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

Capitol Federal Financial, Inc.

CIK: 1490906 Ticker: CFFN


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NEWS RELEASE
FOR IMMEDIATE RELEASE
July 27, 2022
CAPITOL FEDERAL FINANCIAL, INC.®
REPORTS THIRD 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 June 30, 2022. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 will be filed with the Securities and Exchange Commission ("SEC") on or about August 8, 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 $21.2 million;
basic and diluted earnings per share of $0.16;
net interest margin of 1.79% (2.11% excluding the effects of the leverage strategy);
annualized loan growth of 7.2%;
paid dividends of $38.7 million, or $0.285 per share, including a $0.20 per share True Blue® Capitol dividend; and
on July 19, 2022, announced a cash dividend of $0.085 per share, payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 2022.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and March 31, 2022

For the quarter ended June 30, 2022, the Company recognized net income of $21.2 million, or $0.16 per share, compared to net income of $21.6 million, or $0.16 per share, for the quarter ended March 31, 2022. The decrease in net income was due primarily to a higher provision for credit losses, partially offset by an increase in net interest income and lower income tax expense. The net interest margin increased 10 basis points, from 1.69% for the prior quarter to 1.79% for the current quarter. When the leverage strategy discussed below 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 10 basis points, from 2.01% for the prior quarter to 2.11% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in asset yields and a change in the mix of interest-earning assets, as cash was used to fund loan growth.

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 by entering into short-term Federal Home Loan Bank Topeka ("FHLB") advances. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 6.5% 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 $1.2 million during the current quarter and $1.8 million during the current year-to-date period. Management continues to monitor the net interest rate spread and overall profitability of the strategy. In July 2022, the level of borrowings associated with the leverage strategy was increased to $2.60 billion to further increase earnings, in response to the increase in the dividend rate paid by FHLB. It is expected that the strategy will continue to be utilized as long as it remains profitable.

1


Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. The weighted average yield on loans receivable increased four basis points and the weighted average yield on mortgage-backed securities ("MBS") increased eight basis points compared to the prior quarter.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$56,886 $55,412 $1,474 2.7 %
MBS5,048 4,821 227 4.7 
FHLB stock2,695 2,240 455 20.3 
Cash and cash equivalents3,968 949 3,019 318.1 
Investment securities815 800 15 1.9 
Total interest and dividend income$69,412 $64,222 $5,190 8.1 

The increase in interest income on loans receivable was due primarily to a decrease in correspondent loan premium amortization related to a reduction in payoff activity, as well as growth in the correspondent loan portfolio. The increase in interest income on MBS was due mainly 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 an increase in the dividend rate paid by FHLB. The increase in interest income on cash and cash equivalents was due to an increase in the yield earned on balances held at the FRB of Kansas City, the majority of which were related to the leverage strategy, due to an increase in market interest rates.

Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. The weighted average rate paid on deposits and the weighted average rate paid on borrowings not associated with the leverage strategy each decreased three basis points compared to the prior quarter.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$11,644 $8,732 $2,912 33.3 %
Deposits7,787 8,389 (602)(7.2)
Total interest expense$19,431 $17,121 $2,310 13.5 

The increase in interest expense on borrowings was due primarily to an increase in the rate paid on the short-term borrowings associated with the leverage strategy during the current quarter, due to higher market interest rates. Additionally, the average balance of borrowings not associated with the leverage strategy increased compared to the prior quarter due to new borrowings added near the end of the quarter, totaling $250.0 million at a weighted average rate of 3.51%, which contributed to the increase in interest expense. The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on retail certificates of deposit and a decrease in the average balance of the portfolio, as maturing accounts either were not renewed or were replaced at offered rates, which were lower than the existing portfolio.

Provision for Credit Losses
For the quarter ended June 30, 2022, the Bank recorded a provision for credit losses of $937 thousand, compared to a negative provision for credit losses of $3.2 million for the prior quarter. The provision for credit losses in the current quarter was comprised of a $796 thousand increase in the allowance for credit losses ("ACL") for loans and a $141 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses was due primarily to selecting a weighted economic forecast to incorporate a recessionary outlook into the model, as well as commercial loan growth.

2


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
June 30, March 31, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$3,601 $3,300 $301 9.1 %
Insurance commissions788 543 245 45.1 
Other non-interest income1,726 1,573 153 9.7 
Total non-interest income$6,115 $5,416 $699 12.9 

The increase in deposit service fees was due mainly to increases in debit card income and service charges as a result of higher transaction activity. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions in the prior quarter, which were lower than expected, and the related accrual adjustments. The increase in other non-interest income was due mainly to an increase in income on bank-owned life insurance related to the receipt of death benefits.

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
June 30, March 31, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$14,581 $14,023 $558 4.0 %
Information technology and related expense4,343 4,493 (150)(3.3)
Occupancy, net3,721 3,493 228 6.5 
Regulatory and outside services1,572 1,272 300 23.6 
Advertising and promotional1,068 1,494 (426)(28.5)
Federal insurance premium784 777 0.9 
Deposit and loan transaction costs664 689 (25)(3.6)
Office supplies and related expense494 502 (8)(1.6)
Other non-interest expense1,163 1,217 (54)(4.4)
Total non-interest expense$28,390 $27,960 $430 1.5 

The increase in salaries and employee benefits was due mainly to an increase in commissions due to an increase in loan origination activity, along with annual merit increases during the current quarter. The increase in regulatory and outside services was due primarily to the timing of external audit expenses, as well as an increase in consulting expenses related to the Bank's upcoming implementation of a new core processing system. The decrease in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships.

The Company's efficiency ratio was 50.61% for the current quarter compared to 53.24% for the prior quarter. The improvement in the efficiency ratio was due primarily to higher net interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that it is costing the financial institution less money to generate revenue, relative to the net interest margin and non-interest income.

3


Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.
For the Three Months Ended
June 30, March 31, Change Expressed in:
20222022DollarsPercent
(Dollars in thousands)
Income before income tax expense$26,769 $27,745 $(976)(3.5)%
Income tax expense5,617 6,122 (505)(8.2)
Net income$21,152 $21,623 $(471)(2.2)
Effective Tax Rate21.0 %22.1 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate as a result of higher deductible expenses associated with dividends paid on allocated Employee Stock Ownership Plan ("ESOP") shares due to the True Blue Capitol dividend paid in June 2022. Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Nine Months Ended June 30, 2022 and 2021

The Company recognized net income of $65.0 million, or $0.48 per share, for the current year period compared to net income of $57.5 million, or $0.42 per share, for the prior year period. The increase in net income was due to an increase in net interest income, partially offset by higher income tax expense and a lower negative provision for credit losses. The net interest margin decreased six basis points, from 1.88% for the prior year period to 1.82% for the current year period. Excluding the effects of the leverage strategy, the net interest margin would have increased 16 basis points, from 1.88% for the prior year period to 2.04% 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 Nine Months Ended
June 30, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$168,086 $172,758 $(4,672)(2.7)%
MBS14,494 16,499 (2,005)(12.2)
FHLB stock6,166 2,964 3,202 108.0 
Cash and cash equivalents4,931 117 4,814 4,114.5 
Investment securities2,423 2,075 348 16.8 
Total interest and dividend income$196,100 $194,413 $1,687 0.9 

The decrease in interest income on loans receivable was due 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, refinances, originations and purchases at lower market rates at the time of the transactions between periods, which are being fully reflected in the current year. 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 resulting from an increase in market interest rates, partially offsetting the decrease in the weighted average rate.

The decrease in interest income on the MBS portfolio was due primarily to a decrease in the weighted average yield as a result of purchases at lower market yields between periods, along with a decrease in the average balance of the portfolio.

4


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 and not being utilized during the prior period.

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 Nine Months Ended
June 30, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings$27,961 $26,885 $1,076 4.0 %
Deposits25,443 38,071 (12,628)(33.2)
Total interest expense$53,404 $64,956 $(11,552)(17.8)

The increase in interest expense on borrowings was due to the leverage strategy being utilized during a portion of the current year period and not being utilized during the prior year period. Interest expense on borrowings associated with the leverage strategy totaled $4.9 million during the current year period. This was partially offset by a lower cost of FHLB borrowings not associated with the leverage strategy due primarily to terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, along with a decrease in the average balance of the portfolio. Retail certificates of deposit repriced downward between periods as they were renewed or were replaced at lower offered rates, along with some certificates of deposit not renewing.

Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year period of $5.7 million, compared to a negative provision for credit losses of $7.2 million during the prior year period. The negative provision in the current year period was comprised of a $3.8 million decrease in the ACL for loans and a $1.9 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 primarily to a reduction in commercial loan qualitative factors, partially offset by an increase in ACL related to loan growth during the current year period. 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 commercial loan qualitative factors.

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 Nine Months Ended
June 30, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$10,331 $8,988 $1,343 14.9 %
Insurance commissions2,042 2,249 (207)(9.2)
Gain on sale of Visa Class B shares— 7,386 (7,386)(100.0)
Other non-interest income4,664 4,160 504 12.1 
Total non-interest income$17,037 $22,783 $(5,746)(25.2)
The increase in deposit service fees was due primarily to an increase in debit card income and service charges 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 were lower than expected, and the related accrual 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. The increase in other non-interest income was due primarily to a gain on a loan-related financial derivative agreement.
5


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 Nine Months Ended
June 30, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$42,332 $41,402 $930 2.2 %
Information technology and related expense13,268 13,568 (300)(2.2)
Occupancy, net10,593 10,406 187 1.8 
Regulatory and outside services4,212 4,288 (76)(1.8)
Advertising and promotional3,626 3,729 (103)(2.8)
Federal insurance premium2,200 1,888 312 16.5
Deposit and loan transaction costs2,050 2,123 (73)(3.4)
Office supplies and related expense1,464 1,289 175 13.6 
Loss on interest rate swap termination— 4,752 (4,752)(100.0)
Other non-interest expense3,299 3,877 (578)(14.9)
Total non-interest expense$83,044 $87,322 $(4,278)(4.9)

The increase in salaries and employee benefits was due primarily to merit increases and an increase in incentive compensation, partially offset by a decrease in commissions due to a reduction in loan origination activity compared to the prior year period. 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 year period. 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 51.99% for the current year period compared to 57.36% for the prior year period. The improvement in the efficiency ratio was due primarily to higher net interest income.

Management intends to implement a new core processing system for the Bank by September 2023. The replacement system is expected to 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 during 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 and effective tax rate.
For the Nine Months Ended
June 30, Change Expressed in:
20222021DollarsPercent
(Dollars in thousands)
Income before income tax expense$82,379 $72,105 $10,274 14.2 %
Income tax expense17,418 14,576 2,842 19.5 
Net income$64,961 $57,529 $7,432 12.9 
Effective Tax Rate21.1 %20.2 %
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.

6



Financial Condition as of June 30, 2022

The following table summarizes the Company's financial condition at the dates indicated.
AnnualizedAnnualized
June 30, March 31, PercentSeptember 30, Percent
20222022Change2021Change
(Dollars in thousands)
Total assets$9,476,053 $9,531,296 (2.3)%$9,631,246 (2.1)%
Available-for-sale ("AFS") securities1,694,160 1,780,419 (19.4)2,014,608 (21.2)
Loans receivable, net7,236,196 7,108,810 7.2 7,081,142 2.9 
Deposits6,329,883 6,614,844 (17.2)6,597,396 (5.4)
Borrowings1,869,897 1,583,747 72.3 1,582,850 24.2 
Stockholders' equity1,131,740 1,174,752 (14.6)1,242,273 (11.9)
Equity to total assets at end of period11.9 %12.3 %12.9 %
Average number of basic shares outstanding135,725 135,677 0.1 135,571 0.2 
Average number of diluted shares outstanding135,725 135,677 0.1 135,571 0.2 

During the current quarter and current year period, total assets decreased as cash and/or securities were partially reinvested in loans receivable. Deposit outflows, the majority of which occurred during the quarter ended June 30, 2022, were replaced by an increase in borrowings. The decrease in stockholders' equity from September 30, 2021 and March 31, 2022 to June 30, 2022 was due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities, along with the payment of a $0.20 per share True Blue Capitol dividend in June 2022.

During the current quarter, the deposit portfolio decreased $284.9 million, or 17.2% annualized. The decrease was primarily in retail certificates of deposit ($83.9 million), checking accounts ($70.0 million), public unit deposits ($67.0 million), and commercial certificates of deposit ($45.7 million). The decrease in checking accounts was mainly in retail accounts, as depositors used accumulated savings for other purposes during the quarter. The decrease in public unit deposits was due to the rapidly increasing costs of available funds in this category, to the point that rates were in excess of other funding sources available to the Bank. The decrease in commercial certificates of deposit was expected, as certain maturities were anticipated to be used to fund operations at the depositors' related businesses during the current year. The Bank has begun to increase offered rates on certificates of deposit and money market accounts, which has reduced the runoff in these portfolios.

Loans receivable, net, increased $127.4 million during the current quarter due primarily to a $101.7 million increase in one- to four-family loans and a $20.6 million increase in commercial loans.

7


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 Nine Months Ended
June 30, 2022June 30, 2022
AmountRateAmountRate
(Dollars in thousands)
Loan originations and purchases
One- to four-family and consumer:
Originated$223,153 3.82 %$612,710 3.28 %
Purchased145,362 3.48 394,011 3.01 
Commercial:
Originated37,646 4.28 174,925 3.98 
Purchased8,000 3.75 82,057 3.35 
$414,161 3.74 $1,263,703 3.30 
Borrowing activity
Maturities and prepayments$— — $(100,000)3.14 
New borrowings250,000 3.51 350,000 3.49 

Stockholders' Equity
During the nine months ended June 30, 2022, the Company paid cash dividends totaling $91.6 million. These cash dividends totaled $0.675 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, a $0.20 per share True Blue Capitol cash dividend, and three regular quarterly cash dividends of $0.085 per share. On July 19, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 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 June 30, 2022, this ratio was 10.6%.
At June 30, 2022, Capitol Federal Financial, Inc., at the holding company level, had $91.9 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 June 30, 2022.
Total shares outstanding 138,854,084 
Less unallocated ESOP shares and unvested restricted stock(3,086,165)
Net shares outstanding 135,767,919 

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 June 30, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.4%, which exceeded the minimum requirement of 9%. The CBLR is based on average assets. The leverage strategy increases average assets which reduces the Bank's CBLR.

8


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
9



SUPPLEMENTAL FINANCIAL INFORMATION
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
June 30, March 31, September 30,
202220222021
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $31,589, $110,444 and $24,289)$54,789 $166,869 $42,262 
AFS securities, at estimated fair value (amortized cost of $1,830,262, $1,875,361 and $2,008,456)1,694,160 1,780,419 2,014,608 
Loans receivable, net (ACL of $16,283, $15,312 and $19,823)7,236,196 7,108,810 7,081,142 
FHLB stock, at cost87,696 74,456 73,421 
Premises and equipment, net96,008 96,952 99,127 
Income taxes receivable, net1,993 — — 
Deferred income tax assets, net19,636 12,399 — 
Other assets285,575 291,391 320,686 
TOTAL ASSETS$9,476,053 $9,531,296 $9,631,246 
LIABILITIES:
Deposits$6,329,883 $6,614,844 $6,597,396 
Borrowings1,869,897 1,583,747 1,582,850 
Advance payments by borrowers for taxes and insurance55,955 65,901 72,729 
Income taxes payable, net— 1,113 918 
Deferred income tax liabilities, net— — 5,810 
Other liabilities88,578 90,939 129,270 
Total liabilities8,344,313 8,356,544 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, 138,854,084, 138,846,684 and 138,832,284 shares issued and outstanding as of June 30, 2022, March 31, 2022, and September 30, 2021, respectively1,388 1,388 1,388 
Additional paid-in capital1,190,117 1,189,999 1,189,633 
Unearned compensation, ESOP(30,148)(30,561)(31,387)
Retained earnings72,308 89,833 98,944 
Accumulated other comprehensive (loss) income, net of tax(101,925)(75,907)(16,305)
Total stockholders' equity1,131,740 1,174,752 1,242,273 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,476,053 $9,531,296 $9,631,246 
10


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
For the Three Months EndedFor the Nine Months Ended
June 30, March 31, June 30,
2022202220222021
INTEREST AND DIVIDEND INCOME:
Loans receivable$56,886 $55,412 $168,086 $172,758 
MBS5,048 4,821 14,494 16,499 
FHLB stock2,695 2,240 6,166 2,964 
Cash and cash equivalents3,968 949 4,931 117 
Investment securities815 800 2,423 2,075 
Total interest and dividend income69,412 64,222 196,100 194,413 
INTEREST EXPENSE:
Borrowings11,644 8,732 27,961 26,885 
Deposits7,787 8,389 25,443 38,071 
Total interest expense19,431 17,121 53,404 64,956 
NET INTEREST INCOME49,981 47,101 142,696 129,457 
PROVISION FOR CREDIT LOSSES937 (3,188)(5,690)(7,187)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES49,044 50,289 148,386 136,644 
NON-INTEREST INCOME:
Deposit service fees3,601 3,300 10,331 8,988 
Insurance commissions788 543 2,042 2,249 
Gain on sale of Visa Class B shares— — — 7,386 
Other non-interest income1,726 1,573 4,664 4,160 
Total non-interest income6,115 5,416 17,037 22,783 
NON-INTEREST EXPENSE:
Salaries and employee benefits14,581 14,023 42,332 41,402 
Information technology and related expense4,343 4,493 13,268 13,568 
Occupancy, net3,721 3,493 10,593 10,406 
Regulatory and outside services1,572 1,272 4,212 4,288 
Advertising and promotional1,068 1,494 3,626 3,729 
Federal insurance premium784 777 2,200 1,888 
Deposit and loan transaction costs664 689 2,050 2,123 
Office supplies and related expense494 502 1,464 1,289 
Loss on interest rate swap termination— — — 4,752 
Other non-interest expense1,163 1,217 3,299 3,877 
Total non-interest expense28,390 27,960 83,044 87,322 
INCOME BEFORE INCOME TAX EXPENSE26,769 27,745 82,379 72,105 
INCOME TAX EXPENSE5,617 6,122 17,418 14,576 
NET INCOME$21,152 $21,623 $64,961 $57,529 


11


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
June 30, 2022March 31, 2022
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$3,982,602 $32,168 3.23 %$3,965,844 $31,993 3.23 %
Correspondent purchased2,060,947 14,027 2.72 2,026,120 13,060 2.58 
Bulk purchased154,663 464 1.20 161,149 503 1.25 
Total one- to four-family loans6,198,212 46,659 3.01 6,153,113 45,556 2.96 
Commercial loans890,455 9,104 4.05 869,205 8,851 4.07 
Consumer loans92,790 1,123 4.85 90,326 1,005 4.51 
Total loans receivable(1)
7,181,457 56,886 3.16 7,112,644 55,412 3.12 
MBS(2)
1,343,891 5,048 1.50 1,357,693 4,821 1.42 
Investment securities(2)(3)
522,147 815 0.62 522,019 800 0.61 
FHLB stock(4)
166,879 2,695 6.48 158,546 2,240 5.73 
Cash and cash equivalents(5)
1,930,539 3,968 0.81 1,971,341 949 0.19 
Total interest-earning assets11,144,913 69,412 2.49 11,122,243 64,222 2.31 
Other non-interest-earning assets293,882 385,323 
Total assets$11,438,795 $11,507,566 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,068,329 180 0.07 $1,069,282 176 0.07 
Savings556,553 74 0.05 540,348 71 0.05 
Money market1,861,302 952 0.21 1,879,799 876 0.19 
Retail certificates2,169,262 6,383 1.18 2,241,080 7,012 1.27 
Commercial certificates84,231 129 0.61 116,181 183 0.64 
Wholesale certificates113,101 69 0.24 197,335 71 0.15 
Total deposits5,852,778 7,787 0.53 6,044,025 8,389 0.56 
Borrowings(6)
3,687,592 11,644 1.26 3,499,010 8,732 1.01 
Total interest-bearing liabilities9,540,370 19,431 0.81 9,543,035 17,121 0.73 
Non-interest-bearing deposits586,876 577,989 
Other non-interest-bearing liabilities147,938 177,995 
Stockholders' equity1,163,611 1,208,547 
Total liabilities and stockholders' equity$11,438,795 $11,507,566 
Net interest income(7)
$49,981 $47,101 
Net interest-earning assets$1,604,543 $1,579,208 
Net interest margin(8)(9)
1.79 1.69 
Ratio of interest-earning assets to interest-bearing liabilities1.17x1.17x
Selected performance ratios:
Return on average assets (annualized)(9)
0.74 %0.75 %
Return on average equity (annualized)(9)
7.27 7.16 
Average equity to average assets10.17 10.50 
Operating expense ratio (annualized)(10)
0.99 0.97 
Efficiency ratio(9)(11)
50.61 53.24 
Pre-tax yield on leverage strategy(12)
0.31 0.14 
12


For the Nine Months Ended
June 30, 2022June 30, 2021
AverageInterest AverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans:
Originated$3,973,184 $96,583 3.24 %$3,963,088 $104,482 3.52 %
Correspondent purchased2,040,934 39,832 2.60 2,006,257 35,124 2.33 
Bulk purchased162,151 1,578 1.30 195,678 2,870 1.96 
Total one- to four-family loans6,176,269 137,993 2.98 6,165,023 142,476 3.08 
Commercial loans866,856 26,898 4.09 780,941 26,707 4.51 
Consumer loans91,979 3,195 4.64 103,241 3,575 4.63 
Total loans receivable(1)
7,135,104 168,086 3.14 7,049,205 172,758 3.26 
MBS(2)
1,379,334 14,494 1.40 1,424,914 16,499 1.54 
Investment securities(2)(3)
522,706 2,423 0.62 476,755 2,075 0.58 
FHLB stock(4)
132,657 6,166 6.21 78,784 2,964 5.03 
Cash and cash equivalents(5)
1,305,949 4,931 0.50 152,792 117 0.10 
Total interest-earning assets10,475,750 196,100 2.49 9,182,450 194,413 2.82 
Other non-interest-earning assets362,229 443,370 
Total assets$10,837,979 $9,625,820 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,063,280 535 0.07 $955,731 588 0.08 
Savings539,152 215 0.05 478,011 209 0.06 
Money market1,835,666 2,653 0.19 1,554,947 3,220 0.28 
Retail certificates2,236,551 21,230 1.27 2,530,969 31,824 1.68 
Commercial certificates123,398 584 0.63 195,066 1,208 0.83 
Wholesale certificates170,051 226 0.18 254,606 1,022 0.54 
Total deposits5,968,098 25,443 0.57 5,969,330 38,071 0.85 
Borrowings(6)
2,918,291 27,961 1.27 1,654,544 26,885 2.16 
Total interest-bearing liabilities8,886,389 53,404 0.80 7,623,874 64,956 1.14 
Non-interest-bearing deposits571,685 499,737 
Other non-interest-bearing liabilities177,081 219,204 
Stockholders' equity1,202,824 1,283,005 
Total liabilities and stockholders' equity$10,837,979 $9,625,820 
Net interest income(7)
$142,696 $129,457 
Net interest-earning assets$1,589,361 $1,558,576 
Net interest margin(8)(9)
1.82 1.88 
Ratio of interest-earning assets to interest-bearing liabilities1.18x1.20x
Selected performance ratios:
Return on average assets (annualized)(9)
0.80 %0.80 %
Return on average equity (annualized)(9)
7.20 5.98 
Average equity to average assets11.10 13.33 
Operating expense ratio (annualized)(10)
1.02 1.21 
Efficiency ratio(9)(11)
51.99 57.36 
Pre-tax yield on leverage strategy(12)
0.23 — 

13


(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $326 thousand and $2.0 million for the quarters ended June 30, 2022 and March 31, 2022, respectively, and $2.1 million and $7.2 million for the nine-month periods ended June 30, 2022 and June 30, 2021, respectively.
(4)Included in this line, for the quarter and nine-month period ended June 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $89.4 million and $58.2 million, respectively, and dividend income of $1.4 million and $2.7 million, respectively, at a weighted average yield of 6.48% and 6.12%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $77.5 million and $74.5 million, respectively, and dividend income of $1.3 million and $3.5 million, respectively, at a weighted average yield of 6.48% and 6.29%, respectively. Included in this line for the quarter ended March 31, 2022 is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million 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 dividend income of $1.0 million, at a weighted average yield of 5.71%. There was no FHLB stock related to the leverage strategy during the nine-month period ended June 30, 2021.
(5)The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.89 billion, $1.83 billion, and $1.23 billion during the quarter ended June 30, 2022, the quarter ended March 31, 2022 and nine-month period ended June 30, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the nine-month period ended June 30, 2021.
(6)Included in this line, for the quarter and nine-month period ended June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.99 billion and $1.30 billion, respectively, and interest paid of $3.7 million and $4.9 million, respectively, at a weighted average rate of 0.73% and 0.50%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.70 billion and $1.62 billion, respectively, and interest paid of $8.0 million and $23.0 million, respectively, at a weighted average rate of 1.87% and 1.89%, respectively. Included in this line for the quarter ended March 31, 2022 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and interest paid of $1.3 million at a weighted average rate of 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $7.5 million at a weighted average rate of 1.90%. There were no FHLB borrowings related to the leverage strategy during the nine-month period ended June 30, 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
June 30, 2022March 31, 2022
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets2.49 %(0.30)%2.79 %2.31 %(0.39)%2.70 %
Cost of interest-bearing liabilities0.81 (0.03)0.84 0.73 (0.11)0.84 
Return on average assets (annualized)0.74 (0.10)0.84 0.75 (0.13)0.88 
Return on average equity (annualized)7.27 0.42 6.85 7.16 0.18 6.98 
Net interest margin1.79 (0.32)2.11 1.69 (0.32)2.01 
Efficiency Ratio50.61 (1.31)51.92 53.24 (0.58)53.82 
For the Nine Months Ended
June 30, 2022June 30, 2021
ActualLeverageAdjustedActualLeverageAdjusted
(GAAP)Strategy(Non-GAAP)(GAAP)Strategy(Non-GAAP)
Yield on interest-earning assets2.49 %(0.25)%2.74 %2.82 %— %2.82 %
Cost of interest-bearing liabilities0.80 (0.05)0.85 1.14 — 1.14 
Return on average assets (annualized)0.80 (0.08)0.88 0.80 — 0.80 
Return on average equity (annualized)7.20 0.20 7.00 5.98 — 5.98 
Net interest margin1.82 (0.22)2.04 1.88 — 1.88 
Efficiency Ratio51.99 (0.65)52.64 57.36 — 57.36 
(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.
14


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.
June 30, 2022March 31, 2022September 30, 2021
% of % of % of
AmountRateTotalAmountRateTotalAmountRateTotal
(Dollars in thousands)
One- to four-family:
Originated$3,963,608 3.16 %54.7 %$3,943,327 3.14 %55.4 %$3,956,064 3.18 %55.8 %
Correspondent purchased2,070,822 2.99 28.6 1,995,167 2.95 28.0 2,003,477 3.02 28.2 
Bulk purchased151,461 1.27 2.1 155,657 1.33 2.2 173,662 1.65 2.4 
Construction60,426 2.84 0.8 50,512 2.78 0.7 39,142 2.82 0.6 
Total6,246,317 3.05 86.2 6,144,663 3.03 86.3 6,172,345 3.09 87.0 
Commercial:
Commercial real estate717,947 4.09 9.9 671,324 3.94 9.4 676,908 4.00 9.6 
Commercial and industrial 70,932 3.98 1.0 78,363 3.92 1.1 66,497 3.83 0.9 
Construction115,031 4.33 1.6 133,597 4.06 1.9 85,963 4.03 1.2 
Total903,910 4.11 12.5 883,284 3.96 12.4 829,368 3.99 11.7 
Consumer loans:
Home equity87,235 5.03 1.2 82,878 4.57 1.2 86,274 4.60 1.2 
Other8,289 4.14 0.1 7,858 4.18 0.1 8,086 4.19 0.1 
Total95,524 4.96 1.3 90,736 4.54 1.3 94,360 4.57 1.3 
Total loans receivable7,245,751 3.21 100.0 %7,118,683 3.16 100.0 %7,096,073 3.21 100.0 %
Less:
ACL16,283 15,312 19,823 
Deferred loan fees/discounts29,470 29,264 29,556 
Premiums/deferred costs(36,198)(34,703)(34,448)
Total loans receivable, net$7,236,196 $7,108,810 $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 Nine Months Ended
June 30, 2022June 30, 2022
AmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,118,683 3.16 %$7,096,073 3.21 %
Originated and refinanced260,799 3.88 787,635 3.44 
Purchased and participations153,362 3.50 476,068 3.06 
Change in undisbursed loan funds122 (45,115)
Repayments(287,123)(1,068,621)
Principal recoveries/(charge-offs), net175 220 
Other(267)(509)
Ending balance$7,245,751 3.21 $7,245,751 3.21 

15


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, and average balance per loan as of June 30, 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.
% ofCreditAverage
AmountRateTotalScoreLTVBalance
(Dollars in thousands)
Originated$3,963,608 3.16 %64.1 %772 61 %$157 
Correspondent purchased2,070,822 2.99 33.5 765 64 412 
Bulk purchased151,461 1.27 2.4 773 57 285 
$6,185,891 3.06 100.0 %770 62 200 

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 Nine Months Ended
June 30, 2022June 30, 2022
Credit Credit
AmountRateLTVScoreAmountRateLTVScore
(Dollars in thousands)
Originated$200,354 3.70 %74 %766 $558,938 3.15 %71 %766 
Correspondent purchased145,362 3.48 75 767 394,011 3.01 73 770 
$345,716 3.61 74 767 $952,949 3.09 72 768 

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 June 30, 2022, along with associated weighted average rates.
AmountRate
(Dollars in thousands)
Originate/refinance$182,662 4.16 %
Correspondent77,156 3.82 
$259,818 4.06 

16


Commercial Loans: During the nine months ended June 30, 2022, the Bank originated $174.9 million of commercial loans and entered into commercial loan participations totaling $82.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $232.0 million at a weighted average rate of 4.04%.

As of June 30, 2022, March 31, 2022, and September 30, 2021, the Bank's commercial and industrial gross loan amount (unpaid principal plus undisbursed amounts) totaled $95.2 million, $101.3 million, and $90.7 million, respectively, and commitments totaled $440 thousand at June 30, 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 June 30, 2022, the Bank had 26 commercial real estate and commercial construction loan commitments totaling $65.5 million, at a weighted average rate of 4.17%. 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.
June 30, 2022March 31, 2022September 30, 2021
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Senior housing34 $248,787 $79,334 $328,121 $331,230 $265,284 
Retail building138 196,903 35,551 232,454 226,297 208,539 
Hotel11 160,521 32,380 192,901 194,287 194,665 
Office building85 52,738 50,305 103,043 104,787 109,987 
Multi-family34 59,840 19,706 79,546 71,180 66,199 
One- to four-family property372 62,191 8,235 70,426 70,920 69,174 
Single use building23 19,019 4,773 23,792 24,179 47,028 
Other94 32,979 2,993 35,972 35,917 36,167 
791 $832,978 $233,277 $1,066,255 $1,058,797 $997,043 
Weighted average rate4.13 %4.32 %4.17 %3.93 %4.01 %

The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.
June 30, 2022March 31, 2022September 30, 2021
UnpaidUndisbursedGross LoanGross LoanGross Loan
CountPrincipalAmountAmountAmountAmount
(Dollars in thousands)
Kansas600 $320,063 $57,888 $377,951 $366,403 $348,835 
Missouri157 227,027 53,343 280,370 281,230 232,041 
Texas11 182,086 90,688 272,774 274,020 273,124 
Colorado19,832 14,139 33,971 35,452 36,099 
Arkansas21,884 11,618 33,502 33,589 33,763 
Nebraska33,088 33,092 33,269 33,468 
Other28,998 5,597 34,595 34,834 39,713 
791 $832,978 $233,277 $1,066,255 $1,058,797 $997,043 

17


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 June 30, 2022.
CountAmount
(Dollars in thousands)
Greater than $30 million$246,066 
>$15 to $30 million16 335,698 
>$10 to $15 million71,174 
>$5 to $10 million20 131,051 
$1 to $5 million112 254,323 
Less than $1 million1,262 189,051 
1,422 $1,227,363 

As of June 30, 2022 and March 31, 2022, there were commercial loans with a gross loan amount (unpaid principal plus undisbursed amounts) of $73.6 million and $74.3 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the Coronavirus Disease 2019 ("COVID-19") pandemic ("COVID-19 loan modifications") that were still in their deferral period.
18


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 June 30, 2022, approximately 61% were 59 days or less delinquent. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. Non-performing assets include nonaccrual loans and OREO.
Loans Delinquent for 30 to 89 Days at:
June 30, 2022March 31, 2022December 31, 2021September 30, 2021June 30, 2021
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated64 $6,035 64 $6,931 74 $7,009 48 $4,156 51 $5,141 
Correspondent purchased3,467 10 2,421 11 5,133 2,590 3,650 
Bulk purchased755 396 154 541 958 
Commercial706 373 222 37 35 
Consumer16 256 14 215 16 164 25 498 25 354 
99 $11,219 94 $10,336 104 $12,682 86 $7,822 92 $10,138 
30 to 89 days delinquent loans
to total loans receivable, net0.16 %0.15 %0.18 %0.11 %0.14 %
19


Non-Performing Loans and OREO at:
June 30, 2022March 31, 2022December 31, 2021September 30, 2021June 30, 2021
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated36 $2,585 44 $3,999 48 $3,943 50 $3,693 53 $3,696 
Correspondent purchased2,659 11 3,967 10 3,115 10 3,210 12 4,230 
Bulk purchased1,807 1,819 1,945 2,974 2,596 
Commercial1,184 1,167 1,170 1,214 1,278 
Consumer174 19 400 25 477 21 498 23 445 
66 8,409 85 11,352 95 10,650 96 11,589 102 12,245 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.12 %0.16 %0.15 %0.16 %0.17 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated$207 $505 $451 $1,288 $1,392 
Correspondent purchased— — — — — — — — — — 
Bulk purchased— — — — — — 131 131 
Commercial34 62 419 403 
Consumer19 27 — — — — 
230 566 513 13 1,847 11 1,926 
Total nonaccrual loans70 8,639 94 11,918 103 11,163 109 13,436 113 14,171 
Nonaccrual loans as a percentage of total loans0.12 %0.17 %0.16 %0.19 %0.20 %
OREO:
One- to four-family:
Originated(2)
$237 — $— $319 $170 $177 
Consumer21 — — — — — — — — 
258 — — 319 170 177 
Total non-performing assets73 $8,897 94 $11,918 105 $11,482 112 $13,606 116 $14,348 
Non-performing assets as a percentage of total assets0.09 %0.13 %0.12 %0.14 %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.

20


The following table presents loans classified as special mention or substandard at the dates presented. The decrease in commercial special mention loans at June 30, 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. The commercial special mention loan balance at June 30, 2022 was comprised of a single loan which continues to show improvement in its cash flow from operations and other operating metrics.
June 30, 2022September 30, 2021
Special MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$14,172 $19,319 $14,332 $23,458 
Commercial46,366 3,078 99,729 3,259 
Consumer288 383 135 718 
$60,826 $22,780 $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 June 30, 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 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 $3.8 million at June 30, 2022, $3.7 million at March 31, 2022, and $4.6 million at December 31, 2021.
For the Three Months Ended For the Nine Months Ended
June 30, 2022June 30, 2022
(Dollars in thousands)
Balance at beginning of period$15,312 $19,823 
Charge-offs:
One- to four-family— (4)
Commercial— (10)
Consumer(10)(16)
Total charge-offs(10)(30)
Recoveries:
One- to four-family126 137 
Commercial52 101 
Consumer12 
Total recoveries185 250 
Net recoveries (charge-offs)175 220 
Provision for credit losses796 (3,760)
Balance at end of period$16,283 $16,283 
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(1.68)(1.96)
ACL to non-performing loans at end of period188.48 188.48 
ACL to loans receivable at end of period0.22 0.22 
ACL to net charge-offs (annualized)
N/M(1)