Capitol Federal Financial, Inc. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the Company's press releases, and in other communications by the Company, which are made in good faith by us pursuant to the "safe harbor" provisions 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, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements: • our ability to maintain overhead costs at reasonable levels; • our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management; • our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source; • our ability to access cost-effective funding; • the expected cost savings, synergies and other benefits from our acquisition of Capital City Bancshares, Inc. ("CCB") might not be realized within the anticipated time frames or at all; • our ability to extend the commercial banking and trust asset management expertise acquired from CCB through our existing branch footprint; • fluctuations in deposit flows; • the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy; • the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans; • changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business; • potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on the economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; • increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets; • results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL; • changes in accounting principles, policies, or guidelines; • the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB"); • the effects of, and changes in, trade and fiscal policies and laws of the United States government; • the effects of, and changes in, foreign and military policies of the United States government; • inflation, interest rate, market, monetary, and currency fluctuations; • the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services; • the willingness of users to substitute competitors' products and services for our products and services; • our success in gaining regulatory approval of our products and services and branching locations, when required; • the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry; • implementing business initiatives may be more difficult or expensive than anticipated; • significant litigation; • technological changes; • our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyber-attacks; • acquisitions and dispositions; • changes in consumer spending, borrowing and saving habits; and • our success at managing the risks involved in our business. 35 This list of important factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank. As used in this Form 10-Q, unless we specify or the context indicates otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation, and its subsidiaries. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc. The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, filed with the SEC. Executive Summary The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety. Response to and Impact of the COVID-19 Pandemic During the current quarter, the COVID-19 pandemic continued to have an impact on our customers, employees, and business operations. Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business are summarized below. Bank operations - In mid-March 2020, preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in Bank offices, and preventative cleaning at offices and branches. Lobby services were limited to appointment only while drive-through, mobile, and online banking became the Bank's primary channels of serving customers. Retail loan closings have been conducted with customers coming to our drive-through facilities and commercial loans have been closed in person only when necessary. All employees continue to be paid their regular salary and receive full benefits. In mid-May 2020, lobbies reopened with limitations on the number of customers in a branch at one time. We also implemented operational measures to promote social distancing when customers visit branches and installed sneeze guards. There are several other precautions being taken at our locations such as extra cleaning in high traffic/touch areas and providing locations with additional cleaning supplies, hand sanitizer and masks. In early June 2020, back-office employees started to return to the office in phases. Due to the increase in COVID-19 cases in late June into July 2020, management rolled back the changes to the lobbies that occurred mid-May and adjusted the return to office phases, where necessary, for back-office employees. Our lobby services are now again by appointment only. Management continues to monitor COVID-19 cases and will reopen lobbies when we believe it is appropriate to do so. Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, COVID-19 loan modifications for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest and, in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. If it is determined that a COVID-19 loan modification is not short-term or the customer does not meet the criteria under authoritative guidance to be excluded from TDR classification, the Bank evaluates the loan modifications under its existing TDR framework. None of the Bank's COVID-19 loan modifications through June 30, 2020 have been deemed to be TDRs. As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million, for which the borrowers had a weighted average credit score of 733, and 94 consumer loans totaling $2.6 million. Included in these one- to four-family and consumer loan totals are 163 loans with a combined balance of $37.1 million for which the borrowers have requested additional assistance, generally another three-month payment forbearance, and the Bank either completed or was in the process of completing a second modification as of July 31, 2020. During the month of July 2020, the Bank completed or was in the process of completing a first modification for an additional $6.4 million of one- to four-family and consumer loans. As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 229 commercial loans with a combined gross loan amount of $392.8 million, which includes undisbursed amounts. Included in these totals are six loans with a combined gross loan amount, including undisbursed funds, of $30.6 million for which the borrowers have requested an additional three months of payment 36 deferrals and the Bank was in the process of completing the second modification as of July 31, 2020. During the month of July 2020, the Bank completed a first modification for one additional commercial loan for $19.2 million. Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - As of June 30, 2020, the Bank had originated and funded 700 PPP loans totaling $42.6 million, with a median loan amount of $21 thousand, and received origination fees totaling $1.8 million associated with these loans. These loans are fully guaranteed by the SBA. The program ended June 30, 2020, but was extended on July 6, 2020 through August 8, 2020. Through July 31, 2020, the Bank had originated an additional $738 thousand in PPP loans. The Bank continues to accept applications for PPP loans. Correspondent loan activity - In an effort to manage the influx of refinance requests from current customers in our local markets during the initial days of the COVID-19 pandemic, the Bank suspended its acceptance of new applications for correspondent one- to four-family loans in mid-March 2020. Correspondent applications and commitments in the pipeline at the time of the suspension continued to progress through the approval and funding process. In mid-June 2020, the Bank resumed accepting new applications for correspondent one- to four-family loans. Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020. Based on the Company's existing capital levels, deposit inflows, loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests. Management anticipates being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized with sufficient liquidity to serve our customers. Deposit balances have increased due primarily to the economic stimulus payments and PPP loans. As a result, management is currently faced with the challenge of excess liquidity. Due to the nature of deposit cash flows, management does not know how long the excess liquidity will be retained. As such, management has elected, for the time being, to reduce the Bank's level of borrowings using the excess liquidity from the deposit portfolio. With earnings of $0.34 per share, year-to-date, and a cash balance at the holding company level of $89.0 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future. Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings. Summary of Financial Condition and Results of Operation Markets responded to the COVID-19 pandemic in many ways, with a dramatic lowering of interest rates in a short period of time having the most impact on the operations and performance of the Bank. With the pandemic impacting the United States later in the March 2020 quarter, the opportunity to fully respond in that quarter was somewhat limited. Since the onset of the pandemic, the Bank lowered its offered rates on deposits and restructured its borrowings. We have lowered offered rates on all retail deposit products except checking and savings accounts. Changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits, while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as higher-costing certificates of deposit reprice lower when they mature. During the prior quarter, the Bank was able to restructure the cost of $350.0 million of its FHLB advances by lowering their cost 72 basis points. During the current quarter, we realized the full benefit of that restructuring. As the Bank further monitors rates offered and the cost of borrowings, we anticipate that the average cost of our interest-bearing liabilities will continue to decrease. During late February 2020 and through much of March 2020, rates offered on our one- to four-family loan products increased in order to control the volume of loans the Bank could process. During the current quarter, the offered rates on our one- to four-family loans decreased along with local market rates, but our ability to process the loan volumes was maintained. Given current rates offered on new loans and the recent volume of one- to four-family refinances and endorsements of terms to lower current market rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally, with significant cash inflows realized due to securities being called and prepayments on MBS increasing, the yields on reinvested funds into new securities are lower than the portfolio yield. Considering the drastic changes in market rates and the ongoing economic uncertainty, even with the changes the Bank has made to its cost of funding, with the lower rates on new mortgage loans, refinances, endorsements and new securities also at lower rates, our net interest margin could continue to decrease with further downside risk as a result of high levels of prepayments and premium amortization on correspondent loans, as was experienced during the current quarter. The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020 and indicated an intention to stay with this policy at the July 2020 meeting. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. Deteriorating economic conditions included more than 20 37 million people becoming unemployed in the United States in one month's time, with more than 45 million in total filing for unemployment benefits, along with immediate reductions in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others, and had a devastating impact on the economy. Since that time, many areas of consumer spending rebounded during May and June, generally locally and not related to travel and entertainment. Some economic indices began to show weakness in July. In the Bank's local markets, governments put stay-at-home orders into effect which only allow for essential businesses to remain open. Many of these stay-at-home orders have been lifted or greatly reduced. As previously described, we adjusted our operations in response to the orders and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the CARES Act have allowed. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially during the remainder of fiscal year 2020. We have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer. There is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run. For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $22.9 million, or $0.17 per share, for the quarter ended June 30, 2019. The decrease in net income was due primarily to a decrease in net interest income, partially offset by decreases in non-interest expense and income tax expense. The net interest margin decreased 22 basis points, from 2.29% for the prior year quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as result of an increase in payoff activity. For the nine months ended June 30, 2020, the Company recognized net income of $46.3 million, or $0.34 per share, a decrease of $25.6 million, or 35.6%, from the nine-month period ended June 30, 2019. The decrease in net income was due primarily to a $21.9 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense. Net interest income decreased $12.9 million, or 8.3%, from the prior year period to $143.7 million for the current year period. The net interest margin decreased 15 basis points, from 2.30% for the prior year period to 2.15% for the current period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 17 basis points, from 2.32% for the prior year period to 2.15% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio. Total assets were $9.56 billion at June 30, 2020 compared to $9.34 billion at September 30, 2019. The $218.8 million, or 2.3% increase was due mainly to an increase in cash and cash equivalents due to deposit growth. Management elected to keep a higher balance of cash on hand at June 30, 2020 due to the uncertainty surrounding the current economic environment, and in anticipation of paying off certain fixed-rate borrowings scheduled to mature during the fourth quarter of fiscal year 2020, depending on deposit cash flows. Total loans were $7.39 billion at June 30, 2020 compared to $7.42 billion at September 30, 2019. The $28.7 million, or 0.4% decrease was primarily in the one- to four-family correspondent and bulk loans, partially offset by an increase in commercial real estate and commercial and industrial loans. During the current year period, the Bank originated and refinanced $720.0 million of one- to four-family and consumer loans with a weighted average rate of 3.37% and purchased $382.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.34%. The Bank also originated $136.1 million of commercial loans with a weighted average rate of 3.43% and entered into commercial real estate loan participations of $93.6 million at a weighted average rate of 4.16%. The commercial loan portfolio totaled $812.3 million at June 30, 2020 and was composed of 77% commercial real estate, 12% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $154.5 million, was $867.1 million at June 30, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.4 million, was $122.2 million at June 30, 2020. Total deposits were $6.07 billion at June 30, 2020 compared to $5.58 billion at September 30, 2020. The $487.8 million, or 8.7% increase was primarily in non-maturity deposits which increased $442.3 million, including a $220.8 million increase in checking accounts, a $122.0 million increase in money market accounts, and a $99.4 million increase in savings accounts. The increase was due in part to Economic Impact Payments from the U.S. Government to individuals as authorized by the CARES Act, deposits from PPP loans, commercial deposit growth, and a delay in federal income tax payment due dates from April 15 to July 15. Retail/business certificates of deposit increased $51.9 million due primarily to the President's Day certificate of deposit campaign in February 2020. 38 Total borrowings at June 30, 2020 were $1.99 billion, a decrease of $250.9 million, or 11.2%, from September 30, 2019. The decrease was due to not renewing a portion of the FHLB advances that matured during the current year period and repaying the FHLB line of credit balance. Stockholders' equity was $1.30 billion at June 30, 2020 compared to $1.34 billion at September 30, 2019. The $35.8 million decrease was due primarily to the payment of $82.1 million in cash dividends, partially offset by net income of $46.3 million during the current year period. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At June 30, 2020, this ratio was 12.2%. The cash dividends paid during the current period totaled $0.595 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and three regular quarterly cash dividends totaling $0.255 per share. On July 23, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020. At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings, are deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. The leverage strategy was not in place during the current nine-month period, due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable. Available Information Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov. Critical Accounting Policies Our most critical accounting policies are the methodologies used to determine the ACL and fair value measurements. These policies are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting policies and their application are reviewed at least annually by our audit committee. For a full discussion of our critical accounting policies, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. 39 Financial Condition The following table presents selected balance sheet information as of the dates indicated. June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 (Dollars in thousands) Total assets $ 9,558,814 $ 9,371,193 $ 9,236,572 $ 9,340,018 $ 9,286,275 Cash and cash equivalents 396,219 118,374 70,703 220,370 43,051 AFS securities 1,220,054 1,236,037 1,229,587 1,204,863 769,393 HTM securities — — — — 483,858 Loans receivable, net 7,388,090 7,476,805 7,429,207 7,416,747 7,507,468 FHLB stock, at cost 102,782 101,575 99,861 98,456 100,109 Deposits 6,069,684 5,774,619 5,585,851 5,581,867 5,580,871 Borrowings 1,989,089 2,115,869 2,189,991 2,239,989 2,239,987 Stockholders' equity 1,300,520 1,287,793 1,306,594 1,336,326 1,327,099 Equity to total assets at end of period 13.6 % 13.7 % 14.1 % 14.3 % 14.3 % Total assets were $9.56 billion at June 30, 2020, an increase of $187.6 million, or 2.0%, from March 31, 2020, due to an increase in cash and cash equivalents, partially offset by a decrease in loans receivable. The increase in cash and cash equivalents was due mainly to deposit growth. Total loans were $7.39 billion at June 30, 2020, a decrease of $88.7 million, or 1.2%, from March 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio, partially offset by an increase in commercial and industrial loans due primarily to the origination of PPP loans. As noted above, we suspended our acceptance of new applications for correspondent one- to four-family loans during the majority of the current quarter. During the current quarter, the Bank originated and refinanced $270.0 million of one- to four-family and consumer loans with a weighted average rate of 3.19% and purchased $129.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.18%. The Bank also originated $68.5 million of commercial loans with a weighted average rate of 2.23%, which included $42.6 million in PPP loans at a rate of 1.00%, and entered into commercial real estate loan participations of $65.2 million at a weighted average rate of 3.95%. Total deposits were $6.07 billion at June 30, 2020, an increase of $295.1 million, or 5.1%, from March 31, 2020. The increase was primarily in non-maturity deposits, including a $148.5 million increase in checking accounts and a $112.0 million increase in money market accounts. The increase in deposits was due in part to Economic Impact Payments from the U.S. government to individuals as authorized by the CARES Act, deposits from PPP loans, commercial deposit growth, and a delay in federal income tax payment due dates from April 15 to July 15. 40 Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. Approximately 68% of the one- to four-family loan portfolio balance at June 30, 2020 was comprised of loans that had a balance of $510 thousand or less at the time of origination. June 30, 2020 March 31, 2020 September 30, 2019 Amount Rate Amount Rate Amount Rate (Dollars in thousands) One- to four-family: Originated $ 3,955,668 3.61 % $ 3,944,782 3.68 % $ 3,873,851 3.74 % Correspondent purchased 2,268,031 3.54 2,385,907 3.60 2,349,877 3.64 Bulk purchased 217,652 2.73 228,730 2.88 252,347 2.94 Construction 36,595 3.46 35,798 3.61 36,758 4.00 Total 6,477,946 3.56 6,595,217 3.62 6,512,833 3.68 Commercial: Commercial real estate 625,106 4.32 584,236 4.45 583,617 4.48 Commercial and industrial 99,735 2.92 62,153 4.62 61,094 5.14 Construction 87,448 3.98 126,266 4.40 123,159 4.81 Total 812,289 4.11 772,655 4.45 767,870 4.58 Consumer loans: Home equity 107,174 4.68 114,571 5.67 120,587 6.15 Other 10,033 4.46 10,837 4.56 11,183 4.57 Total 117,207 4.66 125,408 5.58 131,770 6.02 Total loans receivable 7,407,442 3.64 7,493,280 3.74 7,412,473 3.81 Less: ACL 31,215 31,196 9,226 Discounts/unearned loan fees 30,312 29,645 31,058 Premiums/deferred costs (42,175) (44,366) (44,558) Total loans receivable, net $ 7,388,090 $ 7,476,805 $ 7,416,747 41 Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current year-to-date period, the Bank endorsed $355.1 million of one- to four-family loans, reducing the average rate on those loans by 81 basis points. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. As noted earlier, during the initial days of the COVID-19 pandemic, correspondent one- to four-family loan application acceptance was suspended by the Bank but existing correspondent applications and commitments continued to progress through the approval and funding process. One- to four-family correspondent new loan application acceptance was resumed in mid-June 2020. For the Three Months Ended June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,493,280 3.74 % $ 7,424,834 3.77 % $ 7,412,473 3.81 % $ 7,501,741 3.83 % Originated and refinanced: Fixed 277,904 2.83 172,891 3.44 233,693 3.52 188,753 3.60 Adjustable 60,626 3.75 55,946 4.11 55,126 4.30 59,550 4.37 Purchased and participations: Fixed 131,739 3.28 125,612 3.46 123,118 3.77 49,161 4.12 Adjustable 62,510 3.76 18,985 2.96 13,801 3.06 12,305 3.55 Change in undisbursed loan funds (32,202) 24,049 (9,743) 12,293 Repayments (586,434) (328,644) (403,361) (410,624) Principal recoveries/(charge-offs), net 19 (314) (16) (110) Other — (79) (257) (596) Ending balance $ 7,407,442 3.64 $ 7,493,280 3.74 $ 7,424,834 3.77 $ 7,412,473 3.81 For the Nine Months Ended June 30, 2020 June 30, 2019 Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,412,473 3.81 % $ 7,507,645 3.74 % Originated and refinanced: Fixed 684,488 3.22 316,581 4.39 Adjustable 171,698 4.04 260,058 4.87 Purchased and participations: Fixed 380,469 3.50 136,974 4.83 Adjustable 95,296 3.50 64,000 4.57 Change in undisbursed loan funds (17,896) 39,927 Repayments (1,318,439) (822,533) Principal (charge-offs)/recoveries, net (311) 123 Other (336) (1,034) Ending balance $ 7,407,442 3.64 $ 7,501,741 3.83 42 The following tables present loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together. For the Three Months Ended June 30, 2020 June 30, 2019 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family: (1) <= 15 years $ 126,378 2.79 % 23.7 % $ 21,097 3.62 % 9.4 % > 15 years 205,047 3.39 38.5 103,515 4.13 46.1 One- to four-family construction 11,005 3.27 2.1 9,362 3.92 4.2 Commercial: Commercial real estate 19,333 3.71 3.6 2,813 5.42 1.2 Commercial and industrial 46,609 1.23 8.8 5,058 4.98 2.3 Commercial construction — — — 7,061 5.57 3.1 Home equity 774 5.98 0.1 1,317 6.44 0.6 Other 497 6.76 0.1 1,095 5.94 0.5 Total fixed-rate 409,643 2.98 76.9 151,318 4.20 67.4 Adjustable-rate: One- to four-family: (2) <= 36 months 1,610 2.74 0.3 333 3.18 0.1 > 36 months 40,099 2.93 7.5 35,922 3.59 16.0 One- to four-family construction 932 3.06 0.2 3,079 3.48 1.4 Commercial: Commercial real estate 16,035 4.58 3.0 3,347 5.73 1.5 Commercial and industrial 1,504 3.79 0.3 10,896 5.80 4.8 Commercial construction 50,237 4.03 9.4 1,049 6.38 0.5 Home equity 12,390 4.42 2.3 18,020 6.35 8.0 Other 329 3.48 0.1 713 3.74 0.3 Total adjustable-rate 123,136 3.75 23.1 73,359 4.73 32.6 Total originated, refinanced and purchased $ 532,779 3.16 100.0 % $ 224,677 4.37 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent - one- to four-family $ 114,039 3.22 $ 23,547 4.43 Participations - commercial 17,700 3.70 5,900 5.50 Total fixed-rate purchased/participations 131,739 3.28 29,447 4.65 Adjustable-rate: Correspondent - one- to four-family 15,010 2.87 10,018 3.85 Participations - commercial 47,500 4.04 — — Total adjustable-rate purchased/participations 62,510 3.76 10,018 3.85 Total purchased/participation loans $ 194,249 3.44 $ 39,465 4.44 43 For the Nine Months Ended June 30, 2020 June 30, 2019 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family: (1) <= 15 years $ 279,441 2.88 % 21.0 % $ 58,025 4.00 % 7.4 % > 15 years 613,890 3.50 46.1 276,642 4.38 35.6 One- to four-family construction 36,107 3.38 2.7 37,641 4.38 4.8 Commercial: Commercial real estate 32,605 4.23 2.5 25,642 6.29 3.3 Commercial and industrial 60,648 1.84 4.6 11,416 5.16 1.5 Commercial construction 36,253 4.72 2.7 36,980 4.94 4.8 Home equity 3,261 5.91 0.2 3,700 6.26 0.5 Other 2,752 5.76 0.2 3,509 5.07 0.5 Total fixed-rate 1,064,957 3.32 80.0 453,555 4.53 58.4 Adjustable-rate: One- to four-family: (2) <= 36 months 5,279 2.82 0.4 8,020 3.73 1.0 > 36 months 106,407 2.99 8.0 99,069 3.87 12.7 One- to four-family construction 10,929 3.03 0.8 14,791 4.08 1.9 Commercial: Commercial real estate 42,557 4.62 3.2 96,930 4.83 12.5 Commercial and industrial 5,979 4.75 0.4 24,846 5.61 3.2 Commercial construction 51,724 4.07 3.9 29,699 5.39 3.8 Home equity 42,359 5.16 3.2 48,896 6.35 6.3 Other 1,760 3.94 0.1 1,807 3.38 0.2 Total adjustable-rate 266,994 3.85 20.0 324,058 4.81 41.6 Total originated, refinanced and purchased $ 1,331,951 3.42 100.0 % $ 777,613 4.64 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent - one- to four-family $ 334,343 3.39 $ 87,097 4.45 Participations - commercial 46,126 4.29 49,877 5.49 Total fixed-rate purchased/participations 380,469 3.50 136,974 4.83 Adjustable-rate: Correspondent - one- to four-family 47,796 2.96 35,350 3.93 Participations - commercial 47,500 4.04 28,650 5.35 Total adjustable-rate purchased/participations 95,296 3.50 64,000 4.57 Total purchased/participation loans $ 475,765 3.50 $ 200,974 4.75 (1) The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. (2) The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination. 44 One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least annually, with the latest update in June 2020, 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. June 30, 2020 September 30, 2019 % of Credit Average % of Credit Average Amount Total Score LTV Balance Amount Total Score LTV Balance (Dollars in thousands) Originated $ 3,955,668 61.4 % 770 62 % $ 144 $ 3,873,851 59.8 % 768 62 % $ 140 Correspondent purchased 2,268,031 35.2 765 64 376 2,349,877 36.3 765 65 371 Bulk purchased 217,652 3.4 768 60 301 252,347 3.9 762 61 304 $ 6,441,351 100.0 % 768 63 188 $ 6,476,075 100.0 % 767 63 186 T he following ta bles present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year-to-date period, $223.9 million were refinanced from other lenders. Of the loans originated and refinanced during the current year-to-date period, 77% had loan values of $510 thousand or less. Of the correspondent loans purchased during the current year-to-date period, 22% had loan values of $510 thousand or less. For the Three Months Ended June 30, 2020 June 30, 2019 Credit Credit Amount LTV Score Amount LTV Score (Dollars in thousands) Originated $ 173,851 73 % 763 $ 119,600 80 % 761 Refinanced by Bank customers 82,171 67 767 20,143 67 748 Correspondent purchased 129,049 70 771 33,565 74 760 $ 385,071 71 766 $ 173,308 77 759 For the Nine Months Ended June 30, 2020 June 30, 2019 Credit Credit Amount LTV Score Amount LTV Score (Dollars in thousands) Originated $ 479,751 74 % 765 $ 329,026 78 % 757 Refinanced by Bank customers 190,163 68 763 42,715 67 747 Correspondent purchased 382,139 71 768 122,447 74 762 $ 1,052,053 72 766 $ 494,188 76 757 45 The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period. For the Three Months Ended For the Nine Months Ended June 30, 2020 June 30, 2020 State Amount % of Total Rate Amount % of Total Rate (Dollars in thousands) Kansas $ 223,073 57.9 % 3.12 % $ 584,621 55.6 % 3.25 % Missouri 63,889 16.6 3.13 183,403 17.4 3.29 Texas 45,333 11.8 3.15 148,772 14.1 3.27 Other states 52,776 13.7 3.18 135,257 12.9 3.37 $ 385,071 100.0 % 3.13 $ 1,052,053 100.0 % 3.27 One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of June 30, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs. Fixed-Rate 15 years More than Adjustable- Total or less 15 years Rate Amount Rate (Dollars in thousands) Originate/refinance $ 31,346 $ 54,513 $ 10,563 $ 96,422 3.17 % Correspondent 14,428 34,092 5,683 54,203 3.09 $ 45,774 $ 88,605 $ 16,246 $ 150,625 3.14 Rate 2.78 % 3.37 % 2.91 % Through June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million. These modifications are summarized in the table below, along with the weighted average credit score and weighted average LTV as of June 30, 2020. Credit scores are updated at least annually, with the latest update in June 2020, 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. Credit Count Amount Score LTV (Dollars in thousands) Originated 630 $ 116,254 727 67 % Correspondent purchased 262 115,877 739 68 Bulk purchased 4 1,240 727 71 896 $ 233,371 733 68 Commercial Loans - During the current year-to-date period, the Bank originated $136.1 million of commercial loans, of which $42.6 million were PPP loans, entered into commercial real estate loan participations totaling $93.6 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $188.1 million at a weighted average rate of 3.72%. 46 The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of June 30, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $528.9 million at a weighted average rate of 4.16% and adjustable-rate loans totaling $329.9 million at a weighted average rate of 4.43%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at June 30, 2020 having shorter terms to maturity. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects. Unpaid Undisbursed Gross Loan Outstanding % of Principal Amount Amount Commitments Total Total (Dollars in thousands) Senior housing $ 218,068 $ 39,234 $ 257,302 $ — $ 257,302 29.7 % Hotel 125,597 54,660 180,257 — 180,257 20.8 Retail building 124,206 17,697 141,903 4,183 146,086 16.8 Multi-family 60,301 21,827 82,128 — 82,128 9.5 One- to four-family property 56,634 5,251 61,885 444 62,329 7.2 Office building 53,720 2,580 56,300 2,454 58,754 6.8 Single use building 43,705 4,372 48,077 807 48,884 5.6 Other 30,323 652 30,975 352 31,327 3.6 $ 712,554 $ 146,273 $ 858,827 $ 8,240 $ 867,067 100.0 % Weighted average rate 4.28 % 4.23 % 4.27 % 4.44 % 4.27 % The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of June 30, 2020. Unpaid Undisbursed Gross Loan Outstanding % of Principal Amount Amount Commitments Total Total (Dollars in thousands) Kansas $ 284,453 $ 10,651 $ 295,104 $ 3,509 $ 298,613 34.4 % Missouri 218,019 68,416 286,435 548 286,983 33.1 Texas 110,531 60,389 170,920 — 170,920 19.7 Nebraska 33,174 665 33,839 — 33,839 3.9 Kentucky 25,230 329 25,559 — 25,559 3.0 California 5,892 4,300 10,192 — 10,192 1.2 Other 35,255 1,523 36,778 4,183 40,961 4.7 $ 712,554 $ 146,273 $ 858,827 $ 8,240 $ 867,067 100.0 % The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of June 30, 2020. Including in the working capital loan category are $42.6 million of PPP loans. Unpaid Undisbursed Gross Loan Outstanding % of Principal Amount Amount Commitments Total Total (Dollars in thousands) Working capital $ 56,777 $ 15,845 $ 72,622 $ 3,415 $ 76,037 62.2 % Equipment 15,370 336 15,706 106 15,812 13.0 Business investment 11,477 80 11,557 76 11,633 9.5 Purchase/lease autos 10,894 77 10,971 — 10,971 9.0 Other 5,217 2,494 7,711 — 7,711 6.3 $ 99,735 $ 18,832 $ 118,567 $ 3,597 $ 122,164 100.0 % 47 The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of June 30, 2020. Count Amount (Dollars in thousands) Greater than $30 million 3 $ 121,677 >$15 to $30 million 13 313,741 >$10 to $15 million 3 35,699 >$5 to $10 million 13 81,454 $1 to $5 million 97 210,962 Less than $1 million 1,947 225,698 2,076 $ 989,231 The Bank's commercial lending team is working proactively with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed above, through June 30, 2020, we have modified $392.8 million of commercial loans under our COVID-19 loan modification program. Through June 30, 2020, we have also processed 700 PPP loans for $42.6 million, for which we received approximately $1.8 million in fees. Approximately 60% of PPP loans processed were in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade. The following table presents the gross loan amount, including undisbursed balances, of the Bank's commercial real estate loans by type of primary collateral, and commercial and industrial loans by business purpose, that have been modified, per the Bank's COVID-19 loan modification program, as of June 30, 2020. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment period, but a deferral of principal and interest of up to six months was also offered to our borrowers. For the majority of the borrowers with principal and interest deferrals, the payment deferral time period was three months and the maturity date for these loans was extended by three months. The information in the table below is split by type of modification and presented as a percentage of total modifications, as well as by a percentage of the total gross loan amount and undisbursed balances of the related property type or business purpose category. Included in the payment deferral category in the table below are six loans with a combined gross loan amount, including undisbursed balances, of $30.6 million that have requested additional assistance. We are in the process of completing a second modification for these loans for another three-month payment deferral time period. Modification Type % of Interest Payment % of Property Type/ Only Deferral Total Total Business Purpose (Dollars in thousands) Commercial real estate Senior housing $ 115,082 $ 57,042 $ 172,124 43.8 % 66.9 % Hotel 76,249 21,679 97,928 24.9 54.3 Retail building 31,174 5,815 36,989 9.4 26.1 Multi-family 7,398 — 7,398 1.9 9.0 One- to four-family property 7,721 335 8,056 2.1 13.0 Office building 16,500 7,012 23,512 6.0 41.8 Single use building 30,472 5,331 35,803 9.1 74.5 Other 2,503 — 2,503 0.6 8.1 287,099 97,214 384,313 97.8 44.7 Commercial and industrial Working capital 889 — 889 0.2 1.2 Equipment 4,366 — 4,366 1.1 30.8 Business investment 1,752 — 1,752 0.5 13.4 Purchase/lease autos 666 — 666 0.2 6.1 Other 804 — 804 0.2 31.4 8,477 — 8,477 2.2 7.1 Total $ 295,576 $ 97,214 $ 392,790 100.0 % 40.2 48 Asset Quality. The Bank's traditional one- to four-family underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets within this loan category compared to national levels. Of particular importance is the complete and full documentation required for each loan the Bank originates, participates in or purchases. This allows the Bank to make an informed credit decision based upon a thorough assessment of the borrower's ability to repay the loan. The Bank performs more extensive due diligence when underwriting commercial loans than loans secured by one- to four-family residential properties due to the larger loan amounts, the more complex sources of repayment and the riskier nature of such loans. When participating in a commercial loan, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. See additional discussion regarding underwriting standards in "Part I, Item 1. Business - Lending Practices and Underwriting Standards" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. Delinquent and non-performing loans and OREO - The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Of the loans 30 to 89 days delinquent at June 30, 2020, approximately 59% were 59 days or less delinquent. Loans Delinquent for 30 to 89 Days at: June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 Number Amount Number Amount Number Amount Number Amount Number Amount (Dollars in thousands) One- to four-family: Originated 57 $ 5,085 92 $ 8,360 96 $ 9,004 90 $ 7,223 94 $ 7,749 Correspondent purchased 10 2,919 13 4,531 13 4,117 9 2,721 14 3,727 Bulk purchased 19 4,536 12 2,914 14 3,307 16 3,581 13 2,249 Commercial 9 1,543 7 1,555 7 1,192 8 826 12 1,699 Consumer 21 431 43 628 40 488 42 525 43 630 116 $ 14,514 167 $ 17,988 170 $ 18,108 165 $ 14,876 176 $ 16,054 Loans 30 to 89 days delinquent to total loans receivable, net 0.20 % 0.24 % 0.24 % 0.20 % 0.21 % The table below presents the Company's non-performing loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Non-performing 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. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately three months before the properties were sold. 49 Non-Performing Loans and OREO at: June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 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 47 $ 4,026 53 $ 4,517 44 $ 3,552 44 $ 3,268 58 $ 5,069 Correspondent purchased 7 2,740 4 1,342 4 1,376 4 1,008 2 871 Bulk purchased 3 1,291 1 630 2 689 6 1,465 7 2,194 Commercial 4 709 4 716 — — 4 170 — — Consumer 23 278 17 326 20 340 25 362 25 437 84 9,044 79 7,531 70 5,957 83 6,273 92 8,571 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.12 % 0.10 % 0.08 % 0.08 % 0.11 % Nonaccrual loans less than 90 Days Delinquent: (1) One- to four-family: Originated 14 $ 1,132 13 $ 811 11 $ 634 16 $ 1,183 15 $ 1,057 Correspondent purchased — — 1 189 — — — — — — Bulk purchased — — 1 134 1 134 1 65 2 374 Commercial 1 6 2 129 6 363 1 7 1 7 Consumer 1 33 2 43 — — 2 35 2 4 16 1,171 19 1,306 18 1,131 20 1,290 20 1,442 Total non-performing loans 100 10,215 98 8,837 88 7,088 103 7,563 112 10,013 Non-performing loans as a percentage of total loans 0.14 % 0.12 % 0.10 % 0.10 % 0.13 % OREO: One- to four-family: Originated (2) 4 $ 183 5 $ 187 8 $ 414 8 $ 745 8 $ 546 Bulk purchased — — — — — — — — — — Commercial — — — — — — 1 600 1 600 Consumer — — — — 1 98 — — — — 4 183 5 187 9 512 9 1,345 9 1,146 Total non-performing assets 104 $ 10,398 103 $ 9,024 97 $ 7,600 112 $ 8,908 121 $ 11,159 Non-performing assets as a percentage of total assets 0.11 % 0.10 % 0.08 % 0.10 % 0.12 % (1) Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. (2) Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property. 50 The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at June 30, 2020. 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. At June 30, 2020, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off. Loans 30 to 89 Loans 90 or More Days Delinquent One- to Four-Family Days Delinquent or in Foreclosure State Amount % of Total Amount % of Total Amount % of Total LTV (Dollars in thousands) Kansas $ 3,582,327 55.6 % $ 3,822 30.5 % $ 3,895 48.3 % 63 % Missouri 1,139,190 17.7 2,617 20.9 529 6.6 56 Texas 740,906 11.5 1,321 10.5 686 8.5 52 Other states 978,928 15.2 4,780 38.1 2,947 36.6 64 $ 6,441,351 100.0 % $ 12,540 100.0 % $ 8,057 100.0 % 62 Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off. June 30, 2020 March 31, 2020 June 30, 2019 Special Mention Substandard Special Mention Substandard Special Mention Substandard (Dollars in thousands) One- to four-family $ 12,309 $ 26,788 $ 13,678 $ 26,077 $ 12,528 $ 25,657 Commercial 52,054 5,128 52,515 4,538 55,021 5,999 Consumer 320 564 479 659 172 696 $ 64,683 $ 32,480 $ 66,672 $ 31,274 $ 67,721 $ 32,352 Allowance for credit losses and Provision for credit losses - Management maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. The ACL is maintained through provisions for credit losses which are either charged to or credited to income. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. Management considered several factors when evaluating the adequacy of the ACL at June 30, 2020, such as: economic conditions including the impact of unemployment benefits created through the CARES Act, our commercial lending team's ongoing evaluation of commercial loans, the Bank's COVID-19 loan modification programs, and certain loan credit quality indicators. There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried into the June 30, 2020 quarter. Many of the stay-at-home orders issued in March and April have been lifted or significantly reduced which resulted in some people returning to work, while not necessarily at the same level as prior to March 2020, and it benefited consumer spending, which rebounded during May and June, generally locally and not related to travel and entertainment. Unemployment benefit claims continue to be at historical levels, but the level at which individuals are filing initial unemployment benefit claims has decreased significantly from the late March/early April timeframe and is starting to level-off. Individuals that are unemployed have benefited from the Federal Pandemic Unemployment Compensation Program ("FPUC") which the CARES Act created. FPUC provides an additional $600 per week to individuals collecting regular unemployment compensation. The FPUC is scheduled to expire in late July 2020 which could result in financial strain for some households. There were other unemployment compensation benefits created under the CARES Act which have benefited individuals that have exhausted their regular unemployment insurance benefits and that are generally not eligible for regular unemployment compensation, like self-employed individuals. In late March 2020, the commercial lending team closely analyzed the Bank's largest commercial relationships. Approximately 85% of all commercial loans have been evaluated through June 30, 2020. The commercial lending team primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns, which totaled $183.4 million at June, 30, 2020, and were primarily in the following categories: senior housing facilities, hotels, retail buildings, office buildings and single use buildings. These loan categories were among the categories with the highest usage of the Bank's COVID-19 51 loan modification program. The weighted average LTV ratios based on the unpaid principal balance of senior housing, retail building, hotel, office building, and single use building loans were 68%, 69%, 57%, 77%, and 69%, respectively, at June 30, 2020. We also considered the largest credits in these loan categories. The evaluation of most of our commercial and industrial loans concluded that many of these loans are to businesses that are deemed essential, which we believe reduces the risk of loss on these loans at this time. Management was not aware of any construction delays or other issues that would significantly delay or impact funding of commercial construction loans at June 30, 2020. In late March 2020, the Bank began offering COVID-19 loan modifications for one- to four-family loans and consumer loans consistent with the CARES Act or interagency guidance from the federal banking agencies. This provides for a three-month payment deferral of principal, interest and, in some cases, escrow payments. Through June 30, 2020, the Bank processed COVID-19 loan modifications for $233.4 million of one- to four-family loans, or 4% of the one- to four-family loan portfolio. As of the end of June 2020, some borrowers asked for and received a second deferral of an additional three months of payments and we are anticipating there will be more requests. While the intent of the CARES Act was to keep customers current on their payments and therefore in their homes during the worst of the economic downturn, it may be masking our actual credit exposure on these loans. Because of this, it is possible that when the deferral time periods end, the Bank's credit quality indicators may worsen, which may increase the need for additional provisions for credit losses and decrease earnings. Through June 30, 2020, the Bank processed COVID-19 loan modifications of $392.8 million for commercial loans, or 40% of the commercial loan portfolio, including undisbursed amounts. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment periods, but a deferral of principal and interest of up to six months was also offered to our borrowers. Some of the borrowers who requested and received a three-month deferral of principal and interest have requested an additional three-month deferral. We are in the process of completing those second payment deferral requests. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of our borrowers; however, as is the case with one- to four-family loans, the modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. There was no deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current quarter; however, as noted above, the COVID-19 loan modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. Loans 30 to 89 days delinquent were 0.20% of total loans at June 30, 2020 and 0.24% of total loans at March 31, 2020. Loans 90 days or more delinquent or in foreclosure were 0.12% of total loans at June 30, 2020 and 0.10% of total loans at March 31, 2020. Loans classified as special mention decreased $2.0 million during the current quarter to $64.7 million at June 30, 2020. Loans classified as substandard increased $1.2 million during the current quarter to $32.5 million at June 30, 2020. The weighted average credit score for our one- to four-family loan portfolio was 766 at March 31, 2020 and increased to 768 at June 30, 2020. We completed a credit score update from a nationally recognized consumer rating agency during the current quarter. Management believes the ACL at June 30, 2020 was adequate to absorb inherent losses in the loan portfolio at that point in time based on the known facts and circumstances of the economic environment at June 30, 2020. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods, which would have an adverse affect on net income. 52 See "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Credit Losses" and "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a full discussion of our ACL methodology. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information on the ACL. The distribution of our ACL at the dates indicated is summarized below. At June 30, 2020 September 30, 2019 % of ACL % of % of ACL % of Amount to Total Total Loans to Amount to Total Total Loans to of ACL ACL Loans Total Loans of ACL ACL Loans Total Loans (Dollars in thousands) One- to four-family: Originated $ 6,298 20.2 % $ 3,955,668 53.4 % $ 1,982 21.6 % $ 3,873,851 52.2 % Correspondent purchased 3,189 10.2 2,268,031 30.6 1,203 13.0 2,349,877 31.7 Bulk purchased 506 1.6 217,652 3.0 687 7.4 252,347 3.4 Construction 48 0.2 36,595 0.5 18 0.2 36,758 0.5 Total 10,041 32.2 6,477,946 87.5 3,890 42.2 6,512,833 87.8 Commercial: Commercial real estate 16,353 52.4 625,106 8.4 3,448 37.4 583,617 7.9 Commercial and industrial 1,465 4.7 99,735 1.4 472 5.1 61,094 0.8 Construction 2,886 9.2 87,448 1.2 1,251 13.5 123,159 1.7 Total 20,704 66.3 812,289 11.0 5,171 56.0 767,870 10.4 Consumer loans: Home equity 377 1.2 107,174 1.4 97 1.1 120,587 1.6 Other consumer 93 0.3 10,033 0.1 68 0.7 11,183 0.2 Total consumer loans 470 1.5 117,207 1.5 165 1.8 131,770 1.8 $ 31,215 100.0 % $ 7,407,442 100.0 % $ 9,226 100.0 % $ 7,412,473 100.0 % 53 The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The reduction in the commercial and industrial ACL to loans ratio at June 30, 2020 compared to March 31, 2020 was due primarily to the origination of PPP loans. PPP loans are 100% guaranteed by the SBA so the Bank did not record ACL on those loans at June 30, 2020. At June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 One- to four-family: Originated 0.16 % 0.16 % 0.05 % 0.05 % 0.05 % Correspondent purchased 0.14 0.14 0.05 0.05 0.05 Bulk purchased 0.23 0.24 0.26 0.27 0.28 Construction 0.13 0.13 0.05 0.05 0.05 Total 0.16 0.16 0.06 0.06 0.06 Commercial: Commercial real estate 2.62 2.51 0.62 0.59 0.55 Commercial and industrial 1.47 2.40 1.25 0.77 0.38 Construction 3.30 3.30 1.02 1.02 1.00 Total 2.55 2.63 0.72 0.67 0.61 Consumer 0.40 0.39 0.12 0.13 0.11 Total 0.42 0.42 0.13 0.12 0.12 The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories. For the Three Months Ended June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 (Dollars in thousands) ACL beginning balance $ 31,196 $ 9,435 $ 9,226 $ 9,036 $ 8,619 Charge-offs (5) (375) (48) (133) (61) Recoveries 24 61 32 23 28 Provision for credit losses — 22,075 225 300 450 ACL ending balance $ 31,215 $ 31,196 $ 9,435 $ 9,226 $ 9,036 ACL to loans receivable at end of period 0.42 % 0.42 % 0.13 % 0.12 % 0.12 % ACL to non-performing loans at end of period 305.58 353.02 133.11 121.99 90.24 Ratio of net charge-offs (recoveries) during the period to average loans outstanding — — — — — Ratio of net charge-offs (recoveries) during the period to average non-performing assets (0.20) 3.78 0.19 1.09 0.26 ACL to net charge-offs (annualized) N/M (1) 24.9x 144.5x 21.1x 68.1x 54 For the Nine Months Ended June 30, 2020 June 30, 2019 (Dollars in thousands) ACL beginning balance $ 9,226 $ 8,463 Charge-offs (428) (129) Recoveries 117 252 Provision for credit losses 22,300 450 ACL ending balance $ 31,215 $ 9,036 Ratio of net charge-offs during the period to average loans outstanding during the period — % — % Ratio of net charge-offs during the period to average non-performing assets during the period 3.22 (1.02) ACL to net charge-offs (annualized) 75.3x N/M (1) (1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods. 55 Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 80% of our securities portfolio at June 30, 2020. 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 taxable equivalent basis. June 30, 2020 March 31, 2020 September 30, 2019 Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Fixed-rate securities: MBS $ 714,730 2.22 % 3.2 $ 690,220 2.33 % 3.1 $ 625,840 2.46 % 2.9 GSE debentures 225,020 1.20 0.8 250,080 1.88 0.3 249,828 2.15 0.7 Municipal bonds 11,857 1.68 0.7 11,887 1.66 0.9 18,371 1.63 1.0 Total fixed-rate securities 951,607 1.97 2.6 952,187 2.20 2.3 894,039 2.35 2.3 Adjustable-rate securities: MBS 234,618 2.73 3.9 257,329 2.97 4.9 297,416 3.10 4.7 Total securities portfolio $ 1,186,225 2.12 2.8 $ 1,209,516 2.36 2.9 $ 1,191,455 2.54 2.9 The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented. June 30, 2020 March 31, 2020 September 30, 2019 (Dollars in thousands) Federal National Mortgage Association ("FNMA") $ 736,930 $ 735,385 $ 656,799 Federal Home Loan Mortgage Corporation ("FHLMC") 192,670 179,987 208,745 Government National Mortgage Association 52,987 57,946 70,943 $ 982,587 $ 973,318 $ 936,487 56 Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $46.1 million, from $936.5 million at September 30, 2019, to $982.6 million at June 30, 2020. The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WAL are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied. For the Three Months Ended June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 973,318 2.50 % 3.6 $ 937,317 2.61 % 3.3 $ 936,487 2.67 % 3.5 $ 979,256 2.68 % 3.4 Maturities and repayments (75,293) (65,767) (72,635) (70,865) Net amortization of (premiums)/discounts (363) (279) (248) (270) Purchases: Fixed 77,455 1.29 5.0 88,863 1.80 4.5 74,359 2.05 3.8 25,214 1.93 3.2 Valuation transferred from HTM to AFS — — — 3,039 Change in valuation on AFS securities 7,470 13,184 (646) 113 Ending balance - carrying value $ 982,587 2.35 3.3 $ 973,318 2.50 3.6 $ 937,317 2.61 3.3 $ 936,487 2.67 3.5 For the Nine Months Ended June 30, 2020 June 30, 2019 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 936,487 2.67 % 3.5 $ 1,036,990 2.57 % 3.4 Maturities and repayments (213,695) (204,251) Net amortization of (premiums)/discounts (890) (1,034) Purchases: Fixed 240,677 1.71 4.4 52,541 2.82 4.5 Adjustable — — — 84,138 2.74 4.4 Change in valuation on AFS securities 20,008 10,872 Ending balance - carrying value $ 982,587 2.35 3.3 $ 979,256 2.68 3.4 57 Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, decreased $30.9 million, from $268.4 million at September 30, 2019, to $237.5 million at June 30, 2020. Municipal investments totaled $11.9 million at June 30, 2020. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented. For the Three Months Ended June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 262,719 1.87 % 0.3 $ 292,270 2.00 % 0.8 $ 268,376 2.11 % 0.8 $ 273,995 2.30 % 1.0 Maturities, calls and sales (125,000) (80,125) (51,175) (80,690) Net amortization of (premiums)/discounts (80) (49) 20 (13) Purchases: Fixed 99,990 0.58 1.2 50,097 1.42 0.4 75,000 1.90 1.7 75,000 2.02 1.1 Valuation transferred from HTM to AFS — — — 47 Change in valuation on AFS securities (162) 526 49 37 Ending balance - carrying value $ 237,467 1.23 0.8 $ 262,719 1.87 0.3 $ 292,270 2.00 0.8 $ 268,376 2.11 0.8 For the Nine Months Ended June 30, 2020 June 30, 2019 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 268,376 2.11 % 0.8 $ 289,942 2.05 % 2.2 Maturities, calls and sales (256,300) (169,081) Net amortization of (premiums)/discounts (109) 75 Purchases: Fixed 225,087 1.20 1.2 149,809 2.65 0.8 Change in valuation on AFS securities 413 3,250 Ending balance - carrying value $ 237,467 1.23 0.8 $ 273,995 2.30 1.0 58 Liabilities Deposits - The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. June 30, 2020 March 31, 2020 September 30, 2019 % of % of % of Amount Rate Total Amount Rate Total Amount Rate Total (Dollars in thousands) Non-interest-bearing checking $ 457,917 — % 7.5 % $ 385,092 — % 6.7 % $ 357,284 — % 6.4 % Interest-bearing checking 837,304 0.10 13.8 761,589 0.10 13.2 717,121 0.09 12.8 Savings 420,924 0.07 6.9 377,212 0.08 6.5 321,494 0.05 5.8 Money market 1,320,379 0.39 21.8 1,208,370 0.62 20.9 1,198,343 0.70 21.5 Retail/business certificates of deposit 2,744,661 1.97 45.2 2,765,142 2.11 47.9 2,692,770 2.08 48.2 Public unit certificates of deposit 288,499 1.09 4.8 277,214 1.87 4.8 294,855 2.29 5.3 $ 6,069,684 1.05 100.0 % $ 5,774,619 1.25 100.0 % $ 5,581,867 1.29 100.0 % The following tables set forth scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of June 30, 2020. Amount Due More than More than 1 year 1 year to 2 years to 3 More than Total Rate range or less 2 years years 3 years Amount Rate (Dollars in thousands) 0.00 – 0.99% $ 251,416 $ 9,922 $ 6 $ — $ 261,344 0.48 % 1.00 – 1.99% 771,935 393,807 158,766 140,747 1,465,255 1.69 2.00 – 2.99% 438,482 265,597 403,035 199,198 1,306,312 2.38 3.00 – 3.99% — — 249 — 249 3.00 $ 1,461,833 $ 669,326 $ 562,056 $ 339,945 $ 3,033,160 1.88 Percent of total 48.2 % 22.1 % 18.5 % 11.2 % Weighted average rate 1.65 1.99 2.22 2.12 Weighted average maturity (in years) 0.5 1.5 2.4 3.7 1.4 Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.5 Amount Due Over Over 3 months 3 to 6 6 to 12 Over or less months months 12 months Total (Dollars in thousands) Retail/business certificates of deposit less than $100,000 $ 151,227 $ 172,090 $ 339,004 $ 880,269 $ 1,542,590 Retail/business certificates of deposit of $100,000 or more 139,809 128,777 276,447 657,038 1,202,071 Public unit certificates of deposit of $100,000 or more 134,727 58,261 61,491 34,020 288,499 $ 425,763 $ 359,128 $ 676,942 $ 1,571,327 $ 3,033,160 59 Borrowings - The following tables present 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. Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue. For the Three Months Ended June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019 Effective Effective Effective Effective Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 2,090,000 2.25 % 3.0 $ 2,090,000 2.37 % 2.6 $ 2,140,000 2.38 % 2.6 $ 2,140,000 2.35 % 2.6 Maturities and prepayments: FHLB advances (200,000) 2.35 (415,000) 2.45 (350,000) 2.40 (375,000) 2.38 New FHLB borrowings: Fixed-rate — — — 350,000 1.70 4.7 100,000 1.96 5.0 100,000 2.14 4.0 Interest rate swaps (1) 100,000 3.20 8.0 65,000 2.61 4.0 200,000 2.57 2.5 275,000 2.70 4.5 Ending balance $ 1,990,000 2.29 2.9 $ 2,090,000 2.25 3.0 $ 2,090,000 2.37 2.6 $ 2,140,000 2.38 2.6 For the Nine Months Ended June 30, 2020 June 30, 2019 Effective Effective Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 2,140,000 2.38 % 2.6 $ 2,185,052 2.17 % 2.9 Maturities and prepayments: FHLB advances (965,000) 2.41 (500,000) 1.88 CCB acquisition - junior subordinated debentures assumed (redeemed) — — — (10,052) 8.76 12.3 New FHLB borrowings: Fixed-rate 450,000 1.76 4.8 100,000 3.39 5.0 Interest rate swaps (1) 365,000 2.75 4.3 365,000 2.66 5.3 Ending balance $ 1,990,000 2.29 2.9 $ 2,140,000 2.35 2.6 (1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps. 60 Maturities - The following table presents the maturity of term borrowings (which includes FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of June 30, 2020. Term Borrowings Amount Maturity by Interest rate Total Contractual Effective Fiscal Year Fixed-rate swaps (1) Amount Rate Rate (2) (Dollars in thousands) 2020 $ 200,000 $ 340,000 $ 540,000 1.32 % 2.50 % 2021 203,000 300,000 503,000 1.28 2.45 2022 200,000 — 200,000 2.23 2.23 2023 300,000 — 300,000 1.70 1.81 2024 100,000 — 100,000 3.39 3.39 2025 250,000 — 250,000 1.82 1.94 2026 100,000 — 100,000 1.28 1.60 $ 1,353,000 $ 640,000 $ 1,993,000 1.62 2.29 (1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.7 years at June 30, 2020. (2) The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. As of June 30, 2020 and throughout the current quarter, the Bank did not have a balance outstanding on its FHLB line of credit. The average outstanding balance of FHLB line of credit borrowings during the current year period was $61.3 million at an average rate of 1.85%. During the prior quarter, the Bank began utilizing its FRB of Kansas City line of credit rather than the FHLB line of credit, as the rate at the FRB of Kansas City was lower. At June 30, 2020, the Bank did not have an outstanding balance on its FRB of Kansas City line of credit. The average outstanding balance of the FRB of Kansas City line of credit borrowing during the current quarter was $396 thousand at an average rate of 0.45%, and during the current year period was $2.0 million at an average rate of 0.25%. 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/business and public unit amounts, and term borrowings for the next four quarters as of June 30, 2020. Retail/ Business Public Unit Term Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing Quarter End Amount Rate Amount Rate Amount Rate Total Rate (Dollars in thousands) September 30, 2020 $ 291,036 1.95 % $ 134,727 0.90 % $ 540,000 2.50 % $ 965,763 2.11 % December 31, 2020 300,867 1.83 58,261 0.98 253,000 2.44 612,128 2.00 March 31, 2021 275,383 1.94 30,810 1.48 150,000 1.97 456,193 1.92 June 30, 2021 340,068 1.53 30,681 0.67 100,000 3.20 470,749 1.83 $ 1,207,354 1.80 $ 254,479 0.96 $ 1,043,000 2.48 $ 2,504,833 2.00 61 Stockholders' Equity. Stockholders' equity was $1.30 billion at June 30, 2020 compared to $1.34 billion at September 30, 2019. The $35.8 million decrease was due primarily to the payment of $82.1 million in cash dividends, partially offset by net income of $46.3 million during the nine months ended June 30, 2020. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At June 30, 2020, this ratio was 12.2%. The cash dividends paid during the current year-to-date period totaled $0.595 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and three regular quarterly cash dividends totaling $0.255 per share. On July 23, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020. At June 30, 2020, Capitol Federal Financial, Inc., at the holding company level, had $89.0 million on deposit at the Bank. For fiscal year 2020, it is currently the intent of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company. The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and historically the Company has also utilized stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company has paid a True Blue Capitol cash dividend of $0.25 per share in June of each of the past six years. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend. Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings. The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2020, 2019, and 2018. The amounts represent cash dividends paid during each period. For the quarter ending September 30, 2020, the amount presented represents the dividend payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020. Calendar Year 2020 2019 2018 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31 $ 11,733 $ 0.085 $ 11,700 $ 0.085 $ 11,427 $ 0.085 Quarter ended June 30 11,734 0.085 11,708 0.085 11,429 0.085 Quarter ended September 30 11,734 0.085 11,713 0.085 11,430 0.085 Quarter ended December 31 11,731 0.085 11,696 0.085 True-up dividends paid 46,932 0.340 53,666 0.390 True Blue dividends paid 34,446 0.250 33,614 0.250 Calendar year-to-date dividends paid $ 35,201 $ 0.255 $ 128,230 $ 0.930 $ 133,262 $ 0.980 The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions, available liquidity, regulatory requirements and considerations, and other factors. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan. 62 Operating Results The following table presents selected income statement and other information for the quarters indicated. For the Three Months Ended June 30, March 31, December 31, September 30, June 30, 2020 2020 2019 2019 2019 (Dollars in thousands, except per share data) Interest and dividend income: Loans receivable $ 66,652 $ 69,613 $ 69,914 $ 70,366 $ 71,434 MBS 5,616 5,866 6,102 6,293 6,613 FHLB stock 1,207 1,714 1,826 2,156 1,865 Investment securities 847 1,382 1,507 1,585 1,835 Cash and cash equivalents 59 380 687 2,885 464 Total interest and dividend income 74,381 78,955 80,036 83,285 82,211 Interest expense: Deposits 16,533 17,804 17,962 17,471 16,909 Borrowings 11,561 12,483 13,377 16,003 13,621 Total interest expense 28,094 30,287 31,339 33,474 30,530 Net interest income 46,287 48,668 48,697 49,811 51,681 Provision for credit losses — 22,075 225 300 450 Net interest income (after provision for credit losses) 46,287 26,593 48,472 49,511 51,231 Non-interest income 4,439 4,671 5,504 5,859 5,674 Non-interest expense 26,164 26,164 26,500 26,330 27,691 Income tax expense 5,088 824 4,965 6,631 6,317 Net income $ 19,474 $ 4,276 $ 22,511 $ 22,409 $ 22,897 Efficiency ratio 51.58 % 49.05 % 48.89 % 47.30 % 48.28 % Basic EPS $ 0.14 $ 0.03 $ 0.16 $ 0.16 $ 0.17 Diluted EPS 0.14 0.03 0.16 0.16 0.17 63 Comparison of Operating Results for the Nine Months Ended June 30, 2020 and 2019 The Company recognized net income of $46.3 million, or $0.34 per share, for the nine-month period ended June 30, 2020 compared to net income of $71.8 million, or $0.52 per share, for the nine-month period ended June 30, 2019. The decrease in net income was due primarily to a $21.9 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense. Net interest income decreased $12.9 million, or 8.3%, from the prior year period to $143.7 million for the current year period. The net interest margin decreased 15 basis points, from 2.30% for the prior year period to 2.15% for the current year period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. See additional discussion regarding the leverage strategy in the "Executive Summary" above. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 17 basis points, from 2.32% for the prior year period to 2.15% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio. Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 13 basis points, from 3.61% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets decreased $165.9 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased 14 basis points, from 3.62% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets would have decreased $89.0 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. For the Nine Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 206,179 $ 213,863 $ (7,684) (3.6) % MBS 17,584 19,437 (1,853) (9.5) FHLB stock 4,747 5,667 (920) (16.2) Investment securities 3,736 4,781 (1,045) (21.9) Cash and cash equivalents 1,126 2,921 (1,795) (61.5) Total interest and dividend income $ 233,372 $ 246,669 $ (13,297) (5.4) The decrease in interest income on loans receivable was due mainly to a decrease in yield resulting from a $4.3 million increase in the amortization of premiums on correspondent loans related to increases in payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $155.4 million, or 2.3%, partially offset by a $91.2 million, or 13.3%, increase in the average balance of higher-yielding commercial loans. The weighted average yield on the loans receivable portfolio decreased 11 basis points, from 3.78% for the prior year period to 3.67% for the current year period. The decrease in interest income on the MBS portfolio was due primarily to a $60.4 million, or 6.1%, decrease in the average balance of the portfolio due to not reinvesting all the cash flows from the portfolio, along with a 10 basis point decrease in the weighted average yield to 2.52% in the current year period. The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB. The decrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a portion of the prior year period and not being in place during the current period, along with a decrease in the yield earned on cash held at the FRB of Kansas City. See additional discussion regarding the leverage strategy in the "Executive Summary" above. The decrease in interest income on investment securities was due mainly to calls and maturities either being replaced at lower market rates or not being replaced. 64 Interest Expense The weighted average rate paid on total interest-bearing liabilities increased one basis point, from 1.51% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities decreased $85.5 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased two basis points, from 1.50% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities would have decreased $8.6 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. For the Nine Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 52,299 $ 48,730 $ 3,569 7.3 % Borrowings 37,421 41,360 (3,939) (9.5) Total interest expense $ 89,720 $ 90,090 $ (370) (0.4) The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased 20 basis points, to 2.08% for the current year period, and the average balance increased $194.7 million, or approximately 8%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms. During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit. The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $2.6 million from the prior year period due primarily to a decrease in the average balance of such borrowings, as certain maturing FHLB advances were not renewed and the Bank paid down its FHLB line of credit. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior year period due to the leverage strategy being in place for a portion of the prior year period and not being in place at all during the current year period. Provision for Credit Losses The Bank recorded a provision for credit losses during the current period of $22.3 million, compared to $450 thousand during the prior year period. The $22.3 million provision for credit losses in the current period was primarily related to the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Nine Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 8,384 $ 9,581 $ (1,197) (12.5) % Insurance commissions 1,762 2,072 (310) (15.0) Other non-interest income 4,468 4,446 22 0.5 Total non-interest income $ 14,614 $ 16,099 $ (1,485) (9.2) The decrease in deposit service fees was due mainly to the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019, along with a decrease in service charge income due primarily to a decrease in consumer activity as a result of the COVID-19 pandemic. The decrease in insurance commissions was due primarily to a decrease in the amount of annual contingent insurance commissions. 65 Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Nine Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 39,765 $ 39,205 $ 560 1.4 % Information technology and related expense 12,694 13,535 (841) (6.2) Occupancy, net 10,212 9,768 444 4.5 Regulatory and outside services 4,188 4,247 (59) (1.4) Advertising and promotional 3,773 3,597 176 4.9 Deposit and loan transaction costs 2,086 1,882 204 10.8 Office supplies and related expense 1,586 1,884 (298) (15.8) Federal insurance premium 287 1,787 (1,500) (83.9) Other non-interest expense 4,237 4,709 (472) (10.0) Total non-interest expense $ 78,828 $ 80,614 $ (1,786) (2.2) The decrease in information technology and related expense was due mainly to the prior year period including costs related to the integration of CCB operations. The decrease in the federal insurance premium was due mainly to the Bank using an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the majority of the current period. The decrease in other non-interest expense was due primarily to a decrease in debit card fraud losses, as well as a decrease in amortization of deposit intangibles. The Company's efficiency ratio was 49.81% for the current period compared to 46.68% for the prior year period. The change in the efficiency ratio was due to lower net interest income in the current period compared to the prior year period. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense. Income Tax Expense Income tax expense was $10.9 million for the current period compared to $19.8 million for the prior year period. The decrease in income tax expense was due primarily to lower pretax income in the current period. The effective tax rate was 19.0% for the current period compared to 21.6% for the prior year period. The lower effective tax rate in the current period compared to the prior year period was due mainly to the Company's permanent differences, which generally lower our tax expense, having a proportionately larger impact given the lower pretax income in the current year period. Additionally, a discrete benefit was recognized during the current period as a result of favorable federal tax guidance issued during the current period related to certain BOLI policies added in the CCB acquisition. Management anticipates the effective income tax rate for the fourth quarter of fiscal year 2020 will be approximately 21%, resulting in an effective tax rate of approximately 20% for fiscal year 2020. 66 Average Balance Sheet The following table presents 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 indicated. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Nine Months Ended June 30, 2020 June 30, 2019 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,568,665 $ 172,845 3.51 % $ 6,724,022 $ 182,121 3.61 % Commercial loans 775,021 28,228 4.79 683,827 25,310 4.88 Consumer loans 126,049 5,106 5.41 136,770 6,432 6.29 Total loans receivable (1) 7,469,735 206,179 3.67 7,544,619 213,863 3.78 MBS (2) 929,458 17,584 2.52 989,896 19,437 2.62 Investment securities (2)(3) 257,778 3,736 1.93 281,780 4,781 2.26 FHLB stock 99,945 4,747 6.34 103,151 5,667 7.34 Cash and cash equivalents (4) 166,272 1,126 0.89 169,641 2,921 2.27 Total interest-earning assets (1)(2) 8,923,188 233,372 3.48 9,089,087 246,669 3.61 Other non-interest-earning assets 459,877 374,632 Total assets $ 9,383,065 $ 9,463,719 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,141,682 550 0.06 $ 1,073,089 451 0.06 Savings 375,858 222 0.08 348,919 156 0.06 Money market 1,216,377 5,395 0.59 1,265,186 6,690 0.71 Retail/business certificates 2,702,272 42,096 2.08 2,507,533 35,219 1.88 Wholesale certificates 287,977 4,036 1.87 388,943 6,214 2.14 Total deposits 5,724,166 52,299 1.22 5,583,670 48,730 1.17 Borrowings (5) 2,148,687 37,421 2.31 2,374,676 41,360 2.32 Total interest-bearing liabilities 7,872,853 89,720 1.52 7,958,346 90,090 1.51 Other non-interest-bearing liabilities 195,957 138,640 Stockholders' equity 1,314,255 1,366,733 Total liabilities and stockholders' equity $ 9,383,065 $ 9,463,719 Net interest income (6) $ 143,652 $ 156,579 Net interest rate spread (7)(8) 1.96 2.10 Net interest-earning assets $ 1,050,335 $ 1,130,741 Net interest margin (8)(9) 2.15 2.30 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.14x Selected performance ratios: Return on average assets (annualized) (8) 0.66 % 1.01 % Return on average equity (annualized) (8) 4.69 7.01 Average equity to average assets 14.01 14.44 Operating expense ratio (10) 1.12 1.14 Efficiency ratio (8)(11) 49.81 46.68 Pre-tax yield on leverage strategy (12) — 0.03 67 (1) Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. (2) AFS securities are adjusted for unamortized purchase premiums or discounts. (3) The average balance of investment securities includes an average balance of nontaxable securities of $14.7 million and $22.2 million for the nine months ended June 30, 2020 and June 30, 2019, respectively. (4) There were no cash and cash equivalents related to the leverage strategy during the nine months ended June 30, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $73.5 million for the nine months ended June 30, 2019. (5) There were no borrowings related to the leverage strategy during the nine months ended June 30, 2020. Included in this line item, for the nine months ended June 30, 2019, are borrowings related to the leverage strategy with an average outstanding balance of $76.9 million and interest paid of $1.4 million, at a weighted average rate of 2.36%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.30 billion and interest paid of $40.0 million, at a weighted average rate of 2.32%. The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties. (6) 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. (7) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (8) The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the small amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income. For the Nine Months Ended June 30, 2020 June 30, 2019 Actual Leverage Adjusted Actual Leverage Adjusted (GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP) Return on average assets (annualized) 0.66 % — % 0.66 % 1.01 % (0.01) % 1.02 % Return on average equity (annualized) 4.69 — 4.69 7.01 — 7.01 Net interest margin 2.15 — 2.15 2.30 (0.02) 2.32 Net interest rate spread 1.96 — 1.96 2.10 (0.02) 2.12 Efficiency Ratio 49.81 — 49.81 46.68 — 46.68 (9) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. (10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets. (11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. (12) The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction. 68 Rate/Volume Analysis The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Nine Months Ended June 30, 2020 vs. June 30, 2019 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (1,284) $ (6,400) $ (7,684) MBS (1,160) (693) (1,853) Investment securities (385) (660) (1,045) FHLB stock (169) (751) (920) Cash and cash equivalents (57) (1,738) (1,795) Total interest-earning assets (3,055) (10,242) (13,297) Interest-bearing liabilities: Checking 31 68 99 Savings 13 53 66 Money market (246) (1,049) (1,295) Certificates of deposit 1,422 3,277 4,699 Borrowings (4,008) 69 (3,939) Total interest-bearing liabilities (2,788) 2,418 (370) Net change in net interest income $ (267) $ (12,660) $ (12,927) Comparison of Operating Results for the Three Months Ended June 30, 2020 and 2019 For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $22.9 million, or $0.17 per share for the quarter ended June 30, 2019. The decrease in net income was due to a decrease in net interest income and non-interest income, partially offset by a decrease in non-interest expense and income tax expense. The net interest margin decreased 22 basis points, from 2.29% for the prior year quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as result of an increase in payoff activity. 69 Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 32 basis points, from 3.64% for the prior year quarter to 3.32% for the current quarter, and the average balance of interest-earning assets decreased $55.1 million. 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 June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 66,652 $ 71,434 $ (4,782) (6.7) % MBS 5,616 6,613 (997) (15.1) FHLB stock 1,207 1,865 (658) (35.3) Investment securities 847 1,835 (988) (53.8) Cash and cash equivalents 59 464 (405) (87.3) Total interest and dividend income $ 74,381 $ 82,211 $ (7,830) (9.5) The decrease in interest income on loans receivable was due mainly to a 23 basis point decrease in yield, from 3.78% for the prior year quarter to 3.55% for the current quarter, due primarily to a $2.5 million increase in premium amortization related to correspondent loans as a result of an increase in payoff activity. The decrease in interest income on the MBS portfolio was due primarily to a 24 basis point decrease in the weighted average yield on the portfolio, from 2.64% for the prior year quarter to 2.40% for the current quarter resulting from the purchase of MBS at market rates lower than the existing portfolio, along with a $67.2 million, or 6.7%, decrease in the average balance of the portfolio as a result of not reinvesting all of the cash flows from the portfolio. The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior year quarter. The decrease in interest income on investment securities was due to an 89 basis point decrease in the weighted average yield on the portfolio, from 2.52% for the prior year quarter to 1.63% for the current quarter resulting from calls and maturities being replaced at market rates lower than the existing portfolio, along with an $83.2 million, or 28.6%, decrease in the average balance of the portfolio as a result of not reinvesting all of the cash flows from the portfolio. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield on cash held at the FRB of Kansas City, partially offset by an increase in the average balance of operating cash. Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 13 basis points, from 1.54% for the prior year quarter to 1.41% for the current quarter, while the average balance of interest-bearing liabilities increased $54.8 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent. For the Three Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 16,533 $ 16,909 $ (376) (2.2) % Borrowings 11,561 13,621 (2,060) (15.1) Total interest expense $ 28,094 $ 30,530 $ (2,436) (8.0) The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the wholesale certificate of deposit portfolio and the money market portfolio, partially offset by an increase in the average balance and weighted average rate paid on the retail/business certificates of deposit. The weighted average rate of the retail/business certificate of deposit portfolio increased nine basis points, to 2.04% for the current quarter, and the average balance increased $210.7 million, or approximately 8%. Late in the prior year quarter, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit. The decrease in interest expense on borrowings was due primarily to lower usage of the Bank's FHLB line of credit, along with the replacement of certain FHLB advances at lower market rates and not replacing certain maturing FHLB advances. 70 Provision for Credit Losses The Bank did not record a provision for credit losses during the current quarter, compared to a provision for credit losses during the prior year quarter of $450 thousand. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,539 $ 3,131 $ (592) (18.9) % Insurance commissions 671 905 (234) (25.9) Other non-interest income 1,229 1,638 (409) (25.0) Total non-interest income $ 4,439 $ 5,674 $ (1,235) (21.8) The decrease in deposit service fees was due mainly to a decrease in service charge income as a result of a decrease in consumer activity stemming primarily from the COVID-19 pandemic. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and an increase in the related accruals during the prior year quarter, and no such increase in accruals during the current quarter. The decrease in other non-interest income was due primarily to a decrease in loan fee income, a decrease in income associated with interest rate swap collateral, and a decrease in income from BOLI resulting from a decrease in yield on the Bank's BOLI policies. Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended June 30, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 13,059 $ 13,454 $ (395) (2.9) % Information technology and related expense 4,285 4,652 (367) (7.9) Occupancy, net 3,556 3,224 332 10.3 Regulatory and outside services 1,548 1,425 123 8.6 Advertising and promotional 1,004 1,447 (443) (30.6) Deposit and loan transaction costs 697 681 16 2.3 Office supplies and related expense 475 689 (214) (31.1) Federal insurance premium 287 600 (313) (52.2) Other non-interest expense 1,253 1,519 (266) (17.5) Total non-interest expense $ 26,164 $ 27,691 $ (1,527) (5.5) The decrease in information technology and related expense was due mainly to the prior year quarter including costs related to the integration of CCB operations. The increase in occupancy, net was due primarily to safety measures implemented at the Bank's branches related to the COVID-19 pandemic. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules and postponements of campaigns during the current quarter as a result of the COVID-19 pandemic. The decrease in office supplies and related expense was due primarily to the prior year quarter including costs related to the integration of CCB customers and operations. The decrease in federal insurance premium was due mainly to the Bank utilizing an assessment credit 71 from the FDIC during the current quarter. The decrease in other non-interest expense was due primarily to decreases in OREO operations expense, amortization of deposit intangibles, and debit card fraud losses. The Company's efficiency ratio was 51.58% for the current quarter compared to 48.28% for the prior year quarter. The change in the efficiency ratio was due mainly to a decrease in net interest income. Income Tax Expense Income tax expense was $5.1 million for the current quarter compared to $6.3 million for the prior year quarter. The decrease in income tax expense was due primarily to lower pretax income in the current quarter. The effective tax rate for the current quarter was 20.7% compared to 21.6% for the prior year quarter. 72 Average Balance Sheet Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Three Months Ended June 30, 2020 June 30, 2019 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,568,945 $ 55,646 3.39 % $ 6,631,716 $ 59,813 3.61 % Commercial loans 799,600 9,576 4.74 783,024 9,522 4.81 Consumer loans 121,139 1,430 4.75 133,573 2,099 6.30 Total loans receivable (1) 7,489,684 66,652 3.55 7,548,313 71,434 3.78 MBS (2) 934,464 5,616 2.40 1,001,622 6,613 2.64 Investment securities (2)(3) 207,541 847 1.63 290,755 1,835 2.52 FHLB stock 101,588 1,207 4.78 101,408 1,865 7.38 Cash and cash equivalents (4) 231,354 59 0.10 77,603 464 2.36 Total interest-earning assets (1)(2) 8,964,631 74,381 3.32 9,019,701 82,211 3.64 Other non-interest-earning assets 499,291 386,218 Total assets $ 9,463,922 $ 9,405,919 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,232,611 199 0.06 $ 1,092,612 157 0.06 Savings 404,545 69 0.07 332,269 43 0.05 Money market 1,267,535 1,350 0.43 1,273,559 2,249 0.71 Retail/business certificates 2,734,940 13,882 2.04 2,524,213 12,248 1.95 Wholesale certificates 291,292 1,033 1.43 388,877 2,212 2.28 Total deposits 5,930,923 16,533 1.12 5,611,530 16,909 1.21 Borrowings (5) 2,035,637 11,561 2.27 2,300,222 13,621 2.36 Total interest-bearing liabilities 7,966,560 28,094 1.41 7,911,752 30,530 1.54 Other non-interest-bearing liabilities 200,339 131,796 Stockholders' equity 1,297,023 1,362,371 Total liabilities and stockholders' equity $ 9,463,922 $ 9,405,919 Net interest income (6) $ 46,287 $ 51,681 Net interest rate spread (7)(8) 1.91 2.10 Net interest-earning assets $ 998,071 $ 1,107,949 Net interest margin (8)(9) 2.07 2.29 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.14x Selected performance ratios: Return on average assets (annualized) (8) 0.82 % 0.97 % Return on average equity (annualized) (8) 6.01 6.72 Average equity to average assets 13.70 14.48 Operating expense ratio (10) 1.11 1.18 Efficiency ratio (8)(11) 51.58 48.28 73 (1) Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. (2) AFS securities are adjusted for unamortized purchase premiums or discounts. (3) The average balance of investment securities includes an average balance of nontaxable securities of $11.9 million and $21.1 million for the three months ended June 30, 2020 and June 30, 2019, respectively. (4) There were no cash and cash equivalents related to the leverage strategy during the quarters ended June 30, 2020 and June 30, 2019. (5) There were no borrowings related to the leverage strategy during the quarters ended June 30, 2020 and June 30, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties. (6) 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. (7) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (8) The leverage strategy was not in place during the quarters ended June 30, 2020 and June 30, 2019. (9) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. (10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets. (11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. Rate/Volume Analysis The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2020 to the three months ended June 30, 2019. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Three Months Ended June 30, 2020 vs. 2019 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (550) $ (4,232) $ (4,782) MBS (427) (570) (997) Investment securities (442) (546) (988) FHLB stock 3 (661) (658) Cash and cash equivalents 326 (731) (405) Total interest-earning assets (1,090) (6,740) (7,830) Interest-bearing liabilities: Checking 22 20 42 Savings 11 15 26 Money market (10) (888) (898) Certificates of deposit 558 (104) 454 Borrowings (1,144) (916) (2,060) Total interest-bearing liabilities (563) (1,873) (2,436) Net change in net interest income $ (527) $ (4,867) $ (5,394) Comparison of Operating Results for the Three Months Ended June 30, 2020 and March 31, 2020 For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $4.3 million, or $0.03 per share, for the quarter ended March 31, 2020. The increase was due primarily to recording a $22.1 million provision for credit losses during the prior quarter, and no provision for credit losses in the current quarter. This was partially offset by an increase in income tax expense and a decrease in net interest income compared to the prior quarter. The net interest 74 margin decreased 12 basis points, from 2.19% for the prior quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as a result of an increase in payoff activity. Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 23 basis points, from 3.55% for the prior quarter to 3.32% for the current quarter, while the average balance of interest-earning assets increased $78.0 million between the two periods. 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 June 30, March 31, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 66,652 $ 69,613 $ (2,961) (4.3) % MBS 5,616 5,866 (250) (4.3) FHLB stock 1,207 1,714 (507) (29.6) Investment securities 847 1,382 (535) (38.7) Cash and cash equivalents 59 380 (321) (84.5) Total interest and dividend income $ 74,381 $ 78,955 $ (4,574) (5.8) The weighted average yield on the loans receivable portfolio decreased 17 basis points, from 3.72% for the prior quarter to 3.55% for the current quarter, due mainly to a $2.1 million increase in premium amortization related to correspondent loans as a result of an increase in payoff activity. The decrease in interest income on the MBS portfolio and the investment securities portfolio was due primarily to the purchase of securities at market rates lower than the existing portfolios. The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior quarter. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield earned on cash held at the FRB of Kansas City. Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 14 basis points, from 1.55% for the prior quarter to 1.41% for the current quarter, while the average balance of interest-bearing liabilities increased $121.2 million between the two periods. 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 June 30, March 31, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 16,533 $ 17,804 $ (1,271) (7.1) % Borrowings 11,561 12,483 (922) (7.4) Total interest expense $ 28,094 $ 30,287 $ (2,193) (7.2) The decrease in interest expense on deposits was due to a decrease in the weighted average rate paid on money market accounts, wholesale certificates of deposit, and retail/business certificates of deposit, partially offset by an increase in the average balance of deposits. Management generally reduced deposit offer rates throughout the quarter as discussed above. The decrease in interest expense on borrowings was due primarily to a full quarter impact of the replacement of certain FHLB advances at lower market rates. During the prior quarter, the Bank prepaid fixed-rate FHLB advances totaling $350.0 million with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted average effective rate of 1.70%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances. Additionally, the Bank reduced the usage of its FHLB line of credit compared to the prior quarter, and did not replace a $100 million FHLB advance, at a rate of 1.61%, that matured during the current quarter. 75 Provision for Credit Losses The Bank did not record a provision for credit losses during the current quarter, compared to a provision for credit losses during the prior quarter of $22.1 million. The $22.1 million provision for credit losses in the prior quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended June 30, March 31, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,539 $ 2,783 $ (244) (8.8) % Insurance commissions 671 400 271 67.8 Other non-interest income 1,229 1,488 (259) (17.4) Total non-interest income $ 4,439 $ 4,671 $ (232) (5.0) The decrease in deposit service fees was due mainly to a decrease in service charge income as a result of a decrease in consumer activity stemming primarily from the COVID-19 pandemic. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and downward adjustments to the related accruals during the prior quarter, and no such adjustments during the current quarter. Contingent insurance commissions are performance-based incentives based on certain criteria established by the insurance carriers. These commissions are accrued based on management's expectations and are adjusted when the funds are received. The decrease in other non-interest income was due primarily to a decrease in income associated with interest rate swap collateral, a decrease in commercial loan late fees, and a decrease in income from BOLI resulting from a decrease in yield on the Bank's BOLI policies. Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended June 30, March 31, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 13,059 $ 13,235 $ (176) (1.3) % Information technology and related expense 4,285 4,268 17 0.4 Occupancy, net 3,556 3,449 107 3.1 Regulatory and outside services 1,548 1,297 251 19.4 Advertising and promotional 1,004 1,359 (355) (26.1) Deposit and loan transaction costs 697 678 19 2.8 Office supplies and related expense 475 592 (117) (19.8) Federal insurance premium 287 — 287 N/A Other non-interest expense 1,253 1,286 (33) (2.6) Total non-interest expense $ 26,164 $ 26,164 $ — — The increase in regulatory and outside services was due primarily to the timing of external audit services. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules and postponements of campaigns during the current quarter as a result of the COVID-19 pandemic. The increase in the federal insurance premium was due mainly to the Bank recognizing a federal insurance premium accrual as the remaining assessment credit from the FDIC was utilized during the current 76 quarter. We anticipate the federal insurance premium for the fourth quarter of fiscal year 2020 will be approximately $620 thousand, or $333 thousand higher than the current quarter. The Company's efficiency ratio was 51.58% for the current quarter compared to 49.05% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter compared to the prior quarter. Income Tax Expense Income tax expense was $5.1 million for the current quarter, compared to $824 thousand for the prior quarter. The effective tax rate was 20.7% for the current quarter compared to 16.2% for the prior quarter. The effective tax rate was higher in the current quarter due primarily to the Company's permanent differences, which generally lower our income tax expense, having a proportionately smaller impact given the higher pretax income in the current quarter compared to the prior quarter. 77 Average Balance Sheet Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Three Months Ended June 30, 2020 March 31, 2020 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,568,945 $ 55,646 3.39 % $ 6,594,029 $ 58,838 3.57 % Commercial loans 799,600 9,576 4.74 759,328 8,994 4.69 Consumer loans 121,139 1,430 4.75 126,710 1,781 5.65 Total loans receivable (1) 7,489,684 66,652 3.55 7,480,067 69,613 3.72 MBS (2) 934,464 5,616 2.40 920,419 5,866 2.55 Investment securities (2)(3) 207,541 847 1.63 280,911 1,382 1.97 FHLB stock 101,588 1,207 4.78 99,879 1,714 6.90 Cash and cash equivalents (4) 231,354 59 0.10 105,381 380 1.43 Total interest-earning assets (1)(2) 8,964,631 74,381 3.32 8,886,657 78,955 3.55 Other non-interest-earning assets 499,291 454,687 Total assets $ 9,463,922 $ 9,341,344 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,232,611 199 0.06 $ 1,107,232 181 0.07 Savings 404,545 69 0.07 365,554 74 0.08 Money market 1,267,535 1,350 0.43 1,208,521 1,981 0.66 Retail/business certificates 2,734,940 13,882 2.04 2,691,029 14,103 2.11 Wholesale certificates 291,292 1,033 1.43 296,828 1,465 1.98 Total deposits 5,930,923 16,533 1.12 5,669,164 17,804 1.26 Borrowings (5) 2,035,637 11,561 2.27 2,176,166 12,483 2.29 Total interest-bearing liabilities 7,966,560 28,094 1.41 7,845,330 30,287 1.55 Other non-interest-bearing liabilities 200,339 183,018 Stockholders' equity 1,297,023 1,312,996 Total liabilities and stockholders' equity $ 9,463,922 $ 9,341,344 Net interest income (6) $ 46,287 $ 48,668 Net interest rate spread (7)(8) 1.91 2.00 Net interest-earning assets $ 998,071 $ 1,041,327 Net interest margin (8)(9) 2.07 2.19 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x Selected performance ratios: Return on average assets (annualized) (8) 0.82 % 0.18 % Return on average equity (annualized) (8) 6.01 1.30 Average equity to average assets 13.70 14.06 Operating expense ratio (10) 1.11 1.12 Efficiency ratio (8)(11) 51.58 49.05 78 (1) Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. (2) AFS securities are adjusted for unamortized purchase premiums or discounts. (3) The average balance of investment securities includes an average balance of nontaxable securities of $11.9 million and $15.0 million for the quarters ended June 30, 2020 and March 31, 2020, respectively. (4) There were no cash and cash equivalents related to the leverage strategy during the quarters ended June 30, 2020 and March 31, 2020. (5) There were no FHLB borrowings related to the leverage strategy during the quarters ended June 30, 2020 and March 31, 2020. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties. (6) 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. (7) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (8) The leverage strategy was not in place during the quarters ended June 30, 2020 and March 31, 2020. (9) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. (10) The operating expense ratio represents annualized non-interest expense as a percentage of average assets. (11) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. Rate/Volume Analysis The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended June 30, 2020 to the three months ended March 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Three Months Ended June 30, 2020 vs. March 31, 2020 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ 176 $ (3,137) $ (2,961) MBS 88 (338) (250) Investment securities (324) (211) (535) FHLB stock 29 (536) (507) Cash and cash equivalents 217 (538) (321) Total interest-earning assets 186 (4,760) (4,574) Interest-bearing liabilities: Checking 20 (3) 17 Savings 7 (12) (5) Money market 93 (723) (630) Certificates of deposit 198 (851) (653) Borrowings (495) (427) (922) Total interest-bearing liabilities (177) (2,016) (2,193) Net change in net interest income $ 363 $ (2,744) $ (2,381) 79 Liquidity and Capital Resources Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intent to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings. We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios. In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of regulatory total assets without the pre-approval of FHLB senior management. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing. If management observes a trend in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At June 30, 2020, the Bank had total borrowings, at par, of $1.99 billion, or approximately 21% of total assets. The amount of FHLB borrowings outstanding at June 30, 2020 was $1.89 billion, of which $943.0 million were advances scheduled to mature in the next 12 months, including $640.0 million of one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. At June 30, 2020, the ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 20%. At June 30, 2020, the Bank had repurchase agreements of $100.0 million, or approximately 1% of total assets, all of which were scheduled to mature during July 2020. The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank has pledged securities with an estimated fair value of $106.6 million as collateral for repurchase agreements as of June 30, 2020. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature. The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At June 30, 2020, the Bank had $760.1 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs. The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of June 30, 2020, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At June 30, 2020, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 5% of total deposits. The Bank had pledged securities with an estimated fair value of $340.8 million as collateral for public unit certificates of deposit at June 30, 2020. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity. At June 30, 2020, $1.46 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $254.5 million of public unit certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard. We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing. 80 While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. 81 The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at June 30, 2020, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of June 30, 2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $227.8 million. Loans (1) MBS Investment Securities Total Amount Yield Amount Yield Amount Yield Amount Yield (Dollars in thousands) Amounts due: Within one year $ 252,076 4.21 % $ 4,750 2.57 % $ 5,497 1.50 % $ 262,323 4.12 % After one year: Over one to two years 110,918 3.15 3,201 2.65 5,438 1.81 119,557 3.07 Over two to three years 58,637 4.47 31,793 1.62 51,038 0.47 141,468 2.39 Over three to five years 127,392 4.63 24,283 1.84 175,494 1.42 327,169 2.70 Over five to ten years 777,567 3.73 294,924 2.37 — — 1,072,491 3.35 Over ten to fifteen years 1,320,741 3.36 392,988 2.24 — — 1,713,729 3.10 After fifteen years 4,760,111 3.66 230,648 2.64 — — 4,990,759 3.61 Total due after one year 7,155,366 3.63 977,837 2.34 231,970 1.22 8,365,173 3.41 $ 7,407,442 3.65 $ 982,587 2.35 $ 237,467 1.23 $ 8,627,496 3.43 (1) The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment. All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction. 82 Limitations on Dividends and Other Capital Distributions Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings. A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution. The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard. Off-Balance Sheet Arrangements, Commitments and Contractual Obligations The Company, in the normal course of business, makes commitments to buy or sell assets, to extend credit, or to incur or fund liabilities. There have been no material changes in commitments, contractual obligations or off-balance sheet arrangements from September 30, 2019. For additional information, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements, Commitments and Contractual Obligations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019. We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments. The maximum balance of short-term FHLB borrowings outstanding at any month-end during the nine months ended June 30, 2020 was $1.24 billion, and the average balance of short-term FHLB borrowings outstanding during this period was $1.09 billion at a weighted average contractual rate of 1.83%. The balance of short-term FHLB borrowings outstanding at June 30, 2020 was $943.0 million, at a weighted average contractual rate of 1.17%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months. Contingencies In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended June 30, 2020, or future periods. Capital Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). In September 2019, the regulatory agencies, including the OCC and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital requirements for the well capitalized category under the agencies' PCA framework. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is a minimum of 8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank elected the CBLR framework during the current quarter. As of June 30, 2020, the Bank's CBLR was 12.4% and the Company's CBLR was 13.8%, which exceeded the minimum requirements. 83 The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of June 30, 2020, for the Bank and the Company (dollars in thousands): Bank Company Total equity as reported under GAAP $ 1,169,620 $ 1,300,520 AOCI 17,591 17,591 Goodwill and other intangibles, net of associated deferred taxes (13,981) (13,981) Total tier 1 capital $ 1,173,230 $ 1,304,130 84