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Capitol Federal Financial, Inc. (CFFN) SEC Filing 8-K Material Event for the period ending Thursday, October 28, 2021

Capitol Federal Financial, Inc.

CIK: 1490906 Ticker: CFFN


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NEWS RELEASE
FOR IMMEDIATE RELEASE
October 28, 2021
CAPITOL FEDERAL FINANCIAL, INC.®
REPORTS FISCAL YEAR 2021 RESULTS

Topeka, KS - Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the fiscal year ended September 30, 2021. The Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 will be filed with the Securities and Exchange Commission ("SEC") on or about November 24, 2021 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:
net income of $18.6 million;
basic and diluted earnings per share of $0.14;
net interest margin of 1.97%;
paid dividends of $11.5 million, or $0.085 per share; and
on October 19, 2021, announced a cash dividend of $0.085 per share, payable on November 19, 2021 to stockholders of record as of the close of business on November 5, 2021.

Highlights for the fiscal year include:
net income of $76.1 million;
basic and diluted earnings per share of $0.56;
net interest margin of 1.90%;
deposit growth of 6.6%;
paid dividends of $117.9 million, or $0.87 per share; and
on October 28, 2021, announced a fiscal year 2021 cash true-up dividend of $0.22 per share, payable on December 3, 2021 to stockholders of record as of the close of business on November 19, 2021.

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

For the quarter ended September 30, 2021, the Company recognized net income of $18.6 million, or $0.14 per share, compared to net income of $18.2 million, or $0.13 per share, for the quarter ended June 30, 2021. The net interest margin increased 13 basis points, from 1.84% for the prior quarter to 1.97% for the current quarter, due mainly to a higher loan portfolio average yield.

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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
September 30, June 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$57,139 $54,779 $2,360 4.3 %
Mortgage-backed securities ("MBS")4,900 5,360 (460)(8.6)
Federal Home Loan Bank Topeka ("FHLB") stock952 944 0.8 
Investment securities750 763 (13)(1.7)
Cash and cash equivalents27 26 3.8 
Total interest and dividend income$63,768 $61,872 $1,896 3.1 

The increase in interest income on loans receivable was primarily a result of an increase in the weighted average portfolio yield, from 3.11% for the prior quarter to 3.21% for the current quarter, mainly in the one- to four-family correspondent portfolio due to a reduction in premium amortization related to a slowdown in endorsement and payoff activity. The decrease in interest income on MBS was due primarily to a decrease in the weighted average portfolio yield, from 1.40% for the prior quarter to 1.30% for the current quarter, resulting from an increase in premium amortization related to prepayment activity.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
September 30, June 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$10,335 $11,475 $(1,140)(9.9)%
Borrowings7,889 7,826 63 0.8 
Total interest expense$18,224 $19,301 $(1,077)(5.6)

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the portfolio, from 0.69% for the prior quarter to 0.62% for the current quarter, and a decrease in the average balance of the retail certificate of deposit portfolio. See "Financial Condition as of September 30, 2021" below for additional information on deposits.

Provision for Credit Losses
For the quarter ended September 30, 2021, the Bank recorded a negative provision for credit losses of $1.3 million, compared to a negative provision for credit losses of $2.7 million for the prior quarter. The negative provision in the current quarter was composed of a $906 thousand decrease in the allowance for credit losses ("ACL") for loans and a $418 thousand decrease in reserves for off-balance sheet credit exposures. The $1.3 million negative provision for credit losses in the current quarter was due primarily to more favorable forecasted economic conditions at September 30, 2021 compared to June 30, 2021, largely related to commercial loans. However, the negative provision for the current quarter was lower than the prior quarter, as the rate of improvement in the forecasted economic conditions was less significant as compared to June 30, 2021. See additional discussion regarding the Bank's ACL and reserves for off-balance sheet credit exposures at September 30, 2021 in the "Asset Quality" section below.

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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
September 30, June 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,294 $3,227 $67 2.1 %
Insurance commissions781 723 58 8.0 
Other non-interest income1,228 1,286 (58)(4.5)
Total non-interest income$5,303 $5,236 $67 1.3 

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
September 30, June 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$14,600 $13,867 $733 5.3 %
Information technology and related expense4,354 4,736 (382)(8.1)
Occupancy, net3,639 3,504 135 3.9 
Regulatory and outside services1,476 1,469 0.5 
Advertising and promotional1,404 1,407 (3)(0.2)
Deposit and loan transaction costs638 693 (55)(7.9)
Federal insurance premium657 633 24 3.8 
Office supplies and related expense426 402 24 6.0 
Other non-interest expense1,053 891 162 18.2 
Total non-interest expense$28,247 $27,602 $645 2.3 

The increase in salaries and employee benefits was due primarily to an increase in incentive compensation. The decrease in information technology and related expense was due mainly to a decrease in professional services expense, primarily as a result of the completion of some projects in the prior quarter, and software licensing expense. Included in other non-interest expense in the prior quarter was a partial reversal of a write-down on a branch property sold by the Bank.

The Company's efficiency ratio was 55.55% for the current quarter compared to 57.73% for the prior quarter. The improvement in the efficiency ratio was due primarily to higher 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 lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense, relative to the net interest margin and non-interest income.

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Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
September 30, June 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
Income before income tax expense$23,923 $22,896 $1,027 4.5 %
Income tax expense5,370 4,709 661 14.0 
Net income$18,553 $18,187 $366 2.0 
Effective Tax Rate22.4 %20.6 %

The increase in income tax expense was due primarily to higher pretax income, as well as a higher effective tax rate in the current quarter. The higher effective tax rate was due mainly to adjustments of permanent tax differences, specifically the Company's low income housing partnership amounts.

Comparison of Operating Results for the Years Ended September 30, 2021 and 2020

The Company recognized net income of $76.1 million, or $0.56 per share, for fiscal year 2021 compared to net income of $64.5 million, or $0.47 per share, for fiscal year 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year compared to recording a negative provision for credit losses of $8.5 million in the current year, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $14.3 million, or 7.6%, from the prior year to $175.0 million for the current year. The net interest margin decreased 22 basis points, from 2.12% for the prior year to 1.90% for the current year. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income
The 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 Year Ended
September 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$229,897 $270,494 $(40,597)(15.0)%
MBS21,399 23,009 (1,610)(7.0)
FHLB Stock3,916 5,827 (1,911)(32.8)
Investment securities2,825 4,467 (1,642)(36.8)
Cash and cash equivalents144 1,181 (1,037)(87.8)
Total interest and dividend income$258,181 $304,978 $(46,797)(15.3)

The decrease in interest income on loans receivable was due mainly to a decrease in the weighted average yield, primarily in the one- to four-family loan portfolio. The decrease in the weighted average yield on the one- to four-family loan portfolio was due to endorsements and refinances to lower market rates, higher premium amortization related to correspondent one- to four-family loans due to high payoff and endorsement activity, along with adjustable-rate loans repricing to lower market rates, and the origination and purchase of new loans at lower market rates. Additionally, the average balance of the portfolio decreased compared to the prior year due primarily to a reduction in the correspondent one-to four-family loan portfolio. See "Average Balance Sheets" below.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by an increase in the average balance of the portfolio. Cash flows from the loan portfolio were used to purchase securities during the current fiscal year.

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

The decrease in interest income on investment securities was due to a decrease in the weighted average yield as a result of purchases at lower market yields, partially offset by an increase in the average balance of the portfolio.

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

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Year Ended
September 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$48,406 $67,598 $(19,192)(28.4)%
Borrowings34,774 48,045 (13,271)(27.6)
Total interest expense$83,180 $115,643 $(32,463)(28.1)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, money market accounts, and wholesale certificates of deposit. Since the onset of the Coronavirus Disease 2019 ("COVID-19") pandemic, retail certificates of deposit have been repricing downward as they renew or are replaced at lower offered rates, and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with liquidity generated from the deposit portfolio. The decrease in interest expense on borrowings was also a result of lowering the cost of FHLB advances by prepaying certain advances during the current and prior years.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year of $8.5 million, compared to a $22.3 million provision for credit losses during the prior year. The negative provision in the current fiscal year was composed of a $6.5 million decrease in the ACL for loans and a $2.0 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses in the current fiscal year was due primarily to favorable forecasted economic outlooks during the year, largely related to commercial loans. See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures at September 30, 2021 in the "Asset Quality" section below.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Year Ended
September 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$12,282 $11,285 $997 8.8 %
Gain on sale of Visa Class B shares7,386 — 7,386 N/A
Insurance commissions3,030 2,487 543 21.8 
Other non-interest income5,388 5,827 (439)(7.5)
Total non-interest income$28,086 $19,599 $8,487 43.3 
The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume. During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance
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commissions was due primarily to higher annual contingent insurance commissions received in the current year period compared to the prior year period. The decrease in other non-interest income was primarily related to lower income from bank-owned life insurance ("BOLI"), due to a reduction in the yield as a result of lower market rates and reduced death benefit receipts.

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 Year Ended
September 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$56,002 $52,996 $3,006 5.7 %
Information technology and related expense17,922 16,974 948 5.6 
Occupancy, net14,045 13,870 175 1.3 
Regulatory and outside services5,764 5,762 — 
Advertising and promotional5,133 4,889 244 5.0 
Loss on interest rate swap termination4,752 — 4,752 N/A
Deposit and loan transaction costs2,761 2,890 (129)(4.5)
Federal insurance premium2,545 914 1,631 178.4 
Office supplies and related expense1,715 2,195 (480)(21.9)
Other non-interest expense4,930 5,514 (584)(10.6)
Total non-interest expense$115,569 $106,004 $9,565 9.0 

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

The Company's efficiency ratio was 56.91% for the current year compared to 50.74% for the prior year. The change in the efficiency ratio was due to higher non-interest expense and lower net interest income, partially offset by higher non-interest income. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current year related to higher non-interest expense was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current year, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Year Ended
September 30, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$96,028 $80,630 $15,398 19.1 %
Income tax expense19,946 16,090 3,856 24.0 
Net income$76,082 $64,540 $11,542 17.9 
Effective Tax Rate20.8 %20.0 %
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The increase in income tax expense was due primarily to higher pretax income in the current year, as well as a higher effective tax rate compared to the prior year. The effective tax rate was lower in the prior year due primarily to a discrete benefit recognized in the prior year related to certain previously acquired BOLI policies. Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21% to 22%.


Financial Condition as of September 30, 2021

The following table summarizes the Company's financial condition at the dates indicated.
Annualized
September 30, June 30, PercentSeptember 30, Percent
20212021Change2020Change
(Dollars in thousands)
Total assets$9,631,246 $9,649,665 (0.8)%$9,487,218 1.5 %
Available-for-sale ("AFS") securities2,014,608 2,015,705 (0.2)1,560,950 29.1 
Loans receivable, net7,081,142 7,033,827 2.7 7,202,851 (1.7)
Deposits6,597,396 6,638,294 (2.5)6,191,408 6.6 
Borrowings1,582,850 1,582,400 0.1 1,789,313 (11.5)
Stockholders' equity1,242,273 1,237,624 1.5 1,284,859 (3.3)
Equity to total assets at end of period12.9 %12.8 %13.5 %
Average number of basic shares outstanding135,571 135,505 0.2 137,705 (1.5)
Average number of diluted shares outstanding135,571 135,537 0.1 137,705 (1.5)

The following table summarizes loan originations and purchases and borrowing activity, along with the related weighted average rates, during the periods indicated.
For the Three Months EndedFor the Year Ended
September 30, 2021September 30, 2021
AmountRateAmountRate
(Dollars in thousands)
Loan originations and purchases
One- to four-family and consumer:
Originated$237,358 2.86 %$1,185,924 2.78 %
Purchased184,562 2.68 689,527 2.64 
Commercial:
Originated43,021 4.08 251,530 3.43 
Purchased19,600 4.06 134,714 4.15 
$484,541 2.95 $2,261,695 2.89 
Borrowing activity
Maturities and prepayments$(340,000)2.73 $(1,305,000)2.18 
New borrowings340,000 2.17 1,105,000 1.96 

Comparison of September 30, 2021 to June 30, 2021
The decrease in total assets was due primarily to a decrease in cash and cash equivalents, partially offset by an increase in loans receivable, as excess operating cash was generally used to fund loan growth during the current quarter. The increase in loans receivable was mainly in the one- to four-family correspondent loan portfolio.

The decrease in deposits was due primarily to a decrease in the certificate of deposit portfolio, partially offset by an increase in money market accounts, as customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's money market accounts.

Comparison of September 30, 2021 to September 30, 2020
The increase in total assets was due mainly to an increase in securities, partially offset by decreases in cash and cash equivalents and loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not
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used to pay down maturing borrowings. The decrease in loans receivable was primarily in the one- to four-family correspondent loan portfolio.

The increase in total deposits was in non-maturity deposits, partially offset by a decrease in retail certificates of deposit. The decrease in total borrowings was due to not renewing borrowings that matured during the current year. Cash flows from deposit growth were used to pay off maturing borrowings.

Stockholders' Equity
During the current year, the Company paid cash dividends totaling $117.9 million and repurchased common stock totaling $1.5 million. The cash dividends paid during the current year totaled $0.87 per share and consisted of a $0.40 per share True Blue Capitol cash dividend, a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and four regular quarterly cash dividends of $0.085 per share. Given the state of economic uncertainty, the Company elected to defer the annual True Blue dividend in June 2020. In June 2021, the Company paid a True Blue Capitol cash dividend of $0.40 per share, which represented a $0.20 per share cash dividend for fiscal year 2020 and a $0.20 per share cash dividend for fiscal year 2021.
On October 19, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on November 19, 2021 to stockholders of record as of the close of business on November 5, 2021. On October 28, 2021, the Company announced a fiscal year 2021 cash true-up dividend of $0.22 per share, or approximately $29.9 million, related to fiscal year 2021 earnings. The $0.22 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2021 and total regular quarterly cash dividends paid during fiscal year 2021, divided by the number of shares outstanding. The cash true-up dividend is payable on December 3, 2021 to stockholders of record as of the close of business on November 19, 2021, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At September 30, 2021, this ratio was 11.5%.
At October 1, 2021, Capitol Federal Financial, Inc., at the holding company level, had $93.8 million in cash on deposit at the Bank. For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2022.

The following table presents a reconciliation of total to net shares outstanding as of September 30, 2021.
Total shares outstanding 138,832,284 
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock(3,219,012)
Net shares outstanding 135,613,272 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the community bank leverage ratio ("CBLR") requirement is a minimum of 8.5% for calendar year 2021 and 9% thereafter. As of September 30, 2021, the Bank's CBLR was 11.5%, which exceeded the minimum requirement.

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

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

For further information contact:
Kent TownsendInvestor Relations
Executive Vice President,(785) 270-6055
Chief Financial Officer and Treasurerinvestorrelations@capfed.com
(785) 231-6360
ktownsend@capfed.com
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SUPPLEMENTAL FINANCIAL INFORMATION
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)

September 30, June 30, September 30,
202120212020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $24,289, $74,346 and $172,430)$42,262 $95,305 $185,148 
AFS securities, at estimated fair value (amortized cost of $2,008,456, $2,002,957 and $1,529,605)2,014,608 2,015,705 1,560,950 
Loans receivable, net (ACL of $19,823, $20,724 and $31,527)7,081,142 7,033,827 7,202,851 
FHLB stock, at cost73,421 73,630 93,862 
Premises and equipment, net99,127 99,551 101,875 
Income taxes receivable, net— 891 — 
Other assets320,686 330,756 342,532 
TOTAL ASSETS$9,631,246 $9,649,665 $9,487,218 
LIABILITIES:
Deposits$6,597,396 $6,638,294 $6,191,408 
Borrowings1,582,850 1,582,400 1,789,313 
Advance payments by borrowers for taxes and insurance72,729 47,330 65,721 
Income taxes payable, net918 — 795 
Deferred income tax liabilities, net5,810 7,922 8,180 
Other liabilities129,270 136,095 146,942 
Total liabilities8,388,973 8,412,041 8,202,359 
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding— — — 
Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,832,284, 138,833,184 and 138,956,296 shares issued and outstanding as of September 30, 2021, June 30, 2021, and September 30, 2020, respectively1,388 1,388 1,389 
Additional paid-in capital1,189,633 1,189,466 1,189,853 
Unearned compensation, ESOP(31,387)(31,801)(33,040)
Retained earnings98,944 91,909 143,162 
AOCI, net of tax(16,305)(13,338)(16,505)
Total stockholders' equity1,242,273 1,237,624 1,284,859 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,631,246 $9,649,665 $9,487,218 
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)

For the Three Months EndedFor the Year Ended
September 30, June 30, September 30,
2021202120212020
INTEREST AND DIVIDEND INCOME:
Loans receivable$57,139 $54,779 $229,897 $270,494 
MBS4,900 5,360 21,399 23,009 
FHLB stock952 944 3,916 5,827 
Investment securities750 763 2,825 4,467 
Cash and cash equivalents27 26 144 1,181 
Total interest and dividend income63,768 61,872 258,181 304,978 
INTEREST EXPENSE:
Deposits10,335 11,475 48,406 67,598 
Borrowings7,889 7,826 34,774 48,045 
Total interest expense18,224 19,301 83,180 115,643 
NET INTEREST INCOME45,544 42,571 175,001 189,335 
PROVISION FOR CREDIT LOSSES(1,323)(2,691)(8,510)22,300 
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES46,867 45,262 183,511 167,035 
NON-INTEREST INCOME:
Deposit service fees3,294 3,227 12,282 11,285 
Gain on sale of Visa Class B shares— — 7,386 — 
Insurance commissions781 723 3,030 2,487 
Other non-interest income1,228 1,286 5,388 5,827 
Total non-interest income5,303 5,236 28,086 19,599 
NON-INTEREST EXPENSE:
Salaries and employee benefits14,600 13,867 56,002 52,996 
Information technology and related expense4,354 4,736 17,922 16,974 
Occupancy, net3,639 3,504 14,045 13,870 
Regulatory and outside services1,476 1,469 5,764 5,762 
Advertising and promotional1,404 1,407 5,133 4,889 
Loss on interest rate swap termination— — 4,752 — 
Deposit and loan transaction costs638 693 2,761 2,890 
Federal insurance premium657 633 2,545 914 
Office supplies and related expense426 402 1,715 2,195 
Other non-interest expense1,053 891 4,930 5,514 
Total non-interest expense28,247 27,602 115,569 106,004 
INCOME BEFORE INCOME TAX EXPENSE23,923 22,896 96,028 80,630 
INCOME TAX EXPENSE5,370 4,709 19,946 16,090 
NET INCOME$18,553 $18,187 $76,082 $64,540 


11


Average Balance Sheets
The following tables present the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates (annualized for the three-month periods) 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 income (annualized for the three-month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three-month periods) 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
September 30, 2021June 30, 2021
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
Amount Paid Rate Amount Paid Rate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,974,876 $32,979 3.32 %$3,982,990 $33,727 3.39 %
Correspondent purchased2,024,372 12,942 2.56 1,971,209 10,367 2.10 
Bulk purchased177,233 730 1.65 185,198 826 1.78 
Total one- to four-family loans6,176,481 46,651 3.02 6,139,397 44,920 2.93 
Commercial loans811,731 9,378 4.52 805,721 8,744 4.29 
Consumer loans95,449 1,110 4.61 96,980 1,115 4.61 
Total loans receivable(1)
7,083,661 57,139 3.21 7,042,098 54,779 3.11 
MBS(2)
1,510,421 4,900 1.30 1,529,679 5,360 1.40 
Investment securities(2)(3)
500,104 750 0.60 533,076 763 0.57 
FHLB stock72,699 952 5.19 73,689 944 5.14 
Cash and cash equivalents69,501 27 0.15 97,890 26 0.11 
Total interest-earning assets9,236,386 63,768 2.75 9,276,432 61,872 2.66 
Other non-interest-earning assets445,371 430,639 
Total assets$9,681,757 $9,707,071 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,563,501 183 0.05 $1,546,665 182 0.05 
Savings514,253 71 0.05 513,528 72 0.06 
Money market1,729,080 907 0.21 1,646,970 998 0.24 
Retail/business certificates2,578,351 9,003 1.39 2,678,914 9,938 1.49 
Wholesale certificates246,739 171 0.27 251,571 285 0.45 
Total deposits6,631,924 10,335 0.62 6,637,648 11,475 0.69 
Borrowings(4)
1,582,554 7,889 1.97 1,582,905 7,826 1.97 
Total interest-bearing liabilities8,214,478 18,224 0.88 8,220,553 19,301 0.94 
Other non-interest-bearing liabilities220,294 203,532 
Stockholders' equity1,246,985 1,282,986 
Total liabilities and stockholders' equity$9,681,757 $9,707,071 
Net interest income(5)
$45,544 $42,571 
Net interest rate spread(6)
1.87 1.72 
Net interest-earning assets$1,021,908 $1,055,879 
Net interest margin(7)
1.97 1.84 
Ratio of interest-earning assets to interest-bearing liabilities1.12x1.13x
Selected performance ratios:
Return on average assets (annualized)0.77 %0.75 %
Return on average equity (annualized)5.95 5.67 
Average equity to average assets12.88 13.22 
Operating expense ratio(8)
1.17 1.14 
Efficiency ratio(9)
55.55 57.73 
12


For the Year Ended September 30,
20212020
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,966,059 $137,461 3.47 %$3,950,425 $150,526 3.81 %
Correspondent purchased2,010,823 48,066 2.39 2,348,120 70,112 2.99 
Bulk purchased191,029 3,601 1.89 230,720 6,065 2.63 
Total one- to four-family loans6,167,911 189,128 3.07 6,529,265 226,703 3.47 
Commercial loans788,702 36,085 4.51 785,127 37,320 4.68 
Consumer loans101,277 4,684 4.63 123,334 6,471 5.25 
Total loans receivable(1)
7,057,890 229,897 3.25 7,437,726 270,494 3.63 
MBS(2)
1,446,466 21,399 1.48 954,197 23,009 2.41 
Investment securities(2)(3)
482,641 2,825 0.59 270,683 4,467 1.65 
FHLB stock77,250 3,916 5.07 100,251 5,827 5.81 
Cash and cash equivalents131,798 144 0.11 179,142 1,181 0.65 
Total interest-earning assets9,196,045 258,181 2.80 8,941,999 304,978 3.40 
Other non-interest-earning assets443,724 461,614 
Total assets$9,639,769 $9,403,613 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,482,698 772 0.05 $1,180,110 762 0.06 
Savings487,146 280 0.06 388,662 292 0.08 
Money market1,598,838 4,128 0.26 1,252,992 6,647 0.53 
Retail/business certificates2,688,811 42,034 1.56 2,716,945 55,238 2.03 
Wholesale certificates252,623 1,192 0.47 282,947 4,659 1.65 
Total deposits6,510,116 48,406 0.74 5,821,656 67,598 1.16 
Borrowings(4)
1,636,399 34,774 2.11 2,065,966 48,045 2.31 
Total interest-bearing liabilities8,146,515 83,180 1.02 7,887,622 115,643 1.46 
Other non-interest-bearing liabilities219,328 203,990 
Stockholders' equity1,273,926 1,312,001 
Total liabilities and stockholders' equity$9,639,769 $9,403,613 
Net interest income(5)
$175,001 $189,335 
Net interest rate spread(6)
1.78 1.94 
Net interest-earning assets$1,049,530 $1,054,377 
Net interest margin(7)
1.90 2.12 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets0.79 %0.69 %
Return on average equity5.97 4.92 
Average equity to average assets13.22 13.95 
Operating expense ratio(8)
1.20 1.13 
Efficiency ratio(9)
56.91 50.74 

13


(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 $4.9 million and $5.1 million for the quarters ended September 30, 2021 and June 30, 2021, respectively, and $6.6 million and $13.8 million for the years ended September 30, 2021 and September 30, 2020, respectively.
(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.
September 30, 2021June 30, 2021September 30, 2020
% of % of % of
AmountRateTotalAmountRateTotalAmountRateTotal
(Dollars in thousands)
One- to four-family:
Originated$3,956,064 3.18 %55.8 %$3,977,129 3.23 %56.4 %$3,937,310 3.50 %54.5 %
Correspondent purchased2,003,477 3.02 28.2 1,953,185 3.09 27.7 2,101,082 3.49 29.1 
Bulk purchased173,662 1.65 2.4 179,019 1.90 2.5 208,427 2.41 2.9 
Construction39,142 2.82 0.6 30,325 2.96 0.4 34,593 3.30 0.5 
Total6,172,345 3.09 87.0 6,139,658 3.14 87.0 6,281,412 3.46 87.0 
Commercial:
Commercial real estate676,908 4.00 9.6 680,664 3.99 9.7 626,588 4.29 8.7 
Commercial and industrial 66,497 3.83 0.9 73,713 3.24 1.0 97,614 2.79 1.4 
Construction85,963 4.03 1.2 60,614 4.11 0.9 105,458 4.04 1.4 
Total829,368 3.99 11.7 814,991 3.93 11.6 829,660 4.08 11.5 
Consumer loans:
Home equity86,274 4.60 1.2 88,587 4.63 1.3 103,838 4.66 1.4 
Other8,086 4.19 0.1 8,389 4.26 0.1 10,086 4.40 0.1 
Total94,360 4.57 1.3 96,976 4.60 1.4 113,924 4.64 1.5 
Total loans receivable7,096,073 3.21 100.0 %7,051,625 3.26 100.0 %7,224,996 3.55 100.0 %
Less:
ACL19,823 20,724 31,527 
Discounts/unearned loan fees 29,556 30,593 29,190 
Premiums/deferred costs(34,448)(33,519)(38,572)
Total loans receivable, net$7,081,142 $7,033,827 $7,202,851 
14


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, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. 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 Year Ended
September 30, 2021September 30, 2021
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,051,625 3.26 %$7,224,996 3.55 %
Originated and refinanced280,379 3.05 1,437,454 2.89 
Purchased and participations204,162 2.81 824,241 2.89 
Change in undisbursed loan funds(6,656)(174,416)
Repayments(433,374)(2,215,585)
Principal recoveries/(charge-offs), net(478)
Other(67)(139)
Ending balance$7,096,073 3.21 $7,096,073 3.21 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of September 30, 2021. Credit scores were updated in September 2021 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
% ofCreditAverage
AmountTotalScoreLTVBalance
(Dollars in thousands)
Originated$3,956,064 64.5 %771 61 %$152 
Correspondent purchased2,003,477 32.7 765 64 407 
Bulk purchased173,662 2.8 771 58 294 
$6,133,203 100.0 %769 62 194 

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 periods indicated.
For the Three Months Ended For the Year Ended
September 30, 2021September 30, 2021
Credit Credit
AmountRateLTVScoreAmountRateLTVScore
(Dollars in thousands)
Originated$220,353 2.74 %72 %763 $1,121,829 2.68 %70 %767 
Correspondent purchased184,562 2.68 71 767 689,527 2.64 69 772 
$404,915 2.71 71 765 $1,811,356 2.66 70 769 

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 September 30, 2021, along with associated weighted average rates.
AmountRate
(Dollars in thousands)
Originate/refinance$87,117 2.78 %
Correspondent95,395 2.54 
$182,512 2.65 

15


As of September 30, 2021, there were $2.7 million of one- to-four family loans with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

Commercial Loans: During the current year, the Bank originated $251.5 million of commercial loans, including $22.8 million of Paycheck Protection Program ("PPP") loans, and entered into commercial loan participations totaling $134.7 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $270.0 million at a weighted average rate of 3.59%. Additionally, during the current year, $63.5 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of September 30, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Senior housing34 $229,082 $36,202 $265,284 $30,500 $295,784 27.8 %
Retail building135 158,834 49,705 208,539 11,622 220,161 20.7 
Hotel10 137,301 57,364 194,665 — 194,665 18.3 
Office building92 49,608 60,379 109,987 — 109,987 10.3 
One- to four-family property385 61,717 7,457 69,174 1,453 70,627 6.6 
Single use building25 42,155 4,873 47,028 21,300 68,328 6.4 
Multi-family38 53,173 13,026 66,199 690 66,889 6.3 
Other101 31,001 5,166 36,167 1,502 37,669 3.6 
820 $762,871 $234,172 $997,043 $67,067 $1,064,110 100.0 %
Weighted average rate4.00 %4.03 %4.01 %3.73 %3.99 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of September 30, 2021.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas636 $327,419 $21,416 $348,835 $44,302 $393,137 36.9 %
Texas11 135,644 137,480 273,124 — 273,124 25.7 
Missouri146 205,989 26,052 232,041 21,265 253,306 23.8 
Colorado16,087 20,012 36,099 — 36,099 3.4 
Arkansas12,143 21,620 33,763 — 33,763 3.2 
Nebraska33,464 33,468 — 33,468 3.1 
Other11 32,125 7,588 39,713 1,500 41,213 3.9 
820 $762,871 $234,172 $997,043 $67,067 $1,064,110 100.0 %

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of September 30, 2021.
CountAmount
(Dollars in thousands)
Greater than $30 million$180,500 
>$15 to $30 million16 363,129 
>$10 to $15 million85,141 
>$5 to $10 million15 96,776 
$1 to $5 million111 251,794 
Less than $1 million1,324 194,423 
1,477 $1,171,763 

16


As of September 30, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $146.4 million with COVID-19 loan modifications that were still in their deferral period. There were $237.2 million of commercial loans with COVID-19 loan modifications that were out of their deferral period by September 30, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.
17


Asset Quality
The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. Of the loans 30 to 89 days delinquent at September 30, 2021, approximately 61% were 59 days or less delinquent. 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. Non-performing assets include nonaccrual loans and OREO. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At September 30, 2021, there were $7.4 million of non-performing one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place.
Loans Delinquent for 30 to 89 Days at:
September 30, 2021June 30, 2021March 31, 2021December 31, 2020September 30, 2020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated48 $4,156 51 $5,141 45 $4,151 62 $5,844 42 $3,012 
Correspondent purchased2,590 3,650 2,910 13 4,694 3,123 
Bulk purchased541 958 352 1,750 12 2,532 
Commercial37 35 806 1,047 45 
Consumer25 498 25 354 17 287 30 515 26 398 
86 $7,822 92 $10,138 81 $8,506 122 $13,850 90 $9,110 
30 to 89 days delinquent loans
to total loans receivable, net0.11 %0.14 %0.12 %0.20 %0.13 %
18


Non-Performing Loans and OREO at:
September 30, 2021June 30, 2021March 31, 2021December 31, 2020September 30, 2020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated50 $3,693 53 $3,696 55 $4,433 51 $4,370 51 $4,362 
Correspondent purchased10 3,210 12 4,230 10 3,749 3,371 2,397 
Bulk purchased2,974 2,596 10 3,172 13 3,724 12 2,903 
Commercial1,214 1,278 1,068 820 1,360 
Consumer21 498 23 445 26 531 26 473 14 304 
96 11,589 102 12,245 107 12,953 104 12,758 88 11,326 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.16 %0.17 %0.19 %0.18 %0.16 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated$1,288 $1,392 $1,646 $968 $691 
Correspondent purchased— — — — — — — — — — 
Bulk purchased131 131 — — — — — — 
Commercial419 403 642 411 464 
Consumer— — — — 
13 1,847 11 1,926 13 2,288 13 1,388 13 1,164 
Total nonaccrual loans109 13,436 113 14,171 120 15,241 117 14,146 101 12,490 
Nonaccrual loans as a percentage of total loans0.19 %0.20 %0.22 %0.20 %0.17 %
OREO:
One- to four-family:
Originated(2)
$170 $177 $105 $129 $183 
Total non-performing assets112 $13,606 116 $14,348 122 $15,346 120 $14,275 105 $12,673 
Non-performing assets as a percentage of total assets0.14 %0.15 %0.16 %0.15 %0.13 %

(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.

Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by September 30, 2021, $2.2 million were 30 to 89 days delinquent and $2.8 million were 90 or more days delinquent as of September 30, 2021. Of the commercial COVID-19 loan modifications that had completed the deferral period by September 30, 2021, $3 thousand were 30 to 89 days delinquent and none were 90 or more days delinquent as of September 30, 2021.
19


The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial special mention loans at September 30, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.0 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic considerations that management is monitoring in association with these loans resulting in the special mention classification.
September 30, 2021September 30, 2020
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$14,332 $23,458 $11,339 $25,630 
Commercial99,729 3,259 52,006 4,914 
Consumer135 718 332 589 
$114,196 $27,435 $63,677 $31,133 

Allowance for Credit Losses: The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The economic forecast scenarios selected by management improved at September 30, 2021 compared to June 30, 2021 which resulted in a reduction in the ACL calculated by the model. Management applied qualitative factors at September 30, 2021 to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention commercial loans and commercial loan COVID-19 modifications. The economic uncertainties were related to (1) the job market, specifically the unemployment rate and labor participation rate and how the significant federal assistance may be impacting those measures and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships. The ACL related to the commercial loans qualitative factors decreased during the current quarter due to improvement in forecasted economic conditions at September 30, 2021 compared to June 30, 2021.

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended September 30, 2021.
ACLReserve for off-balance sheet credit exposuresACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at June 30, 2021$20,724 $6,161 $26,885 
Charge-offs(26)— (26)
Recoveries30 — 30 
Net recoveries— 
Provision for credit losses(905)(418)(1,323)
Balance at September 30, 2021$19,823 $5,743 $25,566 

20


The following tables present ACL activity and related ratios at the dates and for the periods indicated. On October 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("CECL").
For the Three Months Ended For the Year Ended
September 30, 2021September 30, 2021
(Dollars in thousands)
Balance at beginning of period$20,724 $31,527 
Adoption of CECL— (4,761)
Charge-offs:
One- to four-family(22)(185)
Commercial— (515)
Consumer(4)(15)
Total charge-offs(26)(715)
Recoveries:
One- to four-family144 
Commercial12 50 
Consumer14 43 
Total recoveries30 237 
Net recoveries (charge-offs)(478)
Provision for credit losses(905)(6,465)
Balance at end of period$19,823 $19,823 
Ratio of net charge-offs during the period
to average loans outstanding during the period— %0.01 %
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets(0.03)3.63 
ACL to non-performing loans at end of period147.54 147.54 
ACL to loans receivable at end of period0.28 0.28 
ACL to net charge-offs (annualized)
N/M(1)
41.5x

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

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents ACL at the time the Company adopted ASU 2016-13.
At
September 30, June 30, October 1,
202120212020
(Dollars in thousands)
One- to four-family:
Originated$1,590 $1,515 $1,609 
Correspondent purchased2,062 1,739 2,324 
Bulk purchased304 674 903 
Construction22 20 25 
Total 3,978 3,948 4,861 
Commercial:
Commercial real estate13,706 14,784 16,595 
Commercial and industrial 344 345 559 
Construction1,602 1,404 4,452 
Total 15,652 16,533 21,606 
Consumer193 243 299 
Total $19,823 $20,724 $26,766 

21


The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
At
September 30, June 30, October 1,
202120212020
One- to four-family:
Originated0.04 %0.04 %0.04 %
Correspondent purchased0.10 0.09 0.11 
Bulk purchased0.18 0.38 0.43 
Construction0.06 0.07 0.07 
Total 0.06 0.06 0.08 
Commercial: