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 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 synergies and other benefits from our acquisition activities; • our ability to extend our commercial banking and trust asset management expertise; • 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 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. 34 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, 2020 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, 2020, 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. Management's Evolving Response to COVID-19 We continue to be confronted with a significant and unfamiliar degree of uncertainty as to how a COVID-19 resurgence may impact our customers, employees, and operations and how actions taken by governmental authorities and other third parties in response to a resurgence would impact our customers, employees, and operations. We will continue to monitor COVID-19 cases and will adjust operational plans as necessary. We will also continue to assist our customers as necessary during these uncertain times. Impact on Market Interest Rates as a Result of the COVID-19 Pandemic and Company's Response The FRB, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about the COVID-19 pandemic. Many areas of consumer spending, not related to travel and entertainment, have rebounded in recent months. We adjusted our operations in response to the COVID-19 pandemic and continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty 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. Since the onset of the COVID-19 pandemic, the Bank has lowered its offered rates on all retail deposit products except checking and savings accounts. Reducing rates on non-maturity deposits lowers the cost of deposits immediately, while the impact of reducing rates offered on our certificate of deposit products lowers the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. We responded to lower market rates for lending by lowering rates offered on our loan products. Given current rates offered on new loans, increased prepayments on existing loans, and the volume of one- to four-family refinances and endorsements, the yield on the total loan portfolio is likely to continue to decrease. With significant cash inflows realized due to investment securities being called and prepayments on loans and MBS increasing, the current yields on reinvested funds into new securities are lower than existing portfolio yields. We continue to respond to local market conditions regarding the loan and deposit rates we offer. 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 in the near future. As noted above, the Bank has lowered rates paid on money market accounts and certificate of deposit products. Despite this, since March 31, 2020, the Bank's retail deposits increased $408.3 million and business deposits increased $264.6 million. The Bank secured a new business deposit relationship during the prior fiscal year, which between March 31, 2020 and December 31, 2020 brought $206.4 million of new deposit balances. Because some of the deposits received from the new relationship are COVID-19-related payments, we do not expect the full balance of deposits received to be retained through fiscal year 2021. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid deposit options such as the Bank's retail money market accounts. 35 Considering the drastic changes in market rates and the ongoing economic uncertainty, 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 one- to four-family loans and MBS. Summary of Results of Operation and Financial Condition The Company recognized net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020 compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease in net income was due primarily to a decrease in net interest income compared to the prior year quarter, partially offset by recording a negative provision for credit losses in the current quarter. Net interest income decreased $4.9 million, or 10.0%, from the prior year quarter to $43.8 million for the current quarter. The net interest margin decreased 26 basis points, from 2.18% for the prior year quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings. Total assets increased $119.7 million, or 1.3% from September 30, 2020 to December 31, 2020, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio. Total loans decreased $198.8 million from September 30, 2020 to December 31, 2020. The decrease was primarily in the one- to four-family correspondent loans and commercial loans. During the current quarter, the Bank originated and refinanced $329.6 million of one- to four-family and consumer loans with a weighted average rate of 2.76% and purchased $105.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.85%. The Bank also originated $38.1 million of commercial loans with a weighted average rate of 3.77% and entered into commercial real estate loan participations of $60.0 million at a weighted average rate of 4.00%. The commercial loan portfolio totaled $763.9 million at December 31, 2020 and was composed of 80% commercial real estate, 9% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $275.9 million, was $970.4 million at December 31, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.2 million, was $91.6 million at December 31, 2020. Total securities increased $352.9 million, or 22.6%, from September 30, 2020 to December 31, 2020, including a $278.5 million increase in MBS and a $74.4 million increase in investment securities. The increase was due primarily to cash flows from the loan portfolio being reinvested into the securities portfolio. Total deposits increased $219.4 million, or 3.5%, from September 30, 2020 to December 31, 2020. The increase was in non-maturity deposits, which increased $222.5 million, including a $131.1 million increase in checking accounts, a $69.6 million increase in money market accounts, and a $21.8 million increase in savings accounts. Retail/business certificates of deposit increased $11.5 million during the quarter, offset by a $14.6 million decrease in public unit certificates of deposit. Total borrowings at December 31, 2020 were $1.73 billion, a decrease of $55.0 million, or 3.0%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the deposit portfolio were used to pay off maturing borrowings. Stockholders' equity was $1.28 billion at both December 31, 2020 and September 30, 2020. During the quarter, the Company paid cash dividends totaling $29.1 million and repurchased common stock totaling $1.5 million, partially offset by net income of $18.9 million. The cash dividends paid during the current quarter totaled $0.215 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and a regular quarterly cash dividend of $0.085 per share. On January 26, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At December 31, 2020, this ratio was 12.2%. 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. 36 Critical Accounting Policies Our most critical accounting policies are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures 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. The following is a description of our critical accounting policies and an explanation of the methods and assumptions underlying their application. Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures. The ACL is a valuation amount that is deducted from the amortized cost basis of loans and represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. The reserve for off-balance sheet credit exposures is reported as a liability and is presented in accounts payable and accrued expenses on the consolidated balance sheet. The ACL and reserve for off-balance sheet credit exposures is maintained through provisions for credit losses which are either charged or credited to income. The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in forecasted macroeconomic conditions that could result in fluctuations in the amount of the recorded ACL. The reserve for off-balance sheet credit exposures is calculated using the same methodology as the ACL; however, the estimate of credit risk for off-balance sheet credit exposures takes into consideration the likelihood that funding of the commitment will occur. Each quarter end, the Company prepares an ACL model to calculate expected credit losses. The Company aggregates loans into pools in the ACL model based on similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the ACL model. The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Using all of these inputs and assumptions, the ACL model generates aggregated estimated cash flows for the time period that remains for each loan's contractual life. The cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at the present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of the future cash flows compared to the amortized cost basis of the loan pool. Management considers qualitative factors such as changes in the loan portfolio composition and credit concentrations, changes in lending policies and procedures and underwriting standards, changes in the balances and/or trends in asset quality and or loan credit performance, and/or other external factors such as significant unique events or conditions when evaluating the adequacy of the ACL and reserve for off-balance sheet credit exposures calculated by the ACL model. Management may increase or decrease the ACL and reserve for off-balance sheet credit exposures based on the evaluation of the qualitative factors. See "Allowance for Credit Losses" and "Reserve for Off-Balance Sheet Credit Exposures" within "Note 1. Summary of Significant Accounting Policies" above for additional information. Fair Value Measurements. The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value, with Level 1 (quoted prices for identical assets in an active market) being considered the most reliable, and Level 3 having the most unobservable inputs and therefore being considered the least reliable. The Company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company's AFS securities are measured at fair value on a recurring basis. Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity. The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities. Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. All AFS securities are classified as Level 2. 37 The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at December 31, 2020 and September 30, 2020. 38 Financial Condition The following table presents selected balance sheet information as of the dates indicated. December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 (Dollars in thousands) Total assets $ 9,606,964 $ 9,487,218 $ 9,558,814 $ 9,371,193 $ 9,236,572 Cash and cash equivalents 168,032 185,148 396,219 118,374 70,703 AFS securities 1,913,866 1,560,950 1,220,054 1,236,037 1,229,587 Loans receivable, net 7,004,094 7,202,851 7,388,090 7,476,805 7,429,207 FHLB stock, at cost 84,693 93,862 102,782 101,575 99,861 Deposits 6,410,842 6,191,408 6,069,684 5,774,619 5,585,851 Borrowings 1,734,275 1,789,313 1,989,089 2,115,869 2,189,991 Stockholders' equity 1,276,548 1,284,859 1,300,520 1,287,793 1,306,594 Equity to total assets at end of period 13.3 % 13.5 % 13.6 % 13.7 % 14.1 % 39 Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. December 31, 2020 September 30, 2020 Amount Rate Amount Rate (Dollars in thousands) One- to four-family: Originated $ 3,946,073 3.39 % $ 3,937,310 3.50 % Correspondent purchased 1,974,086 3.40 2,101,082 3.49 Bulk purchased 199,673 2.24 208,427 2.41 Construction 32,871 3.22 34,593 3.30 Total 6,152,703 3.36 6,281,412 3.46 Commercial: Commercial real estate 609,936 4.23 626,588 4.29 Commercial and industrial 69,378 3.41 97,614 2.79 Construction 84,564 3.89 105,458 4.04 Total 763,878 4.12 829,660 4.08 Consumer loans: Home equity 97,717 4.64 103,838 4.66 Other 9,328 4.40 10,086 4.40 Total 107,045 4.62 113,924 4.64 Total loans receivable 7,023,626 3.46 7,224,996 3.55 Less: ACL 26,125 31,527 Discounts/unearned loan fees 28,825 29,190 Premiums/deferred costs (35,418) (38,572) Total loans receivable, net $ 7,004,094 $ 7,202,851 40 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 $285.2 million of one- to four-family loans, reducing the average rate on those loans by 87 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. The renewal balance and rate are included in the ending loan portfolio balance and rate. For the Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,224,996 3.55 % $ 7,407,442 3.64 % $ 7,493,280 3.74 % $ 7,424,834 3.77 % Originated and refinanced: Fixed 318,690 2.75 265,424 2.98 277,904 2.83 172,891 3.44 Adjustable 48,946 3.60 44,625 3.68 60,626 3.75 55,946 4.11 Purchased and participations: Fixed 100,518 2.86 61,435 3.07 131,739 3.28 125,612 3.46 Adjustable 65,315 3.89 4,396 2.76 62,510 3.76 18,985 2.96 Change in undisbursed loan funds (70,323) 13,898 (32,202) 24,049 Repayments (664,055) (572,536) (586,434) (328,644) Principal (charge-offs)/recoveries, net (464) 312 19 (314) Other 3 — — (79) Ending balance $ 7,023,626 3.46 $ 7,224,996 3.55 $ 7,407,442 3.64 $ 7,493,280 3.74 41 The following table presents 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 December 31, 2020 December 31, 2019 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family: (1) <= 15 years $ 133,990 2.36 % 25.1 % $ 84,504 2.98 % 19.8 % > 15 years 230,175 2.93 43.1 210,470 3.59 49.4 One- to four-family construction 34,021 2.76 6.4 11,131 3.40 2.6 Commercial: Commercial real estate 10,127 3.60 1.9 9,400 5.12 2.2 Commercial and industrial 5,444 3.57 1.0 4,047 4.09 1.0 Commercial construction 4,043 3.89 0.8 34,731 4.69 8.2 Home equity 473 5.44 0.1 1,363 5.91 0.3 Other 935 5.27 0.2 1,165 5.58 0.3 Total fixed-rate 419,208 2.77 78.6 356,811 3.60 83.8 Adjustable-rate: One- to four-family: (2) <= 36 months 252 2.38 — 2,098 2.86 0.5 > 36 months 18,732 2.60 3.5 31,209 3.06 7.3 One- to four-family construction 2,709 2.70 0.5 5,990 3.04 1.4 Commercial: Commercial real estate 16,978 3.88 3.2 9,175 4.89 2.2 Commercial and industrial 1,138 4.05 0.2 2,525 5.15 0.6 Commercial construction 60,337 4.00 11.3 979 5.54 0.2 Home equity 13,790 4.40 2.6 16,283 5.73 3.8 Other 325 2.70 0.1 668 4.14 0.2 Total adjustable-rate 114,261 3.76 21.4 68,927 4.05 16.2 Total originated, refinanced and purchased $ 533,469 2.99 100.0 % $ 425,738 3.68 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent - one- to four-family $ 100,518 2.86 $ 94,692 3.50 Participations - commercial — — 28,426 4.65 Total fixed-rate purchased/participations 100,518 2.86 123,118 3.77 Adjustable-rate: Correspondent - one- to four-family 5,315 2.66 13,801 3.06 Participations - commercial 60,000 4.00 — — Total adjustable-rate purchased/participations 65,315 3.89 13,801 3.06 Total purchased/participation loans $ 165,833 3.26 $ 136,919 3.70 (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. 42 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 December 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. December 31, 2020 September 30, 2020 % of Credit Average % of Credit Average Amount Total Score LTV Balance Amount Total Score LTV Balance (Dollars in thousands) Originated $ 3,946,073 64.5 % 770 62 % $ 147 $ 3,937,310 63.0 % 771 62 % $ 145 Correspondent purchased 1,974,086 32.2 764 64 380 2,101,082 33.6 765 64 379 Bulk purchased 199,673 3.3 770 59 301 208,427 3.4 767 60 300 $ 6,119,832 100.0 % 768 62 187 $ 6,246,819 100.0 % 768 63 187 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 quarter, $101.5 million were refinanced from other lenders. For the Three Months Ended December 31, 2020 December 31, 2019 Credit Credit Amount LTV Score Amount LTV Score (Dollars in thousands) Originated $ 221,196 71 % 768 $ 172,386 74 % 768 Refinanced by Bank customers 92,850 64 769 64,523 68 761 Correspondent purchased 105,833 69 776 108,493 72 767 $ 419,879 69 770 $ 345,402 72 766 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 quarter. For the Three Months Ended December 31, 2020 State Amount % of Total Rate (Dollars in thousands) Kansas $ 264,680 63.0 % 2.69 % Missouri 78,150 18.6 2.69 Texas 24,302 5.8 2.87 Other states 52,747 12.6 2.84 $ 419,879 100.0 % 2.72 As of December 31, 2020, there were $14.2 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There was $218.3 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by December 31, 2020. Of the COVID-19 loan modifications that had completed the deferral period by December 31, 2020, $4.3 million were 30 to 89 days delinquent and $1.5 million were 90 or more days delinquent as of December 31, 2020. 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 December 31, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the 43 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 $ 40,270 $ 58,716 $ 8,301 $ 107,287 2.74 % Correspondent 27,737 84,768 9,236 121,741 2.69 $ 68,007 $ 143,484 $ 17,537 $ 229,028 2.72 Rate 2.35 % 2.91 % 2.56 % Commercial Loans - During the current quarter, the Bank originated $38.1 million of commercial loans and entered into commercial real estate loan participations totaling $60.0 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $45.4 million at a weighted average rate of 3.99%. Early during the current quarter, two large participation loans totaling $57.3 million, with a weighted average rate of 3.93%, were paid off. Additionally, during the current quarter $25.5 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process. The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of December 31, 2020. 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 project. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Senior housing 25 $ 175,348 $ 29,801 $ 205,149 $ 35,500 $ 240,649 24.8 % Hotel 9 132,194 46,717 178,911 — 178,911 18.4 Retail building 131 126,963 12,023 138,986 15,113 154,099 15.9 Office building 101 59,008 63,566 122,574 556 123,130 12.7 Multi-family 42 67,792 17,418 85,210 25,052 110,262 11.4 One- to four-family property 380 60,037 4,749 64,786 944 65,730 6.8 Single use building 22 43,069 5,095 48,164 14,155 62,319 6.4 Other 95 30,089 3,469 33,558 1,709 35,267 3.6 805 $ 694,500 $ 182,838 $ 877,338 $ 93,029 $ 970,367 100.0 % Weighted average rate 4.19 % 4.06 % 4.16 % 3.81 % 4.13 % The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of December 31, 2020. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Kansas 624 $ 287,371 $ 21,118 $ 308,489 $ 52,120 $ 360,609 37.2 % Texas 11 121,514 108,930 230,444 31,777 262,221 27.0 Missouri 146 181,235 45,025 226,260 7,632 233,892 24.1 Nebraska 6 33,745 16 33,761 — 33,761 3.5 Kentucky 1 25,559 — 25,559 — 25,559 2.6 California 3 5,810 4,300 10,110 1,500 11,610 1.2 Other 14 39,266 3,449 42,715 — 42,715 4.4 805 $ 694,500 $ 182,838 $ 877,338 $ 93,029 $ 970,367 100.0 % 44 The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of December 31, 2020. Included in the working capital loan category are $17.3 million of PPP loans. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Working capital 569 $ 28,694 $ 15,474 $ 44,168 $ 200 $ 44,368 48.4 % Equipment 124 13,737 302 14,039 2,715 16,754 18.3 Purchase/lease autos 201 11,962 19 11,981 669 12,650 13.8 Business investment 67 10,232 50 10,282 245 10,527 11.5 Other 22 4,753 2,538 7,291 — 7,291 8.0 983 $ 69,378 $ 18,383 $ 87,761 $ 3,829 $ 91,590 100.0 % The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2020. Count Amount (Dollars in thousands) Greater than $30 million 4 $ 185,500 >$15 to $30 million 13 308,014 >$10 to $15 million 4 45,795 >$5 to $10 million 15 94,788 $1 to $5 million 104 225,597 Less than $1 million 1,648 202,263 1,788 $ 1,061,957 The Bank's commercial lending team continues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As of December 31, 2020, there were commercial loans with a gross balance, including undisbursed amounts, totaling $75.1 million with COVID-19 loan modifications that were still in their deferral period, which includes one loan with a $50.0 million balance. Approximately 88% of the commercial loan balance with COVID-19 loan modifications during fiscal year 2020 was either out of the deferral period or paid off as of December 31, 2020. Of the loans that had completed the deferral period by December 31, 2020, one loan for $340 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of December 31, 2020. 45 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, 2020. 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 December 31, 2020, approximately 76% were 59 days or less delinquent. Loans Delinquent for 30 to 89 Days at: December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 Number Amount Number Amount Number Amount Number Amount Number Amount (Dollars in thousands) One- to four-family: Originated 62 $ 5,844 42 $ 3,012 57 $ 5,085 92 $ 8,360 96 $ 9,004 Correspondent purchased 13 4,694 8 3,123 10 2,919 13 4,531 13 4,117 Bulk purchased 9 1,750 12 2,532 19 4,536 12 2,914 14 3,307 Commercial 8 1,047 2 45 9 1,543 7 1,555 7 1,192 Consumer 30 515 26 398 21 431 43 628 40 488 122 $ 13,850 90 $ 9,110 116 $ 14,514 167 $ 17,988 170 $ 18,108 Loans 30 to 89 days delinquent to total loans receivable, net 0.20 % 0.13 % 0.20 % 0.24 % 0.24 % 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, one- to four-family OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately four months before the properties were sold. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. 46 Non-Performing Loans and OREO at: December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 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 51 $ 4,370 51 $ 4,362 47 $ 4,026 53 $ 4,517 44 $ 3,552 Correspondent purchased 9 3,371 6 2,397 7 2,740 4 1,342 4 1,376 Bulk purchased 13 3,724 12 2,903 3 1,291 1 630 2 689 Commercial 5 820 5 1,360 4 709 4 716 — — Consumer 26 473 14 304 23 278 17 326 20 340 104 12,758 88 11,326 84 9,044 79 7,531 70 5,957 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.18 % 0.16 % 0.12 % 0.10 % 0.08 % Nonaccrual loans less than 90 Days Delinquent: (1) One- to four-family: Originated 9 $ 968 9 $ 691 14 $ 1,132 13 $ 811 11 $ 634 Correspondent purchased — — — — — — 1 189 — — Bulk purchased — — — — — — 1 134 1 134 Commercial 3 411 3 464 1 6 2 129 6 363 Consumer 1 9 1 9 1 33 2 43 — — 13 1,388 13 1,164 16 1,171 19 1,306 18 1,131 Total non-performing loans 117 14,146 101 12,490 100 10,215 98 8,837 88 7,088 Non-performing loans as a percentage of total loans 0.20 % 0.17 % 0.14 % 0.12 % 0.10 % OREO: One- to four-family: Originated (2) 3 $ 129 4 $ 183 4 $ 183 5 $ 187 8 $ 414 Consumer — — — — — — — — 1 98 3 129 4 183 4 183 5 187 9 512 Total non-performing assets 120 $ 14,275 105 $ 12,673 104 $ 10,398 103 $ 9,024 97 $ 7,600 Non-performing assets as a percentage of total assets 0.15 % 0.13 % 0.11 % 0.10 % 0.08 % (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. 47 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 December 31, 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 December 31, 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 $ 3,529,714 57.7 % $ 6,163 50.2 % $ 4,360 38.0 % 66 % Missouri 1,057,808 17.3 1,075 8.7 1,318 11.5 55 Texas 651,048 10.6 2,389 19.4 1,440 12.6 55 Other states 881,262 14.4 2,661 21.7 4,347 37.9 56 $ 6,119,832 100.0 % $ 12,288 100.0 % $ 11,465 100.0 % 59 Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial special mention loans at December 31, 2020 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $51.3 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification during the current quarter. December 31, 2020 September 30, 2020 December 31, 2019 Special Mention Substandard Special Mention Substandard Special Mention Substandard (Dollars in thousands) One- to four-family $ 12,536 $ 27,607 $ 11,339 $ 25,630 $ 15,778 $ 25,376 Commercial 101,921 4,772 52,006 4,914 52,809 5,356 Consumer 257 726 332 589 375 683 $ 114,714 $ 33,105 $ 63,677 $ 31,133 $ 68,962 $ 31,415 Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures - As discussed previously, ASU 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating ACL under GAAP with a new impairment methodology, commonly known as the CECL methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and loan commitments over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption of the ASU, the Company recorded a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand), which reduced the ACL by $4.8 million, to $26.8 million, and established a reserve for off-balance sheet credit exposures of $7.8 million, which is recorded in accounts payable and accrued expenses in the consolidated balance sheet. The Bank's off-balance sheet credit exposures are comprised of unfunded portions of existing loans and commitments to originate or purchase new loans that are not unconditionally cancellable by the Bank. The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The credit loss estimate for off-balance sheet credit exposures also takes into consideration the likelihood that the commitment will fund. The economic indices used for the reasonable and supportable forecasted time period are the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product. Management considers several economic forecast scenarios provided by a third party and selects the scenario believed to be the most appropriate considering the facts and circumstances at quarter end. Management also considers several qualitative factors. The qualitative factors account for items not included in historical loss rates, the macroeconomic forecast, and/or other model inputs/assumptions. Any changes to the ACL and reserves on off-balance sheet credit exposures are recorded through increases/decreases in the provision for credit losses on the consolidated statements of income. The economic forecast scenario selected by management improved at December 31, 2020 compared to October 1, 2020 which resulted in a reduction in the ACL as calculated by the model. Due to the continued economic uncertainty regarding political party changes in U.S. government offices, the effectiveness of the latest federal stimulus package, potential additional economic stimulus from the 48 federal government, increasing COVID-19 cases, limited vaccine distribution as of December 31, 2020, and an increase in commercial special mention loan balances, management applied qualitative factors to account for those uncertainties which mostly offset the reduction in the ACL due to the improvement of the economic forecasts. 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, if COVID-19 cases continue to increase and the vaccine distribution and adoption is more limited than anticipated, or if future government programs, if any, do not provide adequate relief to businesses and individuals, it is possible the Bank's ACL and reserve for off-balance sheet credit exposures will need to increase in future periods. The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended December 31, 2020. ACL Reserve for off-balance sheet credit exposures ACL and Reserve for off-balance sheet credit exposures (Dollars in thousands) Balance at September 30, 2020 $ 31,527 $ — $ 31,527 Adoption of CECL (4,761) 7,788 3,027 Balance at October 1, 2020 26,766 7,788 34,554 For the quarter ended December 31, 2020: Charge-offs (532) — (532) Recoveries 68 — 68 Net charge-offs (464) — (464) Provision for credit losses (177) (1,355) (1,532) Balance at December 31, 2020 $ 26,125 $ 6,433 $ 32,558 The negative provision for credit losses related to the ACL was primarily due to a reduction in the correspondent one-to four-family loan portfolio during the current quarter. It was partially offset by an increase in the commercial loan ACL due to an increase in special mention loans during the current quarter. The commercial loan portfolio balance decreased during the current quarter, but due to the increase in commercial special mention loans, any reduction in ACL associated with the decrease in the commercial loan portfolio balance was offset by the ACL related to the higher balance of special mention loans at December 31, 2020. The negative provision for credit losses related to the reserve for off-balance sheet credit exposures was a result of the improvement in the economic forecast since October 1, 2020, after taking into consideration the fact these loans are being underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The balance of off-balance sheet credit exposures increased during the current quarter, but the improvement in the economic forecast as of December 31, 2020 more than offset the impact of the increase in the balance. The gross balance of off-balance sheet credit exposures was $838.0 million as of December 31, 2020 and $688.0 million as of October 1, 2020. 49 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 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 (Dollars in thousands) ACL beginning balance $ 31,527 $ 31,215 $ 31,196 $ 9,435 $ 9,226 Adoption of CECL (4,761) — — — — Charge-offs (532) (15) (5) (375) (48) Recoveries 68 327 24 61 32 Provision for credit losses (177) — — 22,075 225 ACL ending balance $ 26,125 $ 31,527 $ 31,215 $ 31,196 $ 9,435 ACL to loans receivable at end of period 0.37 % 0.44 % 0.42 % 0.42 % 0.13 % ACL to non-performing loans at end of period 184.68 252.42 305.58 353.02 133.11 Ratio of net charge-offs (recoveries) during the period to average loans outstanding 0.01 — — — — Ratio of net charge-offs (recoveries) during the period to average non-performing assets 3.44 (2.70) (0.20) 3.78 0.19 ACL to net charge-offs (annualized) 14.1x N/M (1) N/M (1) 24.9x 144.5x (1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods. The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13. The decrease in the ACL on correspondent one- to four-family loans and commercial construction loans since October 1, 2020 was due primarily to a reduction in the loan balance during the current quarter. The increase in the ACL on commercial real estate loans since October 1, 2020 was due mainly to an increase in special mention loans during the current quarter. At December 31, October 1, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2020 2019 (Dollars in thousands) One- to four-family: Originated $ 1,516 $ 1,609 $ 6,044 $ 6,298 $ 6,420 $ 2,027 Correspondent purchased 1,758 2,324 2,691 3,189 3,355 1,200 Bulk purchased 852 903 467 506 557 612 Construction 22 25 41 48 47 20 Total 4,148 4,861 9,243 10,041 10,379 3,859 Commercial: Commercial real estate 17,813 16,595 16,869 16,353 14,672 3,608 Commercial and industrial 553 559 1,451 1,465 1,489 710 Construction 3,341 4,452 3,480 2,886 4,167 1,100 Total 21,707 21,606 21,800 20,704 20,328 5,418 Consumer 270 299 484 470 489 158 Total $ 26,125 $ 26,766 $ 31,527 $ 31,215 $ 31,196 $ 9,435 50 The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. At December 31, October 1, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2020 2019 One- to four-family: Originated 0.04 % 0.04 % 0.15 % 0.16 % 0.16 % 0.05 % Correspondent purchased 0.09 0.11 0.13 0.14 0.14 0.05 Bulk purchased 0.43 0.43 0.22 0.23 0.24 0.26 Construction 0.07 0.07 0.12 0.13 0.13 0.05 Total 0.07 0.08 0.15 0.16 0.16 0.06 Commercial: Commercial real estate 2.92 2.65 2.69 2.62 2.51 0.62 Commercial and industrial 0.80 0.57 1.49 1.47 2.40 1.25 Construction 3.95 4.22 3.30 3.30 3.30 1.02 Total 2.84 2.60 2.63 2.55 2.63 0.72 Consumer 0.25 0.26 0.42 0.40 0.39 0.12 Total 0.37 0.37 0.44 0.42 0.42 0.13 The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded. The $1.4 million reduction in the reserve between October 1, 2020 and December 31, 2020 was recorded as a negative provision for credit losses during the current quarter. At December 31, October 1, 2020 2020 (Dollars in thousands) One- to four-family $ 131 $ 144 Commercial 6,261 7,584 Consumer 41 60 $ 6,433 $ 7,788 51 Securities. Securities increased $352.9 million, or 22.6%, from September 30, 2020 to December 31, 2020, including a $278.5 million increase in MBS and a $74.4 million increase in investment securities. The increase was due primarily to cash flows from the loan portfolio being reinvested into the securities portfolio. The weighted average yield on the securities portfolio decreased 22 basis points, from 1.62% at September 30, 2020 to 1.40% at December 31, 2020, due primarily to purchases at lower market yields. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 91% of our securities portfolio at December 31, 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. December 31, 2020 September 30, 2020 December 31, 2019 Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Fixed-rate securities: MBS $ 1,249,115 1.56 % 4.1 $ 945,432 1.82 % 3.7 $ 648,663 2.40 % 2.8 GSE debentures 444,964 0.52 1.0 369,967 0.62 1.7 274,994 2.03 0.8 Municipal bonds 8,792 1.66 0.5 9,716 1.69 0.7 17,050 1.60 0.9 Total fixed-rate securities 1,702,871 1.29 3.3 1,325,115 1.49 3.1 940,707 2.28 2.2 Adjustable-rate securities: MBS 178,101 2.44 3.3 204,490 2.49 2.9 276,069 3.09 4.3 Total securities portfolio $ 1,880,972 1.40 3.3 $ 1,529,605 1.62 3.1 $ 1,216,776 2.46 2.7 The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented. December 31, 2020 September 30, 2020 December 31, 2019 (Dollars in thousands) FNMA $ 938,387 $ 809,232 $ 681,383 FHLMC 482,173 327,167 192,821 GNMA 38,740 44,404 63,113 $ 1,459,300 $ 1,180,803 $ 937,317 52 Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $278.5 million, from $1.18 billion at September 30, 2020, to $1.46 billion at December 31, 2020. The following table summarizes 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 WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied. For the Three Months Ended December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 1,180,803 1.94 % 3.5 $ 982,587 2.35 % 3.3 $ 973,318 2.50 % 3.6 $ 937,317 2.61 % 3.3 Maturities and repayments (101,496) (95,842) (75,293) (65,767) Net amortization of (premiums)/discounts (1,003) (608) (363) (279) Purchases: Fixed 379,793 1.04 5.4 297,024 1.06 5.9 77,455 1.29 5.0 88,863 1.80 4.5 Change in valuation on AFS securities 1,203 (2,358) 7,470 13,184 Ending balance - carrying value $ 1,459,300 1.67 4.0 $ 1,180,803 1.94 3.5 $ 982,587 2.35 3.3 $ 973,318 2.50 3.6 Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, increased $74.4 million, from $380.1 million at September 30, 2020, to $454.6 million at December 31, 2020. Municipal investments totaled $8.8 million at December 31, 2020. The following table summarizes 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 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 380,147 0.65 % 1.7 $ 237,467 1.23 % 0.8 $ 262,719 1.87 % 0.3 $ 292,270 2.00 % 0.8 Maturities, calls and sales (50,900) (102,115) (125,000) (80,125) Net amortization of (premiums)/discounts (14) (54) (80) (49) Purchases: Fixed 124,987 0.48 3.2 244,975 0.51 3.2 99,990 0.58 1.2 50,097 1.42 0.4 Change in valuation on AFS securities 346 (126) (162) 526 Ending balance - carrying value $ 454,566 0.54 1.0 $ 380,147 0.65 1.7 $ 237,467 1.23 0.8 $ 262,719 1.87 0.3 53 Liabilities Deposits - Total deposits increased $219.4 million, or 3.5%, from September 30, 2020 to December 31, 2020. The increase was in non-maturity deposits, which increased $222.5 million, including a $131.1 million increase in checking accounts, a $69.6 million increase in money market accounts, and a $21.8 million increase in savings accounts. Retail/business certificates of deposit increased $11.5 million during the quarter, offset by a $14.6 million decrease in public unit certificates of deposit. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid deposit options such as the Bank's retail money market accounts. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. December 31, 2020 September 30, 2020 December 31, 2019 % of % of % of Amount Rate Total Amount Rate Total Amount Rate Total (Dollars in thousands) Non-interest-bearing checking $ 494,375 — % 7.7 % $ 451,394 — % 7.3 % $ 368,311 — % 6.6 % Interest-bearing checking 953,927 0.08 14.9 865,782 0.10 14.0 745,436 0.08 13.3 Savings 455,633 0.06 7.1 433,808 0.06 7.0 358,817 0.09 6.4 Money market 1,488,749 0.31 23.2 1,419,180 0.37 22.9 1,192,972 0.69 21.4 Retail/business certificates of deposit 2,777,948 1.68 43.3 2,766,461 1.83 44.7 2,656,379 2.11 47.6 Public unit certificates of deposit 240,210 0.64 3.8 254,783 0.74 4.1 263,936 2.14 4.7 $ 6,410,842 0.84 100.0 % $ 6,191,408 0.95 100.0 % $ 5,585,851 1.27 100.0 % 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 December 31, 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% $ 635,809 $ 115,800 $ 35,879 $ 31,409 $ 818,897 0.54 % 1.00 – 1.99% 607,355 293,640 76,179 164,873 1,142,047 1.63 2.00 – 2.99% 319,185 419,584 219,945 98,247 1,056,961 2.39 3.00 – 3.99% — — 253 — 253 3.00 $ 1,562,349 $ 829,024 $ 332,256 $ 294,529 $ 3,018,158 1.60 Percent of total 51.8 % 27.5 % 11.0 % 9.7 % Weighted average rate 1.31 1.91 2.06 1.74 Weighted average maturity (in years) 0.5 1.5 2.5 3.6 1.3 Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.4 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 $ 170,244 $ 192,528 $ 310,417 $ 819,935 $ 1,493,124 Retail/business certificates of deposit of $100,000 or more 144,816 174,244 338,850 626,914 1,284,824 Public unit certificates of deposit of $100,000 or more 77,551 70,688 83,011 8,960 240,210 $ 392,611 $ 437,460 $ 732,278 $ 1,455,809 $ 3,018,158 54 Borrowings - Total borrowings at December 31, 2020 were $1.73 billion, a decrease of $55.0 million, or 3.0%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the deposit portfolio were used to pay off maturing 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. 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 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Effective Effective Effective Effective Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 1,790,000 2.31 % 3.0 $ 1,990,000 2.29 % 2.9 $ 2,090,000 2.25 % 3.0 $ 2,090,000 2.37 % 2.6 Maturities and prepayments: FHLB advances (350,000) 2.40 (440,000) 2.49 (200,000) 2.35 (415,000) 2.45 Repurchase agreements — — (100,000) 2.53 — — — — New FHLB borrowings: Fixed-rate 100,000 1.09 5.0 — — — — — — 350,000 1.70 4.7 Interest rate swaps (1) 200,000 2.63 1.5 340,000 2.73 3.5 100,000 3.20 8.0 65,000 2.61 4.0 Ending balance $ 1,740,000 2.26 3.0 $ 1,790,000 2.31 3.0 $ 1,990,000 2.29 2.9 $ 2,090,000 2.25 3.0 (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. 55 Maturities - The following table presents the maturity of term borrowings which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of December 31, 2020. Subsequent to December 31, 2020, the Bank prepaid a $100.0 million fixed-rate FHLB advance with a rate of 2.25% scheduled to mature in fiscal year 2022, and replaced this advance with a $100.0 million fixed-rate FHLB advance with a term of six years and an effective rate of 1.22%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advance and which is not reflected in the table below. Term Borrowings Amount Maturity by Interest rate Total Contractual Effective Fiscal Year Fixed-rate swaps (1) Amount Rate Rate (2) (Dollars in thousands) 2021 $ 150,000 $ 440,000 $ 590,000 0.77 % 2.62 % 2022 100,000 200,000 300,000 1.00 2.50 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 200,000 — 200,000 0.95 1.35 $ 1,100,000 $ 640,000 $ 1,740,000 1.29 2.26 (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 3.2 years at December 31, 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. 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 December 31, 2020. The term borrowings amount of $150.0 million presented in the table below as maturing during the quarter ending March 31, 2021 matured in January 2021 and was not replaced. Retail/ Business Public Unit Term Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing Quarter End Amount Rate Amount Rate Amount (1) Rate Total Rate (Dollars in thousands) March 31, 2021 $ 315,060 1.73 % $ 77,551 0.66 % $ 150,000 1.97 % $ 542,611 1.64 % June 30, 2021 366,772 1.43 70,688 0.36 — — 437,460 1.26 September 30, 2021 308,089 1.38 53,451 0.87 75,000 2.99 436,540 1.59 December 31, 2021 341,178 1.22 29,560 0.52 100,000 3.12 470,738 1.58 $ 1,331,099 1.44 $ 231,250 0.60 $ 325,000 2.56 $ 1,887,349 1.53 (1) The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap. 56 Stockholders' Equity. Stockholders' equity was $1.28 billion at both December 31, 2020 and September 30, 2020. During the quarter, the Company paid cash dividends totaling $29.1 million and repurchased common stock totaling $1.5 million, partially offset by net income of $18.9 million. The cash dividends paid during the current quarter totaled $0.215 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and a regular quarterly cash dividend of $0.085 per share. On January 26, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At December 31, 2020, this ratio was 12.2%. At December 31, 2020, Capitol Federal Financial, Inc., at the holding company level, had $66.7 million on deposit at the Bank. For fiscal year 2021, 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. There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the FRB's approval for the Company to repurchase shares extends through August 2021. The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and 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 paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. The Company 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 at that time to move capital from the Bank to the Company to pay that dividend. It is management's intention to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, and 2019. The amounts represent cash dividends paid during each period. For the quarter ending March 31, 2021, the amount presented represents the dividend payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. Calendar Year 2021 2020 2019 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31 $ 11,518 $ 0.085 $ 11,733 $ 0.085 $ 11,700 $ 0.085 Quarter ended June 30 — — 11,733 0.085 11,708 0.085 Quarter ended September 30 — — 11,733 0.085 11,713 0.085 Quarter ended December 31 — — 11,514 0.085 11,731 0.085 True-up dividends paid — — 17,614 0.130 46,932 0.340 True Blue dividends paid — — — — 34,446 0.250 Calendar year-to-date dividends paid $ 11,518 $ 0.085 $ 64,327 $ 0.470 $ 128,230 $ 0.930 57 Operating Results The following table presents selected income statement and other information for the quarters indicated. December 31, September 30, June 30, March 31, December 31, 2020 2020 2020 2020 2019 (Dollars in thousands, except per share data) Interest and dividend income: Loans receivable $ 60,694 $ 64,315 $ 66,652 $ 69,613 $ 69,914 MBS 5,710 5,425 5,616 5,866 6,102 FHLB stock 1,069 1,080 1,207 1,714 1,826 Investment securities 683 731 847 1,382 1,507 Cash and cash equivalents 51 55 59 380 687 Total interest and dividend income 68,207 71,606 74,381 78,955 80,036 Interest expense: Deposits 14,067 15,299 16,533 17,804 17,962 Borrowings 10,327 10,624 11,561 12,483 13,377 Total interest expense 24,394 25,923 28,094 30,287 31,339 Net interest income 43,813 45,683 46,287 48,668 48,697 Provision for credit losses (1,532) — — 22,075 225 Net interest income (after provision for credit losses) 45,345 45,683 46,287 26,593 48,472 Non-interest income 5,070 4,985 4,439 4,671 5,504 Non-interest expense 27,067 27,176 26,164 26,164 26,500 Income tax expense 4,450 5,213 5,088 824 4,965 Net income $ 18,898 $ 18,279 $ 19,474 $ 4,276 $ 22,511 Efficiency ratio 55.37 % 53.64 % 51.58 % 49.05 % 48.89 % Basic EPS $ 0.14 $ 0.13 $ 0.14 $ 0.03 $ 0.16 Diluted EPS 0.14 0.13 0.14 0.03 0.16 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. 58 For the Three Months Ended December 31, 2020 September 30, 2020 December 31, 2019 Average Interest Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,220,204 $ 50,005 3.22 % $ 6,411,923 $ 53,858 3.36 % $ 6,543,298 $ 58,361 3.57 % Commercial loans 770,096 9,404 4.78 815,222 9,092 4.37 766,232 9,657 4.94 Consumer loans 110,048 1,285 4.65 115,247 1,365 4.71 130,253 1,896 5.77 Total loans receivable (1) 7,100,348 60,694 3.41 7,342,392 64,315 3.49 7,439,783 69,914 3.75 MBS (2) 1,302,074 5,710 1.75 1,027,875 5,425 2.11 933,448 6,102 2.61 Investment securities (2)(3) 431,493 683 0.63 309,118 731 0.95 284,587 1,507 2.12 FHLB stock 85,187 1,069 4.99 101,163 1,080 4.25 98,384 1,826 7.36 Cash and cash equivalents 201,468 51 0.10 217,475 55 0.10 162,126 687 1.66 Total interest-earning assets 9,120,570 68,207 2.98 8,998,023 71,606 3.17 8,918,328 80,036 3.58 Other non-interest-earning assets 453,422 466,789 427,858 Total assets $ 9,573,992 $ 9,464,812 $ 9,346,186 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,360,864 223 0.07 $ 1,294,557 212 0.07 $ 1,085,818 170 0.06 Savings 442,906 68 0.06 426,798 70 0.07 357,674 79 0.09 Money market 1,474,720 1,184 0.32 1,362,042 1,252 0.37 1,173,545 2,063 0.70 Retail/business certificates 2,745,836 12,178 1.76 2,760,645 13,142 1.89 2,681,081 14,111 2.09 Wholesale certificates 251,634 414 0.66 267,967 623 0.92 275,941 1,539 2.21 Total deposits 6,275,960 14,067 0.89 6,112,009 15,299 1.00 5,574,059 17,962 1.28 Borrowings (4) 1,775,380 10,327 2.30 1,819,601 10,624 2.31 2,233,327 13,377 2.36 Total interest-bearing liabilities 8,051,340 24,394 1.20 7,931,610 25,923 1.30 7,807,386 31,339 1.59 Other non-interest-bearing liabilities 240,476 227,915 206,253 Stockholders' equity 1,282,176 1,305,287 1,332,547 Total liabilities and stockholders' equity $ 9,573,992 $ 9,464,812 $ 9,346,186 Net interest income (5) $ 43,813 $ 45,683 $ 48,697 Net interest rate spread (6) 1.78 1.87 1.99 Net interest-earning assets $ 1,069,230 $ 1,066,413 $ 1,110,942 Net interest margin (7) 1.92 2.03 2.18 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x 1.14x Selected performance ratios: Return on average assets (annualized) 0.79 % 0.77 % 0.96 % Return on average equity (annualized) 5.90 5.60 6.76 Average equity to average assets 13.39 13.79 14.26 Operating expense ratio (8) 1.13 1.15 1.13 Efficiency ratio (9) 55.37 53.64 48.89 59 (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 $9.1 million, $10.9 million and $17.3 million for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, respectively. (4) 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. (5) Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. (6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (7) Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. (8) The operating expense ratio represents annualized non-interest expense as a percentage of average assets. (9) 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 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 Three Months Ended December 31, 2020 vs. December 31, 2019 December 31, 2020 vs. September 30, 2020 Increase (Decrease) Due to Increase (Decrease) Due to Volume Rate Total Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (3,016) $ (6,204) $ (9,220) $ (2,162) $ (1,459) $ (3,621) MBS 1,977 (2,369) (392) 1,297 (1,012) 285 Investment securities 546 (1,370) (824) 238 (286) (48) FHLB stock (221) (536) (757) (185) 174 (11) Cash and cash equivalents 134 (770) (636) (4) — (4) Total interest-earning assets (580) (11,249) (11,829) (816) (2,583) (3,399) Interest-bearing liabilities: Checking 45 9 54 11 — 11 Savings 16 (27) (11) 3 (5) (2) Money market 437 (1,317) (880) 98 (166) (68) Certificates of deposit 211 (3,269) (3,058) (141) (1,032) (1,173) Borrowings (2,032) (1,018) (3,050) (179) (118) (297) Total interest-bearing liabilities (1,323) (5,622) (6,945) (208) (1,321) (1,529) Net change in net interest income $ 743 $ (5,627) $ (4,884) $ (608) $ (1,262) $ (1,870) 60 Comparison of Operating Results for the Three Months Ended December 31, 2020 and 2019 The Company recognized net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020 compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease in net income was due primarily to a decrease in net interest income compared to the prior year quarter, partially offset by recording a negative provision for credit losses in the current quarter. Net interest income decreased $4.9 million, or 10.0%, from the prior year quarter to $43.8 million for the current quarter. The net interest margin decreased 26 basis points, from 2.18% for the prior year quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings. Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 60 basis points, from 3.58% for the prior year quarter to 2.98% for the current quarter, while the average balance of interest-earning assets increased $202.2 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 60,694 $ 69,914 $ (9,220) (13.2) % MBS 5,710 6,102 (392) (6.4) FHLB stock 1,069 1,826 (757) (41.5) Investment securities 683 1,507 (824) (54.7) Cash and cash equivalents 51 687 (636) (92.6) Total interest and dividend income $ 68,207 $ 80,036 $ (11,829) (14.8) The decrease in interest income on loans receivable was due mainly to a 34 basis point decrease in the weighted average yield on the portfolio, from 3.75% for the prior year quarter to 3.41% for the current quarter, primarily on correspondent loans related to higher premium amortization resulting from increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $339.4 million compared to the prior year quarter. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio as we suspended accepting new applications for these loans in mid-March 2020 to mid-June 2020. This was done to manage the influx of refinance requests from current customers in our local market areas during that time period while also managing changing Bank operations due to the COVID-19 pandemic. The decrease in interest income on the MBS portfolio was due to an 86 basis point decrease in the weighted average yield to 1.75% in the current quarter as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $368.6 million increase in the average balance of the portfolio. The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements. The decrease in interest income on investment securities was due to a 149 basis point decrease in the weighted average yield to 0.63% for the current quarter as a result of new purchases at lower market yields, partially offset by a $146.9 million increase in the average balance of the portfolio. The decrease in interest income on cash and cash equivalents was due to a decrease in the yield earned on cash held at the FRB of Kansas City, partially offset by a $39.3 million increase in the average balance. 61 Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 39 basis points, from 1.59% for the prior year quarter to 1.20% for the current quarter, while the average balance of interest-bearing liabilities increased $244.0 million. The increase in the average balance was primarily in checking, savings and money market accounts, partially offset by a decrease in borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 14,067 $ 17,962 $ (3,895) (21.7) % Borrowings 10,327 13,377 (3,050) (22.8) Total interest expense $ 24,394 $ 31,339 $ (6,945) (22.2) The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 33 basis points, 38 basis points, and 155 basis points, respectively. Since the onset of the COVID-19 pandemic, certificates of deposit have been gradually repricing down as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered. The decrease in interest expense on borrowings was due primarily to a $457.9 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio. Provision for Credit Losses For the quarter ended December 31, 2020, the Bank recorded a negative provision for credit losses of $1.5 million, compared to a $225 thousand provision for credit losses during the prior year quarter. The negative provision in the current quarter was composed of a $177 thousand decrease in the ACL for loans and a $1.4 million decrease in the reserve for off-balance sheet credit exposures. The $177 thousand decrease in the ACL for loans was due primarily to a reduction in the correspondent one- to four-family loan portfolio, partially offset by a slight increase in the ACL for commercial loans due to an increase in the balance of special mention loans during the current quarter. The $1.4 million reduction in the reserve for off-balance sheet credit exposures was due primarily to an improved economic forecast during the current quarter with consideration given to the current economic climate in which these loans are being underwritten. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit exposures at December 31, 2020. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,947 $ 3,062 $ (115) (3.8) % Insurance commissions 638 691 (53) (7.7) Other non-interest income 1,485 1,751 (266) (15.2) Total non-interest income $ 5,070 $ 5,504 $ (434) (7.9) The decrease in other non-interest income was mainly the result of a decrease in income from BOLI compared to the prior year quarter due to a reduction in the yield and lower death benefit receipts between the two periods. Subsequent to December 31, 2020, the Bank sold its Class B VISA shares and expects to recognize a gain of approximately $7 million during the March 31, 2021 quarter. 62 Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 14,138 $ 13,471 $ 667 5.0 % Information technology and related expense 4,233 4,141 92 2.2 Occupancy, net 3,379 3,207 172 5.4 Regulatory and outside services 1,585 1,343 242 18.0 Advertising and promotional 838 1,410 (572) (40.6) Deposit and loan transaction costs 766 711 55 7.7 Federal insurance premium 621 — 621 N/A Office supplies and related expense 424 519 (95) (18.3) Other non-interest expense 1,083 1,698 (615) (36.2) Total non-interest expense $ 27,067 $ 26,500 $ 567 2.1 The increase in salaries and employee benefits was due primarily to an increase in loan commissions, an increase in full-time equivalent employees, and higher non-officer related bonuses paid in the current quarter. The increase in regulatory and outside services was due mainly to higher progress billings from our external auditors and other professional service fees. The decrease in advertising and promotional expenses was due mainly to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year quarter. The decrease in other non-interest expense was due primarily to a decrease in write-downs of OREO properties in the current quarter compared to the prior year quarter. The Company's efficiency ratio was 55.37% for the current quarter compared to 48.89% for the prior year quarter. The change in the efficiency ratio was due to lower net interest income in the current quarter compared to the prior year quarter. 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, relative to the net interest margin. Income Tax Expense The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, Change Expressed in: 2020 2019 Dollars Percent (Dollars in thousands) Income before income tax expense $ 23,348 $ 27,476 $ (4,128) (15.0) % Income tax expense 4,450 4,965 (515) (10.4) Net income $ 18,898 $ 22,511 $ (3,613) (16.0) Effective Tax Rate 19.1 % 18.1 % The decrease in income tax expense was due primarily to lower pretax income in the current quarter, partially offset by an increase in the effective tax rate. The effective tax rate was lower in the prior year due primarily to a discrete benefit recognized in the prior year quarter related to certain BOLI policies that were acquired in fiscal year 2018. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21% to 22%. 63 Comparison of Operating Results for the Three Months Ended December 31, 2020 and September 30, 2020 For the quarter ended December 31, 2020, the Company recognized net income of $18.9 million, or $0.14 per share, compared to net income of $18.3 million, or $0.13 per share, for the quarter ended September 30, 2020. The increase was due primarily to a lower effective tax rate compared to the prior quarter. The net interest margin decreased 11 basis points, from 2.03% for the prior quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio yields, along with a decrease in the average balance of the loan portfolio, partially offset by a decrease in the cost of deposits. Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 19 basis points, from 3.17% for the prior quarter to 2.98% for the current quarter, while the average balance of interest-earning assets increased $122.5 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 December 31, September 30, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 60,694 $ 64,315 $ (3,621) (5.6) % MBS 5,710 5,425 285 5.3 FHLB stock 1,069 1,080 (11) (1.0) Investment securities 683 731 (48) (6.6) Cash and cash equivalents 51 55 (4) (7.3) Total interest and dividend income $ 68,207 $ 71,606 $ (3,399) (4.7) The decrease in interest income on loans receivable was due to a $242.0 million decrease in the average balance and eight basis point decrease in the weighted average portfolio yield. The decrease in the average balance was primarily in the correspondent loan portfolio, as payoff activity outpaced purchases during the current quarter, along with a decrease in the commercial loan portfolio due primarily to the payoff of two large loans at the beginning of the current quarter. The weighted average yield on the loans receivable portfolio decreased from 3.49% for the prior quarter to 3.41% for the current quarter, due mainly to endorsements and refinances of one- to four-family loans to lower current market rates, along with an increase in premium amortization related to correspondent loan payoff activity. The increase in interest income on the MBS portfolio was due to a $274.2 million increase in the average balance as a result of purchases, primarily utilizing funds received from loan repayments. This was partially offset by a 36 basis point decrease in the weighted average yield, to 1.75% for the current quarter, due primarily to purchases at lower market yields, along with an increase in the impact of net premium amortization. Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 10 basis points, from 1.30% for the prior quarter to 1.20% for the current quarter, while the average balance of interest-bearing liabilities increased $119.7 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 December 31, September 30, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 14,067 $ 15,299 $ (1,232) (8.1) % Borrowings 10,327 10,624 (297) (2.8) Total interest expense $ 24,394 $ 25,923 $ (1,529) (5.9) 64 The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the certificate of deposit portfolio. Management has generally reduced deposit offer rates as discussed above. See "Financial Condition - Liabilities" above for additional information on deposits. The decrease in interest expense on borrowings was due primarily to not replacing term borrowings that matured during the current quarter and prior quarter. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarters. The average balance of borrowings decreased $44.2 million compared to the prior quarter. Provision for Credit Losses The Bank recorded a negative provision for credit losses during the current quarter of $1.5 million, compared to no provision for credit losses for the quarter ended September 30, 2020. See the Comparison of Operating Results for the Three Months Ended December 31, 2020 and 2019 above for discussion regarding the negative provision for credit losses in the current quarter. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit exposures at December 31, 2020. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, September 30, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Deposit service fees $ 2,947 $ 2,901 $ 46 1.6 % Insurance commissions 638 725 (87) (12.0) Other non-interest income 1,485 1,359 126 9.3 Total non-interest income $ 5,070 $ 4,985 $ 85 1.7 Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, September 30, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 14,138 $ 13,231 $ 907 6.9 % Information technology and related expense 4,233 4,280 (47) (1.1) Occupancy, net 3,379 3,658 (279) (7.6) Regulatory and outside services 1,585 1,574 11 0.7 Advertising and promotional 838 1,116 (278) (24.9) Deposit and loan transaction costs 766 804 (38) (4.7) Federal insurance premium 621 627 (6) (1.0) Office supplies and related expense 424 609 (185) (30.4) Other non-interest expense 1,083 1,277 (194) (15.2) Total non-interest expense $ 27,067 $ 27,176 $ (109) (0.4) The increase in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the current quarter in appreciation of all the hard work and dedication by our non-officer employees during these challenging times, along with an increase in loan commissions. The decrease in occupancy, net was due mainly to a decrease in utilities and maintenance 65 during the current quarter. The decrease in advertising and promotional expenses was due to the timing of campaigns. The decrease in office supplies and related expenses was due to the timing of supply purchases. The decrease in other non-interest expense was due to a reduction in customer debit card fraud losses, a decrease in mortgage servicing asset valuation charges related to changes in prepayment speeds, and a decrease in amortization of deposit intangibles. The Company's efficiency ratio was 55.37% for the current quarter compared to 53.64% 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 The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended December 31, September 30, Change Expressed in: 2020 2020 Dollars Percent (Dollars in thousands) Income before income tax expense $ 23,348 $ 23,492 $ (144) (0.6) % Income tax expense 4,450 5,213 (763) (14.6) Net income $ 18,898 $ 18,279 $ 619 3.4 Effective Tax Rate 19.1 % 22.2 % The decrease in income tax expense was due mainly to a lower effective tax rate compared to the prior quarter. The lower effective tax rate was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns. 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 intention 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. See the "Executive Summary" above for information regarding the impact of the COVID-19 pandemic on our liquidity. 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. See "Part I, Item 1. Business - Sources of Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for information regarding limits on the Bank's FHLB borrowings. 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 unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, 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 December 31, 2020, the Bank had total borrowings, at par, of $1.74 billion, or approximately 18% of total assets, all of which were FHLB advances. 66 The amount of FHLB borrowings outstanding at December 31, 2020 was $1.74 billion, of which $790.0 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 December 31, 2020, the Bank had no repurchase agreements. The Bank may enter into 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 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 December 31, 2020, the Bank had $1.55 billion 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 December 31, 2020, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At December 31, 2020, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 4% of total deposits. The Bank had pledged securities with an estimated fair value of $304.8 million as collateral for public unit certificates of deposit at December 31, 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 December 31, 2020, $1.56 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $231.3 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. 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. 67 The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at December 31, 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 December 31, 2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $252.3 million. Loans (1) MBS Investment Securities Total Amount Yield Amount Yield Amount Yield Amount Yield (Dollars in thousands) Amounts due: Within one year $ 181,011 3.85 % $ 1,999 2.94 % $ 4,937 1.54 % $ 187,947 3.78 % After one year: Over one to two years 98,804 3.90 5,589 1.76 3,917 1.81 108,310 3.72 Over two to three years 77,144 4.63 24,855 1.67 75,071 0.36 177,070 2.40 Over three to five years 140,217 4.25 37,979 2.49 370,641 0.55 548,837 1.63 Over five to ten years 752,300 3.67 303,115 1.94 — — 1,055,415 3.17 Over ten to fifteen years 1,526,380 3.10 839,404 1.43 — — 2,365,784 2.51 After fifteen years 4,247,770 3.50 246,359 2.00 — — 4,494,129 3.42 Total due after one year 6,842,615 3.46 1,457,301 1.67 449,629 0.53 8,749,545 3.01 $ 7,023,626 3.47 $ 1,459,300 1.67 $ 454,566 0.54 $ 8,937,492 3.03 (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. 68 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, 2020. 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, 2020. 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 three months ended December 31, 2020 was $840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $823.4 million at a weighted average contractual rate of 0.72%. The balance of short-term FHLB borrowings outstanding at December 31, 2020 was $790.0 million, at a weighted average contractual rate of 0.66%. 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 December 31, 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"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio 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. As of December 31, 2020, the Bank's CBLR was 12.2% and the Company's CBLR was 13.3%, which exceeded the minimum requirements. See "Part I, Item 1. Business - Regulation and Supervision - Regulatory Capital Requirements" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for additional information related to regulatory capital. The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of December 31, 2020, for the Bank and the Company (dollars in thousands): Bank Company Total equity as reported under GAAP $ 1,169,923 $ 1,276,548 AOCI 11,371 11,371 Goodwill and other intangibles, net of associated deferred taxes (13,493) (13,493) Total tier 1 capital $ 1,167,801 $ 1,274,426 69