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Equibles

10-Q

Capitol Federal Financial, Inc. (CFFN)

10-Q 2023-05-10 For: 2023-03-31
View Original
Added on April 08, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________

Form 10-Q

________________________

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ to __

Commission File Number: 001-34814

Capitol Federal Financial, Inc.

(Exact name of registrant as specified in its charter)

Maryland 27-2631712
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
700 South Kansas Avenue, Topeka, Kansas 66603
(Address of principal executive offices) (Zip Code)

(785) 235-1341

(Registrant's telephone number, including area code)

_____________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, par value $0.01 per share CFFN The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 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 May 4, 2023, there were 136,158,569 shares of Capitol Federal Financial, Inc. common stock outstanding.

Item 1. Financial Statements

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
March 31, September 30,
2023 2022
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $21,830 and $27,467) $ 60,207 $ 49,194
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $1,671,538 and $1,768,490) 1,505,808 1,563,307
Loans receivable, net (allowance for credit losses ("ACL") of $19,889 and $16,371) 7,958,567 7,464,208
Federal Home Loan Bank Topeka ("FHLB") stock, at cost 128,096 100,624
Premises and equipment, net 92,415 94,820
Income taxes receivable, net 3,890 1,266
Deferred income tax assets, net 24,383 33,884
Other assets 312,404 317,594
TOTAL ASSETS $ 10,085,770 $ 9,624,897
LIABILITIES:
Deposits $ 6,144,435 $ 6,194,866
Borrowings 2,696,604 2,132,154
Advances by borrowers 60,195 80,067
Other liabilities 112,502 121,311
Total liabilities 9,013,736 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, 136,144,725 and 138,858,884 shares issued and outstanding as of March 31, 2023 and September 30, 2022, respectively 1,361 1,388
Additional paid-in capital 1,168,059 1,190,213
Unearned compensation, Employee Stock Ownership Plan ("ESOP") (28,910) (29,735)
Retained earnings 50,167 80,266
Accumulated other comprehensive (loss) income ("AOCI"), net of tax (118,643) (145,633)
Total stockholders' equity 1,072,034 1,096,499
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,085,770 $ 9,624,897
See accompanying notes to consolidated financial statements.
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
--- --- --- --- --- --- --- --- ---
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months Ended For the Six Months Ended
March 31, March 31,
2023 2022 2023 2022
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 69,319 $ 55,412 $ 134,138 $ 111,200
Cash and cash equivalents 10,977 949 27,648 963
Mortgage-backed securities ("MBS") 4,748 4,821 9,559 9,446
FHLB stock 3,607 2,240 7,765 3,471
Investment securities 895 800 1,776 1,608
Total interest and dividend income 89,546 64,222 180,886 126,688
INTEREST EXPENSE:
Borrowings 31,447 8,732 65,055 16,317
Deposits 16,140 8,389 28,044 17,656
Total interest expense 47,587 17,121 93,099 33,973
NET INTEREST INCOME 41,959 47,101 87,787 92,715
PROVISION FOR CREDIT LOSSES 891 (3,188) 4,551 (6,627)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 41,068 50,289 83,236 99,342
NON-INTEREST INCOME:
Deposit service fees 3,122 3,300 6,583 6,730
Insurance commissions 877 543 1,672 1,254
Other non-interest income 1,084 1,573 2,180 2,938
Total non-interest income 5,083 5,416 10,435 10,922
NON-INTEREST EXPENSE:
Salaries and employee benefits 12,789 14,023 26,487 27,751
Information technology and related expense 5,789 4,493 10,859 8,925
Occupancy, net 3,568 3,493 7,042 6,872
Regulatory and outside services 1,305 1,272 2,838 2,640
Advertising and promotional 1,333 1,494 2,166 2,558
Federal insurance premium 1,246 777 2,058 1,416
Deposit and loan transaction costs 690 689 1,301 1,386
Office supplies and related expense 631 502 1,264 970
Other non-interest expense 1,280 1,217 2,389 2,136
Total non-interest expense 28,631 27,960 56,404 54,654
INCOME BEFORE INCOME TAX EXPENSE 17,520 27,745 37,267 55,610
INCOME TAX EXPENSE 3,331 6,122 6,838 11,801
NET INCOME $ 14,189 $ 21,623 $ 30,429 $ 43,809
Basic earnings per share ("EPS") $ 0.11 $ 0.16 $ 0.23 $ 0.32
Diluted EPS $ 0.11 $ 0.16 $ 0.23 $ 0.32
Basic weighted average common shares 133,150,224 135,676,722 133,903,769 135,651,609
Diluted weighted average common shares 133,150,224 135,676,722 133,903,769 135,651,609
See accompanying notes to consolidated financial statements.
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
--- --- --- --- --- --- --- --- ---
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months Ended For the Six Months Ended
March 31, March 31,
2023 2022 2023 2022
Net income $ 14,189 $ 21,623 $ 30,429 $ 43,809
Other comprehensive income (loss), net of tax:
Changes in unrealized gains/losses on AFS securities, net of taxes of $(5,415), $21,123, $(9,626), and $24,667 16,777 (65,445) 29,827 (76,427)
Changes in unrealized gains/losses on cash flow hedges, net of taxes of $910, $(4,153), $915, and $(5,430) (2,818) 12,864 (2,837) 16,825
Comprehensive income $ 28,148 $ (30,958) $ 57,419 $ (15,793)
See accompanying notes to consolidated financial statements.
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
--- --- --- --- --- --- --- --- --- --- --- ---
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
Additional Unearned Total
Paid-In Compensation Retained Stockholders'
Capital ESOP Earnings AOCI Equity
Balance at September 30, 2022 1,388 $ 1,190,213 $ (29,735) $ 80,266 $ (145,633) $ 1,096,499
Net income 16,240 16,240
Other comprehensive income, net of tax 13,031 13,031
ESOP activity (72) 413 341
Stock-based compensation 89 89
Repurchase of common stock (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
Net income 14,189 14,189
Other comprehensive income, net of tax 13,959 13,959
ESOP activity (76) 412 336
Stock-based compensation 74 74
Cash dividends to stockholders (0.085 per share) (11,319) (11,319)
Balance at March 31, 2023 1,361 $ 1,168,059 $ (28,910) $ 50,167 $ (118,643) $ 1,072,034

All values are in US Dollars.
Additional Unearned Total
Paid-In Compensation Retained Stockholders'
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 income 22,186 22,186
Other comprehensive loss, net of tax (7,021) (7,021)
ESOP activity 74 413 487
Restricted stock activity, net (3) (3)
Stock-based compensation 123 123
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
Net income 21,623 21,623
Other comprehensive loss, net of tax (52,581) (52,581)
ESOP activity 48 413 461
Stock-based compensation 124 124
Cash dividends to stockholders (0.085 per share) (11,535) (11,535)
Balance at March 31, 2022 1,388 $ 1,189,999 $ (30,561) $ 89,833 $ (75,907) $ 1,174,752

All values are in US Dollars.

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Six Months Ended
March 31,
2023 2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 30,429 43,809
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends (7,765) (3,471)
Provision for credit losses 4,551 (6,627)
Originations of loans receivable held-for-sale ("LHFS") (218) (678)
Proceeds from sales of LHFS 215 697
Amortization and accretion of premiums and discounts on securities 1,559 2,983
Depreciation and amortization of premises and equipment 4,581 4,678
Amortization of intangible assets 548 700
Amortization of deferred amounts related to FHLB advances, net 886 897
Common stock committed to be released for allocation - ESOP 677 948
Stock-based compensation 163 247
Changes in:
Unrestricted cash collateral from derivative counterparties, net (2,500) —
Other assets, net 1,461 5,092
Income taxes payable/receivable, net (2,650) 186
Deferred income tax liabilities, net 787 1,027
Other liabilities (7,990) (13,996)
Net cash provided by operating activities 24,734 36,492
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities — (58,546)
Proceeds from calls, maturities and principal reductions of AFS securities 95,393 188,658
Proceeds from the redemption of FHLB stock 214,120 95,724
Purchase of FHLB stock (233,827) (93,288)
Net change in loans receivable (503,585) (23,356)
Proceeds from sale of participating interest in loans receivable 5,563 —
Purchase of premises and equipment (2,269) (2,518)
Proceeds from sale of other real estate owned ("OREO") 347 487
Proceeds from bank-owned life insurance ("BOLI") death benefit — 803
Net cash (used in) provided by investing activities (424,258) 107,964
(Continued)
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
--- --- ---
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Six Months Ended
March 31,
2023 2022
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (60,528) (52,920)
Net change in deposits (50,431) 17,448
Proceeds from borrowings 3,092,000 793,702
Repayments on borrowings (2,528,436) (793,702)
Change in advances by borrowers (19,872) (6,827)
Repurchase of common stock (22,196) —
Net cash provided by (used in) financing activities 410,537 (42,299)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 11,013 102,157
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
Beginning of period 49,194 70,292
End of period 60,207 172,449
See accompanying notes to consolidated financial statements. (Concluded)

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 $60.2 million and $49.2 million at March 31, 2023 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 March 31, 2023 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.

2. EARNINGS PER SHARE

Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.

For the Three Months Ended For the Six Months Ended
March 31, March 31,
2023 2022 2023 2022
(Dollars in thousands, except per share amounts)
Net income $ 14,189 $ 21,623 $ 30,429 $ 43,809
Income allocated to participating securities (6) (12) (14) (24)
Net income available to common stockholders $ 14,183 $ 21,611 $ 30,415 $ 43,785
Total basic average common shares outstanding 133,150,224 135,676,722 133,903,769 135,651,609
Effect of dilutive stock options — — — —
Total diluted average common shares outstanding 133,150,224 135,676,722 133,903,769 135,651,609
Net EPS:
Basic $ 0.11 $ 0.16 $ 0.23 $ 0.32
Diluted $ 0.11 $ 0.16 $ 0.23 $ 0.32
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation 373,541 543,031 375,808 543,400

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").

March 31, 2023
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
MBS $ 1,146,526 $ 196 $ 124,742 $ 1,021,980
GSE debentures 519,981 — 40,741 479,240
Corporate bonds 4,000 — 438 3,562
Municipal bonds 1,031 — 5 1,026
$ 1,671,538 $ 196 $ 165,926 $ 1,505,808 September 30, 2022
--- --- --- --- --- --- --- --- ---
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(Dollars in thousands)
MBS $ 1,243,270 $ 365 $ 155,011 $ 1,088,624
GSE debentures 519,977 — 50,150 469,827
Corporate bonds 4,000 — 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.

March 31, 2023
Less Than 12 Months Equal to or Greater Than 12 Months
Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses
(Dollars in thousands)
MBS $ 87,004 $ 2,056 $ 911,575 $ 122,686
GSE debentures — — 479,240 40,741
Corporate bonds 3,562 438 — —
Municipal bonds 1,026 5 — —
$ 91,592 $ 2,499 $ 1,390,815 $ 163,427 September 30, 2022
--- --- --- --- --- --- --- --- ---
Less Than 12 Months Equal to or Greater Than 12 Months
Estimated Unrealized Estimated Unrealized
Fair Value Losses Fair Value Losses
(Dollars in thousands)
MBS $ 338,013 $ 22,563 $ 715,281 $ 132,448
GSE debentures — — 469,827 50,150
Corporate bonds 3,695 305 — —
Municipal bonds 1,161 82 — —
$ 342,869 $ 22,950 $ 1,185,108 $ 182,598

The unrealized losses at March 31, 2023 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 March 31, 2023 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of March 31, 2023, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity categories.

Amortized Estimated
Cost Fair Value
(Dollars in thousands)
One year or less $ 25,000 $ 24,286
One year through five years 494,981 454,954
Five years through ten years 5,031 4,588
525,012 483,828
MBS 1,146,526 1,021,980
$ 1,671,538 $ 1,505,808

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.

For the Three Months Ended For the Six Months Ended
March 31, March 31,
2023 2022 2023 2022
(Dollars in thousands)
Taxable $ 888 $ 790 $ 1,762 $ 1,580
Non-taxable 7 10 14 28
$ 895 $ 800 $ 1,776 $ 1,608

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.

March 31, 2023 September 30, 2022
(Dollars in thousands)
FHLB advances $ 576,765 $ 572,913
Public unit deposits 155,864 125,496
Federal Reserve Bank of Kansas City ("FRB of Kansas City") borrowings 42,723 46,283
$ 775,352 $ 744,692

.

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable, net at the dates presented is summarized as follows:

March 31, 2023 September 30, 2022
(Dollars in thousands)
One- to four-family:
Originated $ 4,003,823 $ 3,988,469
Correspondent purchased 2,468,647 2,201,886
Bulk purchased 142,527 147,939
Construction 68,355 66,164
Total 6,683,352 6,404,458
Commercial:
Commercial real estate 874,718 745,301
Commercial and industrial 90,200 79,981
Construction 216,685 141,062
Total 1,181,603 966,344
Consumer:
Home equity 92,506 92,203
Other 8,664 8,665
Total 101,170 100,868
Total loans receivable 7,966,125 7,471,670
Less:
ACL 19,889 16,371
Deferred loan fees/discounts 30,830 29,736
Premiums/deferred costs (43,161) (38,645)
$ 7,958,567 $ 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 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.

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 March 31, 2023 and September 30, 2022, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

March 31, 2023
Current Fiscal Fiscal Fiscal Fiscal Revolving
Fiscal Year Year Year Year Prior Line of
Year 2022 2021 2020 2019 Years Credit Total
(Dollars in thousands)
One- to four-family:
Originated
Pass $ 166,083 $ 578,258 $ 912,340 $ 597,495 $ 267,725 $ 1,511,800 $ — $ 4,033,701
Special Mention 184 1,192 760 1,365 1,274 9,070 — 13,845
Substandard — 187 110 277 734 7,269 — 8,577
Correspondent purchased
Pass 309,170 531,455 633,831 261,631 66,403 690,477 — 2,492,967
Special Mention — 396 1,013 — 353 1,761 — 3,523
Substandard — — — — 168 3,313 — 3,481
Bulk purchased
Pass — — — — — 139,489 — 139,489
Special Mention — — — — — — — —
Substandard — — — — — 3,543 — 3,543
475,437 1,111,488 1,548,054 860,768 336,657 2,366,722 — 6,699,126
Commercial:
Commercial real estate
Pass 228,869 301,638 231,200 120,670 83,873 83,290 8,676 1,058,216
Special Mention — 28,439 — — — — — 28,439
Substandard — — — 594 219 288 — 1,101
Commercial and industrial
Pass 19,289 25,176 14,267 4,337 3,191 1,063 22,082 89,405
Special Mention — — — — — — — —
Substandard — 16 — 73 — 83 610 782
248,158 355,269 245,467 125,674 87,283 84,724 31,368 1,177,943
Consumer:
Home equity
Pass 2,548 5,997 2,162 1,342 890 2,643 76,618 92,200
Special Mention — 46 — — — — 245 291
Substandard — — — — 18 15 198 231
Other
Pass 2,382 3,479 1,301 549 221 389 333 8,654
Special Mention — — — 5 — — — 5
Substandard — — — 4 — — 2 6
4,930 9,522 3,463 1,900 1,129 3,047 77,396 101,387
Total $ 728,525 $ 1,476,279 $ 1,796,984 $ 988,342 $ 425,069 $ 2,454,493 $ 108,764 $ 7,978,456
September 30, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Fiscal Fiscal Fiscal Fiscal Fiscal Revolving
Year Year Year Year Year Prior Line of
2022 2021 2020 2019 2018 Years Credit Total
(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 Mention 47 457 1,111 518 428 7,641 — 10,202
Substandard 158 — 278 1,106 256 8,968 — 10,766
Correspondent purchased
Pass 494,854 651,363 273,626 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
Pass 366,794 221,001 111,689 86,456 41,322 46,383 7,436 881,081
Special Mention 565 — — — — — — 565
Substandard 436 — 594 221 239 30 — 1,520
Commercial and industrial
Pass 38,442 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
Pass 6,447 2,375 1,486 982 992 2,020 77,448 91,750
Special Mention — 66 — — — — 233 299
Substandard — — — 18 — 3 331 352
Other
Pass 4,207 1,977 843 408 651 201 369 8,656
Special Mention — — 7 — — — — 7
Substandard 1 — — — — — — 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

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.

March 31, 2023
Current Fiscal Fiscal Fiscal Fiscal Revolving
Fiscal Year Year Year Year Prior Line of
Year 2022 2021 2020 2019 Years Credit Total
(Dollars in thousands)
One- to four-family:
Originated
Current $ 166,267 $ 579,374 $ 913,210 $ 598,648 $ 269,733 $ 1,523,705 $ — $ 4,050,937
30-89 — 76 — 489 — 3,538 — 4,103
90+/FC — 187 — — — 896 — 1,083
Correspondent purchased
Current 309,170 531,455 633,934 261,073 66,403 692,624 — 2,494,659
30-89 — 396 910 558 353 1,269 — 3,486
90+/FC — — — — 168 1,658 — 1,826
Bulk purchased
Current — — — — — 141,522 — 141,522
30-89 — — — — — 289 — 289
90+/FC — — — — — 1,221 — 1,221
475,437 1,111,488 1,548,054 860,768 336,657 2,366,722 — 6,699,126
Commercial:
Commercial real estate
Current 228,649 330,077 231,200 120,670 83,873 83,243 8,676 1,086,388
30-89 220 — — — — 79 — 299
90+/FC — — — 594 219 256 — 1,069
Commercial and industrial
Current 19,289 25,176 14,267 4,337 3,191 1,063 22,692 90,015
30-89 — 16 — 73 — — — 89
90+/FC — — — — — 83 — 83
248,158 355,269 245,467 125,674 87,283 84,724 31,368 1,177,943
Consumer:
Home equity
Current 2,548 6,043 2,162 1,342 891 2,609 76,766 92,361
30-89 — — — — 17 37 262 316
90+/FC — — — — — 12 33 45
Other
Current 2,376 3,460 1,290 555 221 389 332 8,623
30-89 5 19 11 — — — 1 36
90+/FC 1 — — 3 — — 2 6
4,930 9,522 3,463 1,900 1,129 3,047 77,396 101,387
Total $ 728,525 $ 1,476,279 $ 1,796,984 $ 988,342 $ 425,069 $ 2,454,493 $ 108,764 $ 7,978,456
September 30, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Fiscal Fiscal Fiscal Fiscal Fiscal Revolving
Year Year Year Year Year Prior Line of
2022 2021 2020 2019 2018 Years Credit Total
(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+/FC 158 — — 368 108 2,279 — 2,913
Correspondent purchased
Current 494,854 651,363 273,626 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
Current 367,795 221,001 111,689 86,456 41,322 46,383 7,436 882,082
30-89 — — — — — — — —
90+/FC — — 594 221 239 30 — 1,084
Commercial and industrial
Current 38,442 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
Current 6,447 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
Current 4,205 1,964 844 404 651 201 368 8,637
30-89 2 13 6 4 — — 1 26
90+/FC 1 — — — — — — 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

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 March 31, 2023 and September 30, 2022, all loans 90 or more days delinquent were on nonaccrual status.

March 31, 2023
90 or More Days Total Total
30 to 89 Days Delinquent or Delinquent Current Amortized
Delinquent in Foreclosure Loans Loans Cost
(Dollars in thousands)
One- to four-family:
Originated $ 4,103 $ 1,083 $ 5,186 $ 4,050,937 $ 4,056,123
Correspondent purchased 3,486 1,826 5,312 2,494,659 2,499,971
Bulk purchased 289 1,221 1,510 141,522 143,032
Commercial:
Commercial real estate 299 1,069 1,368 1,086,388 1,087,756
Commercial and industrial 89 83 172 90,015 90,187
Consumer:
Home equity 316 45 361 92,361 92,722
Other 36 6 42 8,623 8,665
$ 8,618 $ 5,333 $ 13,951 $ 7,964,505 $ 7,978,456 September 30, 2022
--- --- --- --- --- --- --- --- --- --- ---
90 or More Days Total Total
30 to 89 Days Delinquent or Delinquent Current Amortized
Delinquent in Foreclosure Loans Loans Cost
(Dollars in thousands)
One- to four-family:
Originated $ 4,123 $ 2,913 $ 7,036 $ 4,031,508 $ 4,038,544
Correspondent purchased 1,117 3,784 4,901 2,224,436 2,229,337
Bulk purchased 921 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 equity 319 153 472 91,929 92,401
Other 26 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 March 31, 2023 and September 30, 2022 was $1.9 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 $160 thousand at March 31, 2023 and $328 thousand at September 30, 2022.

The following table presents the amortized cost at March 31, 2023 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.

March 31, 2023 September 30, 2022
Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans Nonaccrual Loans with No ACL
(Dollars in thousands)
One- to four-family:
Originated $ 1,270 $ 332 $ 3,135 $ 1,018
Correspondent purchased 1,826 — 3,784 304
Bulk purchased 1,478 887 1,157 630
Commercial:
Commercial real estate 1,100 446 1,084 449
Commercial and industrial 156 156 161 161
Consumer:
Home equity 45 — 172 19
Other 6 — 1 —
$ 5,881 $ 1,821 $ 9,494 $ 2,581

TDRs - The following tables present the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.

For the Three Months Ended For the Six Months Ended
March 31, 2023 March 31, 2023
Number Pre- Post- Number Pre- Post-
of Restructured Restructured of Restructured Restructured
Contracts Outstanding Outstanding Contracts Outstanding Outstanding
(Dollars in thousands)
One- to four-family:
Originated — $ — $ — — $ — $ —
Correspondent purchased — — — — — —
Bulk purchased 1 239 257 1 239 257
Commercial:
Commercial real estate — — — — — —
Commercial and industrial — — — — — —
Consumer:
Home equity — — — — — —
Other — — — — — —
1 $ 239 $ 257 1 $ 239 $ 257
For the Three Months Ended For the Six Months Ended
--- --- --- --- --- --- --- --- --- --- ---
March 31, 2022 March 31, 2022
Number Pre- Post- Number Pre- Post-
of Restructured Restructured of Restructured Restructured
Contracts Outstanding Outstanding Contracts Outstanding Outstanding
(Dollars in thousands)
One- to four-family:
Originated 1 $ 100 $ 100 2 $ 124 $ 124
Correspondent purchased — — — — — —
Bulk purchased — — — — — —
Commercial:
Commercial real estate — — — — — —
Commercial and industrial 2 124 124 2 124 124
Consumer:
Home equity 1 19 19 1 19 19
Other — — — — — —
4 $ 243 $ 243 5 $ 267 $ 267

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.

For the Three Months Ended For the Six Months Ended
March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022
Number of Amortized Number of Amortized Number of Amortized Number of Amortized
Contracts Cost Contracts Cost Contracts Cost Contracts Cost
(Dollars in thousands)
One- to four-family:
Originated — $ — — $ — 1 $ 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 March 31, 2023
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 2,159 $ 2,987 $ 216 $ 5,362 $ 13,584 $ 243 $ 19,189
Charge-offs — — — — — (16) (16)
Recoveries — — — — 1 1 2
Provision for credit losses (20) 87 5 72 637 5 714
Ending balance $ 2,139 $ 3,074 $ 221 $ 5,434 $ 14,222 $ 233 $ 19,889
For the Six Months Ended March 31, 2023
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 2,066 $ 2,734 $ 206 $ 5,006 $ 11,120 $ 245 $ 16,371
Charge-offs — — — — — (20) (20)
Recoveries 1 — — 1 1 2 4
Provision for credit losses 72 340 15 427 3,101 6 3,534
Ending balance $ 2,139 $ 3,074 $ 221 $ 5,434 $ 14,222 $ 233 $ 19,889
For the Three Months Ended March 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 1,639 $ 2,082 $ 268 $ 3,989 $ 13,353 $ 193 $ 17,535
Charge-offs — — — — — (5) (5)
Recoveries 2 — — 2 13 4 19
Provision for credit losses 68 47 (27) 88 (2,335) 10 (2,237)
Ending balance $ 1,709 $ 2,129 $ 241 $ 4,079 $ 11,031 $ 202 $ 15,312
For the Six Months Ended March 31, 2022
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
One- to Four-Family
Correspondent Bulk
Originated Purchased Purchased Total Commercial Consumer Total
(Dollars in thousands)
Beginning balance $ 1,612 $ 2,062 $ 304 $ 3,978 $ 15,652 $ 193 $ 19,823
Charge-offs (4) — — (4) (10) (6) (20)
Recoveries 11 — — 11 49 5 65
Provision for credit losses 90 67 (63) 94 (4,660) 10 (4,556)
Ending balance $ 1,709 $ 2,129 $ 241 $ 4,079 $ 11,031 $ 202 $ 15,312

The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at March 31, 2023. The key assumptions utilized in estimating the Company's ACL at March 31, 2023 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 March 31, 2023. The forecasted economic indices applied to the model at March 31, 2023 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at March 31, 2023 was the national unemployment rate. The forecasted national unemployment rate in the economic scenario selected by management at March 31, 2023 had the national unemployment rate gradually increasing to 3.8% by March 31, 2024 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 March 31, 2023.

•Prepayment and curtailment assumptions - The assumptions used at March 31, 2023 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model. During the current year, 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 March 31, 2023 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 March 31, 2023 and September 30, 2022, the Bank's off-balance sheet credit exposures totaled $1.02 billion and $992.6 million, respectively.

For the Three Months Ended For the Six Months Ended
March 31, 2023 March 31, 2022 March 31, 2023 March 31, 2022
(Dollars in thousands)
Beginning balance $ 5,591 $ 4,623 $ 4,751 $ 5,743
Provision for credit losses 177 (951) 1,017 (2,071)
Ending balance $ 5,768 $ 3,672 $ 5,768 $ 3,672

5. BORROWED FUNDS

FHLB Borrowings and Interest Rate Swaps - At March 31, 2023 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 March 31, 2023 and September 30, 2022, the interest rate swap agreements had an average remaining term to maturity of 2.6 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 March 31, 2023 and September 30, 2022, the interest rate swaps were in a gain position with a total fair value of $8.8 million and $12.5 million respectively, which was reported in other assets on the consolidated balance sheet. During the three and six month periods ended March 31, 2023, $1.3 million and $2.1 million, respectively, was reclassified from AOCI as a decrease to interest expense. During the three and six month periods ended March 31, 2022, $1.7 million and $3.5 million was reclassified from AOCI as an increase to interest expense. At March 31, 2023, the Company estimated that $7.2 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 $9.6 million and $12.1 million at March 31, 2023 and September 30, 2022, respectively.

During the current six month period, 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 was not profitable. The proceeds of the borrowings, net of the required FHLB stock holdings, were deposited at the FRB of Kansas City.

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 six months ended March 31, 2023 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 six months ended March 31, 2023 or during fiscal year 2022. (Level 2)

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 March 31, 2023 or September 30, 2022.

March 31, 2023
Quoted Prices Significant Significant
in Active Markets Other Observable Unobservable
Carrying for Identical Assets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS $ 1,021,980 $ — $ 1,021,980 $ —
GSE debentures 479,240 — 479,240 —
Corporate bonds 3,562 — 3,562 —
Municipal bonds 1,026 — 1,026 —
1,505,808 — 1,505,808 —
Interest rate swaps 8,795 — 8,795 —
$ 1,514,603 $ — $ 1,514,603 $ —
September 30, 2022
--- --- --- --- --- --- --- --- ---
Quoted Prices Significant Significant
in Active Markets Other Observable Unobservable
Carrying for Identical Assets Inputs Inputs
Value (Level 1) (Level 2) (Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS $ 1,088,624 $ — $ 1,088,624 $ —
GSE debentures 469,827 — 469,827 —
Corporate bonds 3,695 — 3,695 —
Municipal bonds 1,161 — 1,161 —
1,563,307 — 1,563,307 —
Interest rate swaps 12,547 — 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 six months ended March 31, 2023 and 2022 that were still held in the portfolio as of March 31, 2023 and 2022 was $3.6 million and $4.2 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 six months ended March 31, 2023 and March 31, 2022 were downward adjustments to the book value of the

collateral for lack of marketability. During the six months ended March 31, 2023, the adjustments ranged from 8% to 100%, with a weighted average of 21%. During the six months ended March 31, 2022, 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 six months ended March 31, 2023 that was still held in the portfolio as of March 31, 2023 was $93 thousand. There was no OREO measured on a non-recurring basis during the six months ended March 31, 2022. The carrying value of the properties equaled the fair value of the properties at March 31, 2023 and 2022.

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

The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:

March 31, 2023
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents $ 60,207 $ 60,207 $ 60,207 $ — $ —
AFS securities 1,505,808 1,505,808 — 1,505,808 —
Loans receivable 7,958,567 7,513,314 — — 7,513,314
FHLB stock 128,096 128,096 128,096 — —
Interest rate swaps 8,795 8,795 — 8,795 —
Liabilities:
Deposits 6,144,435 6,103,436 3,670,486 2,432,950 —
Borrowings 2,696,604 2,643,537 203,400 2,440,137 —
September 30, 2022
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents $ 49,194 $ 49,194 $ 49,194 $ — $ —
AFS securities 1,563,307 1,563,307 — 1,563,307 —
Loans receivable 7,464,208 6,889,211 — — 6,889,211
FHLB stock 100,624 100,624 100,624 — —
Interest rate swaps 12,547 12,547 — 12,547 —
Liabilities:
Deposits 6,194,866 6,124,835 3,991,114 2,133,721 —
Borrowings 2,132,154 1,910,779 75,000 1,835,779 —

7. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.

For the Three Months Ended March 31, 2023
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ (142,069) $ 9,467 $ (132,602)
Other comprehensive income (loss), before reclassifications 16,777 (1,495) 15,282
Amount reclassified from AOCI, net of taxes of $427 — (1,323) (1,323)
Other comprehensive income (loss) 16,777 (2,818) 13,959
Ending balance $ (125,292) $ 6,649 $ (118,643) For the Six Months Ended March 31, 2023
--- --- --- --- --- --- ---
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ (155,119) $ 9,486 $ (145,633)
Other comprehensive income (loss), before reclassifications 29,827 (780) 29,047
Amount reclassified from AOCI, net of taxes of $664 — (2,057) (2,057)
Other comprehensive income (loss) 29,827 (2,837) 26,990
Ending balance $ (125,292) $ 6,649 $ (118,643) For the Three Months Ended March 31, 2022
--- --- --- --- --- --- ---
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ (6,331) $ (16,995) $ (23,326)
Other comprehensive income (loss), before reclassifications (65,445) 11,151 (54,294)
Amount reclassified from AOCI, net of taxes of $(553) — 1,713 1,713
Other comprehensive income (loss) (65,445) 12,864 (52,581)
Ending balance $ (71,776) $ (4,131) $ (75,907)
For the Six Months Ended March 31, 2022
--- --- --- --- --- --- ---
Unrealized Unrealized
Gains (Losses) Gains (Losses)
on AFS on Cash Flow Total
Securities Hedges AOCI
(Dollars in thousands)
Beginning balance $ 4,651 $ (20,956) $ (16,305)
Other comprehensive income (loss), before reclassifications (76,427) 13,329 (63,098)
Amount reclassified from AOCI, net of taxes of $(1,128) — 3,496 3,496
Other comprehensive income (loss) (76,427) 16,825 (59,602)
Ending balance $ (71,776) $ (4,131) $ (75,907)

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 and maintain sufficient liquidity;

•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, and 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

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 $30.4 million, or $0.23 per share, for the current year period compared to net income of $43.8 million, or $0.32 per share, for the prior year period. The decrease in net income was due primarily to recording a provision for credit losses of $4.6 million for the current year period compared to a $6.6 million release of provision for the prior year period. The net interest margin decreased 24 basis points, from 1.83% for the prior year period to 1.59% for the current year period. Excluding the effects of the leverage strategy, the net interest margin decreased 21 basis points, from 2.00% for the prior year period to 1.79% for the current year period. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, which exceeded the increase in loan yields. Net interest margin compression is anticipated to continue, and the margin is expected to compress more in the near term, due to the shape of the yield curve and with liabilities repricing faster than assets, along with higher costing borrowings in order to fund loan growth, increasing the Bank's money market rates in response to competitor pricing, and deposit funds moving from lower costing deposit accounts to higher costing certificates of deposit. See additional discussion in the "Fiscal Year 2023 Outlook" section below.

Total assets were $10.09 billion at March 31, 2023, a $460.9 million increase from September 30, 2022. The increase in assets was primarily a result of loan growth, mainly in the correspondent one- to four-family and commercial real estate loan portfolios. Total deposits were $6.14 billion at March 31, 2023, a decrease of $50.4 million from September 30, 2022. The decrease was mainly in money market account balances, which decreased $284.5 million, partially offset by a $226.3 million increase in retail certificates of deposit since September 30, 2022. The decrease in money market accounts was likely due to customers moving funds to alternative, higher yielding investment products, including certificates of deposit offered by the Bank, and/or withdrawing funds for customer spending. The growth in the loan portfolio and decrease in deposits resulted in an increase in FHLB borrowings by $578.4 million during the current year period.

The Bank exceeded $10 billion in total assets at March 31, 2023 and may again at June 30, 2023. It is management's expectation that the Bank will be under $10 billion in total assets at September 30, 2023. There are increased direct costs, additional regulatory burdens with indirect costs, and lost revenue, mainly related to interchange fees, associated with the Bank being over $10 billion in total assets at certain points in time and for consecutive periods of time. Being over $10 billion in total assets at March 31, 2023 did not result in any additional regulatory requirements, increased direct or indirect costs, or lost revenues. We continue to work on limiting the growth in total assets by reducing new correspondent one- to four-family purchases to near zero, along with limiting additional use of FHLB advances for operating needs, and evaluating other balance sheet management opportunities.

The Bank's asset quality remained strong, reflected in low delinquency and charge-off ratios. At March 31, 2023, loans 30 to 89 days delinquent were 0.11% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.07% of total loans receivable, net. During the current quarter and current year periods, net charge-offs ("NCOs") were $14 thousand and $16 thousand, respectively.

For short-term liquidity needs, the Bank has access to a line of credit at the FHLB in addition to the FRB of Kansas City discount window and the newly established FRB Bank Term Funding Program ("BTFP"). The Bank's FHLB borrowing limit was 50% of the Bank's Call Report total assets as of March 31, 2023. 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 the amount that can be borrowed through the BTFP is based upon the par value of securities pledged as collateral. Management estimated that the Bank had $2.85 billion in additional liquidity

available at March 31, 2023 based on the Bank's blanket collateral agreement with FHLB and the par value of unencumbered securities.

At March 31, 2023, the Bank had a one-year gap position of $(803.5) million, or (8.0)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the next year. This was compared to a one-year gap position of $(1.02) billion, or (10.3)% of total assets, at December 31, 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 March 31, 2023 compared to December 31, 2022 and an increase in the amount of asset cash flows coming due for the same time periods. This was primarily attributable to a decrease in the amount of non-maturity deposits projected by the Bank's interest rate risk model to mature within one year as of March 31, 2023 compared to December 31, 2022, partially offset by an increase in cash flows projected to be received on loans as of March 31, 2023.

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, which will offer real-time alerts. 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.

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 Annualized
March 31, December 31, Percent September 30, Percent
2023 2022 Change 2022 Change
(Dollars and shares in thousands)
Total assets $ 10,085,770 $ 9,929,760 6.3 % $ 9,624,897 9.6 %
AFS securities 1,505,808 1,528,686 (6.0) 1,563,307 (7.4)
Loans receivable, net 7,958,567 7,783,358 9.0 7,464,208 13.2
Deposits 6,144,435 6,074,549 4.6 6,194,866 (1.6)
Borrowings 2,696,604 2,645,195 7.8 2,132,154 52.9
Stockholders' equity 1,072,034 1,054,795 6.5 1,096,499 (4.5)
Equity to total assets at end of period 10.6 % 10.6 % 11.4 %
Average number of basic shares outstanding 133,150 134,641 (4.4) 135,773 (3.9)
Average number of diluted shares outstanding 133,150 134,641 (4.4) 135,773 (3.9)

During the current quarter, total assets increased by $156.0 million, which was primarily driven by loan growth of $175.2 million, mainly in the correspondent one- to four-family and commercial real estate loan portfolios. The one- to four-family correspondent loan portfolio increased $115.3 million, or 4.9%, primarily as a result of purchasing loans that were in the pipeline as of December 31, 2022 as the Bank continues to work towards reducing new correspondent purchases to near zero. Commercial loans increased $71.3 million, or 6.4%, during the current quarter, due to $42.0 million in commercial real estate originations and purchases along with $35.0 million in funding on existing construction loans.

Total liabilities increased $138.8 million during the current quarter due to an increase in deposits of $69.9 million, along with new borrowings of $58.4 million. The increase in deposit balances was due primarily to retail/commercial certificates of deposit, which increased $236.7 million, partially offset by a decrease in money market account balances, which decreased $159.3 million during the current quarter. The decrease in money market account balances was likely due to depositors moving funds to alternative, higher yield investment products and/or withdrawing funds for customer spending. Additionally, the Bank held a certificate of deposit promotional campaign during the current quarter which resulted in $177.3 million in new certificates of deposit at a weighted average rate of 4.34%; the majority of these funds were from customer transfers of existing deposits within the Bank. See additional discussion regarding net interest margin compression in "Fiscal Year 2023 Outlook" section below.

During the current fiscal year, loan balances increased $494.4 million and deposit balances decreased $50.4 million, which made it necessary to increase FHLB borrowings by $578.4 million during that time. The loan growth was primarily in the correspondent loan portfolio, as the Bank worked through its existing pipeline of applications, and commercial loan portfolio, which increased $266.8 million and $215.3 million, respectively. The decrease in deposits was primarily in the money market portfolio, partially offset by an increase in certificates of deposit. The FHLB borrowing increase was composed of $550.0 million of new advances with a weighted average maturity ("WAM") of 3.3 years and $128.4 million on the Bank's FHLB line of credit, partially offset by $100.0 million in FHLB advances that matured during the current year period.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current year involved borrowing up to $2.60 billion by entering into short-term FHLB advances. During the current quarter and current year periods, the average outstanding balance of leverage strategy borrowings was $979.2 million and $1.43 billion, respectively. The borrowings were repaid prior to March 31, 2023. The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded 8.75% and 8.58% during the current quarter and current year periods, respectively, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $110 thousand during the current quarter, compared to $763 thousand for the quarter ended December 31, 2022. The decrease in net income was due to a lower net interest rate spread associated with the leverage strategy and a reduction in the size of the leverage strategy transaction because the borrowing capacity was needed for operational purposes. Net income attributable to the leverage strategy during the current year period was $873 thousand, compared to $545 thousand for the prior year period. Net income was higher in the current year period than the prior year period as the leverage strategy was utilized more in the current year period. 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 when it is profitable and/or the borrowing capacity does not need to be used for other purposes. 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.

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 10 basis points during the current quarter and 24 basis points during the current year period, due primarily to one- to four-family correspondent and commercial loan growth at interest rates higher than the existing portfolios, 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 approximately 5% during the current quarter and prior quarter, and 7% during the quarter ended September 30, 2022.

March 31, 2023 December 31, 2022 September 30, 2022
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
One- to four-family:
Originated $ 4,003,823 3.28 % $ 4,007,596 3.25 % $ 3,988,469 3.20 %
Correspondent purchased 2,468,647 3.39 2,353,335 3.25 2,201,886 3.10
Bulk purchased 142,527 1.36 145,209 1.31 147,939 1.24
Construction 68,355 3.21 70,869 3.01 66,164 2.90
Total 6,683,352 3.28 6,577,009 3.20 6,404,458 3.12
Commercial:
Commercial real estate 874,718 4.48 833,444 4.34 745,301 4.30
Commercial and industrial 90,200 5.40 88,327 5.21 79,981 4.30
Construction 216,685 6.30 188,516 5.97 141,062 5.34
Total 1,181,603 4.89 1,110,287 4.69 966,344 4.45
Consumer loans:
Home equity 92,506 8.17 95,352 7.55 92,203 6.28
Other 8,664 4.66 9,022 4.43 8,665 4.21
Total 101,170 7.87 104,374 7.28 100,868 6.10
Total loans receivable 7,966,125 3.57 7,791,670 3.47 7,471,670 3.33
Less:
ACL 19,889 19,189 16,371
Deferred loan fees/discounts 30,830 30,513 29,736
Premiums/deferred costs (43,161) (41,390) (38,645)
Total loans receivable, net $ 7,958,567 $ 7,783,358 $ 7,464,208

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 For the Six Months Ended
March 31, 2023 March 31, 2023 March 31, 2022
Amount Rate Amount Rate Amount Rate
(Dollars in thousands)
Beginning balance $ 7,791,670 3.47 % $ 7,471,670 3.33 % $ 7,096,073 3.21 %
Originated and refinanced 181,011 5.97 545,398 5.41 526,836 3.21
Purchased and participations 215,600 5.59 550,905 5.41 322,706 2.86
Change in undisbursed loan funds (24,949) (146,184) (45,237)
Repayments (197,193) (449,992) (781,498)
Principal recoveries/(charge-offs), net (14) (16) 45
Other — (5,656) (242)
Ending balance $ 7,966,125 3.57 $ 7,966,125 3.57 $ 7,118,683 3.16

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 Six Months Ended
March 31, 2023 March 31, 2022
Amount Rate % of Total Amount Rate % of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family $ 270,613 5.22 % 24.7 % $ 509,180 2.79 % 59.9 %
One- to four-family construction 23,045 5.28 2.1 70,323 2.86 8.3
Commercial:
Real estate 10,628 6.02 1.0 41,444 3.85 4.9
Commercial and industrial 15,634 6.52 1.4 7,909 3.68 0.9
Construction 68,600 4.87 6.3 68,512 3.26 8.1
Home equity 2,587 7.70 0.2 913 5.17 0.1
Other 2,124 6.69 0.2 1,473 5.67 0.2
Total fixed-rate 393,231 5.26 35.9 699,754 2.93 82.4
Adjustable-rate:
One- to four-family 268,836 4.85 24.5 21,739 2.68 2.5
One- to four-family construction 15,414 4.67 1.4 5,991 2.73 0.7
Commercial:
Real estate 202,727 5.34 18.5 57,901 3.99 6.8
Commercial and industrial 34,514 7.15 3.1 26,784 3.80 3.2
Construction 151,326 6.10 13.8 8,786 3.99 1.0
Home equity 29,548 7.89 2.7 27,970 4.40 3.3
Other 707 3.75 0.1 617 2.47 0.1
Total adjustable-rate 703,072 5.50 64.1 149,788 3.79 17.6
Total originated, refinanced and purchased $ 1,096,303 5.41 100.0 % $ 849,542 3.08 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent purchased - one- to four-family $ 169,653 5.21 $ 243,509 2.73
Participations and purchases - commercial 3,016 6.40 69,057 3.25
Total fixed-rate purchased/participations 172,669 5.23 312,566 2.84
Adjustable-rate:
Correspondent purchased - one- to four-family 197,038 4.87 5,140 2.68
Participations and purchases - commercial 181,198 6.18 5,000 4.00
Total adjustable-rate purchased/participations 378,236 5.50 10,140 3.33
Total purchased/participation loans $ 550,905 5.41 $ 322,706 2.86

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 March 31, 2023. 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.

% of Credit Average
Amount Total Rate Score LTV Balance
(Dollars in thousands)
Originated $ 4,003,823 60.5 % 3.28 % 771 60 % $ 162
Correspondent purchased 2,468,647 37.3 3.39 767 65 420
Bulk purchased 142,527 2.2 1.36 771 56 288
$ 6,614,997 100.0 % 3.28 769 62 212

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. The majority of the correspondent loans purchased during the current quarter were from applications in the pipeline at December 31, 2022 as the Bank continues to work to reduce correspondent purchases to near zero.

For the Three Months Ended For the Six Months Ended
March 31, 2023 March 31, 2023
Credit Credit
Amount Rate LTV Score Amount Rate LTV Score
(Dollars in thousands)
Originated $ 84,709 5.22 % 74 % 769 $ 211,217 5.04 % 75 % 766
Correspondent purchased 167,220 5.21 76 770 366,691 5.03 77 769
$ 251,929 5.22 75 770 $ 577,908 5.03 76 768

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2023, 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.

Amount Rate
(Dollars in thousands)
Originate/refinance $ 86,153 5.67 %
Correspondent 14,870 4.59
$ 101,023 5.51

Commercial Loans - During the current quarter and six months ended March 31, 2023, the Bank originated $79.9 million and $299.2 million of commercial loans, respectively, and entered into commercial loan participations totaling $48.4 million and $184.2 million, respectively. The Bank also processed commercial loan disbursements, excluding lines of credit, during the current quarter and six months ended March 31, 2023 of approximately $98.9 million and $306.7 million, respectively, at a weighted average rate of 6.27% and 5.45%, respectively.

As of March 31, 2023, December 31, 2022, and September 30, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $130.3 million, $113.2 million and $100.4 million, respectively, and commitments totaled $7.0 million, $5.1 million and $458 thousand, 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 March 31, 2023, the Bank had 11 commercial real estate and commercial construction loan commitments, totaling $91.6 million, at a weighted average rate of 6.78%. 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 March 31, 2023, management anticipates approximately $85 million will be funded during the June 2023 quarter, $84 million during the September 2023 quarter, $89 million during the December 2023 quarter, and $63 million during the March 2024 quarter.

March 31, 2023 December 31, 2022 September 30, 2022
Unpaid Undisbursed Gross Loan Gross Loan Gross Loan
Count Principal Amount Amount Amount Amount
(Dollars in thousands)
Retail building 147 $ 248,467 $ 95,258 $ 343,725 $ 325,055 $ 230,153
Senior housing 35 281,352 44,123 325,475 327,414 328,259
Hotel 13 209,251 26,463 235,714 216,604 181,546
Multi-family 39 71,941 161,557 233,498 210,255 122,735
Office building 87 104,968 26,730 131,698 114,844 109,653
One- to four-family property 390 62,405 9,299 71,704 72,339 68,907
Warehouse/manufacturing 40 43,469 10,030 53,499 42,496 10,891
Other 101 69,550 23,323 92,873 87,532 84,071
852 $ 1,091,403 $ 396,783 $ 1,488,186 $ 1,396,539 $ 1,136,215
Weighted average rate 4.84 % 5.95 % 5.14 % 4.91 % 4.56 %

The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.

March 31, 2023 December 31, 2022 September 30, 2022
Unpaid Undisbursed Gross Loan Gross Loan Gross Loan
Count Principal Amount Amount Amount Amount
(Dollars in thousands)
Kansas 626 $ 441,411 $ 131,935 $ 573,346 $ 519,419 $ 423,797
Missouri 179 253,277 110,155 363,432 335,400 296,443
Texas 15 240,237 95,487 335,724 336,512 280,840
Colorado 8 40,157 15,037 55,194 55,705 34,377
Tennessee 2 22,093 20,475 42,568 43,258 —
Nebraska 8 33,810 4,057 37,867 37,817 32,992
Other 14 60,418 19,637 80,055 68,428 67,766
852 $ 1,091,403 $ 396,783 $ 1,488,186 $ 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 March 31, 2023.

Count Amount
(Dollars in thousands)
Greater than $30 million 9 $ 438,526
>$15 to $30 million 20 423,808
>$10 to $15 million 11 131,234
>$5 to $10 million 28 200,785
$1 to $5 million 140 333,354
Less than $1 million 1,238 189,375
1,446 $ 1,717,082

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 March 31, 2023, approximately 79% were 59 days or less delinquent.

Loans Delinquent for 30 to 89 Days at:
March 31, December 31, September 30,
2023 2022 2022
Number Amount Number Amount Number Amount
(Dollars in thousands)
One- to four-family:
Originated 45 $ 4,116 56 $ 4,708 48 $ 4,134
Correspondent purchased 10 3,436 4 1,216 7 1,104
Bulk purchased 3 287 3 865 3 913
Commercial 5 389 6 191 — —
Consumer 22 352 24 626 24 345
85 $ 8,580 93 $ 7,606 82 $ 6,496
Loans 30 to 89 days delinquent
to total loans receivable, net 0.11 % 0.10 % 0.09 %

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:
March 31, December 31, September 30,
2023 2022 2022
Number Amount Number Amount Number Amount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated 15 $ 1,084 13 $ 1,034 29 $ 2,919
Correspondent purchased 7 1,803 14 4,126 12 3,737
Bulk purchased 3 1,212 4 1,492 3 1,148
Commercial 7 1,152 7 1,152 8 1,167
Consumer 7 51 11 126 9 154
39 5,302 49 7,930 61 9,125
Loans 90 or more days delinquent or in foreclosure
as a percentage of total loans 0.07 % 0.10 % 0.12 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated 2 $ 187 3 $ 219 3 $ 222
Correspondent purchased — — — — — —
Bulk purchased 1 257 — — — —
Commercial 3 104 2 84 1 77
Consumer — — — — 1 19
6 548 5 303 5 318
Total nonaccrual loans 45 5,850 54 8,233 66 9,443
Nonaccrual loans as a percentage of total loans 0.07 % 0.11 % 0.13 %
OREO:
One- to four-family:
Originated(2) 2 $ 160 2 $ 161 4 $ 307
Consumer — — 1 21 1 21
2 160 3 182 5 328
Total non-performing assets 47 $ 6,010 57 $ 8,415 71 $ 9,771
Non-performing assets as a percentage of total assets 0.06 % 0.08 % 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.

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 March 31, 2023. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At March 31, 2023, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.

Loans 30 to 89 Loans 90 or More Days Delinquent
One- to Four-Family Days Delinquent or in Foreclosure
State Amount % of Total Amount % of Total Amount % of Total LTV
(Dollars in thousands)
Kansas $ 3,574,768 54.0 % $ 3,757 47.9 % $ 913 22.3 % 53 %
Missouri 1,127,878 17.1 1,135 14.5 419 10.2 43
Other states 1,912,351 28.9 2,947 37.6 2,767 67.5 46
$ 6,614,997 100.0 % $ 7,839 100.0 % $ 4,099 100.0 % 47

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 March 31, 2023 compared to September 30, 2022 was due mainly to two loans in a single commercial relationship moving to special mention during the December 31, 2022 quarter as certain underlying economic considerations being monitored by management showed signs of deterioration.

March 31, 2023 December 31, 2022 September 30, 2022
Special Mention Substandard Special Mention Substandard Special Mention Substandard
(Dollars in thousands)
One- to four-family $ 17,368 $ 15,636 $ 16,471 $ 18,301 $ 12,950 $ 19,953
Commercial 28,441 1,881 28,441 2,413 565 2,733
Consumer 296 237 234 318 306 354
$ 46,105 $ 17,754 $ 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 compared to September 30, 2022, due primarily to growth in the commercial loan portfolio, along with a reduction in prepayment speeds for all loan categories. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of March 31, 2023.

Distribution of ACL Ratio of ACL to Loans Receivable
March 31, December 31, September 30, March 31, December 31, September 30,
2023 2022 2022 2023 2022 2022
(Dollars in thousands)
One- to four-family:
Originated $ 2,081 $ 2,097 $ 2,012 0.05 % 0.05 % 0.05 %
Correspondent purchased 3,074 2,987 2,734 0.12 0.13 0.12
Bulk purchased 221 216 206 0.16 0.15 0.14
Construction 58 62 54 0.08 0.09 0.08
Total 5,434 5,362 5,006 0.08 0.08 0.08
Commercial:
Real estate 11,219 10,799 8,729 1.28 1.30 1.17
Commercial and industrial 520 491 490 0.58 0.56 0.61
Construction 2,483 2,294 1,901 1.15 1.22 1.35
Total 14,222 13,584 11,120 1.20 1.22 1.15
Consumer 233 243 245 0.23 0.23 0.24
Total $ 19,889 $ 19,189 $ 16,371 0.25 0.25 0.22

The following table presents ACL activity and related ratios at the dates and for the periods indicated. The ratio of NCOs to average non-performing assets during the current year period was positive due to charge-offs exceeding recoveries, while the prior year period was negative due to recoveries exceeding charge-offs. The ratio of ACL to nonaccrual loans was higher at the end of the current year period compared to the end of the prior year period due mainly to a lower balance of nonaccrual loans compared to the prior year period, along with higher ACL at March 31, 2023. The ratio of ACL to NCOs for the prior year period was not meaningful as recoveries exceeded loan charge-offs, compared to the current year period where loan charge-offs exceeded recoveries. 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 Six Months Ended
March 31, 2023 March 31, 2022
(Dollars in thousands)
Balance at beginning of period $ 16,371 $ 19,823
Charge-offs (20) (20)
Recoveries 4 65
Net recoveries (charge-offs) (16) 45
Provision for credit losses 3,534 (4,556)
Balance at end of period $ 19,889 $ 15,312
Ratio of NCOs during the period
to average non-performing assets 0.20 % (0.35) %
ACL to nonaccrual loans at end of period 339.98 128.48
ACL to loans receivable, net at end of period 0.25 0.22
ACL to NCOs (annualized) 620x N/M

The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.

For the Six Months Ended
March 31, 2023 March 31, 2022
NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans
(Dollars in thousands)
One- to four-family:
Originated $ (1) $ 3,985,665 — % $ (7) $ 3,925,630 — %
Correspondent — 2,383,295 — — 2,030,928 —
Bulk purchased — 145,779 — — 165,895 —
Construction — 64,484 — — 42,845 —
Total (1) 6,579,223 — (7) 6,165,298 —
Commercial:
Real estate (1) 817,179 — (49) 678,036 (0.01)
Commercial and industrial — 84,181 — 10 71,353 0.01
Construction — 184,510 — — 105,668 —
Total (1) 1,085,870 — (39) 855,057 —
Consumer:
Home equity 8 93,902 0.01 (1) 83,752 —
Other 10 8,803 0.11 2 7,821 0.03
Total 18 102,705 0.02 1 91,573 —
$ 16 $ 7,767,798 — $ (45) $ 7,111,928 —

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 March 31, 2023. 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.

March 31, 2023 December 31, 2022 September 30, 2022
Amount Yield WAL Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
MBS $ 1,146,526 1.63% 5.2 $ 1,191,597 1.59% 5.0 $ 1,243,270 1.57% 4.7
GSE debentures 519,981 0.64 2.4 519,979 0.64 2.6 519,977 0.61 2.9
Corporate bonds 4,000 5.12 9.1 4,000 5.12 9.4 4,000 5.12 9.6
Municipal bonds 1,031 2.55 4.9 1,032 2.55 5.1 1,243 2.63 6.5
$ 1,671,538 1.33% 4.3 $ 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 Six Months Ended
March 31, 2023 March 31, 2022
Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance - carrying value $ 1,563,307 1.29 % 4.2 $ 2,014,608 1.16 % 3.5
Maturities and repayments (95,393) (188,658)
Net amortization of (premiums)/discounts (1,559) (2,983)
Purchases — — — 58,546 2.26 4.3
Change in valuation on AFS securities 39,453 (101,094)
Ending balance - carrying value $ 1,505,808 1.33 4.3 $ 1,780,419 1.24 4.1

Liabilities. Total liabilities were $9.01 billion at March 31, 2023, 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. The weighted average rate on the deposit portfolio increased 35 basis points during the current quarter and 66 basis points during the current year due primarily to retail certificates of deposit repricing to higher offered rates, as well as an increase in rates offered on money market accounts and public unit certificates of deposit. Total commercial deposits were $274.6 million, or 4.5%, of total deposits at March 31, 2023.

March 31, 2023 December 31, 2022 September 30, 2022
% of % of % of
Amount Rate Total Amount Rate Total Amount Rate Total
(Dollars in thousands)
Non-interest-bearing checking $ 594,265 — % 9.7 % $ 597,247 — % 9.8 % $ 591,387 — % 9.5 %
Interest-bearing checking 1,001,559 0.16 16.3 1,024,806 0.13 16.9 1,027,222 0.07 16.6
Savings 539,428 0.07 8.8 543,514 0.08 9.0 552,743 0.06 8.9
Money market 1,535,234 0.80 25.0 1,694,504 0.80 27.9 1,819,761 0.47 29.4
Retail certificates of deposit 2,299,829 2.54 37.4 2,073,633 1.83 34.1 2,073,542 1.34 33.5
Commercial certificates of deposit 43,590 2.71 0.7 33,134 1.55 0.5 36,275 0.97 0.6
Public unit certificates of deposit 130,530 4.01 2.1 107,711 3.17 1.8 93,936 1.61 1.5
$ 6,144,435 1.29 100.0 % $ 6,074,549 0.94 100.0 % $ 6,194,866 0.63 100.0 %

The $69.9 million increase in deposits during the current quarter was mainly in the retail/commercial certificate of deposit portfolio, partially offset by a decrease in the money market account balances. The increase in retail certificates of deposit was primarily in the short-term category, followed by the intermediate-term category. The long-term certificate of deposit category decreased during the current quarter. On average, approximately 78% of the retail certificates of deposits that matured over the past 12 months were retained by the Bank.

The $50.4 million decrease in deposits between September 30, 2022 and March 31, 2023 was due primarily to a reduction in money market accounts, partially offset by an increase in retail certificates of deposit. The decrease in money market accounts was likely due to customers moving funds to alternative, higher yielding investment products, including a certificate of deposit promotional campaign offered by the Bank, and/or withdrawing funds for customer spending. During the third quarter of the prior fiscal year, the Bank began increasing money market interest rates in response to competitor pricing to help stem the outflow of those funds. The change in the composition of retail certificate of deposit portfolio categories during the current year mirrored the current quarter change.

As of March 31, 2023, approximately $634.7 million of the Bank's deposit portfolio was uninsured, or approximately 10% of the Bank's Call Report deposit balance, of which approximately $348.0 million related to commercial and retail deposit accounts and the remainder was mainly comprised of fully collateralized public unit deposits and intercompany accounts. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Borrowings. Historically the Bank has primarily used long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The new borrowings during the current fiscal year had a weighted average maturity of 3.3 years, which is generally a shorter term than what management has selected in prior periods in anticipation that, when rates begin to decrease, these borrowings can be repaid or repriced to lower cost options. In consideration of the current interest rate environment, management intends to continue selecting shorter-term borrowings in the near term. The fixed-rate borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period.

Total borrowings at March 31, 2023 were $2.70 billion, an increase of $51.4 million and $564.5 million from December 31, 2022 and September 30, 2022, respectively. The increase in borrowings from December 31, 2022 was due mainly to a $58.4 million increase in the drawn amount on the FHLB line of credit during the current quarter. The increase in borrowings from September 30, 2022 was composed of $550.0 million of new advances with a WAM of 3.3 years and $128.4 million on the Bank's FHLB line of credit, partially offset by $100.0 million in FHLB advances that matured during the current year period. The $2.70 billion balance at March 31, 2023 was comprised of $2.13 billion in fixed-rate FHLB advances, $365.0 million in variable-rate advances tied to interest rate swaps, and $203.4 million on the FHLB line of credit. Borrowings increased during the current year period to fund loan growth and deposit outflows. Subsequent to March 31, 2023, the Bank repaid its borrowings on the FHLB line of credit and borrowed $500.0 million under the FRB BTFP, as the rate was more favorable than the rates offered on the FHLB line of credit or the rate on a one-year FHLB advance at that point in time. See additional discussion in "Liquidity and Capital Resources" below.

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 March 31, 2023. In addition to the borrowings in the table below, there were two straight-line amortizing FHLB advances outstanding at March 31, 2023 including a $42.5 million advance at a rate of 3.50% with quarterly payments of $2.5 million through June 2027 and a $90.2 million advance at a rate of 4.45% with quarterly payments of $4.9 million through October 2027, and there was an outstanding balance of $203.4 million on the Bank's line of credit with FHLB at March 31, 2023. See additional discussion in "Fiscal Year 2023 Outlook" below.

Maturity by Contractual Effective
Fiscal Year Amount Rate Rate(1)
(Dollars in thousands)
2023 $ 200,000 1.98 % 1.98 %
2024 490,000 3.73 2.84
2025 600,000 3.13 2.84
2026 525,000 2.69 2.85
2027 400,000 2.97 3.10
2028 150,000 4.87 3.58
$ 2,365,000 3.14 2.86

(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 WAM is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.

For the Three Months Ended For the Six Months Ended
March 31, 2023 March 31, 2023 March 31, 2022
Effective Effective Effective
Amount Rate WAM Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
Beginning balance $ 2,505,082 2.80 % 2.4 $ 2,062,500 2.44 % 2.5 $ 1,590,000 1.88 % 3.3
Maturities and repayments (107,418) 1.64 (114,836) 1.80 (100,000) 3.14
New FHLB borrowings 100,000 4.85 3.5 550,000 4.52 3.3 100,000 3.44 6.5
Ending balance $ 2,497,664 2.93 2.3 $ 2,497,664 2.93 2.3 $ 1,590,000 1.90 2.8

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 March 31, 2023.

June 30, September 30, December 31, March 31,
2023 2023 2023 2024 Total
(Dollars in thousands)
Retail/Commercial Certificates:
Amount $ 201,179 $ 253,690 $ 258,274 $ 270,075 $ 983,218
Repricing Rate 1.05 % 1.72 % 2.50 % 2.79 % 2.08 %
Public Unit Certificates:
Amount $ 17,984 $ 28,758 $ 39,718 $ 15,250 $ 101,710
Repricing Rate 3.78 % 3.44 % 4.27 % 4.22 % 3.94 %
Term Borrowings:
Amount $ 100,000 $ 100,000 $ 150,000 $ 65,000 $ 415,000
Repricing Rate 1.82 % 2.14 % 3.42 % 2.65 % 2.61 %
Total
Amount $ 319,163 $ 382,448 $ 447,992 $ 350,325 $ 1,499,928
Repricing Rate 1.45 % 1.96 % 2.97 % 2.83 % 2.35 %

The following table sets forth the WAM information for our certificates of deposit, in years, as of March 31, 2023.

Retail certificates of deposit 1.6
Commercial certificates of deposit 1.2
Public unit certificates of deposit 0.7
Total certificates of deposit 1.5

Stockholders' Equity. Stockholders' equity at March 31, 2023 was $1.07 billion, a decrease of $24.5 million from September 30, 2022. During the six months ended March 31, 2023, the Company paid cash dividends totaling $60.5 million. These cash dividends totaled $0.45 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and two regular quarterly cash dividends of $0.085 per share.

Accumulated other comprehensive loss was $118.6 million at March 31, 2023, which was composed of $125.3 million attributable to unrealized losses on AFS securities, partially offset by $6.6 million of unrealized gains on derivatives. The unrealized loss on AFS securities improved at March 31, 2023 from $142.1 million at December 31, 2022, due mainly to changes in market interest rates.

On April 25, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on May 19, 2023 to stockholders of record as of the close of business on May 5, 2023. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2023, this ratio was 9.7%. Excluding the impact of unrealized losses on AFS securities, this ratio would have been approximately 110 basis points higher.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of March 31, 2023, the Bank's community bank leverage ratio ("CBLR") was 9.7%, which exceeded the minimum requirement of 9.0%. The CBLR is based on average assets. The leverage strategy increases average assets which in turn reduces the Bank's CBLR. As of March, 31, 2023 the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates, and the Bank's risk-based tier 1 capital ratio was 19.2%.

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 March 31, 2023, Capitol Federal Financial, Inc., at the holding company level, had $56.4 million in cash on deposit at the Bank. The balance of cash at the holding company level has been accumulating over the past several years and is available for the Company to utilize for dividend payments, share repurchases, or for other business strategies at the discretion of the Company. For fiscal year 2023, it is the intention of the Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, as well as any of the Company's earnings in excess of that amount. 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 has paid a True Blue Capital dividend in years past. 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 Company earnings and regulatory capital levels and the related 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 June 30, 2023, the amount presented represents the dividend payable on May 19, 2023 to stockholders of record as of the close of business on May 5, 2023.

Calendar Year
2023 2022 2021
Amount Per Share Amount Per Share Amount Per Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31 $ 11,319 $ 0.085 $ 11,535 $ 0.085 $ 11,518 $ 0.085
Quarter ended June 30 11,321 0.085 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 $ 22,640 $ 0.170 $ 110,955 $ 0.820 $ 130,147 $ 0.960

Operating Results

The following table presents selected income statement and other information for the quarters indicated.

For the Three Months Ended
March 31, December 31, September 30, June 30, March 31,
2023 2022 2022 2022 2022
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable $ 69,319 $ 64,819 $ 60,445 $ 56,886 $ 55,412
Cash and cash equivalents 10,977 16,671 13,373 3,968 949
MBS 4,748 4,811 4,912 5,048 4,821
FHLB stock 3,607 4,158 3,865 2,695 2,240
Investment securities 895 881 845 815 800
Total interest and dividend income 89,546 91,340 83,440 69,412 64,222
Interest expense:
Borrowings 31,447 33,608 24,529 11,644 8,732
Deposits 16,140 11,904 9,013 7,787 8,389
Total interest expense 47,587 45,512 33,542 19,431 17,121
Net interest income 41,959 45,828 49,898 49,981 47,101
Provision for credit losses 891 3,660 1,060 937 (3,188)
Net interest income
(after provision for credit losses) 41,068 42,168 48,838 49,044 50,289
Non-interest income 5,083 5,352 5,793 6,115 5,416
Non-interest expense 28,631 27,773 29,807 28,390 27,960
Income tax expense 3,331 3,507 5,332 5,617 6,122
Net income $ 14,189 $ 16,240 $ 19,492 $ 21,152 $ 21,623
Efficiency ratio 60.86 % 54.27 % 53.52 % 50.61 % 53.24 %
Basic EPS $ 0.11 $ 0.12 $ 0.14 $ 0.16 $ 0.16
Diluted EPS 0.11 0.12 0.14 0.16 0.16

Comparison of Operating Results for the Three Months Ended March 31, 2023 and December 31, 2022

For the quarter ended March 31, 2023, the Company recognized net income of $14.2 million, or $0.11 per share, compared to net income of $16.2 million, or $0.12 per share, for the quarter ended December 31, 2022. The decrease in net income was due primarily to lower net interest income in the current quarter. The net interest margin decreased five basis points, from 1.61% for the prior quarter to 1.56% for the current quarter. Excluding the effects of the leverage strategy discussed below, the net interest margin decreased 17 basis points, from 1.88% for the prior quarter to 1.71% 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 deposits and borrowings, partially offset by an increase in loan yields due to higher market interest rates and an increase in the average balance of loans. Management anticipates the reduction in the net interest margin will continue in the near term. See additional discussion in "Fiscal Year 2023 Outlook" below.

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 13 basis points and the weighted average yield on MBS increased four basis points compared to the prior quarter.

For the Three Months Ended
March 31, December 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 69,319 $ 64,819 $ 4,500 6.9 %
Cash and cash equivalents 10,977 16,671 (5,694) (34.2)
MBS 4,748 4,811 (63) (1.3)
FHLB stock 3,607 4,158 (551) (13.3)
Investment securities 895 881 14 1.6
Total interest and dividend income $ 89,546 $ 91,340 $ (1,794) (2.0)

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 real estate 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 decrease in interest income on cash and cash equivalents was due mainly to a decrease in the average balance of cash associated with the leverage strategy compared to the prior quarter due to a reduction in the leverage strategy usage in the current quarter, partially offset by an increase in the yield earned on balances held at the FRB of Kansas City due to higher market interest rates. The decrease in dividend income on FHLB stock was due mainly to a decrease in the average balance of FHLB stock associated with the leverage strategy, partially offset by an increase in the dividend rate paid by FHLB.

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 33 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 30 basis points compared to the prior quarter.

For the Three Months Ended
March 31, December 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings $ 31,447 $ 33,608 $ (2,161) (6.4) %
Deposits 16,140 11,904 4,236 35.6
Total interest expense $ 47,587 $ 45,512 $ 2,075 4.6

The decrease in interest expense on borrowings was due primarily to a decrease in the average balance of borrowings associated with the leverage strategy compared to the prior quarter, partially offset by an increase in the average balance of borrowings not associated

with the leverage strategy to fund operational needs. The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and average balance of the certificate of deposit portfolio.

Provision for Credit Losses

For the quarter ended March 31, 2023, the Bank recorded a provision for credit losses of $891 thousand, compared to a provision for credit losses of $3.7 million for the prior quarter. The provision for credit losses in the current quarter was comprised of a $714 thousand increase in the ACL for loans and a $177 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to a reduction in prepayment speeds related to the commercial loan portfolio along with commercial loan growth, partially offset by a slightly improved economic forecast. The provision for credit losses associated with the reserves for off-balance sheet credit exposures was primarily related to the commercial loan portfolio for the same reasons noted above for the ACL.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended
March 31, December 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 3,122 $ 3,461 $ (339) (9.8) %
Insurance commissions 877 795 82 10.3
Other non-interest income 1,084 1,096 (12) (1.1)
Total non-interest income $ 5,083 $ 5,352 $ (269) (5.0)

The decrease in deposit service fees was due mainly to decreases in debit card income and service charges as a result of lower transaction activity during the current quarter.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended
March 31, December 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 12,789 $ 13,698 $ (909) (6.6) %
Information technology and related expense 5,789 5,070 719 14.2
Occupancy, net 3,568 3,474 94 2.7
Regulatory and outside services 1,305 1,533 (228) (14.9)
Advertising and promotional 1,333 833 500 60.0
Federal insurance premium 1,246 812 434 53.4
Deposit and loan transaction costs 690 611 79 12.9
Office supplies and related expense 631 633 (2) (0.3)
Other non-interest expense 1,280 1,109 171 15.4
Total non-interest expense $ 28,631 $ 27,773 $ 858 3.1

The decrease in salaries and employee benefits was attributable mainly to a decrease in incentive compensation. The increase in information technology and related expense was due primarily to third-party project management expenses associated with the Bank's ongoing digital transformation project and an increase in software licensing. The decrease in regulatory and outside services was due primarily to the timing of external audit expenses and a decrease in outside consulting services. The increase in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships. The increase in federal insurance premium

expense was due mainly to an increase in the Federal Deposit Insurance Corporation ("FDIC") assessment rate effective January 1, 2023, which affected all insured depository institutions.

The Company's efficiency ratio was 60.86% for the current quarter compared to 54.27% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that 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
March 31, December 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 17,520 $ 19,747 $ (2,227) (11.3) %
Income tax expense 3,331 3,507 (176) (5.0)
Net income $ 14,189 $ 16,240 $ (2,051) (12.6)
Effective Tax Rate 19.0 % 17.8 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, partially offset by an increase in the effective tax rate. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2022 tax returns.

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.

For the Three Months Ended
March 31, 2023 December 31, 2022
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated $ 4,050,515 $ 33,660 3.32 % $ 4,049,790 $ 33,364 3.29 %
Correspondent purchased 2,462,960 19,380 3.15 2,305,362 17,261 2.99
Bulk purchased 144,438 413 1.14 147,091 434 1.18
Total one- to four-family loans 6,657,913 53,453 3.21 6,502,243 51,059 3.14
Commercial loans 1,147,681 13,924 4.85 1,025,402 11,993 4.58
Consumer loans 102,649 1,942 7.67 102,760 1,767 6.82
Total loans receivable(1) 7,908,243 69,319 3.51 7,630,405 64,819 3.38
MBS(2) 1,173,366 4,748 1.62 1,221,035 4,811 1.58
Investment securities(2)(3) 525,012 895 0.68 525,081 881 0.67
FHLB stock(4) 167,567 3,607 8.73 197,577 4,158 8.35
Cash and cash equivalents(5) 967,586 10,977 4.54 1,801,493 16,671 3.62
Total interest-earning assets 10,741,774 89,546 3.34 11,375,591 91,340 3.19
Other non-interest-earning assets 263,916 248,022
Total assets $ 11,005,690 $ 11,623,613
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 989,440 368 0.15 $ 1,007,569 289 0.11
Savings 541,324 101 0.08 545,885 100 0.07
Money market 1,620,451 3,184 0.80 1,759,804 3,035 0.68
Retail certificates 2,176,103 11,115 2.07 2,064,929 7,767 1.49
Commercial certificates 38,575 197 2.07 34,298 104 1.20
Wholesale certificates 127,037 1,175 3.75 97,828 609 2.47
Total deposits 5,492,930 16,140 1.19 5,510,313 11,904 0.86
Borrowings(6) 3,700,022 31,447 3.42 4,260,685 33,608 3.10
Total interest-bearing liabilities 9,192,952 47,587 2.09 9,770,998 45,512 1.84
Non-interest-bearing deposits 574,495 576,519
Other non-interest-bearing liabilities 172,481 191,474
Stockholders' equity 1,065,762 1,084,622
Total liabilities and stockholders' equity $ 11,005,690 $ 11,623,613
Net interest income(7) $ 41,959 $ 45,828
Net interest-earning assets $ 1,548,822 $ 1,604,593
Net interest margin(8)(9) 1.56 1.61
Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.16x
Selected performance ratios:
Return on average assets (annualized)(9) 0.52 % 0.56 %
Return on average equity (annualized)(9) 5.33 5.99
Average equity to average assets 9.68 9.33
Operating expense ratio (annualized)(10) 1.04 0.96
Efficiency ratio(9)(11) 60.86 54.27
Pre-tax yield on leverage strategy(12) 0.06 0.20

(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 $1.0 million and $1.1 million for the quarters ended March 31, 2023 and December 31, 2022, respectively.

(4)Included in this line, for the quarter ended March 31, 2023, is FHLB stock related to the leverage strategy with an average outstanding balance of $44.1 million and dividend income of $951 thousand at a weighted average yield of 8.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $123.5 million and dividend income of $2.7 million at a weighted average yield of 8.72%. Included in this line for the quarter ended December 31, 2022 is FHLB stock related to the leverage strategy with an average outstanding balance of $84.3 million and dividend income of $1.8 million, at a weighted average yield of 8.49%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $113.3 million and dividend income of $2.4 million, at a weighted average yield of 8.24%.

(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $935.1 million and $1.79 billion during the quarters ended March 31, 2023 and December 31, 2022 respectively.

(6)Included in this line, for the quarter ended March 31, 2023, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $979.2 million and interest paid of $11.3 million, at a weighted average rate of 4.60%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.72 billion and interest paid of $20.2 million, at a weighted average rate of 3.00%. Included in this line for the quarter ended December 31, 2022 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.87 billion and interest paid of $17.3 million at a weighted average rate of 3.61%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.39 billion and interest paid of $16.3 million at a weighted average rate of 2.70%. The FHLB advance amounts and rates included in this line 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
March 31, 2023 December 31, 2022
Actual Leverage Adjusted Actual Leverage Adjusted
(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)
Yield on interest-earning assets 3.34 % 0.14 % 3.20 % 3.19 % 0.13 % 3.06 %
Cost of interest-bearing liabilities 2.09 0.30 1.79 1.84 0.42 1.42
Return on average assets (annualized) 0.52 (0.04) 0.56 0.56 (0.07) 0.63
Return on average equity (annualized) 5.33 0.05 5.28 5.99 0.28 5.71
Net interest margin 1.56 (0.15) 1.71 1.61 (0.27) 1.88
Efficiency Ratio 60.86 (0.07) 60.93 54.27 (0.87) 55.14

(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.

Rate/Volume Analysis

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2023 to the three months ended December 31, 2022. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

For the Three Months Ended
March 31, 2023 vs. December 31, 2022
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 2,510 $ 1,990 $ 4,500
MBS (192) 129 (63)
Investment securities — 14 14
FHLB stock (709) 158 (551)
Cash and cash equivalents (9,019) 3,325 (5,694)
Total interest-earning assets (7,410) 5,616 (1,794)
Interest-bearing liabilities:
Checking (6) 84 78
Savings (1) 2 1
Money market (269) 418 149
Certificates of deposit 552 3,456 4,008
Borrowings (6,736) 4,575 (2,161)
Total interest-bearing liabilities (6,460) 8,535 2,075
Net change in net interest income $ (950) $ (2,919) $ (3,869)

Comparison of Operating Results for the Six Months Ended March 31, 2023 and 2022

The Company recognized net income of $30.4 million, or $0.23 per share, for the current year period compared to net income of $43.8 million, or $0.32 per share, for the prior year period. The decrease in net income was due primarily to recording a provision for credit losses of $4.6 million for the current year period compared to a release of provision of $6.6 million for the prior year period. The net interest margin decreased 24 basis points, from 1.83% for the prior year period to 1.59% for the current year period. Excluding the effects of the leverage strategy, the net interest margin decreased 21 basis points, from 2.00% for the prior year period to 1.79% for the current year period. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, which exceeded the increase in loan yields.

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 Six Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 134,138 $ 111,200 $ 22,938 20.6 %
Cash and cash equivalents 27,648 963 26,685 2,771.0
MBS 9,559 9,446 113 1.2
FHLB stock 7,765 3,471 4,294 123.7
Investment securities 1,776 1,608 168 10.4
Total interest and dividend income $ 180,886 $ 126,688 $ 54,198 42.8

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 real estate 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 mainly to a higher yield on cash related to an increase in FRB interest rates. The increase in dividend income on FHLB stock was due mainly to an increase in the average balance of FHLB stock, along with a higher FHLB dividend rate compared to the prior year period.

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 Six Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings $ 65,055 $ 16,317 $ 48,738 298.7 %
Deposits 28,044 17,656 10,388 58.8
Total interest expense $ 93,099 $ 33,973 $ 59,126 174.0

The increase in interest expense on borrowings was due primarily to an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year period along with an increase in the average balance and weighted average rate on borrowings not associated with the leverage strategy. Interest expense on borrowings associated with the leverage strategy increased $27.3 million compared to the prior year period. Interest expense on FHLB borrowings not associated with the leverage strategy increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational needs. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily certificates of deposit and money market accounts, partially offset by a decrease in the average balance of these portfolios.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current year period of $4.6 million, compared to a release of provision of $6.6 million during the prior year period. The provision for credit losses in the current year period was comprised of a $3.6 million increase in the ACL for loans and a $1.0 million 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 in the current year period was due primarily to growth in the commercial loan portfolio and commercial construction off-balance sheet credit exposures, along with a reduction in the projected prepayment speeds used in the model for 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 Six Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 6,583 $ 6,730 $ (147) (2.2) %
Insurance commissions 1,672 1,254 418 33.3
Other non-interest income 2,180 2,938 (758) (25.8)
Total non-interest income $ 10,435 $ 10,922 $ (487) (4.5)

The increase in insurance commissions was due primarily to annual contingent insurance commissions received being higher than anticipated and the related accrual adjustments, along with overall commissions being higher in the current year. The decrease in other non-interest income was due mainly to the prior year period including gains on a loan-related financial derivative agreement, with no such gains in the current year period.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Six Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 26,487 $ 27,751 $ (1,264) (4.6) %
Information technology and related expense 10,859 8,925 1,934 21.7
Occupancy, net 7,042 6,872 170 2.5
Regulatory and outside services 2,838 2,640 198 7.5
Advertising and promotional 2,166 2,558 (392) (15.3)
Federal insurance premium 2,058 1,416 642 45.3
Deposit and loan transaction costs 1,301 1,386 (85) (6.1)
Office supplies and related expense 1,264 970 294 30.3
Other non-interest expense 2,389 2,136 253 11.8
Total non-interest expense $ 56,404 $ 54,654 $ 1,750 3.2

The decrease in salaries and employee benefits was attributable mainly to a decrease in incentive compensation. The increase in information technology and related expenses was due mainly to third-party project management expenses associated with the Bank's ongoing digital transformation project, along with higher software licensing expenses. 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 mainly to an increase in the FDIC assessment rate for all insured depository institutions, along with the leverage strategy being utilized during the majority of the current year period and being utilized for only three months during the prior year period. 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.

The Company's efficiency ratio was 57.43% for the current year period compared to 52.74% for the prior year period. The change in the efficiency ratio was due primarily to lower net interest income and higher non-interest expense in the current year quarter.

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 Six Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 37,267 $ 55,610 $ (18,343) (33.0) %
Income tax expense 6,838 11,801 (4,963) (42.1)
Net income $ 30,429 $ 43,809 $ (13,380) (30.5)
Effective Tax Rate 18.3 % 21.2 %

The decrease in income tax expense was due primarily to lower pretax income in the current year period, 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 to the overall effective rate.

Fiscal Year 2023 Outlook

The rapid increase in short-term rates led by the FRB and the inverted yield curve has led to decreases in the Bank's net interest margin. There has been a runoff in some deposit product balances and management has increased certificate of deposit and money market account rates to help mitigate the outflow. The higher loan rates have made the purchase of 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 as a result of housing turnover. 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 is expected to 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, and deposit funds moving from lower costing deposit accounts to certificates of deposit. 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. As with managing the size of the balance sheet, management continues to evaluate funding options and plans to continue using shorter term borrowings, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repaid or repriced to lower cost alternatives faster.

Subsequent to March 31, 2023, management increased the rates offered on the Bank's money market accounts in response to competitor pricing. This increase, in combination with the full-quarter impact of the Bank's certificate of deposit promotional campaign and the ongoing repricing of the Bank's certificate of deposit and FHLB advance portfolios, offset by growth in the yield on loans, is expected to reduce the net interest margin by approximately 20 basis points during the June 2023 quarter, excluding the impact of the leverage strategy.

Management intends to implement a new core processing system ("digital transformation") for the Bank by September 2023. The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. Management anticipates information technology and related expenses will be approximately $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 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24 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. Previously, management expected an increase in salaries and benefits of $3.5 million in fiscal year 2023 and now expect salaries and benefits to remain flat in fiscal year 2023. This is due to several factors such as open positions remaining unfilled, reduced incentive compensation expectations, and a lower merit increase than was projected at September 30, 2022. Federal insurance premium expense is anticipated to be approximately $1.3 million higher in fiscal year 2023 compared to fiscal year 2022, due to the increase in the assessment rate that began in January 2023 for all insured depository institutions. Management anticipates the effective tax rate for fiscal year 2023 will be approximately 19%.

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.

For the Six Months Ended
March 31, 2023 March 31, 2022
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated $ 4,050,149 $ 67,024 3.31 % $ 3,968,475 $ 64,415 3.25 %
Correspondent purchased 2,383,295 36,642 3.07 2,030,928 25,805 2.54
Bulk purchased 145,779 847 1.16 165,895 1,114 1.34
Total one- to four-family loans 6,579,223 104,513 3.18 6,165,298 91,334 2.96
Commercial loans 1,085,870 25,917 4.72 855,057 17,794 4.12
Consumer loans 102,705 3,708 7.24 91,573 2,072 4.54
Total loans receivable(1) 7,767,798 134,138 3.45 7,111,928 111,200 3.12
MBS(2) 1,197,462 9,559 1.60 1,397,056 9,446 1.35
Investment securities(2)(3) 525,047 1,776 0.68 522,986 1,608 0.61
FHLB stock(4) 182,737 7,765 8.52 115,546 3,471 6.02
Cash and cash equivalents(5) 1,389,121 27,648 3.94 993,653 963 0.19
Total interest-earning assets 11,062,165 180,886 3.26 10,141,169 126,688 2.49
Other non-interest-earning assets 255,882 398,355
Total assets $ 11,318,047 $ 10,539,524
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 998,604 657 0.13 $ 1,060,755 355 0.07
Savings 543,630 201 0.07 530,451 141 0.05
Money market 1,690,893 6,218 0.74 1,822,848 1,701 0.19
Retail certificates 2,119,905 18,882 1.79 2,270,195 14,847 1.31
Commercial certificates 36,413 301 1.66 142,982 455 0.64
Wholesale certificates 112,272 1,785 3.19 198,527 157 0.16
Total deposits 5,501,717 28,044 1.02 6,025,758 17,656 0.59
Borrowings(6) 3,983,434 65,055 3.25 2,533,641 16,317 1.28
Total interest-bearing liabilities 9,485,151 93,099 1.96 8,559,399 33,973 0.79
Non-interest-bearing deposits 575,518 564,089
Other non-interest-bearing liabilities 182,083 193,606
Stockholders' equity 1,075,295 1,222,430
Total liabilities and stockholders' equity $ 11,318,047 $ 10,539,524
Net interest income(7) $ 87,787 $ 92,715
Net interest-earning assets $ 1,577,014 $ 1,581,770
Net interest margin(8)(9) 1.59 1.83
Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.18x
Selected performance ratios:
Return on average assets (annualized)(9) 0.54 % 0.83 %
Return on average equity (annualized)(9) 5.66 7.17
Average equity to average assets 9.50 11.60
Operating expense ratio (annualized)(10) 1.00 1.04
Efficiency ratio(9)(11) 57.43 52.74
Pre-tax yield on leverage strategy(12) 0.15 0.15

(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 and $3.0 million for the six months ended March 31, 2023 and March 31, 2022, respectively.

(4)Included in this line, for the six months ended March 31, 2023 and March 31, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $64.4 million and $42.6 million, and dividend income of $2.8 million and $1.2 million at a weighted average yield of 8.58% and 5.75% and FHLB stock not related to the leverage strategy with an average outstanding balance of $118.4 million and $72.9 million and dividend income of $5.0 million and $2.2 million at a weighted average yield of 8.49% and 6.18%, respectively.

(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.37 billion and $904.6 million during the six months ended March 31, 2023 and March 31, 2022, respectively.

(6)Included in this line, for the six months ended March 31, 2023 and March 31, 2022 respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.43 billion and $947.3 million, with interest paid of $28.6 million and $1.3 million, at a weighted average rate of 3.95% and 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.55 billion and $1.59 billion and interest paid of $36.5 million and $15.1 million, at a weighted average rate of 2.86% and 1.89%. 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 Six Months Ended
March 31, 2023 March 31, 2022
Actual Leverage Adjusted Actual Leverage Adjusted
(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)
Yield on interest-earning assets 3.26 % 0.13 % 3.13 % 2.49 % (0.22) % 2.71 %
Cost of interest-bearing liabilities 1.96 0.36 1.60 0.79 (0.07) 0.86
Return on average assets (annualized) 0.54 (0.06) 0.60 0.83 (0.07) 0.90
Return on average equity (annualized) 5.66 0.16 5.50 7.17 0.09 7.08
Net interest margin 1.59 (0.20) 1.79 1.83 (0.17) 2.00
Efficiency Ratio 57.43 (0.50) 57.93 52.74 (0.29) 53.03

(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.

Rate/Volume Analysis

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

For the Six Months Ended
March 31, 2023 vs. March 31, 2022
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 11,860 $ 11,078 $ 22,938
MBS (1,457) 1,570 113
Investment securities 6 162 168
FHLB stock 2,507 1,787 4,294
Cash and cash equivalents 533 26,152 26,685
Total interest-earning assets 13,449 40,749 54,198
Interest-bearing liabilities:
Checking (22) 324 302
Savings 4 56 60
Money market (132) 4,649 4,517
Certificates of deposit (2,247) 7,756 5,509
Borrowings 12,380 36,358 48,738
Total interest-bearing liabilities 9,983 49,143 59,126
Net change in net interest income $ 3,466 $ (8,394) $ (4,928)

Comparison of Operating Results for the Three Months Ended March 31, 2023 and 2022

For the quarter ended March 31, 2023, the Company recognized net income of $14.2 million, or $0.11 per share, compared to net income of $21.6 million, or $0.16 per share for the quarter ended March 31, 2022. The decrease in net income was due primarily to a decrease in net interest income along with a higher provision for credit losses, partially offset by lower income tax expense. The net interest margin decreased 13 basis points, from 1.69% for the prior year quarter to 1.56% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin decreased 30 basis points, from 2.01% for the prior year quarter to 1.71% 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, which exceeded the increase in loan yields.

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
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable $ 69,319 $ 55,412 $ 13,907 25.1 %
Cash and cash equivalents 10,977 949 10,028 1,056.7
MBS 4,748 4,821 (73) (1.5)
FHLB stock 3,607 2,240 1,367 61.0
Investment securities 895 800 95 11.9
Total interest and dividend income $ 89,546 $ 64,222 $ 25,324 39.4

The increase in interest income on loans receivable was due primarily to an increase in the average balance of the loan portfolio and an increase in the weighted average yield. The increase in the average balance was primarily in the correspondent one-to four-family and commercial real estate 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 a higher yield on cash related to an increase in FRB interest rates. The increase in dividend income on FHLB stock was due mainly to a higher FHLB dividend rate compared to the prior year quarter.

Interest Expense

The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.

For the Three Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings $ 31,447 $ 8,732 $ 22,715 260.1 %
Deposits 16,140 8,389 7,751 92.4
Total interest expense $ 47,587 $ 17,121 $ 30,466 177.9

The increase in interest expense on borrowings was due primarily to an increase in the average balance and weighted average rate on borrowings not associated with the leverage strategy to fund loan growth and a reduction in deposits, along with an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year quarter. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily certificates of deposit and money market accounts, partially offset by a decrease in the average balance of these portfolios.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $891 thousand, compared to a release of provision of $3.2 million during the prior year quarter. See "Comparison of Operating Results for the Three Months Ended March 31, 2023 and December 31, 2022" above for additional discussion regarding the provision for credit losses during 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
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 3,122 $ 3,300 $ (178) (5.4) %
Insurance commissions 877 543 334 61.5
Other non-interest income 1,084 1,573 (489) (31.1)
Total non-interest income $ 5,083 $ 5,416 $ (333) (6.1)

The increase in insurance commissions was due primarily to annual contingent insurance commissions received being higher than anticipated and the related accrual adjustments, along with overall commissions being higher in the current quarter. The decrease in other non-interest income was due mainly to the prior year quarter including gains on a loan-related financial derivative agreement, with no such gains in the current quarter.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 12,789 $ 14,023 $ (1,234) (8.8) %
Information technology and related expense 5,789 4,493 1,296 28.8
Occupancy, net 3,568 3,493 75 2.1
Regulatory and outside services 1,305 1,272 33 2.6
Advertising and promotional 1,333 1,494 (161) (10.8)
Federal insurance premium 1,246 777 469 60.4
Deposit and loan transaction costs 690 689 1 0.1
Office supplies and related expense 631 502 129 25.7
Other non-interest expense 1,280 1,217 63 5.2
Total non-interest expense $ 28,631 $ 27,960 $ 671 2.4

The decrease in salaries and employee benefits was attributable mainly to a decrease in incentive compensation. The increase in information technology and related expense was due primarily to third-party project management expenses associated with the Bank's ongoing digital transformation project and an increase in software licensing. The increase in federal insurance premium expense was due mainly to an increase in the FDIC assessment rate effective January 1, 2023 for all insured depository institutions. The increase in office supplies and related expense was timing related.

The Company's efficiency ratio was 60.86% for the current quarter compared to 53.24% for the prior year quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter.

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
March 31, Change Expressed in:
2023 2022 Dollars Percent
(Dollars in thousands)
Income before income tax expense $ 17,520 $ 27,745 $ (10,225) (36.9) %
Income tax expense 3,331 6,122 (2,791) (45.6)
Net income $ 14,189 $ 21,623 $ (7,434) (34.4)
Effective Tax Rate 19.0 % 22.1 %

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 to the overall effective rate.

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.

For the Three Months Ended
March 31, 2023 March 31, 2022
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Amount Paid Rate Amount Paid Rate
Assets: (Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated $ 4,050,515 $ 33,660 3.32 % $ 3,965,844 $ 31,993 3.23 %
Correspondent purchased 2,462,960 19,380 3.15 2,026,120 13,060 2.58
Bulk purchased 144,438 413 1.14 161,149 503 1.25
Total one- to four-family loans 6,657,913 53,453 3.21 6,153,113 45,556 2.96
Commercial loans 1,147,681 13,924 4.85 869,205 8,851 4.07
Consumer loans 102,649 1,942 7.67 90,326 1,005 4.51
Total loans receivable(1) 7,908,243 69,319 3.51 7,112,644 55,412 3.12
MBS(2) 1,173,366 4,748 1.62 1,357,693 4,821 1.42
Investment securities(2)(3) 525,012 895 0.68 522,019 800 0.61
FHLB stock(4) 167,567 3,607 8.73 158,546 2,240 5.73
Cash and cash equivalents(5) 967,586 10,977 4.54 1,971,341 949 0.19
Total interest-earning assets 10,741,774 89,546 3.34 11,122,243 64,222 2.31
Other non-interest-earning assets 263,916 385,323
Total assets $ 11,005,690 $ 11,507,566
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking $ 989,440 368 0.15 $ 1,069,282 176 0.07
Savings 541,324 101 0.08 540,348 71 0.05
Money market 1,620,451 3,184 0.80 1,879,799 876 0.19
Retail certificates 2,176,103 11,115 2.07 2,241,080 7,012 1.27
Commercial certificates 38,575 197 2.07 116,181 183 0.64
Wholesale certificates 127,037 1,175 3.75 197,335 71 0.15
Total deposits 5,492,930 16,140 1.19 6,044,025 8,389 0.56
Borrowings(6) 3,700,022 31,447 3.42 3,499,010 8,732 1.01
Total interest-bearing liabilities 9,192,952 47,587 2.09 9,543,035 17,121 0.73
Non-interest-bearing deposits 574,495 577,989
Other non-interest-bearing liabilities 172,481 177,995
Stockholders' equity 1,065,762 1,208,547
Total liabilities and stockholders' equity $ 11,005,690 $ 11,507,566
Net interest income(7) $ 41,959 $ 47,101
Net interest-earning assets $ 1,548,822 $ 1,579,208
Net interest margin(8)(9) 1.56 1.69
Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.17x
Selected performance ratios:
Return on average assets (annualized)(9) 0.52 % 0.75 %
Return on average equity (annualized)(9) 5.33 7.16
Average equity to average assets 9.68 10.50
Operating expense ratio (annualized)(10) 1.04 0.97
Efficiency ratio(9)(11) 60.86 53.24
Pre-tax yield on leverage strategy(12) 0.06 0.14

(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 $1.0 million and $2.0 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

(4)Included in this line, for the three months ended March 31, 2023 and March 31, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $44.1 million and $86.2 million, respectively, and dividend income of $951 thousand and $1.2 million, respectively, at a weighted average yield of 8.75% and 5.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $123.5 million and $72.3 million, respectively, and dividend income of $2.7 million and $1.0 million, respectively, at a weighted average yield of 8.72% and 5.71%, respectively.

(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $935.1 million and $1.83 billion during the three months ended March 31, 2023 and March 31, 2022, respectively.

(6)Included in this line, for the three months ended March 31, 2023 and March 31, 2022, respectively, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $979.2 million and $1.92 billion, respectively, and interest paid of $11.3 million and $1.3 million, respectively, at a weighted average rate of 4.60% and 0.26%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.72 billion and $1.58 billion, respectively, and interest paid of $20.2 million and $7.5 million, respectively, at a weighted average rate of 3.00% and 1.90%, respectively. The FHLB advance amounts and rates included in this line 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
March 31, 2023 March 31, 2022
Actual Leverage Adjusted Actual Leverage Adjusted
(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)
Yield on interest-earning assets 3.34 % 0.14 % 3.20 % 2.31 % (0.39) % 2.70 %
Cost of interest-bearing liabilities 2.09 0.30 1.79 0.73 (0.11) 0.84
Return on average assets (annualized) 0.52 (0.04) 0.56 0.75 (0.13) 0.88
Return on average equity (annualized) 5.33 0.05 5.28 7.16 0.18 6.98
Net interest margin 1.56 (0.15) 1.71 1.69 (0.32) 2.01
Efficiency Ratio 60.86 (0.07) 60.93 53.24 (0.58) 53.82

(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.

Rate/Volume Analysis

The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2023 to the three months ended March 31, 2022. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

For the Three Months Ended March 31,
2023 vs. 2022
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable $ 7,203 $ 6,704 $ 13,907
MBS (700) 627 (73)
Investment securities 5 90 95
FHLB stock 134 1,233 1,367
Cash and cash equivalents (724) 10,752 10,028
Total interest-earning assets 5,918 19,406 25,324
Interest-bearing liabilities:
Checking (14) 206 192
Savings — 30 30
Money market (137) 2,445 2,308
Certificates of deposit (652) 5,873 5,221
Borrowings 6,807 15,908 22,715
Total interest-bearing liabilities 6,004 24,462 30,466
Net change in net interest income $ (86) $ (5,056) $ (5,142)

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, the FRB of Kansas City's discount window, and the newly established BTFP. 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 March 31, 2023, 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, which was completed during the first quarter of fiscal year 2023. There were no borrowings from the discount window during the current quarter. The amount that can be borrowed under the BTFP is based upon the par value of securities pledged as collateral, the term can be up to one year in length, and the borrowings can be prepaid without penalty. There were no BTFP borrowings during the current quarter. Subsequent to March 31, 2023, the Bank repaid its borrowings on the FHLB line of credit and borrowed $500.0 million under the BTFP as the rate was more favorable than the rates offered on the FHLB line of credit or the rate on a one-year FHLB advance at that point in time.

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 March 31, 2023, the Bank had total borrowings, at par, of $2.70 billion, or approximately 27% of total assets, all of which were FHLB borrowings. Of this amount, $444.7 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. Management estimated that the Bank had $2.85 billion in additional liquidity available at March 31, 2023 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

At March 31, 2023, 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. The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of March 31, 2023, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At March 31, 2023, 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 $155.9 million as collateral for public unit certificates of deposit at March 31, 2023. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At March 31, 2023, $1.08 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $101.7 million of public unit certificates of deposit and $27.8 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

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 March 31, 2023, the Bank's CBLR was 9.7% and the Company's CBLR was 10.6%, which exceeded the minimum requirements.

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 one with 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 rates 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 additional information

regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.

More Than More Than
Within One Year to Three Years Over
One Year Three Years to Five Years Five Years Total
Interest-earning assets: (Dollars in thousands)
Loans receivable(1) $ 1,476,150 $ 1,788,645 $ 1,429,946 $ 3,278,382 $ 7,973,123
Securities(2) 315,359 725,449 267,911 362,819 1,671,538
Other interest-earning assets 21,679 — — — 21,679
Total interest-earning assets 1,813,188 2,514,094 1,697,857 3,641,201 9,666,340
Interest-bearing liabilities:
Non-maturity deposits(3) 880,819 412,606 379,717 2,053,716 3,726,858
Certificates of deposit 1,086,275 924,716 462,762 196 2,473,949
Borrowings(4) 649,566 1,237,478 721,989 127,798 2,736,831
Total interest-bearing liabilities 2,616,660 2,574,800 1,564,468 2,181,710 8,937,638
Excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (803,472) $ (60,706) $ 133,389 $ 1,459,491 $ 728,702
Cumulative excess (deficiency) of interest-earning assets over
interest-bearing liabilities $ (803,472) $ (864,178) $ (730,789) $ 728,702
Cumulative excess (deficiency) of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
March 31, 2023 (8.0) % (8.6) % (7.3) % 7.2 %
December 31, 2022 (10.3)
Cumulative one-year gap - interest rates +200 bps at:
March 31, 2023 (8.6)
December 31, 2022 (10.6)

(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 March 31, 2023, 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 $3.65 billion, for a cumulative one-year gap of (36.2)% 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 March 31, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(803.5) million, or (8.0)% of total assets, compared to $(1.02) billion, or (10.3)% of total assets, at December 31, 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 March 31, 2023 compared to December 31, 2022 and an increase in the amount of asset cash flows coming due for the same time periods. This was due primarily to a decrease in the amount of non-maturity deposits projected by the Bank's interest rate risk model to mature within one year as of March 31, 2023 compared to December 31, 2022, partially offset by an increase in cash flows projected to be received on loans as of March 31, 2023.

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 March 31, 2023, the Bank's one-year gap is projected to be $(862.4) million, or (8.6)% 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 higher

rate environment. This compares to a one-year gap of $(1.05) billion, or (10.6)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 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.

Change Net Interest Income At
(in Basis Points) March 31, 2023 September 30, 2022
in Interest Rates(1) Amount () Change () Change (%) Amount () Change () Change (%)
(Dollars in thousands)
-200 bp (2.74) % (0.42) %
-100 bp 155,540 (1,771) (1.13) 183,363 130 0.07
000 bp 157,311 — — 183,233 — —
+100 bp 158,134 823 0.52 182,737 (496) (0.27)
+200 bp 158,312 1,001 0.64 182,081 (1,152) (0.63)
+300 bp 158,385 1,074 0.68 181,394 (1,839) (1.00)

All values are in US Dollars.

(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 March 31, 2023 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 first six months of fiscal year 2023 which was caused by an increase in certificates of deposit at higher rates, an increase in the rates paid on our money market accounts, and an increase in the balance of higher-costing FHLB borrowings since September 30, 2022. This was partially offset by higher projected income on loans receivable due to a higher balance and yield on the portfolio compared to September 30, 2022.

In the rising and declining interest rate scenarios, the variability of net interest income projections is not significant. Generally, the increase in net interest income in the rising rate scenarios is due to the degree to which loan repayments that are projected to reprice upward is greater than the projected increase in rates on deposits in the next twelve months. In the declining rate scenarios, loan repayments are repriced at rates that do not offset the higher cost of liabilities that are not expected to reprice in the next twelve months.

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.

Change Market Value of Portfolio Equity At
(in Basis Points) March 31, 2023 September 30, 2022
in Interest Rates(1) Amount () Change () Change (%) Amount () Change () Change (%)
(Dollars in thousands)
-200 bp 26.67 % 45.18 %
-100 bp 1,115,006 126,123 12.75 1,024,167 129,180 14.43
000 bp 988,883 — — 894,987 — —
+100 bp 857,317 (131,566) (13.30) 759,165 (135,822) (15.18)
+200 bp 726,352 (262,531) (26.55) 625,864 (269,123) (30.07)
+300 bp 600,625 (388,258) (39.26) 500,730 (394,257) (44.05)

All values are in US Dollars.

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

The percentage change in the Bank's MVPE at March 31, 2023 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 March 31, 2023 compared to September 30, 2022 due primarily to higher MVPE at March 31, 2023. The increase in the MVPE was due in part to lower long-term rates at March 31, 2023 which resulted in an increase in the market value of the Bank's loan portfolio. In addition, the increase in the balance of certificates of deposit and borrowings during the six-month period resulted in less of an increase in the market value of the Bank's deposits compared to the prior year-end. The offsetting impacts of these factors increased our MVPE in the base case and led to less sensitivity to changes in rates.

The MVPE ratio continues to be an important measurement for management as we consider the changes in market rates, liquidity needs and portfolio balances. MVPE represents a long-term view of the interest sensitivity of the Bank's balance sheet while our net interest income projections inform management of the short-term impacts of pricing decisions.

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, prepayments 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 increasing rate scenarios, the sensitivity reflects the negative impacts of rates on the value of the Bank's loan and securities portfolio more so than on the deposit and borrowing portfolio. In the decreasing interest rate scenarios, 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.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2023. 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.

Amount Yield/Rate WAL % of Category % of Total
(Dollars in thousands)
Securities $ 1,505,808 1.33 % 3.9 15.6 %
Loans receivable:
Fixed-rate one- to four-family 5,726,192 3.24 6.7 71.9 % 59.3
Fixed-rate commercial 454,171 4.16 3.4 5.7 4.7
All other fixed-rate loans 80,451 3.91 7.2 1.0 0.9
Total fixed-rate loans 6,260,814 3.31 6.5 78.6 64.9
Adjustable-rate one- to four-family 888,805 3.42 3.8 11.2 9.2
Adjustable-rate commercial 727,432 5.37 7.9 9.1 7.5
All other adjustable-rate loans 89,074 7.86 3.0 1.1 0.9
Total adjustable-rate loans 1,705,311 4.49 5.5 21.4 17.6
Total loans receivable 7,966,125 3.56 6.3 100.0 % 82.5
FHLB stock 128,096 8.73 2.5 1.3
Cash and cash equivalents 60,207 1.77 — 0.6
Total interest-earning assets $ 9,660,236 3.27 5.8 100.0 %
Non-maturity deposits $ 3,076,221 0.46 6.2 55.4 % 37.3 %
Retail certificates of deposit 2,299,829 2.54 1.6 41.4 27.8
Commercial certificates of deposit 43,590 2.71 1.2 0.8 0.5
Public unit certificates of deposit 130,530 4.01 0.7 2.4 1.6
Total interest-bearing deposits 5,550,170 1.43 4.1 100.0 % 67.2
Term borrowings 2,497,664 2.93 2.3 92.5 % 30.3
Line of credit borrowings 203,400 4.99 — 7.5 2.5
Total borrowings 2,701,064 3.08 2.2 100.0 % 32.8
Total interest-bearing liabilities $ 8,251,234 1.97 3.5 100.0 %

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of March 31, 2023. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of March 31, 2023, 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 March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 1. Legal Proceedings

In the normal course of business, the Company and the Bank are involved as plaintiff or defendant in various legal actions. 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.

On November 2, 2022, the Bank was served a putative class action lawsuit, captioned Jennifer Harding, et al. vs. Capitol Federal Savings Bank (Case No. 2022-CV-00598), filed in the Third Judicial District Court, Shawnee County, Kansas against the Bank, alleging the Bank improperly charged overdraft fees on (1) debit card transactions that were authorized for payment on sufficient funds but later settled against a negative account balance (commonly known as "authorize positive purportedly settle negative" or "APPSN" transactions) and (2) merchant re-presentments of previously rejected payment requests. The complaint asserts a breach of contract claim (including breach of an implied covenant of good faith and fair dealing) for each practice and seeks restitution for alleged improper fees, alleged actual damages, costs and disbursements, and injunction relief. On April 5, 2023, the court granted the Bank's motion to dismiss the complaint, with prejudice. This decision is still subject to appeal.

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 March 31, 2023 and additional information regarding our stock repurchase program. As of March 31, 2023, 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 of Approximate Dollar
Total Shares Purchased as Value of Shares
Number of Average Part of Publicly that May Yet Be
Shares Price Paid Announced Plans Purchased Under the
Purchased per Share or Programs Plans or Programs
January 1, 2023 through
January 31, 2023 — $ — — $ 22,469,207
February 1, 2023 through
February 28, 2023 — — — 22,469,207
March 1, 2023 through
March 31, 2023 — — — 22,469,207
Total — — — 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.

INDEX TO EXHIBITS

Exhibit<br>Number Document
3(i) Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference
3(ii) Bylaws of Capitol Federal Financial, Inc., as amended, filed on March 30, 2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference
10.1(i) Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
10.1(ii) Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
10.1(iii) Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
10.1(iv) Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference
10.2 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
10.3 Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
10.4 Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
10.5 Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
10.6 Description of Director Fee Arrangements filed on November 23, 2022 as Exhibit 10.6 to the Registrant's September 30, 2022 Form 10-K and incorporated herein by reference
10.7 Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
10.8 Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
10.9 Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.10 Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.11 Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.12 Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
31.1 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
31.2 Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
101 The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023, filed with the Securities and Exchange Commission on May 10, 2023, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at March 31, 2023 and September 30, 2022, (ii) Consolidated Statements of Income for the three and six months ended March 31, 2023 and 2022, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2023 and 2022, (iv) Consolidated Statements of Stockholders' Equity for the three and six months ended March 31, 2023 and 2022, (v) Consolidated Statements of Cash Flows for the six months ended March 31, 2023 and 2022, and (vi) Notes to the Unaudited Consolidated Financial Statements.
--- ---
104 Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CAPITOL FEDERAL FINANCIAL, INC.
Date: May 10, 2023 By: /s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: May 10, 2023 By: /s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer

74

Document

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, John B. Dicus, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Capitol Federal Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 10, 2023 By: /s/ John B. Dicus
John B. Dicus
Chairman, President and Chief Executive Officer

Document

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Kent G. Townsend, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Capitol Federal Financial, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 10, 2023 By: /s/ Kent G. Townsend
Kent G. Townsend
Executive Vice President, Chief Financial Officer and Treasurer

Document

EXHIBIT 32

CERTIFICATE PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Capitol Federal Financial, Inc. (the "Company") on Form 10-Q for the quarterly period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John B. Dicus, Chairman, President and Chief Executive Officer of the Company, and I, Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer of the Company, certify, in my capacity as an officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods presented in the financial statements included in such Report.

Date: May 10, 2023 By: /s/ John B. Dicus
John B. Dicus
Chairman, President and Chief Executive Officer
Date: May 10, 2023 By: /s/ Kent G. Townsend
Kent G. Townsend
Executive Vice President, Chief Financial Officer and Treasurer

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