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Capitol Federal Financial, Inc. (CFFN) SEC Filing 8-K Material Event for the period ending Wednesday, April 27, 2022

Capitol Federal Financial, Inc.

CIK: 1490906 Ticker: CFFN


cffnlogo.jpg
NEWS RELEASE
FOR IMMEDIATE RELEASE
April 27, 2022
CAPITOL FEDERAL FINANCIAL, INC.®
REPORTS SECOND 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 March 31, 2022. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 will be filed with the Securities and Exchange Commission ("SEC") on or about May 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 $21.6 million;
basic and diluted earnings per share of $0.16;
net interest margin of 1.69% (2.01% excluding the effects of the leverage strategy);
paid dividends of $11.5 million, or $0.085 per share; and
on April 20, 2022, announced a cash dividend of $0.085 per share, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022.

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

For the quarter ended March 31, 2022, the Company recognized net income of $21.6 million, or $0.16 per share, compared to net income of $22.2 million, or $0.16 per share, for the quarter ended December 31, 2021. The decrease in net income was due primarily to higher non-interest expense and income tax expense, partially offset by an increase in net interest income. The net interest margin decreased 30 basis points, from 1.99% for the prior quarter to 1.69% for the current quarter. During the current quarter, the Company's leverage strategy, which had not been in place since 2019, was reimplemented. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have increased two basis points, from 1.99% for the prior quarter to 2.01% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to a decrease in the cost of retail certificates of deposit.

Leverage Strategy
At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's line of credit with Federal Home Loan Bank Topeka ("FHLB") or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 5.75% from dividends during the current quarter, were deposited at the Federal Reserve Bank of Kansas City ("FRB of Kansas City"). Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $545 thousand during the current quarter. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will continue to be utilized as long as it remains profitable.

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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
March 31, December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$55,412 $55,788 $(376)(0.7)%
Mortgage-backed securities ("MBS")4,821 4,625 196 4.2 
FHLB stock2,240 1,231 1,009 82.0 
Investment securities800 808 (8)(1.0)
Cash and cash equivalents949 14 935 6,678.6 
Total interest and dividend income$64,222 $62,466 $1,756 2.8 

The increase in interest income on MBS was due to a decrease in premium amortization related to a slowdown in prepayment activity. The increase in dividend income on FHLB stock was due mainly to the leverage strategy being utilized during the current quarter, partially offset by a special 1.00% year-end dividend received in the prior quarter. The increase in interest income on cash and cash equivalents was due mainly to the leverage strategy being utilized 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
March 31, December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$8,389 $9,267 $(878)(9.5)%
Borrowings8,732 7,585 1,147 15.1 
Total interest expense$17,121 $16,852 $269 1.6 

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. The increase in interest expense on borrowings was due to the leverage strategy being utilized during the current quarter.

Provision for Credit Losses
For the quarter ended March 31, 2022, the Bank recorded a negative provision for credit losses of $3.2 million, compared to a negative provision for credit losses of $3.4 million for the prior quarter. The negative provision in the current quarter was comprised of a $2.2 million decrease in the allowance for credit losses ("ACL") for loans and a $952 thousand decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL was due primarily to a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, as well as a decrease in the commercial loan Coronavirus Disease 2019 ("COVID-19") modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to a reduction in the reserve for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

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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
March 31, December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,300 $3,430 $(130)(3.8)%
Insurance commissions543 711 (168)(23.6)
Other non-interest income1,573 1,365 208 15.2 
Total non-interest income$5,416 $5,506 $(90)(1.6)

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which was lower than expected, and the related accrual adjustments. The increase in other non-interest income was due mainly to a gain on a loan-related financial derivative agreement.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31, December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$14,023 $13,728 $295 2.1 %
Information technology and related expense4,493 4,432 61 1.4 
Occupancy, net3,493 3,379 114 3.4 
Regulatory and outside services1,272 1,368 (96)(7.0)
Advertising and promotional1,494 1,064 430 40.4 
Federal insurance premium777 639 138 21.6 
Deposit and loan transaction costs689 697 (8)(1.1)
Office supplies and related expense502 468 34 7.3 
Other non-interest expense1,217 919 298 32.4 
Total non-interest expense$27,960 $26,694 $1,266 4.7 

The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships. The increase in federal insurance premium expense was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current quarter. The increase in other non-interest expense was due mainly to an increase in debit card and deposit account fraud losses, along with an increase in dues and subscriptions related to annual payments, and an increase in insurance expense due to a premium refund received in the prior quarter.

The Company's efficiency ratio was 53.24% for the current quarter compared to 52.22% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

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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
March 31, December 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
Income before income tax expense$27,745 $27,865 $(120)(0.4)%
Income tax expense6,122 5,679 443 7.8 
Net income$21,623 $22,186 $(563)(2.5)
Effective Tax Rate22.1 %20.4 %

The increase in income tax expense was due primarily to a higher effective tax rate in the current quarter. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2021 tax returns. Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Six Months Ended March 31, 2022 and 2021

The Company recognized net income of $43.8 million, or $0.32 per share, for the current year period compared to net income of $39.3 million, or $0.29 per share, for the prior year period. The increase in net income was due primarily to an increase in net interest income and a higher negative provision for credit losses in the current year period, partially offset by higher income tax expense. The net interest margin decreased seven basis points, from 1.90% for the prior year period to 1.83% for the current year period. Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 1.90% for the prior year period to 2.00% for the current year period. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average 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 Six Months Ended
March 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$111,200 $117,979 $(6,779)(5.7)%
MBS9,446 11,139 (1,693)(15.2)
FHLB Stock3,471 2,020 1,451 71.8 
Investment securities1,608 1,312 296 22.6 
Cash and cash equivalents963 91 872 958.2 
Total interest and dividend income$126,688 $132,541 $(5,853)(4.4)

The decrease in interest income on loans receivable was due primarily to a decrease in the weighted average rate on the originated and correspondent one- to four-family loan portfolio, partially offset by the increase in the average balance of the loan portfolio. The decrease in the weighted average rate was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates between periods. Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year period due to the slow-down in prepayments and endorsements, partially offsetting the decrease in the weighted average rate.

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 between periods, along with higher premium amortization related to prepayment activity.

The increase in dividend income on FHLB stock and the increase in interest income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current year period.
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The increase in interest income on investment securities was due primarily to 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 Six Months Ended
March 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$17,656 $26,596 $(8,940)(33.6)%
Borrowings16,317 19,059 (2,742)(14.4)
Total interest expense$33,973 $45,655 $(11,682)(25.6)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, wholesale certificates of deposit, and money market accounts. 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.

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. This was partially offset by the leverage strategy being utilized during the current year period and not being utilized during the prior year period.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year period of $6.6 million, compared to a negative provision for credit losses of $4.5 million during the prior year period. The negative provision in the current year period was comprised of a $4.5 million decrease in the ACL for loans and a $2.1 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL in the current year period was due to (1) a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, (2) 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 December 31, 2021 quarter, (3) a decrease in the commercial loan COVID-19 modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter, and (4) a decrease in the economic uncertainty qualitative factor for commercial loans due to continued improvement in economic conditions. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was due primarily to a reduction in the commercial loan economic uncertainty qualitative factor and to a reduction in the reserves for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$6,730 $5,761 $969 16.8 %
Insurance commissions1,254 1,526 (272)(17.8)
Gain on sale of Visa Class B shares— 7,386 (7,386)(100.0)
Other non-interest income2,938 2,874 64 2.2 
Total non-interest income$10,922 $17,547 $(6,625)(37.8)
The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction and settlement volume, in addition to an increase in the average transaction amount. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which was lower than expected, and the related accrual
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adjustments. During the prior year period, the Bank sold its Visa Class B shares, resulting in a $7.4 million gain, with no similar transaction during the current year period.
Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$27,751 $27,535 $216 0.8 %
Information technology and related expense8,925 8,832 93 1.1 
Occupancy, net6,872 6,902 (30)(0.4)
Regulatory and outside services2,640 2,819 (179)(6.3)
Advertising and promotional2,558 2,322 236 10.2 
Federal insurance premium1,416 1,255 161 12.8
Deposit and loan transaction costs1,386 1,430 (44)(3.1)
Office supplies and related expense970 887 83 9.4 
Loss on interest rate swap termination— 4,752 (4,752)(100.0)
Other non-interest expense2,136 2,986 (850)(28.5)
Total non-interest expense$54,654 $59,720 $(5,066)(8.5)

The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic. During the prior year period, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of accumulated other comprehensive income ("AOCI") to earnings. The decrease in other non-interest expense was due primarily to the write-down during the prior year period of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 52.74% for the current year period compared to 57.19% for the prior year period. The improvement in the efficiency ratio was due primarily to lower non-interest expense and higher net interest income, partially offset by lower non-interest income.

Management intends to implement a new core processing system for the Bank by September 2023. The replacement system will better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. The implementation of the new core system and related conversion of data may result in increased third party expenses later in fiscal year 2022 and into fiscal year 2023.

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 Six Months Ended
March 31, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
Income before income tax expense$55,610 $49,209 $6,401 13.0 %
Income tax expense11,801 9,867 1,934 19.6 
Net income$43,809 $39,342 $4,467 11.4 
Effective Tax Rate21.2 %20.1 %
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The increase in income tax expense was due primarily to higher pretax income in the current year period. Additionally, the effective tax rate increased slightly compared to the prior year period, and is in line with management's anticipation of an effective tax rate of approximately 21% for fiscal year 2022.


Financial Condition as of March 31, 2022

The following table summarizes the Company's financial condition at the dates indicated.
AnnualizedAnnualized
March 31, December 31, PercentSeptember 30, Percent
20222021Change2021Change
(Dollars in thousands)
Total assets$9,531,296 $9,609,157 (3.2)%$9,631,246 (2.1)%
Available-for-sale ("AFS") securities1,780,419 1,890,653 (23.3)2,014,608 (23.2)
Loans receivable, net7,108,810 7,095,605 0.7 7,081,142 0.8 
Deposits6,614,844 6,648,004 (2.0)6,597,396 0.5 
Borrowings1,583,747 1,583,303 0.1 1,582,850 0.1 
Stockholders' equity1,174,752 1,216,660 (13.8)1,242,273 (10.9)
Equity to total assets at end of period12.3 %12.7 %12.9 %
Average number of basic shares outstanding135,677 135,627 0.1 135,571 0.2 
Average number of diluted shares outstanding135,677 135,627 0.1 135,571 0.2 

The decrease in total assets from September 30, 2021 and December 31, 2021 to March 31, 2022 was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents. The decrease in stockholders' equity from September 30, 2021 and December 31, 2021 to March 31, 2022 was due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities.

The following table summarizes loan originations and purchases and borrowing activity, along with the related weighted average rates, during the periods indicated. The borrowings presented in the table have original contractual terms of one year or longer.
For the Three Months EndedFor the Six Months Ended
March 31, 2022March 31, 2022
AmountRateAmountRate
(Dollars in thousands)
Loan originations and purchases
One- to four-family and consumer:
Originated$180,117 3.08 %$389,557 2.97 %
Purchased118,096 2.81 248,649 2.73 
Commercial:
Originated88,034 3.96 137,279 3.90 
Purchased37,394 3.25 74,057 3.30 
$423,641 3.20 $849,542 3.08 
Borrowing activity
Maturities and prepayments$— — $(100,000)3.14 
New borrowings— — 100,000 3.44 

Stockholders' Equity
During the six months ended March 31, 2022, the Company paid cash dividends totaling $52.9 million. These cash dividends totaled $0.39 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 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 March 31, 2022, this ratio was 11.1%.
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At March 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $81.1 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 March 31, 2022.
Total shares outstanding 138,846,684 
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock(3,127,914)
Net shares outstanding 135,718,770 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of March 31, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.7%, which exceeded the minimum requirement of 9%. The CBLR decreased from 11.6% as of December 31, 2021 due to the reimplementation of the leverage strategy during the current quarter, which increased average assets and decreased the CBLR.

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)
March 31, December 31, September 30,
202220212021
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $110,444, $106,225 and $24,289)$166,869 $135,475 $42,262 
AFS securities, at estimated fair value (amortized cost of $1,875,361, $1,899,027 and $2,008,456)1,780,419 1,890,653 2,014,608 
Loans receivable, net (ACL of $15,312, $17,535 and $19,823)7,108,810 7,095,605 7,081,142 
FHLB stock, at cost74,456 75,261 73,421 
Premises and equipment, net96,952 97,718 99,127 
Deferred income tax assets, net12,399 — — 
Other assets291,391 314,445 320,686 
TOTAL ASSETS$9,531,296 $9,609,157 $9,631,246 
LIABILITIES:
Deposits$6,614,844 $6,648,004 $6,597,396 
Borrowings1,583,747 1,583,303 1,582,850 
Advance payments by borrowers for taxes and insurance65,901 38,227 72,729 
Income taxes payable, net1,113 3,733 918 
Deferred income tax liabilities, net— 3,981 5,810 
Other liabilities90,939 115,249 129,270 
Total liabilities8,356,544 8,392,497 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, 138,846,684, 138,842,784 and 138,832,284 shares issued and outstanding as of March 31, 2022, December 31, 2021, and September 30, 2021, respectively1,388 1,388 1,388 
Additional paid-in capital1,189,999 1,189,827 1,189,633 
Unearned compensation, ESOP(30,561)(30,974)(31,387)
Retained earnings89,833 79,745 98,944 
Accumulated other comprehensive (loss) income, net of tax(75,907)(23,326)(16,305)
Total stockholders' equity1,174,752 1,216,660 1,242,273 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,531,296 $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 EndedFor the Six Months Ended
March 31, December 31, March 31,
2022202120222021
INTEREST AND DIVIDEND INCOME:
Loans receivable$55,412 $55,788 $111,200 $117,979 
MBS4,821 4,625 9,446 11,139 
FHLB stock2,240 1,231 3,471 2,020 
Investment securities800 808 1,608 1,312 
Cash and cash equivalents949 14 963 91 
Total interest and dividend income64,222 62,466 126,688 132,541 
INTEREST EXPENSE:
Deposits8,389 9,267 17,656 26,596 
Borrowings8,732 7,585 16,317 19,059 
Total interest expense17,121 16,852 33,973 45,655 
NET INTEREST INCOME47,101 45,614 92,715 86,886 
PROVISION FOR CREDIT LOSSES(3,188)(3,439)(6,627)(4,496)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES50,289 49,053 99,342 91,382 
NON-INTEREST INCOME:
Deposit service fees3,300 3,430 6,730 5,761 
Insurance commissions543 711 1,254 1,526 
Gain on sale of Visa Class B shares— — — 7,386 
Other non-interest income1,573 1,365 2,938 2,874 
Total non-interest income5,416 5,506 10,922 17,547 
NON-INTEREST EXPENSE:
Salaries and employee benefits14,023 13,728 27,751 27,535 
Information technology and related expense4,493 4,432 8,925 8,832 
Occupancy, net3,493 3,379 6,872 6,902 
Regulatory and outside services1,272 1,368 2,640 2,819 
Advertising and promotional1,494 1,064 2,558 2,322 
Federal insurance premium777 639 1,416 1,255 
Deposit and loan transaction costs689 697 1,386 1,430 
Office supplies and related expense502 468 970 887 
Loss on interest rate swap termination— — — 4,752 
Other non-interest expense1,217 919 2,136 2,986 
Total non-interest expense27,960 26,694 54,654 59,720 
INCOME BEFORE INCOME TAX EXPENSE27,745 27,865 55,610 49,209 
INCOME TAX EXPENSE6,122 5,679 11,801 9,867 
NET INCOME$21,623 $22,186 $43,809 $39,342 


10


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.
For the Three Months Ended
March 31, 2022December 31, 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$3,965,844 $31,993 3.23 %$3,971,049 $32,422 3.27 %
Correspondent purchased2,026,120 13,060 2.58 2,035,631 12,746 2.50 
Bulk purchased161,149 503 1.25 170,537 610 1.43 
Total one- to four-family loans6,153,113 45,556 2.96 6,177,217 45,778 2.96 
Commercial loans869,205 8,851 4.07 841,217 8,943 4.16 
Consumer loans90,326 1,005 4.51 92,794 1,067 4.56 
Total loans receivable(1)
7,112,644 55,412 3.12 7,111,228 55,788 3.13 
MBS(2)
1,357,693 4,821 1.42 1,435,562 4,625 1.29 
Investment securities(2)(3)
522,019 800 0.61 523,931 808 0.62 
FHLB stock(4)
158,546 2,240 5.73 73,481 1,231 6.64 
Cash and cash equivalents(5)
1,971,341 949 0.19 37,221 14 0.15 
Total interest-earning assets11,122,243 64,222 2.31 9,181,423 62,466 2.71 
Other non-interest-earning assets385,323 412,115 
Total assets$11,507,566 $9,593,538 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,069,282 176 0.07 $1,052,413 179 0.07 
Savings540,348 71 0.05 520,770 70 0.05 
Money market1,879,799 876 0.19 1,767,134 825 0.19 
Retail certificates2,241,080 7,012 1.27 2,298,678 7,835 1.35 
Commercial certificates116,181 183 0.64 169,200 272 0.64 
Wholesale certificates197,335 71 0.15 199,692 86 0.17 
Total deposits6,044,025 8,389 0.56 6,007,887 9,267 0.61 
Borrowings(6)
3,499,010 8,732 1.01 1,589,258 7,585 1.88 
Total interest-bearing liabilities9,543,035 17,121 0.73 7,597,145 16,852 0.88 
Non-interest-bearing deposits577,989 550,492 
Other non-interest-bearing liabilities177,995 209,890 
Stockholders' equity1,208,547 1,236,011 
Total liabilities and stockholders' equity$11,507,566 $9,593,538 
Net interest income(7)
$47,101 $45,614 
Net interest-earning assets$1,579,208 $1,584,278 
Net interest margin(8)(9)
1.69 1.99 
Ratio of interest-earning assets to interest-bearing liabilities1.17x1.21x
Selected performance ratios:
Return on average assets (annualized)(9)
0.75 %0.93 %
Return on average equity (annualized)(9)
7.16 7.18 
Average equity to average assets10.50 12.88 
Operating expense ratio (annualized)(10)
0.97 1.11 
Efficiency ratio(9)(11)
53.24 52.22 
Pre-tax yield on leverage strategy(12)
0.14 — 
11


For the Six Months Ended
March 31, 2022March 31, 2021
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,968,475 $64,415 3.25 %$3,953,137 $70,755 3.58 %
Correspondent purchased2,030,928 25,805 2.54 2,023,781 24,757 2.45 
Bulk purchased165,895 1,114 1.34 200,918 2,045 2.04 
Total one- to four-family loans6,165,298 91,334 2.96 6,177,836 97,557 3.16 
Commercial loans855,057 17,794 4.12 768,552 17,963 4.62 
Consumer loans91,573 2,072 4.54 106,371 2,459 4.64 
Total loans receivable(1)
7,111,928 111,200 3.12 7,052,759 117,979 3.34 
MBS(2)
1,397,056 9,446 1.35 1,372,531 11,139 1.62 
Investment securities(2)(3)
522,986 1,608 0.61 448,595 1,312 0.58 
FHLB stock(4)
115,546 3,471 6.02 81,332 2,020 4.98 
Cash and cash equivalents(5)
993,653 963 0.19 180,242 91 0.10 
Total interest-earning assets10,141,169 126,688 2.49 9,135,459 132,541 2.90 
Other non-interest-earning assets398,355 449,883 
Total assets$10,539,524 $9,585,342 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,060,755 355 0.07 $929,976 407 0.09 
Savings530,451 141 0.05 460,252 136 0.06 
Money market1,822,848 1,701 0.19 1,508,935 2,222 0.30 
Retail certificates2,270,195 14,847 1.31 2,565,182 22,293 1.74 
Commercial certificates142,982 455 0.64 184,414 801 0.87 
Wholesale certificates198,527 157 0.16 256,123 737 0.58 
Total deposits6,025,758 17,656 0.59 5,904,882 26,596 0.90 
Borrowings(6)
2,533,641 16,317 1.28 1,690,363 19,059 2.25 
Total interest-bearing liabilities8,559,399 33,973 0.79 7,595,245 45,655 1.20 
Non-interest-bearing deposits564,089 479,894 
Other non-interest-bearing liabilities193,606 227,189 
Stockholders' equity1,222,430 1,283,014 
Total liabilities and stockholders' equity$10,539,524 $9,585,342 
Net interest income(7)
$92,715 $86,886 
Net interest-earning assets$1,581,770 $1,540,214 
Net interest margin(8)(9)
1.83 1.90 
Ratio of interest-earning assets to interest-bearing liabilities1.18x1.20x
Selected performance ratios:
Return on average assets (annualized)(9)
0.83 %0.82 %
Return on average equity (annualized)(9)
7.17 6.13 
Average equity to average assets11.60 13.39 
Operating expense ratio (annualized)(10)
1.04 1.25 
Efficiency ratio(9)(11)
52.74 57.19 
Pre-tax yield on leverage strategy(12)
0.15 — 

12


(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 $2.0 million and $4.0 million for the quarters ended March 31, 2022 and December 31, 2021, respectively, and $3.0 million and $8.3 million for the six-month periods ended March 31, 2022 and March 31, 2021, respectively.
(4)Included in this line, for the quarter and six month period ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and $42.6 million, respectively, and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and $72.9 million, respectively, and dividend income of $1.0 million and $2.2 million, respectively, at a weighted average yield of 5.71% and 6.18%, respectively. There was no FHLB stock related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.83 billion and $904.6 million during the quarter and six month period ended March 31, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.
(6)Included in this line, for the quarter and six month period ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and $947.3 million, respectively, and interest paid of $1.3 million and $1.3 million, respectively, at a weighted average rate of 0.26% and 0.26%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and $1.59 billion, respectively, and interest paid of $7.5 million and $15.1 million, respectively, at a weighted average rate of 1.90% and 1.89%, respectively. There were no FHLB borrowings related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(7)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(8)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)The tables below provide a reconciliation between certain performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
For the Three Months Ended
March 31, 2022December 31, 2021
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets2.31 %(0.39)%2.70 %2.71 %— %2.71 %
Cost of interest-bearing liabilities0.73 (0.11)0.84 0.88 — 0.88 
Return on average assets (annualized)0.75 (0.13)0.88 0.93 — 0.93 
Return on average equity (annualized)7.16 0.18 6.98 7.18 — 7.18 
Net interest margin1.69 (0.32)2.01 1.99 — 1.99 
Efficiency Ratio53.24 (0.58)53.82 52.22 — 52.22 
For the Six Months Ended
March 31, 2022March 31, 2021
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets2.49 %(0.22)%2.71 %2.90 %— %2.90 %
Cost of interest-bearing liabilities0.79 (0.07)0.86 1.20 — 1.20 
Return on average assets (annualized)0.83 (0.07)0.90 0.82 — 0.82 
Return on average equity (annualized)7.17 0.09 7.08 6.13 — 6.13 
Net interest margin1.83 (0.17)2.00 1.90 — 1.90 
Efficiency Ratio52.74 (0.29)53.03 57.19 — 57.19 
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.
13


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.
March 31, 2022December 31, 2021September 30, 2021
% of % of % of
AmountRateTotalAmountRateTotalAmountRateTotal
(Dollars in thousands)
One- to four-family:
Originated$3,943,327 3.14 %55.4 %$3,941,568 3.15 %55.5 %$3,956,064 3.18 %55.8 %
Correspondent purchased1,995,167 2.95 28.0 1,991,944 2.97 28.0 2,003,477 3.02 28.2 
Bulk purchased155,657 1.33 2.2 165,339 1.52 2.3 173,662 1.65 2.4 
Construction50,512 2.78 0.7 47,508 2.76 0.7 39,142 2.82 0.6 
Total6,144,663 3.03 86.3 6,146,359 3.05 86.5 6,172,345 3.09 87.0 
Commercial:
Commercial real estate671,324 3.94 9.4 687,518 3.98 9.6 676,908 4.00 9.6 
Commercial and industrial 78,363 3.92 1.1 76,254 3.85 1.1 66,497 3.83 0.9 
Construction133,597 4.06 1.9 105,702 4.04 1.5 85,963 4.03 1.2 
Total883,284 3.96 12.4 869,474 3.98 12.2 829,368 3.99 11.7 
Consumer loans:
Home equity82,878 4.57 1.2 84,400 4.59 1.2 86,274 4.60 1.2 
Other7,858 4.18 0.1 7,825 4.13 0.1 8,086 4.19 0.1 
Total90,736 4.54 1.3 92,225 4.55 1.3 94,360 4.57 1.3 
Total loans receivable7,118,683 3.16 100.0 %7,108,058 3.18 100.0 %7,096,073 3.21 100.0 %
Less:
ACL15,312 17,535 19,823 
Deferred loan fees/discounts29,264 29,363 29,556 
Premiums/deferred costs(34,703)(34,445)(34,448)
Total loans receivable, net$7,108,810 $7,095,605 $7,081,142 

Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.
For the Three Months Ended For the Six Months Ended
March 31, 2022March 31, 2022
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,108,058 3.18 %$7,096,073 3.21 %
Originated and refinanced268,151 3.37 526,836 3.21 
Purchased and participations155,490 2.92 322,706 2.86 
Change in undisbursed loan funds(23,311)(45,237)
Repayments(389,719)(781,498)
Principal recoveries/(charge-offs), net14 45 
Other— (242)
Ending balance$7,118,683 3.16 $7,118,683 3.16 

14


One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, weighted average rate, percent of total, weighted average credit score, and weighted average loan-to-value ("LTV") ratio as of March 31, 2022. Credit scores were updated in March 2022 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
% ofCredit
AmountRateTotalScoreLTV
(Dollars in thousands)
Originated$3,943,327 3.14 %64.7 %772 61 %
Correspondent purchased1,995,167 2.95 32.7 765 64 
Bulk purchased155,657 1.33 2.6 773 58 
$6,094,151 3.03 100.0 %770 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 periods indicated.
For the Three Months Ended For the Six Months Ended
March 31, 2022March 31, 2022
Credit Credit
AmountRateLTVScoreAmountRateLTVScore
(Dollars in thousands)
Originated$164,477 2.96 %70 %767 $358,584 2.63 %70 %766 
Correspondent purchased118,096 2.81 71 768 248,649 2.70 72 772 
$282,573 2.90 70 768 $607,233 2.65 71 768 

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2022, along with associated weighted average rates.
AmountRate
(Dollars in thousands)
Originate/refinance$151,633 3.30 %
Correspondent53,515 3.08 
$205,148 3.24 

15


Commercial Loans: During the six months ended March 31, 2022, the Bank originated $137.3 million of commercial loans and entered into commercial loan participations totaling $74.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $174.1 million at a weighted average rate of 3.93%.

As of March 31, 2022, December 31, 2021, and September 30, 2021, the Bank's commercial and industrial gross loan amount (unpaid principal plus undisbursed amounts) totaled $101.3 million, $99.8 million, and $90.7 million, respectively, and commitments totaled $1.4 million at March 31, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of March 31, 2022, the Bank had commercial real estate and commercial construction loan commitments totaling $28.7 million, at a weighted average rate of 4.35%. 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.
March 31, 2022December 31, 2021September 30, 2021
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Senior housing35 $244,786 $86,444 $331,230 $295,929 $265,284 
Retail building147 186,325 39,972 226,297 215,593 208,539 
Hotel11 150,735 43,552 194,287 188,472 194,665 
Office building87 50,115 54,672 104,787 109,851 109,987 
Multi-family34 57,764 13,416 71,180 65,839 66,199 
One- to four-family property398 62,626 8,294 70,920 69,292 69,174 
Single use building28 19,410 4,769 24,179 52,471 47,028 
Other95 33,160 2,757 35,917 37,887 36,167 
835 $804,921 $253,876 $1,058,797 $1,035,334 $997,043 
Weighted average rate3.96 %3.83 %3.93 %3.97 %4.01 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of the dates indicated.
March 31, 2022December 31, 2021September 30, 2021
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Kansas630 $313,861 $52,542 $366,403 $386,332 $348,835 
Missouri169 226,952 54,278 281,230 239,943 232,041 
Texas11 162,660 111,360 274,020 269,772 273,124 
Colorado18,722 16,730 35,452 35,552 36,099 
Arkansas20,254 13,335 33,589 33,676 33,763 
Nebraska33,265 33,269 33,370 33,468 
Other10 29,207 5,627 34,834 36,689 39,713 
835 $804,921 $253,876 $1,058,797 $1,035,334 $997,043 

16


The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of March 31, 2022.
CountAmount
(Dollars in thousands)
Greater than $30 million$246,996 
>$15 to $30 million14 306,167 
>$10 to $15 million84,696 
>$5 to $10 million18 112,795 
$1 to $5 million111 249,997 
Less than $1 million1,274 189,611 
1,430 $1,190,262 

As of March 31, 2022 and December 31, 2021, there were commercial loans with a gross loan amount (unpaid principal plus undisbursed amounts) of $74.3 million and $143.5 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.
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. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. 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 March 31, 2022, approximately 64% 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 March 31, 2022, $2.9 million were 30 to 89 days delinquent and $2.8 million were 90 or more days delinquent as of March 31, 2022 and are included in the tables below.
Loans Delinquent for 30 to 89 Days at:
March 31, 2022December 31, 2021September 30, 2021June 30, 2021March 31, 2021
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated64 $6,931 74 $7,009 48 $4,156 51 $5,141 45 $4,151 
Correspondent purchased10 2,421 11 5,133 2,590 3,650 2,910 
Bulk purchased396 154 541 958 352 
Commercial373 222 37 35 806 
Consumer14 215 16 164 25 498 25 354 17 287 
94 $10,336 104 $12,682 86 $7,822 92 $10,138 81 $8,506 
30 to 89 days delinquent loans
to total loans receivable, net0.15 %0.18 %0.11 %0.14 %0.12 %
18


Non-Performing Loans and OREO at:
March 31, 2022December 31, 2021September 30, 2021June 30, 2021March 31, 2021
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated44 $3,999 48 $3,943 50 $3,693 53 $3,696 55 $4,433 
Correspondent purchased11 3,967 10 3,115 10 3,210 12 4,230 10 3,749 
Bulk purchased1,819 1,945 2,974 2,596 10 3,172 
Commercial1,167 1,170 1,214 1,278 1,068 
Consumer19 400 25 477 21 498 23 445 26 531 
85 11,352 95 10,650 96 11,589 102 12,245 107 12,953 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.16 %0.15 %0.16 %0.17 %0.19 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated$505 $451 $1,288 $1,392 $1,646 
Correspondent purchased— — — — — — — — — — 
Bulk purchased— — — — 131 131 — — 
Commercial34 62 419 403 642 
Consumer27 — — — — — — 
566 513 13 1,847 11 1,926 13 2,288 
Total nonaccrual loans94 11,918 103 11,163 109 13,436 113 14,171 120 15,241 
Nonaccrual loans as a percentage of total loans0.17 %0.16 %0.19 %0.20 %0.22 %
OREO:
One- to four-family:
Originated(2)
— $— $319 $170 $177 $105 
Total non-performing assets94 $11,918 105 $11,482 112 $13,606 116 $14,348 122 $15,346 
Non-performing assets as a percentage of total assets0.13 %0.12 %0.14 %0.15 %0.16 %

(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.

19


The following table presents loans classified as special mention or substandard at the dates presented. The decrease in commercial special mention loans at March 31, 2022 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the December 31, 2021 quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.
March 31, 2022September 30, 2021
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$13,323 $22,494 $14,332 $23,458 
Commercial47,093 3,493 99,729 3,259 
Consumer306 618 135 718 
$60,722 $26,605 $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 March 31, 2022 to account for economic uncertainty that may not be adequately captured in the third party economic forecast scenarios, along with the balance of large-dollar special mention commercial loans, and commercial loan COVID-19 modifications. The main economic uncertainties associated with the economic uncertainty qualitative factor were related to (1) the unemployment rate, which is a key economic index in the Bank's model, and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships.

The following tables present ACL activity and related ratios at the dates and for the periods indicated. The reserve for off-balance sheet credit exposures totaled $3.7 million at March 31, 2022, $4.6 million at December 31, 2021, and $5.7 million at September 30, 2021.
For the Three Months Ended For the Six Months Ended
March 31, 2022March 31, 2022
(Dollars in thousands)
Balance at beginning of period$17,535 $19,823 
Charge-offs:
One- to four-family— (4)
Commercial— (10)
Consumer(5)(6)
Total charge-offs(5)(20)
Recoveries:
One- to four-family11 
Commercial13 49 
Consumer
Total recoveries19 65 
Net recoveries (charge-offs)14 45 
Provision for credit losses(2,237)(4,556)
Balance at end of period$15,312 $15,312 
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(0.12)(0.35)
ACL to non-performing loans at end of period128.48 128.48 
ACL to loans receivable at end of period0.22 0.22 
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.

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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
March 31, December 31, March 31, December 31,
2022202120222021
(Dollars in thousands)
One- to four-family$4,079 $3,989 0.07 %0.06 %
Commercial:
Commercial real estate8,991 11,257 1.34 1.64 
Commercial and industrial 389 376 0.50 0.49 
Construction1,651