What changed in this filing

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Item 1. Financial Statements

2024-08-07 compared with 2024-05-10 · 158 added, 117 removed, 857 unchanged (24% of the section changed)

4 unchanged sentences

(Dollars in thousands, except per share amounts)

March 31, September 30,

June 30, September 30,

Cash and cash equivalents (includes interest-earning deposits of $ 292,675 and $ 213,830 )

19 unchanged sentences

Common stock, $ .01 par value;

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

1,400,000,000 shares authorized, 132,733,765 and 135,936,375 shares issued and outstanding as of June 30, 2024 and September 30, 2023, respectively

Additional paid-in capital 1,146,928 1,166,643

9 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Three Months Ended For the Six Months Ended

March 31, March 31,

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2024 2023 2024 2023

43 unchanged sentences

(Dollars in thousands)

For the Three Months Ended For the Six Months Ended

March 31, March 31,

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2024 2023 2024 2023

19 unchanged sentences

(Dollars in thousands, except per share amounts)

For the Six Months Ended March 31, 2024

For the Nine Months Ended June 30, 2024

Additional Unearned Total

21 unchanged sentences

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

Net income 9,648 9,648

Other comprehensive loss, net of tax ( 3,144 ) ( 3,144 )

ESOP activity ( 197 ) 414 217

Restricted stock activity, net ( 1 ) ( 1 )

Stock-based compensation 97 97

Cash dividends to stockholders ($ 0.085 per share)

( 11,044 ) ( 11,044 )

Balance at June 30, 2024 $ 1,327 $ 1,146,928 $ ( 26,844 ) $ ( 112,118 ) $ 11,383 $ 1,020,676

For the Nine Months Ended June 30, 2023

Additional Unearned Total

17 unchanged sentences

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

Net income 8,302 8,302

Other comprehensive loss, net of tax ( 8,063 ) ( 8,063 )

ESOP activity ( 155 ) 413 258

Stock-based compensation 75 75

Cash dividends to stockholders ($ 0.085 per share)

( 11,321 ) ( 11,321 )

Balance at June 30, 2023 $ 1,361 $ 1,167,979 $ ( 28,497 ) $ 47,148 $ ( 126,706 ) $ 1,061,285

See accompanying notes to consolidated financial statements.

CAPITOL FEDERAL FINANCIAL, INC.

2 unchanged sentences

(Dollars in thousands)

For the Six Months Ended

For the Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

14 unchanged sentences

Other assets, net 3,301 912

Income taxes payable/receivable, net 5,875 ( 2,650 )

Deferred income tax liabilities, net ( 7,656 ) 787

Income taxes receivable, net 8,374 ( 4,660 )

Deferred income tax assets, net ( 1,331 ) 878

Other liabilities ( 4,387 ) ( 10,083 )

17 unchanged sentences

(Dollars in thousands)

For the Six Months Ended

For the Nine Months Ended

CASH FLOWS FROM FINANCING ACTIVITIES:

10 unchanged sentences

End of period $ 317,821 $ 329,409

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.

48 unchanged sentences

Entities that have a single reportable segment, like the Company, will be required to provide all the disclosures required by this ASU and all existing segment disclosures requirements in ASC 280, Segment Reporting .

This ASU is effective for the Company on October 1, 2024.

This ASU is effective for fiscal years beginning after December 15, 2023, which is the fiscal year ending September 30, 2025 for the Company, and interim periods within fiscal years beginning after December 15, 2024, which is the quarter ending December 31, 2025 for the Company.

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

1 unchanged sentence

This ASU requires public entities to provide additional annual disclosures regarding specific categories of the income tax rate reconciliation and additional information for reconciling items within the income tax rate reconciliation that meet a certain quantitative threshold.

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

This ASU is effective for the Company on October 1, 2025, starting with its December 31, 2025 Form 10-Q.

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

2 unchanged sentences

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.

The Company is currently evaluating this ASU, but it is not expected to have a significant impact on the Company's consolidated financial condition or results of operation, or the Company's 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 Six Months Ended

March 31, March 31,

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2024 2023 2024 2023

12 unchanged sentences

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

March 31, 2024

June 30, 2024

Gross Gross Estimated

3 unchanged sentences

MBS $ 672,754 $ 10,489 $ 1,168 $ 682,075

Treasury bills 99,408 1 6 99,403

GSE debentures 116,802 — 264 116,538

12 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.

March 31, 2024

June 30, 2024

Less Than 12 Months Equal to or Greater Than 12 Months

3 unchanged sentences

MBS $ 181,310 $ 1,047 $ 9,668 $ 121

Treasury bills 74,440 6 — —

GSE debentures 116,538 264 — —

10 unchanged sentences

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

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

The unrealized losses at June 30, 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 March 31, 2024 as management does not believe any of the securities were impaired due to credit quality reasons.

Management did not record an ACL on securities in an unrealized loss position at June 30, 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.

1 unchanged sentence

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.

The amortized cost and estimated fair value of AFS debt securities as of June 30, 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.

5 unchanged sentences

One year or less $ 19,887 $ 19,885

One year through five years 10,000 9,980

Five years through ten years 90,915 90,013

3 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 Six Months Ended

March 31, March 31,

For the Three Months Ended For the Nine Months Ended

June 30, June 30,

2024 2023 2024 2023

4 unchanged sentences

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

March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023

(Dollars in thousands)

7 unchanged sentences

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

March 31, 2024 September 30, 2023

June 30, 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, 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 also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans.

The Bank has historically also purchased one- to four-family loans from correspondent lenders, but during the current quarter the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future.

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

1 unchanged sentence

Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function.

The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards.

The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters.

The underwriting standards for loans purchased from correspondent lenders were generally similar to the Bank's internal underwriting standards.

The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis was performed by the Bank's underwriters.

The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate.

3 unchanged sentences

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

The Bank's commercial portfolio has a loan concentration in commercial real estate and commercial construction loans and a geographic concentration in Kansas, Texas, and Missouri.

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.

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 .

For commercial construction loans, LTV ratios generally do not exceed 80 % of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15 , but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property.

The Bank generally requires a guaranty on all commercial real estate loans, but for an experienced borrower with a strong DSCR and LTV, the Bank may allow the guaranty percentage to be reduced, phased out or originated as a non-recourse loan.

For commercial construction loans, LTV ratios generally do not exceed 80 % of the projected appraised value of the property securing the loans and the minimum DSCR is generally 1.15 x, but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property.

Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income.

For construction loans, guaranties are typically required during the period of construction.

After construction is complete, for select experienced borrowers that have a strong DSCR and LTV, the guaranty may be reduced or phased out when the property meets certain performance metrics.

Additionally, the Bank generally requires the borrower to contribute equity at the start of a project and prior to any Bank funding.

The Bank's commercial and industrial loans are generally made to borrowers and secured by assets located in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income.

Working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets.

1 unchanged sentence

As a result of these additional complexities, variables and risks, commercial and industrial loans generally require more thorough underwriting and servicing than other types of loans.

Management regularly monitors the level of risk in the entire commercial loan portfolio, including concentrations in such factors as geographic locations, collateral types, tenant brand name, borrowing relationships, and lending relationships in the case of participation loans, among other factors.

Annual reviews are performed for larger loans and lending relationships.

The annual reviews include evaluating updated financials, as well as performing stress tests to measure the ability of the loans to withstand certain stress scenarios such as interest rate increases, revenue decreases and expense increases.

Consumer loans - The Bank offers a variety of consumer loans, the majority of which are home equity loans and lines of credit for which the Bank also has the first mortgage or the first lien position.

20 unchanged sentences

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

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

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

June 30, 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.

March 31, 2024

June 30, 2024

Current Fiscal Fiscal Fiscal Fiscal Revolving Credit

68 unchanged sentences

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.

The following table sets forth the required gross charge-off information for the nine month period ended June 30, 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 March 31, 2024 and September 30, 2023, all loans 90 or more days delinquent were on nonaccrual status.

March 31, 2024

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

June 30, 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 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.

The amortized cost of mortgage loans secured by residential real estate for which formal foreclosure proceedings were in process as of June 30, 2024 and September 30, 2023 was $ 1.9 million and $ 2.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above.

There was no residential OREO held at June 30, 2024.

The following table presents the amortized cost at June 30, 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.

March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023

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

9 unchanged sentences

$ 8,671 $ 1,504 $ 9,453 $ 1,990

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.

Loan Modifications - The following tables present the amortized cost basis of loans as of June 30, 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 June 30, 2024 that were modified to borrowers experiencing financial difficulties as compared to the amortized cost basis of each class of financing receivable as of June 30, 2024.

During the three months and nine months ended June 30, 2024, there was a $ 50 thousand charge-off related to a commercial real estate loan modified during the nine months ended June 30, 2024.

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

For the Three Months Ended March 31, 2024

For the Three Months Ended June 30, 2024

Combination- Total

16 unchanged sentences

Total $ — $ — $ — $ 623 $ 89 $ 712 0.01

For the Six Months Ended March 31, 2024

For the Nine Months Ended June 30, 2024

Combination- Total

16 unchanged sentences

Total $ — $ — $ — $ 623 $ 9,523 $ 10,146 0.13

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

Financial effect of loan modifications - The loan modifications during the three months and nine months ended June 30, 2024 were term extensions or a combination of term extensions and payment delays.

The table below presents the financial effects of loan modifications during the three and nine months ended June 30, 2024.

For the Three Months Ended June 30, 2024 For the Nine Months Ended June 30, 2024

Term Payment Term Payment

2 unchanged sentences

Originated 20 months 8 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

Correspondent N/A N/A 17 months 4 months

Commercial real estate N/A N/A 24 months 24 months

Commercial and industrial 9 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 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.

Performance of loan modifications - The following table provides information about the subsequent performance during the nine months ended June 30, 2024 of loans modified for borrowers experiencing financial difficulty.

30 to 89 Days

Delinquent 90 or More Days

Delinquent or in Foreclosure Total

Delinquent Loans Current

Amortized Cost

(in thousands)

One- to four-family:

Originated $ 1,847 $ 205 $ 2,052 $ 5,685 $ 7,737

Correspondent 182 — 182 1,549 1,731

Commercial real estate 50 — 50 142 192

Commercial & industrial — — — 486 486

$ 2,079 $ 205 $ 2,284 $ 7,862 $ 10,146

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 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.

The following table presents the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented.

For the Three Months Ended For the Nine Months Ended

June 30, 2023 June 30, 2023

Number Pre- Post- Number Pre- Post-

of Restructured Restructured of Restructured Restructured

Contracts Outstanding Outstanding Contracts Outstanding Outstanding

(Dollars in thousands)

One- to four-family:

Originated 1 $ 110 $ 110 1 $ 110 $ 110

Bulk purchased — — — 1 239 257

Home equity 1 38 38 1 38 38

2 $ 148 $ 148 3 $ 387 $ 405

During the three months ended June 30, 2023, there were no TDRs that became delinquent within 12 months after being restructured.

During the nine months ended June 30, 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 March 31, 2024

For the Three Months Ended June 30, 2024

One- to Four-Family

7 unchanged sentences

Ending balance $ 2,010 $ 2,630 $ 166 $ 4,806 $ 20,796 $ 252 $ 25,854

For the Six Months Ended March 31, 2024

For the Nine Months Ended June 30, 2024

One- to Four-Family

9 unchanged sentences

Ending balance $ 2,010 $ 2,630 $ 166 $ 4,806 $ 20,796 $ 252 $ 25,854

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

One- to Four-Family

7 unchanged sentences

Ending balance $ 2,155 $ 3,081 $ 239 $ 5,475 $ 16,685 $ 239 $ 22,399

For the Six Months Ended March 31, 2023

For the Nine Months Ended June 30, 2023

One- to Four-Family

8 unchanged sentences

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 March 31, 2024.

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

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.

Management also considered certain qualitative factors when evaluating the adequacy of the ACL at June 30, 2024.

The key assumptions utilized in estimating the Company's ACL at June 30, 2024 are discussed below.

The forecasted economic indices applied to the model at June 30, 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 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 economic index most impactful to all loan pools within the model at June 30, 2024 was the national unemployment rate.

The forecasted national unemployment rate in the economic scenario selected by management at June 30, 2024 had the national unemployment rate at 4.1 % through June 30, 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 June 30, 2024.

• Prepayment and curtailment assumptions - The assumptions used at June 30, 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 March 31, 2024 included the following:

• Qualitative factors - The qualitative factors applied by management at June 30, 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 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

At June 30, 2024 and September 30, 2023, the Bank's off-balance sheet credit exposures totaled $ 754.6 million and $ 837.7 million, respectively.

For the Three Months Ended For the Nine Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

(Dollars in thousands)

4 unchanged sentences

BORROWED FUNDS

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 - Borrowings at June 30, 2024 consisted of $ 2.29 billion in FHLB advances, of which $ 1.99 billion were fixed-rate advances and $ 300.0 million were variable-rate advances, and $ 1.1 million 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 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.

As of June 30, 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 June 30, 2024 and September 30, 2023, the interest rate swap agreements had an average remaining term to maturity of 1.7 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 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.

At June 30, 2024 and September 30, 2023, the interest rate swaps were in a gain position with a total fair value of $ 6.6 million and $ 13.0 million, respectively, which was reported in other assets on the consolidated balance sheet.

During the three and nine month periods ended June 30, 2024, $ 1.6 million and $ 5.2 million, respectively, was reclassified from AOCI as a decrease to interest expense.

During the three and nine month periods ended June 30, 2023, $ 1.7 million and $ 3.7 million, respectively, was reclassified from AOCI as a decrease to interest expense.

At June 30, 2024, the Company estimated that $ 4.3 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 $ 8.2 million and $ 14.0 million at March 31, 2024 and September 30, 2023, respectively, in compliance with its minimum posting requirements.

The Bank held cash collateral of $ 7.3 million and $ 14.0 million at June 30, 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").

3 unchanged sentences

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.

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

4 unchanged sentences

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).

The Bank estimates its pre-1988 bad debt reserves to be $ 85.5 million at June 30, 2024, which equates to an unrecorded deferred tax liability of $ 18.0 million at June 30, 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 strategic securities transaction ("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.

This has resulted and will continue to 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 when the distributions are paid and will offset the Bank's net operating loss deferred tax asset.

During the current fiscal year, the Bank has recorded $ 3.4 million of income tax expense related to these distributions.

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.

The deferred tax asset related to the anticipated taxable net loss, or net operating loss, was $ 36.2 million at June 30, 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 June 30, 2024 was $ 10.0 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.

At June 30, 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

18 unchanged sentences

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 did not have to adjust prices obtained from the third-party pricing service when determining the fair value of its securities during the nine months ended June 30, 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.

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

9 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 six months ended March 31, 2024 or during fiscal year 2023.

No adjustments were made to the estimated fair values obtained from the counterparty during the nine months ended June 30, 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 March 31, 2024 or September 30, 2023.

March 31, 2024

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

June 30, 2024

Quoted Prices Significant Significant

5 unchanged sentences

MBS $ 682,075 $ — $ 682,075 $ —

Treasury bills 99,403 99,403 — —

GSE debentures 116,538 — 116,538 —

21 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 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.

The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the nine months ended June 30, 2024 and 2023 that were still held in the portfolio as of June 30, 2024 and 2023 was $ 1.6 million and $ 3.9 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 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 primary significant unobservable inputs for commercial loans individually evaluated during the nine months ended June 30, 2024 and June 30, 2023 were downward adjustments to the book value of the collateral for lack of marketability.

During the nine months ended June 30, 2024, the adjustments ranged from 5 % to 100 %, with a weighted average of 33 %.

During the nine months ended June 30, 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.

There was no one- to four-family OREO measured on a non-recurring basis during the nine months ended June 30, 2024 or June 30, 2023.

The carrying value of the properties equaled the fair value of the properties at June 30, 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 no commercial OREO measured on a non-recurring basis during the six months ended March 31, 2024 and 2023.

There was no commercial OREO measured on a non-recurring basis during the nine months ended June 30, 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:

March 31, 2024

June 30, 2024

Carrying Estimated Fair Value

21 unchanged sentences

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

For the Three Months Ended March 31, 2024

For the Three Months Ended June 30, 2024

Unrealized Unrealized

9 unchanged sentences

Ending balance $ 6,368 $ 5,015 11,383

For the Six Months Ended March 31, 2024

For the Nine Months Ended June 30, 2024

Unrealized Unrealized

12 unchanged sentences

Ending balance 6,368 5,015 11,383

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

Unrealized Unrealized

9 unchanged sentences

Ending balance ( 136,057 ) 9,351 ( 126,706 )

For the Six Months Ended March 31, 2023

For the Nine Months Ended June 30, 2023

Unrealized Unrealized

10 unchanged sentences

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