Capitol Federal Financial, Inc.® Reports Fourth Quarter and Fiscal Year 2024 Results

By: Capitol Federal Financial, Inc. via Business Wire

October 23, 2024 at 09:00 AM EDT

Capitol Federal Financial, Inc.^® (NASDAQ: CFFN) (the "Company," "we" or "our"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter and fiscal year ended September 30, 2024. For best viewing results, please view this release in Portable Document Format (PDF) on our website, https://ir.capfed.com.

Highlights for the quarter include:

net income of $12.1 million;
basic and diluted earnings per share of $0.09;
net interest margin of 1.80%;
paid dividends of $0.085 per share; and
on October 22, 2024, announced a cash dividend of $0.085 per share, payable on November 15, 2024 to stockholders of record as of the close of business on November 1, 2024.

Highlights for the fiscal year include:

net income of $38.0 million;
basic and diluted earnings per share of $0.29;
net interest margin of 1.77%; and
paid dividends of $0.34 per share.

Comparison of Operating Results for the Three Months Ended September 30, 2024 and June 30, 2024

For the quarter ended September 30, 2024, the Company recognized net income of $12.1 million, or $0.09 per share, compared to net income of $9.6 million, or $0.07 per share, for the quarter ended June 30, 2024. The higher net income in the current quarter was due primarily to a release of provision for credit losses in the current quarter compared to provision expense in the prior quarter. The net interest margin increased three basis points, from 1.77% for the prior quarter to 1.80% for the current quarter due mainly to net interest margin improvements from the loan portfolio outpacing the cost of retail certificates of deposit.

Interest and Dividend Income

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

	For the Three Months Ended
	September 30,		June 30,		Change Expressed in:
		2024		2024	Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	79,841	$	76,803	$	3,038		4.0	%
Mortgage-backed securities ("MBS")		10,412		9,585		827		8.6
Cash and cash equivalents		2,562		3,875		(1,313	)	(33.9	)
Federal Home Loan Bank Topeka ("FHLB") stock		2,418		2,477		(59	)	(2.4	)
Investment securities		1,634		2,255		(621	)	(27.5	)
Total interest and dividend income	$	96,867	$	94,995	$	1,872		2.0

The increase in interest income on loans receivable was due to an increase in the weighted average yield of the entire loan portfolio, and an increase in the average balance of the loan portfolio. The increase in the average balance was primarily in the commercial loan portfolio partially offset by a decrease in the average balance of the one- to four-family correspondent loan portfolio. See additional discussion regarding the composition of the loan portfolio in the "Financial Condition as of September 30, 2024" section below. The increase in interest income on MBS was due to an increase in average balance compared to the prior quarter primarily as a result of purchases made during the current quarter. The decrease in interest income on cash and cash equivalents was due primarily to a decrease in the average balance as excess operating cash during the current quarter was, in part, used to fund commercial loan activities, reinvest in the MBS portfolio and pay down borrowings. The decrease in interest income on investment securities was due to a decrease in the average balance as a result of maturities during the current and prior quarter. The majority of the cash flows from the investment securities portfolio was reinvested into the MBS portfolio or used to pay down borrowings.

Interest Expense

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

	For the Three Months Ended
	September 30,		June 30,		Change Expressed in:
		2024		2024	Dollars		Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	37,458	$	36,233	$	1,225	3.4	%
Borrowings		18,585		18,438		147	0.8
Total interest expense	$	56,043	$	54,671	$	1,372	2.5

The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and the average balance of the retail certificate of deposit portfolio, along with an increase in the weighted average rate paid on the savings portfolio as a result of continued growth in the Bank's high-yield savings account offering that was introduced in early fiscal year 2024. Both were partially offset by a decrease in the weighted average rate and average balance of the money market portfolio.

Provision for Credit Losses

For the quarter ended September 30, 2024, the Bank recorded a provision release of $637 thousand, compared to a provision for credit losses of $1.5 million for the prior quarter. The provision release in the current quarter was comprised of a $2.7 million decrease in the allowance for credit losses ("ACL") for loans, partially offset by a $2.1 million increase in the reserve for off-balance sheet credit exposures. The decrease in ACL was composed of $1.6 million related to the commercial real estate portfolio and $1.1 million related to the one- to-four family loan portfolio. See discussion regarding the changes in the ACL balance during the current quarter in the "Supplemental Financial Information - Asset Quality - ACL" section below. The increase in the reserves for off-balance sheet credit exposures was due primarily to an increase in the balance of off-balance sheet credit exposures between quarters.

Non-Interest Income

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

	For the Three Months Ended
	September 30,		June 30,		Change Expressed in:
		2024		2024	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	2,830	$	2,706	$	124		4.6	%
Insurance commissions		754		905		(151	)	(16.7	)
Other non-interest income		1,202		1,098		104		9.5
Total non-interest income	$	4,786	$	4,709	$	77		1.6

The decrease in insurance commissions was primarily due to adjustments to accrued contingent commissions made in anticipation of lower commissions largely related to industry changes in underwriting and loss experience which is adversely impacting new business and projected loss ratios. The industry changes impacting commissions are expected to persist for the foreseeable future, so management is currently evaluating other insurance revenue streams while maintaining our current lines of business. The increase in other non-interest income was due mainly to lower market value losses in the current quarter related to 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
	September 30,		June 30,		Change Expressed in:
		2024		2024	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	13,086	$	13,307	$	(221	)	(1.7	)%
Information technology and related expense		4,637		5,364		(727	)	(13.6	)
Occupancy, net		3,442		3,263		179		5.5
Federal insurance premium		1,113		1,352		(239	)	(17.7	)
Regulatory and outside services		1,398		1,322		76		5.7
Advertising and promotional		1,054		951		103		10.8
Deposit and loan transaction costs		584		726		(142	)	(19.6	)
Office supplies and related expense		506		405		101		24.9
Other non-interest expense		1,220		1,260		(40	)	(3.2	)
Total non-interest expense	$	27,040	$	27,950	$	(910	)	(3.3	)

The decrease in information technology and related expense was due primarily to lower software related expenses. The increase in occupancy, net, was due mainly to an increase in utilities related to seasonality. The decrease in the federal insurance premium was due primarily to a decrease in the Federal Deposit Insurance Corporation ("FDIC") assessment rate. Prior to the current quarter, the FDIC assessment rate was higher as a result of the assessment rate being adjusted for the occurrence of the Bank's net loss during the quarter ending September 30, 2023. Starting with the current quarter, the net loss is no longer impacting the assessment rate. The increase in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships compared to the prior quarter. The decrease in deposit and loan transaction costs was due primarily to a reduction in electronic banking expense compared to the prior quarter due to the timing of invoices.

The Company's efficiency ratio was 59.29% for the current quarter compared to 62.07% for the prior quarter. The improvement in the efficiency ratio was due to lower non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value generally indicates that it is costing the financial institution less money to generate revenue, relative to its net interest income and non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.

	For the Three Months Ended
	September 30,			June 30,			Change Expressed in:
		2024			2024		Dollars		Percent
	(Dollars in thousands)
Income before income tax expense	$	19,207		$	15,611		$	3,596	23.0	%
Income tax expense		7,150			5,963			1,187	19.9
Net income	$	12,057		$	9,648		$	2,409	25.0

Effective Tax Rate		37.2	%		38.2	%

The increase in income tax expense in the current quarter was due primarily to higher pretax income in the current quarter compared to the prior quarter.

Included in income tax expense for the current quarter and prior quarter was $2.0 million and $2.9 million, respectively, of income tax expense associated with the Bank's pre-1988 bad debt recapture. See additional information regarding the pre-1988 bad debt recapture in "Comparison of Operating Results for the Years Ended September 30, 2024 and 2023 - Income Tax Expense". The income tax expense associated with the pre-1988 bad debt recapture negatively impacted earnings by $0.02 per share in the current quarter and $0.03 per share in the prior quarter.

Comparison of Operating Results for the Years Ended September 30, 2024 and 2023

The Company recognized net income of $38.0 million, or $0.29 per share, for the current year, compared to a net loss of $101.7 million, or $(0.76) per share, for the prior year. The net loss in the prior year resulted from the impairment loss on the securities associated with the securities strategy (defined below). See additional discussion regarding the securities strategy in the "Securities Strategy to Improve Earnings" section below. The securities associated with the securities strategy were sold in the first quarter of fiscal year 2024. The Company incurred $13.3 million ($10.0 million net of tax) of net losses related to the sale of those securities. Excluding the effects of the net loss associated with the securities strategy, earnings per share would have been $0.37 for the current year and $0.33 for the prior year. The increase in earnings per share excluding the effects of the net loss associated with the securities strategy was due primarily to higher net interest income and a lower provision for credit losses in the current year, partially offset by higher income tax expense.

Periodically, at management's discretion, we have utilized a strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the Federal Reserve Bank of Kansas City ("FRB") (the "leverage strategy"). See additional information regarding the leverage strategy in the "Financial Condition as of September 30, 2024 - Leverage Strategy" section below. 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.

The net interest margin increased 34 basis points, from 1.43% for the prior year to 1.77% for the current year, due primarily to the leverage strategy being in place during the prior year but not in the current year. The leverage strategy negatively impacted the net interest margin for the prior year by 12 basis points. The remaining improvement in the net interest margin absent the leverage strategy was due to higher yields on securities and loans which outpaced the increase in the cost of deposits, largely in retail certificates of deposit.

Securities Strategy to Improve Earnings

In October 2023, the Company initiated a securities strategy by selling $1.30 billion of securities, representing 94% of its securities portfolio. Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities of $192.6 million which was reflected in the Company's financial statements for the quarter and fiscal year ended September 30, 2023. The securities strategy was designed to allow the Company to improve its earnings stream going forward, beginning in the current fiscal year, by redeploying most of the proceeds into current market rate securities and to provide liquidity to deleverage the balance sheet utilizing the remaining proceeds. During the quarter ended December 31, 2023, the Company completed the sale of securities and recognized $13.3 million ($10.0 million net of tax), or $0.08 per share, of additional loss related to the sale of the securities. See additional information regarding the impact of the securities strategy on our financial measurements in "Average Balance Sheets" below. The $1.30 billion of securities sold had a weighted average yield of 1.22% and an average duration of 3.6 years. With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a weighted average cost of 4.70%, and held the remaining cash at the FRB earning interest at the reserve balance rate until such time as it could be used to fund commercial activity or for other Bank operations. See additional discussion related to commercial loan activity in the "Financial Condition as of September 30, 2024" and "Supplemental Financial Information - Loan Portfolio" sections below.

Interest and Dividend Income

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

	For the Year Ended
	September 30,				Change Expressed in:
		2024		2023	Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	308,707	$	280,087	$	28,620		10.2	%
MBS		33,650		18,520		15,130		81.7
Cash and cash equivalents		15,728		43,796		(28,068	)	(64.1	)
FHLB stock		10,009		13,821		(3,812	)	(27.6	)
Investment securities		8,749		3,565		5,184		145.4
Total interest and dividend income	$	376,843	$	359,789	$	17,054		4.7

The increase in interest income on loans receivable was due largely to an increase in the weighted average yield, along with an increase in the average balance of the portfolio primarily as a result of growth in the commercial loan portfolio as the loan portfolio mix continued to shift from one- to four-family loans to commercial loans. The increase in the weighted average yield was due primarily to originations and purchases at higher market rates between periods, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in the average balance was mainly in the commercial loan portfolio which was partially offset by a decrease in the average balance of the one-to four-family loan portfolio. See additional discussion in the "Financial Condition as of September 30, 2024" and "Supplemental Financial Information - Loan Portfolio" sections below.

The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield, partially offset by a decrease in the average balance, both a result of the securities strategy.

The decrease in interest income on cash and cash equivalents and the decrease in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the prior year and not being utilized during the current year. Interest income on cash and cash equivalents related to the leverage strategy decreased $37.8 million and dividend income on FHLB stock related to the leverage strategy decreased $3.6 million compared to the prior year. Interest income on cash and cash equivalents not associated with the leverage strategy increased $9.7 million due largely to an increase in the average balance of cash and cash equivalents. The increase in the average balance was mainly a result of the securities strategy as not all of the proceeds from the securities strategy were immediately redeployed due to future anticipated commercial loan fundings and the higher rate paid on reserves held at the FRB.

Interest Expense

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

	For the Year Ended
	September 30,				Change Expressed in:
		2024		2023	Dollars			Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	139,549	$	82,267	$	57,282		69.6	%
Borrowings		75,233		124,250		(49,017	)	(39.5	)
Total interest expense	$	214,782	$	206,517	$	8,265		4.0

The increase in interest expense on deposits was due almost entirely to an increase in the weighted average rate paid on deposits, specifically retail certificates of deposit and money market accounts. To a lesser extent, the average balance of retail certificates of deposit also increased interest expense on deposits, partially offset by a decrease in the average balance of money market accounts. See additional information regarding the deposit portfolio composition in the "Financial Condition as of September 30, 2024" section below.

Interest expense on borrowings associated with the leverage strategy decreased $39.7 million compared to the prior year due to the leverage strategy being in place during the prior year and not being in place during the current year. Interest expense on borrowings not associated with the leverage strategy decreased $9.3 million due mainly to a decrease in borrowings under the Federal Reserve's Bank Term Funding Program ("BTFP"), which were repaid during the current year, and a reduction in the average outstanding balance on the Bank's FHLB line of credit compared to the prior year. The decrease in these borrowings was partially offset by new borrowings in the current year at market interest rates higher than the overall portfolio rate, to replace maturing advances and fund operational needs.

Provision for Credit Losses

The Company recorded a provision for credit losses of $1.3 million during the current year, compared to a provision for credit losses of $6.8 million for the prior year. The provision for credit losses in the current year was comprised of a $1.9 million increase in the reserve for off-balance sheet credit exposures, partially offset by a $633 thousand release in the ACL for loans. The increase in the reserve for off-balance sheet credit exposures was due primarily to an increase in the balance of off-balance sheet credit exposures and an increase in the ACL to loan ratio, which is applied to off-balance sheet credit exposures, between periods, specifically for commercial construction loans. The change in the balance of the ACL from the prior fiscal year end to the end of the current fiscal year was a decrease of $723 thousand which differs from the $633 thousand above primarily due to net charge-offs. The reduction in ACL was due to a decrease in the ACL for our one- to four-family loans as a result of a decrease in the ACL to loan ratio and a decrease in loan balances, partially offset by an increase in the ACL for our commercial loans due to growth in the commercial loan portfolio. See discussion regarding the ACL in the "Supplemental Financial Information - Asset Quality - ACL" section below.

Non-Interest Income

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

	For the Year Ended
	September 30,						Change Expressed in:
		2024			2023		Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	10,562		$	12,745		$	(2,183	)	(17.1	)%
Insurance commissions		3,257			3,487			(230	)	(6.6	)
Net loss from securities transactions		(13,345	)		(192,622	)		179,277		93.1
Other non-interest income		4,770			4,935			(165	)	(3.3	)
Total non-interest income	$	5,244		$	(171,455	)	$	176,699		(103.1	)

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the Bank's digital transformation project. The decrease in insurance commissions was primarily due to adjustments to accrued contingent commissions made in anticipation of lower commissions largely related to industry changes in underwriting and loss experience which is adversely impacting new business and projected loss ratios. The industry changes impacting commissions are expected to persist for the foreseeable future, so management is currently evaluating other insurance revenue streams while maintaining our current lines of business. The net loss from securities transactions in the prior year related to the impairment loss on securities associated with the securities strategy while the $13.3 million loss in the current year related to additional losses incurred on those securities when they were ultimately sold during the first quarter of fiscal year 2024.

Non-Interest Expense

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

	For the Year Ended
	September 30,				Change Expressed in:
		2024		2023	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	52,272	$	51,491	$	781		1.5	%
Information technology and related expense		20,324		23,425		(3,101	)	(13.2	)
Occupancy, net		13,558		14,236		(678	)	(4.8	)
Federal insurance premium		6,052		4,456		1,596		35.8
Regulatory and outside services		5,743		6,039		(296	)	(4.9	)
Advertising and promotional		4,264		4,305		(41	)	(1.0	)
Deposit and loan transaction costs		2,719		2,694		25		0.9
Office supplies and related expense		1,691		2,499		(808	)	(32.3	)
Other non-interest expense		5,320		4,789		531		11.1
Total non-interest expense	$	111,943	$	113,934	$	(1,991	)	(1.7	)

The increase in salaries and employee benefits was mainly attributable to higher incentive compensation in the current year compared to the prior year, as no incentive compensation was paid in the prior year due to the net loss recognized by the Company. The decrease in information technology and related expense was due mainly to lower third-party project management expenses associated with the Bank's digital transformation project during the prior year along with the discontinuation of other costs associated with the previous core system, partially offset by higher software licensing expenses resulting from new agreements associated with the digital transformation project. The increase in the federal insurance premium was due primarily to an increase in the FDIC assessment rate as a result of the way the assessment rate is adjusted for the occurrence of the Bank's net loss during the quarter ending September 30, 2023. The decrease in regulatory and outside services was due to the prior year including expenses related to the digital transformation project. The decrease in office supplies and related expense was due primarily to the outsourcing of statement processing related to the digital transformation, and the timing of office supply purchases between periods. The increase in other non-interest expense was due mainly to an increase in customer fraud losses.

The Company's efficiency ratio was 66.91% for the current year compared to (626.63)% for the prior year. Excluding the net losses from the securities strategy, the efficiency ratio would have been 61.97% for the current year and 65.31% for the prior year. The improvement in the efficiency ratio, excluding the net losses from the securities strategy, was due primarily to higher net interest income and lower non-interest expense in the current year compared to the prior year.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and effective tax rate.

	For the Year Ended
	September 30,						Change Expressed in:
		2024			2023		Dollars		Percent
	(Dollars in thousands)

Income (loss) before income tax expense (benefit)	$	54,103		$	(138,955	)	$	193,058	138.9	%
Income tax expense (benefit)		16,093			(37,296	)		53,389	143.1
Net income (loss)	$	38,010		$	(101,659	)	$	139,669	137.4

Effective Tax Rate		29.7	%		26.8	%

In the prior year, absent the net loss, the effective income tax rate for that year would have been 18.1%. The higher effective tax rate in the current year was due primarily to recording $5.4 million of income tax expense on the current year distributions of earnings from the Bank to the Company in association with the pre-1988 bad debt recapture, along with higher state income tax expense mainly related to the tax treatment of the bad debt recapture, partially offset by a $3.3 million tax benefit related to the $13.3 million net loss on the securities sale associated with the securities strategy.

The income tax on the earnings distribution from the Bank to the Company was due to the recapture of a portion of the Bank's bad debt reserves which were established prior to September 30, 1988, and are included in the Bank's retained earnings ("pre-1988 bad debt reserves"). A taxable net loss will be reported on the Company's September 30, 2024 federal tax return due to the net losses associated with the strategic securities transaction ("securities strategy"), which resulted in the Bank and Company having a negative current and accumulated earnings and profit tax position. This requires the Bank to draw upon the pre-1988 bad debt reserves for any distributions from the Bank to the Company during the current fiscal year. The Bank has been required to pay taxes on the reductions to the pre-1988 bad debt reserves equal to the current corporate tax rate at the time of the distribution of the amount of Bank earnings paid to the Company ("pre-1988 bad debt recapture"). The Bank recorded $5.4 million of income tax expense on earnings distributions from the Bank to the Company during fiscal year 2024 due to the pre-1988 bad debt recapture. As of September 30, 2024, the amount of the Bank's remaining pre-1988 bad debt reserves was $75.9 million, or $15.9 million tax effected, as of September 30, 2024.

Management anticipates the effective tax rate for fiscal year 2025 will be 19% to 20%. The effective tax rate is anticipated to be lower than fiscal year 2024 as it is currently the intention of management and the Board of Directors to make no distributions from the Bank to the Company during fiscal year 2025. By not making distributions during fiscal year 2025, the Bank will not incur income tax expense related to the bad debt recapture as occurred during fiscal year 2024. See "Financial Condition - Stockholders' Equity" section below for additional discussion.

Financial Condition as of September 30, 2024

The following table summarizes the Company's financial condition at the dates indicated.

							Annualized
	September 30,			June 30,			Percent		September 30,			Percent
		2024			2024		Change			2023		Change
	(Dollars and shares in thousands)
Total assets	$	9,527,608		$	9,602,757		(3.1	)%	$	10,177,461		(6.4	)%
Available-for-sale ("AFS") securities		856,266			801,953		27.1			1,384,482		(38.2	)
Loans receivable, net		7,907,338			7,933,043		(1.3	)		7,970,949		(0.8	)
Deposits		6,129,982			6,129,660		—			6,051,220		1.3
Borrowings		2,179,564			2,291,605		(19.6	)		2,879,125		(24.3	)
Stockholders' equity		1,032,270			1,020,676		4.5			1,044,054		(1.1	)
Equity to total assets at end of period		10.8	%		10.6	%				10.3	%
Average number of basic shares outstanding		129,918			129,866		0.2			133,225		(2.5	)
Average number of diluted shares outstanding		129,918			129,866		0.2			133,225		(2.5	)

During the current quarter, total assets decreased $75.1 million, to $9.53 billion at September 30, 2024, due primarily to a decrease in cash which was used to pay off certain borrowings that matured and to fund securities purchases. The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current quarter, with $43.6 million, 12% annualized, in commercial loan growth, offset by a $72.9 million decrease in one- to four-family loans due primarily to a $49.8 million decrease in one- to four-family correspondent loans.

As a result of continued high interest rates and lack of housing inventory which has reduced housing market transactions, our single-family origination activity has slowed which directly impacted the Bank's one- to four-family loan portfolio. Origination and refinance activity has slowed considerably, and there has been a reduction in one- to four-family loan balances through scheduled repayments and loan payoffs. During the June 30, 2024 quarter, the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future. Management expects the Bank's one- to four-family loan portfolio will continue to decrease as cash flows generated from the one- to four-family portfolio are used to fund commercial loan growth.

Total liabilities decreased $86.7 million during the current quarter due primarily to a $112.0 million decrease in borrowings mainly as a result of not replacing all maturing FHLB borrowings. Management estimates that the Bank had $2.93 billion in additional liquidity available at September 30, 2024 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

Total assets decreased $649.9 million from September 30, 2023, due primarily to a $528.2 million decrease in securities mainly as a result of the securities strategy, along with a $63.6 million decrease in the loan portfolio and a $28.3 million decrease in cash. The decrease in the loan portfolio was due mainly to a $287.2 million decrease in one- to four-family loans, partially offset by a $221.5 million increase in commercial loans.

Total liabilities at September 30, 2024 were $8.50 billion, a decrease of $638.1 million from September 30, 2023. The decrease was due primarily to a $699.6 million decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP and not all maturing FHLB borrowings were replaced during the current fiscal year. The decrease in borrowings was partially offset by an increase in deposits. Total deposits increased $78.8 million from September 30, 2023, primarily in retail certificates of deposit, all in the 14 months or shorter term category, partially offset by a decrease in retail money market accounts as some customers elected to move funds to the Bank's certificate of deposit offerings or the Bank's higher yielding savings account offering.

During fiscal year 2024, management sought to grow certificates of deposit with terms of 14 months or less by offering market competitive rates. We focused on terms that should allow us to price down certificates of deposit as and when the FRB reduces overnight rates, which first occurred in September 2024. The weighted average maturity ("WAM") of our retail certificate of deposit portfolio as of September 30, 2024 was approximately 10 months. Our retail certificate of deposit retention rate has been approximately 87% over the past 12-months. Additionally, management has focused on retaining and growing deposits through the introduction of a high-yield savings account early in fiscal year 2024 which had an annual percentage yield of 4.30% for balances over $10 thousand as of September 30, 2024. The high-yield savings account balance was $96.2 million as of September 30, 2024. Of this amount, approximately 45% relates to existing Bank customers increasing their balances during the year by bringing in funds from outside of the Bank, approximately 40% is from internal Bank transfers from other deposit products, largely the money market portfolio, and the remaining 15% is composed of new deposit relationships. While there is an immediate reprice and increase in cost on internal transfers within the Bank, we believe we have captured rate sensitive money by offering this product, rather than having those funds leave the Bank.

Stockholders' equity decreased $11.8 million from September 30, 2023 due primarily to stock buybacks early in fiscal year 2024, partially offset by an increase in accumulated other comprehensive income, net of tax. The improvement in accumulated other comprehensive income, net of tax, was mainly a result of the securities strategy.

The following table summarizes loan originations and purchases, deposit activity, and borrowing activity, along with certain 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 Ended					For the Year Ended
	September 30, 2024					September 30, 2024
	Amount			Rate		Amount			Rate
	(Dollars in thousands)
Loan originations, purchases, and participations
One- to four-family and consumer:
Originated	$	102,076		6.56	%	$	354,515		6.81	%
Purchased		—		—			3,497		5.91

Commercial:
Originated		47,016		7.70			306,422		7.67
Participations/Purchased		13,500		7.43			44,215		7.95
	$	162,592		6.96		$	708,649		7.25

Deposit Activity
Non-maturity deposits	$	(35,178	)			$	(156,356	)
Retail/Commercial certificates of deposit		56,395					306,110

Borrowing activity
Maturities and repayments		(187,418	)	3.01			(527,172	)	2.95
New borrowings		75,000		4.50			325,000		4.54
BTFP, net		—		—			(500,000	)	4.70

Leverage Strategy

Periodically, the Bank has utilized a leverage strategy to increase earnings, which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB. The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. The profitability of the leverage strategy is attributable to net income derived from the dividends received on the increased FHLB stock holdings, plus the net interest rate spread between the yield on the leverage strategy cash at the FRB and the rate paid on the leverage strategy FHLB borrowings, less applicable FDIC premiums and estimated income tax expense. Leverage strategy borrowings are repaid prior to each quarter end so there is no impact to quarter end capital ratios. The leverage strategy was not in place at any time during the current year due to the strategy being unprofitable, but it was in place at points during the prior year. During the prior year, the average balance of cash associated with the leverage strategy was $882.8 million and interest earned on that cash was $37.7 million, the average balance of FHLB stock associated with the leverage strategy was $41.6 million and dividends earned on that stock were $3.6 million, and the average balance of FHLB borrowings associated with the leverage strategy was $924.4 million and the related interest expense was $39.7 million. Additionally, the Company recognized $406 thousand of FDIC premiums and $215 thousand of income tax expense during the prior year related to the leverage strategy. 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. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.

Stockholders' Equity

Stockholders' equity totaled $1.03 billion at September 30, 2024 a decrease of $11.8 million from September 30, 2023. During the current year, the Company repurchased $19.3 million of shares and paid regular quarterly cash dividends totaling $44.5 million, or $0.34 per share. On October 22, 2024, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.1 million, payable on November 15, 2024 to stockholders of record as of the close of business on November 1, 2024.

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 September 30, 2024, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates. As of September 30, 2024, the Bank's community bank leverage ratio was 9.2%.

Based on the Company's accumulated earnings and profits at the beginning of its 2024 tax year and the current year tax earnings and profits deficit as a result of the losses associated with the securities strategy, all dividends paid to stockholders by the Company during fiscal year 2024 should be treated as a return of capital, pursuant to Internal Revenue Code Section 301(c)(2), which reduced the tax basis in the shares of the holder by the amount of the dividend received. Stockholders should consult their own tax advisors to determine the income tax consequences of their specific situation. The Company is providing this for informational purposes only and not as legal or tax advice. Based on the Company's proposed actions for fiscal year 2025 (as discussed further below), the Company anticipates that the majority, if not all, of the dividend payments to Company stockholders in fiscal year 2025 will be treated as dividends for tax purposes.

At September 30, 2024, Capitol Federal Financial, Inc. at the holding company level, had $50.1 million in cash on deposit at the Bank. Given the amount of cash at the holding company level, and in an effort to minimize the tax associated with the bad debt recapture, it is currently the intention of management and the Board of Directors to not distribute earnings from the Bank to the Company during fiscal year 2025. It is currently anticipated that the Bank will have sufficient taxable income during fiscal year 2025 to replenish tax accumulated earnings and profits to a positive level allowing the Bank to make earnings distributions to the Company during fiscal year 2026 and not be taxed on those distributions. For fiscal year 2025, it is the intention of the Company's Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year. To the extent that earnings in fiscal year 2025 exceed $0.34 per share, the Board of Directors will consider the payment of additional dividends. 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, the Bank's taxable current earning and accumulated earnings and profits, and the amount of cash at the holding company level.

During the current year, the Company repurchased 3,280,110 shares of common stock at an average price of $5.87 per share. There were no shares repurchased during the current quarter. The Company currently has $75.0 million authorized for repurchase under existing stock repurchase plans. The FRB's current approval for the Company to repurchase shares up to the $75.0 million authorization expires in February 2025. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors.

The following table presents a reconciliation of total to net shares outstanding as of September 30, 2024.

Total shares outstanding	132,735,565
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock	(2,774,426	)
Net shares outstanding	129,961,139

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 47 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.

Forward-Looking Statements

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: 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 and the effects of inflation or a potential recession, whether caused by Federal Reserve action or otherwise; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment; demand for loans in the Company's market areas; the future earnings and capital levels of the Bank and the impact of the pre-1988 bad debt recapture, 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 Securities and Exchange Commission (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.

SUPPLEMENTAL FINANCIAL INFORMATION

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)

	September 30,			June 30,			September 30,
		2024			2024			2023
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $192,138, $292,675 and $213,830)	$	217,307		$	317,821		$	245,605
AFS securities, at estimated fair value (amortized cost of $829,852, $793,556 and $1,385,992)		856,266			801,953			1,384,482
Loans receivable, net (ACL of $23,035, $25,854 and $23,759)		7,907,338			7,933,043			7,970,949
FHLB stock, at cost		101,175			106,309			110,714
Premises and equipment, net		91,463			92,089			91,531
Income taxes receivable, net		359			129			8,531
Deferred income tax assets, net		21,978			30,128			29,605
Other assets		331,722			321,285			336,044
TOTAL ASSETS	$	9,527,608		$	9,602,757		$	10,177,461

LIABILITIES:
Deposits	$	6,129,982		$	6,129,660		$	6,051,220
Borrowings		2,179,564			2,291,605			2,879,125
Advances by borrowers		61,801			34,851			62,993
Other liabilities		123,991			125,965			140,069
Total liabilities		8,495,338			8,582,081			9,133,407

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, 132,735,565, 132,733,765 and 135,936,375 shares issued and outstanding as of September 30, 2024, June 30, 2024, and September 30, 2023, respectively		1,327			1,327			1,359
Additional paid-in capital		1,146,851			1,146,928			1,166,643
Unearned compensation, ESOP		(26,431	)		(26,844	)		(28,083	)
Accumulated deficit		(111,104	)		(112,118	)		(104,565	)
Accumulated other comprehensive income, net of tax		21,627			11,383			8,700
Total stockholders' equity		1,032,270			1,020,676			1,044,054
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,527,608		$	9,602,757		$	10,177,461

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)

	For the Three Months Ended					For the Year Ended
	September 30,			June 30,		September 30,
		2024			2024		2024			2023
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	79,841		$	76,803	$	308,707		$	280,087
MBS		10,412			9,585		33,650			18,520
Cash and cash equivalents		2,562			3,875		15,728			43,796
FHLB stock		2,418			2,477		10,009			13,821
Investment securities		1,634			2,255		8,749			3,565
Total interest and dividend income		96,867			94,995		376,843			359,789

INTEREST EXPENSE:
Deposits		37,458			36,233		139,549			82,267
Borrowings		18,585			18,438		75,233			124,250
Total interest expense		56,043			54,671		214,782			206,517

NET INTEREST INCOME		40,824			40,324		162,061			153,272

PROVISION FOR CREDIT LOSSES		(637	)		1,472		1,259			6,838
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES		41,461			38,852		160,802			146,434

NON-INTEREST INCOME:
Deposit service fees		2,830			2,706		10,562			12,745
Insurance commissions		754			905		3,257			3,487
Net loss from securities transactions		—			—		(13,345	)		(192,622	)
Other non-interest income		1,202			1,098		4,770			4,935
Total non-interest income		4,786			4,709		5,244			(171,455	)

NON-INTEREST EXPENSE:
Salaries and employee benefits		13,086			13,307		52,272			51,491
Information technology and related expense		4,637			5,364		20,324			23,425
Occupancy, net		3,442			3,263		13,558			14,236
Federal insurance premium		1,113			1,352		6,052			4,456
Regulatory and outside services		1,398			1,322		5,743			6,039
Advertising and promotional		1,054			951		4,264			4,305
Deposit and loan transaction costs		584			726		2,719			2,694
Office supplies and related expense		506			405		1,691			2,499
Other non-interest expense		1,220			1,260		5,320			4,789
Total non-interest expense		27,040			27,950		111,943			113,934
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)		19,207			15,611		54,103			(138,955	)
INCOME TAX EXPENSE (BENEFIT)		7,150			5,963		16,093			(37,296	)
NET INCOME (LOSS)	$	12,057		$	9,648	$	38,010		$	(101,659	)

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 income (annualized for the three-month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three-month periods) by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

	For the Three Months Ended
	September 30, 2024						June 30, 2024
	Average		Interest				Average		Interest
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Amount		Paid		Rate		Amount		Paid		Rate
	(Dollars in thousands)
Assets:
Interest-earning assets:
One- to four-family loans:
Originated	$	3,956,014	$	36,188	3.66	%	$	3,970,881	$	35,612	3.59	%
Correspondent purchased		2,262,838		18,705	3.31			2,317,550		18,854	3.25
Bulk purchased		128,520		839	2.61			130,876		731	2.23
Total one- to four-family loans		6,347,372		55,732	3.51			6,419,307		55,197	3.44
Commercial loans		1,483,197		21,756	5.74			1,371,631		19,311	5.57
Consumer loans		109,404		2,353	8.56			107,793		2,295	8.56
Total loans receivable⁽¹⁾		7,939,973		79,841	4.00			7,898,731		76,803	3.88
MBS⁽²⁾		736,695		10,412	5.65			675,506		9,585	5.68
Investment securities⁽²⁾⁽³⁾		115,856		1,634	5.64			163,765		2,255	5.51
FHLB stock⁽⁴⁾		101,942		2,418	9.44			106,122		2,477	9.39
Cash and cash equivalents⁽⁵⁾		187,484		2,562	5.35			283,939		3,875	5.40
Total interest-earning assets		9,081,950		96,867	4.24			9,128,063		94,995	4.15
Other non-interest-earning assets		458,253						451,143
Total assets	$	9,540,203					$	9,579,206

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	$	853,921		590	0.27		$	874,477		508	0.23
Savings		531,579		972	0.73			494,614		491	0.40
Money market		1,243,150		4,630	1.48			1,268,261		5,259	1.67
Retail certificates		2,789,666		29,601	4.22			2,751,521		28,106	4.11
Commercial certificates		59,020		651	4.39			58,059		623	4.31
Wholesale certificates		87,259		1,014	4.62			106,680		1,246	4.70
Total deposits		5,564,595		37,458	2.68			5,553,612		36,233	2.62
Borrowings⁽⁶⁾		2,227,278		18,585	3.31			2,297,228		18,438	3.22
Total interest-bearing liabilities		7,791,873		56,043	2.86			7,850,840		54,671	2.80
Non-interest-bearing deposits		534,912						534,901
Other non-interest-bearing liabilities		184,320						169,555
Stockholders' equity		1,029,098						1,023,910
Total liabilities and stockholders' equity	$	9,540,203					$	9,579,206

Net interest income⁽⁷⁾			$	40,824					$	40,324
Net interest-earning assets	$	1,290,077					$	1,277,223
Net interest margin⁽⁸⁾					1.80						1.77
Ratio of interest-earning assets to interest-bearing liabilities					1.17x						1.16x

Selected performance ratios:
Return on average assets (annualized)^(9)(14)					0.51	%					0.40	%
Return on average equity (annualized)^(10)(14)					4.69						3.77
Average equity to average assets					10.79						10.69
Operating expense ratio (annualized)⁽¹¹⁾					1.13						1.17
Efficiency ratio^(12)(14)					59.29						62.07

	For the Year Ended September 30,
	2024						2023
	Average		Interest				Average		Interest
	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Amount		Paid		Rate		Amount		Paid		Rate
	(Dollars in thousands)
Assets:
Interest-earning assets:
One- to four-family loans:
Originated	$	3,984,971	$	142,011	3.56	%	$	4,047,209	$	135,873	3.36	%
Correspondent purchased		2,340,841		76,493	3.27			2,428,257		76,335	3.14
Bulk purchased		132,460		2,999	2.26			143,105		1,923	1.34
Total one- to four-family loans		6,458,272		221,503	3.43			6,618,571		214,131	3.24
Commercial loans		1,378,421		78,042	5.57			1,150,831		57,991	4.97
Consumer loans		107,357		9,162	8.53			103,016		7,965	7.73
Total loans receivable⁽¹⁾		7,944,050		308,707	3.87			7,872,418		280,087	3.55
MBS⁽²⁾		619,521		33,650	5.43			1,150,013		18,520	1.61
Investment securities⁽²⁾⁽³⁾		180,640		8,749	4.84			524,919		3,565	0.68
FHLB stock⁽⁴⁾		106,064		10,009	9.44			157,925		13,821	8.75
Cash and cash equivalents⁽⁵⁾		286,988		15,728	5.39			998,793		43,796	4.32
Total interest-earning assets		9,137,263		376,843	4.11			10,704,068		359,789	3.35
Other non-interest-earning assets		460,278						263,713
Total assets	$	9,597,541					$	10,967,781

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	$	873,097		1,978	0.23		$	961,779		1,504	0.16
Savings		493,456		1,826	0.37			525,423		488	0.09
Money market		1,302,817		22,333	1.71			1,567,540		19,426	1.24
Retail certificates		2,680,003		106,204	3.96			2,266,740		54,724	2.41
Commercial certificates		54,484		2,247	4.12			40,258		993	2.47
Wholesale certificates		109,217		4,961	4.54			134,641		5,132	3.81
Total deposits		5,513,074		139,549	2.53			5,496,381		82,267	1.50
Borrowings⁽⁶⁾		2,338,222		75,233	3.21			3,658,015		124,250	3.38
Total interest-bearing liabilities		7,851,296		214,782	2.73			9,154,396		206,517	2.25
Non-interest-bearing deposits		533,821						562,023
Other non-interest-bearing liabilities		180,979						179,373
Stockholders' equity		1,031,445						1,071,989
Total liabilities and stockholders' equity	$	9,597,541					$	10,967,781

Net interest income⁽⁷⁾			$	162,061					$	153,272
Net interest-earning assets	$	1,285,967					$	1,549,672
Net interest margin⁽⁸⁾					1.77						1.43
Ratio of interest-earning assets to interest-bearing liabilities					1.16x						1.17x

Selected performance ratios:
Return on average assets^(9)(14)					0.40	%					(0.93	%)
Return on average equity^(10)(14)					3.69						(9.48	)
Average equity to average assets					10.75						9.77
Operating expense ratio⁽¹¹⁾					1.17						1.04
Efficiency ratio^(12)(14)					66.91						(626.63	)
Pre-tax yield on leverage strategy⁽¹³⁾					—						0.13

(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)		There were no nontaxable securities included in the average balance of investment securities for the quarters ended September 30, 2024 or June 30, 2024. The average balance of investment securities includes an average balance of nontaxable securities of $51 thousand and $1.0 million for the years ended September 30, 2024 and September 30, 2023, respectively.
(4)		There was no FHLB stock related to the leverage strategy for the quarter and year ended September 30, 2024 or the quarter ended June 30, 2024. Included in this line, for the year ended September 30, 2023, is FHLB stock related to the leverage strategy with an average outstanding balance of $41.6 million and dividend income of $3.6 million, at a weighted average yield of 8.69%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $116.3 million, and dividend income of $10.2 million, at a weighted average yield of 8.77%.
(5)		There was no cash and cash equivalents related to the leverage strategy during the quarter and year ended September 30, 2024 or the quarter ended June 30, 2024. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $882.8 million and interest income of $37.8 million, at a weighted average yield of 4.22% during the year ended September 30, 2023.
(6)		There were no borrowings related to the leverage strategy during the quarter and year ended September 30, 2024 or the quarter ended June 30, 2024. Included in this line, for the year ended September 30, 2023 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $924.4 million and interest paid of $39.7 million, at a weighted average rate of 4.24%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.73 billion, and interest paid of $84.5 million, at a weighted average rate of 3.08%. 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 or annual net interest income as a percentage of average interest-earning assets. Management believes the net interest margin is important to investors as it is a profitability measure for financial institutions.
(9)		Return on average assets represents annualized or annual net income as a percentage of total average assets. Management believes that the return on average assets is important to investors as it shows the Company's profitability in relation to the Company's average assets.
(10)		Return on average equity represents annualized or annual net income as a percentage of total average equity. Management believes that the return on average equity is important to investors as it shows the Company's profitability in relation to the Company's average equity.
(11)		The operating expense ratio represents annualized or annual non-interest expense as a percentage of average assets. Management believes the operating expense ratio is important to investors as it provides insight into how efficiently the Company is managing its expenses in relation to its assets. It is a financial measurement ratio that does not take into consideration changes in interest rates.
(12)		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. Management believes the efficiency ratio is important to investors as it 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 generally indicates that it is costing the financial institution more money to generate revenue, related to its net interest margin and non-interest income.
(13)		The pre-tax yield on the leverage strategy represents annualized or annual pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction. Management believes this ratio is important to investors as it provides the yield the Company is earning on the leverage strategy transaction.
(14)		The table below provides a reconciliation between performance measures presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the same performance measures excluding the impact of the net loss on the securities transactions associated with the securities strategy, which are not presented in accordance with GAAP. The securities strategy was non-recurring in nature; therefore management believes it is meaningful to investors to present certain financial measures excluding the securities strategy to better evaluate the Company's core operations. See information regarding the securities strategy in "Comparison of Operating Results for the Years Ended September 30, 2024 and 2023 - Securities Strategy".

	For the Year Ended September 30,
	2024									2023
							Excluding									Excluding
							Securities									Securities
	Actual			Securities			Strategy			Actual			Securities			Strategy
	(GAAP)			Strategy			(Non-GAAP)			(GAAP)			Strategy			(Non-GAAP)
Return on average assets		0.40	%		(0.10	)%		0.50	%		(0.93	%)		(1.33	)%		0.40	%
Return on average equity		3.69			(0.97	)		4.66			(9.48	)		(13.58	)		4.10
Efficiency Ratio		66.91			4.94			61.97			(626.63	)		(691.94	)		65.31
Earnings per share⁽¹⁵⁾	$	0.29		$	(0.08	)	$	0.37		$	(0.76	)	$	(1.09	)	$	0.33

(15)

Earnings per share is calculated as net income divided by average shares outstanding. Management believes earnings per share is an important measure to investors as it shows the Company's earnings in relation to the Company's outstanding shares.

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentage of total as of the dates indicated.

	September 30, 2024							June 30, 2024							September 30, 2023
						% of							% of							% of
	Amount			Rate		Total		Amount			Rate		Total		Amount			Rate		Total
	(Dollars in thousands)
One- to four-family:
Originated	$	3,941,952		3.60	%	49.8	%	$	3,961,407		3.54	%	49.8	%	$	3,978,837		3.39	%	49.9	%
Correspondent purchased		2,212,587		3.48		27.9			2,262,371		3.47		28.5			2,405,911		3.44		30.1
Bulk purchased		127,161		2.80		1.6			129,102		2.52		1.6			137,193		1.85		1.7
Construction		22,970		6.05		0.3			24,642		5.94		0.3			69,974		3.68		0.9
Total		6,304,670		3.55		79.6			6,377,522		3.50		80.2			6,591,915		3.38		82.6
Commercial:
Commercial real estate		1,191,624		5.43		15.0			1,119,295		5.43		14.1			995,788		5.29		12.5
Commercial and industrial		129,678		6.66		1.6			131,848		6.69		1.7			112,953		6.36		1.4
Construction		187,676		6.40		2.4			214,240		5.76		2.7			178,746		5.01		2.2
Total		1,508,978		5.65		19.0			1,465,383		5.59		18.5			1,287,487		5.35		16.1
Consumer loans:
Home equity		99,988		8.90		1.3			98,736		8.90		1.2			95,723		8.83		1.2
Other		9,615		5.72		0.1			9,637		5.65		0.1			9,256		5.20		0.1
Total		109,603		8.62		1.4			108,373		8.61		1.3			104,979		8.51		1.3
Total loans receivable		7,923,251		4.02		100.0	%		7,951,278		3.96		100.0	%		7,984,381		3.76		100.0	%

Less:
ACL		23,035							25,854							23,759
Deferred loan fees/discounts		30,336							30,777							31,335
Premiums/deferred costs		(37,458	)						(38,396	)						(41,662	)
Total loans receivable, net	$	7,907,338						$	7,933,043						$	7,970,949

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 presented in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.

	For the Three Months Ended					For the Year Ended
	September 30, 2024					September 30, 2024
	Amount			Rate		Amount			Rate
	(Dollars in thousands)
Beginning balance	$	7,951,278		3.96	%	$	7,984,381		3.76	%
Originated and refinanced		149,092		6.92			660,937		7.21
Purchased and participations		13,500		7.43			47,712		7.80
Change in undisbursed loan funds		42,292					168,483
Repayments		(232,803	)				(917,871	)
Principal (charge-offs)/recoveries, net		(53	)				(111	)
Other		(55	)				(20,280	)
Ending balance	$	7,923,251		4.02		$	7,923,251		4.02

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of September 30, 2024. Credit scores were updated in September 2024 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

			% of				Credit			Average
	Amount		Total		Rate		Score	LTV		Balance
	(Dollars in thousands)
Originated	$	3,941,952	62.5	%	3.60	%	771	59	%	$	168
Correspondent purchased		2,212,587	35.1		3.48		767	63			404
Bulk purchased		127,161	2.0		2.80		772	54			280
Construction		22,970	0.4		6.05		778	52			410
	$	6,304,670	100.0		3.55		770	60			214

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated.

	For the Three Months Ended							For the Year Ended
	September 30, 2024							September 30, 2024
							Credit							Credit
	Amount		Rate		LTV		Score	Amount		Rate		LTV		Score
	(Dollars in thousands)
Originated	$	86,934	6.13	%	76	%	773	$	299,623	6.41	%	75	%	770
Correspondent purchased		—	—		—		—		3,497	5.91		70		765
	$	86,934	6.13		76		773	$	303,120	6.40		75		770

As of September 30, 2024, the Bank had one- to four-family loan origination and refinance commitments of $46.3 million at a weighted average rate of 6.10%. There were no one- to four-family correspondent loan purchase commitments at September 30, 2024, as during the current year the Bank suspended purchasing one- to four-family loans from correspondent lenders for the foreseeable future.

Commercial Loans: During the year ended September 30, 2024, the Bank originated commercial loans and entered into commercial loan participations totaling $350.6 million, which was comprised of $156.4 million in commercial construction real estate loans, $122.4 million in commercial real estate loans, and $71.8 million in commercial and industrial loans. During the current fiscal year, the Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $326.7 million at a weighted average rate of 6.58%, which included $245.0 million, $60.1 million, and $21.6 million of disbursements on new and existing commercial construction, commercial real estate, and commercial and industrial loans, respectively.

As of September 30, 2024, June 30, 2024, and September 30, 2023, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $163.6 million, $169.0 million, and $158.5 million, respectively, and commitments totaled $3.2 million, $1.1 million, and $2.6 million, respectively. Of the $163.6 million outstanding at September 30, 2024, $74.1 million, or 46%, of the portfolio related to working capital loans, $43.8 million, or 27%, related to financing/leasing/purchasing vehicles and equipment, and $37.9 million, or 24%, related to purchasing/refinancing business/assets.

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 September 30, 2024, the Bank had 12 commercial real estate and commercial construction loan commitments totaling $186.1 million, at a weighted average rate of 7.19%. Management anticipates fully funding the majority of the undisbursed amounts as most are not cancellable by the Bank. Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of September 30, 2024, management anticipates funding approximately $150 million during the December 2024 quarter, $78 million during the March 2025 quarter, $83 million during the June 2025 quarter, and $149.7 million during the September 2025 quarter or later. At September 30, 2024, the unpaid principal balance of non-owner occupied commercial real estate loans was $886.1 million and the unpaid principal balance of owner occupied commercial real estate loans was $165.3 million, which are included in the table below.

	September 30, 2024										June 30, 2024			September 30, 2023
		Unpaid			Undisbursed			Gross Loan			Gross Loan			Gross Loan
	Count	Principal			Amount			Amount			Amount			Amount
		(Dollars in thousands)
Multi-family	38	$	172,674		$	187,033		$	359,707		$	381,777		$	308,846
Senior housing	36		327,144			5,190			332,334			311,178			331,207
Hotel	20		293,720			29,676			323,396			304,222			233,012
Retail building	133		263,877			52,384			316,261			327,478			352,499
Office building	77		127,289			672			127,961			128,828			130,921
One- to four-family property	321		59,467			3,949			63,416			63,897			70,265
Single use building	32		43,176			262			43,438			43,736			47,193
Warehouse/manufacturing	47		34,243			413			34,656			32,733			35,963
Other	69		57,710			4,303			62,013			57,101			53,032
	773	$	1,379,300		$	283,882		$	1,663,182		$	1,650,950		$	1,562,938

Weighted average rate			5.56	%		6.79	%		5.77	%		5.72	%		5.47	%

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

	September 30, 2024							June 30, 2024		September 30, 2023
		Unpaid		Undisbursed		Gross Loan		Gross Loan		Gross Loan
	Count	Principal		Amount		Amount		Amount		Amount
		(Dollars in thousands)
Kansas	571	$	562,079	$	151,358	$	713,437	$	689,931	$	670,498
Texas	21		301,486		46,580		348,066		344,051		348,707
Missouri	140		260,890		52,256		313,146		333,037		332,610
California	2		12,271		2,769		15,040		—		—
New York	1		60,000		—		60,000		60,000		—
Nebraska	7		32,418		4		32,422		32,568		37,609
Colorado	8		42,604		7,413		50,017		50,487		49,385
Arkansas	5		35,522		1,066		36,588		33,434		33,046
Other	18		72,030		22,436		94,466		107,442		91,083
	773	$	1,379,300	$	283,882	$	1,663,182	$	1,650,950	$	1,562,938

The following table presents the Bank's commercial real estate and commercial construction loans by unpaid principal balance, aggregated by type of primary collateral and state, along with weighted average LTV and weighted average debt service coverage ratio ("DSCR") as of September 30, 2024. The LTV is calculated using the gross loan amount (composed of unpaid principal and undisbursed amounts) as of September 30, 2024 and the most current collateral value available, which is most often the value at origination/purchase. For existing real estate, the "as is" value is used. If the property is to be constructed, the "as completed" value of the collateral is utilized. The DSCR is calculated based on historical borrower performance, or projected borrower performance for newly formed entities with no performance history. The DSCR is calculated at the time of origination, and is updated at the time of subsequent loan renewals or reviews of borrower financials. The DSCR presented in the table below is based on the DSCR at the time of origination unless an updated DSCR has been calculated. As of September 30, 2024 approximately 50% of the loans, based on unpaid principal balance, had updated DSCRs.

																			Weighted		Weighted
	Kansas			Texas			Missouri			New York			Other			Total			LTV		DSCR
	(Dollars in thousands)
Senior Housing	$	161,146		$	—		$	109,820		$	—		$	56,178		$	327,144		70.2	%	1.41x
Hotel		42,633			140,054			9,672			60,000			41,361			293,720		57.3		1.45
Retail Building		85,366			84,515			50,317			—			43,678			263,876		60.5		1.91
Multi-family		95,935			15,546			40,517			—			20,677			172,675		62.6		1.41
Office Building		57,477			60,471			8,983			—			358			127,289		49.0		2.68
Other		119,522			900			41,581			—			32,593			194,596		51.6		3.10
	$	562,079		$	301,486		$	260,890		$	60,000		$	194,845		$	1,379,300		59.6		1.87

Weighted LTV		60.0	%		59.4	%		59.7	%		46.2	%		62.8	%		59.6	%
Weighted DSCR	2.05x			1.50x			2.18x			1.18x			1.74x			1.87x

The following table presents the Bank's commercial real estate and construction loans and outstanding loan commitments, categorized by aggregate gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, average loan amount, weighted average LTV and weighted average DSCR, as of September 30, 2024. See information above for the weighted average LTV and DSCR calculations. For loans and commitments over $50.0 million, $182.2 million were related to hotels in California, New York, and Texas, $143.1 million were related to multi-family properties located in Kansas, and $60.0 million was related to an office building in Texas.

				Average		Weighted		Weighted
	Count	Amount		Amount		LTV		DSCR
	(Dollars in thousands)
Greater than $50 million	6	$	385,283	$	64,214	54.4	%	1.49x
>$30 to $50 million	6		211,210		35,202	63.4		1.41
>$20 to $30 million	15		368,147		24,543	67.9		1.28
>$15 to $20 million	9		153,069		17,008	61.3		1.83
>$10 to $15 million	12		143,695		11,975	71.8		1.57
>$5 to $10 million	27		195,657		7,247	64.7		1.83
$1 to $5 million	114		263,607		2,312	59.7		2.11
Less than $1 million	596		128,604		216	40.0		4.06
	785	$	1,849,272		2,356	60.0		1.77

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. Of the loans 30 to 89 days delinquent at September 30, 2024, approximately 66% 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:
	September 30, 2024				June 30, 2024				March 31, 2024				December 31, 2023				September 30, 2023
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
One- to four-family:
Originated	69	$	8,884		70	$	7,148		72	$	6,803		77	$	7,746		88	$	9,078
Correspondent purchased	12		3,049		13		5,278		10		3,144		16		6,049		17		5,192
Bulk purchased	2		68		1		277		5		856		4		583		1		149
Construction	—		—		—		—		—		—		—		—		4		1,123
Commercial:
Commercial real estate	11		2,996		10		2,516		9		3,111		13		3,579		1		36
Commercial and industrial	4		391		5		265		2		243		1		230		4		58
Consumer	35		642		40		926		35		601		40		766		30		730
	133	$	16,030		139	$	16,410		133	$	14,758		151	$	18,953		145	$	16,366
30 to 89 days delinquent loans to total loans receivable, net			0.20	%			0.21	%			0.19	%			0.24	%			0.21	%

	Non-Performing Loans and OREO at:
	September 30, 2024				June 30, 2024				March 31, 2024				December 31, 2023				September 30, 2023
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated	29	$	2,274		24	$	2,046		23	$	2,380		29	$	3,749		24	$	2,246
Correspondent purchased	8		4,024		7		3,860		8		3,969		10		4,164		9		3,410
Bulk purchased	5		1,535		4		1,271		3		962		2		942		2		942
Commercial:
Commercial real estate	7		1,163		6		1,078		7		1,076		6		1,116		8		1,966
Commercial and industrial	2		82		2		82		4		127		2		82		4		217
Consumer	20		436		13		236		10		250		5		116		9		113
	71		9,514		56		8,573		55		8,764		54		10,169		56		8,894

Loans 90 or more days delinquent or in foreclosure as a percentage of total loans			0.12	%			0.11	%			0.11	%			0.13	%			0.11	%

Nonaccrual loans less than 90 Days Delinquent:⁽¹⁾
One- to four-family:
Originated	—	$	—		—	$	—		—	$	—		—	$	—		2	$	215
Correspondent purchased	—		—		—		—		—		—		—		—		1		282
Bulk purchased	—		—		—		—		—		—		—		—		—		—
Commercial:
Commercial real estate	3		326		—		—		—		—		1		18		1		18
Commercial and industrial	2		252		1		30		1		25		—		—		—		—
Consumer	—		—		—		—		—		—		—		—		—		—
	5		578		1		30		1		25		1		18		4		515
Total nonaccrual loans	76		10,092		57		8,603		56		8,789		55		10,187		60		9,409

Nonaccrual loans as a percentage of total loans			0.13	%			0.11	%			0.11	%			0.13	%			0.12	%

OREO:
One- to four-family:
Originated⁽²⁾	1	$	55		—	$	—		1	$	67		2	$	225		—	$	—
Correspondent purchased	—		—		—		—		—		—		1		219		1		219
	1		55		—		—		1		67		3		444		1		219
Total non-performing assets	77	$	10,147		57	$	8,603		57	$	8,856		58	$	10,631		61	$	9,628

Non-performing assets as a percentage of total assets			0.11	%			0.09	%			0.09	%			0.11	%			0.09	%

(1)		Includes loans required to be reported as nonaccrual pursuant to accounting and/or internal policies even if the loans are current.
(2)		Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial real estate special mention loans at September 30, 2024 compared to September 30, 2023 was due mainly to three loans moving to special mention during the current year as certain underlying economic considerations related to the loans are being monitored by management. The decrease in commercial and industrial special mention loans at September 30, 2024 compared to June 30, 2024 and September 30, 2023 was due mainly to two loans being upgraded to pass due to an improvement in financial results.

	September 30, 2024				June 30, 2024				September 30, 2023
	Special Mention		Substandard		Special Mention		Substandard		Special Mention		Substandard
	(Dollars in thousands)
One- to four-family	$	17,528	$	22,715	$	20,362	$	21,623	$	18,603	$	19,314
Commercial:
Commercial real estate		16,169		2,302		10,913		2,192		2,488		1,138
Commercial and industrial		413		335		12,299		339		13,919		155
Consumer		326		487		270		345		327		190
	$	34,436	$	25,839	$	43,844	$	24,499	$	35,337	$	20,797

ACL: Management estimates the ACL by projecting future loss rates which are dependent upon forecasted economic indices and applying qualitative factors when deemed appropriate by management. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of ACL required by the calculation. Management then considers qualitative factors when assessing the overall level of ACL. Management applied qualitative factors at September 30, 2024 to account for large dollar commercial loan concentrations and potential downside market risk with the recent housing price appreciation related to one-to four-family loans. These qualitative factors were applied to account for credit risks not fully reflected in the discounted cash flow model.

For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life. Generally, the historical time periods are at least one economic cycle. These historical loss rates are compared to historical data related to economic variables including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis. Each quarter, the Company's model pairs the results of the regression analysis with an economic forecast of these same macroeconomic variables, which is provided by a third party, in order to project future loss rates. The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to long-term historical averages at the macroeconomic variable level using a straight-line method. The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for expected prepayments and curtailments selected by management.

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 ACL						Ratio of ACL to Loans Receivable
	September 30,		June 30,		September 30,		September 30,		June 30,		September 30,
		2024		2024		2023	2024		2024		2023
	(Dollars in thousands)
One- to four-family	$	3,673	$	4,808	$	5,328	0.06	%	0.08	%	0.08	%
Commercial:
Commercial real estate		15,719		17,616		15,589	1.32		1.57		1.57
Commercial and industrial		1,186		1,134		1,104	0.91		0.86		0.98
Construction		2,249		2,045		1,487	1.20		0.95		0.83
Total commercial		19,154		20,795		18,180	1.27		1.42		1.41
Consumer		208		251		251	0.19		0.23		0.24
Total	$	23,035	$	25,854	$	23,759	0.29		0.33		0.30

The decrease in the ratio of the ACL to total loans as of September 30, 2024 from June 30, 2024 was primarily the result of improvements to our discounted cash flow model to better model changes in the economic forecast and loan repayments. The ACL is comprised of estimates for loss from our model and qualitative factors applied to the results by management. The changes in the discounted cash flow model decreased the modeled amount of ACL for commercial loans and increased, to a lesser extent, the modeled amount of ACL for our one-to four-family loans.

Management applied a qualitative factor for large dollar commercial loan concentrations. The Company's commercial real estate and construction loans generally have low LTVs and strong DSCRs which serve as indicators that losses in the commercial real estate and construction loan portfolios might be unlikely; however, because there is uncertainty surrounding the nature, timing and amount of expected losses, management believes that in the event of a realized loss within the large dollar commercial loan pools, the magnitude of such a loss is likely to be significant. The large dollar commercial loan concentration qualitative factor addresses the risk associated with a large dollar relationship deteriorating due to a loss event. As part of its analysis, management considered external data including historical loss information for the industry and commercial real estate price index trending information from a variety of reputable sources to help determine the amount of this qualitative factor.

For one- to four-family loans, management believes there is potential downside market risk with the recent housing price appreciation related to, in particular, newer originations and developed a qualitative factor to account for this risk. To determine the appropriate amount of the one- to four-family loan qualitative factor as of September 30, 2024, management considered external historical home price index trending information, along with the Bank's recent origination/purchase activity, historical loan loss experience and portfolio balance trending, the one-to-four family loan portfolio composition with regard to loan size, and management's knowledge of the Bank's loan portfolio and the one- to four-family lending industry. This qualitative factor replaced the economic uncertainties qualitative factor that was in place at June 30, 2024 and was less than the amount of the economic uncertainty qualitative factor at June 30, 2024 resulting in a decrease in ACL for one- to four-family loans during the current quarter.

The Bank's commercial real estate ACL ratios, in aggregate, continue to be higher than those of our peers. The following tables present the average and median commercial real estate ACL ratios for the Bank and two of the Bank's peer groups for the periods noted. The Office of the Comptroller of the Currency ("OCC") peer group consists of all savings banks greater than $1 billion in assets and the asset size peer group consists of all banks between $5 billion and $15 billion in asset size. The peer group information is sourced from the respective peers' Call Reports.

Average	September 30 2022		December 31 2022		March 31 2023		June 30 2023		September 30 2023		December 31 2023		March 31 2024		June 30 2024		September 30 2024
Bank	1.17	%	1.30	%	1.28	%	1.45	%	1.57	%	1.58	%	1.60	%	1.57	%	1.32	%
OCC	0.96	%	0.92	%	1.21	%	1.22	%	1.21	%	1.14	%	1.10	%	1.11	%	N/A
Asset Size	1.17	%	1.18	%	1.18	%	1.19	%	1.24	%	1.16	%	1.16	%	1.15	%	N/A

Median	September 30 2022		December 31 2022		March 31 2023		June 30 2023		September 30 2023		December 31 2023		March 31 2024		June 30 2024		September 30 2024
Bank	1.17	%	1.30	%	1.28	%	1.45	%	1.57	%	1.58	%	1.60	%	1.57	%	1.32	%
OCC	0.90	%	0.84	%	1.00	%	0.98	%	1.06	%	1.02	%	0.98	%	1.02	%	N/A
Asset Size	1.13	%	1.15	%	1.13	%	1.12	%	1.12	%	1.10	%	1.13	%	1.06	%	N/A

Historically, the Bank has maintained very low delinquency ratios and net charge-off rates. Over the past two years, the Bank's highest ratio of commercial loans 90 days or more delinquent to total commercial loans at a quarter end was 0.17%. The highest such ratio for one- to four-family originated and correspondent loans, combined, was 0.12%. The amount of total net charge-offs during fiscal year 2024 was $111 thousand. During the 10-year period ended September 30, 2024, the Bank recognized $1.4 million of total net charge-offs. As of September 30, 2024, the ACL balance was $23.0 million and the reserve for off-balance sheet credit exposures totaled $6.0 million. Management believes that this level of ACL and reserves is adequate for the risk characteristics in our loan portfolio.

The following table presents ACL activity and related ratios at the dates and for the periods indicated. On October 1, 2023, the Bank adopted Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which eliminated the accounting guidance for troubled debt restructurings by creditors. The Company applied a modified retrospective approach when adopting ASU 2022-02, resulting in a cumulative-effect adjustment which is reflected in the table below ("ASU 2022-02 Adoption").

	For the Three Months Ended			For the Year Ended
	September 30, 2024			September 30, 2024			September 30, 2023
	(Dollars in thousands)
Balance at beginning of period	$	25,854		$	23,759		$	16,371
ASU 2022-02 Adoption		—			20			—
Charge-offs:
One- to four-family		—			—			—
Commercial		(20	)		(80	)		(75	)
Consumer		(39	)		(80	)		(40	)
Total charge-offs		(59	)		(160	)		(115	)
Recoveries:
One- to four-family		3			28			6
Commercial		2			5			1
Consumer		1			16			2
Total recoveries		6			49			9
Net (charge-offs) recoveries		(53	)		(111	)		(106	)
Provision for credit losses		(2,766	)		(633	)		7,494
Balance at end of period	$	23,035		$	23,035		$	23,759


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		0.57			1.12			1.09
ACL to non-performing loans at end of period		228.25			228.25			252.51
ACL to loans receivable at end of period		0.29			0.29			0.30
ACL to net charge-offs (annualized)	109x			207x			223x

The balance of the reserves for off-balance sheet credit exposures was $6.0 million at September 30, 2024, compared to $3.9 million at June 30, 2024. The increase from the previous quarter of $2.1 million was due primarily to an increase in the balance of commercial real estate off-balance sheet credit exposures, mainly related to commitments that will largely be funded in October 2024, along with an increase in the ACL to loan ratio, which is applied to off-balance sheet credit exposures, between periods, specifically for commercial construction loans.

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at September 30, 2024. Overall, fixed-rate securities comprised 95% of our securities portfolio at September 30, 2024. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.

	Amount		Yield		WAL
	(Dollars in thousands)
MBS	$	756,775	5.63	%	5.7
U.S. government-sponsored enterprise debentures		69,077	5.63		0.4
Corporate bonds		4,000	5.12		7.6
	$	829,852	5.63		5.2

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after the most recent three-month historical prepayment speeds and projected call option assumptions have been applied.

	For the Three Months Ended						For the Year Ended
	September 30, 2024						September 30, 2024
	Amount			Yield		WAL	Amount			Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	801,953		5.68	%	5.7	$	1,384,482		1.35	%	3.8
Maturities and repayments		(81,371	)					(455,110	)
Proceeds from sale		—						(1,272,512	)
Net amortization of (premiums)/discounts		855						8,182
Purchases		116,812		5.15		10.4		1,176,645		5.55		5.1
Net loss from securities transactions		—						(13,345	)
Change in valuation on AFS securities		18,017						27,924
Ending balance - carrying value	$	856,266		5.63		5.2	$	856,266		5.63		5.2

Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented. The amount of commercial non-maturity deposits included in the table below at September 30, 2024, June 30, 2024, and September 30, 2023 was $259.7 million, $247.5 million, and $267.3 million, respectively. The increase in the deposit portfolio rate at September 30, 2024 compared to September 30, 2023 was due mainly to higher rates on retail certificates of deposit.

	September 30, 2024						June 30, 2024						September 30, 2023
					% of						% of						% of
	Amount		Rate		Total		Amount		Rate		Total		Amount		Rate		Total
	(Dollars in thousands)
Non-interest-bearing checking	$	549,596	—	%	9.0	%	$	548,760	—	%	9.0	%	$	558,326	—	%	9.2	%
Interest-bearing checking		847,542	0.23		13.8			872,462	0.27		14.2			901,994	0.19		14.9
Savings		540,572	0.82		8.8			515,399	0.56		8.4			480,091	0.12		7.9
Money market		1,226,962	1.46		20.0			1,263,229	1.67		20.6			1,380,617	1.96		22.8
Retail certificates of deposit		2,830,579	4.23		46.2			2,773,048	4.18		45.2			2,533,954	3.47		41.9
Commercial certificates of deposit		58,236	4.40		1.0			59,372	4.35		1.0			48,751	3.56		0.8
Public unit certificates of deposit		76,495	4.62		1.2			97,390	4.67		1.6			147,487	4.44		2.5
	$	6,129,982	2.45		100.0	%	$	6,129,660	2.44		100.0	%	$	6,051,220	2.07		100.0	%

As of September 30, 2024, approximately $766.8 million (or approximately 12%) of the Bank's Call Report deposit balance was uninsured, of which approximately $460.1 million related to commercial and retail deposit accounts and with the remainder mainly comprised of fully collateralized public unit deposits and intercompany accounts. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Borrowings

The following table presents the maturity of term borrowings, which consist of FHLB advances, along with associated weighted average contractual and effective rates as of September 30, 2024. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.

Maturity by			Contractual	Effective
Fiscal Year	Amount		Rate	Rate⁽¹⁾
	(Dollars in thousands)
2025		650,000	3.23	2.94
2026		575,000	2.81	2.95
2027		477,500	3.14	3.24
2028		310,656	4.78	4.13
2029		167,500	4.44	4.44
	$	2,180,656	3.41	3.29

(1)

The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. Line of credit borrowings and finance leases are excluded from the table. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAM is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. During the current year, management paid down BTFP borrowings with the proceeds received from the securities strategy.

	For the Three Months Ended						For the Year Ended
	September 30, 2024						September 30, 2024
				Effective						Effective
	Amount			Rate		WAM	Amount			Rate		WAM
	(Dollars in thousands)
Beginning balance	$	2,293,074		3.24	%	1.7	$	2,882,828		3.34	%	1.8
Maturities and repayments		(187,418	)	3.01				(527,172	)	2.95
New FHLB borrowings		75,000		4.50		5.0		325,000		4.54		4.4
BTFP, net		—		—		—		(500,000	)	4.70		—
Ending balance	$	2,180,656		3.29		1.6	$	2,180,656		3.29		1.6

Maturities of Interest-Bearing Liabilities

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing FHLB advances for the next four quarters as of September 30, 2024.

	December 31,			March 31,			June 30,			September 30,
		2024			2025			2025			2025		Total
	(Dollars in thousands)
Retail/Commercial Certificates:
Amount	$	681,571		$	636,105		$	520,483		$	307,071		$	2,145,230
Repricing Rate		4.49	%		4.56	%		4.61	%		4.41	%		4.53	%
Public Unit Certificates:
Amount	$	30,025		$	17,526		$	5,841		$	5,853		$	59,245
Repricing Rate		4.68	%		4.90	%		4.62	%		4.64	%		4.74	%
Non-Amortizing FHLB Advances:
Amount	$	200,000		$	150,000		$	200,000		$	100,000		$	650,000
Repricing Rate		3.35	%		1.93	%		3.27	%		2.97	%		2.94	%
Total
Amount	$	911,596		$	803,631		$	726,324		$	412,924		$	2,854,475
Repricing Rate		4.25	%		4.08	%		4.24	%		4.07	%		4.17	%

The following table sets forth the WAM information for our certificates of deposit, in years, as of September 30, 2024.

Retail certificates of deposit		0.8
Commercial certificates of deposit		0.6
Public unit certificates of deposit		0.6
Total certificates of deposit		0.8

Average Rates and Lives

At September 30, 2024, the gap between the Bank's amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.51) billion, or (15.8)% of total assets, compared to $(1.40) billion, or (14.6)% of total assets, at June 30, 2024. The change in the one-year gap amount was due to both an increase in the amount of liability cash flows coming due in one year, at September 30, 2024, and a decrease in the amount of asset cash flows coming due during the same time period, as compared to June 30, 2024. The increase in liability cash flows was due primarily to a net increase in non-maturity deposits projected to run-off or reprice based on the Bank's continued experience with these account types, partially offset by a decrease in borrowings scheduled to mature as a result of activity that occurred during the quarter. The decrease in asset cash flows was due primarily to a decrease in the balance of cash from June 30, 2024 to September 30, 2024.

The amount of interest-bearing liabilities expected to reprice in a given period is not typically significantly impacted by changes in interest rates because the Bank's borrowings and certificates of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of September 30, 2024, the Bank's one-year gap would have been projected to be $(1.71) billion, or (17.9)% of total assets. The change in the gap amount compared to when there is no change in rates was due to lower anticipated net cash flows primarily as a result of lower prepayments on mortgage-related assets in the higher rate environment. This compares to a projected one-year gap of $(1.59) billion, or (16.6)% of total assets, if interest rates were to have increased 200 basis points as of June 30, 2024.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of September 30, 2024. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.

	Amount		Yield/Rate		WAL	% of Category		% of Total
	(Dollars in thousands)
Securities	$	856,266	5.63	%	2.9			9.4	%
Loans receivable:
Fixed-rate one- to four-family		5,376,460	3.41		6.6	67.9	%	59.1
Fixed-rate commercial		506,754	4.82		2.8	6.4		5.6
All other fixed-rate loans		36,321	6.93		6.2	0.5		0.4
Total fixed-rate loans		5,919,535	3.55		6.3	74.8		65.1
Adjustable-rate one- to four-family		905,240	4.18		3.9	11.4		9.9
Adjustable-rate commercial		1,002,224	6.13		5.1	12.6		11.0
All other adjustable-rate loans		96,252	8.33		2.8	1.2		1.1
Total adjustable-rate loans		2,003,716	5.35		4.5	25.2		22.0
Total loans receivable		7,923,251	4.01		5.8	100.0	%	87.1
FHLB stock		101,175	9.47		1.9			1.1
Cash and cash equivalents		217,307	4.60		—			2.4
Total interest-earning assets	$	9,097,999	4.24		5.4			100.0	%

Non-maturity deposits	$	2,615,076	0.93		5.8	46.9	%	33.7	%
Retail certificates of deposit		2,830,579	4.23		0.8	50.7		36.5
Commercial certificates of deposit		58,236	4.40		0.6	1.0		0.7
Public unit certificates of deposit		76,495	4.62		0.6	1.4		1.0
Total interest-bearing deposits		5,580,386	2.69		3.2	100.0	%	71.9
Term borrowings		2,181,738	3.29		1.6			28.1
Total interest-bearing liabilities	$	7,762,124	2.86		2.7			100.0	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20241023007232/en/

Contacts

For further information contact:

Kent Townsend

Executive Vice President,

Chief Financial Officer and Treasurer

(785) 231-6360

ktownsend@capfed.com

Investor Relations

(785) 270-6055

investorrelations@capfed.com

About Us

Capitol Federal Financial, Inc.® Reports Fourth Quarter and Fiscal Year 2024 Results

Contacts