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Capitol Federal Financial, Inc. (CFFN) SEC Filing 8-K Material Event for the period ending Friday, January 28, 2022

Capitol Federal Financial, Inc.

CIK: 1490906 Ticker: CFFN


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NEWS RELEASE
FOR IMMEDIATE RELEASE
January 28, 2022
CAPITOL FEDERAL FINANCIAL, INC.®
REPORTS FIRST QUARTER FISCAL YEAR 2022 RESULTS

Topeka, KS - Capitol Federal Financial, Inc.®
(NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2021. The Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2021 will be filed with the Securities and Exchange Commission ("SEC") on or about February 9, 2022 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 $22.2 million;
basic and diluted earnings per share of $0.16;
net interest margin of 1.99%;
paid dividends of $41.4 million, or $0.305 per share; and
on January 25, 2022, announced a cash dividend of $0.085 per share, payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022.

Comparison of Operating Results for the Three Months Ended December 31, 2021 and September 30, 2021

For the quarter ended December 31, 2021, the Company recognized net income of $22.2 million, or $0.16 per share, compared to net income of $18.6 million, or $0.14 per share, for the quarter ended September 30, 2021. The increase in net income was due primarily to a higher negative provision for credit losses compared to the prior quarter and lower non-interest expense. The net interest margin increased two basis points, from 1.97% for the prior quarter to 1.99% for the current quarter, due mainly to a decrease in the cost of retail certificates of deposit.

Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$55,788 $57,139 $(1,351)(2.4)%
Mortgage-backed securities ("MBS")4,625 4,900 (275)(5.6)
Federal Home Loan Bank Topeka ("FHLB") stock1,231 952 279 29.3 
Investment securities808 750 58 7.7 
Cash and cash equivalents14 27 (13)(48.1)
Total interest and dividend income$62,466 $63,768 $(1,302)(2.0)

The decrease in interest income on loans receivable was primarily in the one-to four-family portfolio due to a reduction in the weighted average rate of the portfolio due to originations, purchases, refinances and endorsements to lower market rates and payoffs of higher rate loans, along with a reduction in commercial loan deferred fee amortization related to the Paycheck Protection Program ("PPP"). The decrease in interest income on MBS was due primarily to a decrease in the average balance of the portfolio. The
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increase in dividend income on FHLB stock was due mainly to a special year-end dividend of 1.00% paid by FHLB during the current quarter.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$9,267 $10,335 $(1,068)(10.3)%
Borrowings7,585 7,889 (304)(3.9)
Total interest expense$16,852 $18,224 $(1,372)(7.5)

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio. See "Financial Condition as of December 31, 2021" below for additional information on deposits. The decrease in interest expense on borrowings was due to the full impact during the current quarter of certain FHLB advances being replaced at lower rates during the prior quarter.

Provision for Credit Losses
For the quarter ended December 31, 2021, the Bank recorded a negative provision for credit losses of $3.4 million, compared to a negative provision for credit losses of $1.3 million for the prior quarter. The negative provision in the current quarter was comprised of a $2.3 million decrease in the allowance for credit losses ("ACL") for loans due primarily to a reduction in the balance of special mention commercial loans and a $1.1 million decrease in reserves for off-balance sheet credit exposures due mainly to continued improving economic conditions. See additional discussion regarding the Bank's ACL and reserves for off-balance sheet credit exposures at December 31, 2021 in the "Asset Quality" section below.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,430 $3,294 $136 4.1 %
Insurance commissions711 781 (70)(9.0)
Other non-interest income1,365 1,228 137 11.2 
Total non-interest income$5,506 $5,303 $203 3.8 

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Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,728 $14,600 $(872)(6.0)%
Information technology and related expense4,432 4,354 78 1.8 
Occupancy, net3,379 3,639 (260)(7.1)
Regulatory and outside services1,368 1,476 (108)(7.3)
Advertising and promotional1,064 1,404 (340)(24.2)
Deposit and loan transaction costs697 638 59 9.2 
Federal insurance premium639 657 (18)(2.7)
Office supplies and related expense468 426 42 9.9 
Other non-interest expense919 1,053 (134)(12.7)
Total non-interest expense$26,694 $28,247 $(1,553)(5.5)

The decrease in salaries and employee benefits was primarily related to incentive compensation, as fiscal year 2021 incentives were finalized during the prior quarter. The decrease in occupancy, net was due mainly to decreases in utilities and building maintenance expenses. The decrease in advertising and promotional expense was due primarily to the timing of campaigns.

The Company's efficiency ratio was 52.22% for the current quarter compared to 55.55% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a lower level of expense, 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.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20212021DollarsPercent
(Dollars in thousands)
Income before income tax expense$27,865 $23,923 $3,942 16.5 %
Income tax expense5,679 5,370 309 5.8 
Net income$22,186 $18,553 $3,633 19.6 
Effective Tax Rate20.4 %22.4 %

The increase in income tax expense was due primarily to higher pretax income, partially offset by a lower effective tax rate in the current quarter. The effective tax rate was higher in the prior quarter due mainly to year-end adjustments of permanent tax differences, specifically the Company's low income housing partnership amounts.

Leverage Strategy
At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing on either the Bank's FHLB line of credit or by entering into short-term FHLB advances with the proceeds from the borrowings, net of the required FHLB stock holdings, deposited at the Federal Reserve Bank of Kansas City. The leverage strategy was not in place during the current quarter or in recent years as the strategy was not profitable. The strategy did, however, become profitable again in January 2022, and management reimplemented the strategy by entering into $1.80 billion of short-term FHLB advances. It is expected that the strategy
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will continue to be used as long as it is profitable. The borrowing level related to the strategy may fluctuate while the strategy is in place.

Comparison of Operating Results for the Three Months Ended December 31, 2021 and 2020

The Company recognized net income of $22.2 million, or $0.16 per share, for the current quarter compared to net income of $18.9 million, or $0.14 per share, for the prior year quarter. The increase in net income was due primarily to a higher negative provision for credit losses in the current quarter and an increase in net interest income. The net interest margin increased seven basis points, from 1.92% for the prior year quarter to 1.99% for the current quarter. The increase in net interest income and net interest margin was due mainly to a reduction in the cost of retail certificates of deposit and borrowings, which outpaced the decrease in asset 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
December 31, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$55,788 $60,694 $(4,906)(8.1)%
MBS4,625 5,710 (1,085)(19.0)
FHLB Stock1,231 1,069 162 15.2 
Investment securities808 683 125 18.3 
Cash and cash equivalents14 51 (37)(72.5)
Total interest and dividend income$62,466 $68,207 $(5,741)(8.4)

The decrease in interest income on loans receivable was due mainly to a decrease in the weighted average rate, primarily in the one- to four-family originated loan portfolio. The premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year quarter due to the slow-down in prepayments and endorsements; however, the decrease in the weighted average loan portfolio rate more than offset the reduction in premium amortization. The decrease in the weighted average rate for the one- to four-family originated and correspondent loan portfolios was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of higher premium amortization related to prepayment activity, along with purchases at lower market yields, partially offset by an increase in the average balance of the portfolio.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$9,267 $14,067 $(4,800)(34.1)%
Borrowings7,585 10,327 (2,742)(26.6)
Total interest expense$16,852 $24,394 $(7,542)(30.9)

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. Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered between periods.

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The decrease in interest expense on borrowings was due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021. Cash flows from the deposit portfolio were used to pay down certain FHLB advances.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $3.4 million, compared to a negative provision for credit losses of $1.5 million during the prior year quarter. See additional information regarding the current quarter negative provision for credit losses in the "Comparison of Operating Results for the Three Months Ended December 31, 2021 and September 30, 2021" section above. See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures at December 31, 2021 in the "Asset Quality" section below.


Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,430 $2,947 $483 16.4 %
Insurance commissions711 638 73 11.4 
Other non-interest income1,365 1,485 (120)(8.1)
Total non-interest income$5,506 $5,070 $436 8.6 
The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume, along with an increase in the amount per transaction. The decrease in other non-interest income was primarily related to lower income from bank-owned life insurance, due to receiving death benefits during the prior year quarter, compared to none 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
December 31, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,728 $14,138 $(410)(2.9)%
Information technology and related expense4,432 4,233 199 4.7 
Occupancy, net3,379 3,379 — — 
Regulatory and outside services1,368 1,585 (217)(13.7)
Advertising and promotional1,064 838 226 27.0 
Deposit and loan transaction costs697 766 (69)(9.0)
Federal insurance premium639 621 18 2.9 
Office supplies and related expense468 424 44 10.4 
Other non-interest expense919 1,083 (164)(15.1)
Total non-interest expense$26,694 $27,067 $(373)(1.4)

The decrease in salaries and employee benefits was due primarily to a decrease in loan commissions related to lower loan origination activity in the current quarter. The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the Coronavirus Disease 2019 ("COVID-19") pandemic.

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The Company's efficiency ratio was 52.22% for the current year period compared to 55.37% for the prior year period. The improvement in the efficiency ratio was due primarily to higher net interest income, as well as lower non-interest expense and higher 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.
For the Three Months Ended
December 31, Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$27,865 $23,348 $4,517 19.3 %
Income tax expense5,679 4,450 1,229 27.6 
Net income$22,186 $18,898 $3,288 17.4 
Effective Tax Rate20.4 %19.1 %
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 higher effective tax rate in the current quarter compared to the prior year quarter was due primarily to a lower amount of favorable provision to return adjustments compared to the prior year quarter. Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21%.


Financial Condition as of December 31, 2021

The following table summarizes the Company's financial condition at the dates indicated.
Annualized
December 31, September 30, Percent
20212021Change
(Dollars in thousands)
Total assets$9,609,157 $9,631,246 (0.9)%
Available-for-sale ("AFS") securities1,890,653 2,014,608 (24.6)
Loans receivable, net7,095,605 7,081,142 0.8 
Deposits6,648,004 6,597,396 3.1 
Borrowings1,583,303 1,582,850 0.1 
Stockholders' equity1,216,660 1,242,273 (8.2)
Equity to total assets at end of period12.7 %12.9 %
Average number of basic shares outstanding135,627 135,571 0.2 
Average number of diluted shares outstanding135,627 135,571 0.2 

The decrease in total assets was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents. The increase in deposits was due primarily to an increase in non-maturity deposits, partially offset by a decrease in the certificate of deposit portfolio, as customers moved some of their funds from maturing certificates to more liquid investment options, such as the Bank's money market accounts.
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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 Ended
December 31, 2021September 30, 2021
AmountRateAmountRate
(Dollars in thousands)
Loan originations and purchases
One- to four-family and consumer:
Originated$209,440 2.88 %$237,358 2.86 %
Purchased130,553 2.65 184,562 2.68 
Commercial:
Originated49,245 3.80 43,021 4.08 
Purchased36,663 3.35 19,600 4.06 
$425,901 2.96 $484,541 2.95 
Borrowing activity
Maturities and prepayments$(100,000)3.14 $(340,000)2.73 
New borrowings100,000 3.44 340,000 2.17 


Stockholders' Equity
During the current quarter, the Company paid cash dividends totaling $41.4 million. These cash dividends totaled $0.305 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and a regular quarterly cash dividend of $0.085 per share. On January 25, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At December 31, 2021, this ratio was 11.5%.
At December 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $70.8 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 December 31, 2021.
Total shares outstanding 138,842,784 
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock(3,169,063)
Net shares outstanding 135,673,721 

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 December 31, 2021, the Bank's CBLR was 11.6%, 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)
December 31, September 30,
20212021
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $106,225 and $24,289)$135,475 $42,262 
AFS securities, at estimated fair value (amortized cost of $1,899,027 and $2,008,456)1,890,653 2,014,608 
Loans receivable, net (ACL of $17,535 and $19,823)7,095,605 7,081,142 
FHLB stock, at cost75,261 73,421 
Premises and equipment, net97,718 99,127 
Other assets314,445 320,686 
TOTAL ASSETS$9,609,157 $9,631,246 
LIABILITIES:
Deposits$6,648,004 $6,597,396 
Borrowings1,583,303 1,582,850 
Advance payments by borrowers for taxes and insurance38,227 72,729 
Income taxes payable, net3,733 918 
Deferred income tax liabilities, net3,981 5,810 
Other liabilities115,249 129,270 
Total liabilities8,392,497 8,388,973 
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, 138,842,784 and 138,832,284 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively1,388 1,388 
Additional paid-in capital1,189,827 1,189,633 
Unearned compensation, ESOP(30,974)(31,387)
Retained earnings79,745 98,944 
Accumulated other comprehensive (loss) income, net of tax(23,326)(16,305)
Total stockholders' equity1,216,660 1,242,273 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,609,157 $9,631,246 
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
For the Three Months Ended
December 31, September 30, December 31,
202120212020
INTEREST AND DIVIDEND INCOME:
Loans receivable$55,788 $57,139 $60,694 
MBS4,625 4,900 5,710 
FHLB stock1,231 952 1,069 
Investment securities808 750 683 
Cash and cash equivalents14 27 51 
Total interest and dividend income62,466 63,768 68,207 
INTEREST EXPENSE:
Deposits9,267 10,335 14,067 
Borrowings7,585 7,889 10,327 
Total interest expense16,852 18,224 24,394 
NET INTEREST INCOME45,614 45,544 43,813 
PROVISION FOR CREDIT LOSSES(3,439)(1,323)(1,532)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES49,053 46,867 45,345 
NON-INTEREST INCOME:
Deposit service fees3,430 3,294 2,947 
Insurance commissions711 781 638 
Other non-interest income1,365 1,228 1,485 
Total non-interest income5,506 5,303 5,070 
NON-INTEREST EXPENSE:
Salaries and employee benefits13,728 14,600 14,138 
Information technology and related expense4,432 4,354 4,233 
Occupancy, net3,379 3,639 3,379 
Regulatory and outside services1,368 1,476 1,585 
Advertising and promotional1,064 1,404 838 
Deposit and loan transaction costs697 638 766 
Federal insurance premium639 657 621 
Office supplies and related expense468 426 424 
Other non-interest expense919 1,053 1,083 
Total non-interest expense26,694 28,247 27,067 
INCOME BEFORE INCOME TAX EXPENSE27,865 23,923 23,348 
INCOME TAX EXPENSE5,679 5,370 4,450 
NET INCOME$22,186 $18,553 $18,898 

Average Balance Sheets
The following tables present 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.
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For the Three Months Ended
December 31, 2021September 30, 2021December 31, 2020
AverageInterest AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,971,049 $32,422 3.27 %$3,974,876 $32,979 3.32 %$3,949,489 $35,961 3.64 %
Correspondent purchased2,035,631 12,746 2.50 2,024,372 12,942 2.56 2,064,912 12,932 2.50 
Bulk purchased170,537 610 1.43 177,233 730 1.65 205,803 1,112 2.16 
Total one- to four-family loans6,177,217 45,778 2.96 6,176,481 46,651 3.02 6,220,204 50,005 3.22 
Commercial loans841,217 8,943 4.16 811,731 9,378 4.52 770,096 9,404 4.78 
Consumer loans92,794 1,067 4.56 95,449 1,110 4.61 110,048 1,285 4.65 
Total loans receivable(1)
7,111,228 55,788 3.13 7,083,661 57,139 3.21 7,100,348 60,694 3.41 
MBS(2)
1,435,562 4,625 1.29 1,510,421 4,900 1.30 1,302,074 5,710 1.75 
Investment securities(2)(3)
523,931 808 0.62 500,104 750 0.60 431,493 683 0.63 
FHLB stock73,481 1,231 6.64 72,699 952 5.19 85,187 1,069 4.99 
Cash and cash equivalents37,221 14 0.15 69,501 27 0.15 201,468 51 0.10 
Total interest-earning assets9,181,423 62,466 2.71 9,236,386 63,768 2.75 9,120,570 68,207 2.98 
Other non-interest-earning assets412,115 445,371 453,422 
Total assets$9,593,538 $9,681,757 $9,573,992 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,052,413 179 0.07 $1,023,926 183 0.07 $900,674 223 0.10 
Savings520,770 70 0.05 514,253 71 0.05 442,906 68 0.06 
Money market1,767,134 825 0.19 1,729,080 907 0.21 1,474,720 1,184 0.32 
Retail certificates2,298,678 7,835 1.35 2,374,089 8,651 1.45 2,591,007 11,794 1.81 
Commercial certificates169,200 272 0.64 204,262 352 0.68 154,829 384 0.99 
Wholesale certificates199,692 86 0.17 246,739 171 0.27 251,634 414 0.66 
Total deposits6,007,887 9,267 0.61 6,092,349 10,335 0.67 5,815,770 14,067 0.96 
Borrowings(4)
1,589,258 7,585 1.88 1,582,554 7,889 1.97 1,775,380 10,327 2.30 
Total interest-bearing liabilities7,597,145 16,852 0.88 7,674,903 18,224 0.94 7,591,150 24,394 1.28 
Non-interest-bearing deposits550,492 539,575 460,190 
Other non-interest-bearing liabilities209,890 220,294 240,476 
Stockholders' equity1,236,011 1,246,985 1,282,176 
Total liabilities and stockholders' equity$9,593,538 $9,681,757 $9,573,992 
Net interest income(5)
$45,614 $45,544 $43,813 
Net interest-earning assets$1,584,278 $1,561,483 $1,529,420 
Net interest margin(6)
1.99 1.97 1.92 
Ratio of interest-earning assets to interest-bearing liabilities1.21x1.20x1.20x
Selected performance ratios:
Return on average assets (annualized)0.93 %0.77 %0.79 %
Return on average equity (annualized)7.18 5.95 5.90 
Average equity to average assets12.88 12.88 13.39 
Operating expense ratio(7)
1.11 1.17 1.13 
Efficiency ratio(8)
52.22 55.55 55.37 
11


(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 $4.0 million, $4.9 million, and $9.1 million for the quarters ended December 31, 2021, September 30, 2021, and December 31, 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 margin represents annualized net interest income as a percentage of average interest-earning assets.
(7)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(8)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.
December 31, 2021September 30, 2021December 31, 2020
% of % of % of
AmountRateTotalAmountRateTotalAmountRateTotal
(Dollars in thousands)
One- to four-family:
Originated$3,941,568 3.15 %55.5 %$3,956,064 3.18 %55.8 %$3,946,073 3.39 %56.2 %
Correspondent purchased1,991,944 2.97 28.0 2,003,477 3.02 28.2 1,974,086 3.40 28.1 
Bulk purchased165,339 1.52 2.3 173,662 1.65 2.4 199,673 2.24 2.8 
Construction47,508 2.76 0.7 39,142 2.82 0.6 32,871 3.22 0.5 
Total6,146,359 3.05 86.5 6,172,345 3.09 87.0 6,152,703 3.36 87.6 
Commercial:
Commercial real estate687,518 3.98 9.6 676,908 4.00 9.6 609,936 4.23 8.7 
Commercial and industrial 76,254 3.85 1.1 66,497 3.83 0.9 69,378 3.41 1.0 
Construction105,702 4.04 1.5 85,963 4.03 1.2 84,564 3.89 1.2 
Total869,474 3.98 12.2 829,368 3.99 11.7 763,878 4.12 10.9 
Consumer loans:
Home equity84,400 4.59 1.2 86,274 4.60 1.2 97,717 4.64 1.4 
Other7,825 4.13 0.1 8,086 4.19 0.1 9,328 4.40 0.1 
Total92,225 4.55 1.3 94,360 4.57 1.3 107,045 4.62 1.5 
Total loans receivable7,108,058 3.18 100.0 %7,096,073 3.21 100.0 %7,023,626 3.46 100.0 %
Less:
ACL17,535 19,823 26,125 
Discounts/unearned loan fees 29,363 29,556 28,825 
Premiums/deferred costs(34,445)(34,448)(35,418)
Total loans receivable, net$7,095,605 $7,081,142 $7,004,094 

12


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
December 31, 2021September 30, 2021
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,096,073 3.21 %$7,051,625 3.26 %
Originated and refinanced258,685 3.05 280,379 3.05 
Purchased and participations167,216 2.80 204,162 2.81 
Change in undisbursed loan funds(21,926)(6,656)
Repayments(391,779)(433,374)
Principal recoveries/(charge-offs), net31 
Other(242)(67)
Ending balance$7,108,058 3.18 $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 December 31, 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.
% ofCredit
AmountRateTotalScoreLTV
(Dollars in thousands)
Originated$3,941,568 3.15 %64.6 %771 61 %
Correspondent purchased1,991,944 2.97 32.7 766 64 
Bulk purchased165,339 1.52 2.7 771 58 
$6,098,851 3.05 100.0 %769 62 

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 three months ended December 31, 2021.
Credit
AmountRateLTVScore
(Dollars in thousands)
Originated$194,107 2.75 %70 %764 
Correspondent purchased130,553 2.65 72 775 
$324,660 2.71 71 769 

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 December 31, 2021, along with associated weighted average rates.
AmountRate
(Dollars in thousands)
Originate/refinance$84,954 2.85 %
Correspondent66,225 2.63 
$151,179 2.75 

13


Commercial Loans: During the current quarter, the Bank originated $49.2 million of commercial loans and entered into commercial loan participations totaling $36.7 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $70.6 million at a weighted average rate of 3.89%.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of December 31, 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 $237,020 $58,909 $295,929 $— $295,929 27.6 %
Retail building140 170,725 44,868 215,593 4,750 220,343 20.5 
Hotel11 136,717 51,755 188,472 6,300 194,772 18.2 
Office building93 49,717 60,134 109,851 1,420 111,271 10.4 
Multi-family37 55,681 10,158 65,839 6,503 72,342 6.7 
One- to four-family property397 61,599 7,693 69,292 1,716 71,008 6.6 
Single use building26 47,639 4,832 52,471 15,750 68,221 6.4 
Other101 34,122 3,765 37,887 230 38,117 3.6 
839 $793,220 $242,114 $1,035,334 $36,669 $1,072,003 100.0 %
Weighted average rate3.99 %3.92 %3.97 %4.18 %3.98 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of December 31, 2021.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas639 $335,579 $50,753 $386,332 $9,996 $396,328 37.0 %
Texas12 138,982 130,790 269,772 3,350 273,122 25.5 
Missouri163 221,409 18,534 239,943 21,823 261,766 24.4 
Colorado17,438 18,114 35,552 — 35,552 3.3 
Arkansas15,414 18,262 33,676 — 33,676 3.1 
Nebraska33,366 33,370 — 33,370 3.1 
Other10 31,032 5,657 36,689 1,500 38,189 3.6 
839 $793,220 $242,114 $1,035,334 $36,669 $1,072,003 100.0 %

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 December 31, 2021.
CountAmount
(Dollars in thousands)
Greater than $30 million$178,756 
>$15 to $30 million16 361,649 
>$10 to $15 million84,921 
>$5 to $10 million17 107,297 
$1 to $5 million113 255,218 
Less than $1 million1,270 190,396 
1,427 $1,178,237 

As of December 31, 2021 and September 30, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $143.5 million and $146.4 million, respectively, 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.
14


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 December 31, 2021, approximately 73% 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. Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by December 31, 2021, $5.7 million were 30 to 89 days delinquent and $2.3 million were 90 or more days delinquent as of December 31, 2021. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At December 31, 2021, there were $5.5 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. The foreclosure suspension was lifted in January 2022 resulting in foreclosure proceedings continuing or starting on a portion of the $5.5 million of such loans.
Loans Delinquent for 30 to 89 Days at:
December 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated74 $7,009 48 $4,156 51 $5,141 45 $4,151 62 $5,844 
Correspondent purchased11 5,133 2,590 3,650 2,910 13 4,694 
Bulk purchased154 541 958 352 1,750 
Commercial222 37 35 806 1,047 
Consumer16 164 25 498 25 354 17 287 30 515 
104 $12,682 86 $7,822 92 $10,138 81 $8,506 122 $13,850 
30 to 89 days delinquent loans
to total loans receivable, net0.18 %0.11 %0.14 %0.12 %0.20 %
15


Non-Performing Loans and OREO at:
December 31, 2021September 30, 2021June 30, 2021March 31, 2021December 31, 2020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated48 $3,943 50 $3,693 53 $3,696 55 $4,433 51 $4,370 
Correspondent purchased10 3,115 10 3,210 12 4,230 10 3,749 3,371 
Bulk purchased1,945 2,974 2,596 10 3,172 13 3,724 
Commercial1,170 1,214 1,278 1,068 820 
Consumer25 477 21 498 23 445 26 531 26 473 
95 10,650 96 11,589 102 12,245 107 12,953 104 12,758 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.15 %0.16 %0.17 %0.19 %0.18 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated$451 $1,288 $1,392 $1,646 $968 
Correspondent purchased— — — — — — — — — — 
Bulk purchased— — 131 131 — — — — 
Commercial62 419 403 642 411 
Consumer— — — — — — 
513 13 1,847 11 1,926 13 2,288 13 1,388 
Total nonaccrual loans103 11,163 109 13,436 113 14,171 120 15,241 117 14,146 
Nonaccrual loans as a percentage of total loans0.16 %0.19 %0.20 %0.22 %0.20 %
OREO:
One- to four-family:
Originated(2)
$319 $170 $177 $105 $129 
Total non-performing assets105 $11,482 112 $13,606 116 $14,348 122 $15,346 120 $14,275 
Non-performing assets as a percentage of total assets0.12 %0.14 %0.15 %0.16 %0.15 %

(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.

16


The following table presents loans classified as special mention or substandard at the dates presented. The decrease in commercial special mention loans at December 31, 2021 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the current quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.
December 31, 2021September 30, 2021
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$12,971 $21,835 $14,332 $23,458 
Commercial47,093 3,362 99,729 3,259 
Consumer321 676 135 718 
$60,385 $25,873 $114,196 $27,435 

Allowance for Credit Losses: The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. Management applied qualitative factors at December 31, 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, 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 following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended December 31, 2021.
ACLReserve for off-balance sheet credit exposuresACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at September 30, 2021$19,823 $5,743 $25,566 
Charge-offs(15)— (15)
Recoveries46 — 46 
Net recoveries31 — 31 
Provision for credit losses(2,319)(1,120)(3,439)
Balance at December 31, 2021$17,535 $4,623 $22,158 

The negative provision for credit losses associated with the ACL was primarily due to a reduction in the large-dollar special mention commercial loan qualitative factor due to two large-dollar special mention commercial loans moving to the pass classification during the current quarter, as discussed above. Additionally, economic conditions continued to improve during the current quarter, so the economic uncertainty qualitative factor for commercial loans decreased during the current quarter. The negative provision for credit losses for off-balance sheet credit exposures was mainly related to a reduction in the commercial loan economic uncertainty qualitative factor, also due to the improved economic conditions during the current quarter.
17


The following tables present ACL activity and related ratios at the dates and for the periods indicated.
For the Three Months Ended
December 31, 2021September 30, 2021
(Dollars in thousands)
Balance at beginning of period$19,823 $20,724 
Charge-offs:
One- to four-family(4)(22)
Commercial(10)— 
Consumer(1)(4)
Total charge-offs(15)(26)
Recoveries:
One- to four-family
Commercial36 12 
Consumer14 
Total recoveries46 30 
Net recoveries (charge-offs)31 
Provision for credit losses(2,319)(905)
Balance at end of period$17,535 $19,823 
Ratio of net charge-offs during the period
to average loans outstanding during the period— %— %
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets(0.25)(0.03)
ACL to non-performing loans at end of period157.08 147.54 
ACL to loans receivable at end of period0.25 0.28 
ACL to net charge-offs (annualized)
N/M(1)
N/M(1)

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

The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
Distribution of ACLRatio of ACL to
Loans Receivable
December 31, September 30, December 31, September 30,
2021202120212021
(Dollars in thousands)
One- to four-family:
Originated$1,611 $1,590 0.04 %0.04 %
Correspondent purchased2,082 2,062 0.10 0.10 
Bulk purchased268 304 0.16 0.18 
Construction28 22 0.06 0.06 
Total 3,989 3,978 0.06 0.06 
Commercial:
Commercial real estate11,257 13,706 1.64 2.02 
Commercial and industrial 376 344 0.49 0.52 
Construction1,720 1,602 1.63 1.86 
Total 13,353 15,652 1.54 1.89 
Consumer193 193 0.21 0.20 
Total $17,535 $19,823 0.25 0.28 




18


Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at December 31, 2021. Overall, fixed-rate securities comprised 94% of our securities portfolio at December 31, 2021. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.
AmountYieldWAL
(Dollars in thousands)
MBS$1,375,711 1.36 %3.5
U.S. government-sponsored enterprise debentures519,972 0.61 3.6
Municipal bonds3,344 1.86 0.1
Total securities portfolio$1,899,027 1.15 3.5

The following table summarizes the activity in our securities portfolio for the period presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the period 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 have been applied.
For the Three Months Ended
December 31, 2021
AmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$2,014,608 1.16 %3.5 
Maturities and repayments(107,665)
Net amortization of (premiums)/discounts(1,764)
Change in valuation on AFS securities(14,526)
Ending balance - carrying value$1,890,653 1.16 3.5 


Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented.
December 31, 2021September 30, 2021December 31, 2020
% of% of% of
AmountRate TotalAmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$599,969 — %9.0 %$543,849 — %8.2 %$494,375 — %7.7 %
Interest-bearing checking1,092,342 0.07 16.4 1,037,362 0.07 15.7 953,927 0.08 14.9 
Savings526,714 0.05 7.9 519,069 0.05 7.9 455,633 0.06 7.1 
Money market 1,840,049 0.19 27.7 1,753,525 0.19 26.6 1,488,749 0.31 23.2 
Retail certificates of deposit2,254,560 1.31 33.9 2,341,531 1.41 35.5 2,570,135 1.75 40.1 
Commercial certificates of deposit137,419 0.64 2.1 190,215 0.66 2.9 207,813 0.83 3.2 
Public unit certificates of deposit196,951 0.17 3.0 211,845 0.21 3.2 240,210 0.64 3.8 
$6,648,004 0.53 100.0 %$6,597,396 0.59 100.0 %$6,410,842 0.84 100.0 %




19


Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of December 31, 2021.
Term Borrowings Amount
Maturity byFHLBInterest rateContractualEffective
Fiscal YearAdvances
swaps(1)
Rate
Rate(2)
(Dollars in thousands)
2022$75,000 $— 0.29 %0.29 %
2023300,000 — 1.70 1.81 
2024150,000 165,000 1.32 2.46 
2025300,000 100,000 1.33 2.09 
2026250,000 — 0.96 1.27 
2027150,000 — 0.93 1.24 
2028— 100,000 0.56 3.44 
$1,225,000 $365,000 1.20 1.90 

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.8 years at December 31, 2021.
(2)The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents borrowing activity for the period shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years and includes the impact of interest rate swaps. 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
December 31, 2021