars in thousands)
FHLB advances$572,068 $572,913 
Public unit deposits137,562 125,496 
Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings44,498 46,283 
$754,128 $744,692 
.

12

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
December 31, 2022September 30, 2022
(Dollars in thousands)
One- to four-family:
Originated$4,007,596 $3,988,469 
Correspondent purchased2,353,335 2,201,886 
Bulk purchased145,209 147,939 
Construction70,869 66,164 
Total6,577,009 6,404,458 
Commercial:
Commercial real estate833,444 745,301 
Commercial and industrial 88,327 79,981 
Construction188,516 141,062 
Total1,110,287 966,344 
Consumer:
Home equity95,352 92,203 
Other9,022 8,665 
Total104,374 100,868 
Total loans receivable7,791,670 7,471,670 
Less:
ACL19,189 16,371 
Deferred loan fees/discounts30,513 29,736 
Premiums/deferred costs(41,390)(38,645)
$7,783,358 $7,464,208 

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

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

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

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

Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate and commercial construction participation loans, the Bank performs the
13

same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 85% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15. For commercial construction loans, LTV ratios generally do not exceed 80% of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15, but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

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

Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

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

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

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

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

14

The following tables set forth, as of the dates indicated, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At December 31, 2022 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.
December 31, 2022
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2022202120202019YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Pass$100,424 $569,293 $923,122 $610,572 $274,505 $1,562,821 $— $4,040,737 
Special Mention185 298 583 1,372 1,282 9,037 — 12,757 
Substandard— 158 — 277 736 7,641 — 8,812 
Correspondent purchased
Pass146,776 538,663 643,407 268,000 67,808 709,034 — 2,373,688 
Special Mention— — 754 — 354 2,589 — 3,697 
Substandard— — — — 168 5,655 — 5,823 
Bulk purchased
Pass— — — — — 142,131 — 142,131 
Special Mention— — — — — — — — 
Substandard— — — — — 3,602 — 3,602 
247,385 1,108,412 1,567,866 880,221 344,853 2,442,510 — 6,591,247 
Commercial:
Commercial real estate
Pass178,810 295,202 218,991 116,758 84,688 85,818 8,598 988,865 
Special Mention— 28,435 — — — — — 28,435 
Substandard— — — 594 219 267 — 1,080 
Commercial and industrial
Pass10,927 26,299 15,764 4,980 3,487 1,342 24,205 87,004 
Special Mention— — — — — — — — 
Substandard— 19 — 73 — 83 1,158 1,333 
189,737 349,955 234,755 122,405 88,394 87,510 33,961 1,106,717 
Consumer:
Home equity
Pass1,376 6,232 2,270 1,382 935 2,845 79,993 95,033 
Special Mention— — — — — — 228 228 
Substandard— — — — 18 15 267 300 
Other
Pass1,463 3,810 1,681 715 308 705 317 8,999 
Special Mention— — — 6 — — — 6 
Substandard— 3 13 1 — — — 17 
2,839 10,045 3,964 2,104 1,261 3,565 80,805 104,583 
Total$439,961 $1,468,412 $1,806,585 $1,004,730 $434,508 $2,533,585 $114,766 $7,802,547 

15

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

16

Delinquency Status - The following tables set forth, as of the dates indicated, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision as of the dates indicated. All revolving lines of credit are presented separately, regardless of origination year.
December 31, 2022
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2022202120202019YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$100,609 $569,591 $923,705 $611,905 $276,447 $1,574,314 $— $4,056,571 
30-89— — — 316 76 4,309 — 4,701 
90+/FC— 158 — — — 876 — 1,034 
Correspondent purchased
Current146,776 538,663 644,161 268,000 68,162 712,039 — 2,377,801 
30-89— — — — — 1,230 — 1,230 
90+/FC— — — — 168 4,009 — 4,177 
Bulk purchased
Current— — — — — 143,359 — 143,359 
30-89— — — — — 865 — 865 
90+/FC— — — — — 1,509 — 1,509 
247,385 1,108,412 1,567,866 880,221 344,853 2,442,510 — 6,591,247 
Commercial:
Commercial real estate
Current178,810 323,509 218,991 116,758 84,688 85,796 8,598 1,017,150 
30-89— 128 — — — 33 — 161 
90+/FC— — — 594 219 256 — 1,069 
Commercial and industrial
Current10,927 26,299 15,764 5,053 3,487 1,340 25,354 88,224 
30-89— 19 — — — 2 9 30 
90+/FC— — — — — 83 — 83 
189,737 349,955 234,755 122,405 88,394 87,510 33,961 1,106,717 
Consumer:
Home equity
Current1,376 6,232 2,270 1,325 935 2,846 80,022 95,006 
30-89— — — 57 18 2 369 446 
90+/FC— — — — — 12 97 109 
Other
Current1,463 3,795 1,681 715 297 558 317 8,826 
30-89— 15 — 6 11 147 — 179 
90+/FC— 3 13 1 — — — 17 
2,839 10,045 3,964 2,104 1,261 3,565 80,805 104,583 
Total$439,961 $1,468,412 $1,806,585 $1,004,730 $434,508 $2,533,585 $114,766 $7,802,547 

17

September 30, 2022
FiscalFiscalFiscalFiscalFiscalRevolving
YearYearYearYearYearPriorLine of
20222021202020192018YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$563,507 $930,476 $625,110 $282,598 $212,549 $1,417,268 $— $4,031,508 
30-89— — 553 — 64 3,506 — 4,123 
90+/FC158 — — 368 108 2,279 — 2,913 
Correspondent purchased
Current494,854 651,363 273,626 70,107 105,336 629,150 — 2,224,436 
30-89— — — — — 1,117 — 1,117 
90+/FC— — — 168 513 3,103 — 3,784 
Bulk purchased
Current— — — — — 146,399 — 146,399 
30-89— — — — — 921 — 921 
90+/FC— — — — — 1,157 — 1,157 
1,058,519 1,581,839 899,289 353,241 318,570 2,204,900 — 6,416,358 
Commercial:
Commercial real estate
Current367,795 221,001 111,689 86,456 41,322 46,383 7,436 882,082 
30-89— — — — — — — — 
90+/FC— — 594 221 239 30 — 1,084 
Commercial and industrial
Current38,442 17,453 5,786 4,212 919 630 12,465 79,907 
30-89— — — — — — — — 
90+/FC— — — — 73 10 — 83 
406,237 238,454 118,069 90,889 42,553 47,053 19,901 963,156 
Consumer:
Home equity
Current6,447 2,441 1,429 1,000 980 1,999 77,633 91,929 
30-89— — 57 — 12 24 226 319 
90+/FC— — — — — — 153 153 
Other
Current4,205 1,964 844 404 651 201 368 8,637 
30-892 13 6 4 — — 1 26 
90+/FC1 — — — — — — 1 
10,655 4,418 2,336 1,408 1,643 2,224 78,381 101,065 
Total$1,475,411 $1,824,711 $1,019,694 $445,538 $362,766 $2,254,177 $98,282 $7,480,579 
18

Delinquent and Nonaccrual Loans - The following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans. At December 31, 2022 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status.
December 31, 2022
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$4,701 $1,034 $5,735 $4,056,571 $4,062,306 
Correspondent purchased1,230 4,177 5,407 2,377,801 2,383,208 
Bulk purchased865 1,509 2,374 143,359 145,733 
Commercial:
Commercial real estate161 1,069 1,230 1,017,150 1,018,380 
Commercial and industrial 30 83 113 88,224 88,337 
Consumer:
Home equity446 109 555 95,006 95,561 
Other179 17 196 8,826 9,022 
$7,612 $7,998 $15,610 $7,786,937 $7,802,547 
September 30, 2022
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$4,123 $2,913 $7,036 $4,031,508 $4,038,544 
Correspondent purchased1,117 3,784 4,901 2,224,436 2,229,337 
Bulk purchased921 1,157 2,078 146,399 148,477 
Commercial:
Commercial real estate— 1,084 1,084 882,082 883,166 
Commercial and industrial — 83 83 79,907 79,990 
Consumer:
Home equity319 153 472 91,929 92,401 
Other26 1 27 8,637 8,664 
$6,506 $9,175 $15,681 $7,464,898 $7,480,579 

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2022 and September 30, 2022 was $1.5 million and $2.0 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $182 thousand at December 31, 2022 and $328 thousand at September 30, 2022.

19

The following table presents the amortized cost at December 31, 2022 and September 30, 2022, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented, all of which were individually evaluated for loss and any identified losses have been charged off.
December 31, 2022September 30, 2022
Nonaccrual LoansNonaccrual Loans with No ACLNonaccrual LoansNonaccrual Loans with No ACL
(Dollars in thousands)
One- to four-family:
Originated$1,253 $379 $3,135 $1,018 
Correspondent purchased4,177 304 3,784 304 
Bulk purchased1,509 987 1,157 630 
Commercial:
Commercial real estate1,080 446 1,084 449 
Commercial and industrial 156 156 161 161 
Consumer:
Home equity109 — 172 19 
Other17 — 1 — 
$8,301 $2,272 $9,494 $2,581 

TDRs - The following table presents the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. This table does not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
For the Three Months Ended
December 31, 2022December 31, 2021
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated— $— $— 1 $24 $24 
Correspondent purchased— — — — — — 
Bulk purchased— — — — — — 
Commercial:
Commercial real estate— — — — — — 
Commercial and industrial — — — — — — 
Consumer:
Home equity— — — — — — 
Other— — — — — — 
— $— $— 1 $24 $24 

20

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
For the Three Months Ended
December 31, 2022December 31, 2021
Number ofAmortizedNumber ofAmortized
ContractsCostContractsCost
(Dollars in thousands)
One- to four-family:
Originated1 $8 1 $684 
Correspondent purchased— — — — 
Bulk purchased— — — — 
Commercial:
Commercial real estate— — — — 
Commercial and industrial — — — — 
Consumer:
Home equity— — — — 
Other— — — — 
1 $8 1 $684 

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

For the Three Months Ended December 31, 2022
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,066 $2,734 $206 $5,006 $11,120 $245 $16,371 
Charge-offs— — — — — (4)(4)
Recoveries1 — — 1 — 1 2 
Provision for credit losses92 253 10 355 2,464 1 2,820 
Ending balance$2,159 $2,987 $216 $5,362 $13,584 $243 $19,189 

For the Three Months Ended December 31, 2021
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$1,612 $2,062 $304 $3,978 $15,652 $193 $19,823 
Charge-offs(4)— — (4)(10)(1)(15)
Recoveries9 — — 9 36 1 46 
Provision for credit losses22 20 (36)6 (2,325)— (2,319)
Ending balance$1,639 $2,082 $268 $3,989 $13,353 $193 $17,535 

21

The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2022. The key assumptions utilized in estimating the Company's ACL at December 31, 2022 are discussed below.
•Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at December 31, 2022. The forecasted economic indices applied to the model at December 31, 2022 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at December 31, 2022 was the national unemployment rate. The forecasted national unemployment rate in the economic scenario selected by management at December 31, 2022 had the national unemployment rate gradually increasing to 4.2% by December 31, 2023 which was the end of our four quarter forecast time period.
•Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2022.
•Prepayment and curtailment assumptions - The assumptions used at December 31, 2022 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model. During the current quarter, there was a slowdown in portfolio prepayment speeds which reduced the projected prepayment speeds used in the model for generally all loan categories.
•Qualitative factors - The qualitative factors applied by management at December 31, 2022 included the following:
◦The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the economic forecasts; and
◦Other management considerations related to commercial real estate loans that were not captured via the model assumptions, such as the balance and trending of large dollar commercial real estate loans.

Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the periods indicated. At December 31, 2022 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $1.07 billion and $992.6 million, respectively.
For the Three Months Ended
December 31, 2022December 31, 2021
(Dollars in thousands)
Beginning balance$4,751 $5,743 
Provision for credit losses840 (1,120)
Ending balance$5,591 $4,623 


5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At December 31, 2022 and September 30, 2022, the Bank had entered into interest rate swap agreements with an aggregate notional amount of $365.0 million in order to hedge the variable cash flows associated with $365.0 million of adjustable-rate FHLB advances. At December 31, 2022 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.8 years and 3.1 years, respectively. The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At both December 31, 2022 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $12.5 million which was reported in other assets on the consolidated balance sheet. During the three months ended December 31, 2022, $734 thousand was reclassified from AOCI as a decrease to interest expense. During the three months ended December 31, 2021, $1.8 million was reclassified from AOCI as an increase to interest expense. At December 31, 2022, the Company estimated that $9.6 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank held cash collateral of $12.6 million and $12.1 million at December 31, 2022 and September 30, 2022, respectively.

During the current quarter, the Bank utilized a leverage strategy (the "leverage strategy") to increase earnings. The leverage strategy involved borrowing up to $2.60 billion either on the Bank's line of credit with FHLB or by entering into short-term FHLB advances, depending on the rates offered by FHLB, with all of the balance being paid down at quarter end, or earlier if the strategy is not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, were deposited at the FRB of Kansas City.

22

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

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

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

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

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

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2022 or during fiscal year 2022. The Company's major security types, based on the nature and risks of the securities, are:

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

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as adjustments to AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2022 or during fiscal year 2022. (Level 2)

23

The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company did not have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2022 or September 30, 2022.
December 31, 2022
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,052,255 $— $1,052,255 $— 
GSE debentures471,780 — 471,780 — 
Corporate bonds3,641 — 3,641 — 
Municipal bonds1,010 — 1,010 — 
1,528,686 — 1,528,686 — 
Interest rate swaps12,523 — 12,523 — 
$1,541,209 $— $1,541,209 $— 

September 30, 2022
Quoted Prices Significant Significant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,088,624 $— $1,088,624 $— 
GSE debentures469,827 — 469,827 — 
Corporate bonds3,695 — 3,695 — 
Municipal bonds1,161 — 1,161 — 
1,563,307 — 1,563,307 — 
Interest rate swaps12,547 — 12,547 — 
$1,575,854 $— $1,575,854 $— 

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

Loans Receivable - Collateral dependent assets are assets evaluated on an individual basis. Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis. The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2022 and 2021 that were still held in the portfolio as of December 31, 2022 and 2021 was $4.1 million and $3.3 million, respectively. Fair values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

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

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2022 and December 31, 2021 were downward adjustments to the book value
24

of the collateral for lack of marketability. During the three months ended December 31, 2022, the adjustments ranged from 8% to 100%, with a weighted average of 21%. During the three months ended December 31, 2021, the adjustments ranged from 9% to 56%, with a weighted average of 21%. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2022 that was still held in the portfolio as of December 31, 2022 was $93 thousand. There was no OREO measured on a non-recurring basis during the three months ended December 31, 2021. The carrying value of the properties equaled the fair value of the properties at December 31, 2022 and 2021.

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

The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
December 31, 2022
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$49,686 $49,686 $49,686 $— $— 
AFS securities1,528,686 1,528,686 — 1,528,686 — 
Loans receivable7,783,358 7,283,026 — — 7,283,026 
FHLB stock124,119 124,119 124,119 — — 
Interest rate swaps12,523 12,523 — 12,523 — 
Liabilities:
Deposits6,074,549 6,010,404 3,860,070 2,150,334 — 
Borrowings2,645,195 2,432,658 145,000 2,287,658 — 
September 30, 2022
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$49,194 $49,194 $49,194 $— $— 
AFS securities1,563,307 1,563,307 — 1,563,307 — 
Loans receivable7,464,208 6,889,211 — — 6,889,211 
FHLB stock100,624 100,624 100,624 — — 
Interest rate swaps12,547 12,547 — 12,547 — 
Liabilities:
Deposits6,194,866 6,124,835 3,991,114 2,133,721 — 
Borrowings2,132,154 1,910,779 75,000 1,835,779 — 

25

7. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.
 For the Three Months Ended December 31, 2022
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$(155,119)$9,486 $(145,633)
Other comprehensive income (loss), before reclassifications13,050 715 13,765 
Amount reclassified from AOCI, net of taxes of $237
— (734)(734)
Other comprehensive income (loss)13,050 (19)13,031 
Ending balance$(142,069)$9,467 $(132,602)

For the Three Months Ended December 31, 2021
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$4,651 $(20,956)$(16,305)
Other comprehensive income (loss), before reclassifications(10,982)2,178 (8,804)
Amount reclassified from AOCI, net of taxes of $(575)
— 1,783 1,783 
Other comprehensive income (loss)(10,982)3,961 (7,021)
Ending balance$(6,331)$(16,995)$(23,326)

26

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

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

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

•our ability to maintain overhead costs at reasonable levels;
•our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;
•our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;
•our ability to access cost-effective funding;
•the expected synergies and other benefits from our acquisition activities might not be realized to the extent anticipated, within the anticipated time frames, or at all;
•our ability to extend our commercial banking and trust asset management expertise across our market areas;
•fluctuations in deposit flows;
•the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;
•the strength of the U.S. economy in general and the strength and/or the availability of labor in the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans, originated commercial loans, and entered into commercial loan participations;
•changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
•increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
•results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;
•changes in accounting principles, policies, or guidelines;
•the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB");
•the effects of, and changes in, trade and fiscal policies and laws of the United States government;
•the effects of, and changes in, foreign and military policies of the United States government;
•inflation, interest rate, market, monetary, currency fluctuations and the effects of a potential economic recession or slower economic growth;
•the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;
•the willingness of users to substitute competitors' products and services for our products and services;
•our success in gaining regulatory approval of our products and services and branching locations, when required;
•the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;
•implementing business initiatives may be more difficult or expensive than anticipated;
•significant litigation;
•technological changes;
•our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyber-attacks;
•changes in consumer spending, borrowing and saving habits; and
•our success at managing the risks involved in our business.

This list of factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the
27

fiscal year ended September 30, 2022 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

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

The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company except where the context indicates otherwise. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, filed with the SEC.

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

The Company recognized net income of $16.2 million, or $0.12 per share, for the current quarter compared to net income of $22.2 million, or $0.16 per share, for the prior year quarter. The decrease in net income was due primarily to recording a provision for credit losses of $3.7 million for the current quarter compared to a $3.4 million release of provision for the prior year quarter, partially offset by lower income tax expense. The net interest margin decreased 38 basis points, from 1.99% for the prior year quarter to 1.61% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin decreased 11 basis points, from 1.99% for the prior year quarter to 1.88% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates and a shift in the mix of interest-earning assets towards higher-yielding loans.

Total assets were $9.93 billion at December 31, 2022, a $304.9 million increase from September 30, 2022. The increase in assets was primarily a result of loan growth, primarily in the correspondent one- to four-family and commercial loan portfolios. Total deposits were $6.07 billion at December 31, 2022, a decrease of $120.3 million from September 30, 2022. The decrease was mainly in money market accounts as depositors likely moved funds to higher yielding investment products outside of the Bank and/or used funds to support spending. As a result of loan growth and a decrease in deposit balances during the current quarter, FHLB borrowings increased $513.0 million, to $2.65 billion at December 31, 2022. Stockholders' equity was $1.05 billion at December 31, 2022, a $41.7 million decrease from September 30, 2022. The decrease was due primarily to the payment of dividends and repurchase of shares during the current quarter.

The rapid increase in short-term rates led by the FRB and the impact of higher long-term rates compared to September 30, 2022 has led to decreases in the Bank's net interest margin. There has been a runoff in deposit balances and management has increased certificate of deposit and money market account rates to stem the outflow. The higher loan rates have made homes less affordable and reduced the turnover of housing inventory, which lowers the likelihood of existing one- to four-family loans at lower rates being paid off with the proceeds being used to fund higher rate loans. These dynamics have caused our balance sheet to change faster than what would occur in more stable rate environments. Net interest margin compression is anticipated to continue, and the margin may compress more in the near term, due to the shape of the yield curve and the pace at which liabilities are repricing compared to assets, along with lower costing deposits being replaced with higher costing borrowings in order to fund loan growth. Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate; however, the shift to higher-costing borrowings and the pace at which the interest rate increase is occurring for liabilities is more than offsetting the benefit of the higher loan rates. Management continues to evaluate funding options and plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repriced more quickly to lower cost alternatives.

The Bank's asset quality remained strong, reflected in low delinquency and charge-off ratios. At December 31, 2022, loans 30 to 89 days delinquent were 0.10% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.10% of total loans receivable, net. During the current quarter, net charge-offs ("NCOs") were $2 thousand.

At December 31, 2022, the Bank had a one-year gap position of $(1.02) billion, or (10.3)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period. This was compared to $(1.14) billion, or (11.9%) of total assets at September 30, 2022. The change in the one-year gap amount was primarily a result of a decrease in the amount of liability cash flows coming due in one year at December 31, 2022 compared to September 30, 2022.
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Management is in the process of implementing a new core processing system ("digital transformation") for the Bank, which is expected to be operational by September 2023. We expect the new platform will allow us to introduce new products and services quickly to drive better efficiencies and provide a more personalized experience for our customers. Our customers will experience a more modern internet banking experience, including both desktop and mobile. Internet banking will deliver real-time alerts and provide our customers the ability to manage their own debit cards. Our customers will also have multiple options for real-time payments, which positions the Bank for faster payment channels in the future. Management anticipates information technology and related expenses will increase in fiscal year 2023 in conjunction with the digital transformation. See additional discussion in the "Fiscal Year 2023 Projections" section below.

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

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

Financial Condition
The following table summarizes the Company's financial condition at the dates indicated.
Annualized
December 31, September 30, Percent
20222022Change
(Dollars and shares in thousands)
Total assets$9,929,760 $9,624,897 12.7 %
AFS securities1,528,686 1,563,307 (8.9)
Loans receivable, net7,783,358 7,464,208 17.1 
Deposits6,074,549 6,194,866 (7.8)
Borrowings2,645,195 2,132,154 96.2 
Stockholders' equity1,054,795 1,096,499 (15.2)
Equity to total assets at end of period10.6 %11.4 %
Average number of basic shares outstanding134,641 135,773 (3.3)
Average number of diluted shares outstanding134,641 135,773 (3.3)

During the current quarter, total assets increased by $304.9 million, which was primarily driven by loan growth, mainly in the correspondent one- to four-family and commercial loan portfolios. The one- to four-family correspondent loan portfolio increased $151.4 million, or 6.9%, primarily as a result of purchasing loans that were in the pipeline as of September 30, 2022, while new applications received have tapered off. Also, during the current quarter we experienced a reduction in prepayment speeds on the one- to four-family loan portfolio. The commercial loan portfolio increased $143.9 million, or 14.9%, during the current quarter, as funding for construction loans continued and new commercial real estate loans were added.

Total liabilities increased $346.6 million due to new borrowings, partially offset by a decrease in deposits. The decrease in deposit balances was due primarily to a reduction in money market account balances, which decreased $125.3 million during the current quarter as depositors likely moved funds to alternative, higher yielding investment products and/or used balances accumulated over the past several years to support spending. The increase in loan balances and the decrease in deposit balances made it necessary to enter into new FHLB borrowings totaling $520.0 million during the current quarter. The new FHLB borrowings were comprised of $450.0
29

million of new advances with a weighted average maturity of 3.3 years and $70.0 million on the FHLB line of credit. The overall loan growth during the quarter exceeded management's expectations as of September 30, 2022. While it is still management's expectation that we will stay under $10 billion in total assets at September 30, 2023, it is likely that we will exceed that threshold at several quarter-ends this year. We are working to limit the growth in assets and to limit additional use of FHLB advances for operating needs.

Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. The loan portfolio rate increased 14 basis points from September 30, 2022 to December 31, 2022, due primarily to one- to four-family correspondent and commercial loan growth, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates. The average prepayment speed on one- to four-family loans was 5% during the quarter ended December 31, 2022 compared to 7% during the quarter ended September 30, 2022.
December 31, 2022September 30, 2022
AmountRateAmount Rate
(Dollars in thousands)
One- to four-family:
Originated$4,007,596 3.25 %$3,988,469 3.20 %
Correspondent purchased2,353,335 3.25 2,201,886 3.10 
Bulk purchased145,209 1.31 147,939 1.24 
Construction70,869 3.01 66,164 2.90 
Total6,577,009 3.20 6,404,458 3.12 
Commercial:
Commercial real estate833,444 4.34 745,301 4.30 
Commercial and industrial 88,327 5.21 79,981 4.30 
Construction188,516 5.97 141,062 5.34 
Total1,110,287 4.69 966,344 4.45 
Consumer loans:
Home equity95,352 7.55 92,203 6.28 
Other9,022 4.43 8,665 4.21 
Total104,374 7.28 100,868 6.10 
Total loans receivable7,791,670 3.47 7,471,670 3.33 
Less:
ACL19,189 16,371 
Deferred loan fees/discounts30,513 29,736 
Premiums/deferred costs(41,390)(38,645)
Total loans receivable, net$7,783,358 $7,464,208 

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Loan Activity - The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.
For the Three Months Ended
December 31, 2022December 31, 2021
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,471,670 3.33 %$7,096,073 3.21 %
Originated and refinanced364,387 5.13 258,685 3.05 
Purchased and participations335,305 5.30 167,216 2.80 
Change in undisbursed loan funds(121,235)(21,926)
Repayments(252,799)(391,779)
Principal recoveries/(charge-offs), net(2)31 
Other(5,656)(242)
Ending balance$7,791,670 3.47 $7,108,058 3.18 

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The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together.
For the Three Months Ended
December 31, 2022December 31, 2021
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family$167,439 5.10 %23.9 %$278,612 2.70 %65.4 %
One- to four-family construction14,914 5.23 2.1 34,263 2.80 8.1 
Commercial:
Real estate4,903 5.25 0.7 2,843 4.26 0.7 
Commercial and industrial7,895 5.94 1.1 2,670 3.69 0.6 
Construction68,600 4.87 9.8 31,663 3.25 7.4 
Home equity1,381 7.06 0.2 348 5.17 0.1 
Other1,165 6.58 0.2 700 5.78 0.2 
Total fixed-rate 266,297 5.09 38.0 351,099 2.79 82.5 
Adjustable-rate:
One- to four-family136,603 4.62 19.6 6,520 2.54 1.6 
One- to four-family construction7,023 4.48 1.0 5,265 2.73 1.2 
Commercial:
Real estate163,621 5.08 23.4 27,326 3.89 6.4 
Commercial and industrial19,017 7.04 2.7 20,344 3.66 4.8 
Construction91,079 5.99 13.0 1,062 3.85 0.2 
Home equity15,632 7.34 2.2 14,095 4.42 3.3 
Other420 3.62 0.1 190 2.60 — 
Total adjustable-rate433,395 5.28 62.0 74,802 3.73 17.5 
Total originated, refinanced and purchased$699,692 5.21 100.0 %$425,901 2.96 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent purchased - one- to four-family$101,958 5.11 $129,696 2.65 
Participations and purchases - commercial870 6.60 31,663 3.25 
Total fixed-rate purchased/participations102,828 5.12 161,359 2.77 
Adjustable-rate:
Correspondent purchased - one- to four-family97,513 4.62 857 2.18 
Participations and purchases - commercial134,964 5.93 5,000 4.00 
Total adjustable-rate purchased/participations232,477 5.38 5,857 3.73 
Total purchased/participation loans$335,305 5.30 $167,216 2.80 

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average LTV ratio, and average balance per loan as of December 31, 2022. Credit scores are updated at least annually, with the latest update in September 2022, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
% ofCredit Average
AmountTotalRateScoreLTVBalance
(Dollars in thousands)
Originated$4,007,596 61.6 %3.25 %771 60 %$160 
Correspondent purchased2,353,335 36.2 3.25 766 65 416 
Bulk purchased145,209 2.2 1.31 770 57 287 
$6,506,140 100.0 %3.20 769 62 209 
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The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs, and weighted average credit scores for the current year-to-date period. Many of the correspondent loans purchased during the current quarter were from applications received during the prior quarter. The Bank is working towards reducing new correspondent purchases to near zero, but continues to work through the loans currently in the pipeline.
Credit
AmountRateLTVScore
(Dollars in thousands)
Originated$126,508 4.92 %76 %763 
Correspondent purchased199,471 4.87 77 768 
$325,979 4.89 77 766 

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 December 31, 2022, along with associated weighted average rates. 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.
AmountRate
(Dollars in thousands)
Originate/refinance$84,108 5.12 %
Correspondent121,250 5.22 
$205,358 5.18 

Commercial Loans - During the quarter ended December 31, 2022, the Bank originated $219.3 million of commercial loans and entered into commercial loan participations totaling $135.8 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $207.8 million at a weighted average rate of 5.05%.

As of December 31, 2022, September 30, 2022, and December 31, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $113.2 million, $100.4 million and $99.8 million, respectively, and commitments totaled $5.1 million, $458 thousand and $6.4 million respectively.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of December 31, 2022, the Bank had 18 commercial real estate and commercial construction loan commitments totaling $71.5 million, at a weighted average rate of 5.91%. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects. Of the total commercial undisbursed amounts and commitments outstanding as of December 31, 2022, management anticipates approximately $110 million will be funded during the March 2023 quarter, $65 million during the June 2023 quarter, $82 million during the September 2023 quarter, and $74 million during the December 2023 quarter.
December 31, 2022September 30, 2022
UnpaidUndisbursedGross LoanGross Loan
CountPrincipalAmountAmountAmount
(Dollars in thousands)
Senior housing35 $270,614 $56,800 $327,414 $328,259 
Retail building144 231,384 93,671 325,055 230,153 
Hotel11 195,590 21,014 216,604 181,546 
Multi-family38 82,138 128,117 210,255 122,735 
Office building87 82,751 32,093 114,844 109,653 
One- to four-family property390 62,182 10,157 72,339 68,907 
Single use building26 22,981 20,471 43,452 41,908 
Other107 74,320 12,256 86,576 53,054 
838 $1,021,960 $374,579 $1,396,539 $1,136,215 
Weighted average rate4.64 %5.65 %4.91 %4.56 %

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The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.
December 31, 2022September 30, 2022
UnpaidUndisbursedGross LoanGross Loan
CountPrincipalAmountAmountAmount
(Dollars in thousands)
Kansas616 $400,508 $118,911 $519,419 $423,797 
Texas15 224,792 111,720 336,512 280,840 
Missouri177 246,132 89,268 335,400 296,443 
Colorado8 40,179 15,526 55,705 34,377 
Tennessee2 20,577 22,681 43,258 — 
Nebraska7 33,760 4,057 37,817 32,992 
Other13 56,012 12,416 68,428 67,766 
838 $1,021,960 $374,579 $1,396,539 $1,136,215 

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2022.
CountAmount
(Dollars in thousands)
Greater than $30 million8 $362,853 
>$15 to $30 million20 424,689 
>$10 to $15 million9 108,638 
>$5 to $10 million24 170,993 
$1 to $5 million137 327,871 
Less than $1 million1,255 191,370 
1,453 $1,586,414 

Asset Quality

Delinquent and nonaccrual loans and OREO. The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at December 31, 2022, approximately 76% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
December 31, September 30,
20222022
NumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated56$4,708 48$4,134 
Correspondent purchased41,216 71,104 
Bulk purchased3865 3913 
Commercial6191 —— 
Consumer24626 24345 
93$7,606 82$6,496 
Loans 30 to 89 days delinquent
to total loans receivable, net0.10 %0.09 %

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The following table presents the Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO.
Nonaccrual Loans and OREO at:
December 31, September 30,
20222022
NumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated13 $1,034 29 $2,919 
Correspondent purchased14 4,126 12 3,737 
Bulk purchased4 1,492 3 1,148 
Commercial7 1,152 8 1,167 
Consumer11 126 9 154 
49 7,930 61 9,125 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.10 %0.12 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated3 $219 3 $222 
Correspondent purchased— — — — 
Bulk purchased— — — — 
Commercial2 84 1 77 
Consumer— — 1 19 
5 303 5 318 
Total nonaccrual loans54 8,233 66 9,443 
Nonaccrual loans as a percentage of total loans0.11 %0.13 %
OREO:
One- to four-family:
Originated(2)
2 $161 4 $307 
Consumer1 21 1 21 
3 182 5 328 
Total non-performing assets57 $8,415 71 $9,771 
Non-performing assets as a percentage of total assets0.08 %0.10 %

(1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.
(2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.


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The following table presents the states where the properties securing ten percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at December 31, 2022. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At December 31, 2022, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans 30 to 89Loans 90 or More Days Delinquent
One- to Four-FamilyDays Delinquentor in Foreclosure
StateAmount% of TotalAmount% of TotalAmount% of TotalLTV
(Dollars in thousands)
Kansas$3,583,731 55.1 %$3,612 53.2 %$1,356 20.4 %53 %
Missouri1,114,740 17.1 2,312 34.1 794 11.9 56 
Other states1,807,669 27.8 865 12.7 4,502 67.7 48 
$6,506,140 100.0 %$6,789 100.0 %$6,652 100.0 %50 

Classified loans. The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. The increase in commercial special mention loans at December 31, 2022 compared to September 30, 2022 was due mainly to two loans in a single commercial relationship moving to special mention during the quarter as certain underlying economic considerations being monitored by management showed signs of deterioration.
December 31, 2022September 30, 2022
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$16,471 $18,301 $12,950 $19,953 
Commercial28,441 2,413 565 2,733 
Consumer234 318 306 354 
$45,146 $21,032 $13,821 $23,040 

Allowance for Credit Losses. The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The ACL increased during the current quarter due primarily to growth in the commercial loan portfolio and a slowdown in portfolio prepayment speeds, which reduced the projected prepayment speeds used in the model for generally all loan categories. The increase in the commercial real estate ACL to loans receivable ratio during the current quarter was due mainly to the slow down of prepayment speeds used in the model and the classification of two loans as special mention. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of December 31, 2022.
Distribution of ACLRatio of ACL to
Loans Receivable
December 31, September 30, December 31, September 30,
2022202220222022
(Dollars in thousands)
One- to four-family:
Originated$2,097 $2,012 0.05 %0.05 %
Correspondent purchased2,987 2,734 0.13 0.12 
Bulk purchased216 206 0.15 0.14 
Construction62 54 0.09 0.08 
Total 5,362 5,006 0.08 0.08 
Commercial:
Real estate10,799 8,729 1.30 1.17 
Commercial and industrial 491 490 0.56 0.61 
Construction2,294 1,901 1.22 1.35 
Total 13,584 11,120 1.22 1.15 
Consumer243 245 0.23 0.24 
Total $19,189 $16,371 0.25 0.22 
36

The following table presents ACL activity and related ratios at the dates and for the periods indicated. The ratio of NCOs during the current quarter to average non-performing assets was higher than the prior year quarter due to a net charge-off in the current quarter compared to a net recovery in the prior year quarter. The ratio of ACL to nonaccrual loans was higher at the end of the current quarter compared to the end of the prior year quarter due mainly to a lower balance of nonaccrual loans compared to the prior year period, along with higher ACL at December 31, 2022. The ratio of ACL to NCOs was higher in the current quarter compared to the prior year quarter due primarily a net charge-off in the current quarter compared to a net recovery in the prior year quarter, along with an increase in ACL. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
At or For the Three Months Ended
December 31, 2022December 31, 2021
(Dollars in thousands)
Balance at beginning of period$16,371 $19,823 
Charge-offs(4)(15)
Recoveries2 46 
Net recoveries (charge-offs)(2)31 
Provision for credit losses2,820 (2,319)
Balance at end of period$19,189 $17,535 
Ratio of NCOs during the period
to average non-performing assets0.02 %(0.25)%
ACL to nonaccrual loans at end of period233.07 157.08 
ACL to loans receivable, net at end of period0.25 0.25 
ACL to NCOs (annualized)3,032x
N/M(1)

(1)This ratio is not presented due to loan recoveries exceeding loan charge-offs during the period.

The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.
For the Three Months Ended
December 31, 2022December 31, 2021
NCOsAverage Loans% of Average LoansNCOsAverage Loans% of Average Loans
(Dollars in thousands)
One- to four-family:
Originated$(1)$3,984,609 — %$(5)$3,929,658 — %
Correspondent— 2,305,362 — — 2,035,631 — 
Bulk purchased— 147,091 — — 170,537 — 
Construction— 65,181 — — 41,391 — 
Total(1)6,502,243 — (5)6,177,217 — 
Commercial:
Real estate— 780,366 — (36)683,277 (0.01)
Commercial and industrial — 78,310 — 10 64,476 0.02 
Construction— 166,726 — — 93,464 — 
Total— 1,025,402 — (26)841,217 — 
Consumer:
Home equity3 93,905 — — 84,886 — 
Other— 8,855 — — 7,908 — 
Total3 102,760 — — 92,794 — 
$2 $7,630,405 — $(31)$7,111,228 — 
37

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

Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 95% of our securities portfolio at December 31, 2022. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.
December 31, 2022September 30, 2022
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
MBS$1,191,597 1.59%5.0$1,243,270 1.57%4.7
GSE debentures519,979 0.642.6519,977 0.612.9
Corporate bonds4,000 5.129.44,000 5.129.6
Municipal bonds1,032 2.555.11,243 2.636.5
$1,716,608 1.31%4.3$1,768,490 1.29%4.2

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied.
For the Three Months Ended
December 31, 2022December 31, 2021
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,563,307 1.29 %4.2$2,014,608 1.16 %3.5
Maturities and repayments(51,045)(107,665)
Net amortization of (premiums)/discounts(837)(1,764)
Change in valuation on AFS securities17,261 (14,526)
Ending balance - carrying value$1,528,686 1.31 4.3$1,890,653 1.15 3.5
38

Liabilities. Total liabilities were $8.87 billion at December 31, 2022, compared to $8.53 billion at September 30, 2022. The increase was due to new borrowings, partially offset by a decrease in deposits.

Deposits. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. Deposits decreased $120.3 million during the current quarter. The decrease was mainly in the money market portfolio. The balance of the retail certificate of deposit portfolio remained relatively unchanged during the current quarter; however, the mix within the portfolio changed slightly. There was growth in the medium-term category, generally with terms 18 to 35 months, while the short-term and long-term categories decreased. The rate on the deposit portfolio increased 31 basis points during the current quarter due primarily to retail certificates of deposit repricing to higher offered rates as balances renewed, as well as an increase in rates offered on money market accounts.
December 31, 2022September 30, 2022
% of% of
AmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$597,247 — %9.8 %$591,387 — %9.5 %
Interest-bearing checking1,024,806 0.13 16.9 1,027,222 0.07 16.6 
Savings543,514 0.08 9.0 552,743 0.06 8.9 
Money market 1,694,504 0.80 27.9 1,819,761 0.47 29.4 
Retail certificates of deposit2,073,633 1.83 34.1 2,073,542 1.34 33.5 
Commercial certificates of deposit33,134 1.55 0.5 36,275 0.97 0.6 
Public unit certificates of deposit107,711 3.17 1.8 93,936 1.61 1.5 
$6,074,549 0.94 100.0 %$6,194,866 0.63 100.0 %

Borrowings. Total borrowings at December 31, 2022 were $2.65 billion, an increase of $513.0 million from September 30, 2022. The $2.65 billion was comprised of $2.14 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $145.0 million on the FHLB line of credit. Borrowings increased during the current quarter to fund loan growth and offset deposit outflows.

During the current quarter, the Bank utilized the leverage strategy, as discussed in the "Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022" section below. These borrowings were repaid prior to December 31, 2022. If the Bank continues to enter into additional FHLB borrowings during the remainder of fiscal year 2023 to fund operations, the amount of the leverage strategy transaction may continue to decrease compared to the fiscal year 2022 amount due to borrowing and collateral capacity levels.

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.

39

The following table presents the maturity of non-amortizing term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of December 31, 2022. In addition to the borrowings in the table below, there were two straight-line amortizing FHLB advances outstanding at December 31, 2022 including a $45.0 million advance at a rate of 3.50% with quarterly payments of $2.5 million through June 2027 and a $95.1 million advance at a rate of 4.45% with quarterly payments of $4.9 million through October 2027.
Maturity byContractualEffective
Fiscal YearAmountRate
Rate(1)
(Dollars in thousands)
2023$300,000 1.70 %1.81 %
2024490,000 3.56 2.85 
2025600,000 3.05 2.85 
2026475,000 2.45 2.62 
2027350,000 2.72 2.86 
2028150,000 4.52 3.61 
$2,365,000 2.91 2.72 

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

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The 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. The new FHLB borrowings added during the current quarter had a WAM of 3.3 years, which is generally a shorter term than what management has selected in prior periods. The shorter terms were selected with the anticipation that when rates begin to decrease, the borrowings can be repriced more quickly to lower cost alternatives.
For the Three Months Ended
December 31, 2022December 31, 2021
Effective Effective
AmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$2,062,500 2.44 %2.5 $1,590,000 1.88 %3.3 
Maturities and repayments(7,418)4.13 (100,000)3.14 
New FHLB borrowings450,000 4.45 3.3100,000 3.44 6.5
Ending balance $2,505,082 2.80 2.4 $1,590,000 1.90 3.1 
40

Maturities of Interest-Bearing Liabilities. The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing term borrowings for the next four quarters as of December 31, 2022.
March 31,June 30,September 30,December 31,
2023202320232023Total
(Dollars in thousands)
Retail/Commercial Certificates:
Amount$270,624 $208,654 $253,360 $228,152 $960,790 
Repricing Rate1.25 %1.00 %1.47 %2.14 %1.46 %
Public Unit Certificates:
Amount$21,682 $8,734 $18,008 $39,717 $88,141 
Repricing Rate1.37 %2.80 %2.59 %4.27 %3.07 %
Term Borrowings:
Amount$100,000 $100,000 $100,000 $150,000 $450,000 
Repricing Rate1.46 %1.82 %2.14 %3.42 %2.34 %
Total
Amount$392,306 $317,388 $371,368 $417,869 $1,498,931 
Repricing Rate1.31 %1.31 %1.70 %2.81 %1.82 %


The following table sets forth the WAM information for our certificates of deposit, in years, as of December 31, 2022.
Retail certificates of deposit1.6 
Commercial certificates of deposit1.1 
Public unit certificates of deposit0.7 
Total certificates of deposit1.6 
41

Stockholders' Equity. Stockholders' equity at December 31, 2022 was $1.05 billion, a decrease of $41.7 million from September 30, 2022. The decrease was due primarily to the payment of $49.2 million in cash dividends and $22.2 million in share repurchases during the current quarter, partially offset by net income and the decrease in accumulated other comprehensive loss during the quarter.

Cash dividends paid during the current quarter totaled $0.365 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and a regular quarterly cash dividend of $0.085 per share. On January 24, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023.

At December 31, 2022, the Company's ratio of equity to assets was 10.6%. Excluding the impact of unrealized losses on AFS securities, this ratio would have been approximately 130 basis points higher. In the long run, management considers the Bank's Community Bank Leverage Ratio ("CBLR") of at least 9%, which is currently the required percentage under regulatory guidelines, to be an appropriate level of capital. At December 31, 2022, this ratio was 9.2%.

During the current quarter, the Company repurchased 2,729,159 shares of common stock at an average price of $8.13 per share. There remains $22.5 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 2023.

At December 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $51.8 million in cash on deposit at the Bank. For fiscal year 2023, 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.

The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and stock repurchases. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. Given the state of economic uncertainty in 2020, the Company elected to defer the True Blue dividend originally planned for June 2020. In June 2021, the Company paid a True Blue Capitol cash dividend of $0.40 per share. This cash dividend represented a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend from fiscal year 2021. In June 2022, the Company paid a True Blue Capitol cash dividend of $0.20 per share. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue Capitol dividend.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2023, 2022, and 2021. The amounts represent cash dividends paid during each period. For the quarter ending March 31, 2023, the amount presented represents the dividend payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023.
Calendar Year
202320222021
AmountPer ShareAmountPer ShareAmountPer Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31$11,320 $0.085 $11,535 $0.085 $11,518 $0.085 
Quarter ended June 30— — 11,534 0.085 11,516 0.085 
Quarter ended September 30— — 11,534 0.085 11,518 0.085 
Quarter ended December 31— — 11,508 0.085 11,535 0.085 
True-up dividends paid— — 37,701 0.280 29,850 0.220 
True Blue Capitol dividends paid— — 27,143 0.200 54,210 0.400 
Calendar year-to-date dividends paid$11,320 $0.085 $110,955 $0.820 $130,147 $0.960 


42

Operating Results
The following table presents selected income statement and other information for the quarters indicated.
For the Three Months Ended
December 31, September 30, June 30, March 31, December 31,
20222022202220222021
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable$64,819 $60,445 $56,886 $55,412 $55,788 
Cash and cash equivalents16,671 13,373 3,968 949 14 
MBS4,811 4,912 5,048 4,821 4,625 
FHLB stock4,158 3,865 2,695 2,240 1,231 
Investment securities881 845 815 800 808 
Total interest and dividend income91,340 83,440 69,412 64,222 62,466 
Interest expense:
Borrowings33,608 24,529 11,644 8,732 7,585 
Deposits11,904 9,013 7,787 8,389 9,267 
Total interest expense45,512 33,542 19,431 17,121 16,852 
Net interest income45,828 49,898 49,981 47,101 45,614 
Provision for credit losses3,660 1,060 937 (3,188)(3,439)
Net interest income
(after provision for credit losses)42,168 48,838 49,044 50,289 49,053 
Non-interest income5,352 5,793 6,115 5,416 5,506 
Non-interest expense27,773 29,807 28,390 27,960 26,694 
Income tax expense 3,507 5,332 5,617 6,122 5,679 
Net income$16,240 $19,492 $21,152 $21,623 $22,186 
Efficiency ratio54.27 %53.52 %50.61 %53.24 %52.22 %
Basic EPS$0.12 $0.14 $0.16 $0.16 $0.16 
Diluted EPS0.12 0.14 0.16 0.16 0.16 

Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
43

For the Three Months Ended
December 31, 2022September 30, 2022December 31, 2021
AverageInterest AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$4,049,790 $33,364 3.29 %$4,021,121 $32,809 3.26 %$3,971,049 $32,422 3.27 %
Correspondent purchased2,305,362 17,261 2.99 2,166,869 15,394 2.84 2,035,631 12,746 2.50 
Bulk purchased147,091 434 1.18 150,253 475 1.26 170,537 610 1.43 
Total one- to four-family loans6,502,243 51,059 3.14 6,338,243 48,678 3.07 6,177,217 45,778 2.96 
Commercial loans1,025,402 11,993 4.58 935,374 10,326 4.32 841,217 8,943 4.16 
Consumer loans102,760 1,767 6.82 98,189 1,441 5.82 92,794 1,067 4.56 
Total loans receivable(1)
7,630,405 64,819 3.38 7,371,806 60,445 3.27 7,111,228 55,788 3.13 
MBS(2)
1,221,035 4,811 1.58 1,279,143 4,912 1.54 1,435,562 4,625 1.29 
Investment securities(2)(3)
525,081 881 0.67 524,546 845 0.64 523,931 808 0.62 
FHLB stock(4)
197,577 4,158 8.35 198,431 3,865 7.73 73,481 1,231 6.64 
Cash and cash equivalents(5)
1,801,493 16,671 3.62 2,322,891 13,373 2.25 37,221 14 0.15 
Total interest-earning assets11,375,591 91,340 3.19 11,696,817 83,440 2.83 9,181,423 62,466 2.71 
Other non-interest-earning assets248,022 288,496 412,115 
Total assets$11,623,613 $11,985,313 $9,593,538 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,007,569 289 0.11 $1,035,600 217 0.08 $1,052,413 179 0.07 
Savings545,885 100 0.07 556,836 84 0.06 520,770 70 0.05 
Money market1,759,804 3,035 0.68 1,856,424 1,925 0.41 1,767,134 825 0.19 
Retail certificates2,064,929 7,767 1.49 2,105,237 6,434 1.21 2,298,678 7,835 1.35 
Commercial certificates34,298 104 1.20 45,901 82 0.71 169,200 272 0.64 
Wholesale certificates97,828 609 2.47 93,232 271 1.15 199,692 86 0.17 
Total deposits5,510,313 11,904 0.86 5,693,230 9,013 0.63 6,007,887 9,267 0.61 
Borrowings(6)
4,260,685 33,608 3.10 4,386,450 24,529 2.20 1,589,258 7,585 1.88 
Total interest-bearing liabilities9,770,998 45,512 1.84 10,079,680 33,542 1.31 7,597,145 16,852 0.88 
Non-interest-bearing deposits576,519 580,687 550,492 
Other non-interest-bearing liabilities191,474 184,137 209,890 
Stockholders' equity1,084,622 1,140,809 1,236,011 
Total liabilities and stockholders' equity$11,623,613 $11,985,313 $9,593,538 
Net interest income(7)
$45,828 $49,898 $45,614 
Net interest-earning assets$1,604,593 $1,617,137 $1,584,278 
Net interest margin(8)(9)
1.61 1.71 1.99 
Ratio of interest-earning assets to interest-bearing liabilities1.16x1.16x1.21x
Selected performance ratios:
Return on average assets (annualized)(9)
0.56 %0.65 %0.93 %
Return on average equity (annualized)(9)
5.99 6.83 7.18 
Average equity to average assets9.33 9.52 12.88 
Operating expense ratio (annualized)(10)
0.96 0.99 1.11 
Efficiency ratio(9)(11)
54.27 53.52 52.22 
Pre-tax yield on leverage strategy(12)
0.20 0.28 — 
44

(1)Balances are adjusted for unearned loan fees and deferred costs.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $1.1 million, $569 thousand, and $4.0 million for the three months ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively.
(4)Included in this line, for the three months ended December 31, 2022 and September 30, 2022 respectively, is FHLB stock related to the leverage strategy with an average outstanding balance $84.3 million and $108.8 million, and dividend income of $1.8 million and $2.1 million at a weighted average yield of 8.49% and 7.75% and FHLB stock not related to the leverage strategy with an average outstanding balance of $113.3 million and $89.6 million and dividend income of $2.4 million and $1.7 million at a weighted average yield of 8.24% and 7.70%. There was no FHLB stock related to the leverage strategy during the three months ended December 31, 2021.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.79 billion and $2.31 billion during the three months ended December 31, 2022 and September 30, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the three months ended December 31, 2021.
(6)Included in this line, for the three months ended December 31, 2022 and September 30, 2022 respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.87 billion and $2.42 billion, with interest paid of $17.3 million and $13.5 million, at a weighted average rate of 3.61% and 2.19%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.39 billion and $1.97 billion and interest paid of $16.3 million and $11.0 million, at a weighted average rate of 2.70% and 2.20%. There were no FHLB borrowings related to the leverage strategy during the three months ended December 31, 2021. The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.
(7)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(8)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Three Months Ended
December 31, 2022September 30, 2022December 31, 2021
ActualLeverageAdjustedActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets3.19 %0.13 %3.06 %2.83 %(0.09)%2.92 %2.71 %— %2.71 %
Cost of interest-bearing liabilities1.84 0.42 1.42 1.31 0.28 1.03 0.88 — 0.88 
Return on average assets (annualized)0.56 (0.07)0.63 0.65 (0.11)0.76 0.93 — 0.93 
Return on average equity (annualized)5.99 0.28 5.71 6.83 0.46 6.37 7.18 — 7.18 
Net interest margin1.61 (0.27)1.88 1.71 (0.36)2.07 1.99 — 1.99 
Efficiency Ratio54.27 (0.87)55.14 53.52 (1.53)55.05 52.22 — 52.22 
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

45

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended
December 31, 2022 vs. September 30, 2022December 31, 2022 vs. December 31, 2021
Increase (Decrease) Due toIncrease (Decrease) Due to
VolumeRateTotal
Volume(1)
RateTotal
(Dollars in thousands)
Interest-earning assets:
Loans receivable$2,375 $1,999 $4,374 $4,690 $4,341 $9,031 
MBS(226)125 (101)(753)939 186 
Investment securities1 35 36 2 71 73 
FHLB stock(17)310 293 2,541 386 2,927 
Cash and cash equivalents (3,494)6,792 3,298 11,173 5,484 16,657 
Total interest-earning assets(1,361)9,261 7,900 17,653 11,221 28,874 
Interest-bearing liabilities:
Checking (6)78 72 (8)118 110 
Savings(1)17 16 4 26 30 
Money market(105)1,214 1,109 (3)2,212 2,209 
Certificates of deposit(145)1,839 1,694 (1,596)1,884 288 
Borrowings(978)10,057 9,079 21,628 4,395 26,023 
Total interest-bearing liabilities(1,235)13,205 11,970 20,025 8,635 28,660 
Net change in net interest income$(126)$(3,944)$(4,070)$(2,372)$2,586 $214 

(1)The increases attributable to changes in volume related to FHLB stock, cash and cash equivalents, and borrowings were due primarily to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter.

46

Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022

For the quarter ended December 31, 2022, the Company recognized net income of $16.2 million, or $0.12 per share, compared to net income of $19.5 million, or $0.14 per share, for the quarter ended September 30, 2022. The decrease in net income was due primarily to lower net interest income in the current quarter. The net interest margin decreased 10 basis points, from 1.71% for the prior quarter to 1.61% for the current quarter. Excluding the effects of the leverage strategy discussed below, the net interest margin decreased 19 basis points, from 2.07% for the prior quarter to 1.88% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates. As discussed in the "Executive Summary" above, management anticipates net interest margin compression may continue in the near term.

At times, the Bank has utilized a leverage strategy to increase earnings. During the current quarter, the average outstanding balance of leverage strategy borrowings was $1.87 billion. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded 8.50% during the current quarter, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Net income attributable to the leverage strategy was $763 thousand during the current quarter, compared to $1.3 million for the prior quarter. The decrease was due to a reduction in the size of the leverage strategy transaction because the borrowing capacity was needed for operational liquidity purposes. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will continue to be utilized as long as it remains profitable and/or the borrowing capacity does not need to be used for other purposes.

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. The weighted average yield on loans receivable increased 11 basis points and the weighted average yield on MBS increased four basis points compared to the prior quarter.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$64,819 $60,445 $4,374 7.2 %
Cash and cash equivalents16,671 13,373 3,298 24.7 
MBS4,811 4,912 (101)(2.1)
FHLB stock4,158 3,865 293 7.6 
Investment securities881 845 36 4.3 
Total interest and dividend income$91,340 $83,440 $7,900 9.5 

The increase in interest income on loans receivable was due to growth in the loan portfolio, along with an increase in the weighted average yield. The loan growth was mainly in the correspondent one-to four-family and commercial loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents was due to an increase in the yield earned on balances held at the FRB of Kansas City, the majority of which were related to the leverage strategy. The increase in dividend income on FHLB stock was due to an increase in the dividend rate paid by FHLB.

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Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. The weighted average rate paid on deposits increased 23 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 50 basis points compared to the prior quarter.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$33,608 $24,529 $9,079 37.0 %
Deposits11,904 9,013 2,891 32.1 
Total interest expense$45,512 $33,542 $11,970 35.7 

The increase in interest expense on borrowings was due primarily to new borrowings added during the current quarter and near the end of the prior quarter, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs. See additional discussion in the "Financial Condition" section above. Additionally, interest expense on borrowings increased due to an increase in the rate paid on the short-term borrowings associated with the leverage strategy, due to higher market interest rates. The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid on certificates of deposit and money market accounts, partially offset by a decrease in the average balance of those deposit types.

Provision for Credit Losses
For the quarter ended December 31, 2022, the Bank recorded a provision for credit losses of $3.7 million, compared to a provision for credit losses of $1.1 million for the prior quarter. The provision for credit losses in the current quarter was comprised of a $2.8 million increase in the ACL for loans and an $840 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses associated with both the ACL and reserves for off-balance sheet credit exposures was primarily a result of growth in the commercial loan portfolio and the balance of commercial construction off-balance sheet credit exposures, along with a slowdown in portfolio prepayment speeds, which reduced the projected prepayment speeds used in the model for generally all loan categories.

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
December 31, September 30, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,461 $3,467 $(6)(0.2)%
Insurance commissions795 905 (110)(12.2)
Other non-interest income1,096 1,421 (325)(22.9)
Total non-interest income$5,352 $5,793 $(441)(7.6)

The decrease in other non-interest income was due mainly to the prior quarter including higher gains on a loan-related financial derivative agreement, which are generally driven by changes in market interest rates.

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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
December 31, September 30, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,698 $14,268 $(570)(4.0)%
Information technology and related expense5,070 5,043 27 0.5 
Occupancy, net3,474 3,777 (303)(8.0)
Regulatory and outside services1,533 1,980 (447)(22.6)
Advertising and promotional833 1,552 (719)(46.3)
Federal insurance premium812 820 (8)(1.0)
Office supplies and related expense633 487 146 30.0 
Deposit and loan transaction costs611 747 (136)(18.2)
Other non-interest expense1,109 1,133 (24)(2.1)
Total non-interest expense$27,773 $29,807 $(2,034)(6.8)

The decrease in salaries and employee benefits was due mainly to a decrease in loan commissions, as well as one fewer working day in the current quarter compared to the prior quarter. The decrease in occupancy, net was due mainly to lower utility expenses and building maintenance expenses. The decrease in regulatory and outside services was due primarily to lower consulting expenses related to the Bank's ongoing digital transformation project as those third-party services are now directly related to the project and are included in information technology and related expenses. The decrease in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete. The decrease in deposit and loan transaction costs was mainly due to loan-related activities.

The Company's efficiency ratio was 54.27% for the current quarter compared to 53.52% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income, partially offset by lower non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
Income before income tax expense$19,747 $24,824 $(5,077)(20.5)%
Income tax expense3,507 5,332 (1,825)(34.2)
Net income$16,240 $19,492 $(3,252)(16.7)
Effective Tax Rate17.8 %21.5 %

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

49

Comparison of Operating Results for the Three Months Ended December 31, 2022 and 2021

The Company recognized net income of $16.2 million, or $0.12 per share, for the current quarter compared to net income of $22.2 million, or $0.16 per share, for the prior year quarter. The decrease in net income was due primarily to recording a provision for credit losses of $3.7 million for the current quarter compared to a $3.4 million release of provision for the prior year quarter, partially offset by lower income tax expense. The net interest margin decreased 38 basis points, from 1.99% for the prior year quarter to 1.61% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin decreased 11 basis points, from 1.99% for the prior year quarter to 1.88% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates and a shift in the mix of interest-earning assets towards higher-yielding loans.

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$64,819 $55,788 $9,031 16.2 %
Cash and cash equivalents16,671 14 16,657 N/M
MBS4,811 4,625 186 4.0 
FHLB stock4,158 1,231 2,927 237.8 
Investment securities881 808 73 9.0 
Total interest and dividend income$91,340 $62,466 $28,874 46.2 

The increase in interest income on loans receivable was due to an increase in the average balance and weighted average yield of the loan portfolio. The increase in the average balance was mainly in the correspondent one-to four-family and commercial loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents and the increase in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. Additionally, market interest rates increased between periods resulting in an increase in the yield on cash due to an increase in FRB interest rates, and FHLB increased the dividend rate paid compared to the prior year quarter.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$33,608 $7,585 $26,023 343.1 %
Deposits11,904 9,267 2,637 28.5 
Total interest expense$45,512 $16,852 $28,660 170.1 

The increase in interest expense on borrowings was due primarily to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. Interest expense on borrowings associated with the leverage strategy totaled $17.3 million during the current quarter. Interest expense on FHLB borrowings not associated with the leverage strategy also increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs. See additional discussion in the "Financial Condition" section above. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily money market accounts and certificates of deposit, partially offset by a decrease in the average balance of certificates of deposit.
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Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $3.7 million, compared to a $3.4 million release of provision during the prior year quarter. See "Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022" above for additional information regarding the provision for credit losses for the current quarter.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,461 $3,430 $31 0.9 %
Insurance commissions795 711 84 11.8 
Other non-interest income1,096 1,365 (269)(19.7)
Total non-interest income$5,352 $5,506 $(154)(2.8)

The decrease in other non-interest income was due mainly to the prior year quarter including higher gains on a loan-related financial derivative agreement, along with a decrease in income from bank-owned life insurance.
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
December 31, Change Expressed in:
 20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,698 $13,728 $(30)(0.2)%
Information technology and related expense5,070 4,432 638 14.4 
Occupancy, net3,474 3,379 95 2.8 
Regulatory and outside services1,533 1,368 165 12.1 
Advertising and promotional833 1,064 (231)(21.7)
Federal insurance premium812 639 173 27.1 
Office supplies and related expense633 468 165 35.3 
Deposit and loan transaction costs611 697 (86)(12.3)
Other non-interest expense1,109 919 190 20.7 
Total non-interest expense$27,773 $26,694 $1,079 4.0 

The increase in information technology and related expenses was due mainly to higher software licensing expenses, as well as third-party project management expenses associated with the Bank's ongoing digital transformation project. The increase in regulatory and outside services was due primarily to an increase in outside consulting services. The decrease in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships. The increase in federal insurance premium expense was due to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete. The increase in other non-interest expense was due mainly to expenses associated with the collateral received on the Bank's interest rate swap agreements and higher deposit-related fraud losses in the current quarter.

The Company's efficiency ratio was 54.27% for the current quarter compared to 52.22% for the prior year quarter. The change in the efficiency ratio was due primarily to higher non-interest expense in the current quarter.

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Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and effective tax rate.
For the Three Months Ended
December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
Income before income tax expense$19,747 $27,865 $(8,118)(29.1)%
Income tax expense3,507 5,679 (2,172)(38.2)
Net income$16,240 $22,186 $(5,946)(26.8)
Effective Tax Rate17.8 %20.4 %

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

Fiscal Year 2023 Projections
As discussed in the "Executive Summary" section above, the rapid increase in short-term rates led by the FRB and the impact of higher long-term rates has resulted in a decrease in our net interest margin. Net interest margin compression is anticipated to continue, and may compress more in the near term, due to the shape of the yield curve and the pace at which liabilities are repricing compared to assets and the replacement of lower cost deposits with higher costing borrowings which are being used to fund loan growth.

Management anticipates information technology and related expenses will be approximately $5.5 million higher in fiscal year 2023 compared to fiscal year 2022 due to the digital transformation. In addition, it is expected there will be approximately $1 million more of information technology and related expenses in fiscal year 2023 related to projects outside of the digital transformation and due to general cost increases. Overall, it is anticipated that information technology and related expenses will be approximately $6.5 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24.5 million for the year. In fiscal year 2024, information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due to a reduction in professional service costs. Salaries and employee benefits are expected to be approximately $3.5 million higher in fiscal year 2023 due primarily to merit increases and salary adjustments. Federal insurance premium expense is anticipated to be approximately $2 million higher in fiscal year 2023, due to the increase in the assessment rate beginning in January 2023.

Management anticipates the effective tax rate for fiscal year 2023 will be approximately 19%. This is lower than the original projection of 20% to 21% previously provided, due mainly to lower projected pretax income as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.
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Liquidity and Capital Resources

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

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

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management. The Bank's FHLB borrowing limit was 50% of Bank Call Report total assets as of December 31, 2022, as approved by the president of FHLB. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs. Additionally, FHLB borrowings may exceed 40% of Bank Call Report total assets as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the short-term FHLB borrowings in conjunction with the leverage strategy can be repaid at maturity, if necessary or desired. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.

If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At December 31, 2022, the Bank had total borrowings, at par, of $2.65 billion, or approximately 27% of total assets, all of which were FHLB borrowings. Of this amount, $479.7 million were advances scheduled to mature in the next 12 months. FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. Additionally, the Bank had pledged securities with an estimated fair value of $572.1 million as collateral for FHLB borrowings at December 31, 2022.

At December 31, 2022, the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At December 31, 2022, the Bank had $817.3 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs. 

The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of December 31, 2022, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At December 31, 2022, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 2% of total deposits. The Bank had pledged securities with an estimated fair value of $137.6 million as collateral for public unit certificates of deposit at December 31, 2022. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At December 31, 2022, $1.05 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $88.1 million of public unit certificates of deposit and $22.1 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard.  Due
53

to the nature of public unit certificates of deposit and commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit.

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

Limitations on Dividends and Other Capital Distributions

Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings (to the extent not previously distributed). A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.

The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company.  So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a CBLR greater than the required percentage, which is currently 9.0%), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Regulatory Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio of 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework. As of December 31, 2022, the Bank's CBLR was 9.2% and the Company's CBLR was 10.0%, which exceeded the minimum requirements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk
For a complete discussion of the Bank's asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Bank's portfolios, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.

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

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

Qualitative Disclosure about Market Risk

Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests in a rising rate environment, that earnings should increase. A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, that earnings should decrease. For
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additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
More ThanMore Than
WithinOne Year toThree YearsOver
One Year Three Years to Five Years Five Years Total
Interest-earning assets:(Dollars in thousands)
Loans receivable(1)
$1,395,247 $1,705,470 $1,356,247 $3,337,582 $7,794,546 
Securities(2)
323,237 662,372 349,777 381,222 1,716,608 
Other interest-earning assets15,977 — — — 15,977 
Total interest-earning assets1,734,461 2,367,842 1,706,024 3,718,804 9,527,131 
Interest-bearing liabilities:
Non-maturity deposits(3)
1,078,030 415,046 371,135 2,047,663 3,911,874 
Certificates of deposit1,048,931 748,562 416,761 224 2,214,478 
Borrowings(4)
626,166 1,202,478 729,407 127,798 2,685,849 
Total interest-bearing liabilities2,753,127 2,366,086 1,517,303 2,175,685 8,812,201 
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities$(1,018,666)$1,756 $188,721 $1,543,119 $714,930 
Cumulative excess (deficiency) of interest-earning assets over
interest-bearing liabilities$(1,018,666)$(1,016,910)$(828,189)$714,930 
Cumulative excess (deficiency) of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
December 31, 2022(10.3)%(10.2)%(8.3)%7.2 %
September 30, 2022(11.9)
Cumulative one-year gap - interest rates +200 bps at:
December 31, 2022(10.6)
September 30, 2022(12.1)

(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of December 31, 2022, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.85 billion, for a cumulative one-year gap of (38.8)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $365.0 million of FHLB adjustable-rate advances tied to interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.

At December 31, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.02) billion, or (10.3)% of total assets, compared to $(1.14) billion, or (11.9)% of total assets, at September 30, 2022. The change in the one-year gap amount was due primarily to a decrease in the amount of liability cash flows coming due in one year at December 31, 2022 compared to September 30, 2022. This was due primarily to a decrease in the amount of non-maturity deposits and certificates of deposit projected to mature within one year as of December 31, 2022 compared to September 30, 2022, partially offset by an increase in borrowings projected to reprice within one year as of December 31, 2022.

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 December 31, 2022, the Bank's one-year gap is projected to be $(1.05) billion, or (10.6)% of total assets. The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily as a result of lower prepayments on mortgage-related assets in the
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higher rate environment. This compares to a one-year gap of $(1.17) billion, or (12.1)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2022.

Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
ChangeNet Interest Income At
(in Basis Points)December 31, 2022September 30, 2022
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
 -200 bp$160,196 $134 0.08 %$182,458 $(775)(0.42)%
 -100 bp160,592 530 0.33 183,363 130 0.07 
  000 bp160,062 — — 183,233 — — 
+100 bp158,931 (1,131)(0.71)182,737 (496)(0.27)
+200 bp157,539 (2,523)(1.58)182,081 (1,152)(0.63)
+300 bp156,129 (3,933)(2.46)181,394 (1,839)(1.00)

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

The net interest income projection was lower in the base case scenario at December 31, 2022 compared to September 30, 2022 due to higher interest expense projections on the Bank's liabilities compared to the increase in the interest income projections on the Bank's assets. This was primarily driven by a faster increase in the cost of liabilities during the quarter ended December 31, 2022 compared to the prior quarter, which was caused by a decrease in the balance of the Bank's lower-costing retail deposits being replaced with higher-costing FHLB borrowings. In addition, higher short-term interest rates over the past year have resulted in a steady increase in the rate paid on the Bank's deposit portfolio during the quarter. This was partially offset by higher projected income on loans receivable due to a higher balance and yield on the portfolio compared to the prior quarter.

In the rising interest rate scenarios, the cost of liabilities is projected to continue to increase at a faster pace than asset yields, resulting in a projected decrease in net interest income in these interest rate scenarios. In the decreasing interest rate scenarios at December 31, 2022, the net interest income projection remained relatively flat as the projected increase in mortgage-related assets repricing to lower interest rates was largely offset by liability cash flows repricing to lower interest rates as well.

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Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
ChangeMarket Value of Portfolio Equity At
(in Basis Points)December 31, 2022September 30, 2022
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
 -200 bp$1,436,543 $434,151 43.31 %$1,299,340 $404,353 45.18 %
 -100 bp1,145,824 143,432 14.31 1,024,167 129,180 14.43 
  000 bp1,002,392 — — 894,987 — — 
+100 bp856,127 (146,265)(14.59)759,165 (135,822)(15.18)
+200 bp713,190 (289,202)(28.85)625,864 (269,123)(30.07)
+300 bp578,563 (423,829)(42.28)500,730 (394,257)(44.05)

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

The percentage change in the Bank's MVPE at December 31, 2022 and September 30, 2022 was negative in all rising interest rate scenarios. The negative impact to the Bank's MVPE, as a percentage change, was slightly lower at December 31, 2022 compared to September 30, 2022 due primarily to higher MVPE at December 31, 2022. The increase in the MVPE was due to lower mortgage rates at December 31, 2022 which resulted in an increase in the market value on the Bank's mortgage-related assets. In addition, the increase in short-term interest rates resulted in a decrease in the market value of the Bank's deposits compared to the prior quarter.

The MVPE ratio continues to be negatively impacted in the rising interest rate scenarios at December 31, 2022. As interest rates increase, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising interest rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The longer expected average lives of these assets increases the sensitivity of their market value to changes in interest rates.

In the decreasing interest rate scenarios at December 31, 2022, the Bank's MVPE increased due to a larger increase in the market value of the Bank's assets than the Bank's liabilities. This is because the Bank's mortgage-related assets continue to have a longer duration in these interest rate scenarios which results in greater sensitivity in market value as interest rates change.
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The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of December 31, 2022. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.
AmountYield/RateWAL% of Category% of Total
(Dollars in thousands)
Securities$1,528,686 1.31 %4.1 16.1 %
Loans receivable:
Fixed-rate one- to four-family5,727,412 3.20 6.7 73.5 %60.3 
Fixed-rate commercial439,609 4.13 3.6 5.6 4.6 
All other fixed-rate loans84,537 3.68 7.3 1.1 0.9 
Total fixed-rate loans6,251,558 3.27 6.5 80.2 65.8 
Adjustable-rate one- to four-family778,728 3.11 4.1 10.0 8.2 
Adjustable-rate commercial670,678 5.11 8.1 8.6 7.1 
All other adjustable-rate loans90,706 7.29 3.0 1.2 1.0 
Total adjustable-rate loans1,540,112 4.23 5.8 19.8 16.3 
Total loans receivable7,791,670 3.46 6.4 100.0 %82.1 
FHLB stock124,119 8.47 2.6 1.3 
Cash and cash equivalents49,686 1.79 — 0.5 
Total interest-earning assets$9,494,161 3.17 5.9 100.0 %
Non-maturity deposits$3,262,824 0.47 5.9 59.6 %40.2 %
Retail certificates of deposit2,073,633 1.83 1.6 37.8 25.5 
Commercial certificates of deposit33,134 1.55 1.1 0.6 0.4 
Public unit certificates of deposit107,711 3.17 0.7 2.0 1.3 
Total interest-bearing deposits5,477,302 1.04 4.2 100.0 %67.4 
Term borrowings2,505,082 2.80 2.4 94.5 %30.8 
Line of credit borrowings145,000 4.48 — 5.5 1.8 
Total borrowings2,650,082 2.89 2.3 100.0 %32.6 
Total interest-bearing liabilities$8,127,384 1.65 3.6 100.0 %

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of December 31, 2022. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2022, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

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

Item 1A. Risk Factors
There have been no changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
See "Liquidity and Capital Resources - Limitations on Dividends and Other Capital Distributions" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding OCC restrictions on dividends from the Bank to the Company.

The following table summarizes our stock repurchase activity during the three months ended December 31, 2022 and additional information regarding our stock repurchase program. As of December 31, 2022, the Company had $22.5 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares is through August 2023. Shares may be repurchased from time to time in the open-market or in privately negotiated transactions based upon market conditions and available liquidity.
Total Number ofApproximate Dollar
TotalShares Purchased asValue of Shares
Number of Average Part of Publiclythat May Yet Be
Shares Price PaidAnnounced PlansPurchased Under the
Purchasedper Shareor ProgramsPlans or Programs
October 1, 2022 through
October 31, 2022238,800 $8.05 238,800 $42,743,537 
November 1, 2022 through
November 30, 20221,528,463 8.13 1,528,463 30,322,055 
December 1, 2022 through
December 31, 2022961,896 8.16 961,896 22,469,207 
Total2,729,159 8.13 2,729,159 22,469,207 

Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

Item 6. Exhibits
See Index to Exhibits.
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INDEX TO EXHIBITS
Exhibit
Number		Document
Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference
Bylaws of Capitol Federal Financial, Inc., as amended, filed on March 30, 2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference
Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference
Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Description of Director Fee Arrangements filed on November 23, 2022 as Exhibit 10.6 to the Registrant's September 30, 2022 Form 10-K and incorporated herein by reference
Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
61

101
The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022, filed with the Securities and Exchange Commission on February 8, 2023, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at December 31, 2022 and September 30, 2022, (ii) Consolidated Statements of Income for the three months ended December 31, 2022 and 2021, (iii) Consolidated Statements of Comprehensive Income for the three months ended December 31, 2022 and 2021, (iv) Consolidated Statements of Stockholders' Equity for the three months ended December 31, 2022 and 2021, (v) Consolidated Statements of Cash Flows for the three months ended December 31, 2022 and 2021, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CAPITOL FEDERAL FINANCIAL, INC.
Date: February 8, 2023By:/s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: February 8, 2023By:/s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

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