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. 37 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. Impact on Market Interest Rates as a Result of the COVID-19 Pandemic and the Company's Response The FRB, in response to economic risk resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most of the broader market interest rates decreased significantly in response to evolving news about the COVID-19 pandemic. Many areas of consumer spending have rebounded in recent months, but some segments, such as travel and entertainment, are lagging. We 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 the travel and entertainment industries, resulting from the COVID-19 pandemic. This could cause a longer recovery time for some 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 rates offered on all deposit products except retail checking and savings accounts. The impact of reducing rates offered on our certificate of deposit products has been to lower the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. Additionally, certain borrowings were repaid or restructured over the past year using funds obtained through deposit growth, which reduced interest expense on borrowings. Over this time, we lowered rates for our loan products. In late February 2021, as market interest rates began to increase, we began to increase our offered loan rates in our market areas. Despite this recent increase, the yield on the loan portfolio will likely continue to decrease in the near term due to the high levels of prepayments, refinances and endorsements, but not at the same magnitude as the past year. With significant cash inflows realized due to investment securities being called and prepayments on loans and MBS over the past year and the current yields on reinvested funds into new securities being lower than existing portfolio yields, the yield on our investments has been reduced significantly. Summary of Results of Operation and Financial Condition During the six month period ended March 31, 2021, the Bank completed three unique transactions that impacted operating results. • Sold all its Visa Class B shares and recognized a gain of $7.4 million. • Terminated $200.0 million of fixed-pay interest rate swaps with an average cost at termination of 2.62% and realized a loss of $4.8 million. The estimated earn-back period of the loss is approximately 15 months. • Wrote down the value of a branch, which management intends to sell, by $1.2 million. The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and 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. Our net interest margin could continue to decrease if our interest-earning assets 38 continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio. Total assets at March 31, 2021 were $9.70 billion, an increase of $210.8 million, or 2.2% from September 30, 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 that was not used to pay down maturing borrowings. Total securities increased $535.0 million, or 34.3%, from $1.56 billion at September 30, 2020 to $2.10 billion at March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities. Total loans at March 31, 2021 were $6.97 billion, a decrease of $229.3 million from September 30, 2020. The decrease was primarily in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases. During the current year six month period, the Bank originated and refinanced $649.4 million of one- to four-family and consumer loans with a weighted average rate of 2.71% and purchased $269.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.70%. The Bank also originated $157.3 million of commercial loans with a weighted average rate of 3.24% and entered into commercial loan participations of $98.1 million at a weighted average rate of 3.85%. The commercial loan portfolio totaled $795.0 million at March 31, 2021 and was composed of 83% commercial real estate loans, 10% commercial and industrial loans, and 7% commercial construction loans. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $258.2 million, was $976.0 million at March 31, 2021. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $23.1 million, was $100.3 million at March 31, 2021, of which $25.3 million related to PPP loans. Total deposits were $6.65 billion at March 31, 2021, an increase of $459.5 million, or 7.4%, from September 30, 2020. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period. Total borrowings were $1.58 billion at March 31, 2021, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings. Stockholders' equity was $1.28 billion at both March 31, 2021 and September 30, 2020. During the current year six month period, the Company paid cash dividends totaling $40.6 million and repurchased common stock totaling $1.5 million, partially offset by net income of $39.3 million. The cash dividends paid during the current year six month period totaled $0.30 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%. Transition from London Interbank Offered Rates ("LIBOR") LIBOR is used extensively in the United States as a reference rate for various financial contracts, including adjustable-rate loans, asset-backed securities, and interest rate swaps. In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates. The availability of three-month, six-month and one-year LIBOR rates is currently expected to cease in June 2023. As of March 31, 2021, the Company has identified $375.6 million of adjustable-rate one- to four-family loans in its portfolio for which the repricing index was tied to six-month or one-year LIBOR and the loan maturity date is after June 30, 2023. Our one- to four-family loan agreements generally allow the Bank to choose a new alternative reference rate based upon comparable information if the current index is no longer available. During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR. The Bank began using the one-year Constant Maturity Treasury ("CMT") index for newly originated and correspondent purchased one- to four-family adjustable-rate loans, and currently plans to replace LIBOR with the one-year CMT index for existing loans when LIBOR is no longer available. At March 31, 2021, none of the Bank's consumer or commercial loans use a repricing index tied to LIBOR. The Bank has interest rate swaps with a notional amount of $440.0 million at March 31, 2021 that are tied to three-month LIBOR. The related FHLB advances for which the adjustable-rate cash flows are being hedged by these interest rate swaps are also tied to the three-month LIBOR. All of the advances tied to the interest rate swaps mature during calendar year 2021. The Bank intends to replace the advances at maturity with advances tied to the Secured Overnight Finance Rate ("SOFR"). Additionally, the Bank intends to work with the interest rate swap counterparties to replace LIBOR with SOFR at the same time. 39 Available Information Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov. Critical Accounting Policies Our most critical accounting policies are the methodologies used to determine the ACL and 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 other liabilities 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. At 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 when evaluating the adequacy of the ACL and reserve for off-balance sheet credit exposures calculated by the ACL model. The qualitative factors considered include such items as: changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates. Management may increase or decrease the ACL and reserve for off-balance sheet credit exposures based on the evaluation of the qualitative factors. While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserves for off-balance sheet credit exposures. Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures. 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. 40 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. 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 March 31, 2021 and September 30, 2020. 41 Financial Condition The following table presents selected balance sheet information as of the dates indicated. March 31, December 31, September 30, June 30, March 31, 2021 2020 2020 2020 2020 (Dollars in thousands) Total assets $ 9,698,019 $ 9,606,964 $ 9,487,218 $ 9,558,814 $ 9,371,193 Cash and cash equivalents 139,472 168,032 185,148 396,219 118,374 AFS securities 2,095,924 1,913,866 1,560,950 1,220,054 1,236,037 Loans receivable, net 6,973,536 7,004,094 7,202,851 7,388,090 7,476,805 FHLB stock, at cost 74,464 84,693 93,862 102,782 101,575 Deposits 6,650,865 6,410,842 6,191,408 6,069,684 5,774,619 Borrowings 1,581,955 1,734,275 1,789,313 1,989,089 2,115,869 Stockholders' equity 1,278,595 1,276,548 1,284,859 1,300,520 1,287,793 Equity to total assets at end of period 13.2 % 13.3 % 13.5 % 13.6 % 13.7 % Total assets were $9.70 billion at March 31, 2021, an increase of $91.1 million, or 0.9%, from December 31, 2020, due to an increase in securities, partially offset by a decrease in loans receivable and cash and cash equivalents. Excess operating cash and cash flows from the loan portfolio and funds from deposit growth were generally used to purchase securities during the current quarter. Total loans were $6.97 billion at March 31, 2021, a decrease of $30.6 million, or 0.4%, from December 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases during the current quarter. During the current quarter, the Bank originated and refinanced $319.8 million of one- to four-family and consumer loans with a weighted average rate of 2.66% and purchased $163.3 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.61%. The Bank also originated $119.2 million of commercial loans with a weighted average rate of 3.07% and entered into commercial loan participations of $38.1 million at a weighted rate of 3.62%. The Bank endorsed $285.2 million of loans during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million of loans during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points. Total deposits were $6.65 billion at March 31, 2021, an increase of $240.0 million, or 3.7%, from December 31, 2020. The increase was primarily in non-maturity deposits, including a $113.8 million increase in money market accounts and a $110.0 million increase in checking accounts. Between mid-March 2021 and March 31, 2021, the Bank processed approximately $113 million of Economic Impact Payments, the majority of which were retained by the Bank as of March 31, 2021. Retail/business certificates of deposit decreased $47.6 million from December 31, 2020. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts. Total borrowings decreased $152.3 million, or 8.8%, from December 31, 2020 to March 31, 2021. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings. Stockholders' equity was $1.28 billion at both March 31, 2021 and December 31, 2020. During the current quarter, net income totaled $20.4 million, offset by the payment of cash dividends totaling $11.5 million and a decrease in AOCI of $7.6 million. 42 Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. March 31, 2021 December 31, 2020 September 30, 2020 Amount Rate Amount Rate Amount Rate (Dollars in thousands) One- to four-family: Originated $ 3,967,008 3.29 % $ 3,946,073 3.39 % $ 3,937,310 3.50 % Correspondent purchased 1,915,027 3.27 1,974,086 3.40 2,101,082 3.49 Bulk purchased 188,733 2.09 199,673 2.24 208,427 2.41 Construction 28,582 3.11 32,871 3.22 34,593 3.30 Total 6,099,350 3.24 6,152,703 3.36 6,281,412 3.46 Commercial: Commercial real estate 664,533 4.04 609,936 4.23 626,588 4.29 Commercial and industrial 77,210 3.08 69,378 3.41 97,614 2.79 Construction 53,271 4.25 84,564 3.89 105,458 4.04 Total 795,014 3.96 763,878 4.12 829,660 4.08 Consumer loans: Home equity 90,052 4.64 97,717 4.64 103,838 4.66 Other 8,743 4.36 9,328 4.40 10,086 4.40 Total 98,795 4.61 107,045 4.62 113,924 4.64 Total loans receivable 6,993,159 3.34 7,023,626 3.46 7,224,996 3.55 Less: ACL 23,397 26,125 31,527 Discounts/unearned loan fees 30,295 28,825 29,190 Premiums/deferred costs (34,069) (35,418) (38,572) Total loans receivable, net $ 6,973,536 $ 7,004,094 $ 7,202,851 43 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 $527.5 million of one- to four-family loans, reducing the average rate on those loans by 91 basis points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 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 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Amount Rate Amount Rate Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,023,626 3.46 % $ 7,224,996 3.55 % $ 7,407,442 3.64 % $ 7,493,280 3.74 % Originated and refinanced: Fixed 326,570 2.54 318,690 2.75 265,424 2.98 277,904 2.83 Adjustable 112,483 3.43 48,946 3.60 44,625 3.68 60,626 3.75 Purchased and participations: Fixed 192,262 2.82 100,518 2.86 61,435 3.07 131,739 3.28 Adjustable 9,150 2.42 65,315 3.89 4,396 2.76 62,510 3.76 Change in undisbursed loan funds (63,925) (70,323) 13,898 (32,202) Repayments (606,937) (664,052) (572,536) (586,434) Principal (charge-offs)/recoveries, net (70) (464) 312 19 Ending balance $ 6,993,159 3.34 $ 7,023,626 3.46 $ 7,224,996 3.55 $ 7,407,442 3.64 For the Six Months Ended March 31, 2021 March 31, 2020 Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,224,996 3.55 % $ 7,412,473 3.81 % Originated and refinanced: Fixed 645,260 2.64 406,584 3.48 Adjustable 161,429 3.48 111,072 4.20 Purchased and participations: Fixed 292,780 2.83 248,730 3.61 Adjustable 74,465 3.71 32,786 3.00 Change in undisbursed loan funds (134,248) 14,306 Repayments (1,270,989) (732,005) Principal charge-offs, net (534) (330) Other — (336) Ending balance $ 6,993,159 3.34 $ 7,493,280 3.74 44 The following tables present loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together. For the Three Months Ended March 31, 2021 March 31, 2020 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family: (1) <= 15 years $ 148,473 2.24 % 23.2 % $ 68,559 2.95 % 18.4 % > 15 years 271,959 2.79 42.5 198,373 3.54 53.1 One- to four-family construction 25,819 2.66 4.0 13,971 3.44 3.7 Commercial: Commercial real estate 6,133 3.55 1.0 3,872 4.71 1.0 Commercial and industrial 28,138 1.80 4.4 9,992 3.82 2.7 Commercial construction 37,495 3.62 5.8 1,522 5.40 0.4 Home equity 472 5.28 0.1 1,124 5.85 0.3 Other 343 6.10 — 1,090 5.51 0.3 Total fixed-rate 518,832 2.65 81.0 298,503 3.45 79.9 Adjustable-rate: One- to four-family: (2) <= 36 months 860 2.25 0.1 1,571 2.86 0.4 > 36 months 19,710 2.45 3.1 35,099 2.98 9.4 One- to four-family construction 2,748 2.50 0.4 4,007 3.00 1.1 Commercial: Commercial real estate 54,397 3.60 8.5 17,347 4.53 4.7 Commercial and industrial 3,907 3.50 0.6 1,950 5.00 0.5 Commercial construction 27,283 3.14 4.3 508 5.50 0.1 Home equity 12,230 4.42 1.9 13,686 5.16 3.7 Other 498 3.51 0.1 763 3.96 0.2 Total adjustable-rate 121,633 3.36 19.0 74,931 3.82 20.1 Total originated, refinanced and purchased $ 640,465 2.78 100.0 % $ 373,434 3.52 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent - one- to four-family $ 154,148 2.62 $ 125,612 3.46 Participations - commercial 38,114 3.62 — — Total fixed-rate purchased/participations 192,262 2.82 125,612 3.46 Adjustable-rate: Correspondent - one- to four-family 9,150 2.42 18,985 2.96 Participations - commercial — — — — Total adjustable-rate purchased/participations 9,150 2.42 18,985 2.96 Total purchased/participation loans $ 201,412 2.80 $ 144,597 3.40 45 For the Six Months Ended March 31, 2021 March 31, 2020 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family: (1) <= 15 years $ 282,463 2.30 % 24.1 % $ 153,063 2.96 % 19.1 % > 15 years 502,134 2.85 42.8 408,843 3.56 51.2 One- to four-family construction 59,840 2.72 5.1 25,102 3.42 3.1 Commercial: Commercial real estate 16,260 3.58 1.4 13,272 5.00 1.7 Commercial and industrial 33,582 2.08 2.8 14,039 3.90 1.8 Commercial construction 41,538 3.65 3.5 36,253 4.72 4.5 Home equity 945 5.36 0.1 2,487 5.88 0.3 Other 1,278 5.49 0.1 2,255 5.55 0.3 Total fixed-rate 938,040 2.70 79.9 655,314 3.53 82.0 Adjustable-rate: One- to four-family: (2) <= 36 months 1,112 2.28 0.1 3,669 2.86 0.5 > 36 months 38,442 2.53 3.3 66,308 3.02 8.3 One- to four-family construction 5,457 2.60 0.5 9,997 3.03 1.2 Commercial: Commercial real estate 71,375 3.67 6.1 26,522 4.65 3.3 Commercial and industrial 5,045 3.62 0.4 4,475 5.08 0.6 Commercial construction 87,620 3.73 7.4 1,487 5.53 0.2 Home equity 26,020 4.41 2.2 29,969 5.47 3.7 Other 823 3.19 0.1 1,431 4.04 0.2 Total adjustable-rate 235,894 3.55 20.1 143,858 3.93 18.0 Total originated, refinanced and purchased $ 1,173,934 2.87 100.0 % $ 799,172 3.60 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent - one- to four-family $ 254,666 2.72 $ 220,304 3.48 Participations - commercial 38,114 3.62 28,426 4.65 Total fixed-rate purchased/participations 292,780 2.83 248,730 3.61 Adjustable-rate: Correspondent - one- to four-family 14,465 2.51 32,786 3.00 Participations - commercial 60,000 4.00 — — Total adjustable-rate purchased/participations 74,465 3.71 32,786 3.00 Total purchased/participation loans $ 367,245 3.01 $ 281,516 3.54 (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. 46 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 March 2021, 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. March 31, 2021 September 30, 2020 % of Credit Average % of Credit Average Amount Total Score LTV Balance Amount Total Score LTV Balance (Dollars in thousands) Originated $ 3,967,008 65.4 % 772 61 % $ 148 $ 3,937,310 63.0 % 771 62 % $ 145 Correspondent purchased 1,915,027 31.5 765 63 386 2,101,082 33.6 765 64 379 Bulk purchased 188,733 3.1 772 59 297 208,427 3.4 767 60 300 $ 6,070,768 100.0 % 770 62 188 $ 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 year six-month period, $209.3 million were refinanced from other lenders. For the Three Months Ended March 31, 2021 March 31, 2020 Credit Credit Amount LTV Score Amount LTV Score (Dollars in thousands) Originated $ 184,166 69 % 770 $ 133,513 75 % 764 Refinanced by Bank customers 122,105 66 769 43,470 68 758 Correspondent purchased 163,298 69 774 144,597 71 766 $ 469,569 69 771 $ 321,580 73 764 For the Six Months Ended March 31, 2021 March 31, 2020 Credit Credit Amount LTV Score Amount LTV Score (Dollars in thousands) Originated $ 405,362 70 % 769 $ 305,900 75 % 766 Refinanced by Bank customers 214,955 65 769 107,992 68 760 Correspondent purchased 269,131 69 775 253,090 71 767 $ 889,448 69 771 $ 666,982 72 765 47 The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period. For the Three Months Ended For the Six Months Ended March 31, 2021 March 31, 2021 State Amount % of Total Rate Amount % of Total Rate (Dollars in thousands) Kansas $ 264,895 56.4 % 2.58 % $ 529,575 59.5 % 2.64 % Missouri 79,316 16.9 2.62 157,466 17.7 2.65 Texas 26,302 5.6 2.59 50,604 5.7 2.72 Tennessee 32,066 6.8 2.64 48,929 5.5 2.73 Pennsylvania 33,989 7.3 2.55 44,461 5.0 2.59 Other states 33,001 7.0 2.61 58,413 6.6 2.72 $ 469,569 100.0 % 2.59 $ 889,448 100.0 % 2.65 As of March 31, 2021, there were $7.8 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There were $208.9 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period. 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 March 31, 2021, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs. Fixed-Rate 15 years More than Adjustable- Total or less 15 years Rate Amount Rate (Dollars in thousands) Originate/refinance $ 27,948 $ 80,156 $ 8,107 $ 116,211 2.76 % Correspondent 38,456 134,881 4,189 177,526 2.48 $ 66,404 $ 215,037 $ 12,296 $ 293,737 2.59 Rate 2.16 % 2.73 % 2.47 % Commercial Loans - During the current year six month period, the Bank originated $157.3 million of commercial loans, including $19.5 million of PPP loans, and entered into commercial loan participations totaling $98.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $152.3 million at a weighted average rate of 3.42%. Additionally, during the current year, $39.0 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process. 48 The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of March 31, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Senior housing 33 $ 215,364 $ 50,255 $ 265,619 $ — $ 265,619 27.2 % Retail building 133 133,738 44,808 178,546 18,868 197,414 20.2 Hotel 9 133,818 44,705 178,523 — 178,523 18.3 Office building 98 55,029 61,874 116,903 — 116,903 12.0 One- to four-family property 367 58,613 5,170 63,783 250 64,033 6.6 Multi-family 39 48,184 14,524 62,708 272 62,980 6.4 Single use building 20 42,612 4,644 47,256 7,000 54,256 5.6 Other 97 30,446 3,193 33,639 2,597 36,236 3.7 796 $ 717,804 $ 229,173 $ 946,977 $ 28,987 $ 975,964 100.0 % Weighted average rate 4.05 % 3.88 % 4.01 % 3.63 % 4.00 % The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of March 31, 2021. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Kansas 628 $ 325,789 $ 19,017 $ 344,806 $ 9,487 $ 354,293 36.3 % Texas 10 124,498 116,576 241,074 — 241,074 24.7 Missouri 132 180,446 36,701 217,147 18,000 235,147 24.1 Colorado 6 13,451 22,755 36,206 — 36,206 3.7 Arkansas 3 7,461 26,395 33,856 — 33,856 3.5 Nebraska 6 33,655 4 33,659 — 33,659 3.4 Other 11 32,504 7,725 40,229 1,500 41,729 4.3 796 $ 717,804 $ 229,173 $ 946,977 $ 28,987 $ 975,964 100.0 % The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of March 31, 2021. Included in the working capital loan category are $25.3 million of PPP loans. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Working capital 636 $ 36,046 $ 16,809 $ 52,855 $ 1,115 $ 53,970 53.8 % Equipment 118 13,815 245 14,060 1,882 15,942 15.9 Purchase/lease autos 228 15,113 57 15,170 55 15,225 15.2 Business investment 59 7,701 223 7,924 — 7,924 7.9 Other 22 4,535 2,713 7,248 — 7,248 7.2 1,063 $ 77,210 $ 20,047 $ 97,257 $ 3,052 $ 100,309 100.0 % 49 The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of March 31, 2021. Count Amount (Dollars in thousands) Greater than $30 million 3 $ 150,000 >$15 to $30 million 14 331,514 >$10 to $15 million 5 57,267 >$5 to $10 million 15 93,842 $1 to $5 million 109 240,461 Less than $1 million 1,713 203,189 1,859 $ 1,076,273 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 March 31, 2021, there were commercial loans with a gross balance, including undisbursed amounts, totaling $134.0 million with COVID-19 loan modifications that were still in their deferral period. There were $270.7 million of commercial loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period. 50 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 - Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2021, $2.3 million were 30 to 89 days delinquent and $1.8 million were 90 or more days delinquent as of March 31, 2021. Of the commercial COVID-19 loan modifications that had completed the deferral period by March 31, 2021, one loan for $150 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of March 31, 2021. 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 March 31, 2021, approximately 74% were 59 days or less delinquent. Loans Delinquent for 30 to 89 Days at: March 31, December 31, September 30, June 30, March 31, 2021 2020 2020 2020 2020 Number Amount Number Amount Number Amount Number Amount Number Amount (Dollars in thousands) One- to four-family: Originated 45 $ 4,151 62 $ 5,844 42 $ 3,012 57 $ 5,085 92 $ 8,360 Correspondent purchased 9 2,910 13 4,694 8 3,123 10 2,919 13 4,531 Bulk purchased 5 352 9 1,750 12 2,532 19 4,536 12 2,914 Commercial 5 806 8 1,047 2 45 9 1,543 7 1,555 Consumer 17 287 30 515 26 398 21 431 43 628 81 $ 8,506 122 $ 13,850 90 $ 9,110 116 $ 14,514 167 $ 17,988 Loans 30 to 89 days delinquent to total loans receivable, net 0.12 % 0.20 % 0.13 % 0.20 % 0.24 % The following table 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. In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At March 31, 2021, there were approximately $8.8 million of non-performing one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or may have been initiated if the foreclosure suspension had not been in place. 51 Non-Performing Loans and OREO at: March 31, December 31, September 30, June 30, March 31, 2021 2020 2020 2020 2020 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 55 $ 4,433 51 $ 4,370 51 $ 4,362 47 $ 4,026 53 $ 4,517 Correspondent purchased 10 3,749 9 3,371 6 2,397 7 2,740 4 1,342 Bulk purchased 10 3,172 13 3,724 12 2,903 3 1,291 1 630 Commercial 6 1,068 5 820 5 1,360 4 709 4 716 Consumer 26 531 26 473 14 304 23 278 17 326 107 12,953 104 12,758 88 11,326 84 9,044 79 7,531 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.19 % 0.18 % 0.16 % 0.12 % 0.10 % Nonaccrual loans less than 90 Days Delinquent: (1) One- to four-family: Originated 9 $ 1,646 9 $ 968 9 $ 691 14 $ 1,132 13 $ 811 Correspondent purchased — — — — — — — — 1 189 Bulk purchased — — — — — — — — 1 134 Commercial 4 642 3 411 3 464 1 6 2 129 Consumer — — 1 9 1 9 1 33 2 43 13 2,288 13 1,388 13 1,164 16 1,171 19 1,306 Total non-performing loans 120 15,241 117 14,146 101 12,490 100 10,215 98 8,837 Non-performing loans as a percentage of total loans 0.22 % 0.20 % 0.17 % 0.14 % 0.12 % OREO: One- to four-family: Originated (2) 2 $ 105 3 $ 129 4 $ 183 4 $ 183 5 $ 187 Total non-performing assets 122 $ 15,346 120 $ 14,275 105 $ 12,673 104 $ 10,398 103 $ 9,024 Non-performing assets as a percentage of total assets 0.16 % 0.15 % 0.13 % 0.11 % 0.10 % (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. 52 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 March 31, 2021. 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 March 31, 2021, 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 $ 3,535,877 58.2 % $ 3,544 47.8 % $ 4,801 42.3 % 60 % Missouri 1,047,079 17.3 1,136 15.3 943 8.3 45 Texas 599,169 9.9 1,853 25.0 1,440 12.7 53 Other states 888,643 14.6 880 11.9 4,170 36.7 55 $ 6,070,768 100.0 % $ 7,413 100.0 % $ 11,354 100.0 % 56 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 March 31, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.7 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. March 31, 2021 September 30, 2020 March 31, 2020 Special Mention Substandard Special Mention Substandard Special Mention Substandard (Dollars in thousands) One- to four-family $ 14,299 $ 26,562 $ 11,339 $ 25,630 $ 13,678 $ 26,077 Commercial 100,655 4,497 52,006 4,914 52,515 4,538 Consumer 250 764 332 589 479 659 $ 115,204 $ 31,823 $ 63,677 $ 31,133 $ 66,672 $ 31,274 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 other liabilities 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 March 31, 2021 compared to December 31, 2020 which resulted in a reduction in the ACL and reserve for off-balance sheet credit exposures calculated by the model. Management applied qualitative factors to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention 53 commercial loans. These qualitative factors partially offset the reduction in the ACL related to the improvement in the economic forecast. The economic uncertainties related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in certain industries, and (3) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended March 31, 2021. ACL Reserve for off-balance sheet credit exposures ACL and Reserve for off-balance sheet credit exposures (Dollars in thousands) Balance at December 31, 2020 $ 26,125 $ 6,433 $ 32,558 Charge-offs (138) — (138) Recoveries 68 — 68 Net charge-offs (70) — (70) Provision for credit losses (2,658) (306) (2,964) Balance at March 31, 2021 $ 23,397 $ 6,127 $ 29,524 The negative provision for credit losses was due primarily to a reduction in commercial loan ACL and reserves for off-balance sheet credit exposures as a result of improvements in the economic forecast used in the model, partially offset by an increase in qualitative factors, primarily the economic uncertainty qualitative factor, as discussed above. The gross balance of off-balance sheet credit exposures was $907.2 million as of March 31, 2021 and $688.0 million as of October 1, 2020. 54 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 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 (Dollars in thousands) ACL beginning balance $ 26,125 $ 31,527 $ 31,215 $ 31,196 $ 9,435 Adoption of CECL — (4,761) — — — Charge-offs (138) (532) (15) (5) (375) Recoveries 68 68 327 24 61 Provision for credit losses (2,658) (177) — — 22,075 ACL ending balance $ 23,397 $ 26,125 $ 31,527 $ 31,215 $ 31,196 ACL to loans receivable at end of period 0.33 % 0.37 % 0.44 % 0.42 % 0.42 % ACL to non-performing loans at end of period 153.51 184.68 252.42 305.58 353.02 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 0.47 3.44 (2.70) (0.20) 3.78 ACL to net charge-offs (annualized) 83.8x 14.1x N/M (1) N/M (1) 24.9x For the Six Months Ended March 31, 2021 March 31, 2020 (Dollars in thousands) ACL beginning balance $ 31,527 $ 9,226 Adoption of CECL (4,761) — Charge-offs (670) (423) Recoveries 136 93 Provision for credit losses (2,835) 22,300 ACL ending balance $ 23,397 $ 31,196 Ratio of net charge-offs during the period to average loans outstanding 0.01 % — % Ratio of net charge-offs during the period to average non-performing assets 3.81 3.68 ACL to net charge-offs (annualized) 21.9x 47.3x (1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods. 55 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. At March 31, December 31, October 1, September 30, June 30, March 31, 2021 2020 2020 2020 2020 2020 (Dollars in thousands) One- to four-family: Originated $ 1,517 $ 1,516 $ 1,609 $ 6,044 $ 6,298 $ 6,420 Correspondent purchased 1,705 1,758 2,324 2,691 3,189 3,355 Bulk purchased 747 852 903 467 506 557 Construction 19 22 25 41 48 47 Total 3,988 4,148 4,861 9,243 10,041 10,379 Commercial: Commercial real estate 17,016 17,813 16,595 16,869 16,353 14,672 Commercial and industrial 445 553 559 1,451 1,465 1,489 Construction 1,696 3,341 4,452 3,480 2,886 4,167 Total 19,157 21,707 21,606 21,800 20,704 20,328 Consumer 252 270 299 484 470 489 Total $ 23,397 $ 26,125 $ 26,766 $ 31,527 $ 31,215 $ 31,196 The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. At March 31, December 31, October 1, September 30, June 30, March 31, 2021 2020 2020 2020 2020 2020 One- to four-family: Originated 0.04 % 0.04 % 0.04 % 0.15 % 0.16 % 0.16 % Correspondent purchased 0.09 0.09 0.11 0.13 0.14 0.14 Bulk purchased 0.40 0.43 0.43 0.22 0.23 0.24 Construction 0.07 0.07 0.07 0.12 0.13 0.13 Total 0.07 0.07 0.08 0.15 0.16 0.16 Commercial: Commercial real estate 2.56 2.92 2.65 2.69 2.62 2.51 Commercial and industrial 0.58 0.80 0.57 1.49 1.47 2.40 Construction 3.18 3.95 4.22 3.30 3.30 3.30 Total 2.41 2.84 2.60 2.63 2.55 2.63 Consumer 0.26 0.25 0.26 0.42 0.40 0.39 Total 0.33 0.37 0.37 0.44 0.42 0.42 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. At March 31, December 31, October 1, 2021 2020 2020 (Dollars in thousands) One- to four-family $ 197 $ 131 $ 144 Commercial 5,887 6,261 7,584 Consumer 43 41 60 $ 6,127 $ 6,433 $ 7,788 56 Securities. Securities increased $535.0 million, or 34.3%, from September 30, 2020 to March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities. The weighted average yield on the securities portfolio decreased 34 basis points, from 1.62% at September 30, 2020 to 1.28% at March 31, 2021, 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 93% of our securities portfolio at March 31, 2021. 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. March 31, 2021 December 31, 2020 September 30, 2020 Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Fixed-rate securities: MBS $ 1,384,982 1.46 % 4.1 $ 1,249,115 1.56 % 4.1 $ 945,432 1.82 % 3.7 GSE debentures 544,966 0.55 3.6 444,964 0.52 1.0 369,967 0.62 1.7 Municipal bonds 5,447 1.79 0.5 8,792 1.66 0.5 9,716 1.69 0.7 Total fixed-rate securities 1,935,395 1.20 3.9 1,702,871 1.29 3.3 1,325,115 1.49 3.1 Adjustable-rate securities: MBS 155,325 2.24 3.2 178,101 2.44 3.3 204,490 2.49 2.9 Total securities portfolio $ 2,090,720 1.28 3.9 $ 1,880,972 1.40 3.3 $ 1,529,605 1.62 3.1 The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented. March 31, 2021 December 31, 2020 September 30, 2020 (Dollars in thousands) FNMA $ 972,833 $ 938,387 $ 809,232 FHLMC 542,502 482,173 327,167 GNMA 34,566 38,740 44,404 $ 1,549,901 $ 1,459,300 $ 1,180,803 57 Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $369.1 million, from $1.18 billion at September 30, 2020, to $1.55 billion at March 31, 2021. The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied. For the Three Months Ended March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning 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 Maturities and repayments (109,141) (101,496) (95,842) (75,293) Net amortization of (premiums)/discounts (1,572) (1,003) (608) (363) Purchases: Fixed-rate 223,804 1.31 5.9 379,793 1.04 5.4 297,024 1.06 5.9 77,455 1.29 5.0 Change in valuation on AFS securities (22,490) 1,203 (2,358) 7,470 Ending balance - carrying value $ 1,549,901 1.54 4.0 $ 1,459,300 1.67 4.0 $ 1,180,803 1.94 3.5 $ 982,587 2.35 3.3 For the Six Months Ended March 31, 2021 March 31, 2020 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 1,180,803 1.94 % 3.5 $ 936,487 2.67 % 3.5 Maturities and repayments (210,637) (138,402) Net amortization of (premiums)/discounts (2,575) (527) Purchases: Fixed-rate 603,597 1.14 5.6 163,222 1.91 4.2 Change in valuation on AFS securities (21,287) 12,538 Ending balance - carrying value $ 1,549,901 1.54 4.0 $ 973,318 2.50 3.6 58 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 $165.9 million, from $380.1 million at September 30, 2020, to $546.0 million at March 31, 2021. Municipal investments totaled $5.4 million at March 31, 2021. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented. For the Three Months Ended March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning 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 Maturities, calls and sales (3,325) (50,900) (102,115) (125,000) Net amortization of (premiums)/discounts (18) (14) (54) (80) Purchases: Fixed-rate 100,000 0.70 4.6 124,987 0.48 3.2 244,975 0.51 3.2 99,990 0.58 1.2 Change in valuation on AFS securities (5,200) 346 (126) (162) Ending balance - carrying value $ 546,023 0.56 3.6 $ 454,566 0.54 1.0 $ 380,147 0.65 1.7 $ 237,467 1.23 0.8 For the Six Months Ended March 31, 2021 March 31, 2020 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 380,147 0.65 % 1.7 $ 268,376 2.11 % 0.8 Maturities, calls and sales (54,225) (131,300) Net amortization of (premiums)/discounts (32) (29) Purchases: Fixed-rate 224,987 0.58 3.8 125,097 1.71 1.2 Change in valuation on AFS securities (4,854) 575 Ending balance - carrying value $ 546,023 0.56 3.6 $ 262,719 1.87 0.3 59 Liabilities Deposits - Total deposits increased $459.5 million, or 7.4%, from September 30, 2020 to March 31, 2021. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period. Customers moved some of the funds from maturing certificates to more liquid investment 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. March 31, 2021 December 31, 2020 September 30, 2020 % of % of % of Amount Rate Total Amount Rate Total Amount Rate Total (Dollars in thousands) Non-interest-bearing checking $ 549,158 — % 8.2 % $ 494,375 — % 7.7 % $ 451,394 — % 7.3 % Interest-bearing checking 1,009,096 0.07 15.2 953,927 0.08 14.9 865,782 0.10 14.0 Savings 511,014 0.06 7.7 455,633 0.06 7.1 433,808 0.06 7.0 Money market 1,602,573 0.24 24.1 1,488,749 0.31 23.2 1,419,180 0.37 22.9 Retail/business certificates of deposit 2,730,354 1.55 41.1 2,777,948 1.68 43.3 2,766,461 1.83 44.7 Public unit certificates of deposit 248,670 0.45 3.7 240,210 0.64 3.8 254,783 0.74 4.1 $ 6,650,865 0.73 100.0 % $ 6,410,842 0.84 100.0 % $ 6,191,408 0.95 100.0 % 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 March 31, 2021. 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% $ 796,738 $ 154,580 $ 53,117 $ 66,028 $ 1,070,463 0.50 % 1.00 – 1.99% 509,600 251,609 76,521 134,232 971,962 1.62 2.00 – 2.99% 282,968 426,895 183,936 42,546 936,345 2.38 3.00 – 3.99% — 254 — — 254 3.00 $ 1,589,306 $ 833,338 $ 313,574 $ 242,806 $ 2,979,024 1.46 Percent of total 53.3 % 28.0 % 10.5 % 8.2 % Weighted average rate 1.16 1.84 1.93 1.42 Weighted average maturity (in years) 0.5 1.5 2.5 3.7 1.2 Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.3 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 $ 193,497 $ 168,680 $ 306,494 $ 793,230 $ 1,461,901 Retail/business certificates of deposit of $100,000 or more 177,109 164,749 337,191 589,404 1,268,453 Public unit certificates of deposit of $100,000 or more 86,691 87,958 66,937 7,084 248,670 $ 457,297 $ 421,387 $ 710,622 $ 1,389,718 $ 2,979,024 60 Borrowings - Total borrowings at March 31, 2021 were $1.58 billion, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. 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 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 Effective Effective Effective Effective Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning 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 Maturities and prepayments: FHLB advances (315,000) 2.20 (350,000) 2.40 (440,000) 2.49 (200,000) 2.35 Repurchase agreements — — — — (100,000) 2.53 — — New FHLB borrowings: Fixed-rate 100,000 1.24 6.0 100,000 1.09 5.0 — — — — — — Interest rate swaps (1) 65,000 2.65 3.1 200,000 2.63 1.5 340,000 2.73 3.5 100,000 3.20 8.0 Ending balance $ 1,590,000 1.94 3.3 $ 1,740,000 2.26 3.0 $ 1,790,000 2.31 3.0 $ 1,990,000 2.29 2.9 For the Six Months Ended March 31, 2021 March 31, 2020 Effective Effective Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 1,790,000 2.31 % 3.0 $ 2,140,000 2.38 % 2.6 Maturities and prepayments: FHLB advances (665,000) 2.30 (765,000) 2.43 New FHLB borrowings: Fixed-rate 200,000 1.16 5.5 450,000 1.76 4.8 Interest rate swaps (1) 265,000 2.63 1.9 265,000 2.58 2.9 Ending balance $ 1,590,000 1.94 3.3 $ 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. 61 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 March 31, 2021. As discussed previously, the Bank terminated interest rate swaps with a notional amount of $200.0 million during the quarter ended March 31, 2021. In the table below, the $200.0 million of adjustable-rate FHLB advances previously tied to these terminated interest rate swaps are presented in the FHLB advances column as maturing in fiscal year 2022. Subsequent to March 31, 2021, the Bank prepaid $100.0 million of adjustable-rate FHLB advances that were related to the terminated swaps and replaced them with $100.0 million of fixed-rate FHLB advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Term Borrowings Amount Maturity by FHLB Interest rate Total Contractual Effective Fiscal Year Advances swaps (1) Amount Rate Rate (2) (Dollars in thousands) 2021 $ — $ 440,000 $ 440,000 0.33 % 2.84 % 2022 200,000 — 200,000 0.35 0.35 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 2027 100,000 — 100,000 0.76 1.24 $ 1,150,000 $ 440,000 $ 1,590,000 1.12 1.94 (1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $440.0 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 3.9 years at March 31, 2021. (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 March 31, 2021. 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) June 30, 2021 $ 370,606 1.41 % $ 86,691 0.31 % $ — — % $ 457,297 1.20 % September 30, 2021 333,429 1.29 87,958 0.56 75,000 2.99 496,387 1.42 December 31, 2021 345,989 1.20 49,561 0.35 200,000 0.35 595,550 0.84 March 31, 2022 297,696 1.26 17,376 0.89 — — 315,072 1.24 $ 1,347,720 1.29 $ 241,586 0.45 $ 275,000 1.07 $ 1,864,306 1.15 (1) The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap. The term borrowings maturing in the December 31, 2021 quarter with a repricing rate of 0.35% are adjustable-rate advances that were previously tied to the terminated interest rate swaps discussed above. Of the $200.0 million maturing in the December 31, 2021 quarter, $100.0 million was prepaid in April 2021 and replaced with $100.0 million of advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Management may prepay the remaining $100.0 million during the June 30, 2021 quarter. 62 Stockholders' Equity. Stockholders' equity was $1.28 billion at both March 31, 2021 and September 30, 2020. During the current year six month period, the Company paid cash dividends totaling $40.6 million and repurchased common stock totaling $1.5 million, partially offset by net income of $39.3 million. The cash dividends paid during the current year six month period totaled $0.30 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%. At March 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $73.9 million in cash on deposit at the Bank. For fiscal year 2021, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company. 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 existing 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. 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 to pay some level of this dividend when economic conditions are more certain. 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. 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 June 30, 2021, the amount presented represents the dividend payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 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 11,518 0.085 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 $ 23,036 $ 0.170 $ 64,327 $ 0.470 $ 128,230 $ 0.930 63 Operating Results The following table presents selected income statement and other information for the quarters indicated. For the Three Months Ended March 31, December 31, September 30, June 30, March 31, 2021 2020 2020 2020 2020 (Dollars in thousands, except per share data) Interest and dividend income: Loans receivable $ 57,285 $ 60,694 $ 64,315 $ 66,652 $ 69,613 MBS 5,429 5,710 5,425 5,616 5,866 FHLB stock 951 1,069 1,080 1,207 1,714 Investment securities 629 683 731 847 1,382 Cash and cash equivalents 40 51 55 59 380 Total interest and dividend income 64,334 68,207 71,606 74,381 78,955 Interest expense: Deposits 12,529 14,067 15,299 16,533 17,804 Borrowings 8,732 10,327 10,624 11,561 12,483 Total interest expense 21,261 24,394 25,923 28,094 30,287 Net interest income 43,073 43,813 45,683 46,287 48,668 Provision for credit losses (2,964) (1,532) — — 22,075 Net interest income (after provision for credit losses) 46,037 45,345 45,683 46,287 26,593 Non-interest income 12,477 5,070 4,985 4,439 4,671 Non-interest expense 32,653 27,067 27,176 26,164 26,164 Income tax expense 5,417 4,450 5,213 5,088 824 Net income $ 20,444 $ 18,898 $ 18,279 $ 19,474 $ 4,276 Efficiency ratio 58.78 % 55.37 % 53.64 % 51.58 % 49.05 % Basic EPS $ 0.15 $ 0.14 $ 0.13 $ 0.14 $ 0.03 Diluted EPS 0.15 0.14 0.13 0.14 0.03 64 Comparison of Operating Results for the Three Months Ended March 31, 2021 and December 31, 2020 For the quarter ended March 31, 2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020. The increase was due primarily to an increase in non-interest income resulting mainly from the sale of Visa Class B shares, partially offset by an increase in non-interest expense due to the termination of $200.0 million of interest rate swaps. The net interest margin decreased four basis points, from 1.92% for the prior quarter to 1.88% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio average yields, along with a change in asset mix as cash flows from the loan portfolio have been invested into lower yielding securities, partially offset by a decrease in the average cost of borrowings and deposits. Our net interest margin could continue to decrease if our interest-earning assets continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio. Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 17 basis points, from 2.98% for the prior quarter to 2.81% for the current quarter, while the average balance of interest-earning assets increased $30.1 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 March 31, December 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 57,285 $ 60,694 $ (3,409) (5.6) % MBS 5,429 5,710 (281) (4.9) FHLB stock 951 1,069 (118) (11.0) Investment securities 629 683 (54) (7.9) Cash and cash equivalents 40 51 (11) (21.6) Total interest and dividend income $ 64,334 $ 68,207 $ (3,873) (5.7) The decrease in interest income on loans receivable was due to a 14 basis point decrease in the weighted average portfolio yield and a $96.2 million decrease in the average balance. The weighted average yield on the loans receivable portfolio decreased from 3.41% for the prior quarter to 3.27% for the current quarter, due mainly to loans repricing to lower current market rates as a result of endorsements, refinances and adjustable-rate loan rate changes, along with a decrease in commercial loan deferred fee and discount recognition related to PPP loans and other commercial loan activity. One- to four-family correspondent loan payoff activity decreased during the current quarter compared to the prior quarter; thereby reducing the amount of premium amortization and reduction in the loan portfolio yield. Correspondent loan payoff activity remains at elevated levels compared to historical norms which was the primary reason for the decrease in the average balance of the loan portfolio during the current quarter. The decrease in interest income on the MBS portfolio was due to a 25 basis point decrease in the weighted average yield, to 1.50% for the current quarter, due primarily to an increase in the impact of net premium amortization, along with purchases at lower market yields. This was partially offset by a $142.5 million increase in the average balance as a result of purchases, primarily utilizing excess cash flows from the loan portfolio and operating cash, along with funds from growth in the deposit portfolio that were not used to pay down borrowings. 65 Interest Expense The weighted average rate paid on interest-bearing liabilities decreased 14 basis points, from 1.20% for the prior quarter to 1.06% for the current quarter, while the average balance of interest-bearing liabilities increased $48.1 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 March 31, December 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 12,529 $ 14,067 $ (1,538) (10.9) % Borrowings 8,732 10,327 (1,595) (15.4) Total interest expense $ 21,261 $ 24,394 $ (3,133) (12.8) The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the retail/business certificate of deposit portfolio. The weighted average rate on the retail/business certificate of deposit portfolio decreased 15 basis points, to 1.61% for the current quarter. 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, along with prepaying certain advances and replacing them at lower rates. 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 $171.9 million compared to the prior quarter. Provision for Credit Losses For the quarter ended March 31, 2021, the Bank recorded a negative provision for credit losses of $3.0 million, compared to a negative provision for credit losses of $1.5 million for the prior quarter. The negative provision in the current quarter was composed of a $2.7 million decrease in the ACL for loans and a $305 thousand decrease in reserves for off-balance sheet credit exposures. The $3.0 million negative provision for credit losses was due primarily to continued improvements in the economic forecast used in the model. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, December 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A Deposit service fees 2,814 2,947 (133) (4.5) % Insurance commissions 888 638 250 39.2 Other non-interest income 1,389 1,485 (96) (6.5) Total non-interest income $ 12,477 $ 5,070 $ 7,407 146.1 During the current quarter, the Bank sold all of its Visa Class B shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions which were higher than what was anticipated and accrued. 66 Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, December 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 13,397 $ 14,138 $ (741) (5.2) % Information technology and related expense 4,599 4,233 366 8.6 Occupancy, net 3,523 3,379 144 4.3 Loss on interest rate swap termination 4,752 — 4,752 N/A Regulatory and outside services 1,234 1,585 (351) (22.1) Advertising and promotional 1,484 838 646 77.1 Deposit and loan transaction costs 664 766 (102) (13.3) Federal insurance premium 634 621 13 2.1 Office supplies and related expense 463 424 39 9.2 Other non-interest expense 1,903 1,083 820 75.7 Total non-interest expense $ 32,653 $ 27,067 $ 5,586 20.6 The decrease in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the prior quarter in appreciation of the hard work and dedication by our non-officer employees during these challenging times, along with a decrease in the number of working days compared to the prior quarter. The increase in information technology and related expense was due primarily to an increase in information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The decrease in regulatory and outside services was due mainly to the timing of external audit expenses. The increase in advertising and promotional expenses was due to the timing of campaigns. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as one of the Bank's branch locations, as management intends to sell the property. The Company's efficiency ratio was 58.78% for the current quarter compared to 55.37% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense, partially offset by an increase in non-interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A 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 March 31, December 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) Income before income tax expense $ 25,861 $ 23,348 $ 2,513 10.8 % Income tax expense 5,417 4,450 967 21.7 Net income $ 20,444 $ 18,898 $ 1,546 8.2 Effective Tax Rate 20.9 % 19.1 % The increase in income tax expense was due mainly to a higher effective tax rate compared to the prior quarter, as well as an increase in pretax income. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns. 67 Average Balance Sheet Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Three Months Ended March 31, 2021 December 31, 2020 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,134,527 $ 47,552 3.10 % $ 6,220,204 $ 50,005 3.22 % Commercial loans 766,972 8,559 4.46 770,096 9,404 4.78 Consumer loans 102,613 1,174 4.64 110,048 1,285 4.65 Total loans receivable (1) 7,004,112 57,285 3.27 7,100,348 60,694 3.41 MBS (2) 1,444,554 5,429 1.50 1,302,074 5,710 1.75 Investment securities (2)(3) 466,077 629 0.54 431,493 683 0.63 FHLB stock 77,391 951 4.98 85,187 1,069 4.99 Cash and cash equivalents 158,544 40 0.10 201,468 51 0.10 Total interest-earning assets 9,150,678 64,334 2.81 9,120,570 68,207 2.98 Other non-interest-earning assets 446,265 453,422 Total assets $ 9,596,943 $ 9,573,992 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,459,964 183 0.05 $ 1,360,864 223 0.07 Savings 477,985 69 0.06 442,906 68 0.06 Money market 1,543,911 1,038 0.27 1,474,720 1,184 0.32 Retail/business certificates 2,753,439 10,917 1.61 2,745,836 12,178 1.76 Wholesale certificates 260,712 322 0.50 251,634 414 0.66 Total deposits 6,496,011 12,529 0.78 6,275,960 14,067 0.89 Borrowings (4) 1,603,459 8,732 2.19 1,775,380 10,327 2.30 Total interest-bearing liabilities 8,099,470 21,261 1.06 8,051,340 24,394 1.20 Other non-interest-bearing liabilities 213,602 240,476 Stockholders' equity 1,283,871 1,282,176 Total liabilities and stockholders' equity $ 9,596,943 $ 9,573,992 Net interest income (5) $ 43,073 $ 43,813 Net interest rate spread (6) 1.75 1.78 Net interest-earning assets $ 1,051,208 $ 1,069,230 Net interest margin (7) 1.88 1.92 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x Selected performance ratios: Return on average assets (annualized) 0.85 % 0.79 % Return on average equity (annualized) 6.37 5.90 Average equity to average assets 13.38 13.39 Operating expense ratio (8) 1.36 1.13 Efficiency ratio (9) 58.78 55.37 68 (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 $7.5 million and $9.1 million for the quarters ended March 31, 2021 and December 31, 2020, respectively. (4) The FHLB advance amounts and rates included in this line 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 three months ended March 31, 2021 to the three months ended December 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Three Months Ended March 31, 2021 vs. December 31, 2020 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (862) $ (2,547) $ (3,409) MBS 585 (866) (281) Investment securities 52 (106) (54) FHLB stock (118) — (118) Cash and cash equivalents (11) — (11) Total interest-earning assets (354) (3,519) (3,873) Interest-bearing liabilities: Checking 14 (53) (39) Savings 4 (3) 1 Money market 46 (193) (147) Certificates of deposit 53 (1,406) (1,353) Borrowings (1,014) (581) (1,595) Total interest-bearing liabilities (897) (2,236) (3,133) Net change in net interest income $ 543 $ (1,283) $ (740) 69 Comparison of Operating Results for the Six Months Ended March 31, 2021 and 2020 The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and 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 66 basis points, from 3.56% for the prior year period to 2.90% for the current year period, while the average balance of interest-earning assets increased $232.9 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield and partially the securities 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 Six Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 117,979 $ 139,527 $ (21,548) (15.4) % MBS 11,139 11,968 (829) (6.9) FHLB stock 2,020 3,540 (1,520) (42.9) Investment securities 1,312 2,889 (1,577) (54.6) Cash and cash equivalents 91 1,067 (976) (91.5) Total interest and dividend income $ 132,541 $ 158,991 $ (26,450) (16.6) The decrease in interest income on loans receivable was due mainly to a 39 basis point decrease in the weighted average yield on the portfolio, from 3.73% for the prior year period to 3.34% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to 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 $407.1 million compared to the prior year period. 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. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part, to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the COVID-19 pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity. The decrease in interest income on the MBS portfolio was due to a 96 basis point decrease in the weighted average yield to 1.62% for the current year period 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 $445.6 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 146 basis point decrease in the weighted average yield to 0.58% for the current year period as a result of new purchases at lower market yields, partially offset by a $165.8 million increase in the average balance of the portfolio. 70 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 $46.3 million increase in the average balance. Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 44 basis points, from 1.57% for the prior year period to 1.13% for the current period, while the average balance of interest-bearing liabilities increased $248.9 million. The increase in the average balance was primarily in money market and checking 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 Six Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 26,596 $ 35,766 $ (9,170) (25.6) % Borrowings 19,059 25,860 (6,801) (26.3) Total interest expense $ 45,655 $ 61,626 $ (15,971) (25.9) 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 42 basis points, 38 basis points, and 152 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been gradually repricing downward 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 $514.5 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. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods. Provision for Credit Losses The Bank recorded a negative provision for credit losses during the current year period of $4.5 million, compared to a $22.3 million provision for credit losses during the prior year period. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Six Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A Deposit service fees 5,761 5,845 (84) (1.4) % Insurance commissions 1,526 1,091 435 39.9 Other non-interest income 2,874 3,239 (365) (11.3) Total non-interest income $ 17,547 $ 10,175 $ 7,372 72.5 During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year period. The decrease in other non-interest income was mainly the result of a decrease in income from BOLI compared to the prior year period due to a reduction in the yield and lower death benefit receipts between the two periods. 71 Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Six Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 27,535 $ 26,706 $ 829 3.1 % Information technology and related expense 8,832 8,409 423 5.0 Occupancy, net 6,902 6,656 246 3.7 Loss on interest rate swap termination 4,752 — 4,752 N/A Regulatory and outside services 2,819 2,640 179 6.8 Advertising and promotional 2,322 2,769 (447) (16.1) Deposit and loan transaction costs 1,430 1,389 41 3.0 Federal insurance premium 1,255 — 1,255 N/A Office supplies and related expense 887 1,111 (224) (20.2) Other non-interest expense 2,986 2,984 2 0.1 Total non-interest expense $ 59,720 $ 52,664 $ 7,056 13.4 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 year period. The increase in information technology and related expense was due mainly to an increase in information technology professional services expense. During the current year period, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. Since it was management's intention to prepay the related FHLB advances, the previously-forecasted transactions subject to the cash flow hedges are no longer expected to occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. 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 period. The Company's efficiency ratio was 57.19% for the current period compared to 48.97% for the prior year period. The change in the efficiency ratio was due to higher non-interest expense, partially offset by an increase non-interest income in the current year period compared to the prior year period. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current period was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current period, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year period. Income Tax Expense The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent. For the Six Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) Income before income tax expense $ 49,209 $ 32,576 $ 16,633 51.1 % Income tax expense 9,867 5,789 4,078 70.4 Net income $ 39,342 $ 26,787 $ 12,555 46.9 Effective Tax Rate 20.1 % 17.8 % 72 The increase in income tax expense was due primarily to higher pretax income in the current year period, as well as a higher effective tax rate compared to the prior year period. The effective tax rate was lower in the prior year period due primarily to a discrete benefit recognized in the prior year period 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%. 73 Average Balance Sheet The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information, for the periods indicated. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Six Months Ended March 31, 2021 March 31, 2020 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,177,836 $ 97,557 3.16 % $ 6,568,525 $ 117,199 3.57 % Commercial loans 768,552 17,963 4.62 762,799 18,652 4.81 Consumer loans 106,371 2,459 4.64 128,491 3,676 5.72 Total loans receivable (1) 7,052,759 117,979 3.34 7,459,815 139,527 3.73 MBS (2) 1,372,531 11,139 1.62 926,969 11,968 2.58 Investment securities (2)(3) 448,595 1,312 0.58 282,759 2,889 2.04 FHLB stock 81,332 2,020 4.98 99,128 3,540 7.14 Cash and cash equivalents 180,242 91 0.10 133,908 1,067 1.57 Total interest-earning assets 9,135,459 132,541 2.90 8,902,579 158,991 3.56 Other non-interest-earning assets 449,883 441,199 Total assets $ 9,585,342 $ 9,343,778 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,409,870 407 0.06 $ 1,096,466 351 0.06 Savings 460,252 136 0.06 361,592 153 0.08 Money market 1,508,935 2,222 0.30 1,190,938 4,044 0.68 Retail/business certificates 2,749,596 23,094 1.68 2,686,028 28,215 2.10 Wholesale certificates 256,123 737 0.58 286,328 3,003 2.10 Total deposits 6,384,776 26,596 0.84 5,621,352 35,766 1.27 Borrowings (4) 1,690,363 19,059 2.25 2,204,903 25,860 2.33 Total interest-bearing liabilities 8,075,139 45,655 1.13 7,826,255 61,626 1.57 Other non-interest-bearing liabilities 227,189 194,698 Stockholders' equity 1,283,014 1,322,825 Total liabilities and stockholders' equity $ 9,585,342 $ 9,343,778 Net interest income (5) $ 86,886 $ 97,365 Net interest rate spread (6) 1.77 1.99 Net interest-earning assets $ 1,060,320 $ 1,076,324 Net interest margin (7) 1.90 2.19 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.14x Selected performance ratios: Return on average assets (annualized) 0.82 % 0.57 % Return on average equity (annualized) 6.13 4.05 Average equity to average assets 13.39 14.16 Operating expense ratio (8) 1.25 1.13 Efficiency ratio (9) 57.19 48.97 74 (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 $8.3 million and $16.1 million for the six months ended March 31, 2021 and March 31, 2020, 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 Six Months Ended March 31, 2021 vs. March 31, 2020 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (7,196) $ (14,352) $ (21,548) MBS 4,547 (5,376) (829) Investment securities 1,149 (2,726) (1,577) FHLB stock (568) (952) (1,520) Cash and cash equivalents 273 (1,249) (976) Total interest-earning assets (1,795) (24,655) (26,450) Interest-bearing liabilities: Checking 91 (36) 55 Savings 35 (51) (16) Money market 872 (2,694) (1,822) Certificates of deposit 337 (7,724) (7,387) Borrowings (4,689) (2,112) (6,801) Total interest-bearing liabilities (3,354) (12,617) (15,971) Net change in net interest income $ 1,559 $ (12,038) $ (10,479) Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020 For the quarter ended March 31, 2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $4.3 million, or $0.03 per share for the quarter ended March 31, 2020. The increase in net income was due to recording a $22.1 million provision for credit losses during the prior year quarter compared to recording a negative provision for credit losses of $3.0 million in the current quarter, partially offset by a decrease in net interest income and an increase in income tax expense. The net interest margin decreased 31 basis points, from 2.19% for the prior year quarter to 1.88% 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. 75 Interest and Dividend Income The weighted average yield on total interest-earning assets decreased 74 basis points, from 3.55% for the prior year quarter to 2.81% for the current quarter, while the average balance of interest-earning assets increased $264.0 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent. For the Three Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable $ 57,285 $ 69,613 $ (12,328) (17.7) % MBS 5,429 5,866 (437) (7.4) FHLB stock 951 1,714 (763) (44.5) Investment securities 629 1,382 (753) (54.5) Cash and cash equivalents 40 380 (340) (89.5) Total interest and dividend income $ 64,334 $ 78,955 $ (14,621) (18.5) The decrease in interest income on loans receivable was due mainly to a 45 basis point decrease in the weighted average yield, from 3.72% for the prior year quarter to 3.27% for the current quarter, along with a $476.0 million decrease in the average balance. The decrease in the weighted average yield was due primarily to an increase in premium amortization related to correspondent loans as a result of an increase in payoff and endorsement activity. The decrease in the average balance was due primarily to a decrease in the balance of correspondent one- to four-family loans. The decrease in interest income on the MBS portfolio was due primarily to a 105 basis point decrease in the weighted average yield on the portfolio, from 2.55% for the prior year quarter to 1.50% for the current quarter resulting from the purchase of MBS at market rates lower than the existing portfolio and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $524.1 million, or 56.9%, increase in the average balance of the portfolio. The decrease in dividend income on FHLB stock was due 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 143 basis point decrease in the weighted average yield on the portfolio, from 1.97% for the prior year quarter to 0.54% for the current quarter as a result of new purchases at lower market yields, partially offset by a $185.2 million increase in the average balance of the portfolio. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield on cash held at the FRB of Kansas City, partially offset by an increase in the average balance of operating cash. Interest Expense The weighted average rate paid on total interest-bearing liabilities decreased 49 basis points, from 1.55% for the prior year quarter to 1.06% for the current quarter, while the average balance of interest-bearing liabilities increased $254.1 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits $ 12,529 $ 17,804 $ (5,275) (29.6) % Borrowings 8,732 12,483 (3,751) (30.0) Total interest expense $ 21,261 $ 30,287 $ (9,026) (29.8) 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 50 basis points, 39 basis points, and 148 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been 76 gradually repricing downward 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 $572.7 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. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances and replacing them at lower rates. Provision for Credit Losses The Bank recorded a negative provision for credit losses during the current quarter of $3.0 million, compared to a $22.1 million provision for credit losses during the prior year quarter. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST INCOME: Gain on sale of Visa Class B shares $ 7,386 $ — $ 7,386 N/A Deposit service fees 2,814 2,783 31 1.1 % Insurance commissions 888 400 488 122.0 Other non-interest income 1,389 1,488 (99) (6.7) Total non-interest income $ 12,477 $ 4,671 $ 7,806 167.1 During the current quarter, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year quarter. Non-Interest Expense The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) NON-INTEREST EXPENSE: Salaries and employee benefits $ 13,397 $ 13,235 $ 162 1.2 % Information technology and related expense 4,599 4,268 331 7.8 Occupancy, net 3,523 3,449 74 2.1 Loss on interest rate swap termination 4,752 — 4,752 N/A Regulatory and outside services 1,234 1,297 (63) (4.9) Advertising and promotional 1,484 1,359 125 9.2 Deposit and loan transaction costs 664 678 (14) (2.1) Federal insurance premium 634 — 634 N/A Office supplies and related expense 463 592 (129) (21.8) Other non-interest expense 1,903 1,286 617 48.0 Total non-interest expense $ 32,653 $ 26,164 $ 6,489 24.8 77 The increase in information technology and related expense was due mainly to an increase in information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the FDIC during the prior year quarter. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as one of the Bank's branch locations, as management intends to sell the property. The Company's efficiency ratio was 58.78% for the current quarter compared to 49.05% for the prior year quarter. The change in the efficiency ratio was due primarily to higher non-interest expense, partially offset by an increase in non-interest income. Income Tax Expense The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent. For the Three Months Ended March 31, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) Income before income tax expense $ 25,861 $ 5,100 $ 20,761 407.1 % Income tax expense 5,417 824 4,593 557.4 Net income $ 20,444 $ 4,276 $ 16,168 378.1 Effective Tax Rate 20.9 % 16.2 % The increase in income tax expense was due primarily to higher pretax income in the current quarter. 78 Average Balance Sheet Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Three Months Ended March 31, 2021 March 31, 2020 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans $ 6,134,527 $ 47,552 3.10 % $ 6,594,029 $ 58,838 3.57 % Commercial loans 766,972 8,559 4.46 759,328 8,994 4.69 Consumer loans 102,613 1,174 4.64 126,710 1,781 5.65 Total loans receivable (1) 7,004,112 57,285 3.27 7,480,067 69,613 3.72 MBS (2) 1,444,554 5,429 1.50 920,419 5,866 2.55 Investment securities (2)(3) 466,077 629 0.54 280,911 1,382 1.97 FHLB stock 77,391 951 4.98 99,879 1,714 6.90 Cash and cash equivalents 158,544 40 0.10 105,381 380 1.43 Total interest-earning assets 9,150,678 64,334 2.81 8,886,657 78,955 3.55 Other non-interest-earning assets 446,265 454,687 Total assets $ 9,596,943 $ 9,341,344 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,459,964 183 0.05 $ 1,107,232 181 0.07 Savings 477,985 69 0.06 365,554 74 0.08 Money market 1,543,911 1,038 0.27 1,208,521 1,981 0.66 Retail/business certificates 2,753,439 10,917 1.61 2,691,029 14,103 2.11 Wholesale certificates 260,712 322 0.50 296,828 1,465 1.98 Total deposits 6,496,011 12,529 0.78 5,669,164 17,804 1.26 Borrowings (4) 1,603,459 8,732 2.19 2,176,166 12,483 2.29 Total interest-bearing liabilities 8,099,470 21,261 1.06 7,845,330 30,287 1.55 Other non-interest-bearing liabilities 213,602 183,018 Stockholders' equity 1,283,871 1,312,996 Total liabilities and stockholders' equity $ 9,596,943 $ 9,341,344 Net interest income (5) $ 43,073 $ 48,668 Net interest rate spread (6) 1.75 2.00 Net interest-earning assets $ 1,051,208 $ 1,041,327 Net interest margin (7) 1.88 2.19 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x Selected performance ratios: Return on average assets (annualized) 0.85 % 0.18 % Return on average equity (annualized) 6.37 1.30 Average equity to average assets 13.38 14.06 Operating expense ratio (8) 1.36 1.12 Efficiency ratio (9) 58.78 49.05 79 (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 $7.5 million and $15.0 million for the three months ended March 31, 2021 and March 31, 2020, respectively. (4) The FHLB advance amounts and rates included in this line 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 three months ended March 31, 2021 to the three months ended March 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Three Months Ended March 31, 2021 vs. 2020 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable $ (4,183) $ (8,145) $ (12,328) MBS 2,544 (2,981) (437) Investment securities 596 (1,349) (753) FHLB stock (342) (421) (763) Cash and cash equivalents 126 (466) (340) Total interest-earning assets (1,259) (13,362) (14,621) Interest-bearing liabilities: Checking 48 (46) 2 Savings 19 (24) (5) Money market 434 (1,377) (943) Certificates of deposit 129 (4,458) (4,329) Borrowings (2,750) (1,001) (3,751) Total interest-bearing liabilities (2,120) (6,906) (9,026) Net change in net interest income $ 861 $ (6,456) $ (5,595) 80 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. 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 March 31, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances. The amount of FHLB borrowings outstanding at March 31, 2021 was $1.59 billion, of which $640.0 million were advances scheduled to mature in the next 12 months, including $440.0 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 March 31, 2021, 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 March 31, 2021, the Bank had $1.72 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 March 31, 2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At March 31, 2021, 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 $311.5 million as collateral for public unit certificates of deposit at March 31, 2021. 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 March 31, 2021, $1.59 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $241.6 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. 81 The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at March 31, 2021, 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 March 31, 2021, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $377.0 million. Loans (1) MBS Investment Securities Total Amount Yield Amount Yield Amount Yield Amount Yield (Dollars in thousands) Amounts due: Within one year $ 151,503 3.86 % $ 1,722 2.73 % $ 4,226 1.75 % $ 157,451 3.79 % After one year: Over one to two years 124,686 3.80 12,432 1.50 1,264 1.95 138,382 3.58 Over two to three years 56,004 4.56 14,436 1.89 74,991 0.36 145,431 2.13 Over three to five years 160,248 4.15 51,787 2.84 465,542 0.58 677,577 1.60 Over five to ten years 738,333 3.64 291,757 1.80 — — 1,030,090 3.12 Over ten to fifteen years 1,602,985 2.97 909,136 1.27 — — 2,512,121 2.35 After fifteen years 4,159,400 3.40 268,631 1.91 — — 4,428,031 3.31 Total due after one year 6,841,656 3.36 1,548,179 1.53 541,797 0.56 8,931,632 2.87 $ 6,993,159 3.37 $ 1,549,901 1.54 $ 546,023 0.56 $ 9,089,083 2.89 (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. 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 six months ended March 31, 2021 was $840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $731.7 million at a weighted average contractual rate of 0.56%. The balance of short-term FHLB borrowings outstanding at March 31, 2021 was $640.0 million, at a weighted average contractual rate of 0.34%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months. 82 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 March 31, 2021, 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 March 31, 2021, the Bank's CBLR was 12.2% and the Company's CBLR was 13.4%, 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 March 31, 2021, for the Bank and the Company (dollars in thousands): Bank Company Total equity as reported under GAAP $ 1,164,295 $ 1,278,595 AOCI 18,953 18,953 Goodwill and other intangibles, net of associated deferred taxes (13,072) (13,072) Total tier 1 capital $ 1,170,176 $ 1,284,476 83