What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-10 compared with 2024-02-07 · 250 added, 126 removed, 724 unchanged (34% of the section changed)

4 unchanged sentences

(Dollars in thousands, except per share amounts)

December 31, September 30,

March 31, September 30,

Cash and cash equivalents (includes interest-earning deposits of $ 419,332 and $ 213,830 )

19 unchanged sentences

Common stock, $ .01 par value;

1,400,000,000 shares authorized, 133,908,375 and 135,936,375 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

1,400,000,000 shares authorized, 132,685,065 and 135,936,375 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively

Additional paid-in capital 1,147,029 1,166,643

Unearned compensation, Employee Stock Ownership Plan ("ESOP") ( 27,258 ) ( 28,083 )

Retained earnings ( 113,357 ) ( 104,565 )

Accumulated deficit ( 110,722 ) ( 104,565 )

Accumulated other comprehensive income ("AOCI"), net of tax 14,527 8,700

6 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

March 31, March 31,

2024 2023 2024 2023

INTEREST AND DIVIDEND INCOME:

11 unchanged sentences

PROVISION FOR CREDIT LOSSES 301 891 424 4,551

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 39,470 42,168

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 41,019 41,068 80,489 83,236

NON-INTEREST INCOME:

15 unchanged sentences

Total non-interest expense 28,445 28,631 56,953 56,404

INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE 2,068 19,747

INCOME TAX (BENEFIT) EXPENSE ( 475 ) 3,507

INCOME BEFORE INCOME TAX EXPENSE 17,217 17,520 19,285 37,267

INCOME TAX EXPENSE 3,455 3,331 2,980 6,838

NET INCOME $ 13,762 $ 14,189 $ 16,305 $ 30,429

8 unchanged sentences

(Dollars in thousands)

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

March 31, March 31,

2024 2023 2024 2023

Net income $ 13,762 $ 14,189 $ 16,305 $ 30,429

Other comprehensive income, net of tax:

Unrealized gains on AFS securities arising during the period,

net of taxes of $( 5,350 ) and $( 4,211 )

Unrealized (losses) gains on AFS securities arising during the

period, net of taxes of $ 1,766 , $( 5,415 ), $( 3,584 ), and $( 9,626 )

( 5,471 ) 16,777 11,110 29,827

Reclassification adjustment for gross gains on AFS securities included in net income,

net of taxes of $ 383 and $ 0

Unrealized gains (losses) on cash flow hedges arising during the period,

net of taxes of $ 967 and $( 232 )

Reclassification adjustment for gross gains on AFS securities

included in net income, net of taxes of $ 0 , $ 0 , $ 383 , and $ 0

— — ( 1,188 ) —

Reclassification adjustment for cash flow hedge amounts included in net income,

net of taxes of $ 626 and $ 237

Unrealized gains (losses) on cash flow hedges arising during the

period, net of taxes of $( 814 ), $ 483 , $ 153 , and $ 251

2,521 ( 1,495 ) ( 477 ) ( 780 )

Reclassification adjustment for cash flow hedge amounts included

in net income, net of taxes of $ 542 , $ 427 , $ 1,168 , and $ 664

( 1,678 ) ( 1,323 ) ( 3,618 ) ( 2,057 )

Comprehensive income $ 9,134 $ 28,148 $ 22,132 $ 57,419

4 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended December 31, 2023

For the Six Months Ended March 31, 2024

Additional Unearned Total

Common Paid-In Compensation Retained Stockholders'

Stock Capital ESOP Earnings AOCI Equity

Common Paid-In Compensation Accumulated Stockholders'

Stock Capital ESOP Deficit AOCI Equity

Balance at September 30, 2023 $ 1,359 $ 1,166,643 $ ( 28,083 ) $ ( 104,565 ) $ 8,700 $ 1,044,054

9 unchanged sentences

Balance at December 31, 2023 $ 1,339 $ 1,154,655 $ ( 27,671 ) $ ( 113,357 ) $ 19,155 $ 1,034,121

For the Three Months Ended December 31, 2022

Net income 13,762 13,762

Other comprehensive loss, net of tax ( 4,628 ) ( 4,628 )

ESOP activity ( 168 ) 413 245

Restricted stock activity, net 1 ( 3 ) ( 2 )

Stock-based compensation 82 82

Repurchase of common stock ( 13 ) ( 7,537 ) ( 7,550 )

Cash dividends to stockholders ($ 0.085 per share)

( 11,127 ) ( 11,127 )

Balance at March 31, 2024 $ 1,327 $ 1,147,029 $ ( 27,258 ) $ ( 110,722 ) $ 14,527 $ 1,024,903

For the Six Months Ended March 31, 2023

Additional Unearned Total

10 unchanged sentences

Balance at December 31, 2022 $ 1,361 $ 1,168,061 $ ( 29,322 ) $ 47,297 $ ( 132,602 ) $ 1,054,795

See accompanying notes to consolidated financial statements.

Net income 14,189 14,189

Other comprehensive income, net of tax 13,959 13,959

ESOP activity ( 76 ) 412 336

Stock-based compensation 74 74

Cash dividends to stockholders ($ 0.085 per share)

( 11,319 ) ( 11,319 )

Balance at March 31, 2023 1,361 1,168,059 ( 28,910 ) 50,167 ( 118,643 ) 1,072,034

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Three Months Ended

For the Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

17 unchanged sentences

Other liabilities ( 9,407 ) ( 7,990 )

Net cash (used in) provided by operating activities ( 5,334 ) 14,601

Net cash provided by operating activities 15,168 24,734

CASH FLOWS FROM INVESTING ACTIVITIES:

8 unchanged sentences

Proceeds from sale of other real estate owned ("OREO") 396 347

Proceeds from sale of assets held-for-sale 180 —

Proceeds from bank-owned life insurance ("BOLI") death benefit 1,049 —

Net cash provided by (used in) investing activities 674,270 ( 424,258 )

3 unchanged sentences

(Dollars in thousands)

For the Three Months Ended

For the Six Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

6 unchanged sentences

Net cash (used in) provided by financing activities ( 491,530 ) 410,537

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 74,752 492

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

NET INCREASE IN CASH AND CASH EQUIVALENTS 197,908 11,013

CASH AND CASH EQUIVALENTS:

Beginning of period 245,605 49,194

End of period $ 443,513 $ 60,207

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:

Purchase of securities that will settle in a subsequent period $ 29,467 $ —

See accompanying notes to consolidated financial statements.

14 unchanged sentences

Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents and Restricted Cash - Cash, cash equivalents and restricted cash reported in the statement of cash flows consisted entirely of cash and cash equivalents at December 31, 2023 and September 30, 2023, respectively.

At times, the Company holds restricted cash, which is reported in other assets on the consolidated balance sheet, related to collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.

There was no restricted cash at December 31, 2023 or September 30, 2023.

See additional discussion regarding the interest rate swaps in Note 5.

Borrowed Funds.

Net Presentation of Cash Flows Related to Borrowings - At times, the Bank enters into FHLB advances with contractual maturities of 90 days or less.

5 unchanged sentences

The Company adopted the ASU on October 1, 2023 on a prospective basis, except for the amendments impacting the measurement of the ACL for TDRs, which were adopted on a modified retrospective approach.

Upon adoption, the Company recorded a $ 20 thousand increase in ACL, a $ 16 thousand increase in reserves for off-balance sheet exposures, and a cumulative effect-adjustment to retained earnings of $ 27 thousand, net of tax.

Upon adoption, the Company recorded a $ 20 thousand increase in ACL, a $ 16 thousand increase in reserves for off-balance sheet exposures, and a cumulative effect-adjustment to accumulated deficit of $ 27 thousand, net of tax.

The adjustments are attributable to including TDRs in the ACL model, as of October 1, 2023.

18 unchanged sentences

This may result in disclosures currently presented outside of the Company's financial statements being relocated to the Company's financial statements.

The amendments will be applied prospectively by the Company.

The ASU is not expected to have a material impact to the Company's disclosures as the Company is currently subject to SEC Regulations S-X and S-K.

The amendments will be applied

prospectively by the Company.

The ASU is not expected to have a material impact on the Company's disclosures as the Company is currently subject to SEC Regulations S-X and S-K.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.

7 unchanged sentences

The Company is currently evaluating the effect this ASU will have on the Company's income tax disclosures.

In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements.

This ASU removes references to various Concept Statements to simplify the Codification and provide a distinction between authoritative and nonauthoritative literature.

This ASU is effective for the Company on October 1, 2025.

The Company is currently evaluating this ASU, but it is not expected to have a significant impact on the Company's consolidated financial condition, results of operations, and disclosures.

EARNINGS PER SHARE

2 unchanged sentences

The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

March 31, March 31,

2024 2023 2024 2023

(Dollars in thousands, except per share amounts)

10 unchanged sentences

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented.

December 31, 2023

The majority of our securities are government guaranteed or issued by a Government Sponsored Enterprise ("GSE").

March 31, 2024

Gross Gross Estimated

4 unchanged sentences

Treasury bills 99,408 1 6 99,403

GSE debentures 91,542 — 82 91,460

Corporate bonds 4,000 — 751 3,249

6 unchanged sentences

MBS $ 901,440 $ 113 $ 819 $ 900,734

Government-sponsored enterprise ("GSE") debentures 479,610 — 182 479,428

GSE debentures 479,610 — 182 479,428

Corporate bonds 4,000 — 622 3,378

2 unchanged sentences

The following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.

December 31, 2023

March 31, 2024

Less Than 12 Months Equal to or Greater Than 12 Months

3 unchanged sentences

MBS $ 109,410 $ 426 $ 20,150 $ 244

Treasury bills 74,440 6 — —

GSE debentures 81,460 82 — —

Corporate bonds — — 3,249 751

9 unchanged sentences

$ 6,179 $ 109 $ 62,751 $ 1,514

The unrealized losses at December 31, 2023 were a result of an increase in market yields from the time the securities were purchased.

The unrealized losses at March 31, 2024 were a result of an increase in market yields from the time the securities were purchased.

In general, as market yields rise, the fair value of securities will decrease;

as market yields fall, the fair value of securities will increase.

Management did not record an ACL on securities in an unrealized loss position at December 31, 2023 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity.

The amortized cost and estimated fair value of AFS debt securities as of December 31, 2023, by contractual maturity, are shown below.

Management did not record an ACL on securities in an unrealized loss position at March 31, 2024 as management does not believe any of the securities were impaired due to credit quality reasons.

The issuers of these securities continue to make scheduled and timely principal and interest payments, as applicable, under the contractual term of the securities so management believes the entire principal balance will be collected as scheduled.

Additionally, management does not have the intent to sell any of the securities and believes that it is more likely than not that the Company will not be required to sell the securities before the recovery of the remaining amortized cost, which could be at maturity.

The fair value is expected to recover as the securities approach their maturity date, if not before, or if market yields for such securities decline.

The amortized cost and estimated fair value of AFS debt securities as of March 31, 2024, by contractual maturity, are shown below.

Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer.

10 unchanged sentences

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.

For the Three Months Ended

For the Three Months Ended For the Six Months Ended

March 31, March 31,

2024 2023 2024 2023

(Dollars in thousands)

3 unchanged sentences

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

(Dollars in thousands)

3 unchanged sentences

During the quarter ended December 31, 2023, the Bank sold $ 1.30 billion of AFS securities.

The Bank received gross proceeds of $ 1.27 billion from the sale and realized gross losses of $ 14.9 million and gross gains of $ 1.6 million, resulting in a net loss of $ 13.3 million on the sale during the quarter.

All other dispositions of securities during the current year and prior year periods were the result of principal repayments, calls, or maturities.

LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable, net at the dates presented is summarized as follows:

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

(Dollars in thousands)

18 unchanged sentences

Lending Practices and Underwriting Standards - Originating one- to four-family loans is the Bank's primary lending business.

The Bank also purchases one- to four-family loans from correspondent lenders and originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans.

The Bank also purchases one- to four-family loans from correspondent lenders, but to a much lesser extent in the current fiscal year compared to prior years, and originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans.

The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

6 unchanged sentences

The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.

Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or in participation with a lead bank.

Commercial loans - The Bank's commercial portfolio includes loans that are originated by the Bank or in participation with a lead bank.

For commercial participation loans, the Bank performs the same underwriting procedures as if the loan was originated by the Bank.

When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property.

For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan

was being originated by the Bank.

At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 85 % of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 .

27 unchanged sentences

Loans classified as doubtful or loss are individually evaluated for loss.

At December 31, 2023 and September 30, 2023, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

December 31, 2023

At March 31, 2024 and September 30, 2023, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.

March 31, 2024

Current Fiscal Fiscal Fiscal Fiscal Revolving Credit

69 unchanged sentences

All revolving lines of credit and revolving lines of credit converted to term loans are presented separately, regardless of origination year.

December 31, 2023

March 31, 2024

Current Fiscal Fiscal Fiscal Fiscal Revolving Credit

67 unchanged sentences

Total $ 1,124,730 $ 1,450,679 $ 1,709,273 $ 904,106 $ 403,494 $ 2,285,008 $ 110,969 $ 6,449 $ 7,994,708

Gross Charge-Offs - Upon adoption of ASU 2022-02 on October 1, 2023, the Company is required to present gross charge-offs by class of financing receivable and year of origination or most recent credit decision.

The following table sets forth the required gross charge-off information for the three months ended December 31, 2023.

Gross Charge-Offs - Since the adoption of ASU 2022-02 on October 1, 2023, the Company has been required to present gross charge-offs by class of financing receivable and year of origination or most recent credit decision.

The following table sets forth the required gross charge-off information for the six month period ended March 31, 2024.

Current Fiscal Fiscal Fiscal Fiscal Revolving of Credit

15 unchanged sentences

Delinquent and Nonaccrual Loans - The following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans.

At December 31, 2023 and September 30, 2023, all loans 90 or more days delinquent were on nonaccrual status.

The increase in correspondent and bulk purchased one- to four-family loans 30 to 89 days delinquent and in nonaccrual one- to four-family loans was due mainly to delinquencies returning to more historical levels as government payment assistance programs expired.

The increase in commercial loans 30 to 89 days delinquent was a mix of several different borrowers and property types.

There was not one underlying reason for the increase in commercial loan delinquencies from September 30, 2023.

Management is working closely with the borrowers to address payment issues.

December 31, 2023

At March 31, 2024 and September 30, 2023, all loans 90 or more days delinquent were on nonaccrual status.

March 31, 2024

90 or More Days Total Total

25 unchanged sentences

$ 16,347 $ 8,936 $ 25,283 $ 7,969,425 $ 7,994,708

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2023 and September 30, 2023 was $ 2.8 million and $ 2.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 444 thousand at December 31, 2023 and $ 219 thousand at September 30, 2023.

The following table presents the amortized cost at December 31, 2023 and September 30, 2023, by class, of loans classified as nonaccrual.

The amortized cost of mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process as of March 31, 2024 and September 30, 2023 was $ 3.2 million and $ 2.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $ 67 thousand at March 31, 2024 and $ 219 thousand at September 30, 2023.

The following table presents the amortized cost at March 31, 2024 and September 30, 2023, by class, of loans classified as nonaccrual.

Additionally, the amortized cost of nonaccrual loans that had no related ACL is presented, all of which were individually evaluated for loss and any identified losses have been charged off.

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

Nonaccrual Loans Nonaccrual Loans with No ACL Nonaccrual Loans Nonaccrual Loans with No ACL

9 unchanged sentences

$ 8,848 $ 1,316 $ 9,453 $ 1,990

Loan Modifications - The following table presents the amortized cost basis of loans as of December 31, 2023 that were both experiencing financial difficulties and modified during the three months ended December 31, 2023, by class of financing receivable and by type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulties as compared to the amortized cost basis of each class of financing receivable is also presented below.

During the three months ended December 31, 2023, the Company did not charge-off any amounts related to the loans presented in the table below.

The Company has not committed to lend additional amounts to borrowers included in this table.

Loan Modifications - The following tables present the amortized cost basis of loans as of March 31, 2024 that were both experiencing financial difficulties and modified during the periods noted, by class of financing receivable and by type of modification.

Also presented in the tables is the percentage of the amortized cost basis of loans as of March 31, 2024 that were modified to borrowers experiencing financial difficulties as compared to the amortized cost basis of each class of financing receivable as of March 31, 2024.

During the three months and six months ended March 31, 2024, the Company did not charge-off any amounts related to the loans presented in the table below.

The Company has not committed to lend additional amounts to borrowers included in these tables.

For the Three Months Ended March 31, 2024

Combination- Total

6 unchanged sentences

Correspondent — — — — 845 845 0.04

Purchased — — — — — — —

Bulk purchased — — — — — — —

— — — — 4,275 4,275 0.07

7 unchanged sentences

Total $ — $ — $ — $ — $ 4,968 $ 4,968 0.06

Financial effect of loan modifications - All loan modifications during the three months ended December 31, 2023 were a combination of term extensions and payment delays of one- to four-family originated loans or one- to four-family correspondent loans.

The weighted average length of the term extensions was 23 months for one- to four-family originated loans and 12 months for one- to four-family correspondent loans.

The weighted average payment delay was four months for both one- to four-family originated loans and one- to four-family correspondent loans.

Performance of loan modifications - None of the loans modified during the three months ended December 31, 2023 defaulted through December 31, 2023.

For the Six Months Ended March 31, 2024

Combination- Total

Term Extension Class of

Principal Interest Rate Payment Term and Financing

Forgiveness Reduction Delay Extension Payment Delay Total Receivable

(Dollars in thousands)

One- to four-family:

Originated $ — $ — $ — $ — $ 7,385 $ 7,385 0.19 %

Correspondent — — — — 1,744 1,744 0.07

Bulk purchased — — — — — — —

— — — — 9,129 9,129 0.14

Commercial real estate — — — — 238 238 0.02

Commercial and industrial — — — — 455 455 0.41

— — — — 693 693 0.05

Consumer loans:

Home equity — — — — — — —

Other — — — — — — —

— — — — — — —

Total $ — $ — $ — $ — $ 9,822 $ 9,822 0.12

Financial effect of loan modifications - All loan modifications during the three months and six months ended March 31, 2024 were a combination of term extensions and payment delays.

The table below presents the financial impact of loan modifications during the three and six months ended March 31, 2024.

For the Three Months Ended March 31, 2024 For the Six Months Ended March 31, 2024

Term Payment Term Payment

Extension Delays Extension Delays

One- to four-family:

Originated 39 months 4 months 31 months 4 months

Correspondent 20 months 5 months 17 months 4 months

Commercial real estate 26 months 26 months 26 months 26 months

Commercial and industrial 6 months 6 months 6 months 6 months

Performance of loan modifications - Of the loans modified during the three and six months ended March 31, 2024, $ 93 thousand of one- to four-family originated loans defaulted through March 31, 2024.

The Company considers "default" to mean 90 days or more past due under the modified terms.

Of the loans modified during the three months ended December 31, 2023, $ 231 thousand of one-to four-family originated loans were 30-89 days delinquent at December 31, 2023.

All other loans modified during the three months ended December 31, 2023 were current at December 31, 2023.

Of the loans modified during the three and six months ended March 31, 2024, $ 672 thousand of one-to four-family originated loans were 30-89 days delinquent at March 31, 2024.

All other loans modified during the three and six months ended March 31, 2024 were current at March 31, 2024.

TDRs - Prior to the adoption of ASU 2022-02 on October 1, 2023, loans were accounted for as TDRs if the Bank granted a concession to a borrower experiencing financial difficulties.

There were no loans restructured during the three months ended December 31, 2022.

During the three months ended December 31, 2022, there was one one-to four-family originated TDR with an amortized cost of $ 8 thousand that became delinquent within 12 months after being restructured.

There was one one- to four-family bulk loan restructured during the three and six months ended March 31, 2023, with an amortized cost of $ 239 thousand prior to restructuring and an amortized cost of $ 257 thousand immediately after restructuring.

During the three months ended March 31, 2023, there were no TDRs that became delinquent within 12 months after being restructured.

During the six months ended March 31, 2023 there was one one- to four-family originated TDR with an amortized cost of $ 8 thousand that became delinquent within 12 months after being restructured.

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented.

For the Three Months Ended December 31, 2023

For the Three Months Ended March 31, 2024

One- to Four-Family

3 unchanged sentences

Beginning balance $ 2,094 $ 2,948 $ 206 $ 5,248 $ 18,678 $ 252 $ 24,178

Charge-offs — — — — ( 10 ) ( 8 ) ( 18 )

Recoveries 3 — — 3 — 15 18

Provision for credit losses ( 25 ) ( 155 ) ( 11 ) ( 191 ) 662 ( 15 ) 456

Ending balance $ 2,072 $ 2,793 $ 195 $ 5,060 $ 19,330 $ 244 $ 24,634

For the Six Months Ended March 31, 2024

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,149 $ 2,972 $ 207 $ 5,328 $ 18,180 $ 251 $ 23,759

Adoption of ASU 2022-02 3 1 14 18 2 — 20

4 unchanged sentences

Ending balance $ 2,072 $ 2,793 $ 195 $ 5,060 $ 19,330 $ 244 $ 24,634

For the Three Months Ended December 31, 2022

For the Three Months Ended March 31, 2023

One- to Four-Family

7 unchanged sentences

Ending balance $ 2,139 $ 3,074 $ 221 $ 5,434 $ 14,222 $ 233 $ 19,889

For the Six Months Ended March 31, 2023

One- to Four-Family

Correspondent Bulk

Originated Purchased Purchased Total Commercial Consumer Total

(Dollars in thousands)

Beginning balance $ 2,066 $ 2,734 $ 206 $ 5,006 $ 11,120 $ 245 $ 16,371

Charge-offs — — — — — ( 20 ) ( 20 )

Recoveries 1 — — 1 1 2 4

Provision for credit losses 72 340 15 427 3,101 6 3,534

Ending balance $ 2,139 $ 3,074 $ 221 $ 5,434 $ 14,222 $ 233 $ 19,889

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.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2023.

The key assumptions utilized in estimating the Company's ACL at December 31, 2023 are discussed below.

• Economic Forecast - Management considered several economic forecasts provided by a third party and selected an economic forecast that was the most appropriate considering the facts and circumstances at December 31, 2023.

The forecasted economic indices applied to the model at December 31, 2023 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at March 31, 2024.

The key assumptions utilized in estimating the Company's ACL at March 31, 2024 are discussed below.

The forecasted economic indices applied to the model at March 31, 2024 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S.

gross domestic product.

The economic index most impactful to all loan pools within the model at December 31, 2023 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at December 31, 2023 had the national unemployment rate gradually increasing to 4.0 % by December 31, 2024, which was the end of our four-quarter forecast time period.

• Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2023.

• Prepayment and curtailment assumptions - The assumptions used at December 31, 2023 were generally based on actual historical prepayment and curtailment speeds, adjusted by management as deemed necessary.

The economic index most impactful to all loan pools within the model at March 31, 2024 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at March 31, 2024 had the national unemployment rate gradually increasing to 4.1 % by March 31, 2025, which was the end of our four-quarter forecast time period.

• Forecast and reversion to mean time periods - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at March 31, 2024.

• Prepayment and curtailment assumptions - The assumptions used at March 31, 2024 were generally based on actual historical prepayment and curtailment speeds, adjusted by management as deemed necessary.

The prepayment and curtailment assumptions vary for each respective loan pool in the model.

• Qualitative factors - The qualitative factors applied by management at December 31, 2023 included the following:

• Qualitative factors - The qualitative factors applied by management at March 31, 2024 included the following:

◦ The economic uncertainties related to the unemployment rate, the labor force composition, and the labor participation rate that are not captured in the third-party economic forecast scenarios;

1 unchanged sentence

Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the periods indicated.

At December 31, 2023 and September 30, 2023, the Bank's off-balance sheet credit exposures totaled $ 803.0 million and $ 837.7 million, respectively.

For the Three Months Ended

December 31, 2023 December 31, 2022

At March 31, 2024 and September 30, 2023, the Bank's off-balance sheet credit exposures totaled $ 790.9 million and $ 837.7 million, respectively.

For the Three Months Ended For the Six Months Ended

March 31, 2024 March 31, 2023 March 31, 2024 March 31, 2023

(Dollars in thousands)

1 unchanged sentence

Adoption of ASU 2022-02 — — 16 —

Balance at October 1, 2023 4,111 4,751

(Release)/provision for credit losses ( 155 ) 177 ( 432 ) 1,017

1 unchanged sentence

BORROWED FUNDS

Borrowings - Borrowings at December 31, 2023 consisted of $ 2.38 billion in FHLB advances, of which $ 2.01 billion were fixed-rate advances and $ 365.0 million were variable-rate advances, and $ 974 thousand in finance leases.

Borrowings - Borrowings at March 31, 2024 consisted of $ 2.35 billion in FHLB advances, of which $ 2.05 billion were fixed-rate advances and $ 300.0 million were variable-rate advances and $ 971 thousand in finance leases.

Borrowings at September 30, 2023 consisted of $ 2.38 billion in FHLB advances, of which $ 2.02 billion were fixed-rate advances and $ 365.0 million were variable-rate advances, and $ 500.0 million of borrowings from the Federal Reserve's Bank Term Funding Program ("BTFP").

During the current quarter, the Bank paid off the $ 500.0 million of BTFP borrowings.

As of December 31, 2023 and September 30, 2023, the Bank held interest rate swap agreements with an aggregate notional amount of $ 365.0 million in order to hedge the variable cash flows associated with $ 365.0 million of adjustable-rate FHLB advances.

At December 31, 2023 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.8 years and 2.1 years, respectively.

During the current year period, the Bank paid off the $ 500.0 million of BTFP borrowings.

As of March 31, 2024 and September 30, 2023, the Bank held interest rate swap agreements with an aggregate notional amount of $ 300.0 million and $ 365.0 million, respectively, in order to hedge the variable cash flows associated with $ 300.0 million and $ 365.0 million, respectively, of adjustable-rate FHLB advances.

At March 31, 2024 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.9 years and 2.1 years, respectively.

The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements.

At December 31, 2023 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $ 6.5 million and $ 13.0 million respectively, which was reported in other assets on the consolidated balance sheet.

During the three month periods ended December 31, 2023 and December 31, 2022, $ 1.9 million and $ 734 thousand, respectively, was reclassified from AOCI as a decrease to interest expense.

At December 31, 2023, the Company estimated that $ 5.2 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

At March 31, 2024 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $ 7.6 million and $ 13.0 million, respectively, which was reported in other assets on the consolidated balance sheet.

During the three and six month periods ended March 31, 2024, $ 1.7 million and $ 3.6 million, respectively, was reclassified from AOCI as a decrease to interest expense.

During the three and six month periods ended March 31, 2023, $ 1.3 million and $ 2.1 million, respectively, was reclassified from AOCI as a decrease to interest expense.

At March 31, 2024, the Company estimated that $ 4.9 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as a decrease to interest expense on FHLB borrowings during the next 12 months.

The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis.

The Bank held cash collateral of $ 7.2 million and $ 14.0 million at December 31, 2023 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

At times, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from the borrowings, net of the required FHLB stock holdings, at the FRB of Kansas City.

The borrowings are repaid prior to quarter end, or earlier if the strategy is suspended.

The leverage strategy was not in place during the current quarter due to the strategy being unprofitable, but it was in place at points during the September 30, 2023 quarter.

The Bank held cash collateral of $ 8.2 million and $ 14.0 million at March 31, 2024 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

Periodically, management has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the cost to purchase FHLB stock to meet FHLB stock holding requirements, at the FRB of Kansas City ("leverage strategy").

The leverage strategy is not a core operating business for the Company.

It provides the Company the ability to utilize excess capital to generate earnings.

Additionally, it is a strategy that can be exited quickly without additional costs.

Leverage strategy borrowings are repaid prior to each quarter end.

The leverage strategy was not in place during the current year six month period due to the strategy being unprofitable, but it was in place at points during the prior year six month period.

When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.

Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.

Prior to the Small Business Job Protection Act (the "1996 Act"), the Bank was permitted to deduct, up to a specified formula limit, a certain percentage of income as bad debts, for which the Bank was not required to establish a deferred tax liability.

Rather, the difference was recorded in the Bank's retained earnings.

As a result of the 1996 Act, savings institutions, like the Bank, have been required to use the specific charge-off method in computing bad debt deductions beginning with their 1996 Federal tax return.

Pre-1988 bad debt reserves in retained earnings remain subject to recapture by the Bank on the occurrence of certain distributions in excess of current earnings and profits accumulated in tax years beginning after December 31, 1951 ("accumulated earnings and profits").

The Bank estimates its pre-1988 bad debt reserves to be $ 99.2 million at March 31, 2024, which equates to an unrecorded deferred tax liability of $ 24.3 million at March 31, 2024.

Any distributions from the Bank to Capitol Federal Financial, Inc.

which would be deemed to be drawn out of the Bank's pre-1988 bad debt reserves, would require a payment of taxes at the then-current rate by the Bank on the amount of earnings deemed to be removed from the bad debt reserves for such distribution, thereby reducing the amount of cash that can be distributed to the Company.

The net loss associated with the securities strategy that was recognized in fiscal year 2023 net income will be recognized in the Company's fiscal year 2024 income tax return due to the sale of the securities occurring in October 2023 (in fiscal 2024).

As a result, the Company anticipates it will report a taxable net loss on its September 30, 2024 corporate income tax return.

Due to the anticipated taxable net loss in fiscal year 2024, the Bank's earning distributions to the Company during fiscal year 2024 will be deemed to draw upon the Bank's pre-1988 bad debt reserves.

This will result in an increase in income tax expense in fiscal year 2024 equivalent to the distributions paid by the Bank that are deemed to be drawn upon the Bank's pre-1988 bad debt reserves times the Bank's current statutory tax rate.

These amounts will be treated as discrete tax items in the quarters the distributions are paid and will offset the Bank's net operating loss deferred tax asset.

During the current fiscal year, the Company reversed the $ 47.0 million deferred tax asset as of September 30, 2023 related to the net loss on the securities transaction and recorded a deferred tax asset for the anticipated taxable net loss in the current fiscal year.

The deferred tax asset related to the anticipated taxable net loss, or net operating loss, was $ 42.3 million at March 31, 2024.

In addition, the Company recorded a deferred tax asset in the current fiscal year related to its low income housing tax credits that are currently not

utilized due to tax return income limitations.

The related deferred tax asset at March 31, 2024 was $ 7.6 million.

Federal net operating losses carry forward indefinitely and federal tax credits carry forward for 20 years.

The Company assesses the available positive and negative evidence surrounding the recoverability of its deferred tax assets and applies its judgment in estimating the amount of valuation allowance necessary under the circumstances.

At March 31, 2024, the Company does not believe a valuation allowance is necessary on the deferred income tax assets recorded during the current quarter as it is more likely than not that these amounts will be realized through the reversal of the Company's existing taxable temporary differences and projected future taxable income.

FAIR VALUE OF FINANCIAL INSTRUMENTS

17 unchanged sentences

On a quarterly basis, management corroborates a sample of prices obtained from the third-party pricing service for Level 2 securities by comparing them to an independent source.

the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management.

The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2023 or during fiscal year 2023.

If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third-party pricing service, then the variance is researched by management.

The Company did not have to adjust prices obtained from the third-party pricing service when determining the fair value of its securities during the six months ended March 31, 2024 or during fiscal year 2023.

The Company's major security types, based on the nature and risks of the securities, are:

Treasury bills - Estimated fair values are based on pricing data from active primary and secondary markets, and inter-dealer brokers.

• GSE debentures - Estimated fair values are based on a discounted cash flow method.

Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities.

• MBS - The majority of these securities are issued by GSEs.

1 unchanged sentence

Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities.

• GSE debentures - Estimated fair values are based on a discounted cash flow method.

Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities.

• Corporate Bonds and Municipal Bonds - Estimated fair values are based on a discounted cash flow method.

4 unchanged sentences

On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party.

No adjustments were made to the estimated fair values obtained from the counterparty during the three months ended December 31, 2023 or during fiscal year 2023.

No adjustments were made to the estimated fair values obtained from the counterparty during the six months ended March 31, 2024 or during fiscal year 2023.

The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented.

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at December 31, 2023 or September 30, 2023.

December 31, 2023

The Company did no t have any Level 3 financial instruments measured at fair value on a recurring basis at March 31, 2024 or September 30, 2023.

March 31, 2024

Quoted Prices Significant Significant

6 unchanged sentences

Treasury bills 99,403 99,403 — —

GSE debentures 91,460 — 91,460 —

Corporate bonds 3,249 — 3,249 —

20 unchanged sentences

Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31, 2023 and 2022 that were still held in the portfolio as of December 31, 2023 and 2022 was $ 1.1 million and $ 4.1 million, respectively.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the six months ended March 31, 2024 and 2023 that were still held in the portfolio as of March 31, 2024 and 2023 was $ 1.2 million and $ 3.6 million, respectively.

Fair values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.

4 unchanged sentences

Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace.

The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2023 and December 31, 2022 were downward adjustments to the book value of the collateral for lack of marketability.

During the three months ended December 31, 2023, the adjustments ranged from 5 % to 100 %, with a weighted average of 17 %.

During the three months ended December 31, 2022, the adjustments ranged from 8 % to 100 %, with a weighted average of 21 %.

The primary significant unobservable inputs for commercial loans individually evaluated during the six months ended March 31, 2024 and March 31, 2023 were downward adjustments to the book value of the collateral for lack of marketability.

During the six months ended March 31, 2024, the adjustments ranged from 5 % to 100 %, with a weighted average of 16 %.

During the six months ended March 31, 2023, the adjustments ranged from 8 % to 100 %, with a weighted average of 21 %.

The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.

3 unchanged sentences

The primary significant unobservable input for one- to four-family OREO was the appraisal or listing price.

There was $ 67 thousand and $ 93 thousand of one- to four-family OREO measured on a non-recurring basis during the six months ended March 31, 2024 and March 31, 2023, respectively.

The carrying value of the properties equaled the fair value of the properties at March 31, 2024 and 2023.

For commercial OREO, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will adjust the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable.

2 unchanged sentences

Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3.

There was $ 219 thousand and $ 93 thousand of one- to four-family OREO measured on a non-recurring basis during the three months ended December 31, 2023 and December 31, 2022, respectively.

The carrying value of the properties equaled the fair value of the properties at December 31, 2023 and 2022.

There was no commercial OREO measured on a non-recurring basis during the three months ended December 31, 2023 or 2022.

There was no commercial OREO measured on a non-recurring basis during the six months ended March 31, 2024 and 2023.

Fair Value Disclosures - The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented.

2 unchanged sentences

The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:

December 31, 2023

March 31, 2024

Carrying Estimated Fair Value

19 unchanged sentences

Borrowings 2,879,125 2,802,849 — 2,802,849 —

At September 30, 2023, the Company recorded a deferred income tax asset of $ 47.0 million related to the net loss on a securities transaction.

The related securities were sold during the current quarter which resulted in the Company reversing the $ 47.0 million deferred tax asset at September 30, 2023 and recognizing a $ 45.0 million net operating loss deferred income tax asset as of December 31, 2023.

Additionally, the Company recorded a $ 4.6 million deferred tax asset at December 31, 2023 related to low income housing tax credits.

At December 31, 2023, the Company does not believe a valuation allowance is necessary on the deferred income tax assets recorded during the current quarter as it is more likely than not that these amounts will be realized through the reversal of the Company's existing taxable temporary differences and projected future taxable income.

ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.

For the Three Months Ended December 31, 2023

For the Three Months Ended March 31, 2024

Unrealized Unrealized

7 unchanged sentences

— ( 1,678 ) ( 1,678 )

Reclassification adjustment for gross gains on AFS securities included in net income, net of taxes of $ 383

Other comprehensive income (loss) ( 5,471 ) 843 ( 4,628 )

Ending balance $ 8,780 $ 5,747 14,527

For the Six Months Ended March 31, 2024

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance ( 1,142 ) 9,842 8,700

Other comprehensive income (loss), before reclassifications 11,110 ( 477 ) 10,633

Amount reclassified from AOCI, net of taxes of $ 1,168

— ( 3,618 ) ( 3,618 )

Reclassification adjustment for gross gains on AFS securities

included in net income, net of taxes of $ 383

( 1,188 ) — ( 1,188 )

Other comprehensive income (loss) 9,922 ( 4,095 ) 5,827

Ending balance 8,780 5,747 14,527

For the Three Months Ended December 31, 2022

For the Three Months Ended March 31, 2023

Unrealized Unrealized

9 unchanged sentences

Ending balance ( 125,292 ) 6,649 ( 118,643 )

For the Six Months Ended March 31, 2023

Unrealized Unrealized

Gains (Losses) Gains (Losses)

on AFS on Cash Flow Total

Securities Hedges AOCI

(Dollars in thousands)

Beginning balance $ ( 155,119 ) $ 9,486 $ ( 145,633 )

Other comprehensive income (loss), before reclassifications 29,827 ( 780 ) 29,047

Amount reclassified from AOCI, net of taxes of $ 664

— ( 2,057 ) ( 2,057 )

Other comprehensive income (loss) 29,827 ( 2,837 ) 26,990

Ending balance $ ( 125,292 ) $ 6,649 $ ( 118,643 )

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements