UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20202021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)

Maryland27-2631712
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
700 South Kansas Avenue,Topeka,Kansas66603
(Address of principal executive offices)(Zip Code)

(785) (785) 235-1341
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
par value $0.01 per share
CFFNThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐
Smaller reporting company ☐Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 1, 2020,3, 2021, there were 141,511,716138,809,796 shares of Capitol Federal Financial, Inc. common stock outstanding.



PART I - FINANCIAL INFORMATIONPage Number
Item 1.
3
3
4
5
6
78
910
Item 2.
3137
Financial Condition - Loans Receivable
3743
Financial Condition - Asset Quality
4551
Financial Condition - Liabilities
5560
Financial Condition - Stockholders' Equity
5863
Operating Results
5964
Comparison of Operating Results for the three months ended March 31, 2021 and December 31, 2020
65
Comparison of Operating Results for the six months ended March 31, 20202021 and 20192020
6070
Comparison of Operating Results for the three months ended March 31, 20202021 and 20192020
6575
Item 3.
69
Item 3.
Quantitative and Qualitative Disclosure about Market Risk
7984
Item 4.
8489
PART II - OTHER INFORMATION
Item 1.
8590
Item 1A.
8590
Item 2.
8690
Item 3.
8690
Item 4.
8690
Item 5.
8690
Item 6.
8690
8791
8993




PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
March 31,September 30,
20212020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $121,430 and $172,430)$139,472 $185,148 
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $2,090,720 and $1,529,605)2,095,924 1,560,950 
Loans receivable, net (allowance for credit losses ("ACL") of $23,397 and $31,527)6,973,536 7,202,851 
Federal Home Loan Bank Topeka ("FHLB") stock, at cost74,464 93,862 
Premises and equipment, net99,088 101,875 
Other assets315,535 342,532 
TOTAL ASSETS$9,698,019 $9,487,218 
LIABILITIES:
Deposits$6,650,865 $6,191,408 
Borrowings1,581,955 1,789,313 
Advance payments by borrowers for taxes and insurance61,624 65,721 
Income taxes payable, net67 795 
Deferred income tax liabilities, net6,530 8,180 
Other liabilities118,383 146,942 
Total liabilities8,419,424 8,202,359 
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized, 0 shares issued or outstanding0 0 
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,809,796 and 138,956,296 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively1,388 1,389 
Additional paid-in capital1,188,926 1,189,853 
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(32,214)(33,040)
Retained earnings139,448 143,162 
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(18,953)(16,505)
Total stockholders' equity1,278,595 1,284,859 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,698,019 $9,487,218 
See accompanying notes to consolidated financial statements.

3
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)
    
 March 31, September 30,
 2020 2019
ASSETS:   
Cash and cash equivalents (includes interest-earning deposits of $5,512 and $198,809)$118,374
 $220,370
Available-for-sale ("AFS") securities, at estimated fair value1,236,037
 1,204,863
Loans receivable, net (allowance for credit losses ("ACL") of $31,196 and $9,226)7,476,805
 7,416,747
Federal Home Loan Bank Topeka ("FHLB") stock, at cost101,575
 98,456
Premises and equipment, net98,589
 96,784
Income taxes receivable, net4,255
 2
Other assets335,558
 302,796
TOTAL ASSETS$9,371,193
 $9,340,018
    
LIABILITIES:   
Deposits$5,774,619
 $5,581,867
Borrowings2,115,869
 2,239,989
Advance payments by borrowers for taxes and insurance55,306
 65,686
Deferred income tax liabilities, net10,236
 14,282
Accounts payable and accrued expenses127,370
 101,868
Total liabilities8,083,400
 8,003,692
    
STOCKHOLDERS' EQUITY:   
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding—
 —
Common stock, $.01 par value; 1,400,000,000 shares authorized, 141,512,165 and 141,440,030   
shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively1,415
 1,414
Additional paid-in capital1,211,466
 1,210,226
Unearned compensation, Employee Stock Ownership Plan ("ESOP")(33,866) (34,692)
Retained earnings130,756
 174,277
Accumulated other comprehensive (loss) income ("AOCI"), net of tax(21,978) (14,899)
Total stockholders' equity1,287,793
 1,336,326
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,371,193
 $9,340,018
    
See accompanying notes to consolidated financial statements.   



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
For the Three Months EndedFor the Six Months Ended
March 31,March 31,
2021202020212020
INTEREST AND DIVIDEND INCOME:
Loans receivable$57,285 $69,613 $117,979 $139,527 
Mortgage-backed securities ("MBS")5,429 5,866 11,139 11,968 
FHLB stock951 1,714 2,020 3,540 
Investment securities629 1,382 1,312 2,889 
Cash and cash equivalents40 380 91 1,067 
Total interest and dividend income64,334 78,955 132,541 158,991 
INTEREST EXPENSE:
Deposits12,529 17,804 26,596 35,766 
Borrowings8,732 12,483 19,059 25,860 
Total interest expense21,261 30,287 45,655 61,626 
NET INTEREST INCOME43,073 48,668 86,886 97,365 
PROVISION FOR CREDIT LOSSES(2,964)22,075 (4,496)22,300 
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES46,037 26,593 91,382 75,065 
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares7,386 0 7,386 0 
Deposit service fees2,814 2,783 5,761 5,845 
Insurance commissions888 400 1,526 1,091 
Other non-interest income1,389 1,488 2,874 3,239 
Total non-interest income12,477 4,671 17,547 10,175 
NON-INTEREST EXPENSE:
Salaries and employee benefits13,397 13,235 27,535 26,706 
Information technology and related expense4,599 4,268 8,832 8,409 
Occupancy, net3,523 3,449 6,902 6,656 
Loss on interest rate swap termination4,752 0 4,752 0 
Regulatory and outside services1,234 1,297 2,819 2,640 
Advertising and promotional1,484 1,359 2,322 2,769 
Deposit and loan transaction costs664 678 1,430 1,389 
Federal insurance premium634 0 1,255 0 
Office supplies and related expense463 592 887 1,111 
Other non-interest expense1,903 1,286 2,986 2,984 
Total non-interest expense32,653 26,164 59,720 52,664 
INCOME BEFORE INCOME TAX EXPENSE25,861 5,100 49,209 32,576 
INCOME TAX EXPENSE5,417 824 9,867 5,789 
NET INCOME$20,444 $4,276 $39,342 $26,787 
Basic earnings per share ("EPS")$0.15 $0.03 $0.29 $0.19 
Diluted EPS$0.15 $0.03 $0.29 $0.19 
Basic weighted average common shares135,450,878 137,968,327 135,423,992 137,932,976 
Diluted weighted average common shares135,498,170 138,000,334 135,447,701 137,988,649 
See accompanying notes to consolidated financial statements.
4
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands, except per share amounts)
      
 For the Three Months Ended For the Six Months Ended
 March 31, March 31,
 2020 2019 2020 2019
INTEREST AND DIVIDEND INCOME:       
Loans receivable$69,613
 $71,657
 $139,527
 $142,429
Mortgage-backed securities ("MBS")5,866
 6,301
 11,968
 12,824
FHLB stock1,714
 1,831
 3,540
 3,802
Investment securities1,382
 1,505
 2,889
 2,946
Cash and cash equivalents380
 743
 1,067
 2,457
Total interest and dividend income78,955
 82,037
 158,991
 164,458
INTEREST EXPENSE:       
Deposits17,804
 16,096
 35,766
 31,821
Borrowings12,483
 13,344
 25,860
 27,739
Total interest expense30,287
 29,440
 61,626
 59,560
NET INTEREST INCOME48,668
 52,597
 97,365
 104,898
PROVISION FOR CREDIT LOSSES22,075
 —
 22,300
 —
NET INTEREST INCOME AFTER       
PROVISION FOR CREDIT LOSSES26,593
 52,597
 75,065
 104,898
NON-INTEREST INCOME:       
Deposit service fees2,783
 3,091
 5,845
 6,443
Insurance commissions400
 541
 1,091
 1,167
Other non-interest income1,488
 1,369
 3,239
 2,815
Total non-interest income4,671
 5,001
 10,175
 10,425
NON-INTEREST EXPENSE:       
Salaries and employee benefits13,235
 12,789
 26,706
 25,751
Information technology and related expense4,268
 4,284
 8,409
 8,883
Occupancy, net3,449
 3,292
 6,656
 6,544
Advertising and promotional1,359
 1,390
 2,769
 2,150
Regulatory and outside services1,297
 1,056
 2,640
 2,822
Deposit and loan transaction costs678
 465
 1,389
 1,201
Office supplies and related expense592
 736
 1,111
 1,195
Federal insurance premium—
 659
 —
 1,187
Other non-interest expense1,286
 1,470
 2,984
 3,190
Total non-interest expense26,164
 26,141
 52,664
 52,923
INCOME BEFORE INCOME TAX EXPENSE5,100
 31,457
 32,576
 62,400
INCOME TAX EXPENSE824
 6,903
 5,789
 13,463
NET INCOME$4,276
 $24,554
 $26,787
 $48,937
        
Basic earnings per share ("EPS")$0.03
 $0.18
 $0.19
 $0.36
Diluted EPS$0.03
 $0.18
 $0.19
 $0.36
        
Basic weighted average common shares137,968,327
 137,634,820
 137,932,976
 137,592,409
Diluted weighted average common shares138,000,334
 137,690,717
 137,988,649
 137,641,126
        
See accompanying notes to consolidated financial statements.      

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
For the Three Months EndedFor the Six Months Ended
March 31,March 31,
2021202020212020
Net income$20,444 $4,276 $39,342 $26,787 
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $6,756, $(3,332), $6,347, and $(3,187)(20,934)10,378 (19,794)9,926 
Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $(4,309), $7,200, $(5,529), and $5,45913,352 (22,429)17,346 (17,005)
Comprehensive income$12,862 $(7,775)$36,894 $19,708 
See accompanying notes to consolidated financial statements.

5
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollars in thousands)
      
 For the Three Months Ended For the Six Months Ended
 March 31, March 31,
 2020 2019 2020 2019
Net income$4,276
 $24,554
 $26,787
 $48,937
Other comprehensive income (loss), net of tax:       
Unrealized gains (losses) on AFS securities arising during the period,      
net of taxes of $(3,332), $(982), $(3,187) and $(2,115)10,378
 3,061
 9,926
 6,588
Changes in unrealized gains (losses) on cash flow hedges,       
net of taxes of $7,200, $2,118, $5,459 and $5,246(22,429) (6,600) (17,005) (16,344)
Comprehensive (loss) income$(7,775) $21,015
 $19,708
 $39,181
        
See accompanying notes to consolidated financial statements.    



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
For the Six Months Ended March 31, 2021
AdditionalUnearnedTotal
CommonPaid-InCompensationRetainedStockholders'
StockCapitalESOPEarningsAOCIEquity
Balance at September 30, 2020$1,389 $1,189,853 $(33,040)$143,162 $(16,505)$1,284,859 
Net income18,898 18,898 
Other comprehensive income, net of tax5,134 5,134 
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13, net of tax(2,288)(2,288)
ESOP activity80 413 493 
Restricted stock activity, net(8)(8)
Stock-based compensation118 118 
Repurchase of common stock(1)(1,407)(122)(1,530)
Cash dividends to stockholders ($0.215 per share)(29,128)(29,128)
Balance at December 31, 20201,388 1,188,636 (32,627)130,522 (11,371)1,276,548 
Net income20,444 20,444 
Other comprehensive loss, net of tax(7,582)(7,582)
ESOP activity132 413 545 
Stock-based compensation134 134 
Stock options exercised24 24 
Cash dividends to stockholders ($0.085 per share)(11,518)(11,518)
Balance at March 31, 2021$1,388 $1,188,926 $(32,214)$139,448 $(18,953)$1,278,595 
(Continued)
6

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)
           
For the Six Months Ended March 31, 2020For the Six Months Ended March 31, 2020
  Additional Unearned     TotalAdditionalUnearnedTotal
Common Paid-In Compensation Retained   Stockholders'CommonPaid-InCompensationRetainedStockholders'
Stock Capital ESOP Earnings AOCI EquityStock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2019$1,414
 $1,210,226
 $(34,692) $174,277
 $(14,899) $1,336,326
Balance at September 30, 2019$1,414 $1,210,226 $(34,692)$174,277 $(14,899)$1,336,326 
Cumulative effect of adopting ASU 2016-02, net of taxCumulative effect of adopting ASU 2016-02, net of tax88 88 
Net income      22,511
   22,511
Net income22,511 22,511 
Other comprehensive income, net of taxOther comprehensive income, net of tax       4,972
 4,972
Other comprehensive income, net of tax4,972 4,972 
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-02      88
   88
ESOP activity  169
 413
     582
ESOP activity169 413 582 
Restricted stock activity, net  (1)       (1)Restricted stock activity, net(1)(1)
Stock-based compensation  166
       166
Stock-based compensation166 166 
Stock options exercised1
 612
       613
Stock options exercised1 612 613 
Cash dividends to stockholders ($0.425 per share)Cash dividends to stockholders ($0.425 per share)     (58,663)   (58,663)Cash dividends to stockholders ($0.425 per share)(58,663)(58,663)
Balance at December 31, 2019$1,415
 $1,211,172
 $(34,279) $138,213
 $(9,927) $1,306,594
Balance at December 31, 20191,415 1,211,172 (34,279)138,213 (9,927)1,306,594 
Net income      4,276
   4,276
Net income4,276 4,276 
Other comprehensive loss, net of tax        (12,051) (12,051)Other comprehensive loss, net of tax(12,051)(12,051)
ESOP activity  117
 413
     530
ESOP activity117 413 530 
Stock-based compensation  152
       152
Stock-based compensation152 152 
Stock options exercised  25
       25
Stock options exercised25 25 
Cash dividends to stockholders ($0.085 per share)Cash dividends to stockholders ($0.085 per share)     (11,733)   (11,733)Cash dividends to stockholders ($0.085 per share)(11,733)(11,733)
Balance at March 31, 20201,415
 1,211,466
 (33,866) 130,756
 (21,978) 1,287,793
Balance at March 31, 2020$1,415 $1,211,466 $(33,866)$130,756 $(21,978)$1,287,793 
See accompanying notes to consolidated financial statements.See accompanying notes to consolidated financial statements.(Concluded)

7
 For the Six Months Ended March 31, 2019
   Additional Unearned     Total
 Common Paid-In Compensation Retained   Stockholders'
 Stock Capital ESOP Earnings AOCI Equity
Balance at September 30, 2018$1,412
 $1,207,644
 $(36,343) $214,569
 $4,340
 $1,391,622
Net income      24,383
   24,383
Other comprehensive loss, net of tax        (6,217) (6,217)
Cumulative effect of adopting ASU 2014-09      394
   394
ESOP activity  118
 413
     531
Stock-based compensation  95
       95
Stock options exercised1
 466
       467
Cash dividends to stockholders ($0.475 per share)     (65,362)   (65,362)
Balance at December 31, 2018$1,413
 $1,208,323
 $(35,930) $173,984
 $(1,877) $1,345,913
Net income      24,554
   24,554
Other comprehensive loss, net of tax        (3,539) (3,539)
ESOP activity  134
 413
     547
Stock-based compensation  90
       90
Stock options exercised  118
       118
Cash dividends to stockholders ($0.085 per share)     (11,700)   (11,700)
Balance at March 31, 20191,413
 1,208,665
 (35,517) 186,838
 (5,416) 1,355,983
            
See accompanying notes to consolidated financial statements.        



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Six Months Ended
March 31,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$39,342 $26,787 
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends(2,020)(3,540)
Provision for credit losses(4,496)22,300 
Originations of loans receivable held-for-sale ("LHFS")(597)0 
Proceeds from sales of LHFS610 0 
Amortization and accretion of premiums and discounts on securities2,607 556 
Depreciation and amortization of premises and equipment4,591 4,564 
Amortization of intangible assets843 997 
Amortization of deferred amounts related to FHLB advances, net687 95 
Common stock committed to be released for allocation - ESOP1,038 1,112 
Stock-based compensation252 318 
Gain on the sale of Visa Class B shares(7,386)0 
Changes in:
Other assets, net6,731 3,649 
Income taxes payable/receivable, net(741)(4,249)
Deferred income tax liabilities, net(94)(1,800)
Other liabilities(9,313)(12,413)
Net cash provided by operating activities32,054 38,376 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities(828,584)(288,319)
Proceeds from calls, maturities and principal reductions of AFS securities264,862 269,702 
Proceeds from the redemption of FHLB stock21,418 421 
Net change in loans receivable236,915 (82,595)
Purchase of premises and equipment(4,972)(6,497)
Proceeds from sale of other real estate owned ("OREO")97 987 
Proceeds from the sale of Visa Class B shares7,386 0 
Proceeds from bank-owned life insurance ("BOLI") death benefit443 490 
Net cash used in investing activities(302,435)(105,811)
(Continued)
8

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
  
 For the Six Months Ended
 March 31,
 2020 2019
CASH FLOWS FROM OPERATING ACTIVITIES:   
Net income$26,787
 $48,937
Adjustments to reconcile net income to net cash provided by operating activities:   
FHLB stock dividends(3,540) (3,802)
Provision for credit losses22,300
 —
Amortization and accretion of premiums and discounts on securities556
 737
Depreciation and amortization of premises and equipment4,564
 4,710
Amortization of intangible assets997
 1,189
Amortization of deferred amounts related to FHLB advances, net95
 4
Common stock committed to be released for allocation - ESOP1,112
 1,078
Stock-based compensation318
 185
Changes in:   
Unrestricted cash collateral (provided to)/received from derivative counterparties, net—
 (9,970)
Other assets, net3,649
 1,418
Income taxes payable/receivable, net(4,249) 2,291
Deferred income tax liabilities, net(1,800) (745)
Accounts payable and accrued expenses(12,413) (13,894)
Net cash provided by operating activities38,376
 32,138
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
Purchase of AFS securities(288,319) (172,506)
Proceeds from calls, maturities and principal reductions of AFS securities269,702
 149,524
Proceeds from calls, maturities and principal reductions of held-to-maturity ("HTM") securities—
 83,692
Proceeds from the redemption of FHLB stock421
 97,096
Purchase of FHLB stock—
 (96,199)
Net change in loans receivable(82,595) (57,073)
Purchase of premises and equipment(6,497) (4,583)
Proceeds from sale of other real estate owned ("OREO")987
 1,062
Proceeds from bank-owned life insurance ("BOLI") death benefit490
 —
Net cash (used in) provided by investing activities(105,811) 1,013
    
   (Continued)

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
For the Six Months Ended
March 31,
20212020
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid(40,646)(70,396)
Net change in deposits459,457 192,752 
Proceeds from borrowings470,000 1,186,600 
Repayments on borrowings(673,000)(1,306,600)
Change in advance payments by borrowers for taxes and insurance(4,097)(10,380)
Payment of FHLB prepayment penalties(5,045)(4,215)
Repurchase of common stock(4,568)0 
Stock options exercised24 638 
Net cash provided by (used in) financing activities202,125 (11,601)
NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS(68,256)(79,036)
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period239,708 253,700 
End of period$171,452 $174,664 
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Operating lease right-of-use assets obtained$0 $15,658 
Operating lease liabilities obtained$0 $15,543 
See accompanying notes to consolidated financial statements.(Concluded)
9
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
  
 For the Six Months Ended
 March 31,
 2020 2019
CASH FLOWS FROM FINANCING ACTIVITIES:   
Cash dividends paid(70,396) (77,062)
Net change in deposits192,752
 97,757
Proceeds from borrowings1,186,600
 2,680,000
Repayments on borrowings(1,306,600) (2,625,052)
Change in advance payments by borrowers for taxes and insurance(10,380) (16,963)
Payment of FHLB prepayment penalties(4,215) —
Stock options exercised638
 585
Net cash (used in) provided by financing activities(11,601) 59,265
    
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS(79,036) 92,416
    
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:  
Beginning of period253,700
 139,055
End of period$174,664
 $231,471
    
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:  
Operating lease right-of-use assets obtained$15,658
 $—
Operating lease liabilities obtained$15,543
 $—
    
    
See accompanying notes to consolidated financial statements.  (Concluded)


Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019,2020, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $118.4$139.5 million and $220.4$185.1 million at March 31, 20202021 and September 30, 2019,2020, respectively, and restricted cash and cash equivalents of $56.3$32.0 million and $33.3$54.6 million at March 31, 2020 at2021 and September 30, 2019,2020, respectively, which was included in other assets on the consolidated balance sheet.  The restricted cash and cash equivalents relate to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps.  See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds.

Net PresentationSecurities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSEs"), including Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association ("GNMA"), and municipal bonds. Securities are classified as held-to maturity ("HTM"), AFS, or trading based on management's intention for holding the securities on the date of Cash Flows Relatedpurchase. Generally, classifications are made in response to Borrowingsliquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase.

Accrued interest receivable for all securities is reported in other assets on the consolidated balance sheet. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude accrued interest from all required disclosures of amortized cost was elected. Additionally, an election was made to not measure ACL for accrued interest receivables. Interest accrued but not received is reversed against interest income.

Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At times,March 31, 2021 and September 30, 2020, the Bank enters into certain FHLB advancesportfolio did not contain any securities classified as HTM.

Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with contractual maturitiesunrealized gains and non-credit losses reported as a component of 90 daysAOCI within stockholders' equity, net of deferred income taxes. The amortization of premiums and discounts are recognized as adjustments to interest income over the life of the securities using the level-yield method. Gains or less. Cash flows relatedlosses on the disposition of AFS securities are recognized using the specific identification method. The Company primarily uses prices obtained from third-party pricing services to these advancesdetermine the fair value of securities. See additional discussion of fair value of AFS securities in "Note 6. Fair Value of Financial Instruments."

Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported on a net basisat fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of cash flows. There was no FHLB advance activity reported onincome. Neither the Company nor the Bank maintained a net basis in the consolidated statements of cash flowstrading securities portfolio during the six months ended March 31, 20202021 or during fiscal year 2020.

Allowance for Credit Losses on AFS Debt Securities - Management monitors AFS debt securities for impairment on an ongoing basis and 2019.

Leases - The Company leases real estate property for branches, ATMs, and certain equipment. Allperforms a formal review quarterly. If an AFS debt security is in an unrealized loss position at the time of the leases in whichquarterly review, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the lessee are classified as operating leases. Thesecurity before recovery of its amortized cost. If either condition is met, the entire loss in fair value is recognized in current earnings. If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines if an arrangement is a lease at inceptionwhether the decline in fair value resulted from credit losses or other factors. In making this assessment, management considers the security structure, the cause(s) and ifseverity of the lease is an operating leaseloss, expectations of future performance including recent events specific to the issuer or a finance lease.industry including
10

Operating lease right-of-use assets represent the Company's right to use an underlying asset during the lease termissuer's financial condition and operating lease liabilities represent the Company's obligationcurrent ability to make leasefuture payments arising fromin a timely manner, and external credit ratings and recent downgrades in such ratings. Management's assessment involves a high degree of subjectivity and judgment that is based on information available at a point in time. If the lease. The right-of-use assets associated with operating leases are recorded in other assets inassessment indicates that a credit loss exists, the Company's consolidated balance sheets. The lease liabilities associated with operating leases are included in accounts payable and accrued expenses onpresent value of cash flows expected to be collected is compared to the consolidated balance sheets. The period over which the right-of-use asset is amortized is generally the lessercost basis of the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable.

The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculatesecurity. If the present value of the minimum remaining lease payments. The Company's lease agreements often include one or more optionscash flows expected to renew atbe collected is less than the Company's discretion. If, at lease inception,amortized cost basis, a credit loss has occurred, and an ACL is recorded, which became effective October 1, 2020 when the Company considersadopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Accrued interest receivable on AFS debt securities is excluded from the exercisingestimate of credit losses. The ACL is limited by the amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit losses is recognized in other comprehensive income. Prior to the adoption of ASU 2016-13, management assessed all known facts and circumstances to determine whether an other-than-temporary loss should be recognized for impaired securities. If an other-than-temporary impairment had occurred, the difference between the amortized cost and fair value was recognized as a renewal optionloss in earnings and the security was written down to be reasonably certain, the Company includes the extended termfair value.

Changes in the calculation of the right-of-use asset and lease liability. Generally, the Company cannot practically determine the interest rate implicitACL on AFS debt securities are recorded as an increase or decrease in the lease soprovision for credit losses on the Company's incremental borrowing rate is used as the discount rate for the lease. The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease. For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was applied. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Company's consolidated statements of income. For facility-related leases,Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met. Interest accrued on AFS debt securities but not received is also reversed against interest income. As of October 1, 2020 and March 31, 2021, the Company elected, by lease class,did not identify any credit losses related to the Company's AFS debt securities so there was no ACL on AFS debt securities as of those dates.

Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at amortized cost, excluding accrued interest. Amortized cost is the amount of unpaid principal, net of undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs. Net loan origination fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method. Loans are presented on the consolidated balance sheet net of the ACL on loans.

Interest on loans is accrued based on the principal amount outstanding. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost was elected. Additionally, an election was made to not separate leasemeasure ACL for accrued interest receivables.

Loan endorsements - Certain existing one- to four- family loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank, without being required to complete the standard application and non-lease components. Lease expenseunderwriting process. The fee received for each endorsement is recognized on a straight-line basisdeferred and amortized as an adjustment to interest income over the lease term. Variable lease expense primarily represents payments suchlife of the loan.  If the change in loan terms resulting from the endorsement is deemed to be more than minor, the loan is treated as common area maintenancea new loan and utilitiesall existing unamortized deferred loan origination fees and costs are recognized as expenseat the time of endorsement.  If the change in loan terms is deemed to be minor, the period when those payments are incurred. Short-term lease expense relatesfee received for the endorsement is added to leases with an initial term of 12 monthsthe net remaining unamortized deferred fee or less.deferred cost balance.

Coronavirus Disease 2019 ("COVID-19") loan modifications -In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic ("COVID-19 loan modifications"). The Company has electedfollowed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or Interagency guidance when determining if a borrower's modification is subject to troubled debt restructuring ("TDR") classification. If it is determined that the modification does not recordmeet the criteria under the CARES Act or Interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance as a right-of-use assetresult of COVID-19 loan modifications are not reported as past due or lease liability for short-term leases.placed on nonaccrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans. Loans reported as COVID-19 loan modifications include all loans modified under the programs, including loans classified as TDRs.

Troubled debt restructurings - For borrowers experiencing financial difficulties, the Bank may grant a concession to the borrower.  Such concessions generally involve extensions of loan maturity dates, the granting of periods during which reduced payment amounts are required, and/or reductions in interest rates.  The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan amount. In the case of commercial loans, the Bank does not forgive principal or interest or commit to lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.

Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date. The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.
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Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears. We also report certain TDR loans as nonaccrual loans that are required to be reported as such pursuant to regulatory reporting requirements. Loans on which the accrual of income has been discontinued are designated as nonaccrual and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed. A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due or, in the case of a TDR loan, the borrower has made the required consecutive loan payments. A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio, and the loan is well secured and within policy.

Allowance for Credit Losses on Loans Receivable - The ACL is a valuation amount that is deducted from the amortized cost basis of loans. It represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date and is determined using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts, along with the application of qualitative factors when necessary. ACL is recorded upon origination or purchase of a loan and is updated at subsequent reporting dates. Changes in the ACL are recorded through increases or decreases to the provision for credit losses in the consolidated statements of income. The ACL is an estimate that requires significant judgment including projections of the macroeconomic environment. The macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.

The Bank's ACL is measured on a collective ("pool") basis, with loans aggregated into pools based on similar risk characteristics such as collateral type, historical loss experience, loan-to-value ("LTV") for one- to four-family loans, and payment sources for commercial loans. Loans that do not share similar risk characteristics are evaluated on an individual basis. Charge-offs against the related ACL amounts for any loan type may be recorded at any time if the Bank has knowledge of the existence of a probable loss.

One- to four-family loans and consumer home equity loans are deemed to be collateral dependent and individually evaluated for loss when the loan is generally 180 days delinquent, and any identified losses are charged-off at that time. Losses are based on new collateral values obtained through appraisals, less estimated costs to sell. Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount. If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan. When a non-real estate secured consumer loan is 120 days delinquent, any identified losses are charged-off. For commercial loans, loans are individually evaluated for loss if management determines they exhibit unique risk characteristics. Specific allocations of ACL are established and/or losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information regarding the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement. In the case of secured loans, the loan is deemed to be collateral dependent when this occurs, and the specific allocation of ACL and/or charge-off amount is based on a comparison of the amounts due from the borrower and calculated current fair value of the collateral after consideration of estimated costs to sell.

The primary credit risk characteristics inherent in the one- to four-family and consumer loan portfolios are a decline in economic conditions, elevated levels of unemployment or underemployment, and declines in residential real estate values. Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, charge-offs, and provisions for credit losses. Although the commercial loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient. Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is more limited than that for a residential property. Therefore, the Bank could hold the property for an extended period of time, or be forced to sell at a discounted price, resulting in additional losses. Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.

For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life. Generally, the historical time periods are at least one economic cycle. These historical loss rates are compared to historical data related to economic variables including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product during the same time periods over which the historical loss rates were calculated, and a correlation is estimated using regression analysis. Each quarter, the Company's ACL model pairs the results of the regression analysis with an economic forecast of these same macroeconomic variables, which is provided by a third party, in order to project future loss
12

rates. The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to long-term historical averages at the macroeconomic variable level using a straight-line method. The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for expected prepayments and curtailments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a TDR will be executed. In the case of revolving lines of credit, since the rate of principal reduction is generally at the discretion of the borrower, remaining contractual lives are calculated by estimating future cash flows expected to be received from the borrower until the outstanding balance has been reduced to zero.

Using all of these inputs, the ACL model generates aggregated estimated cash flows for the time period that remains in each loan's contractual life. These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of future cash flows compared to the amortized cost basis of the loan pool.

Additionally, qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs and/or other ACL processes, as deemed appropriate by management's current assessment of risks related to loan portfolio attributes and external factors. Such qualitative factor considerations include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates. Management assesses the potential impact of such items and adjusts the modeled ACL as deemed appropriate based upon the assessment.

Reserve for Off-Balance Sheet Credit Exposures - The Company's off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Expected credit losses on these amounts are calculated using the same methodology that is applied in the ACL model; however, the estimate of credit risk for off-balance sheet credit exposures also takes into consideration the likelihood that funding of the unfunded amount/commitment will occur. The reserve for these off-balance sheet credit exposures is recorded as a liability and is presented in other liabilities on the consolidated balance sheet. Changes to the reserve on off-balance sheet credit exposures are recorded through increases or decreases to the provision for credit losses on the consolidated statements of income.

Recent Accounting Pronouncements - In FebruaryJune 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases. The ASU, as amended, revises lease accounting guidance by requiring that lessees recognize the assets and liabilities arising

from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. In July 2018, the FASB issued ASU 2018-11, Leases, which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition. The ASU, as amended, became effective for the Company on October 1, 2019. Upon adoption, the Company elected the modified retrospective approach and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. The optional practical expedients the Company elected include: (1) not reassessing whether any expired or existing contracts are or contain leases, (2) not reassessing the classification of any expired or existing contracts, (3) not reassessing initial direct costs for existing leases, and (4) using hindsight for leases existing at adoption date. For leases with an initial term of 12 months or less, the Company elected the short-term lease option, which entails not recognizing right-of-use assets and lease liabilities for these leases. Additionally, the Company elected, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components. Upon adoption, the Company recognized a right-of-use asset of $15.7 million and a lease liability of $15.5 million, related to the Company's non-cancellable operating lease commitments based on the present value of the expected remaining lease payments as of October 1, 2019. The cumulative-effect adjustment to retained earnings at the time of adoption totaled $88 thousand. These ASUs did not have a material impact on the Company's results of operations and cash flows at the time of adoption. The disclosures required by the ASU are included in Note 9. Leases.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU, as amended, replaces the incurred loss impairment methodology in current GAAP, which requiresrequired credit losses to be recognized when it is probable that a loss has been incurred, with a new impairmentan expected credit loss methodology, which is commonly known as the current expected credit loss ("CECL") methodology. The new impairmentCECL methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and loan commitments,off-balance sheet credit exposures, over their remaining contractual lives. Under the new impairmentCECL methodology, expected credit losses will beare measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the current credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP.write-down. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU, will becomeas amended, became effective for the Company on October 1, 2020.

The Company continues to workadopted the ASU, as amended, on October 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Financial results for reporting periods beginning after October 1, 2020 are reported in accordance with a software provider on the application and implementation of the new accounting guidance,ASU, as amended, while prior period amounts continue to be reported in accordance with previous GAAP. Upon adoption, the Company recorded a cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures of $2.3 million, net of tax of $739 thousand, which includes assistance with historical data analysis, loan segmentation, model development, and documentation.was recognized as a decrease in retained
13

earnings. The integration of the Company's data with the software provider is complete, along with an analysis of the historical data entered into the software. Management is currently working with the software provider on loan portfolio segmentations and model development, including incorporating economic forecasting into the models. While we are currently unable to reasonably estimatefollowing table presents the impact of adopting this ASU, we expect the impactcumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures.
September 30,
2020October 1, 2020
BalanceCumulative-Effect AdjustmentBalance
(Dollars in thousands)
ACL
One- to four-family:
Originated$6,085 $(4,452)$1,633 
Correspondent purchased2,691 (367)2,324 
Bulk purchased467 436 903 
Commercial:
Commercial real estate20,349 699 21,048 
Commercial and industrial1,451 (892)559 
Consumer:
Home equity370 (289)81 
Other114 104 218 
Total ACL31,527 (4,761)26,766 
Reserve for off-balance sheet credit exposures0 7,788 7,788 
ACL and reserve for off-balance sheet credit exposures$31,527 $3,027 $34,554 

The Company elected the practical expedient to exclude accrued interest receivable from the amortized cost of adoption will be influencedfinancing receivables and AFS debt securities. Accrued interest totaled $19.8 million and $3.1 million at March 31, 2021 for loans receivable and AFS securities, respectively, and was included in other assets on the consolidated balance sheet. Additionally, an election was made not to measure ACL for accrued interest receivables.

The enhanced disclosures required by the composition of our loanASU, as amended, are included in the relevant significant accounting policies above and securities portfolios as well as the economic conditionsin "Note 4. Loans Receivable and forecasts at the time of adoption.Allowance for Credit Losses."

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosures Requirements for Fair Value Measurement. This ASU eliminates, modifies and adds certain disclosure requirements for fair value measurements. The ASU adds disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The effective date of thisThis ASU, for the Company iswhich was adopted on October 1, 2020, with early adoption permitted. Entities are allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. Since this ASU only requires disclosure changes, it willdid not have a significantmaterial impact on the Company's consolidated financial condition, and results of operations.operations, or disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license)licenses). The effective dateASU was adopted by the Company on October 1, 2020. The Company includes hosting arrangements that are service contracts in its evaluation of projects for capitalization. The adoption of this ASU for the Company is October 1, 2020, with early adoption permitted. The Company is currently evaluating the effect of the ASUdid not have a material impact on the Company's consolidated financial condition, results of operations, andor disclosures.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU makes clarifications and corrections to the application of the guidance contained in each of the amended topics. According to the provisions of the ASU, entities that have not adopted ASU 2017-12 prior to the issuance of ASU 2019-04 shall adopt the provisions of both ASUs at the same time. Since the Company previously adopted ASU 2017-12, the related provisions included in ASU 2019-04 were adopted at the same time. The effective date ofCompany adopted the non-hedging amendments contained in ASU 2019-04, for the Company isincluding amendments related to ASU 2016-13, on October 1, 2020. The Company is currently evaluating the effectadoption of the non-hedging amendments contained in this ASU did not have a material impact on the Company's consolidated financial condition, results of operations, andor disclosures. For additional information regarding the impact of adopting ASU 2016-13, see ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments above.

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2. EARNINGS PER SHARE
Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.
For the Three Months EndedFor the Six Months Ended
March 31,March 31,
2021202020212020
(Dollars in thousands, except per share amounts)
Net income$20,444 $4,276 $39,342 $26,787 
Income allocated to participating securities(14)(3)(27)(22)
Net income available to common stockholders$20,430 $4,273 $39,315 $26,765 
Average common shares outstanding135,409,120 137,926,574 135,403,116 137,911,988 
Average committed ESOP shares outstanding41,758 41,753 20,876 20,988 
Total basic average common shares outstanding135,450,878 137,968,327 135,423,992 137,932,976 
Effect of dilutive stock options47,292 32,007 23,709 55,673 
Total diluted average common shares outstanding135,498,170 138,000,334 135,447,701 137,988,649 
Net EPS:
Basic$0.15 $0.03 $0.29 $0.19 
Diluted$0.15 $0.03 $0.29 $0.19 
Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation125,930 382,894 268,622 387,979 
 For the Three Months Ended For the Six Months Ended
 March 31, March 31,
 2020 2019 2020 2019
 (Dollars in thousands, except per share amounts)
Net income$4,276
 $24,554
 $26,787
 $48,937
Income allocated to participating securities(3) (10) (22) (19)
Net income available to common stockholders$4,273
 $24,544
 $26,765
 $48,918
        
Average common shares outstanding137,926,574
 137,593,062
 137,911,988
 137,571,533
Average committed ESOP shares outstanding41,753
 41,758
 20,988
 20,876
Total basic average common shares outstanding137,968,327
 137,634,820
 137,932,976
 137,592,409
        
Effect of dilutive stock options32,007
 55,897
 55,673
 48,717
        
Total diluted average common shares outstanding138,000,334
 137,690,717
 137,988,649
 137,641,126
        
Net EPS:       
Basic$0.03
 $0.18
 $0.19
 $0.36
Diluted$0.03
 $0.18
 $0.19
 $0.36
        
Antidilutive stock options, excluded from the diluted average      
common shares outstanding calculation382,894
 494,395
 387,979
 529,261


15

3. SECURITIES
The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States government-sponsored enterprises ("GSEs").GSEs.
March 31, 2021
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,540,307 $23,094 $13,500 $1,549,901 
GSE debentures544,966 53 4,486 540,533 
Municipal bonds5,447 43 0 5,490 
$2,090,720 $23,190 $17,986 $2,095,924 
 March 31, 2020
   Gross Gross Estimated
 Amortized Unrealized Unrealized Fair
 Cost Gains Losses Value
 (Dollars in thousands)
MBS$947,549
 $26,223
 $454
 $973,318
GSE debentures250,080
 699
 —
 250,779
Municipal bonds11,887
 53
 —
 11,940
 $1,209,516
 $26,975
 $454
 $1,236,037

 September 30, 2019
   Gross Gross Estimated
 Amortized Unrealized Unrealized Fair
 Cost Gains Losses Value
 (Dollars in thousands)
MBS$923,256
 $15,571
 $2,340
 $936,487
GSE debentures249,828
 304
 178
 249,954
Municipal bonds18,371
 52
 1
 18,422
 $1,191,455
 $15,927
 $2,519
 $1,204,863

September 30, 2020
GrossGrossEstimated
AmortizedUnrealizedUnrealizedFair
CostGainsLossesValue
(Dollars in thousands)
MBS$1,149,922 $31,212 $331��$1,180,803 
GSE debentures369,967 414 41 370,340 
Municipal bonds9,716 91 0 9,807 
$1,529,605 $31,717 $372 $1,560,950 

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, 2021
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$918,238 $13,427 $8,076 $73 
GSE debentures465,480 4,486 0 0 
Municipal bonds0 0 0 0 
$1,383,718 $17,913 $8,076 $73 
 March 31, 2020
 Less Than 12 Months Equal to or Greater Than 12 Months
 Estimated Unrealized Estimated Unrealized
 Fair Value Losses Fair Value Losses
 (Dollars in thousands)
MBS$53,830
 $451
 $1,985
 $3
GSE debentures—
 —
 —
 —
Municipal bonds—
 —
 —
 —
 $53,830
 $451
 $1,985
 $3

 September 30, 2019
 Less Than 12 Months Equal to or Greater Than 12 Months
 Estimated Unrealized Estimated Unrealized
 Fair Value Losses Fair Value Losses
 (Dollars in thousands)
MBS$111,368
 $126
 $199,442
 $2,214
GSE debentures—
 —
 74,812
 178
Municipal bonds1,755
 1
 —
 —
 $113,123
 $127
 $274,254
 $2,392


September 30, 2020
Less Than 12 MonthsEqual to or Greater Than 12 Months
EstimatedUnrealizedEstimatedUnrealized
Fair ValueLossesFair ValueLosses
(Dollars in thousands)
MBS$207,071 $330 $118 $1 
GSE debentures74,959 41 0 0 
Municipal bonds0 0 0 0 
$282,030 $371 $118 $1 


16

The unrealized losses at March 31, 2020 and September 30, 20192021 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 generally views changesdid not record ACL on securities in fair value caused by changes in market yields as temporary. Therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporaryan unrealized loss position at March 31, 2021 because scheduled coupon payments have been made, it is anticipatedmanagement anticipates that the entire principal balance will be collected as scheduled, and management neither intendsdoes 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. As a result of the analysis, management has concluded that 0 other-than-temporary impairments existed at March 31, 2020 or September 30, 2019.

The amortized cost and estimated fair value of AFS debt securities as of March 31, 2020,2021, by contractual maturity, are shown below.  Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without prepayment penalty. For this reason, MBS are not included in the maturity categories.
AmortizedEstimated
CostFair Value
(Dollars in thousands)
One year or less$4,193 $4,226 
One year through five years546,220 541,797 
550,413 546,023 
MBS1,540,307 1,549,901 
$2,090,720 $2,095,924 
 Amortized Estimated
 Cost Fair Value
 (Dollars in thousands)
One year or less$55,179
 $55,245
One year through five years206,788
 207,474
 261,967
 262,719
MBS947,549
 973,318
 $1,209,516
 $1,236,037


The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
For the Three Months EndedFor the Six Months Ended
March 31,March 31,
2021202020212020
(Dollars in thousands)
Taxable$597 $1,322 $1,242 $2,759 
Non-taxable32 60 70 130 
$629 $1,382 $1,312 $2,889 
 For the Three Months Ended For the Six Months Ended
 March 31, March 31,
 2020 2019 2020 2019
 (Dollars in thousands)
Taxable$1,322
 $1,419
 $2,759
 $2,767
Non-taxable60
 86
 130
 179
 $1,382
 $1,505
 $2,889
 $2,946



The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
March 31, 2021September 30, 2020
(Dollars in thousands)
Public unit deposits$311,457 $330,986 
Federal Reserve Bank of Kansas City ("FRB of Kansas City")75,771 259,851 
Retail deposits66,135 0 
$453,363 $590,837 
 March 31, 2020 September 30, 2019
 (Dollars in thousands)
Federal Reserve Bank of Kansas City ("FRB of Kansas City")$396,458
 $6,636
Public unit deposits321,451
 381,143
Repurchase agreements109,425
 108,271
 $827,334
 $496,050


During the current year, the Company sold its Visa Class B shares. The proceeds and realized gain related to the sale of the Visa Class B shares were each $7.4 million. All other dispositions of securities during the six months ended March 31, 2021 and March 31, 2020 were the result of principal repayments, calls, or maturities.


17

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
March 31, 2021September 30, 2020
(Dollars in thousands)
One- to four-family:
Originated$3,967,008 $3,937,310 
Correspondent purchased1,915,027 2,101,082 
Bulk purchased188,733 208,427 
Construction28,582 34,593 
Total6,099,350 6,281,412 
Commercial:
Commercial real estate664,533 626,588 
Commercial and industrial77,210 97,614 
Construction53,271 105,458 
Total795,014 829,660 
Consumer:
Home equity90,052 103,838 
Other8,743 10,086 
Total98,795 113,924 
Total loans receivable6,993,159 7,224,996 
Less:
ACL23,397 31,527 
Discounts/unearned loan fees30,295 29,190 
Premiums/deferred costs(34,069)(38,572)
$6,973,536 $7,202,851 
 March 31, 2020 September 30, 2019
 (Dollars in thousands)
One- to four-family:   
Originated$3,944,782
 $3,873,851
Correspondent purchased2,385,907
 2,349,877
Bulk purchased228,730
 252,347
Construction35,798
 36,758
Total6,595,217
 6,512,833
Commercial:   
Commercial real estate584,236
 583,617
Commercial and industrial62,153
 61,094
Construction126,266
 123,159
Total772,655
 767,870
Consumer:   
Home equity114,571
 120,587
Other10,837
 11,183
Total125,408
 131,770
    
Total loans receivable7,493,280
 7,412,473
    
Less:   
ACL31,196
 9,226
Discounts/unearned loan fees29,645
 31,058
Premiums/deferred costs(44,366) (44,558)
 $7,476,805
 $7,416,747


Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. 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 a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). 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 Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. 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 are in participation with a lead 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")LTV ratios on commercial
18

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. 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. WorkingWith the exception of Paycheck Protection Program ("PPP") loans, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these loans. As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans.

Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by deposits. The Bank also originates a very limited amount of unsecured loans. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.

Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. See discussion regarding the credit risks for these loan segments in Note 1. Summary of Significant Accounting Policies - Allowance for Credit Losses. These segments are further divided into classes for purposes of providing disaggregated information about the credit quality ofinformation about the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family construction loans are included in either the originated class or correspondent purchased class, and commercial construction loans are included in the commercial real estate class.

The Bank's primary As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators for the one-including trends related to four-familyloan classification and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial and consumer - other loan portfolios are delinquency status and asset classifications.status.


The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At March 31, 2020 and September 30, 2019, all loans 90 or more days delinquent were on nonaccrual status.
 March 31, 2020
   90 or More Days Total   Total
 30 to 89 Days Delinquent or Delinquent Current Recorded
 Delinquent in Foreclosure Loans Loans Investment
 (Dollars in thousands)
One- to four-family:         
Originated$8,333
 $4,503
 $12,836
 $3,953,549
 $3,966,385
Correspondent purchased4,602
 1,362
 5,964
 2,411,591
 2,417,555
Bulk purchased2,950
 641
 3,591
 226,167
 229,758
Commercial:         
Commercial real estate1,560
 546
 2,106
 705,058
 707,164
Commercial and industrial—
 172
 172
 61,695
 61,867
Consumer:         
Home equity594
 304
 898
 113,577
 114,475
Other34
 22
 56
 10,741
 10,797
 $18,073
 $7,550
 $25,623
 $7,482,378
 $7,508,001
 September 30, 2019
   90 or More Days Total   Total
 30 to 89 Days Delinquent or Delinquent Current Recorded
 Delinquent in Foreclosure Loans Loans Investment
 (Dollars in thousands)
One- to four-family:         
Originated$7,187
 $3,261
 $10,448
 $3,885,335
 $3,895,783
Correspondent purchased2,762
 1,023
 3,785
 2,377,629
 2,381,414
Bulk purchased3,624
 1,484
 5,108
 248,376
 253,484
Commercial:         
Commercial real estate762
 —
 762
 702,377
 703,139
Commercial and industrial70
 173
 243
 60,340
 60,583
Consumer:         
Home equity446
 302
 748
 119,688
 120,436
Other78
 21
 99
 11,035
 11,134
 $14,929
 $6,264
 $21,193
 $7,404,780
 $7,425,973


The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2020 and September 30, 2019 was $1.7 million and $1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table 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 $187 thousand at March 31, 2020 and $745 thousand at September 30, 2019.

The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.
 March 31, 2020 September 30, 2019
 (Dollars in thousands)
One- to four-family:   
Originated$5,313
 $4,436
Correspondent purchased1,553
 1,023
Bulk purchased775
 1,551
Commercial:   
Commercial real estate670
 —
Commercial and industrial172
 173
Consumer:   
Home equity347
 337
Other22
 21
 $8,852
 $7,541

Loan Classification

- In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows:

•Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories.
•Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.
•Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

19

The following table sets forth, as of March 31, 2021, the amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At March 31, 2021, there were 0 loans classified as doubtful, and all loans classified as loss were fully charged-off. In the table below, certain loans are presented in the "Current Fiscal Year" column and are reported as special mention or substandard. These loans were generally first originated in prior years but were renewed or modified in the current year.

March 31, 2021
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2020201920182017YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Pass$546,777 $765,513 $378,070 $288,036 $324,016 $1,652,657 $0 $3,955,069 
Special Mention241 671 247 348 640 8,129 0 10,276 
Substandard0 991 901 52 260 12,752 0 14,956 
Correspondent purchased
Pass219,320 383,770 103,658 174,282 212,244 834,709 0 1,927,983 
Special Mention0 0 359 0 0 3,564 0 3,923 
Substandard0 0 0 0 0 5,864 0 5,864 
Bulk purchased
Pass0 0 0 0 0 183,816 0 183,816 
Special Mention0 0 0 0 0 95 0 95 
Substandard0 0 0 0 0 5,619 0 5,619 
766,338 1,150,945 483,235 462,718 537,160 2,707,205 0 6,107,601 
Commercial:
Commercial real estate
Pass171,301 151,602 103,851 93,911 43,492 41,108 5,670 610,935 
Special Mention50,000 0 0 0 0 50,640 0 100,640 
Substandard1,288 674 227 688 28 0 0 2,905 
Commercial and industrial
Pass31,810 18,361 8,487 3,475 1,948 785 9,593 74,459 
Special Mention0 0 0 0 0 0 0 0 
Substandard0 0 0 91 51 0 1,450 1,592 
254,399 170,637 112,565 98,165 45,519 92,533 16,713 790,531 
Consumer:
Home equity
Pass917 3,113 2,118 1,886 697 3,214 77,132 89,077 
Special Mention0 0 38 13 0 8 189 248 
Substandard0 60 0 0 0 16 671 747 
Other
Pass1,843 2,880 1,654 1,244 622 233 235 8,711 
Special Mention0 0 2 0 0 0 0 2 
Substandard0 0 9 3 4 0 0 16 
2,760 6,053 3,821 3,146 1,323 3,471 78,227 98,801 
Total$1,023,497 $1,327,635 $599,621 $564,029 $584,002 $2,803,209 $94,940 $6,996,933 

20

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at September 30, 2020 (prior to the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss.adoption of CECL). At the dates presented,that date, there were 0 loans classified as doubtful, and all loans classified as loss were fully charged-off.
September 30, 2020
Special MentionSubstandard
(Dollars in thousands)
One- to four-family:
Originated$9,249 $15,729 
Correspondent purchased2,076 4,512 
Bulk purchased0 5,319 
Commercial:
Commercial real estate50,957 3,541 
Commercial and industrial1,040 1,368 
Consumer:
Home equity331 581 
Other0 8 
$63,653 $31,058 
 March 31, 2020 September 30, 2019
 Special Mention Substandard Special Mention Substandard
 (Dollars in thousands)
One- to four-family:       
Originated$10,586
 $17,308
 $12,941
 $15,628
Correspondent purchased3,092
 3,741
 2,349
 2,785
Bulk purchased—
 4,910
 102
 5,294
Commercial:       
Commercial real estate51,416
 2,232
 52,891
 2,472
Commercial and industrial1,082
 2,301
 1,215
 3,057
Consumer:       
Home equity471
 637
 280
 696
Other7
 22
 2
 24
 $66,654
 $31,151
 $69,780
 $29,956

21


Delinquency Status - The following table showssets forth, as of March 31, 2021, the weighted averageamortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit scoredecision. All revolving lines of credit are presented separately, regardless of origination year.
March 31, 2021
CurrentFiscalFiscalFiscalFiscalRevolving
FiscalYearYearYearYearPriorLine of
Year2020201920182017YearsCreditTotal
(Dollars in thousands)
One- to four-family:
Originated
Current$547,018 $767,175 $379,030 $288,247 $324,464 $1,665,823 $0 $3,971,757 
30-890 0 0 137 192 3,798 0 4,127 
90+/FC0 0 188 52 260 3,917 0 4,417 
Correspondent purchased
Current219,320 383,770 103,847 173,572 211,843 838,669 0 1,931,021 
30-890 0 170 710 401 1,671 0 2,952 
90+/FC0 0 0 0 0 3,797 0 3,797 
Bulk purchased
Current0 0 0 0 0 185,979 0 185,979 
30-890 0 0 0 0 356 0 356 
90+/FC0 0 0 0 0 3,195 0 3,195 
766,338 1,150,945 483,235 462,718 537,160 2,707,205 0 6,107,601 
Commercial:
Commercial real estate
Current222,234 151,603 103,851 94,336 43,520 91,562 5,670 712,776 
30-89355 0 0 233 0 186 0 774 
90+/FC0 673 227 30 0 0 0 930 
Commercial and industrial
Current31,810 18,361 8,487 3,475 1,948 785 11,010 75,876 
30-890 0 0 0 0 0 33 33 
90+/FC0 0 0 91 51 0 0 142 
254,399 170,637 112,565 98,165 45,519 92,533 16,713 790,531 
Consumer:
Home equity
Current917 3,113 2,156 1,899 697 3,197 77,326 89,305 
30-890 0 0 0 0 36 217 253 
90+/FC0 60 0 0 0 5 449 514 
Other
Current1,843 2,876 1,651 1,244 616 215 234 8,679 
30-890 4 5 0 6 18 1 34 
90+/FC0 0 9 3 4 0 0 16 
2,760 6,053 3,821 3,146 1,323 3,471 78,227 98,801 
Total$1,023,497 $1,327,635 $599,621 $564,029 $584,002 $2,803,209 $94,940 $6,996,933 
22

Delinquent and weighted average LTV for one-Nonaccrual Loans - The following tables present the amortized cost at March 31, 2021 and, prior to four-familythe adoption of CECL, the recorded investment, which is identical to amortized cost, at September 30, 2020, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and consumer home equitytotal. At March 31, 2021 and September 30, 2020, all loans 90 or more days delinquent were on nonaccrual status.
March 31, 2021
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentAmortized
Delinquentin ForeclosureLoansLoansCost
(Dollars in thousands)
One- to four-family:
Originated$4,127 $4,417 $8,544 $3,971,757 $3,980,301 
Correspondent purchased2,952 3,797 6,749 1,931,021 1,937,770 
Bulk purchased356 3,195 3,551 185,979 189,530 
Commercial:
Commercial real estate774 930 1,704 712,776 714,480 
Commercial and industrial33 142 175 75,876 76,051 
Consumer:
Home equity253 514 767 89,305 90,072 
Other34 16 50 8,679 8,729 
$8,529 $13,011 $21,540 $6,975,393 $6,996,933 
September 30, 2020
90 or More DaysTotalTotal
30 to 89 DaysDelinquent orDelinquentCurrentRecorded
Delinquentin ForeclosureLoansLoansInvestment
(Dollars in thousands)
One- to four-family:
Originated$3,001 $4,347 $7,348 $3,950,387 $3,957,735 
Correspondent purchased3,170 2,433 5,603 2,122,085 2,127,688 
Bulk purchased2,558 2,938 5,496 203,844 209,340 
Commercial:
Commercial real estate40 1,206 1,246 728,191 729,437 
Commercial and industrial5 157 162 96,124 96,286 
Consumer:
Home equity323 296 619 103,210 103,829 
Other75 8 83 9,980 10,063 
$9,172 $11,385 $20,557 $7,213,821 $7,234,378 

The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2021 and September 30, 2020 was $910 thousand and $1.5 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 $105 thousand at March 31, 2021 and $183 thousand at September 30, 2020.
23


The following table presents the dates presented. Borrower credit scores are intended to provide an indication asamortized cost at March 31, 2021 and, prior to the likelihoodadoption of CECL, the recorded investment at September 30, 2020, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that a borrower will repay their debts. Credit scores are updated at least annually, with the last update in September 2019, from a nationally recognized consumer rating agency. The LTV ratios provide an estimatehad no related ACL is presented as of the extent toMarch 31, 2021, all of which the Bank may incur awere individually evaluated for loss onand any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable.  The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.identified losses have been charged off.
March 31, 2021September 30, 2020
Nonaccrual LoansNonaccrual Loans with No ACLNonaccrual Loans
(Dollars in thousands)
One- to four-family:
Originated$6,062 $3,040 $5,037 
Correspondent purchased3,796 307 2,433 
Bulk purchased3,195 1,086 2,938 
Commercial:
Commercial real estate1,566 534 1,663 
Commercial and industrial142 91 157 
Consumer:
Home equity514 84 305 
Other16 0 8 
$15,291 $5,142 $12,541 
 March 31, 2020 September 30, 2019
 Credit Score LTV Credit Score LTV
One- to four-family - originated767 62% 768 62%
One- to four-family - correspondent764 65
 765 65
One- to four-family - bulk purchased763 61
 762 61
Consumer - home equity752 19
 754 19
 766 62
 766 62



24

Troubled Debt Restructurings ("TDRs") - The following tables present the amortized cost for the current period and, prior to the adoption of CECL, the recorded investment for the prior period, prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investmentamortized cost at the end of the periods indicated. Any increase in the recorded investmentamortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
For the Three Months EndedFor the Six Months Ended
March 31, 2021March 31, 2021
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated2 $871 $762 6 $1,518 $1,407 
Correspondent purchased0 0 0 0 0 0 
Bulk purchased0 0 0 0 0 0 
Commercial:
Commercial real estate0 0 0 0 0 0 
Commercial and industrial0 0 0 0 0 0 
Consumer:
Home equity0 0 0 0 0 0 
Other0 0 0 0 0 0 
2 $871 $762 6 $1,518 $1,407 
 For the Three Months Ended For the Six Months Ended
 March 31, 2020 March 31, 2020
 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:           
Originated3
 $138
 $140
 5
 $241
 $242
Correspondent purchased1
 192
 191
 1
 192
 191
Bulk purchased—
 —
 —
 1
 75
 134
Commercial:           
Commercial real estate1
 837
 837
 1
 837
 837
Commercial and industrial—
 —
 —
 —
 —
 —
Consumer:           
Home equity2
 45
 44
 2
 45
 44
Other—
 —
 —
 —
 —
 —
 7
 $1,212
 $1,212
 10
 $1,390
 $1,448

 For the Three Months Ended For the Six Months Ended
 March 31, 2019 March 31, 2019
 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
 $117
 $117
Correspondent purchased—
 —
 —
 —
 —
 —
Bulk purchased1
 308
 308
 1
 308
 308
Commercial:           
Commercial real estate—
 —
 —
 —
 —
 —
Commercial and industrial—
 —
 —
 —
 —
 —
Consumer:           
Home equity—
 —
 —
 —
 —
 —
Other—
 —
 —
 —
 —
 —
 1
 $308
 $308
 2
 $425
 $425

For the Three Months EndedFor the Six Months Ended
March 31, 2020March 31, 2020
NumberPre-Post-NumberPre-Post-
ofRestructuredRestructuredofRestructuredRestructured
ContractsOutstandingOutstandingContractsOutstandingOutstanding
(Dollars in thousands)
One- to four-family:
Originated3 $138 $140 5 $241 $242 
Correspondent purchased1 192 191 1 192 191 
Bulk purchased0 0 0 1 75 134 
Commercial:
Commercial real estate1 837 837 1 837 837 
Commercial and industrial0 0 0 0 0 0 
Consumer:
Home equity2 45 44 2 45 44 
Other0 0 0 0 0 0 
7 $1,212 $1,212 10 $1,390 $1,448 

25

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
For the Three Months EndedFor the Six Months Ended
March 31, 2021March 31, 2020March 31, 2021March 31, 2020
Number ofAmortizedNumber ofRecordedNumber ofAmortizedNumber ofRecorded
ContractsCostContractsInvestmentContractsCostContractsInvestment
(Dollars in thousands)
One- to four-family:
Originated0 $0 0 $0 0 $0 1 $38 
Correspondent purchased0 0 0 0 0 0 0 0 
Bulk purchased0 0 0 0 0 0 1 134 
Commercial:
Commercial real estate0 0 0 0 0 0 0 0 
Commercial and industrial0 0 0 0 0 0 0 0 
Consumer:
Home equity0 0 1 9 0 0 1 9 
Other0 0 0 0 0 0 0 0 
0 $0 1 $9 0 $0 3 $181 
 For the Three Months Ended For the Six Months Ended
 March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
 Number of Recorded Number of Recorded Number of Recorded Number of Recorded
 Contracts Investment Contracts Investment Contracts Investment Contracts Investment
 (Dollars in thousands)
One- to four-family:               
Originated—
 $—
 1
 $45
 1
 $38
 1
 $45
Correspondent purchased—
 —
 —
 —
 —
 —
 —
 —
Bulk purchased—
 —
 —
 —
 1
 134
 —
 —
Commercial:               
Commercial real estate—
 —
 —
 —
 —
 —
 —
 —
Commercial and industrial—
 —
 —
 —
 —
 —
 —
 —
Consumer:               
Home equity1
 9
 —
 —
 1
 9
 —
 —
Other—
 —
 —
 —
 —
 —
 —
 —
 1
 $9
 1
 $45
 3
 $181
 1
 $45


In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the Coronavirus Disease 2019 ("COVID-19") pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance, with the deferred principal, interest, and escrow added to the loan payoff amount.  COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period. The COVID-19 loan modifications are not considered troubled debt restructurings per current GAAP, nor are the loans with payment forbearance reported as past due or placed on non-accrual status during the forbearance time period.
26



Impaired loans Loans - The following information pertains to impaired loans, by class, as of the dates presented.date and for the period presented (prior to the adoption of CECL). Prior to the adoption of CECL, a loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement.
 March 31, 2020 September 30, 2019
   Unpaid     Unpaid  
 Recorded Principal Related Recorded Principal Related
 Investment Balance ACL Investment Balance ACL
 (Dollars in thousands)
With no related allowance recorded           
One- to four-family:           
Originated$14,406
 $15,013
 $—
 $14,683
 $15,241
 $—
Correspondent purchased1,946
 2,049
 —
 1,763
 1,868
 —
Bulk purchased4,909
 5,630
 —
 4,943
 5,661
 —
Commercial:           
Commercial real estate512
 840
 —
 —
 —
 —
Commercial and industrial—
 148
 —
 60
 184
 —
Consumer:           
Home equity336
 446
 —
 345
 462
 —
Other—
 33
 —
 —
 29
 —
 22,109
 24,159
 —
 21,794
 23,445
 —
With an allowance recorded           
One- to four-family:           
Originated—
 —
 —
 —
 —
 —
Correspondent purchased—
 —
 —
 —
 —
 —
Bulk purchased—
 —
 —
 —
 —
 —
Commercial:           
Commercial real estate—
 —
 —
 —
 —
 —
Commercial and industrial2,076
 2,074
 240
 —
 —
 —
Consumer:           
Home equity—
 —
 —
 —
 —
 —
Other—
 —
 —
 —
 —
 —
 2,076
 2,074
 240
 —
 —
 —
Total           
One- to four-family:           
Originated14,406
 15,013
 —
 14,683
 15,241
 —
Correspondent purchased1,946
 2,049
 —
 1,763
 1,868
 —
Bulk purchased4,909
 5,630
 —
 4,943
 5,661
 —
Commercial:           
Commercial real estate512
 840
 —
 —
 —
 —
Commercial and industrial2,076
 2,222
 240
 60
 184
 —
Consumer:           
Home equity336
 446
 —
 345
 462
 —
Other—
 33
 —
 —
 29
 —
 $24,185
 $26,233
 $240
 $21,794
 $23,445
 $—


For the Three Months EndedFor the Six Months Ended
September 30, 2020March 31, 2020March 31, 2020
UnpaidAverageInterestAverageInterest
RecordedPrincipalRelatedRecordedIncomeRecordedIncome
InvestmentBalanceACLInvestmentRecognizedInvestmentRecognized
With no related allowance recorded
One- to four-family:
Originated$12,385 $12,813 $— $14,441 $161 $14,526 $322 
Correspondent purchased1,955 2,058 — 1,854 19 1,814 37 
Bulk purchased3,843 4,302 — 4,965 50 4,965 102 
Commercial:
Commercial real estate1,052 1,379 — 547 4 312 4 
Commercial and industrial99 244 — 0 0 19 0 
Consumer:
Home equity280 360 — 332 5 335 11 
Other0 45 — 0 0 0 0 
19,614 21,201 — 22,139 239 21,971 476 
With an allowance recorded
One- to four-family:
Originated0 0 0 0 0 0 0 
Correspondent purchased0 0 0 0 0 0 0 
Bulk purchased0 0 0 0 0 0 0 
Commercial:
Commercial real estate660 660 83 0 0 0 0 
Commercial and industrial1,269 1,268 240 2,244 42 1,282 54 
Consumer:
Home equity0 0 0 0 0 0 0 
Other0 0 0 0 0 0 0 
1,929 1,928 323 2,244 42 1,282 54 
Total
One- to four-family:
Originated12,385 12,813 0 14,441 161 14,526 322 
Correspondent purchased1,955 2,058 0 1,854 19 1,814 37 
Bulk purchased3,843 4,302 0 4,965 50 4,965 102 
Commercial:
Commercial real estate1,712 2,039 83 547 4 312 4 
Commercial and industrial1,368 1,512 240 2,244 42 1,301 54 
Consumer:
Home equity280 360 0 332 5 335 11 
Other0 45 0 0 0 0 0 
$21,543 $23,129 $323 $24,383 $281 $23,253 $530 
The following information pertains to impaired loans, by class, for the periods presented.
 For the Three Months Ended For the Six Months Ended
 March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019
 Average Interest Average Interest Average Interest Average Interest
 Recorded Income Recorded Income Recorded Income Recorded Income
 Investment Recognized Investment Recognized Investment Recognized Investment Recognized
 (Dollars in thousands)
With no related allowance recorded            
One- to four-family:               
Originated$14,441
 $161
 $15,928
 $167
 $14,526
 $322
 $16,980
 $352
Correspondent purchased1,854
 19
 2,177
 23
 1,814
 37
 2,251
 45
Bulk purchased4,965
 50
 5,230
 43
 4,965
 102
 5,453
 86
Commercial:               
Commercial real estate547
 4
 —
 —
 312
 4
 —
 —
Commercial and industrial—
 —
 —
 —
 19
 —
 —
 —
Consumer:               
Home equity332
 5
 436
 7
 335
 11
 461
 16
Other—
 —
 —
 —
 —
 —
 —
 —
 22,139
 239
 23,771
 240
 21,971
 476
 25,145
 499
With an allowance recorded              
One- to four-family:               
Originated—
 —
 —
 —
 —
 —
 —
 —
Correspondent purchased—
 —
 —
 —
 —
 —
 —
 —
Bulk purchased—
 —
 —
 —
 —
 —
 —
 —
Commercial:               
Commercial real estate—
 —
 —
 —
 —
 —
 —
 —
Commercial and industrial2,244
 42
 —
 —
 1,282
 54
 —
 —
Consumer:         ��     
Home equity—
 —
 —
 —
 —
 —
 —
 —
Other—
 —
 —
 —
 —
 —
 —
 —
 2,244
 42
 —
 —
 1,282
 54
 —
 —
Total               
One- to four-family:               
Originated14,441
 161
 15,928
 167
 14,526
 322
 16,980
 352
Correspondent purchased1,854
 19
 2,177
 23
 1,814
 37
 2,251
 45
Bulk purchased4,965
 50
 5,230
 43
 4,965
 102
 5,453
 86
Commercial:               
Commercial real estate547
 4
 —
 —
 312
 4
 —
 —
Commercial and industrial2,244
 42
 —
 —
 1,301
 54
 —
 —
Consumer:               
Home equity332
 5
 436
 7
 335
 11
 461
 16
Other—
 —
 —
 —
 —
 —
 —
 —
 $24,383
 $281
 $23,771
 $240
 $23,253
 $530
 $25,145
 $499

27

Allowance for Credit Losses - Management maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics.  Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model.  The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.  Due to the deterioration of economic conditions as a result of the COVID-19 pandemic, management increased some of the historical loss factors and qualitative factors in the formula analysis model to account for the increase in the estimated inherent losses in the loan portfolio at March 31, 2020 which accounts for the majority of the increase in the ACL during the current quarter. If economic conditions continue to worsen and/or the current and future government programs do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

The following is a summary of ACL activity, by loan portfolio segment, for the periods presented,presented. Activity during the three and six months ended March 31, 2020 occurred prior to the ending balanceadoption of ACL based on the Company's impairment methodology.CECL.

For the Three Months Ended March 31, 2021
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$1,538 $1,758 $852 $4,148 $21,707 $270 $26,125 
Charge-offs(110)0 (21)(131)0 (7)(138)
Recoveries57 0 0 57 8 3 68 
Provision for credit losses51 (53)(84)(86)(2,558)(14)(2,658)
Ending balance$1,536 $1,705 $747 $3,988 $19,157 $252 $23,397 
 For the Three Months Ended March 31, 2020
 One- to Four-Family      
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Beginning balance$2,047
 $1,200
 $612
 $3,859
 $5,418
 $158
 $9,435
Charge-offs(46) —
 —
 (46) (325) (4) (375)
Recoveries3
 —
 —
 3
 54
 4
 61
Provision for credit losses4,463
 2,155
 (55) 6,563
 15,181
 331
 22,075
Ending balance$6,467
 $3,355
 $557
 $10,379
 $20,328
 $489
 $31,196
 For the Six Months Ended March 31, 2020
 One- to Four-Family      
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Beginning balance$2,000
 $1,203
 $687
 $3,890
 $5,171
 $165
 $9,226
Charge-offs(64) —
 —
 (64) (349) (10) (423)
Recoveries3
 —
 —
 3
 81
 9
 93
Provision for credit losses4,528
 2,152
 (130) 6,550
 15,425
 325
 22,300
Ending balance$6,467
 $3,355
 $557
 $10,379
 $20,328
 $489
 $31,196
 For the Three Months Ended March 31, 2019
 One- to Four-Family      
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Beginning balance$2,761
 $1,748
 $836
 $5,345
 $3,034
 $179
 $8,558
Charge-offs(10) —
 —
 (10) —
 (2) (12)
Recoveries2
 —
 17
 19
 25
 29
 73
Provision for credit losses(580) (356) (51) (987) 1,029
 (42) —
Ending balance$2,173
 $1,392
 $802
 $4,367
 $4,088
 $164
 $8,619

 For the Six Months Ended March 31, 2019
 One- to Four-Family      
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Beginning balance$2,953
 $1,861
 $925
 $5,739
 $2,556
 $168
 $8,463
Charge-offs(30) —
 (26) (56) —
 (12) (68)
Recoveries5
 —
 106
 111
 27
 86
 224
Provision for credit losses(755) (469) (203) (1,427) 1,505
 (78) —
Ending balance$2,173
 $1,392
 $802
 $4,367
 $4,088
 $164
 $8,619

For the Six Months Ended March 31, 2021
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$6,085 $2,691 $467 $9,243 $21,800 $484 $31,527 
Adoption of CECL(4,452)(367)436 (4,383)(193)(185)(4,761)
Balance at October 1, 20201,633 2,324 903 4,860 21,607 299 26,766 
Charge-offs(124)0 (21)(145)(515)(10)(670)
Recoveries91 0 0 91 20 25 136 
Provision for credit losses(64)(619)(135)(818)(1,955)(62)(2,835)
Ending balance$1,536 $1,705 $747 $3,988 $19,157 $252 $23,397 

For the Three Months Ended March 31, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,047 $1,200 $612 $3,859 $5,418 $158 $9,435 
Charge-offs(46)0 0 (46)(325)(4)(375)
Recoveries3 0 0 3 54 4 61 
Provision for credit losses4,463 2,155 (55)6,563 15,181 331 22,075 
Ending balance$6,467 $3,355 $557 $10,379 $20,328 $489 $31,196 
28

For the Six Months Ended March 31, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Beginning balance$2,000 $1,203 $687 $3,890 $5,171 $165 $9,226 
Charge-offs(64)0 0 (64)(349)(10)(423)
Recoveries3 0 0 3 81 9 93 
Provision for credit losses4,528 2,152 (130)6,550 15,425 325 22,300 
Ending balance$6,467 $3,355 $557 $10,379 $20,328 $489 $31,196 


The following is a summary of the loan portfolio and related ACL balances at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method.method as of September 30, 2020 (prior to the adoption of CECL).

September 30, 2020
One- to Four-Family
CorrespondentBulk
OriginatedPurchasedPurchasedTotalCommercialConsumerTotal
(Dollars in thousands)
Recorded investment in loans:
Collectively evaluated for impairment$3,945,350 $2,125,733 $205,497 $6,276,580 $822,643 $113,612 $7,212,835 
Individually evaluated for impairment12,385 1,955 3,843 18,183 3,080 280 21,543 
$3,957,735 $2,127,688 $209,340 $6,294,763 $825,723 $113,892 $7,234,378 
ACL for loans:
Collectively evaluated for impairment$6,085 $2,691 $467 $9,243 $21,477 $484 $31,204 
Individually evaluated for impairment0 0 0 0 323 0 323 
$6,085 $2,691 $467 $9,243 $21,800 $484 $31,527 
29
 March 31, 2020
 One- to Four-Family 
    
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Recorded investment in loans:             
Collectively evaluated for impairment$3,951,979
 $2,415,609
 $224,849
 $6,592,437
 $766,443
 $124,936
 $7,483,816
Individually evaluated for impairment14,406
 1,946
 4,909
 21,261
 2,588
 336
 24,185
 $3,966,385
 $2,417,555
 $229,758
 $6,613,698
 $769,031
 $125,272
 $7,508,001
              
ACL for loans:             
Collectively evaluated for impairment$6,467
 $3,355
 $557
 $10,379
 $20,088
 $489
 $30,956
Individually evaluated for impairment—
 —
 —
 —
 240
 —
 240
 $6,467
 $3,355
 $557
 $10,379
 $20,328
 $489
 $31,196

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, 2021. The key assumptions utilized in estimating the Company's ACL at March 31, 2021 are discussed below.
 September 30, 2019
 One- to Four-Family 
    
 
 Correspondent Bulk 
 
    
 Originated Purchased Purchased Total Commercial Consumer Total
 (Dollars in thousands)
Recorded investment in loans:             
Collectively evaluated for impairment$3,881,100
 $2,379,651
 $248,541
 $6,509,292
 $763,662
 $131,225
 $7,404,179
Individually evaluated for impairment14,683
 1,763
 4,943
 21,389
 60
 345
 21,794
 $3,895,783
 $2,381,414
 $253,484
 $6,530,681
 $763,722
 $131,570
 $7,425,973
              
ACL for loans:             
Collectively evaluated for impairment$2,000
 $1,203
 $687
 $3,890
 $5,171
 $165
 $9,226
Individually evaluated for impairment—
 —
 —
 —
 —
 —
 —
 $2,000
 $1,203
 $687
 $3,890
 $5,171
 $165
 $9,226
•Economic Forecast - Management considered several economic forecasts provided by a third party and selected the economic forecast believed to be the most appropriate considering the facts and circumstances at March 31, 2021. The forecasted economic indices applied to the model at March 31, 2021 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, 2021 was the national unemployment rate. The forecast national unemployment rate in the economic scenario selected by management at March 31, 2021 had the national unemployment rate peaking at 6.4% at September 30, 2021 and then a gradual decline to 5.3% at March 31, 2022 which was the end of our four quarter forecast time period.
•Forecast and reversion to mean time period - The forecasted time period for all of the economic indices was four quarters at March 31, 2021. The reversion to mean time period was eight quarters for the national unemployment rate and four quarters for all other economic indices at March 31, 2021.
•Prepayment and curtailment assumptions - The assumptions used at March 31, 2021 were generally based on actual prepayment and curtailment speeds for each respective loan pool in the model.
•Qualitative factors - The qualitative considerations by management at March 31, 2021 included the COVID-19 loan modification programs considering the payment performance of the loans that had exited their deferral periods, the balance and trending of large-dollar special mention commercial loans, and the economic uncertainties related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in certain industries, and (3) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted. Management determined a qualitative amount was not necessary at March 31, 2021 for the loans in the COVID-19 loan modification program due to the significant decrease in the dollar amount of the loans in the program and the fact that the majority of the loans that have exited the program are current on their payments. See discussion below regarding the qualitative amount at March 31, 2021 for special mention commercial loans and the economic uncertainty.

The decrease in ACL during the current quarter was primarily a result of a negative provision for credit losses of $2.7 million. The negative provision for credit losses was due primarily to a reduction in commercial loan ACL as a result of improvements in the economic forecast used in the model, partially offset by an increase in qualitative factors, primarily the economic uncertainty qualitative factor, along with a change in the mix of the loan portfolio during the current quarter. The balance of the one- to four-family loan portfolio decreased during the quarter, partially offset by an increase in commercial loans. The reduction in ACL related to the decrease in the balance of the one- to four-family loan portfolio during the current quarter was more than offset by the increase in ACL related to an increase in the balance of the commercial loan portfolio.

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.
For the Three Months Ended March 31, 2021For the Six Months Ended March 31, 2021
(Dollars in thousands)
Beginning balance6,433 Beginning balance$0 
Provision for credit losses(306)Adoption of CECL7,788 
Ending balance$6,127 Balance at October 1, 20207,788 
Provision for credit losses(1,661)
Ending balance$6,127 

At March 31, 2021, the Company also applied a qualitative factor for economic uncertainty related to the calculation of the reserve for off-balance sheet credit exposures; however, the impact of this qualitative factor was smaller compared to the economic uncertainty factor applied in the calculation of ACL due to consideration of the fact that the majority of off-balance sheet credit exposures are related to credits that have been underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The $306 thousand reduction in the reserve during the current quarter, which was recognized as a negative provision for credit losses, was due to an improvement in the economic forecast, along with a change in the mix of off-balance sheet credit exposures. The balance of off-balance sheet credit exposures increased during the current quarter due to an increase in one- to four-family off-balance sheet credit exposures, partially offset by a decrease in commercial off-balance sheet credit exposures. Even though the aggregate amount of off-balance sheet credit exposures increased during the current quarter, the related reserve decreased because one- to four-family off-balance sheet credit exposures have a significantly lower reserve rate than commercial off-balance sheet credit exposures due to differences in credit risk.
30

5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At March 31, 20202021 and September 30, 2019,2020, the Bank had entered into interest rate swap agreements with a total notional amount of $440.0 million and $640.0 million, respectively, in order to hedge the variable cash flows associated with $440.0 million and $640.0 million, respectively, of adjustable-rate FHLB advances. At March 31, 20202021 and September 30, 2019,2020, the interest rate swap agreements had an average remaining term to maturity of 4.03.9 years and 4.53.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve 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, 20202021 and September 30, 2019,2020, the interest rate swaps were in a loss position with a total fair value of $55.6$30.3 million and $33.1$53.1 million, respectively, which was reported in accounts payable and accrued expensesother liabilities on the consolidated balance sheet. During the three and six months ended March 31, 2021, $6.4 million and $9.4 million, respectively, was reclassified from AOCI. Of this amount, for the three months ended March 31, 2021, $2.8 million was recognized as an increase to interest expense and $3.6 million, net of tax, was reclassified as a result of the termination of the related interest rate swaps, as discussed below, and reported in the loss on interest rate swap termination line item within the consolidated statements of operations. During the three and six months ended March 31, 2020, $983 thousand and $1.7 million, respectively, was reclassified from AOCI as an increase to interest expense. During the three months ended March 31, 2019, $100 thousand was reclassified from AOCI as a decrease to interest expense. During the six months ended March 31, 2019, $51 thousand was reclassified from AOCI as an increase to interest expense. There was 0 hedge ineffectiveness recognized in the consolidated statements of income during any of these periods. At March 31, 2020,2021, the Company estimated that $13.0$10.0 million of interest expense associated with the interest rate swaps will be reclassified from AOCI as an increase 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 posted cash collateral of $56.3$32.0 million at March 31, 20202021 and $33.3$54.6 million at September 30, 2019.2020.

During the current quarter,fiscal year, the Bank terminated interest rate swaps with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. 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. Since it was management's intention to prepay the related FHLB advances, it is no longer probable that the original forecasted transactions subject to the cash flow hedges will occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses, net of tax, totaling $3.6 million ($4.8 million pretax) from AOCI into earnings.

During the current fiscal year, the Bank prepaid fixed-rate FHLB advances totaling $350.0$200.0 million with a weighted average contractual interest rate of 2.42%2.23% and a weighted average remaining term of 1.01.3 years, and replaced these advances with $350.0 million of fixed-rate FHLB advances totaling $200.0 million with a weighted average contractual interest rate of 1.43%0.69% and a weighted average term of 4.75.5 years. The Bank paid penalties totaling $4.2of $5.0 million to FHLB as a result of prepaying thethese FHLB advances. The weighted average effective interest rate of the new advances is 1.16%. The prepayment penalties are being recognized in interest expense over the life of the new FHLB advances.


31





6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements - The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.

The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are:

•Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.

The Company bases its fair values on the price that would be received from the sale of a financial instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis.

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. 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. 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, 20202021 or during fiscal year 2019.2020. The Company's major security types, based on the nature and risks of the securities, are:

•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. (Level 2)
•MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2)
•Municipal Bonds - 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 securities with similar credit profiles. (Level 2)

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in accounts payable and accrued expensesother liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. 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, 20202021 or during fiscal year 2019.2020. (Level 2)


32

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 not0t have any Level 3 financial instruments measured at fair value on a recurring basis at March 31, 20202021 or September 30, 2019.2020.
March 31, 2021
Quoted PricesSignificantSignificant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,549,901 $0 $1,549,901 $0 
GSE debentures540,533 0 540,533 0 
Municipal bonds5,490 0 5,490 0 
$2,095,924 $0 $2,095,924 $0 
Liabilities:
Interest rate swaps$30,274 $0 $30,274 $0 
 March 31, 2020
   Quoted Prices Significant Significant
   in Active Markets Other Observable Unobservable
 Carrying for Identical Assets  Inputs Inputs
 Value (Level 1) (Level 2) (Level 3)
 (Dollars in thousands)
Assets:       
AFS Securities:       
MBS$973,318
 $—
 $973,318
 $—
GSE debentures250,779
 —
 250,779
 —
Municipal bonds11,940
 —
 11,940
 —
 $1,236,037
 $—
 $1,236,037
 $—
        
Liabilities:       
Interest rate swaps$55,555
 $—
 $55,555
 $—

 September 30, 2019
   Quoted Prices Significant Significant
   in Active Markets Other Observable Unobservable
 Carrying for Identical Assets  Inputs Inputs
 Value (Level 1) (Level 2) (Level 3)
 (Dollars in thousands)
Assets:       
AFS Securities:       
MBS$936,487
 $—
 $936,487
 $—
GSE debentures249,954
 —
 249,954
 —
Municipal bonds18,422
 —
 18,422
 —
 $1,204,863
 $—
 $1,204,863
 $—
        
Liabilities:       
Interest rate swaps$33,090
 $—
 $33,090
 $—


September 30, 2020
Quoted PricesSignificantSignificant
in Active MarketsOther ObservableUnobservable
Carryingfor Identical Assets InputsInputs
Value(Level 1)(Level 2)(Level 3)
(Dollars in thousands)
Assets:
AFS Securities:
MBS$1,180,803 $0 $1,180,803 $0 
GSE debentures370,340 0 370,340 0 
Municipal bonds9,807 0 9,807 0 
$1,560,950 $0 $1,560,950 $0 
Liabilities:
Interest rate swaps$53,149 $0 $53,149 $0 

The Company's significant Level 3 measurements that are measured on a non-recurring basis pertain to the Company's loans receivable and OREO.The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis. The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date.

Loans Receivable - With the adoption of CECL, collateral dependent assets are assets evaluated as part of the ACL on an individual basis. Those collateral dependent assets for which there is an associated ACL are considered financial assets measured at fair value on a non-recurring basis. Prior to the adoption of CECL, loans identified as impaired were considered financial assets measured at fair value on a non-recurring basis. The valuation method for collateral dependent assets and impaired loans is identical.

The fair value of impaired collateral dependent loans/loans individually evaluated for impairmentloss on a non-recurring basis during the six months ended March 31, 20202021 and 20192020 that were still held in the portfolio as of March 31, 2021 and 2020 was $7.4 million and 2019 was $4.9 million, and $2.8 million, respectively.

33

The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10%. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal.

For commercial loans, if the most recent appraisal or book value of the collateral does not reflect the current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for

impaired commercial loans individually evaluated for impairment during the six months ended March 31, 2021 and March 31, 2020 were downward adjustments to the book value of the collateral for lack of marketability. TheDuring the six months ended March 31, 2021, the adjustments ranged from 7% to 50%, with a weighted average of 23%. During the six months ended March 31, 2020, the adjustments ranged from 10% to 50%, with a weighted average of 20%. There were no impaired commercial loans individually evaluated duringThe basis utilized in calculating the six months ended March 31, 2019.weighted averages for these adjustments was the original unadjusted value of each collateral item.

Fair values of impaired collateral dependent loans/loans individually evaluated for impairmentloss 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.

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. 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. The fair value of OREO measured on a non-recurring basis during the six months ended March 31, 20202021 and 20192020 that was still held in the portfolio as of March 31, 2021 and 2020 and 2019 was $183$105 thousand and $582$183 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at March 31, 20202021 and 2019.2020.

34

Fair Value Disclosures - The Company determined estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates.

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, 2021
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$139,472 $139,472 $139,472 $0 $0 
AFS securities2,095,924 2,095,924 0 2,095,924 0 
Loans receivable6,973,536 7,426,188 0 0 7,426,188 
FHLB stock74,464 74,464 74,464 0 0 
Liabilities:
Deposits6,650,865 6,718,958 3,671,841 3,047,117 0 
Borrowings1,581,955 1,618,090 0 1,618,090 0 
Interest rate swaps30,274 30,274 0 30,274 0 
September 30, 2020
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(Dollars in thousands)
Assets:
Cash and cash equivalents$185,148 $185,148 $185,148 $0 $0 
AFS securities1,560,950 1,560,950 0 1,560,950 0 
Loans receivable7,202,851 7,663,000 0 0 7,663,000 
FHLB stock93,862 93,862 93,862 0 0 
Liabilities:
Deposits6,191,408 6,259,080 3,170,164 3,088,916 0 
Borrowings1,789,313 1,840,605 0 1,840,605 0 
Interest rate swaps53,149 53,149 0 53,149 0 
 March 31, 2020
 Carrying Estimated Fair Value
 Amount Total Level 1 Level 2 Level 3
 (Dollars in thousands)
Assets:         
Cash and cash equivalents$118,374
 $118,374
 $118,374
 $—
 $—
AFS securities1,236,037
 1,236,037
 —
 1,236,037
 —
Loans receivable7,476,805
 7,934,879
 —
 —
 7,934,879
FHLB stock101,575
 101,575
 101,575
 —
 —
Liabilities:         
Deposits5,774,619
 5,852,187
 2,732,263
 3,119,924
 —
Borrowings2,115,869
 2,165,705
 30,000
 2,135,705
 —
Interest rate swaps55,555
 55,555
 —
 55,555
 —
          
 September 30, 2019
 Carrying Estimated Fair Value
 Amount Total Level 1 Level 2 Level 3
 (Dollars in thousands)
Assets:         
Cash and cash equivalents$220,370
 $220,370
 $220,370
 $—
 $—
AFS securities1,204,863
 1,204,863
 —
 1,204,863
 —
Loans receivable7,416,747
 7,654,586
 —
 —
 7,654,586
FHLB stock98,456
 98,456
 98,456
 —
 —
Liabilities:         
Deposits5,581,867
 5,614,895
 2,594,242
 3,020,653
 —
Borrowings2,239,989
 2,253,353
 100,001
 2,153,352
 —
Interest rate swaps33,090
 33,090
 —
 33,090
 —


35

7. 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 March 31, 2021
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$24,868 $(36,239)$(11,371)
Other comprehensive income (loss), before reclassifications(20,934)6,931 (14,003)
Amount reclassified from AOCI, net of taxes of $(2,072)0 6,421 6,421 
Other comprehensive income (loss)(20,934)13,352 (7,582)
Ending balance$3,934 $(22,887)$(18,953)
 For the Three Months Ended March 31, 2020
 Unrealized Unrealized  
 Gains (Losses) Gains (Losses)  
 on AFS on Cash Flow Total
 Securities Hedges AOCI
 (Dollars in thousands)
Beginning balance$9,698
 $(19,625) $(9,927)
Other comprehensive income (loss), before reclassifications10,378
 (23,412) (13,034)
Amount reclassified from AOCI—
 983
 983
Other comprehensive income (loss)10,378
 (22,429) (12,051)
Ending balance$20,076
 $(42,054) $(21,978)

 For the Six Months Ended March 31, 2021
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$23,728 $(40,233)$(16,505)
Other comprehensive income (loss), before reclassifications(19,794)7,955 (11,839)
Amount reclassified from AOCI, net of taxes of $(3,031)0 9,391 9,391 
Other comprehensive income (loss)(19,794)17,346 (2,448)
Ending balance$3,934 $(22,887)$(18,953)
 For the Six Months Ended March 31, 2020
 Unrealized Unrealized  
 Gains (Losses) Gains (Losses)  
 on AFS on Cash Flow Total
 Securities Hedges AOCI
 (Dollars in thousands)
Beginning balance$10,150
 $(25,049) $(14,899)
Other comprehensive income (loss), before reclassifications9,926
 (18,697) (8,771)
Amount reclassified from AOCI—
 1,692
 1,692
Other comprehensive income (loss)9,926
 (17,005) (7,079)
Ending balance$20,076
 $(42,054) $(21,978)

For the Three Months Ended March 31, 2020
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$9,698 $(19,625)$(9,927)
Other comprehensive income (loss), before reclassifications10,378 (23,412)(13,034)
Amount reclassified from AOCI, net of taxes of $(315)0 983 983 
Other comprehensive income (loss)10,378 (22,429)(12,051)
Ending balance$20,076 $(42,054)$(21,978)

For the Six Months Ended March 31, 2020
 UnrealizedUnrealized
Gains (Losses)Gains (Losses)
on AFSon Cash FlowTotal
SecuritiesHedgesAOCI
(Dollars in thousands)
Beginning balance$10,150 $(25,049)$(14,899)
Other comprehensive income (loss), before reclassifications9,926 (18,697)(8,771)
Amount reclassified from AOCI, net of taxes of $(543)0 1,692 1,692 
Other comprehensive income (loss)9,926 (17,005)(7,079)
Ending balance$20,076 $(42,054)$(21,978)

36
 For the Three Months Ended March 31, 2019
 Unrealized Unrealized  
 Gains (Losses) Gains (Losses)  
 on AFS on Cash Flow Total
 Securities Hedges AOCI
 (Dollars in thousands)
Beginning balance$537
 $(2,414) $(1,877)
Other comprehensive income (loss), before reclassifications3,061
 (6,500) (3,439)
Amount reclassified from AOCI—
 (100) (100)
Other comprehensive income (loss)3,061
 (6,600) (3,539)
Ending balance$3,598
 $(9,014) $(5,416)
 For the Six Months Ended March 31, 2019
 Unrealized Unrealized  
 Gains (Losses) Gains (Losses)  
 on AFS on Cash Flow Total
 Securities Hedges AOCI
 (Dollars in thousands)
Beginning balance$(2,990) $7,330
 $4,340
Other comprehensive income (loss), before reclassifications6,588
 (16,395) (9,807)
Amount reclassified from AOCI—
 51
 51
Other comprehensive income (loss)6,588
 (16,344) (9,756)
Ending balance$3,598
 $(9,014) $(5,416)



8. REVENUE RECOGNITION
Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below. During the six months ended March 31, 2020 and 2019, revenue from contracts with customers totaled $7.5 million and $8.1 million, respectively.

Deposit Service Fees
Interchange Transaction Fees - Interchange transaction fee income primarily consists of interchange fees earned on a transactional basis through card payment networks. The performance obligation for these types of transactions is satisfied as services are rendered for each transaction and revenue is recognized daily concurrently with the transaction processing services provided to the cardholder.

In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction. The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks; therefore, interchange transaction fee income is reported net of interchange network charges. Interchange network charges totaled $1.6 million and $1.7 million for the six months ended March 31, 2020 and 2019, respectively.

Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance and transaction-based fees such as overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs. The Company's performance obligation is satisfied over a period of time, generally a month, for account maintenance and at the time of service for transaction-based fees. Revenue is recognized after the performance obligation is satisfied. Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly).

Insurance Commissions
Commissions are received on insurance product sales. The Company acts in the capacity of an agent between the Company's customer and the insurance carrier. The Company's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective. Additionally, the Company earns performance-based incentives ("contingent insurance commissions") based on certain criteria established by the insurance carriers.

Other Non-Interest Income
Trust Asset Management Income - The Company provides trust asset management services to customers. The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end. Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.

9. LEASES
The Company leases real estate property for branches, ATMs, and certain equipment. These leases have remaining terms that range from one year to 47 years, some of which include the exercising of renewal options that the Company considers to be reasonably certain. As of March 31, 2020, a right-of-use asset of $15.1 million was included in other assets and a lease liability of $15.1 million was included in accounts payable and accrued expenses on the consolidated balance sheets.

As of March 31, 2020, for the Company's operating leases, the weighted average remaining lease term was 23.3 years and the weighted average discount rate was 2.70%. The Company did not enter into any new lease obligations during the six months ended March 31, 2020.

The following tables presents lease expenses and supplemental cash flow information related to the Company's leases for the periods presented.
 For the Three Months Ended For the Six Months Ended
 March 31, 2020 March 31, 2020
 (Dollars in thousands)
Operating lease expense$376
 $765
Variable lease expense58
 108
Short-term lease expense7
 16
Cash paid for amounts included in the measurement of lease liabilities339
 683



The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of March 31, 2020:
Remainder of fiscal year 2020$573
Fiscal year 20211,361
Fiscal year 20221,327
Fiscal year 20231,234
Fiscal year 20241,025
Fiscal year 2025854
Thereafter15,391
Total future minimum lease payments21,765
Amounts representing interest(6,708)
Present value of net future minimum lease payments$15,057


The Company elected the modified retrospective approach for its adoption of ASU 2016-02, and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. These elections require the inclusion of ASC Topic 840 disclosures for periods that continue to be presented in accordance with ASC Topic 840. As of September 30, 2019, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year were as follows:
2020$1,298
20211,187
20221,069
2023930
2024637
Thereafter1,115
 $6,236



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the Company's press releases, and in other communications by the Company, which are made in good faith by us pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:

•our ability to maintain overhead costs at reasonable levels;
•our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;
•our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;
•our ability to access cost-effective funding;
•the expected cost savings, synergies and other benefits from our acquisition of Capital City Bancshares, Inc. ("CCB") might not be realized within the anticipated time frames or at all;activities;
•our ability to extend theour commercial banking and trust asset management expertise acquired from CCB through our existing branch footprint;expertise;
•fluctuations in deposit flows;
•the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;
•the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;
•changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
•potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on the economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;
•increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
•results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;
•changes in accounting principles, policies, or guidelines;
•the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB");
•the effects of, and changes in, trade and fiscal policies and laws of the United States government;
•the effects of, and changes in, foreign and military policies of the United States government;
•inflation, interest rate, market, monetary, and currency fluctuations;
•the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;
•the willingness of users to substitute competitors' products and services for our products and services;
•our success in gaining regulatory approval of our products and services and branching locations, when required;
•the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;
•implementing business initiatives may be more difficult or expensive than anticipated;
•significant litigation;
•technological changes;
•our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyber-attacks;
•acquisitions and dispositions;
•changes in consumer spending, borrowing and saving habits; and
•our success at managing the risks involved in our business.


37

This list of important factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 20192020 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

As used in this Form 10-Q, unless we specify or the context indicates otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation, and its subsidiaries. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc.

The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019,2020, filed with the SEC.

Executive Summary
The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.

Response to and Impact on Market Interest Rates as a Result of the COVID-19 Pandemic

During the current quarter, the COVID-19 pandemic had a significant impact on our customers, employees, business operations and financial results. Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business and financial results are summarized below.
Response
Customer, employee, and community health precautions
 - In response to the rapidly evolving COVID-19 pandemic, the Company focused first on the well-being of its people, customers and communities. Preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in the office, adjusting branch banking hours and operational measures to promote social distancing when customers do visit branches, and preventative cleaning at offices and branches. The Company also focused on business continuity measures, including activating its Crisis Management Team to put into action our business continuity plan, monitoring potential business interruptions, making further improvements to our technology allowing employees to work from home, and conducting regular discussions with our technology vendors.

Lobby services have been changed to appointment only while drive-through, mobile, and online banking have become the Bank's primary channels of serving customers. Retail loan closings have been conducted with customers coming to our drive-through facilities and commercial loans are closed in person only when necessary. All employees continue to be paid their regular salary and receive full benefits.
Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance, with the deferred principal, interest, and escrow added to the loan payoff amount.  COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. The COVID-19 loan modifications are not considered troubled debt restructurings per current GAAP.

As of April 30, 2020, COVID-19 loan modifications had been processed for 494 one- to four-family loans totaling $137.0 million for which the borrowers had a weighted average credit score of 734, and 105 consumer loans totaling $2.7 million for which the borrowers had a weighted average credit score of 707.  As of April 30, 2020, 263 additional COVID-19 loan modification agreements had been sent to one- to four-family borrowers but were still pending.  The pending COVID-19 loan modifications had a total balance of $51.9 million and a weighted average credit score of 729.

As of April 30, 2020, the Bank had processed 181 COVID-19 loan modifications of commercial loans totaling $200.0 million, and were in the process of modifying an additional 32 commercial loans totaling $165.8 million.  

Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - The first PPP authorized up to $349 billion and the second PPP authorized up to $320 billion in loans to small businesses primarily to pay their employees during the first eight weeks after receiving their loan proceeds with loan payments deferred for six months and the final balance due 24 months after funding, subject to potential debt forgiveness. These loans are fully guaranteed by the SBA. The first PPP application process started April 3,

2020 and the full $349 billion was exhausted on April 16, 2020. The Bank continued to take applications for PPP loans after the first PPP was exhausted in anticipation of a second PPP. The second PPP application process started April 27, 2020. Between the two PPPs, the Bank has processed 575 applications for PPP loans totaling $40.7 million, of which $34.1 million had been funded as of April 30, 2020. The origination fees associated with the PPP loans processed by the Bank are expected to be $1.7 million. Based on discussions with borrowers, we anticipate that more than 75% of the balances of the PPP loans will be forgiven after eight weeks from the funding date.

Provision for credit losses and allowance for credit losses - As a result of the deterioration of economic conditions due to the COVID-19 pandemic, the Bank recorded a provision for credit losses of $22.1 million during the current quarter. The provision for credit losses increased the ACL to $31.2 million at March 31, 2020 resulting in an ACL to loans receivable ratio of 0.42% compared to 0.12% at September 30, 2019. The ACL to loans receivable ratio for one- to four-family loans was 0.16% at March 31, 2020 compared to 0.06% at September 30, 2019 and the ACL to loans receivable ratio for commercial loans was 2.63% at March 31, 2020 compared to 0.67% at September 30, 2019. See additional ACL discussion in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section below, and additional discussion regarding the composition of the Bank's loan portfolio in the "Financial Condition - Loans Receivable" section below.

Suspension of correspondent loan activity - In an effort to manage the influx of refinance requests from current customers during the initial days of the COVID-19 pandemic, the Bank suspended its purchase of correspondent one- to four-family loans. Correspondent applications and commitments in the pipeline at the time of the suspension continue to progress through the approval and funding process.

Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020. Based on the Company's existing capital levels, conservative loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests. Management anticipates being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized with sufficient liquidity to serve our customers. With earnings of $0.19 per share, year-to-date, and a cash balance at the holding company level of $101.0 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future. Given the current state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company has elected to defer the annual True Blue dividend in June 2020 and not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.

Summary of Financial Condition and Results of Operation

For the quarter ended March 31, 2020, the Company recognized net income of $4.3 million, or $0.03 per share, compared to net income of $24.6 million, or $0.18 per share, for the quarter ended March 31, 2019. The decrease was due primarily to the $22.1 million provision for credit losses during the current quarter, partially offset by a reduction in income tax expense. The net interest margin decreased 14 basis points, from 2.33% for the prior year quarter to 2.19% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, as well as an increase in the cost of deposits.

For the six months ended March 31, 2020, the Company recognized net income of $26.8 million, or $0.19 per share, a decrease of $22.2 million, or 45.3%, from the six-month period ended March 31, 2019. The decrease in net income was due primarily to the $22.3 million provision for credit losses during the current period. The net interest margin decreased eleven basis points, from 2.30% for the prior year period to 2.19% for the current period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. When the leverage strategy is in place, it reduces the net interest margin due to the small amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 14 basis points, from 2.33% for the prior year period to 2.19% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield.

The Federal Reserve,FRB, in response to economic risksrisk resulting from the COVID-19 responses by businesses, individuals, and government entities,pandemic, returned to a zero-interest rate policy in March 2020. This was after most of the broader market interest rates decreased significantly in response to evolving news about COVID-19. However, while liability costs decreased, mortgagethe COVID-19 pandemic. Many areas of consumer spending have rebounded in recent months, but some segments, such as travel and entertainment, are lagging. We continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty about the longer lasting impact on local business, as well as the travel and entertainment industries, resulting from the COVID-19 pandemic. This could cause a longer recovery time for some sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

Since the onset of the COVID-19 pandemic, the Bank has lowered its rates did not, primarily dueoffered on all deposit products except retail checking and savings accounts. The impact of reducing rates offered on our certificate of deposit products has been to a rapid and unexpected increase in refinance activity. The Bank was able to restructurelower the cost of $350.0 milliondeposits as certificates of its FHLB advances by lowering their cost 72 bps,deposit reprice to a lower rate when they mature and as new accounts are opened. Additionally, certain borrowings were repaid or restructured over the past year using funds obtained through deposit growth, which reduced our interest expense on those advances immediately and primarily ledborrowings. Over this time, we lowered rates for our loan products. In late February 2021, as market interest rates began to the stabilityincrease, we began to increase our offered loan rates in our net interest margin. Given current levels of yields on new loans and the amount of one- to four-family refinances and endorsements of terms to lower current market rates,areas.Despite this recent increase, the yield on the total loan portfolio iswill likely to continue to decrease. Additionally,decrease in the near term due to the high levels of prepayments, refinances and endorsements, but not at the same magnitude as the past year. With significant cash inflows realized due to investment securities being called and prepayments on loans and MBS over the past year and the current yields on reinvested funds into new securities arebeing lower than existing portfolio yields, the portfolio yield. Whileyield on our investments has been reduced significantly.

Summary of Results of Operation and Financial Condition

During the six month period ended March 31, 2021, the Bank had beguncompleted three unique transactions that impacted operating results.
•Sold all its Visa Class B shares and recognized a gain of $7.4 million.
•Terminated $200.0 million of fixed-pay interest rate swaps with an average cost at termination of 2.62% and realized a loss of $4.8 million. The estimated earn-back period of the loss is approximately 15 months.
•Wrote down the value of a branch, which management intends to lower deposit rates in February,sell, by $1.2 million.


by late March and into the monthThe Company recognized net income of April, the Bank was able to lower deposit rates further in response to the changes in market rates and competition. Considering the drastic changes in market rates and the continued economic uncertainty, it is likely that with the changes the Bank has made to its cost of funding, if the rates on mortgage loans are reduced as capacity constraints are lessened in the mortgage origination system, our net interest margin should remain stable with some downside risk as a result of prepayments and premium amortization on correspondent loans.
Total assets increased $31.2$39.3 million, or 0.3% from September 30, 2019 to$0.29 per share, for the six month period ended March 31, 2020, due mainly2021 compared to loan portfolio growth which was largely funded with excess operating cash. The operating cash balance at September 30, 2019 was higher than normal due partially to anticipated loan fundings. Total loans increased $60.1net income of $26.8 million, from September 30, 2019 toor $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings. Our net interest margin could continue to decrease if our interest-earning assets
38

continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Total assets at March 31, 2021 were $9.70 billion, an increase of $210.8 million, or 2.2% from September 30, 2020, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings. Total securities increased $535.0 million, or 34.3%, from $1.56 billion at September 30, 2020 to $2.10 billion at March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities.

Total loans at March 31, 2021 were $6.97 billion, a decrease of $229.3 million from September 30, 2020. The decrease was primarily in the originated one- to four-family correspondent loan portfolio.portfolio as payoffs exceeded purchases. During the current year-to-dateyear six month period, the Bank originated and refinanced $450.0$649.4 million of one- to four-family and consumer loans with a weighted average rate of 3.49%2.71% and purchased $253.1$269.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.42%2.70%. The Bank also originated $67.6$157.3 million of commercial loans with a weighted average rate of 4.65%3.24% and entered into commercial real estate loan participations of $28.4$98.1 million at a weighted average rate of 4.65%3.85%. The commercial loan portfolio totaled $772.7$795.0 million at March 31, 20202021 and was composed of 76%83% commercial real estate 16%loans, 10% commercial and industrial loans, and 7% commercial construction and 8% commercial and industrial.loans. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $167.2$258.2 million, was $877.7$976.0 million at March 31, 2020.2021. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $18.8$23.1 million, was $80.9$100.3 million at March 31, 2020. Given the current level2021, of total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially during the remainder of fiscal year 2020.which $25.3 million related to PPP loans.

Total deposits increased $192.8were $6.65 billion at March 31, 2021, an increase of $459.5 million, or 3.5%7.4%, from September 30, 2019 to March 31, 2020. Non-maturityThe increase was in non-maturity deposits, which increased $138.0$501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and retail/a $77.2 million increase in savings accounts. Retail/business certificates of deposit increased $72.4 million, partially offset by a $17.6 million decrease inand public unit certificates of deposit. The increase in retail/business certificates of deposit was primarily in intermediate-term certificates, followed by short-term certificates.decreased $36.1 million and $6.1 million, respectively, during the current year period.

Total borrowings were $1.58 billion at March 31, 2020 were $2.12 billion,2021, a decrease of $124.1$207.4 million, or 5.5%11.6%, from September 30, 2019.2020. The decrease was due to repaying the FHLB line of credit balance and not renewing a portion of the FHLB advancesborrowings that matured during the current year period, partially offset by a $30.0 million draw onperiod. Cash flows from the FRB of Kansas City line of credit at March 31, 2020. Management is currently usingincrease in the FRB of Kansas City line of credit rather than the FHLB line of credit for short-term funding needs as the interest rate on the FRB of Kansas City line of credit is lower than the FHLB line of credit.deposit portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.29$1.28 billion at both March 31, 2020 compared to $1.34 billion at2021 and September 30, 2019. The $48.52020. During the current year six month period, the Company paid cash dividends totaling $40.6 million decrease was due primarily to the payment of $70.4and repurchased common stock totaling $1.5 million, in cash dividends, partially offset by net income of $26.8 million during the current year-to-date period. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At March 31, 2020, this ratio was 12.2%.$39.3 million. The cash dividends paid during the current year-to-dateyear six month period totaled $0.51$0.30 per share and consisted of a $0.34$0.13 per share cash true-up dividend related to fiscal year 20192020 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17of $0.085 per share. On April 21, 2020,20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7$11.5 million, payable on May 15, 202021, 2021 to stockholders of record as of the close of business on May 1, 2020.7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%.

At times,Transition from London Interbank Offered Rates ("LIBOR")
LIBOR is used extensively in the United States as a reference rate for various financial contracts, including adjustable-rate loans, asset-backed securities, and interest rate swaps. In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates. The availability of three-month, six-month and one-year LIBOR rates is currently expected to cease in June 2023.

As of March 31, 2021, the Company has identified $375.6 million of adjustable-rate one- to four-family loans in its portfolio for which the repricing index was tied to six-month or one-year LIBOR and the loan maturity date is after June 30, 2023. Our one- to four-family loan agreements generally allow the Bank has utilizedto choose a leverage strategynew alternative reference rate based upon comparable information if the current index is no longer available. During the June 30, 2019 quarter, the Bank discontinued the use of LIBOR for the origination of adjustable-rate one- to increase earnings.four-family loans and no longer purchases correspondent one- to four-family loans that use LIBOR. The leverage strategy involves borrowing upBank began using the one-year Constant Maturity Treasury ("CMT") index for newly originated and correspondent purchased one- to $2.10 billion either onfour-family adjustable-rate loans, and currently plans to replace LIBOR with the one-year CMT index for existing loans when LIBOR is no longer available. At March 31, 2021, none of the Bank's FHLB lineconsumer or commercial loans use a repricing index tied to LIBOR.

The Bank has interest rate swaps with a notional amount of credit or by entering into short-term$440.0 million at March 31, 2021 that are tied to three-month LIBOR. The related FHLB advances depending onfor which the rates offeredadjustable-rate cash flows are being hedged by FHLB. The borrowingsthese interest rate swaps are repaid at quarter end, or earlier ifalso tied to the strategy is suspended. The proceeds from the borrowings, netthree-month LIBOR. All of the required FHLB stock holdings which yield approximately 7.25% from dividends, are depositedadvances tied to the interest rate swaps mature during calendar year 2021. The Bank intends to replace the advances at maturity with advances tied to the Secured Overnight Finance Rate ("SOFR"). Additionally, the Bank intends to work with the interest rate swap counterparties to replace LIBOR with SOFR at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $14 thousand during the prior year period. The leverage strategy was not in place during the current year period, due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.same time.

39

Available Information
Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.


Critical Accounting Policies

Our most critical accounting policies are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements.  These policies are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions or estimates about highly uncertain matters.  The use of different judgments, assumptions, and estimates could affect reported results materially.  These critical accounting policies and their application are reviewed at least annually by our audit committee. ForThe following is a full discussiondescription of our critical accounting policies see Item 7 - "Management's Discussion and Analysisan explanation of Financial Conditionthe methods and Resultsassumptions underlying their application.

Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures. The ACL is a valuation amount that is deducted from the amortized cost basis of Operations - Critical Accounting Policies"loans and represents management's current expectations of total expected credit losses included in the Company's Annual Reportloan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. The reserve for off-balance sheet credit exposures is reported as a liability and is presented in other liabilities on the consolidated balance sheet. The ACL and reserve for off-balance sheet credit exposures is maintained through provisions for credit losses which are either charged or credited to income.Form 10-K
The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in forecasted macroeconomic conditions that could result in fluctuations in the amount of the recorded ACL. The reserve for off-balance sheet credit exposures is calculated using the same methodology as the ACL; however, the estimate of credit risk for off-balance sheet credit exposures takes into consideration the likelihood that funding of the commitment will occur.
At each quarter end, the Company prepares an ACL model to calculate expected credit losses. The Company aggregates loans into pools in the ACL model based on similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the ACL model. The key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Using all of these inputs and assumptions, the ACL model generates aggregated estimated cash flows for the fiscal year endedtime period that remains for each loan's contractual life. The cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at the present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of the future cash flows compared to the amortized cost basis of the loan pool.

Management considers qualitative factors when evaluating the adequacy of the ACL and reserve for off-balance sheet credit exposures calculated by the ACL model. The qualitative factors considered include such items as: changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments in which the Bank operates. Management may increase or decrease the ACL and reserve for off-balance sheet credit exposures based on the evaluation of the qualitative factors.

While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserves for off-balance sheet credit exposures. Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.

See "Allowance for Credit Losses" and "Reserve for Off-Balance Sheet Credit Exposures" within "Note 1. Summary of Significant Accounting Policies" above for additional information.

40

Fair Value Measurements.  The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with ASC 820 and ASC 825. The Company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value, with Level 1 (quoted prices for identical assets in an active market) being considered the most reliable, and Level 3 having the most unobservable inputs and therefore being considered the least reliable.  The Company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date.  The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The Company's AFS securities are measured at fair value on a recurring basis.  Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity.  The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities. Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.  All AFS securities are classified as Level 2.

The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at March 31, 2021 and September 30, 2019.2020.
41


Financial Condition
The following table presents selected balance sheet information as of the dates indicated.
March 31,December 31,September 30,June 30,March 31,
20212020202020202020
(Dollars in thousands)
Total assets$9,698,019 $9,606,964 $9,487,218 $9,558,814 $9,371,193 
Cash and cash equivalents139,472 168,032 185,148 396,219 118,374 
AFS securities2,095,924 1,913,866 1,560,950 1,220,054 1,236,037 
Loans receivable, net6,973,536 7,004,094 7,202,851 7,388,090 7,476,805 
FHLB stock, at cost74,464 84,693 93,862 102,782 101,575 
Deposits6,650,865 6,410,842 6,191,408 6,069,684 5,774,619 
Borrowings1,581,955 1,734,275 1,789,313 1,989,089 2,115,869 
Stockholders' equity1,278,595 1,276,548 1,284,859 1,300,520 1,287,793 
Equity to total assets at end of period13.2 %13.3 %13.5 %13.6 %13.7 %
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (Dollars in thousands)
Total assets$9,371,193
 $9,236,572
 $9,340,018
 $9,286,275
 $9,534,551
Cash and cash equivalents118,374
 70,703
 220,370
 43,051
 218,051
AFS securities1,236,037
 1,229,587
 1,204,863
 769,393
 746,728
HTM securities—
 —
 —
 483,858
 527,460
Loans receivable, net7,476,805
 7,429,207
 7,416,747
 7,507,468
 7,570,806
FHLB stock, at cost101,575
 99,861
 98,456
 100,109
 102,631
Deposits5,774,619
 5,585,851
 5,581,867
 5,580,871
 5,701,111
Borrowings2,115,869
 2,189,991
 2,239,989
 2,239,987
 2,339,985
Stockholders' equity1,287,793
 1,306,594
 1,336,326
 1,327,099
 1,355,983
Equity to total assets at end of period13.7% 14.1% 14.3% 14.3% 14.2%

Total assets were $9.37$9.70 billion at March 31, 2020,2021, an increase of $134.6$91.1 million, or 1.5%0.9%, from December 31, 2019,2020, due primarily to increasesan increase in the loan portfoliosecurities, partially offset by a decrease in loans receivable and cash and cash equivalents. The increase inExcess operating cash and cash equivalents was due mainlyflows from the loan portfolio and funds from deposit growth were generally used to increasing the amount of cash on hand in anticipation of customer cash needspurchase securities during the COVID-19 pandemic.current quarter. Total loans were $7.48$6.97 billion at March 31, 2020, an increase2021, a decrease of $47.6$30.6 million, or 0.6%0.4%, from December 31, 2019.2020. The increasedecrease was primarilymainly in the one- to four-family correspondent loan portfolio and commercial construction portfolio, partially offset by an increase in ACL.as payoffs exceeded purchases during the current quarter. During the current quarter, the Bank originated and refinanced $193.6$319.8 million of one- to four-family and consumer loans with a weighted average rate of 3.45%2.66% and purchased $144.6$163.3 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.40%2.61%. The Bank also originated $35.2$119.2 million of commercial loans with a weighted average rate of 4.42%3.07% and processedentered into commercial loan disbursements, excluding linesparticipations of credit, of approximately $49$38.1 million at a weighted rate of 3.62%. The Bank endorsed $285.2 million of loans during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million of 4.56%. Given the current level of total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materiallyloans during the remainder of fiscal year 2020.March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points.

Total deposits were $5.77$6.65 billion at March 31, 2020,2021, an increase of $188.8$240.0 million, or 3.4%3.7%, from December 31, 2019.2020. The increase was primarily in non-maturity deposits, including a $113.8 million increase in money market accounts and a $110.0 million increase in checking accounts. Between mid-March 2021 and March 31, 2021, the Bank processed approximately $113 million of Economic Impact Payments, the majority of which were retained by the Bank as of March 31, 2021. Retail/business certificates of deposit increased $108.8decreased $47.6 million from December 31, 2020. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

Total borrowings decreased $152.3 million, or 8.8%, from December 31, 2020 to March 31, 2021. The decrease was due primarily to not renewing borrowings that matured during the Presidents' Day certificate of deposit campaign in February 2020, and non-maturity deposits increased $66.7 million. Thecurrent quarter. Cash flows from the increase in the retail/business certificates of deposit was primarily in intermediate-term certificates.portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.29$1.28 billion at both March 31, 2020 compared to $1.31 billion at2021 and December 31, 2019. The $18.82020. During the current quarter, net income totaled $20.4 million, decrease was due primarily to other comprehensive loss, net of tax of $12.1 million, which was due to a reduction in the fair value of our interest rate swaps, partially offset by an increase in unrealized gains on our AFS securities, and the payment of $11.7cash dividends totaling $11.5 million and a decrease in cash dividends. These decreases were partially offset by net incomeAOCI of $4.3 million during the current quarter.$7.6 million.

42




Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. Approximately 68% of the one- to four-family loan portfolio balance at March 31, 2020 was comprised of loans that had a balance of $510 thousand or less at the time of origination.
March 31, 2021December 31, 2020September 30, 2020
AmountRateAmount RateAmountRate
(Dollars in thousands)
One- to four-family:
Originated$3,967,008 3.29 %$3,946,073 3.39 %$3,937,310 3.50 %
Correspondent purchased1,915,027 3.27 1,974,086 3.40 2,101,082 3.49 
Bulk purchased188,733 2.09 199,673 2.24 208,427 2.41 
Construction28,582 3.11 32,871 3.22 34,593 3.30 
Total6,099,350 3.24 6,152,703 3.36 6,281,412 3.46 
Commercial:
Commercial real estate664,533 4.04 609,936 4.23 626,588 4.29 
Commercial and industrial77,210 3.08 69,378 3.41 97,614 2.79 
Construction53,271 4.25 84,564 3.89 105,458 4.04 
Total795,014 3.96 763,878 4.12 829,660 4.08 
Consumer loans:
Home equity90,052 4.64 97,717 4.64 103,838 4.66 
Other8,743 4.36 9,328 4.40 10,086 4.40 
Total98,795 4.61 107,045 4.62 113,924 4.64 
Total loans receivable6,993,159 3.34 7,023,626 3.46 7,224,996 3.55 
Less:
ACL23,397 26,125 31,527 
Discounts/unearned loan fees30,295 28,825 29,190 
Premiums/deferred costs(34,069)(35,418)(38,572)
Total loans receivable, net$6,973,536 $7,004,094 $7,202,851 


43
 March 31, 2020 December 31, 2019 September 30, 2019
 Amount Rate Amount Rate Amount Rate
 (Dollars in thousands)
One- to four-family:           
Originated$3,944,782
 3.68% $3,927,015
 3.71% $3,873,851
 3.74%
Correspondent purchased2,385,907
 3.60
 2,343,750
 3.62
 2,349,877
 3.64
Bulk purchased228,730
 2.88
 237,691
 2.93
 252,347
 2.94
Construction35,798
 3.61
 38,771
 3.82
 36,758
 4.00
Total6,595,217
 3.62
 6,547,227
 3.65
 6,512,833
 3.68
Commercial:           
Commercial real estate584,236
 4.45
 583,848
 4.48
 583,617
 4.48
Commercial and industrial62,153
 4.62
 57,019
 4.97
 61,094
 5.14
Construction126,266
 4.40
 107,372
 4.68
 123,159
 4.81
Total772,655
 4.45
 748,239
 4.54
 767,870
 4.58
Consumer loans:           
Home equity114,571
 5.67
 118,491
 5.73
 120,587
 6.15
Other10,837
 4.56
 10,877
 4.58
 11,183
 4.57
Total125,408
 5.58
 129,368
 5.63
 131,770
 6.02
Total loans receivable7,493,280
 3.74
 7,424,834
 3.77
 7,412,473
 3.81
            
Less:           
ACL31,196
   9,435
   9,226
  
Discounts/unearned loan fees29,645
   30,323
   31,058
  
Premiums/deferred costs(44,366)   (44,131)   (44,558)  
Total loans receivable, net$7,476,805
   $7,429,207
   $7,416,747
  



Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-offpaid off as a result of refinances and loans that were sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current yearyear-to-date period, the Bank endorsed $170.9$527.5 million of one- to four-family loans, reducing the average rate on those loans by 8191 basis points.points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 basis points). Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. As noted earlier, during the initial days of the COVID-19 pandemic, correspondent one- to four-family lending activities were suspended by the Bank but correspondent applicationsThe renewal balance and commitmentsrate are included in the pipeline continue to progress through the approvalending loan portfolio balance and funding process.rate.
For the Three Months Ended
March 31, 2021December 31, 2020September 30, 2020June 30, 2020
AmountRateAmountRateAmountRateAmountRate
(Dollars in thousands)
Beginning balance$7,023,626 3.46 %$7,224,996 3.55 %$7,407,442 3.64 %$7,493,280 3.74 %
Originated and refinanced:
Fixed326,570 2.54 318,690 2.75 265,424 2.98 277,904 2.83 
Adjustable112,483 3.43 48,946 3.60 44,625 3.68 60,626 3.75 
Purchased and participations:
Fixed192,262 2.82 100,518 2.86 61,435 3.07 131,739 3.28 
Adjustable9,150 2.42 65,315 3.89 4,396 2.76 62,510 3.76 
Change in undisbursed loan funds(63,925)(70,323)13,898 (32,202)
Repayments(606,937)(664,052)(572,536)(586,434)
Principal (charge-offs)/recoveries, net(70)(464)312 19 
Ending balance$6,993,159 3.34 $7,023,626 3.46 $7,224,996 3.55 $7,407,442 3.64 

For the Six Months Ended
March 31, 2021March 31, 2020
AmountRateAmountRate
(Dollars in thousands)
Beginning balance$7,224,996 3.55 %$7,412,473 3.81 %
Originated and refinanced:
Fixed645,260 2.64 406,584 3.48 
Adjustable161,429 3.48 111,072 4.20 
Purchased and participations:
Fixed292,780 2.83 248,730 3.61 
Adjustable74,465 3.71 32,786 3.00 
Change in undisbursed loan funds(134,248)14,306 
Repayments(1,270,989)(732,005)
Principal charge-offs, net(534)(330)
Other— (336)
Ending balance$6,993,159 3.34 $7,493,280 3.74 


44
 For the Three Months Ended
 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
 Amount Rate Amount Rate Amount Rate Amount Rate
 (Dollars in thousands)
Beginning balance$7,424,834
 3.77% $7,412,473
 3.81% $7,501,741
 3.83% $7,564,076
 3.82%
Originated and refinanced:               
Fixed172,891
 3.44
 233,693
 3.52
 188,753
 3.60
 121,871
 4.09
Adjustable55,946
 4.11
 55,126
 4.30
 59,550
 4.37
 63,341
 4.87
Purchased and participations:               
Fixed125,612
 3.46
 123,118
 3.77
 49,161
 4.12
 29,447
 4.65
Adjustable18,985
 2.96
 13,801
 3.06
 12,305
 3.55
 10,018
 3.85
Change in undisbursed loan funds24,049
   (9,743)   12,293
   34,742
  
Repayments(328,644)   (403,361)   (410,624)   (321,439)  
Principal (charge-offs)/recoveries, net(314)   (16)   (110)   (33)  
Other(79)   (257)   (596)   (282)  
Ending balance$7,493,280
 3.74
 $7,424,834
 3.77
 $7,412,473
 3.81
 $7,501,741
 3.83

        
 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Amount Rate Amount Rate
 (Dollars in thousands)
Beginning balance$7,412,473
 3.81% $7,507,645
 3.74%
Originated and refinanced:       
Fixed406,584
 3.48
 194,710
 4.58
Adjustable111,072
 4.20
 196,717
 4.87
Purchased and participations:       
Fixed248,730
 3.61
 107,527
 4.88
Adjustable32,786
 3.00
 53,982
 4.70
Change in undisbursed loan funds14,306
   5,185
  
Repayments(732,005)   (501,094)  
Principal (charge-offs)/recoveries, net(330)   156
  
Other(336)   (752)  
Ending balance$7,493,280
 3.74
 $7,564,076
 3.82



The following tables present loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together.
For the Three Months Ended
March 31, 2021March 31, 2020
AmountRate% of TotalAmountRate% of Total
(Dollars in thousands)
Fixed-rate:
One- to four-family:(1)
<= 15 years$148,473 2.24 %23.2 %$68,559 2.95 %18.4 %
> 15 years271,959 2.79 42.5 198,373 3.54 53.1 
One- to four-family construction25,819 2.66 4.0 13,971 3.44 3.7 
Commercial:
Commercial real estate6,133 3.55 1.0 3,872 4.71 1.0 
Commercial and industrial28,138 1.80 4.4 9,992 3.82 2.7 
Commercial construction37,495 3.62 5.8 1,522 5.40 0.4 
Home equity472 5.28 0.1 1,124 5.85 0.3 
Other343 6.10 — 1,090 5.51 0.3 
Total fixed-rate518,832 2.65 81.0 298,503 3.45 79.9 
Adjustable-rate:
One- to four-family:(2)
<= 36 months860 2.25 0.1 1,571 2.86 0.4 
> 36 months19,710 2.45 3.1 35,099 2.98 9.4 
One- to four-family construction2,748 2.50 0.4 4,007 3.00 1.1 
Commercial:
Commercial real estate54,397 3.60 8.5 17,347 4.53 4.7 
Commercial and industrial3,907 3.50 0.6 1,950 5.00 0.5 
Commercial construction27,283 3.14 4.3 508 5.50 0.1 
Home equity12,230 4.42 1.9 13,686 5.16 3.7 
Other498 3.51 0.1 763 3.96 0.2 
Total adjustable-rate121,633 3.36 19.0 74,931 3.82 20.1 
Total originated, refinanced and purchased$640,465 2.78 100.0 %$373,434 3.52 100.0 %
Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family$154,148 2.62 $125,612 3.46 
Participations - commercial38,114 3.62 — — 
Total fixed-rate purchased/participations192,262 2.82 125,612 3.46 
Adjustable-rate:
Correspondent - one- to four-family9,150 2.42 18,985 2.96 
Participations - commercial— — — — 
Total adjustable-rate purchased/participations9,150 2.42 18,985 2.96 
Total purchased/participation loans$201,412 2.80 $144,597 3.40 
45

For the Three Months EndedFor the Six Months Ended
March 31, 2020 March 31, 2019March 31, 2021March 31, 2020
Amount Rate % of Total Amount Rate % of TotalAmountRate% of TotalAmountRate% of Total
(Dollars in thousands)(Dollars in thousands)
Fixed-rate:           Fixed-rate:
One- to four-family:(1)
           
One- to four-family:(1)
<= 15 years$68,559
 2.95% 18.4% $13,873
 4.25% 5.5%<= 15 years$282,463 2.30 %24.1 %$153,063 2.96 %19.1 %
> 15 years198,373
 3.54
 53.1
 66,993
 4.45
 27.0
> 15 years502,134 2.85 42.8 408,843 3.56 51.2 
One- to four-family construction13,971
 3.44
 3.7
 11,801
 4.56
 4.8
One- to four-family construction59,840 2.72 5.1 25,102 3.42 3.1 
Commercial:           Commercial:
Commercial real estate3,872
 4.71
 1.0
 15,027
 7.23
 6.0
Commercial real estate16,260 3.58 1.4 13,272 5.00 1.7 
Commercial and industrial9,992
 3.82
 2.7
 3,956
 5.29
 1.6
Commercial and industrial33,582 2.08 2.8 14,039 3.90 1.8 
Commercial construction1,522
 5.40
 0.4
 —
 —
 —
Commercial construction41,538 3.65 3.5 36,253 4.72 4.5 
Home equity1,124
 5.85
 0.3
 1,189
 5.83
 0.5
Home equity945 5.36 0.1 2,487 5.88 0.3 
Other1,090
 5.51
 0.3
 1,226
 4.67
 0.5
Other1,278 5.49 0.1 2,255 5.55 0.3 
Total fixed-rate298,503
 3.45
 79.9
 114,065
 4.85
 45.9
Total fixed-rate938,040 2.70 79.9 655,314 3.53 82.0 
           
Adjustable-rate:           Adjustable-rate:
One- to four-family:(2)
           
One- to four-family:(2)
<= 36 months1,571
 2.86
 0.4
 2,459
 3.83
 1.0
<= 36 months1,112 2.28 0.1 3,669 2.86 0.5 
> 36 months35,099
 2.98
 9.4
 30,068
 4.03
 12.1
> 36 months38,442 2.53 3.3 66,308 3.02 8.3 
One- to four-family construction4,007
 3.00
 1.1
 3,467
 3.87
 1.4
One- to four-family construction5,457 2.60 0.5 9,997 3.03 1.2 
Commercial:           Commercial:
Commercial real estate17,347
 4.53
 4.7
 72,879
 4.69
 29.3
Commercial real estate71,375 3.67 6.1 26,522 4.65 3.3 
Commercial and industrial1,950
 5.00
 0.5
 11,615
 5.35
 4.7
Commercial and industrial5,045 3.62 0.4 4,475 5.08 0.6 
Commercial construction508
 5.50
 0.1
 —
 —
 —
Commercial construction87,620 3.73 7.4 1,487 5.53 0.2 
Home equity13,686
 5.16
 3.7
 13,450
 6.42
 5.4
Home equity26,020 4.41 2.2 29,969 5.47 3.7 
Other763
 3.96
 0.2
 399
 3.50
 0.2
Other823 3.19 0.1 1,431 4.04 0.2 
Total adjustable-rate74,931
 3.82
 20.1
 134,337
 4.73
 54.1
Total adjustable-rate235,894 3.55 20.1 143,858 3.93 18.0 
           
Total originated, refinanced and purchased$373,434
 3.52
 100.0% $248,402
 4.79
 100.0%Total originated, refinanced and purchased$1,173,934 2.87 100.0 %$799,172 3.60 100.0 %
           
Purchased and participation loans included above:Purchased and participation loans included above:          Purchased and participation loans included above:
Fixed-rate:           Fixed-rate:
Correspondent - one- to four-family$125,612
 3.46
   $24,611
 4.35
  Correspondent - one- to four-family$254,666 2.72 $220,304 3.48 
Participations - commercial—
 —
   10,776
 8.00
  Participations - commercial38,114 3.62 28,426 4.65 
Total fixed-rate purchased/participations125,612
 3.46
   35,387
 5.46
  Total fixed-rate purchased/participations292,780 2.83 248,730 3.61 
           
Adjustable-rate:           Adjustable-rate:
Correspondent - one- to four-family18,985
 2.96
   11,331
 4.01
  Correspondent - one- to four-family14,465 2.51 32,786 3.00 
Participations - commercial—
 —
   —
 —
  Participations - commercial60,000 4.00 — — 
Total adjustable-rate purchased/participations18,985
 2.96
   11,331
 4.01
  Total adjustable-rate purchased/participations74,465 3.71 32,786 3.00 
Total purchased/participation loans$144,597
 3.40
   $46,718
 5.11
  Total purchased/participation loans$367,245 3.01 $281,516 3.54 

(1)The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.

(2)The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.

46
 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Amount Rate % of Total Amount Rate % of Total
 (Dollars in thousands)
Fixed-rate:           
One- to four-family:(1)
           
<= 15 years$153,063
 2.96% 19.1% $36,928
 4.21% 6.7%
> 15 years408,843
 3.56
 51.2
 173,127
 4.53
 31.3
One- to four-family construction25,102
 3.42
 3.1
 28,279
 4.53
 5.1
Commercial:           
Commercial real estate13,272
 5.00
 1.7
 22,829
 6.40
 4.1
Commercial and industrial14,039
 3.90
 1.8
 6,358
 5.31
 1.2
Commercial construction36,253
 4.72
 4.5
 29,919
 4.78
 5.4
Home equity2,487
 5.88
 0.3
 2,383
 6.16
 0.4
Other2,255
 5.55
 0.3
 2,414
 4.68
 0.5
Total fixed-rate655,314
 3.53
 82.0
 302,237
 4.69
 54.7
            
Adjustable-rate:           
One- to four-family:(2)
           
<= 36 months3,669
 2.86
 0.5
 7,687
 3.76
 1.4
> 36 months66,308
 3.02
 8.3
 63,147
 4.03
 11.4
One- to four-family construction9,997
 3.03
 1.2
 11,712
 4.23
 2.1
Commercial:           
Commercial real estate26,522
 4.65
 3.3
 93,583
 4.79
 16.9
Commercial and industrial4,475
 5.08
 0.6
 13,950
 5.46
 2.5
Commercial construction1,487
 5.53
 0.2
 28,650
 5.35
 5.2
Home equity29,969
 5.47
 3.7
 30,876
 6.36
 5.6
Other1,431
 4.04
 0.2
 1,094
 3.15
 0.2
Total adjustable-rate143,858
 3.93
 18.0
 250,699
 4.83
 45.3
            
Total originated, refinanced and purchased$799,172
 3.60
 100.0% $552,936
 4.75
 100.0%
            
Purchased and participation loans included above:          
Fixed-rate:           
Correspondent - one- to four-family$220,304
 3.48
   $63,550
 4.46
  
Participations - commercial28,426
 4.65
   43,977
 5.49
  
Total fixed-rate purchased/participations248,730
 3.61
   107,527
 4.88
  
            
Adjustable-rate:           
Correspondent - one- to four-family32,786
 3.00
   25,332
 3.97
  
Participations - commercial—
 —
   28,650
 5.35
  
Total adjustable-rate purchased/participations32,786
 3.00
   53,982
 4.70
  
Total purchased/participation loans$281,516
 3.54
   $161,509
 4.82
  


(1)The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.
(2)The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.


One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least annually, with the latest update in September 2019,March 2021, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
March 31, 2021September 30, 2020
% ofCreditAverage% ofCreditAverage
AmountTotalScoreLTVBalanceAmountTotalScoreLTVBalance
(Dollars in thousands)
Originated$3,967,008 65.4 %772 61 %$148 $3,937,310 63.0 %771 62 %$145 
Correspondent purchased1,915,027 31.5 765 63 386 2,101,082 33.6 765 64 379 
Bulk purchased188,733 3.1 772 59 297 208,427 3.4 767 60 300 
$6,070,768 100.0 %770 62 188 $6,246,819 100.0 %768 63 187 
 March 31, 2020 September 30, 2019
   % of Credit   Average   % of Credit   Average
 Amount Total Score LTV Balance Amount Total Score LTV Balance
 (Dollars in thousands)
Originated$3,944,782
 60.1% 767
 62% $143
 $3,873,851
 59.8% 768
 62% $140
Correspondent purchased2,385,907
 36.4
 764
 65
 375
 2,349,877
 36.3
 765
 65
 371
Bulk purchased228,730
 3.5
 763
 61
 302
 252,347
 3.9
 762
 61
 304
 $6,559,419
 100.0% 766
 63
 189
 $6,476,075
 100.0% 767
 63
 186

The following tables present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year six-month period, $127.4$209.3 million were refinanced from other lenders. Of the loans originated and refinanced during the current year period, 78% had loan values of $510 thousand or less. Of the correspondent loans purchased during the current year period, 23% had loan values of $510 thousand or less.
For the Three Months Ended
March 31, 2021March 31, 2020
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$184,166 69 %770 $133,513 75 %764 
Refinanced by Bank customers122,105 66 769 43,470 68 758 
Correspondent purchased163,298 69 774 144,597 71 766 
$469,569 69 771 $321,580 73 764 
For the Six Months Ended
March 31, 2021March 31, 2020
CreditCredit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$405,362 70 %769 $305,900 75 %766 
Refinanced by Bank customers214,955 65 769 107,992 68 760 
Correspondent purchased269,131 69 775 253,090 71 767 
$889,448 69 771 $666,982 72 765 


47
 For the Three Months Ended
 March 31, 2020 March 31, 2019
     Credit     Credit
 Amount LTV Score Amount LTV Score
 (Dollars in thousands)
Originated$133,513
 75% 764
 $83,101
 77% 755
Refinanced by Bank customers43,470
 68
 758
 9,618
 67
 749
Correspondent purchased144,597
 71
 766
 35,942
 74
 761
 $321,580
 73
 764
 $128,661
 76
 756

 For the Six Months Ended
 March 31, 2020 March 31, 2019
     Credit     Credit
 Amount LTV Score Amount LTV Score
 (Dollars in thousands)
Originated$305,900
 75% 766
 $209,426
 77% 755
Refinanced by Bank customers107,992
 68
 760
 22,572
 67
 746
Correspondent purchased253,090
 71
 767
 88,882
 74
 762
 $666,982
 72
 765
 $320,880
 75
 756


The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the period endedcurrent year period.
For the Three Months EndedFor the Six Months Ended
March 31, 2021March 31, 2021
StateAmount% of TotalRateAmount% of TotalRate
(Dollars in thousands)
Kansas$264,895 56.4 %2.58 %$529,575 59.5 %2.64 %
Missouri79,316 16.9 2.62 157,466 17.7 2.65 
Texas26,302 5.6 2.59 50,604 5.7 2.72 
Tennessee32,066 6.8 2.64 48,929 5.5 2.73 
Pennsylvania33,989 7.3 2.55 44,461 5.0 2.59 
Other states33,001 7.0 2.61 58,413 6.6 2.72 
$469,569 100.0 %2.59 $889,448 100.0 %2.65 

As of March 31, 2020.2021, there were $7.8 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There were $208.9 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.
  For the Three Months Ended For the Six Months Ended
  March 31, 2020 March 31, 2020
State Amount % of Total Rate Amount % of Total Rate
  (Dollars in thousands)
Kansas $153,911
 47.8% 3.30% $361,548
 54.2% 3.33%
Missouri 59,433
 18.5
 3.37
 119,514
 17.9
 3.38
Texas 59,371
 18.5
 3.29
 103,439
 15.5
 3.32
Other states 48,865
 15.2
 3.47
 82,481
 12.4
 3.48
  $321,580
 100.0% 3.34
 $666,982
 100.0% 3.35

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2020,2021, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs. As discussed above, the Bank suspended its purchase of correspondent one- to four-family loans during the initial days of the COVID-19 pandemic, but the Bank continues to progress through the approval and funding of the commitments in the pipeline at the time of the suspension.
Fixed-Rate
15 yearsMore thanAdjustable-Total
or less15 yearsRateAmountRate
(Dollars in thousands)
Originate/refinance$27,948 $80,156 $8,107 $116,211 2.76 %
Correspondent38,456 134,881 4,189 177,526 2.48 
$66,404 $215,037 $12,296 $293,737 2.59 
Rate2.16 %2.73 %2.47 %
 Fixed-Rate      
 15 years More than Adjustable- Total
 or less 15 years Rate Amount Rate
 (Dollars in thousands)
Originate/refinance$27,472
 $49,544
 $12,376
 $89,392
 3.27%
Correspondent28,065
 68,986
 15,668
 112,719
 3.25
 $55,537
 $118,530
 $28,044
 $202,111
 3.26
          
Rate2.90% 3.50% 2.96%    


Commercial Loans - During the current year six month period, the Bank originated $67.6$157.3 million of commercial loans, including $19.5 million of PPP loans, and entered into commercial real estate loan participations totaling $28.4 million, and$98.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $89$152.3 million at a weighted average rate of 4.72%3.42%. Additionally, during the current year, $39.0 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.


48

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of March 31, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $482.7 million at a weighted average rate of 4.34% and adjustable-rate loans totaling $340.8 million at a weighted average rate of 4.65%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at March 31, 2020 having shorter terms to maturity.2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Senior housing33 $215,364 $50,255 $265,619 $— $265,619 27.2 %
Retail building133 133,738 44,808 178,546 18,868 197,414 20.2 
Hotel9 133,818 44,705 178,523 — 178,523 18.3 
Office building98 55,029 61,874 116,903 — 116,903 12.0 
One- to four-family property367 58,613 5,170 63,783 250 64,033 6.6 
Multi-family39 48,184 14,524 62,708 272 62,980 6.4 
Single use building20 42,612 4,644 47,256 7,000 54,256 5.6 
Other97 30,446 3,193 33,639 2,597 36,236 3.7 
796 $717,804 $229,173 $946,977 $28,987 $975,964 100.0 %
Weighted average rate4.05 %3.88 %4.01 %3.63 %4.00 %
 Unpaid Undisbursed Gross Loan Outstanding   % of
 Principal Amount Amount Commitments Total Total
 (Dollars in thousands)
Senior housing$227,102
 $45,545
 $272,647
 $—
 $272,647
 31.1%
Hotel117,462
 19,137
 136,599
 43,757
 180,356
 20.5
Retail building120,333
 21,609
 141,942
 4,999
 146,941
 16.7
Multi-family59,294
 15,452
 74,746
 1,720
 76,466
 8.7
One- to four-family property57,434
 4,882
 62,316
 1,652
 63,968
 7.3
Office building53,469
 1,039
 54,508
 590
 55,098
 6.3
Single use building44,539
 4,556
 49,095
 807
 49,902
 5.7
Other30,869
 787
 31,656
 675
 32,331
 3.7
 $710,502
 $113,007
 $823,509
 $54,200
 $877,709
 100.0%
            
Weighted average rate4.44% 4.65% 4.47% 5.35% 4.52%  

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of March 31, 2020.2021.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas628 $325,789 $19,017 $344,806 $9,487 $354,293 36.3 %
Texas10 124,498 116,576 241,074 — 241,074 24.7 
Missouri132 180,446 36,701 217,147 18,000 235,147 24.1 
Colorado6 13,451 22,755 36,206 — 36,206 3.7 
Arkansas3 7,461 26,395 33,856 — 33,856 3.5 
Nebraska6 33,655 4 33,659 — 33,659 3.4 
Other11 32,504 7,725 40,229 1,500 41,729 4.3 
796 $717,804 $229,173 $946,977 $28,987 $975,964 100.0 %
 Unpaid Undisbursed Gross Loan Outstanding   % of
 Principal Amount Amount Commitments Total Total
 (Dollars in thousands)
Kansas$285,283
 $10,817
 $296,100
 $2,919
 $299,019
 34.1%
Missouri227,267
 66,363
 293,630
 3,401
 297,031
 33.8
Texas99,316
 27,934
 127,250
 43,697
 170,947
 19.5
Nebraska31,919
 1,690
 33,609
 —
 33,609
 3.8
Kentucky25,230
 330
 25,560
 —
 25,560
 2.9
California5,941
 4,300
 10,241
 —
 10,241
 1.2
Other35,546
 1,573
 37,119
 4,183
 41,302
 4.7
 $710,502
 $113,007
 $823,509
 $54,200
 $877,709
 100.0%

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of March 31, 2020.2021. Included in the working capital loan category are $25.3 million of PPP loans.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Working capital636 $36,046 $16,809 $52,855 $1,115 $53,970 53.8 %
Equipment118 13,815 245 14,060 1,882 15,942 15.9 
Purchase/lease autos228 15,113 57 15,170 55 15,225 15.2 
Business investment59 7,701 223 7,924 — 7,924 7.9 
Other22 4,535 2,713 7,248 — 7,248 7.2 
1,063 $77,210 $20,047 $97,257 $3,052 $100,309 100.0 %

49
 Unpaid Undisbursed Gross Loan Outstanding   % of
 Principal Amount Amount Commitments Total Total
 (Dollars in thousands)
Working capital$17,789
 $13,116
 $30,905
 $2,910
 $33,815
 41.8%
Equipment16,943
 536
 17,479
 70
 17,549
 21.7
Business investment11,993
 80
 12,073
 125
 12,198
 15.1
Purchase/lease autos8,954
 95
 9,049
 —
 9,049
 11.2
Other6,474
 1,825
 8,299
 —
 8,299
 10.2
 $62,153
 $15,652
 $77,805
 $3,105
 $80,910
 100.0%



The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of March 31, 2020.2021.
CountAmount
(Dollars in thousands)
Greater than $30 million3 $150,000 
>$15 to $30 million14 331,514 
>$10 to $15 million5 57,267 
>$5 to $10 million15 93,842 
$1 to $5 million109 240,461 
Less than $1 million1,713 203,189 
1,859 $1,076,273 
 Count Amount
 (Dollars in thousands)
Greater than $30 million3
 $121,748
>$15 to $30 million12
 296,150
>$10 to $15 million4
 50,192
>$5 to $10 million13
 83,795
$1 to $5 million95
 214,002
Less than $1 million1,223
 192,732
 1,350
 $958,619

The Bank's commercial lending team is workingcontinues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed above, through April 30, 2020, we have modified or areof March 31, 2021, there were commercial loans with a gross balance, including undisbursed amounts, totaling $134.0 million with COVID-19 loan modifications that were still in the process of modifying $365.8their deferral period. There were $270.7 million of commercial loans under ourwith COVID-19 loan modification program. Wemodifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have also processed 575 PPP loans for $40.7 million, for which we expect to receive approximately $1.7 million in fees underexited the first PPP. Approximately 60% of PPP loans processed are in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade.deferral period.

The following table presents the unpaid principal balance of Bank's commercial real estate loans, by type of primary collateral, and commercial and industrial loans, by business purpose, that either have been modified or are in the process of being modified as of April 30, 2020. The information is split by type of modification and presented as a percentage of total modifications, as well as by a percentage of the related unpaid principal balance of the related property type or business purpose category.
50
 Modification Type   % of
 Interest Payment   % of Property Type/
 Only Deferral Total Total Business Purpose
 (Dollars in thousands)    
Commercial real estate         
Senior housing$101,904
 $46,220
 $148,124
 40.5% 65.2%
Hotel76,249
 19,266
 95,515
 26.1
 81.3
Single use building30,450
 5,331
 35,781
 9.8
 80.3
Retail building31,814
 3,119
 34,933
 9.6
 29.0
Office building16,415
 7,012
 23,427
 6.4
 43.8
Multi-family8,233
 —
 8,233
 2.3
 13.9
One- to four-family property7,680
 —
 7,680
 2.1
 13.4
Other3,297
 —
 3,297
 0.9
 10.7
 276,042
 80,948
 356,990
 97.7
 50.2
Commercial and industrial         
Equipment4,141
 —
 4,141
 1.1
 24.4
Business investment2,372
 —
 2,372
 0.6
 19.8
Working capital869
 —
 869
 0.2
 4.9
Purchase/lease autos587
 —
 587
 0.2
 6.6
Other807
 —
 807
 0.2
 12.5
 8,776
 —
 8,776
 2.3
 14.1
Total$284,818
 $80,948
 $365,766
 100.0% 47.3%




Asset Quality. The Bank's traditional one- to four-family underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets within this loan category compared to national levels. Of particular importance is the complete and full documentation required for each loan the Bank originates, participates in or purchases. This allows the Bank to make an informed credit decision based upon a thorough assessment of the borrower's ability to repay the loan. The Bank performs more extensive due diligence when underwriting commercial loans than loans secured by one- to four-family residential properties due to the larger loan amounts, the more complex sources of repayment and the riskier nature of such loans. When participating in a commercial loan, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. See additional discussion regarding underwriting standards in "Part I, Item 1. Business - Lending Practices and Underwriting Standards" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020.

Delinquent and non-performing loans and OREO - Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2021, $2.3 million were 30 to 89 days delinquent and $1.8 million were 90 or more days delinquent as of March 31, 2021. Of the commercial COVID-19 loan modifications that had completed the deferral period by March 31, 2021, one loan for $150 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of March 31, 2021.

The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Of the loans 30 to 89 days delinquent at March 31, 2020,2021, approximately 78%74% were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at:
March 31,December 31,September 30,June 30,March 31,
20212020202020202020
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated45$4,151 62$5,844 42$3,012 57 $5,085 92 $8,360 
Correspondent purchased92,910 134,694 83,123 10 2,919 13 4,531 
Bulk purchased5352 91,750 122,532 19 4,536 12 2,914 
Commercial5806 81,047 245 9 1,543 7 1,555 
Consumer17287 30515 26398 21 431 43 628 
81$8,506 122$13,850 90$9,110 116 $14,514 167 $17,988 
Loans 30 to 89 days delinquent
to total loans receivable, net0.12 %0.20 %0.13 %0.20 %0.24 %

 Loans Delinquent for 30 to 89 Days at:
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 Number Amount Number Amount Number Amount Number Amount Number Amount
 (Dollars in thousands)
One- to four-family:                   
Originated92 $8,360
 96 $9,004
 90 $7,223
 94
 $7,749
 79
 $8,694
Correspondent purchased13 4,531
 13 4,117
 9 2,721
 14
 3,727
 13
 4,133
Bulk purchased12 2,914
 14 3,307
 16 3,581
 13
 2,249
 13
 2,722
Commercial7 1,555
 7 1,192
 8 826
 12
 1,699
 13
 1,361
Consumer43 628
 40 488
 42 525
 43
 630
 37
 481
 167 $17,988
 170 $18,108
 165 $14,876
 176
 $16,054
 155
 $17,391
                    
Loans 30 to 89 days delinquent                   
to total loans receivable, net  0.24%   0.24%   0.20%   0.21%   0.23%

The following table below presents the Company's non-performing loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. OverIn late March 2020, the past 12 months, OREO properties acquired in settlementBank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. At March 31, 2021, there were approximately $8.8 million of non-performing one- to four-family loans were owned byfor which foreclosure proceedings either had been initiated prior to the Bank, on average, for approximately three months beforeforeclosure suspension or may have been initiated if the properties were sold.

foreclosure suspension had not been in place.
51

Non-Performing Loans and OREO at:Non-Performing Loans and OREO at:
March 31, December 31, September 30, June 30, March 31,March 31,December 31,September 30,June 30,March 31,
2020 2019 2019 2019 201920212020202020202020
Number Amount Number Amount Number Amount Number Amount Number AmountNumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:Loans 90 or More Days Delinquent or in Foreclosure:                Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:                   One- to four-family:
Originated53
 $4,517
 44
 $3,552
 44
 $3,268
 58
 $5,069
 67
 $5,172
Originated55 $4,433 51 $4,370 51 $4,362 47 $4,026 53 $4,517 
Correspondent purchased4
 1,342
 4
 1,376
 4
 1,008
 2
 871
 3
 918
Correspondent purchased10 3,749 9 3,371 6 2,397 7 2,740 4 1,342 
Bulk purchased1
 630
 2
 689
 6
 1,465
 7
 2,194
 10
 2,782
Bulk purchased10 3,172 13 3,724 12 2,903 3 1,291 1 630 
Commercial4
 716
 —
 —
 4
 170
 —
 —
 —
 —
Commercial6 1,068 5 820 5 1,360 4 709 4 716 
Consumer17
 326
 20
 340
 25
 362
 25
 437
 27
 567
Consumer26 531 26 473 14 304 23 278 17 326 
79
 7,531
 70
 5,957
 83
 6,273
 92
 8,571
 107
 9,439
107 12,953 104 12,758 88 11,326 84 9,044 79 7,531 
                   
Loans 90 or more days delinquent or in foreclosureLoans 90 or more days delinquent or in foreclosure                  Loans 90 or more days delinquent or in foreclosure
as a percentage of total loans  0.10%   0.08%   0.08%   0.11%   0.12% as a percentage of total loans0.19 %0.18 %0.16 %0.12 %0.10 %
                   
Nonaccrual loans less than 90 Days Delinquent:(1)
Nonaccrual loans less than 90 Days Delinquent:(1)
                  
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:                   One- to four-family:
Originated13
 $811
 11
 $634
 16
 $1,183
 15
 $1,057
 18
 $1,761
Originated9 $1,646 9 $968 9 $691 14 $1,132 13 $811 
Correspondent purchased1
 189
 —
 —
 —
 —
 —
 —
 —
 —
Correspondent purchased— — — — — — — — 1 189 
Bulk purchased1
 134
 1
 134
 1
 65
 2
 374
 —
 —
Bulk purchased— — — — — — — — 1 134 
Commercial2
 129
 6
 363
 1
 7
 1
 7
 2
 1,712
Commercial4 642 3 411 3 464 1 6 2 129 
Consumer2
 43
 —
 —
 2
 35
 2
 4
 3
 14
Consumer— — 1 9 1 9 1 33 2 43 
19
 1,306
 18
 1,131
 20
 1,290
 20
 1,442
 23
 3,487
13 2,288 13 1,388 13 1,164 16 1,171 19 1,306 
Total non-performing loans98
 8,837
 88
 7,088
 103
 7,563
 112
 10,013
 130
 12,926
Total non-performing loans120 15,241 117 14,146 101 12,490 100 10,215 98 8,837 
                   
Non-performing loans as a percentage of total loansNon-performing loans as a percentage of total loans 0.12%   0.10%   0.10%   0.13%   0.17%Non-performing loans as a percentage of total loans0.22 %0.20 %0.17 %0.14 %0.12 %
                   
OREO:                   OREO:
One- to four-family:                   One- to four-family:
Originated(2)
5
 $187
 8
 $414
 8
 $745
 8
 $546
 5
 $549
Originated(2)
2 $105 3 $129 4 $183 4 $183 5 $187 
Bulk purchased—
 —
 —
 —
 —
 —
 —
 —
 1
 322
Commercial—
 —
 —
 —
 1
 600
 1
 600
 1
 600
Consumer—
 —
 1
 98
 —
 —
 —
 —
 —
 —
5
 187
 9
 512
 9
 1,345
 9
 1,146
 7
 1,471
Total non-performing assets103
 $9,024
 97
 $7,600
 112
 $8,908
 121
 $11,159
 137
 $14,397
Total non-performing assets122 $15,346 120 $14,275 105 $12,673 104 $10,398 103 $9,024 
                   
Non-performing assets as a percentage of total assetsNon-performing assets as a percentage of total assets 0.10%   0.08%   0.10%   0.12%   0.15%Non-performing assets as a percentage of total assets0.16 %0.15 %0.13 %0.11 %0.10 %

(1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.
(2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.
(1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.
(2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.
52

The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at March 31, 2020.2021. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At March 31, 2020,2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans 30 to 89Loans 90 or More Days Delinquent
One- to Four-FamilyDays Delinquentor in Foreclosure
StateAmount% of TotalAmount% of TotalAmount% of TotalLTV
(Dollars in thousands)
Kansas$3,535,877 58.2 %$3,544 47.8 %$4,801 42.3 %60 %
Missouri1,047,079 17.3 1,136 15.3 943 8.3 45 
Texas599,169 9.9 1,853 25.0 1,440 12.7 53 
Other states888,643 14.6 880 11.9 4,170 36.7 55 
$6,070,768 100.0 %$7,413 100.0 %$11,354 100.0 %56 
      Loans 30 to 89 Loans 90 or More Days Delinquent
  One- to Four-Family Days Delinquent or in Foreclosure
State Amount % of Total Amount % of Total Amount % of Total LTV
  (Dollars in thousands)
Kansas $3,592,113
 54.7% $6,655
 42.1% $4,229
 65.2% 63%
Missouri 1,179,941
 18.0
 2,300
 14.5
 804
 12.4
 64
Texas 759,064
 11.6
 1,591
 10.1
 441
 6.8
 44
Other states 1,028,301
 15.7
 5,259
 33.3
 1,015
 15.6
 71
  $6,559,419
 100.0% $15,805
 100.0% $6,489
 100.0% 63

Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The amountsincrease in the table represent the unpaid principal balance of the loans less related charge-offs. The increase incommercial special mention loans at March 31, 20202021 compared to March 31, 2019September 30, 2020 was due primarilymainly to one $50.0the addition of two commercial loans totaling $50.7 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification.
March 31, 2021September 30, 2020March 31, 2020
Special MentionSubstandardSpecial MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$14,299 $26,562 $11,339 $25,630 $13,678 $26,077 
Commercial100,655 4,497 52,006 4,914 52,515 4,538 
Consumer250 764 332 589 479 659 
$115,204 $31,823 $63,677 $31,133 $66,672 $31,274 

Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures - As discussed previously, ASU 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating ACL under GAAP with a new impairment methodology, commonly known as the CECL methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and loan commitments over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption of the ASU, the Company recorded a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand), which reduced the ACL by $4.8 million, to $26.8 million, and established a reserve for off-balance sheet credit exposures of $7.8 million, which is recorded in other liabilities in the consolidated balance sheet. The Bank's off-balance sheet credit exposures are comprised of unfunded portions of existing loans and commitments to originate or purchase new loans that are not unconditionally cancellable by the Bank.

The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The credit loss estimate for off-balance sheet credit exposures also takes into consideration the likelihood that the commitment will fund. The economic indices used for the reasonable and supportable forecasted time period are the national unemployment rate, changes in commercial participation real estate loan being classified as special mention duringprice index, changes in home values, and changes in the United States gross domestic product. Management considers several economic forecast scenarios provided by a third party and selects the scenario believed to be the most appropriate considering the facts and circumstances at quarter ended June 30, 2019.end. Management continuesalso considers several qualitative factors. The qualitative factors account for items not included in historical loss rates, the macroeconomic forecast, and/or other model inputs/assumptions. Any changes to closely monitor the projectACL and surrounding activities. Includedreserves on off-balance sheet credit exposures are recorded through increases/decreases in substandard commercial loansthe provision for credit losses on the consolidated statements of income.

The economic forecast scenario selected by management improved at March 31, 2020 and2021 compared to December 31, 2019 were $3.4 million and $3.8 million, respectively, of loans added2020 which resulted in a reduction in the CCB acquisition which have since been renewedACL and on whichreserve for off-balance sheet credit exposures calculated by the related purchase acquisition adjustments have been accreted; as such, these loans are now included in the Bank's ACL formula analysis model or are individually evaluated for impairment. There were no such loans at March 31, 2019.
 March 31, 2020 December 31, 2019 March 31, 2019
 Special Mention Substandard Special Mention Substandard Special Mention Substandard
 (Dollars in thousands)
One- to four-family$13,678
 $26,077
 $15,778
 $25,376
 $11,943
 $28,774
Commercial52,515
 4,538
 52,809
 5,356
 5,330
 1,712
Consumer479
 659
 375
 683
 125
 882
 $66,672
 $31,274
 $68,962
 $31,415
 $17,398
 $31,368

Allowance for credit losses and Provision for credit losses - model. Management maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. The ACL is maintained through provisions for credit losses which are either charged to or credited to income. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics.  Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model.  The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio.  Due to the deterioration of economic conditions as a result of the COVID-19 pandemic, management increased some of the historical loss factors and qualitative factors to account for the increasecontinued economic uncertainties, along with the balance and trending of large-dollar special mention
53

commercial loans. These qualitative factors partially offset the reduction in the estimated inherent lossesACL related to the improvement in the loan portfolio at March 31, 2020.

One-economic forecast. The economic uncertainties related to Four- Family(1) the job market, specifically the unemployment rate, labor participation rate and Consumer Loans: Management took into consideration the unprecedented increaseeffectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in layoffs/furloughscertain industries, and (3) the impact to the housing market as a result of COVID-19the foreclosure moratorium and how the industries and employee groups impacted byhousing market may react when the layoffs/furloughs, the Bank's historical ACL to loans receivable ratios compared to the historical unemployment and housing price index trending, and the Bank's historical charge-off percentages when evaluating the Bank's historical loss factors and qualitative loss factors at March 31, 2020. As a result of the analysis, management increased the historical loss factors and qualitative factors for one- to four-family and consumer loans at March 31, 2020. Management selected the worst historical time periods reviewed and used those factors in the ACL formula analysis model at March 31, 2020. Management then evaluated the calculated ACL to the Bank's historical ACL to loan ratios to determine the appropriate amount of ACL at March 31, 2020.

Commercial Loans: As a result of the very limited historical loan loss experience for our commercial loan portfolio, management considered historical peer ACL to loans receivable percentages and peer charge-off percentages and the economic conditions during those time periods when evaluating the level of ACL at March 31, 2020 for commercial loans. Management also considered the layoffs/furloughs information noted above, along with impacts to certain categories of our commercial loan portfolio related to stay-at-home orders, mandatory closures, social distancing requirements, work-from-home requirements, and populations generally disproportionately

impacted by COVID-19 (e.g., senior housing), among others. Additionally, the commercial lending team closely analyzed the Bank's largest commercial relationships in late March 2020. Approximately 83% of all commercial loan balances outstanding at March 31, 2020 were analyzed. There were $162.5 million of commercial loans, or 21% of the unpaid commercial loan balance at March 31, 2020, considered most at risk of short-term operational cash flow issues and/or to have collateral concerns, primarily in the hotel and single use building categories, which were both among the categories with the highest usage of the Bank's COVID-19 loan modification program. The weighted average LTV ratios based on the unpaid principal balance of senior housing, retail building, hotel, office building, and single use building loans were 68%, 76%, 58%, 80%, and 68%, respectively, at March 31, 2020. We also considered the largest credits in these loan categories. The evaluation of most of our commercial and industrial loans concluded that many of these loans are to businesses that are deemed essential, which we believe reduces the risk of loss on these loans at this time. Management was not aware of any construction delays or other issues that would significantly delay or impact funding of the commercial construction loans at March 31, 2020. After reviewing the economic information noted above, management established a COVID-19 qualitative factor at March 31, 2020. The COVID-19 qualitative factor was developed by analyzing historical peer ACL to loans receivable percentages and peer charge-off percentages.
Overall: Programs under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act were not sufficiently in effect at March 31, 2020 to provide relief to borrowers and the extent of the relief to borrowers related to the CARES Act programsforeclosure moratorium is not yet known. Management believes the ACL at March 31, 2020 was adequate to absorb inherent losses in the loan portfolio at that point in time based on the known facts and circumstances of the economic environment.eventually lifted. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended March 31, 2021.
ACLReserve for off-balance sheet credit exposuresACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at December 31, 2020$26,125 $6,433 $32,558 
Charge-offs(138)— (138)
Recoveries68 — 68 
Net charge-offs(70)— (70)
Provision for credit losses(2,658)(306)(2,964)
Balance at March 31, 2021$23,397 $6,127 $29,524 

The negative provision for credit losses was due primarily to a reduction in commercial loan ACL and reserves for off-balance sheet credit exposures as a result of improvements in the economic conditions continue to worsen and/orforecast used in the CARES Act programs and future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need tomodel, partially offset by an increase in future periods.qualitative factors, primarily the economic uncertainty qualitative factor, as discussed above. The gross balance of off-balance sheet credit exposures was $907.2 million as of March 31, 2021 and $688.0 million as of October 1, 2020.




See "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Credit Losses" and "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019 for a full discussion of our ACL methodology. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information on the ACL.

The distribution of our ACL at the dates indicated is summarized below.
54
 At
 March 31, 2020 September 30, 2019
   % of ACL   % of   % of ACL   % of
 Amount to Total Total Loans to Amount to Total Total Loans to
 of ACL ACL Loans Total Loans of ACL ACL Loans Total Loans
 (Dollars in thousands)
One- to four-family:               
Originated$6,420
 20.6% $3,944,782
 52.6% $1,982
 21.6% $3,873,851
 52.2%
Correspondent purchased3,355
 10.7
 2,385,907
 31.8
 1,203
 13.0
 2,349,877
 31.7
Bulk purchased557
 1.8
 228,730
 3.1
 687
 7.4
 252,347
 3.4
Construction47
 0.2
 35,798
 0.5
 18
 0.2
 36,758
 0.5
Total10,379
 33.3
 6,595,217
 88.0
 3,890
 42.2
 6,512,833
 87.8
Commercial:               
Commercial real estate14,672
 47.0
 584,236
 7.8
 3,448
 37.4
 583,617
 7.9
Commercial and industrial1,489
 4.8
 62,153
 0.8
 472
 5.1
 61,094
 0.8
Construction4,167
 13.4
 126,266
 1.7
 1,251
 13.5
 123,159
 1.7
Total20,328
 65.2
 772,655
 10.3
 5,171
 56.0
 767,870
 10.4
Consumer loans:               
Home equity397
 1.3
 114,571
 1.5
 97
 1.1
 120,587
 1.6
Other consumer92
 0.2
 10,837
 0.2
 68
 0.7
 11,183
 0.2
Total consumer loans489
 1.5
 125,408
 1.7
 165
 1.8
 131,770
 1.8
 $31,196
 100.0% $7,493,280
 100.0% $9,226
 100.0% $7,412,473
 100.0%



The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.

 At
 March 31,  December 31,  September 30,  June 30,  March 31, 
 2020 2019 2019 2019 2019
One- to four-family:         
Originated0.16% 0.05% 0.05% 0.05% 0.05%
Correspondent purchased0.14
 0.05
 0.05
 0.05
 0.06
Bulk purchased0.24
 0.26
 0.27
 0.28
 0.29
Construction0.13
 0.05
 0.05
 0.05
 0.05
Total0.16
 0.06
 0.06
 0.06
 0.07
Commercial:         
Commercial real estate2.51
 0.62
 0.59
 0.55
 0.51
Commercial and industrial2.40
 1.25
 0.77
 0.38
 0.30
Construction3.30
 1.02
 1.02
 1.00
 0.99
Total2.63
 0.72
 0.67
 0.61
 0.56
Consumer0.39
 0.12
 0.13
 0.11
 0.12
Total0.42
 0.13
 0.12
 0.12
 0.11


The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
For the Three Months Ended
March 31, 2021December 31, 2020September 30, 2020June 30, 2020March 31, 2020
(Dollars in thousands)
ACL beginning balance$26,125 $31,527 $31,215 $31,196 $9,435 
Adoption of CECL— (4,761)— — — 
Charge-offs(138)(532)(15)(5)(375)
Recoveries68 68 327 24 61 
Provision for credit losses(2,658)(177)— — 22,075 
ACL ending balance$23,397 $26,125 $31,527 $31,215 $31,196 
ACL to loans receivable at end of period0.33 %0.37 %0.44 %0.42 %0.42 %
ACL to non-performing loans at end of period153.51 184.68 252.42 305.58 353.02 
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding— 0.01 — — — 
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets0.47 3.44 (2.70)(0.20)3.78 
ACL to net charge-offs (annualized)83.8x14.1x
N/M(1)
N/M(1)
24.9x
For the Six Months Ended
March 31, 2021March 31, 2020
(Dollars in thousands)
ACL beginning balance$31,527 $9,226 
Adoption of CECL(4,761)— 
Charge-offs(670)(423)
Recoveries136 93 
Provision for credit losses(2,835)22,300 
ACL ending balance$23,397 $31,196 
Ratio of net charge-offs during the period to
average loans outstanding0.01 %— %
Ratio of net charge-offs during the period to
average non-performing assets3.81 3.68 
ACL to net charge-offs (annualized)21.9x47.3x

(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.

55

 For the Three Months Ended
 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019
 (Dollars in thousands)
ACL beginning balance$9,435
 $9,226
 $9,036
 $8,619
 $8,558
Charge-offs(375) (48) (133) (61) (12)
Recoveries61
 32
 23
 28
 73
Provision for credit losses22,075
 225
 300
 450
 —
ACL ending balance$31,196
 $9,435
 $9,226
 $9,036
 $8,619
          
ACL to loans receivable at end of period0.42% 0.13% 0.12% 0.12% 0.11 %
ACL to non-performing loans at end of period353.02
 133.11
 121.99
 90.24
 66.68
Ratio of net charge-offs (recoveries) during the         
period to average loans outstanding—
 —
 —
 —
 —
Ratio of net charge-offs (recoveries) during the         
period to average non-performing assets3.78
 0.19
 1.09
 0.26
 (0.41)
ACL to net charge-offs (annualized)24.9x
 144.5x
 21.1x
 68.1x
 
N/M(1)

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13.

At
March 31,December 31,October 1,September 30,June 30,March 31,
202120202020202020202020
(Dollars in thousands)
One- to four-family:
Originated$1,517 $1,516 $1,609 $6,044 $6,298 $6,420 
Correspondent purchased1,705 1,758 2,324 2,691 3,189 3,355 
Bulk purchased747 852 903 467 506 557 
Construction19 22 25 41 48 47 
Total3,988 4,148 4,861 9,243 10,041 10,379 
Commercial:
Commercial real estate17,016 17,813 16,595 16,869 16,353 14,672 
Commercial and industrial445 553 559 1,451 1,465 1,489 
Construction1,696 3,341 4,452 3,480 2,886 4,167 
Total19,157 21,707 21,606 21,800 20,704 20,328 
Consumer252 270 299 484 470 489 
Total$23,397 $26,125 $26,766 $31,527 $31,215 $31,196 

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
At
March 31,December 31,October 1,September 30,June 30,March 31,
2021 20202020202020202020
One- to four-family:
Originated0.04 %0.04 %0.04 %0.15 %0.16 %0.16 %
Correspondent purchased0.09 0.09 0.11 0.13 0.14 0.14 
Bulk purchased0.40 0.43 0.43 0.22 0.23 0.24 
Construction0.07 0.07 0.07 0.12 0.13 0.13 
Total0.07 0.07 0.08 0.15 0.16 0.16 
Commercial:
Commercial real estate2.56 2.92 2.65 2.69 2.62 2.51 
Commercial and industrial0.58 0.80 0.57 1.49 1.47 2.40 
Construction3.18 3.95 4.22 3.30 3.30 3.30 
Total2.41 2.84 2.60 2.63 2.55 2.63 
Consumer0.26 0.25 0.26 0.42 0.40 0.39 
Total0.33 0.37 0.37 0.44 0.42 0.42 

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded.
At
March 31,December 31,October 1,
202120202020
(Dollars in thousands)
One- to four-family$197 $131 $144 
Commercial5,887 6,261 7,584 
Consumer43 41 60 
$6,127 $6,433 $7,788 
56
 For the Six Months Ended
 March 31, 2020 March 31, 2019
 (Dollars in thousands)
ACL beginning balance$9,226
 $8,463
Charge-offs(423) (68)
Recoveries93
 224
Provision for credit losses22,300
 —
ACL ending balance$31,196
 $8,619
    
Ratio of net charge-offs during the period to   
average loans outstanding during the period—% — %
Ratio of net charge-offs during the period to   
average non-performing assets during the period3.68
 (1.14)
ACL to net charge-offs (annualized)47.3x
 
N/M(1)

(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.


Securities. Securities increased $535.0 million, or 34.3%, from September 30, 2020 to March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities. The weighted average yield on the securities portfolio decreased 34 basis points, from 1.62% at September 30, 2020 to 1.28% at March 31, 2021, due primarily to purchases at lower market yields. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 79%93% of our securities portfolio at March 31, 2020.2021. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
March 31, 2021December 31, 2020September 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Fixed-rate securities:
MBS$1,384,982 1.46 %4.1 $1,249,115 1.56 %4.1 $945,432 1.82 %3.7 
GSE debentures544,966 0.55 3.6 444,964 0.52 1.0 369,967 0.62 1.7 
Municipal bonds5,447 1.79 0.5 8,792 1.66 0.5 9,716 1.69 0.7 
Total fixed-rate securities1,935,395 1.20 3.9 1,702,871 1.29 3.3 1,325,115 1.49 3.1 
Adjustable-rate securities:
MBS155,325 2.24 3.2 178,101 2.44 3.3 204,490 2.49 2.9 
Total securities portfolio$2,090,720 1.28 3.9 $1,880,972 1.40 3.3 $1,529,605 1.62 3.1 
 March 31, 2020 December 31, 2019 September 30, 2019
 Amount Yield WAL Amount Yield WAL Amount Yield WAL
 (Dollars in thousands)
Fixed-rate securities:                 
MBS$690,220
 2.33% 3.1
 $648,663
 2.40% 2.8
 $625,840
 2.46% 2.9
GSE debentures250,080
 1.88
 0.3
 274,994
 2.03
 0.8
 249,828
 2.15
 0.7
Municipal bonds11,887
 1.66
 0.9
 17,050
 1.60
 0.9
 18,371
 1.63
 1.0
Total fixed-rate securities952,187
 2.20
 2.3
 940,707
 2.28
 2.2
 894,039
 2.35
 2.3
                  
Adjustable-rate securities:                 
MBS257,329
 2.97
 4.9
 276,069
 3.09
 4.3
 297,416
 3.10
 4.7
Total securities portfolio$1,209,516
 2.36
 2.9
 $1,216,776
 2.46
 2.7
 $1,191,455
 2.54
 2.9



The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
March 31, 2021December 31, 2020September 30, 2020
(Dollars in thousands)
FNMA$972,833 $938,387 $809,232 
FHLMC542,502 482,173 327,167 
GNMA34,566 38,740 44,404 
$1,549,901 $1,459,300 $1,180,803 
57
 March 31, 2020 December 31, 2019 September 30, 2019
 (Dollars in thousands)
Federal National Mortgage Association ("FNMA")$735,385
 $681,383
 $656,799
Federal Home Loan Mortgage Corporation ("FHLMC")179,987
 192,821
 208,745
Government National Mortgage Association57,946
 63,113
 70,943
 $973,318
 $937,317
 $936,487


Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $36.8$369.1 million, from $936.5 million$1.18 billion at September 30, 2019,2020, to $973.3 million$1.55 billion at March 31, 2020.2021. The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALWALs are the estimated remaining principal repayment termterms (in years) after three-month historical prepayment speeds have been applied.
For the Three Months Ended
March 31, 2021December 31, 2020September 30, 2020June 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,459,300 1.67 %4.0 $1,180,803 1.94 %3.5 $982,587 2.35 %3.3 $973,318 2.50 %3.6 
Maturities and repayments(109,141)(101,496)(95,842)(75,293)
Net amortization of (premiums)/discounts(1,572)(1,003)(608)(363)
Purchases:
Fixed-rate223,804 1.31 5.9 379,793 1.04 5.4 297,024 1.06 5.9 77,455 1.29 5.0 
Change in valuation on AFS securities(22,490)1,203 (2,358)7,470 
Ending balance - carrying value$1,549,901 1.54 4.0 $1,459,300 1.67 4.0 $1,180,803 1.94 3.5 $982,587 2.35 3.3 

For the Six Months Ended
March 31, 2021March 31, 2020
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,180,803 1.94 %3.5 $936,487 2.67 %3.5 
Maturities and repayments(210,637)(138,402)
Net amortization of (premiums)/discounts(2,575)(527)
Purchases:
Fixed-rate603,597 1.14 5.6 163,222 1.91 4.2 
Change in valuation on AFS securities(21,287)12,538 
Ending balance - carrying value$1,549,901 1.54 4.0 $973,318 2.50 3.6 
58
 For the Three Months Ended
 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL
 (Dollars in thousands)
Beginning balance - carrying value$937,317
 2.61% 3.3
 $936,487
 2.67% 3.5
 $979,256
 2.68% 3.4
 $985,294
 2.67% 3.7
Maturities and repayments(65,767)     (72,635)     (70,865)     (74,335)    
Net amortization of (premiums)/discounts(279)     (248)     (270)     (375)    
Purchases:                       
Fixed88,863
 1.80
 4.5
 74,359
 2.05
 3.8
 25,214
 1.93
 3.2
 23,620
 2.74
 3.8
Adjustable—
 —
 —
 —
 —
 —
 —
 —
 —
 40,362
 2.79
 4.5
Valuation transferred from HTM to AFS—
     —
     3,039
     —
    
Change in valuation on AFS securities13,184
     (646)     113
     4,690
    
Ending balance - carrying value$973,318
 2.50
 3.6
 $937,317
 2.61
 3.3
 $936,487
 2.67
 3.5
 $979,256
 2.68
 3.4

 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Amount Yield WAL Amount Yield WAL
 (Dollars in thousands)
Beginning balance - carrying value$936,487
 2.67% 3.5
 $1,036,990
 2.57% 3.4
Maturities and repayments(138,402)     (129,916)    
Net amortization of (premiums)/discounts(527)     (659)    
Purchases:           
Fixed163,222
 1.91
 4.2
 28,921
 2.89
 5.1
Adjustable—
 —
 —
 43,776
 2.69
 4.3
Change in valuation on AFS securities12,538
     6,182
    
Ending balance - carrying value$973,318
 2.50
 3.6
 $985,294
 2.67
 3.7

Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, decreased $5.7increased $165.9 million, from $268.4$380.1 million at September 30, 2019,2020, to $262.7$546.0 million at March 31, 2020.2021. Municipal investments totaled $11.9$5.4 million at March 31, 2020.2021. The following tables summarize the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.
For the Three Months Ended
March 31, 2021December 31, 2020September 30, 2020June 30, 2020
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$454,566 0.54 %1.0 $380,147 0.65 %1.7 $237,467 1.23 %0.8 $262,719 1.87 %0.3 
Maturities, calls and sales(3,325)(50,900)(102,115)(125,000)
Net amortization of (premiums)/discounts(18)(14)(54)(80)
Purchases:
Fixed-rate100,000 0.70 4.6 124,987 0.48 3.2 244,975 0.51 3.2 99,990 0.58 1.2 
Change in valuation on AFS securities(5,200)346 (126)(162)
Ending balance - carrying value$546,023 0.56 3.6 $454,566 0.54 1.0 $380,147 0.65 1.7 $237,467 1.23 0.8 

For the Six Months Ended
March 31, 2021March 31, 2020
AmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$380,147 0.65 %1.7 $268,376 2.11 %0.8 
Maturities, calls and sales(54,225)(131,300)
Net amortization of (premiums)/discounts(32)(29)
Purchases:
Fixed-rate224,987 0.58 3.8 125,097 1.71 1.2 
Change in valuation on AFS securities(4,854)575 
Ending balance - carrying value$546,023 0.56 3.6 $262,719 1.87 0.3 
59
 For the Three Months Ended
 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
 Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL
 (Dollars in thousands)
Beginning balance - carrying value$292,270
 2.00% 0.8
 $268,376
 2.11% 0.8
 $273,995
 2.30% 1.0
 $288,894
 2.38% 1.0
Maturities, calls and sales(80,125)     (51,175)     (80,690)     (65,781)    
Net amortization of (premiums)/discounts(49)     20
     (13)     153
    
Purchases:                       
Fixed50,097
 1.42
 0.4
 75,000
 1.90
 1.7
 75,000
 2.02
 1.1
 50,000
 2.60
 1.0
Valuation transferred from HTM to AFS—
     —
     47
     —
    
Change in valuation on AFS securities526
     49
     37
     729
    
Ending balance - carrying value$262,719
 1.87
 0.3
 $292,270
 2.00
 0.8
 $268,376
 2.11
 0.8
 $273,995
 2.30
 1.0

 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Amount Yield WAL Amount Yield WAL
 (Dollars in thousands)
Beginning balance - carrying value$268,376
 2.11% 0.8
 $289,942
 2.05% 2.2
Maturities, calls and sales(131,300)     (103,300)    
Net amortization of (premiums)/discounts(29)     (78)    
Purchases:           
Fixed125,097
 1.71
 1.2
 99,809
 2.67
 0.7
Change in valuation on AFS securities575
     2,521
    
Ending balance - carrying value$262,719
 1.87
 0.3
 $288,894
 2.38
 1.0

Liabilities

Deposits - Total deposits increased $459.5 million, or 7.4%, from September 30, 2020 to March 31, 2021. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period. Customers moved some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. The increase in retail/business certificates of deposit at March 31, 2020 compared to December 31, 2019 was due primarily to the Presidents' Day certificate of deposit campaign in February 2020. As of April 30, 2020, the Bank has processed $101.2 million of deposits related to some form of Economic Impact Payments from the U.S. government to individuals as authorized by the CARES Act, and deposits from PPP loans.
March 31, 2021December 31, 2020September 30, 2020
% of% of% of
AmountRate TotalAmountRate TotalAmountRate Total
(Dollars in thousands)
Non-interest-bearing checking$549,158 — %8.2 %$494,375 — %7.7 %$451,394 — %7.3 %
Interest-bearing checking1,009,096 0.07 15.2 953,927 0.08 14.9 865,782 0.10 14.0 
Savings511,014 0.06 7.7 455,633 0.06 7.1 433,808 0.06 7.0 
Money market1,602,573 0.24 24.1 1,488,749 0.31 23.2 1,419,180 0.37 22.9 
Retail/business certificates of deposit2,730,354 1.55 41.1 2,777,948 1.68 43.3 2,766,461 1.83 44.7 
Public unit certificates of deposit248,670 0.45 3.7 240,210 0.64 3.8 254,783 0.74 4.1 
$6,650,865 0.73 100.0 %$6,410,842 0.84 100.0 %$6,191,408 0.95 100.0 %
 March 31, 2020 December 31, 2019 September 30, 2019
     % of     % of     % of
 Amount Rate  Total Amount Rate  Total Amount Rate  Total
 (Dollars in thousands)
Non-interest-bearing checking$385,092
 —% 6.7% $368,311
 —% 6.6% $357,284
 —% 6.4%
Interest-bearing checking761,589
 0.10
 13.2
 745,436
 0.08
 13.3
 717,121
 0.09
 12.8
Savings377,212
 0.08
 6.5
 358,817
 0.09
 6.4
 321,494
 0.05
 5.8
Money market1,208,370
 0.62
 20.9
 1,192,972
 0.69
 21.4
 1,198,343
 0.70
 21.5
Retail/business certificates of deposit2,765,142
 2.11
 47.9
 2,656,379
 2.11
 47.6
 2,692,770
 2.08
 48.2
Public unit certificates of deposit277,214
 1.87
 4.8
 263,936
 2.14
 4.7
 294,855
 2.29
 5.3
 $5,774,619
 1.25
 100.0% $5,585,851
 1.27
 100.0% $5,581,867
 1.29
 100.0%

The following tables set forth scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of March 31, 2020.2021.
Amount Due
More thanMore than
1 year1 year to2 years to 3More thanTotal
Rate rangeor less2 yearsyears3 yearsAmountRate
(Dollars in thousands)
  0.00 – 0.99%$796,738 $154,580 $53,117 $66,028 $1,070,463 0.50 %
  1.00 – 1.99%509,600 251,609 76,521 134,232 971,962 1.62 
  2.00 – 2.99%282,968 426,895 183,936 42,546 936,345 2.38 
  3.00 – 3.99%— 254 — — 254 3.00 
$1,589,306 $833,338 $313,574 $242,806 $2,979,024 1.46 
Percent of total53.3 %28.0 %10.5 %8.2 %
Weighted average rate1.16 1.84 1.93 1.42 
Weighted average maturity (in years)0.5 1.5 2.5 3.7 1.2 
Weighted average maturity for the retail/business certificate of deposit portfolio (in years)1.3 

Amount Due
OverOver
3 months3 to 66 to 12Over
or lessmonthsmonths12 monthsTotal
(Dollars in thousands)
Retail/business certificates of deposit less than $100,000$193,497 $168,680 $306,494 $793,230 $1,461,901 
Retail/business certificates of deposit of $100,000 or more177,109 164,749 337,191 589,404 1,268,453 
Public unit certificates of deposit of $100,000 or more86,691 87,958 66,937 7,084 248,670 
$457,297 $421,387 $710,622 $1,389,718 $2,979,024 
60
  Amount Due    
    More than More than      
  1 year 1 year to 2 years to 3 More than Total
Rate range or less 2 years years 3 years Amount Rate
  (Dollars in thousands)  
  0.00 – 0.99% $24,636
 $3,040
 $9
 $—
 $27,685
 0.62%
  1.00 – 1.99% 815,587
 390,098
 164,390
 52,050
 1,422,125
 1.79
  2.00 – 2.99% 641,838
 282,295
 436,272
 231,894
 1,592,299
 2.38
  3.00 – 3.99% —
 —
 247
 —
 247
 3.00
  $1,482,061
 $675,433
 $600,918
 $283,944
 $3,042,356
 2.09
             
Percent of total 48.7% 22.2% 19.8% 9.3%    
Weighted average rate 1.99
 2.03
 2.28
 2.36
    
Weighted average maturity (in years) 0.4
 1.5
 2.5
 3.8
 1.4
  
Weighted average maturity for the retail/business certificate of deposit portfolio (in years) 1.5
  

 Amount Due  
   Over Over    
 3 months 3 to 6 6 to 12 Over  
 or less months months 12 months Total
 (Dollars in thousands)
Retail/business certificates of deposit less than $100,000$233,608
 $145,979
 $316,771
 $877,976
 $1,574,334
Retail/business certificates of deposit of $100,000 or more195,779
 131,187
 221,913
 641,929
 1,190,808
Public unit certificates of deposit of $100,000 or more139,526
 47,228
 50,070
 40,390
 277,214
 $568,913
 $324,394
 $588,754
 $1,560,295
 $3,042,356

Borrowings - Total borrowings at March 31, 2021 were $1.58 billion, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Cash flows from the deposit portfolio were used to pay off maturing borrowings.
The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue. During the current quarter,
For the Three Months Ended
March 31, 2021December 31, 2020September 30, 2020June 30, 2020
EffectiveEffectiveEffectiveEffective
AmountRateWAMAmountRateWAMAmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$1,740,000 2.26 %3.0 $1,790,000 2.31 %3.0 $1,990,000 2.29 %2.9 $2,090,000 2.25 %3.0 
Maturities and prepayments:
FHLB advances(315,000)2.20 (350,000)2.40 (440,000)2.49 (200,000)2.35 
Repurchase agreements— — — — (100,000)2.53 — — 
New FHLB borrowings:
Fixed-rate100,000 1.24 6.0 100,000 1.09 5.0 — — — — — — 
Interest rate swaps(1)
65,000 2.65 3.1 200,000 2.63 1.5 340,000 2.73 3.5 100,000 3.20 8.0 
Ending balance$1,590,000 1.94 3.3 $1,740,000 2.26 3.0 $1,790,000 2.31 3.0 $1,990,000 2.29 2.9 

For the Six Months Ended
March 31, 2021March 31, 2020
EffectiveEffective
AmountRateWAMAmountRateWAM
(Dollars in thousands)
Beginning balance$1,790,000 2.31 %3.0 $2,140,000 2.38 %2.6 
Maturities and prepayments:
FHLB advances(665,000)2.30 (765,000)2.43 
New FHLB borrowings:
Fixed-rate200,000 1.16 5.5 450,000 1.76 4.8 
Interest rate swaps(1)
265,000 2.63 1.9 265,000 2.58 2.9 
Ending balance$1,590,000 1.94 3.3 $2,090,000 2.25 3.0 

(1)Represents adjustable-rate FHLB advances for which the Bank prepaid fixed-rate FHLB advances scheduledhas entered into interest rate swaps to mature withinhedge the next 12 months totaling $350.0 millionvariability in cash flows associated with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted averagethe advances. The effective rate of 1.70%, which includesand WAM presented include the impact of deferred prepayment penalties being recognized over the lifeeffect of the new advances. This activity is reflected in the table below.interest rate swaps.
61
 For the Three Months Ended
 March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019
   Effective     Effective     Effective     Effective  
 Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM
 (Dollars in thousands)
Beginning balance$2,090,000
 2.37% 2.6
 $2,140,000
 2.38% 2.6
 $2,140,000
 2.35% 2.6
 $2,240,000
 2.29% 2.8
Maturities and prepayments:                      
FHLB advances(415,000) 2.45
   (350,000) 2.40
   (375,000) 2.38
   (200,000) 2.11
  
New FHLB borrowings:                       
Fixed-rate350,000
 1.70
 4.7
 100,000
 1.96
 5.0
 100,000
 2.14
 4.0
 —
 —
 —
Interest rate swaps(1)
65,000
 2.61
 4.0
 200,000
 2.57
 2.5
 275,000
 2.70
 4.5
 100,000
 3.09
 9.0
Ending balance$2,090,000
 2.25
 3.0
 $2,090,000
 2.37
 2.6
 $2,140,000
 2.38
 2.6
 $2,140,000
 2.35
 2.6

 For the Six Months Ended
 March 31, 2020 March 31, 2019
   Effective     Effective  
 Amount Rate WAM Amount Rate WAM
 (Dollars in thousands)
Beginning balance$2,140,000
 2.38% 2.6
 $2,185,052
 2.17% 2.9
Maturities and prepayments:          
FHLB advances(765,000) 2.43
   (300,000) 1.73
  
CCB acquisition - junior subordinated debentures assumed (redeemed)—
 —
 —
 (10,052) 8.76
 12.3
New FHLB borrowings:           
Fixed-rate450,000
 1.76
 4.8
 100,000
 3.39
 5.0
Interest rate swaps(1)
265,000
 2.58
 2.9
 265,000
 2.49
 3.9
Ending balance$2,090,000
 2.25
 3.0
 $2,240,000
 2.29
 2.8

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.

Maturities - The following table presents the maturity of term borrowings, (which includeswhich consist entirely of FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of March 31, 2020.
  Term Borrowings Amount      
Maturity by 
 Interest rate Total Contractual Effective
Fiscal Year Fixed-rate 
swaps(1)
 Amount Rate 
Rate(2)
  (Dollars in thousands)    
2020 $300,000
 $440,000
 $740,000
 1.85 2.46
2021 200,000
 200,000
 400,000
 1.91 2.28
2022 200,000
 —
 200,000
 2.23 2.23
2023 300,000
 —
 300,000
 1.70 1.81
2024 100,000
 —
 100,000
 3.39 3.39
2025 250,000
 —
 250,000
 1.82 1.94
2026 100,000
 —
 100,000
 1.28 1.60
  $1,450,000
 $640,000
 $2,090,000
 1.92 2.25

(1)Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 4.0 years at March 31, 2020.
(2)The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

2021. As discussed previously, the Bank terminated interest rate swaps with a notional amount of $200.0 million during the quarter ended March 31, 2020,2021. In the table below, the $200.0 million of adjustable-rate FHLB advances previously tied to these terminated interest rate swaps are presented in the FHLB advances column as maturing in fiscal year 2022. Subsequent to March 31, 2021, the Bank did not haveprepaid $100.0 million of adjustable-rate FHLB advances that were related to the terminated swaps and replaced them with $100.0 million of fixed-rate FHLB advances with a balance outstanding on its FHLB line of credit. The average outstanding balance of FHLB line of credit borrowings during the current year period was $91.7 million at anweighted average rate of 1.85%,0.69% and during the current quarter was $82.4 million at ana weighted average rateterm of 1.74%. During the current quarter,3.5 years.
Term Borrowings Amount
Maturity byFHLBInterest rateTotalContractualEffective
Fiscal YearAdvances
swaps(1)
AmountRate
Rate(2)
(Dollars in thousands)
2021$— $440,000 $440,000 0.33 %2.84 %
2022200,000 — 200,000 0.35 0.35 
2023300,000 — 300,000 1.70 1.81 
2024100,000 — 100,000 3.39 3.39 
2025250,000 — 250,000 1.82 1.94 
2026200,000 — 200,000 0.95 1.35 
2027100,000 — 100,000 0.76 1.24 
$1,150,000 $440,000 $1,590,000 1.12 1.94 

(1)Represents adjustable-rate FHLB advances for which the Bank began utilizinghas entered into interest rate swaps with a notional amount of $440.0 million to hedge the FRBvariability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of Kansas City linethe interest rate swaps. The expected WAL of credit rather than the FHLB line of credit, as theinterest rate at the FRB of Kansas Cityswaps was lower. At3.9 years at March 31, 2020,2021.
(2)The effective rate includes the Bank had an outstanding balanceimpact of $30.0 million on its FRBinterest rate swaps and the amortization of Kansas City line of credit. The average outstanding balance of the FRB of Kansas City line of credit borrowing during the current quarter was $5.5 million at an average rate of 0.23%.deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of March 31, 2020.2021.
Retail/ BusinessPublic UnitTerm
Maturity byCertificateRepricingCertificateRepricingBorrowingsRepricingRepricing
Quarter EndAmountRateAmountRate
Amount(1)
RateTotalRate
(Dollars in thousands)
June 30, 2021$370,606 1.41 %$86,691 0.31 %$— — %$457,297 1.20 %
September 30, 2021333,429 1.29 87,958 0.56 75,000 2.99 496,387 1.42 
December 31, 2021345,989 1.20 49,561 0.35 200,000 0.35 595,550 0.84 
March 31, 2022297,696 1.26 17,376 0.89 — — 315,072 1.24 
$1,347,720 1.29 $241,586 0.45 $275,000 1.07 $1,864,306 1.15 

(1)The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap. The term borrowings maturing in the December 31, 2021 quarter with a repricing rate of 0.35% are adjustable-rate advances that were previously tied to the terminated interest rate swaps discussed above. Of the $200.0 million maturing in the December 31, 2021 quarter, $100.0 million was prepaid in April 2021 and replaced with $100.0 million of advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Management may prepay the remaining $100.0 million during the June 30, 2021 quarter.
62
  Retail/ Business   Public Unit   Term      
Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing   Repricing
Quarter End Amount Rate Amount Rate Amount Rate Total Rate
  (Dollars in thousands)
June 30, 2020 $429,387
 2.07% $139,526
 1.76% $200,000
 2.35% $768,913
 2.08%
September 30, 2020 277,166
 2.03
 47,228
 2.10
 540,000
 2.50
 864,394
 2.33
December 31, 2020 275,542
 1.94
 29,261
 1.68
 250,000
 2.47
 554,803
 2.17
March 31, 2021 263,142
 2.00
 20,809
 2.04
 150,000
 1.97
 433,951
 1.99
  $1,245,237
 2.02
 $236,824
 1.84
 $1,140,000
 2.40
 $2,622,061
 2.17


Stockholders' Equity. Stockholders' equity was $1.29$1.28 billion at both March 31, 2020 compared to $1.34 billion at2021 and September 30, 2019. The $48.52020. During the current year six month period, the Company paid cash dividends totaling $40.6 million decrease was due primarily to the payment of $70.4and repurchased common stock totaling $1.5 million, in cash dividends, partially offset by net income of $26.8 million during the current year period. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At March 31, 2020, this ratio was 12.2%.$39.3 million. The cash dividends paid during the current year six month period totaled $0.51$0.30 per share and consisted of a $0.34$0.13 per share cash true-up dividend related to fiscal year 20192020 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17of $0.085 per share. On April 21, 2020,20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7$11.5 million, payable on May 15, 202021, 2021 to stockholders of record as of the close of business on May 1, 2020.7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%.

At March 31, 2020,2021, Capitol Federal Financial, Inc., at the holding company level, had $101.0$73.9 million in cash on deposit at the Bank. For fiscal year 2020,2021, it is currently the intentintention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the FRB's existing approval for the Company to repurchase shares extends through August 2021.

The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and historically the Company has also utilized stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company has paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. Given the state of eacheconomic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection at that time to move capital from the Bank to the Company to pay that dividend. It is management's intention to ask for a regulatory non-objection at some point in the future to pay some level of the past six years.this dividend when economic conditions are more certain. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend. Given the current state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company has elected to defer the annual True Blue dividend in June 2020 and not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.

The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, 2019, and 2018.2019. The amounts represent cash dividends paid during each period. For the quarter ending June 30, 2020,2021, the amount presented represents the dividend payable on May 15, 202021, 2021 to stockholders of record as of the close of business on May 1, 2020.7, 2021.
Calendar Year
202120202019
AmountPer ShareAmountPer ShareAmountPer Share
(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31$11,518 $0.085 $11,733 $0.085 $11,700 $0.085 
Quarter ended June 3011,518 0.085 11,733 0.085 11,708 0.085 
Quarter ended September 30— — 11,733 0.085 11,713 0.085 
Quarter ended December 31— — 11,514 0.085 11,731 0.085 
True-up dividends paid— — 17,614 0.130 46,932 0.340 
True Blue dividends paid— — — — 34,446 0.250 
Calendar year-to-date dividends paid$23,036 $0.170 $64,327 $0.470 $128,230 $0.930 


63
 Calendar Year
 2020 2019 2018
 Amount Per Share Amount Per Share Amount Per Share
 (Dollars in thousands, except per share amounts)
Regular quarterly dividends paid           
Quarter ended March 31$11,733
 $0.085
 $11,700
 $0.085
 $11,427
 $0.085
Quarter ended June 3011,734
 0.085
 11,708
 0.085
 11,429
 0.085
Quarter ended September 30
 
 11,713
 0.085
 11,430
 0.085
Quarter ended December 31
 
 11,731
 0.085
 11,696
 0.085
True-up dividends paid
 
 46,932
 0.340
 53,666
 0.390
True Blue dividends paid
 
 34,446
 0.250
 33,614
 0.250
Calendar year-to-date dividends paid$23,467
 $0.170
 $128,230
 $0.930
 $133,262
 $0.980

The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.


Operating Results
The following table presents selected income statement and other information for the quarters indicated.
For the Three Months Ended
March 31,December 31,September 30,June 30,March 31,
20212020202020202020
(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable$57,285 $60,694 $64,315 $66,652 $69,613 
MBS5,429 5,710 5,425 5,616 5,866 
FHLB stock951 1,069 1,080 1,207 1,714 
Investment securities629 683 731 847 1,382 
Cash and cash equivalents40 51 55 59 380 
Total interest and dividend income64,334 68,207 71,606 74,381 78,955 
Interest expense:
Deposits12,529 14,067 15,299 16,533 17,804 
Borrowings8,732 10,327 10,624 11,561 12,483 
Total interest expense21,261 24,394 25,923 28,094 30,287 
Net interest income43,073 43,813 45,683 46,287 48,668 
Provision for credit losses(2,964)(1,532)— — 22,075 
Net interest income
(after provision for credit losses)46,037 45,345 45,683 46,287 26,593 
Non-interest income12,477 5,070 4,985 4,439 4,671 
Non-interest expense32,653 27,067 27,176 26,164 26,164 
Income tax expense5,417 4,450 5,213 5,088 824 
Net income$20,444 $18,898 $18,279 $19,474 $4,276 
Efficiency ratio58.78 %55.37 %53.64 %51.58 %49.05 %
Basic EPS$0.15 $0.14 $0.13 $0.14 $0.03 
Diluted EPS0.15 0.14 0.13 0.14 0.03 

64
 For the Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
 2020 2019 2019 2019 2019
 (Dollars in thousands, except per share data)
Interest and dividend income:         
Loans receivable$69,613
 $69,914
 $70,366
 $71,434
 $71,657
MBS5,866
 6,102
 6,293
 6,613
 6,301
FHLB stock1,714
 1,826
 2,156
 1,865
 1,831
Investment securities1,382
 1,507
 1,585
 1,835
 1,505
Cash and cash equivalents380
 687
 2,885
 464
 743
Total interest and dividend income78,955
 80,036
 83,285
 82,211
 82,037
          
Interest expense:         
Deposits17,804
 17,962
 17,471
 16,909
 16,096
Borrowings12,483
 13,377
 16,003
 13,621
 13,344
Total interest expense30,287
 31,339
 33,474
 30,530
 29,440
          
Net interest income48,668
 48,697
 49,811
 51,681
 52,597
          
Provision for credit losses22,075
 225
 300
 450
 —
          
Net interest income         
(after provision for credit losses)26,593
 48,472
 49,511
 51,231
 52,597
          
Non-interest income4,671
 5,504
 5,859
 5,674
 5,001
Non-interest expense26,164
 26,500
 26,330
 27,691
 26,141
Income tax expense824
 4,965
 6,631
 6,317
 6,903
Net income$4,276
 $22,511
 $22,409
 $22,897
 $24,554
          
Efficiency ratio49.05% 48.89% 47.30% 48.28% 45.38%
          
Basic EPS$0.03
 $0.16
 $0.16
 $0.17
 $0.18
Diluted EPS0.03
 0.16
 0.16
 0.17
 0.18





Comparison of Operating Results for the SixThree Months Ended March 31, 20202021 and 2019December 31, 2020

TheFor the quarter ended March 31, 2021, the Company recognized net income of $26.8$20.4 million, or $0.19$0.15 per share, for the six-month period ended March 31, 2020 compared to net income of $48.9$18.9 million, or $0.36$0.14 per share, for the six-month periodquarter ended MarchDecember 31, 2019.2020. The decrease in net incomeincrease was due primarily to a $22.3 million provision for credit losses during the current period.

Net interestan increase in non-interest income decreased $7.5 million, or 7.2%,resulting mainly from the prior year periodsale of Visa Class B shares, partially offset by an increase in non-interest expense due to $97.4the termination of $200.0 million for the current year period.of interest rate swaps. The net interest margin decreased 11four basis points, from 2.30%1.92% for the prior year periodquarter to 2.19%1.88% for the current year period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. 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. Excluding the effects of the leverage strategy, the net interest margin would have decreased 14 basis points, from 2.33% for the prior year period to 2.19% for the current year period.quarter. The decrease in the net interest margin excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield.and securities portfolio average yields, along with a change in asset mix as cash flows from the loan portfolio have been invested into lower yielding securities, partially offset by a decrease in the average cost of borrowings and deposits. Our net interest margin could continue to decrease if our interest-earning assets continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased four17 basis points, from 3.60%2.98% for the prior year periodquarter to 3.56%2.81% for the current year period, andquarter, while the average balance of interest-earning assets decreased $221.2 million. Absentincreased $30.1 million between the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased six basis points, from 3.62% for the prior year period to 3.56% for the current year period, and the average balance of interest-earning assets would have decreased $105.8 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield discussed below.two periods. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,December 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$57,285 $60,694 $(3,409)(5.6)%
MBS5,429 5,710 (281)(4.9)
FHLB stock951 1,069 (118)(11.0)
Investment securities629 683 (54)(7.9)
Cash and cash equivalents40 51 (11)(21.6)
Total interest and dividend income$64,334 $68,207 $(3,873)(5.7)
 For the Six Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST AND DIVIDEND INCOME:       
Loans receivable$139,527
 $142,429
 $(2,902) (2.0)%
MBS11,968
 12,824
 (856) (6.7)
FHLB stock3,540
 3,802
 (262) (6.9)
Investment securities2,889
 2,946
 (57) (1.9)
Cash and cash equivalents1,067
 2,457
 (1,390) (56.6)
Total interest and dividend income$158,991
 $164,458
 $(5,467) (3.3)


The decrease in interest income on loans receivable was due mainly to a 14 basis point decrease in the weighted average portfolio yield resulting from an increase in the amortization of premiums related to correspondent loan payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $201.6$96.2 million or 3.0%, partially offset by a $128.6 million, or 20%, increasedecrease in the average balance of higher-yielding commercial loans.balance. The weighted average yield on the loans receivable portfolio decreased four basis points, from 3.77%3.41% for the prior year periodquarter to 3.73%3.27% for the current year period.quarter, due mainly to loans repricing to lower current market rates as a result of endorsements, refinances and adjustable-rate loan rate changes, along with a decrease in commercial loan deferred fee and discount recognition related to PPP loans and other commercial loan activity. One- to four-family correspondent loan payoff activity decreased during the current quarter compared to the prior quarter; thereby reducing the amount of premium amortization and reduction in the loan portfolio yield. Correspondent loan payoff activity remains at elevated levels compared to historical norms which was the primary reason for the decrease in the average balance of the loan portfolio during the current quarter.

The decrease in interest income on the MBS portfolio was due to a 25 basis point decrease in the weighted average yield, to 1.50% for the current quarter, due primarily to an increase in the impact of net premium amortization, along with purchases at lower market yields. This was partially offset by a $57.1$142.5 million or 5.8%, decreaseincrease in the average balance as a result of purchases, primarily utilizing excess cash flows from the portfolio. The decrease in dividend income on FHLB stockloan portfolio and the decrease in interest income onoperating cash, and cash equivalents were due primarily to the leverage strategy being in place for a portion of the prior year period and not being in place during the current period. See additional discussion regarding the leverage strategyalong with funds from growth in the Executive Summary above.deposit portfolio that were not used to pay down borrowings.

65


Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased eightdecreased 14 basis points, from 1.49%1.20% for the prior year periodquarter to 1.57%1.06% for the current year period,quarter, while the average balance of interest-bearing liabilities decreased $155.4 million. Absentincreased $48.1 million between the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased nine basis points, from 1.48% for the prior year period to 1.57% for the current year period, while the average balance of interest-bearing liabilities would have decreased $40.0 million. The increase in the weighted average rate from the prior year period was due primarily to an increase in the cost of deposits, specifically the retail/business certificate of deposit portfolio.two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 For the Six Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST EXPENSE:       
Deposits$35,766
 $31,821
 $3,945
 12.4 %
Borrowings25,860
 27,739
 (1,879) (6.8)
Total interest expense$61,626
 $59,560
 $2,066
 3.5

For the Three Months Ended
March 31,December 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$12,529 $14,067 $(1,538)(10.9)%
Borrowings8,732 10,327 (1,595)(15.4)
Total interest expense$21,261 $24,394 $(3,133)(12.8)
The increasedecrease in interest expense on deposits was due primarily to an increasea decrease in the cost ofweighted average rate paid on the retail/business certificate of deposit portfolio. The weighted average rate ofon the retail/business certificate of deposit portfolio increased 26decreased 15 basis points, to 2.10%1.61% for the current year period, and the average balance increased $190.6 million, or approximately 7%. Late in the third quarter of fiscal year 2019, the Bank increased offeredquarter. Management has generally reduced deposit offer rates as discussed above. See "Financial Condition - Liabilities" above for additional information on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit.deposits.

The "Borrowings" line itemdecrease in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $503 thousand from the prior year periodwas due primarily to the redemption of the junior subordinated debentures previously added in the CCB acquisition. Additionally, interest expense on the FHLB line of credit decreased $454 thousand, largely offset by an increase in the weighted average effective rate paid on FHLB advances between periods. Interest expense on FHLBnot replacing term borrowings associated with the leverage strategy decreased $1.4 million from the prior year period due to the leverage strategy being in place for a portion of the prior year period and not being in place at allthat matured during the current year period.quarter and prior quarter, along with prepaying certain advances and replacing them at lower rates. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarters. The average balance of borrowings decreased $171.9 million compared to the prior quarter.

Provision for Credit Losses
TheFor the quarter ended March 31, 2021, the Bank recorded a negative provision for credit losses during the current period of $22.3$3.0 million, compared to noa negative provision for credit losses duringof $1.5 million for the prior year period.quarter. The $22.3negative provision in the current quarter was composed of a $2.7 million decrease in the ACL for loans and a $305 thousand decrease in reserves for off-balance sheet credit exposures. The $3.0 million negative provision for credit losses was due primarily to continued improvements in the current period was primarily related toeconomic forecast used in the deterioration of economic conditions as a result of COVID-19.model. See additional ACL discussion in the "Financial Condition - Asset Quality - AllowanceQuality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit losses and Provision for credit losses" section above.exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,December 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares$7,386 $— $7,386 N/A
Deposit service fees2,814 2,947 (133)(4.5)%
Insurance commissions888 638 250 39.2 
Other non-interest income1,389 1,485 (96)(6.5)
Total non-interest income$12,477 $5,070 $7,407 146.1 
 For the Six Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST INCOME:       
Deposit service fees$5,845
 $6,443
 $(598) (9.3)%
Insurance commissions1,091
 1,167
 (76) (6.5)
Other non-interest income3,239
 2,815
 424
 15.1
Total non-interest income$10,175
 $10,425
 $(250) (2.4)


The decrease in deposit service fees was due mainly toDuring the discontinuation of point-of-sale service charges, whichcurrent quarter, the Bank ceased chargingsold all of its Visa Class B shares, resulting in April 2019.a $7.4 million gain. The increase in other non-interest incomeinsurance commissions was due mainlyprimarily to the receipt of a BOLI death benefit during the current period.annual contingent insurance commissions which were higher than what was anticipated and accrued.


66

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,December 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,397 $14,138 $(741)(5.2)%
Information technology and related expense4,599 4,233 366 8.6 
Occupancy, net3,523 3,379 144 4.3 
Loss on interest rate swap termination4,752 — 4,752 N/A
Regulatory and outside services1,234 1,585 (351)(22.1)
Advertising and promotional1,484 838 646 77.1 
Deposit and loan transaction costs664 766 (102)(13.3)
Federal insurance premium634 621 13 2.1 
Office supplies and related expense463 424 39 9.2 
Other non-interest expense1,903 1,083 820 75.7 
Total non-interest expense$32,653 $27,067 $5,586 20.6 
 For the Six Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST EXPENSE:       
Salaries and employee benefits$26,706
 $25,751
 $955
 3.7 %
Information technology and related expense8,409
 8,883
 (474) (5.3)
Occupancy, net6,656
 6,544
 112
 1.7
Advertising and promotional2,769
 2,150
 619
 28.8
Regulatory and outside services2,640
 2,822
 (182) (6.4)
Deposit and loan transaction costs1,389
 1,201
 188
 15.7
Office supplies and related expense1,111
 1,195
 (84) (7.0)
Federal insurance premium—
 1,187
 (1,187) (100.0)
Other non-interest expense2,984
 3,190
 (206) (6.5)
Total non-interest expense$52,664
 $52,923
 $(259) (0.5)

The increasedecrease in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the prior quarter in appreciation of the hard work and dedication by our non-officer employees during these challenging times, along with a decrease in the number of working days compared to the prior quarter. The increase in information technology and related expense was due primarily to an increase in loan commissions and merit increases.information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The decrease in information technologyregulatory and related expenseoutside services was due mainly to the prior year period including costs related to the integrationtiming of CCB operations.external audit expenses. The increase in advertising and promotional expenseexpenses was due to running advertising campaigns in the early part of our fiscal year as we will do less advertising during the various election campaigns in the fall, as well as to the timing of sponsorships.campaigns. The decreaseincrease in the federal insurance premium was due mainly to the Bank receiving an assessment credit from the FDIC. During the prior fiscal year, the Bank began utilizing a credit from the FDIC as a result of the FDIC deposit insurance fund ratio exceeding 1.38%. Pursuant to regulatory guidance, once the insurance fund exceeds 1.38% of insured deposits, deposit insurance assessment credits are allocated to banks with less than $10 billion in assets, to compensate for premiums previously paid that contributed to growth of the fund past 1.15%. These credits fully offset the Bank's premium assessments during the current year period and will continue to offset the Bank's premium assessments as long as the insurance fund ratio remains at or above 1.35% of insured deposits and the Bank still has a remaining assessment credit balance. As of March 31, 2020, the Bank had a remaining assessment credit of approximately $320 thousand. The assessment credit will be fully utilized during the third quarter of fiscal year 2020, so management anticipates recognizing federal insurance premiumother non-interest expense during the next quarter.

Management anticipates that salaries and employee benefits expense in fiscal year 2020 will increase approximately $1.0 million from fiscal year 2019, a decrease from our original estimate of a $4.0 million increase. The reduction in the expense estimate was due primarily to the write-down of a delay in the implementation of information technology changes pertaining to commercial banking activities and related back office functions, a reduction in commercial lending hiring, along with expense reductions related to the impact of COVID-19, including the postponement of annual merit increases which were to be implemented later this year and the deferralproperty that previously served as one of the True Blue dividend and related compensation expenseBank's branch locations, as discussed above.management intends to sell the property.

The Company's efficiency ratio was 48.97%58.78% for the current periodquarter compared to 45.89%55.37% for the prior year period.quarter. The change in the efficiency ratio was due primarily to lower net interest incomehigher non-interest expense, partially offset by an increase in the current period compared to the prior year period.non-interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lowerhigher value indicates that the financial institution is generating revenue with a proportionally lowerhigher level of expense.expense, relative to the net interest margin.

Income Tax Expense
IncomeThe following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,December 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$25,861 $23,348 $2,513 10.8 %
Income tax expense5,417 4,450 967 21.7 
Net income$20,444 $18,898 $1,546 8.2 
Effective Tax Rate20.9 %19.1 %

The increase in income tax expense was $5.8due mainly to a higher effective tax rate compared to the prior quarter, as well as an increase in pretax income. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns.

67

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
March 31, 2021December 31, 2020
AverageInterestAverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,134,527 $47,552 3.10 %$6,220,204 $50,005 3.22 %
Commercial loans766,972 8,559 4.46 770,096 9,404 4.78 
Consumer loans102,613 1,174 4.64 110,048 1,285 4.65 
Total loans receivable(1)
7,004,112 57,285 3.27 7,100,348 60,694 3.41 
MBS(2)
1,444,554 5,429 1.50 1,302,074 5,710 1.75 
Investment securities(2)(3)
466,077 629 0.54 431,493 683 0.63 
FHLB stock77,391 951 4.98 85,187 1,069 4.99 
Cash and cash equivalents158,544 40 0.10 201,468 51 0.10 
Total interest-earning assets9,150,678 64,334 2.81 9,120,570 68,207 2.98 
Other non-interest-earning assets446,265 453,422 
Total assets$9,596,943 $9,573,992 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,459,964 183 0.05 $1,360,864 223 0.07 
Savings477,985 69 0.06 442,906 68 0.06 
Money market1,543,911 1,038 0.27 1,474,720 1,184 0.32 
Retail/business certificates2,753,439 10,917 1.61 2,745,836 12,178 1.76 
Wholesale certificates260,712 322 0.50 251,634 414 0.66 
Total deposits6,496,011 12,529 0.78 6,275,960 14,067 0.89 
Borrowings(4)
1,603,459 8,732 2.19 1,775,380 10,327 2.30 
Total interest-bearing liabilities8,099,470 21,261 1.06 8,051,340 24,394 1.20 
Other non-interest-bearing liabilities213,602 240,476 
Stockholders' equity1,283,871 1,282,176 
Total liabilities and stockholders' equity$9,596,943 $9,573,992 
Net interest income(5)
$43,073 $43,813 
Net interest rate spread(6)
1.75 1.78 
Net interest-earning assets$1,051,208 $1,069,230 
Net interest margin(7)
1.88 1.92 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)0.85 %0.79 %
Return on average equity (annualized)6.37 5.90 
Average equity to average assets13.38 13.39 
Operating expense ratio(8)
1.36 1.13 
Efficiency ratio(9)
58.78 55.37 

68

(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $7.5 million and $9.1 million for the quarters ended March 31, 2021 and December 31, 2020, respectively.
(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2021 to the three months ended December 31, 2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended
March 31, 2021 vs. December 31, 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(862)$(2,547)$(3,409)
MBS585 (866)(281)
Investment securities52 (106)(54)
FHLB stock(118)— (118)
Cash and cash equivalents(11)— (11)
Total interest-earning assets(354)(3,519)(3,873)
Interest-bearing liabilities:
Checking14 (53)(39)
Savings4 (3)1 
Money market46 (193)(147)
Certificates of deposit53 (1,406)(1,353)
Borrowings(1,014)(581)(1,595)
Total interest-bearing liabilities(897)(2,236)(3,133)
Net change in net interest income$543 $(1,283)$(740)

69

Comparison of Operating Results for the Six Months Ended March 31, 2021 and 2020

The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.56% for the prior year period to 2.90% for the current year period, while the average balance of interest-earning assets increased $232.9 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield and partially the securities portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$117,979 $139,527 $(21,548)(15.4)%
MBS11,139 11,968 (829)(6.9)
FHLB stock2,020 3,540 (1,520)(42.9)
Investment securities1,312 2,889 (1,577)(54.6)
Cash and cash equivalents91 1,067 (976)(91.5)
Total interest and dividend income$132,541 $158,991 $(26,450)(16.6)

The decrease in interest income on loans receivable was due mainly to a 39 basis point decrease in the weighted average yield on the portfolio, from 3.73% for the prior year period to 3.34% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $407.1 million compared to the prior year period. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part, to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the COVID-19 pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity.

The decrease in interest income on the MBS portfolio was due to a 96 basis point decrease in the weighted average yield to 1.62% for the current year period as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $445.6 million increase in the average balance of the portfolio.

The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

The decrease in interest income on investment securities was due to a 146 basis point decrease in the weighted average yield to 0.58% for the current year period as a result of new purchases at lower market yields, partially offset by a $165.8 million increase in the average balance of the portfolio.

70

The decrease in interest income on cash and cash equivalents was due to a decrease in the yield earned on cash held at the FRB of Kansas City, partially offset by a $46.3 million increase in the average balance.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 44 basis points, from 1.57% for the prior year period to 1.13% for the current period, while the average balance of interest-bearing liabilities increased $248.9 million. The increase in the average balance was primarily in money market and checking accounts, partially offset by a decrease in borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$26,596 $35,766 $(9,170)(25.6)%
Borrowings19,059 25,860 (6,801)(26.3)
Total interest expense$45,655 $61,626 $(15,971)(25.9)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 42 basis points, 38 basis points, and 152 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been gradually repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $514.5 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current year period of $4.5 million, compared to a $22.3 million provision for credit losses during the prior year period. See "Financial Condition - Asset Quality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares$7,386 $— $7,386 N/A
Deposit service fees5,761 5,845 (84)(1.4)%
Insurance commissions1,526 1,091 435 39.9 
Other non-interest income2,874 3,239 (365)(11.3)
Total non-interest income$17,547 $10,175 $7,372 72.5 

During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year period. The decrease in other non-interest income was mainly the result of a decrease in income from BOLI compared to the prior year period due to a reduction in the yield and lower death benefit receipts between the two periods.
71

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31,Change Expressed in:
 20212020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$27,535 $26,706 $829 3.1 %
Information technology and related expense8,832 8,409 423 5.0 
Occupancy, net6,902 6,656 246 3.7 
Loss on interest rate swap termination4,752 — 4,752 N/A
Regulatory and outside services2,819 2,640 179 6.8 
Advertising and promotional2,322 2,769 (447)(16.1)
Deposit and loan transaction costs1,430 1,389 41 3.0 
Federal insurance premium1,255 — 1,255 N/A
Office supplies and related expense887 1,111 (224)(20.2)
Other non-interest expense2,986 2,984 2 0.1 
Total non-interest expense$59,720 $52,664 $7,056 13.4 

The increase in salaries and employee benefits was due primarily to an increase in loan commissions, an increase in full-time equivalent employees, and higher non-officer related bonuses paid in the current year period. The increase in information technology and related expense was due mainly to an increase in information technology professional services expense. During the current year period, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. Since it was management's intention to prepay the related FHLB advances, the previously-forecasted transactions subject to the cash flow hedges are no longer expected to occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. The decrease in advertising and promotional expenses was due mainly to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year period.

The Company's efficiency ratio was 57.19% for the current period compared to $13.5 million48.97% for the prior year period. The decreasechange in the efficiency ratio was due to higher non-interest expense, partially offset by an increase non-interest income in the current year period compared to the prior year period. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current period was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current period, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year period.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Six Months Ended
March 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$49,209 $32,576 $16,633 51.1 %
Income tax expense9,867 5,789 4,078 70.4 
Net income$39,342 $26,787 $12,555 46.9 
Effective Tax Rate20.1 %17.8 %

72

The increase in income tax expense was due primarily to lower pretax income in the current period, as well as a lower effective tax rate. The effective tax rate was 17.8% for the current period compared to 21.6% for the prior year period. The lower effective tax rate in the current period compared to the prior year period was due mainly to the Company's permanent differences having a proportionately larger impact given the lowerhigher pretax income in the current year period, andas well as a higher effective tax rate compared to the prior year period. The effective tax rate was lower in the prior year period due primarily to a discrete benefit recognized as a result of favorable federal tax guidance that was issued duringin the currentprior year period related to certain BOLI policies addedthat were acquired in fiscal year 2018. Management anticipates the CCB acquisition.effective income tax rate for fiscal year 2021 will be approximately 21%.

73

Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information, for the periods indicated. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Six Months Ended
March 31, 2021March 31, 2020
AverageInterestAverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,177,836 $97,557 3.16 %$6,568,525 $117,199 3.57 %
Commercial loans768,552 17,963 4.62 762,799 18,652 4.81 
Consumer loans106,371 2,459 4.64 128,491 3,676 5.72 
Total loans receivable(1)
7,052,759 117,979 3.34 7,459,815 139,527 3.73 
MBS(2)
1,372,531 11,139 1.62 926,969 11,968 2.58 
Investment securities(2)(3)
448,595 1,312 0.58 282,759 2,889 2.04 
FHLB stock81,332 2,020 4.98 99,128 3,540 7.14 
Cash and cash equivalents180,242 91 0.10 133,908 1,067 1.57 
Total interest-earning assets9,135,459 132,541 2.90 8,902,579 158,991 3.56 
Other non-interest-earning assets449,883 441,199 
Total assets$9,585,342 $9,343,778 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,409,870 407 0.06 $1,096,466 351 0.06 
Savings460,252 136 0.06 361,592 153 0.08 
Money market1,508,935 2,222 0.30 1,190,938 4,044 0.68 
Retail/business certificates2,749,596 23,094 1.68 2,686,028 28,215 2.10 
Wholesale certificates256,123 737 0.58 286,328 3,003 2.10 
Total deposits6,384,776 26,596 0.84 5,621,352 35,766 1.27 
Borrowings(4)
1,690,363 19,059 2.25 2,204,903 25,860 2.33 
Total interest-bearing liabilities8,075,139 45,655 1.13 7,826,255 61,626 1.57 
Other non-interest-bearing liabilities227,189 194,698 
Stockholders' equity1,283,014 1,322,825 
Total liabilities and stockholders' equity$9,585,342 $9,343,778 
Net interest income(5)
$86,886 $97,365 
Net interest rate spread(6)
1.77 1.99 
Net interest-earning assets$1,060,320 $1,076,324 
Net interest margin(7)
1.90 2.19 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.14x
Selected performance ratios:
Return on average assets (annualized)0.82 %0.57 %
Return on average equity (annualized)6.13 4.05 
Average equity to average assets13.39 14.16 
Operating expense ratio(8)
1.25 1.13 
Efficiency ratio(9)
57.19 48.97 
74

 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Average Interest   Average Interest  
 Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
 Amount Paid Rate Amount Paid Rate
Assets:(Dollars in thousands)
Interest-earning assets:           
One- to four-family loans$6,568,525
 $117,199
 3.57% $6,770,175
 $122,309
 3.61%
Commercial loans762,799
 18,652
 4.81
 634,229
 15,787
 4.92
Consumer loans128,491
 3,676
 5.72
 138,369
 4,333
 6.28
Total loans receivable(1)
7,459,815
 139,527
 3.73
 7,542,773
 142,429
 3.77
MBS(2)
926,969
 11,968
 2.58
 984,033
 12,824
 2.61
Investment securities(2)(3)
282,759
 2,889
 2.04
 277,292
 2,946
 2.13
FHLB stock99,128
 3,540
 7.14
 104,023
 3,802
 7.33
Cash and cash equivalents(4)
133,908
 1,067
 1.57
 215,660
 2,457
 2.25
Total interest-earning assets(1)(2)
8,902,579
 158,991
 3.56
 9,123,781
 164,458
 3.60
Other non-interest-earning assets441,199
     368,864
    
Total assets$9,343,778
     $9,492,645
    
            
Liabilities and stockholders' equity:           
Interest-bearing liabilities:           
Checking$1,096,466
 351
 0.06
 $1,063,346
 294
 0.06
Savings361,592
 153
 0.08
 357,243
 113
 0.06
Money market1,190,938
 4,044
 0.68
 1,260,999
 4,441
 0.71
Retail/business certificates2,686,028
 28,215
 2.10
 2,495,475
 22,947
 1.84
Wholesale certificates286,328
 3,003
 2.10
 392,693
 4,026
 2.06
Total deposits5,621,352
 35,766
 1.27
 5,569,756
 31,821
 1.15
Borrowings(5)
2,204,903
 25,860
 2.33
 2,411,905
 27,739
 2.29
Total interest-bearing liabilities7,826,255
 61,626
 1.57
 7,981,661
 59,560
 1.49
Other non-interest-bearing liabilities194,698
     142,060
    
Stockholders' equity1,322,825
     1,368,924
    
Total liabilities and stockholders' equity$9,343,778
     $9,492,645
    
            
Net interest income(6)
  $97,365
     $104,898
  
Net interest rate spread(7)(8)
    1.99
     2.11
Net interest-earning assets$1,076,324
     $1,142,120
    
Net interest margin(8)(9)
    2.19
     2.30
Ratio of interest-earning assets to interest-bearing liabilities 1.14x
     1.14x
            
Selected performance ratios:           
Return on average assets (annualized)(8)
   0.57
     1.03
Return on average equity (annualized)(8)
   4.05
     7.15
Average equity to average assets    14.16
     14.42
Operating expense ratio(10)
    1.13
     1.12
Efficiency ratio(8)(11)
    48.97
     45.89
Pre-tax yield on leverage strategy(12)
    —
     0.03
(1)Balances are adjusted for unearned loan fees and deferred costs.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(1)Balances are adjusted for unearned loan fees and deferred costs.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $16.1 million and $22.8 million for the six months ended March 31, 2020 and March 31, 2019, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the six months ended March 31, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $110.2 million for the six months ended March 31, 2019.
(5)There were no FHLB borrowings related to the leverage strategy during the six months ended March 31, 2020. Included in this line item, for the six months ended March 31, 2019, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $115.4 million and interest paid of $1.4 million, at a weighted average rate of 2.36%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.30 billion and interest paid of $26.4 million, at a weighted average rate of 2.29%. The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.
(6)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the small amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
 For the Six Months Ended
 March 31, 2020 March 31, 2019
 Actual Leverage Adjusted Actual Leverage Adjusted
 (GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)
Return on average assets (annualized)0.57% —% 0.57% 1.03% (0.01)% 1.04%
Return on average equity (annualized)4.05
 —
 4.05
 7.15
 —
 7.15
Net interest margin2.19
 —
 2.19
 2.30
 (0.03) 2.33
Net interest rate spread1.99
 —
 1.99
 2.11
 (0.03) 2.14
Efficiency Ratio48.97
 —
 48.97
 45.89
 —
 45.89
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(12)The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

(3)The average balance of investment securities includes an average balance of nontaxable securities of $8.3 million and $16.1 million for the six months ended March 31, 2021 and March 31, 2020, respectively.

(4)The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
 For the Six Months Ended
 March 31, 2020 vs. March 31, 2019
 Increase (Decrease) Due to
 Volume Rate Total
 (Dollars in thousands)
Interest-earning assets:     
Loans receivable$(722) $(2,180) $(2,902)
MBS(738) (118) (856)
Investment securities58
 (115) (57)
FHLB stock(164) (98) (262)
Cash and cash equivalents(771) (619) (1,390)
Total interest-earning assets(2,337) (3,130) (5,467)
      
Interest-bearing liabilities:     
Checking10
 47
 57
Savings1
 39
 40
Money market(228) (168) (396)
Certificates of deposit838
 3,406
 4,244
Borrowings(2,654) 775
 (1,879)
Total interest-bearing liabilities(2,033) 4,099
 2,066
      
Net change in net interest income$(304) $(7,229) $(7,533)

For the Six Months Ended
March 31, 2021 vs. March 31, 2020
Increase (Decrease) Due to
VolumeRateTotal
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(7,196)$(14,352)$(21,548)
MBS4,547 (5,376)(829)
Investment securities1,149 (2,726)(1,577)
FHLB stock(568)(952)(1,520)
Cash and cash equivalents273 (1,249)(976)
Total interest-earning assets(1,795)(24,655)(26,450)
Interest-bearing liabilities:
Checking91 (36)55 
Savings35 (51)(16)
Money market872 (2,694)(1,822)
Certificates of deposit337 (7,724)(7,387)
Borrowings(4,689)(2,112)(6,801)
Total interest-bearing liabilities(3,354)(12,617)(15,971)
Net change in net interest income$1,559 $(12,038)$(10,479)

Comparison of Operating Results for the Three Months Ended March 31, 20202021 and 20192020
For the quarter ended March 31, 2020,2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $4.3 million, or $0.03 per share compared to net income of $24.6 million, or $0.18 per share for the quarter ended March 31, 2019.2020. The decreaseincrease in net income was due primarily to recording a $22.1 million of provision for credit losses during the prior year quarter compared to recording a negative provision for credit losses of $3.0 million in the current quarter.quarter, partially offset by a decrease in net interest income and an increase in income tax expense. The net interest margin decreased 1431 basis points, from 2.33%2.19% for the prior year quarter to 2.19%1.88% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio yield and an increasehave been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits.deposits and borrowings.

75

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased nine74 basis points, from 3.64%3.55% for the prior year quarter to 3.55%2.81% for the current quarter, andwhile the average balance of interest-earning assets decreased $133.7increased $264.0 million. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.
For the Three Months Ended
March 31,Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$57,285 $69,613 $(12,328)(17.7)%
MBS5,429 5,866 (437)(7.4)
FHLB stock951 1,714 (763)(44.5)
Investment securities629 1,382 (753)(54.5)
Cash and cash equivalents40 380 (340)(89.5)
Total interest and dividend income$64,334 $78,955 $(14,621)(18.5)
 For the Three Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST AND DIVIDEND INCOME:       
Loans receivable$69,613
 $71,657
 $(2,044) (2.9)%
MBS5,866
 6,301
 (435) (6.9)
FHLB stock1,714
 1,831
 (117) (6.4)
Investment securities1,382
 1,505
 (123) (8.2)
Cash and cash equivalents380
 743
 (363) (48.9)
Total interest and dividend income$78,955
 $82,037
 $(3,082) (3.8)


The decrease in interest income on loans receivable was due mainly to a 45 basis point decrease in yield resulting from an increase in the amortization of premiums related to correspondent loan payoff and endorsement activity. The weighted average yield, on the loans receivable portfolio decreased seven basis points, from 3.79%3.72% for the prior year quarter to 3.72%3.27% for the current quarter.quarter, along with a $476.0 million decrease in the average balance. The decrease in the weighted average yield was due primarily to an increase in premium amortization related to correspondent loans as a result of an increase in payoff and endorsement activity. The decrease in the average balance was due primarily to a decrease in the balance of correspondent one- to four-family loans.

The decrease in interest income on the MBS portfolio was due primarily to a $39.5 million, or 4.1%, decrease in the average balance of the portfolio, along with an eight105 basis point decrease in the weighted average yield on the portfolio, from 2.63%2.55% for the prior year quarter to 2.55%1.50% for the current quarter. The decrease in the weighted average yield was due primarily toquarter resulting from the purchase of MBS at market rates lower than the existing portfolio and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $524.1 million, or 56.9%, increase in the average balance of the portfolio.

The decrease in dividend income on FHLB stock was due to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

The decrease in interest income on investment securities was due to a 143 basis point decrease in the weighted average yield on the portfolio, from 1.97% for the prior year quarter to 0.54% for the current quarter as a result of new purchases at lower market yields, partially offset by a $185.2 million increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield on cash held at the FRB of Kansas City, as well as a decreasepartially offset by an increase in the average balance of operating cash.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased fourdecreased 49 basis points, from 1.51%1.55% for the prior year quarter to 1.55%1.06% for the current quarter, while the average balance of interest-bearing liabilities decreased $67.2increased $254.1 million. The following table presents the components of interest expense for the periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$12,529 $17,804 $(5,275)(29.6)%
Borrowings8,732 12,483 (3,751)(30.0)
Total interest expense$21,261 $30,287 $(9,026)(29.8)
 For the Three Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST EXPENSE:       
Deposits$17,804
 $16,096
 $1,708
 10.6 %
Borrowings12,483
 13,344
 (861) (6.5)
Total interest expense$30,287
 $29,440
 $847
 2.9

The increasedecrease in interest expense on deposits was due primarilymainly to an increasea decrease in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of thepaid on retail/business certificate of deposit portfolio increased 24 basis points, to 2.11% for the current quarter, and the average balance increased $199.2 million, or approximately 8%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit, in an effort to encourage customers to move funds to those termsmoney market accounts, and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-termwholesale certificates of deposit.deposit, which decreased by 50 basis points, 39 basis points, and 148 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been
76

gradually repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $572.7 million decrease in the average balance, ofas certain maturing FHLB advances asand repurchase agreements were not all ofreplaced and the advances maturing between periods were renewed, as well as a decrease in the average rateBank paid on thedown its FHLB line of credit.credit with funds generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances and replacing them at lower rates.

Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $22.1$3.0 million, compared to noa $22.1 million provision for credit losses during the prior year quarter. The $22.1 million provision for credit losses in the current quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional ACL discussion in the "Financial Condition - Asset Quality - AllowanceQuality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit losses and Provision for credit losses" section above.exposures at March 31, 2021.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Gain on sale of Visa Class B shares$7,386 $— $7,386 N/A
Deposit service fees2,814 2,783 31 1.1 %
Insurance commissions888 400 488 122.0 
Other non-interest income1,389 1,488 (99)(6.7)
Total non-interest income$12,477 $4,671 $7,806 167.1 
 For the Three Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST INCOME:       
Deposit service fees$2,783
 $3,091
 $(308) (10.0)%
Insurance commissions400
 541
 (141) (26.1)
Other non-interest income1,488
 1,369
 119
 8.7
Total non-interest income$4,671
 $5,001
 $(330) (6.6)



The decrease in deposit service fees was due mainly toDuring the discontinuation of point-of-sale service charges, whichcurrent quarter, the Bank ceased chargingsold its Visa Class B Shares, resulting in April 2019.a $7.4 million gain. The decreaseincrease in insurance commissions was due primarily to the receipt ofan increase in annual contingent insurance commissions and adjustmentsreceived compared to the related accruals.prior year quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
March 31,Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$13,397 $13,235 $162 1.2 %
Information technology and related expense4,599 4,268 331 7.8 
Occupancy, net3,523 3,449 74 2.1 
Loss on interest rate swap termination4,752 — 4,752 N/A
Regulatory and outside services1,234 1,297 (63)(4.9)
Advertising and promotional1,484 1,359 125 9.2 
Deposit and loan transaction costs664 678 (14)(2.1)
Federal insurance premium634 — 634 N/A
Office supplies and related expense463 592 (129)(21.8)
Other non-interest expense1,903 1,286 617 48.0 
Total non-interest expense$32,653 $26,164 $6,489 24.8 

77
 For the Three Months Ended    
 March 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST EXPENSE:       
Salaries and employee benefits$13,235
 $12,789
 $446
 3.5 %
Information technology and related expense4,268
 4,284
 (16) (0.4)
Occupancy, net3,449
 3,292
 157
 4.8
Advertising and promotional1,359
 1,390
 (31) (2.2)
Regulatory and outside services1,297
 1,056
 241
 22.8
Deposit and loan transaction costs678
 465
 213
 45.8
Office supplies and related expense592
 736
 (144) (19.6)
Federal insurance premium—
 659
 (659) (100.0)
Other non-interest expense1,286
 1,470
 (184) (12.5)
Total non-interest expense$26,164
 $26,141
 $23
 0.1


The increase in salariesinformation technology and employee benefitsrelated expense was due mainly to an increase in loan commissions and merit increases between periods.information technology professional services expense. As discussed previously, during the current quarter, the Bank terminated $200.0 million of interest rate swaps resulting in a loss of $4.8 million. The increase in regulatory and outside services was due primarily to cash delivery services related to increasing the amount of cash on hand in anticipation of customer cash needs during the COVID-19 pandemic, as well as an increase in consulting expenses. The increase in deposit and loan transaction costs was due primarily to an increase in loan activities in the current quarter as compared to the prior year quarter. The decrease in federal insurance premium was due mainly to the Bank receivingutilizing an assessment credit from the FDIC during the prior year quarter. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as discussed above.one of the Bank's branch locations, as management intends to sell the property.

The Company's efficiency ratio was 49.05%58.78% for the current quarter compared to 45.38%49.05% for the prior year quarter. The change in the efficiency ratio was due mainlyprimarily to a decreasehigher non-interest expense, partially offset by an increase in net interestnon-interest income.

Income Tax Expense
IncomeThe following table presents pretax income, income tax expense, was $824 thousandand net income for the current quarter compared to $6.9 million fortime periods presented, along with the prior year quarter. change measured in dollars and percent.
For the Three Months Ended
March 31,Change Expressed in:
20212020DollarsPercent
(Dollars in thousands)
Income before income tax expense$25,861 $5,100 $20,761 407.1 %
Income tax expense5,417 824 4,593 557.4 
Net income$20,444 $4,276 $16,168 378.1 
Effective Tax Rate20.9 %16.2 %

The decreaseincrease in income tax expense was due primarily to lower pretax income in the current quarter, as well as a lower effective tax rate. The effective tax rate for the current quarter was 16.2% compared to 21.9% for the prior year quarter. The lower effective tax rate in the current quarter compared to the prior year quarter was due mainly to the Company's permanent differences having a proportionately larger impact given the lowerhigher pretax income in the current quarter.

78

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
For the Three Months Ended
March 31, 2021March 31, 2020
AverageInterestAverageInterest
OutstandingEarned/Yield/OutstandingEarned/Yield/
AmountPaidRateAmountPaidRate
Assets:(Dollars in thousands)
Interest-earning assets:
One- to four-family loans$6,134,527 $47,552 3.10 %$6,594,029 $58,838 3.57 %
Commercial loans766,972 8,559 4.46 759,328 8,994 4.69 
Consumer loans102,613 1,174 4.64 126,710 1,781 5.65 
Total loans receivable(1)
7,004,112 57,285 3.27 7,480,067 69,613 3.72 
MBS(2)
1,444,554 5,429 1.50 920,419 5,866 2.55 
Investment securities(2)(3)
466,077 629 0.54 280,911 1,382 1.97 
FHLB stock77,391 951 4.98 99,879 1,714 6.90 
Cash and cash equivalents158,544 40 0.10 105,381 380 1.43 
Total interest-earning assets9,150,678 64,334 2.81 8,886,657 78,955 3.55 
Other non-interest-earning assets446,265 454,687 
Total assets$9,596,943 $9,341,344 
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking$1,459,964 183 0.05 $1,107,232 181 0.07 
Savings477,985 69 0.06 365,554 74 0.08 
Money market1,543,911 1,038 0.27 1,208,521 1,981 0.66 
Retail/business certificates2,753,439 10,917 1.61 2,691,029 14,103 2.11 
Wholesale certificates260,712 322 0.50 296,828 1,465 1.98 
Total deposits6,496,011 12,529 0.78 5,669,164 17,804 1.26 
Borrowings(4)
1,603,459 8,732 2.19 2,176,166 12,483 2.29 
Total interest-bearing liabilities8,099,470 21,261 1.06 7,845,330 30,287 1.55 
Other non-interest-bearing liabilities213,602 183,018 
Stockholders' equity1,283,871 1,312,996 
Total liabilities and stockholders' equity$9,596,943 $9,341,344 
Net interest income(5)
$43,073 $48,668 
Net interest rate spread(6)
1.75 2.00 
Net interest-earning assets$1,051,208 $1,041,327 
Net interest margin(7)
1.88 2.19 
Ratio of interest-earning assets to interest-bearing liabilities1.13x1.13x
Selected performance ratios:
Return on average assets (annualized)0.85 %0.18 %
Return on average equity (annualized)6.37 1.30 
Average equity to average assets13.38 14.06 
Operating expense ratio(8)
1.36 1.12 
Efficiency ratio(9)
58.78 49.05 

79

 For the Three Months Ended
 March 31, 2020 March 31, 2019
 Average Interest   Average Interest  
 Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
 Amount Paid Rate Amount Paid Rate
Assets:(Dollars in thousands)
Interest-earning assets:           
One- to four-family loans$6,594,029
 $58,838
 3.57% $6,746,611
 $61,325
 3.64%
Commercial loans759,328
 8,994
 4.69
 680,110
 8,186
 4.80
Consumer loans126,710
 1,781
 5.65
 137,342
 2,146
 6.33
Total loans receivable(1)
7,480,067
 69,613
 3.72
 7,564,063
 71,657
 3.79
MBS(2)
920,419
 5,866
 2.55
 959,897
 6,301
 2.63
Investment securities(2)(3)
280,911
 1,382
 1.97
 272,218
 1,505
 2.21
FHLB stock99,879
 1,714
 6.90
 99,725
 1,831
 7.45
Cash and cash equivalents(4)
105,381
 380
 1.43
 124,444
 743
 2.39
Total interest-earning assets(1)(2)
8,886,657
 78,955
 3.55
 9,020,347
 82,037
 3.64
Other non-interest-earning assets454,687
     370,396
    
Total assets$9,341,344
     $9,390,743
    
            
Liabilities and stockholders' equity:           
Interest-bearing liabilities:           
Checking$1,107,232
 181
 0.07
 $1,076,504
 149
 0.06
Savings365,554
 74
 0.08
 358,733
 56
 0.06
Money market1,208,521
 1,981
 0.66
 1,275,504
 2,269
 0.72
Retail/business certificates2,691,029
 14,103
 2.11
 2,491,814
 11,492
 1.87
Wholesale certificates296,828
 1,465
 1.98
 401,722
 2,130
 2.15
Total deposits5,669,164
 17,804
 1.26
 5,604,277
 16,096
 1.16
Borrowings(5)
2,176,166
 12,483
 2.29
 2,308,271
 13,344
 2.33
Total interest-bearing liabilities7,845,330
 30,287
 1.55
 7,912,548
 29,440
 1.51
Other non-interest-bearing liabilities183,018
     123,280
    
Stockholders' equity1,312,996
     1,354,915
    
Total liabilities and stockholders' equity$9,341,344
     $9,390,743
    
            
Net interest income(6)
  $48,668
     $52,597
  
Net interest rate spread(7)(8)
    2.00
     2.13
Net interest-earning assets$1,041,327
     $1,107,799
    
Net interest margin(8)(9)
    2.19
     2.33
Ratio of interest-earning assets to interest-bearing liabilities 1.13x
     1.14x
            
Selected performance ratios:           
Return on average assets (annualized)(8)
    0.18%     1.05%
Return on average equity (annualized)(8)
    1.30
     7.25
Average equity to average assets    14.06
     14.43
Operating expense ratio(10)
    1.12
     1.11
Efficiency ratio(8)(11)
    49.05
     45.38
(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(2)AFS securities are adjusted for unamortized purchase premiums or discounts.

(3)The average balance of investment securities includes an average balance of nontaxable securities of $7.5 million and $15.0 million for the three months ended March 31, 2021 and March 31, 2020, respectively.
(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $15.0 million and $22.0 million for the three months ended March 31, 2020 and March 31, 2019, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the quarters ended March 31, 2020 and March 31, 2019.
(5)There were no borrowings related to the leverage strategy during the quarters ended March 31, 2020 and March 31, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(6)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The leverage strategy was not in place during the quarters ended March 31, 2020 and March 31, 2019.
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(4)The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 20202021 to the three months ended March 31, 2019.2020. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the Three Months Ended March 31,
2021 vs. 2020
Increase (Decrease) Due to
Volume Rate Total
(Dollars in thousands)
Interest-earning assets:
Loans receivable$(4,183)$(8,145)$(12,328)
MBS2,544 (2,981)(437)
Investment securities596 (1,349)(753)
FHLB stock(342)(421)(763)
Cash and cash equivalents126 (466)(340)
Total interest-earning assets(1,259)(13,362)(14,621)
Interest-bearing liabilities:
Checking48 (46)2 
Savings19 (24)(5)
Money market434 (1,377)(943)
Certificates of deposit129 (4,458)(4,329)
Borrowings(2,750)(1,001)(3,751)
Total interest-bearing liabilities(2,120)(6,906)(9,026)
Net change in net interest income$861 $(6,456)$(5,595)


80
 For the Three Months Ended March 31,
 2020 vs. 2019
 Increase (Decrease) Due to
 Volume Rate Total
 (Dollars in thousands)
Interest-earning assets:     
Loans receivable$(564) $(1,480) $(2,044)
MBS(255) (180) (435)
Investment securities47
 (170) (123)
FHLB stock3
 (120) (117)
Cash and cash equivalents(100) (263) (363)
Total interest-earning assets(869) (2,213) (3,082)
      
Interest-bearing liabilities:     
Checking5
 27
 32
Savings1
 17
 18
Money market(107) (181) (288)
Certificates of deposit498
 1,448
 1,946
Borrowings(775) (86) (861)
Total interest-bearing liabilities(378) 1,225
 847
      
Net change in net interest income$(491) $(3,438) $(3,929)


Comparison of Operating Results for the Three Months Ended March 31, 2020 and December 31, 2019

For the quarter ended March 31, 2020, the Company recognized net income of $4.3 million, or $0.03 per share, compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease was due primarily to recording a $22.1 million provision for credit losses during the current quarter. The net interest margin increased one basis point, from 2.18% for the prior quarter to 2.19% for the current quarter. The increase in the net interest margin was due mainly to a decrease in the cost of borrowings compared to the prior quarter.

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased three basis points, from 3.58% for the prior quarter to 3.55% for the current quarter, and the average balance of interest-earning assets decreased $31.7 million between the two periods. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
 For the Three Months Ended    
 March 31, December 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST AND DIVIDEND INCOME:       
Loans receivable$69,613
 $69,914
 $(301) (0.4)%
MBS5,866
 6,102
 (236) (3.9)
FHLB stock1,714
 1,826
 (112) (6.1)
Investment securities1,382
 1,507
 (125) (8.3)
Cash and cash equivalents380
 687
 (307) (44.7)
Total interest and dividend income$78,955
 $80,036
 $(1,081) (1.4)

The weighted average yield on the loans receivable portfolio decreased three basis points, from 3.75% for the prior quarter to 3.72% for the current quarter, due mainly to a reduction in deferred fee recognition related to commercial loan payoff activity, as well as the origination and purchase of new loans at market rates lower than the existing portfolio. The decrease in interest income on the MBS portfolio was due primarily to a six basis point decrease in the weighted average yield on the portfolio to 2.55% for the current quarter. The decrease in the weighted average yield was due primarily to the purchase of MBS at market rates lower than the existing portfolio. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the average balance of operating cash.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased four basis points, from 1.59% for the prior quarter to 1.55% for the current quarter, while the average balance of interest-bearing liabilities increased $37.9 million between the two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
 For the Three Months Ended    
 March 31, December 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
INTEREST EXPENSE:       
Deposits$17,804
 $17,962
 $(158) (0.9)%
Borrowings12,483
 13,377
 (894) (6.7)
Total interest expense$30,287
 $31,339
 $(1,052) (3.4)
The decrease in interest expense on borrowings was due primarily to the replacement of certain FHLB advances to take advantage of lower market rates late in the December 31, 2019 quarter and during the current quarter. During the current quarter, the Bank prepaid fixed-rate FHLB advances scheduled to mature in the next year totaling $350.0 million with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted average effective rate of 1.70%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $22.1 million, compared to a provision for credit losses during the prior quarter of $225 thousand. The $22.1 million provision for credit losses in the current quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional ACL discussion in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section above.


Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
 For the Three Months Ended    
 March 31, December 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST INCOME:       
Deposit service fees$2,783
 $3,062
 $(279) (9.1)%
Insurance commissions400
 691
 (291) (42.1)
Other non-interest income1,488
 1,751
 (263) (15.0)
Total non-interest income$4,671
 $5,504
 $(833) (15.1)

The decrease in deposit service fees was due mainly to a decrease in debit card income resulting from a reduction in transaction volume related to the seasonality of such activity, as well as a decrease in service charge income. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and adjustments to the related accruals. Contingent insurance commissions are performance-based incentives based on certain criteria established by the insurance carriers. Contingent insurance commissions are accrued based on management's expectations and are adjusted when the funds are received. The decrease in other non-interest income was due mainly to the receipt of a BOLI death benefit during the prior quarter, and no such benefit during the current quarter.

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
 For the Three Months Ended    
 March 31, December 31, Change Expressed in:
 2020 2019 Dollars Percent
 (Dollars in thousands)  
NON-INTEREST EXPENSE:       
Salaries and employee benefits$13,235
 $13,471
 $(236) (1.8)%
Information technology and related expense4,268
 4,141
 127
 3.1
Occupancy, net3,449
 3,207
 242
 7.5
Advertising and promotional1,359
 1,410
 (51) (3.6)
Regulatory and outside services1,297
 1,343
 (46) (3.4)
Deposit and loan transaction costs678
 711
 (33) (4.6)
Office supplies and related expense592
 519
 73
 14.1
Other non-interest expense1,286
 1,698
 (412) (24.3)
Total non-interest expense$26,164
 $26,500
 $(336) (1.3)

The decrease in salaries and employee benefits expense was due mainly to a decrease in loan commissions. The decrease in other non-interest expense was due primarily to the prior quarter including a write-down of an OREO property. This property was sold during the prior quarter.

The Company's efficiency ratio was 49.05% for the current quarter compared to 48.89% for the prior quarter. The change in the efficiency ratio was due primarily to lower non-interest income in the current quarter compared to the prior quarter.

Income Tax Expense
Income tax expense was $824 thousand for the current quarter, compared to $5.0 million for the prior quarter. The effective tax rate was 16.2% for the current quarter compared to 18.1% for the prior quarter. The effective tax rate was lower in the current quarter due primarily to lower pretax income due mainly to the provision for credit losses in the current quarter. The decrease in pretax income resulted in the Company's permanent differences having a proportionately larger impact on the effective tax rate. Management anticipates the effective income tax rate for the remainder of fiscal year 2020 will be approximately 21% each quarter, resulting in an effective tax rate of approximately 20% for fiscal year 2020.

Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
 For the Three Months Ended
 March 31, 2020 December 31, 2019
 Average Interest   Average Interest  
 Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
 Amount Paid Rate Amount Paid Rate
Assets:(Dollars in thousands)
Interest-earning assets:           
One- to four-family loans$6,594,029
 $58,838
 3.57% $6,543,298
 $58,361
 3.57%
Commercial loans759,328
 8,994
 4.69
 766,232
 9,657
 4.94
Consumer loans126,710
 1,781
 5.65
 130,253
 1,896
 5.77
Total loans receivable(1)
7,480,067
 69,613
 3.72
 7,439,783
 69,914
 3.75
MBS(2)
920,419
 5,866
 2.55
 933,448
 6,102
 2.61
Investment securities(2)(3)
280,911
 1,382
 1.97
 284,587
 1,507
 2.12
FHLB stock99,879
 1,714
 6.90
 98,384
 1,826
 7.36
Cash and cash equivalents(4)
105,381
 380
 1.43
 162,126
 687
 1.66
Total interest-earning assets(1)(2)
8,886,657
 78,955
 3.55
 8,918,328
 80,036
 3.58
Other non-interest-earning assets454,687
     427,858
    
Total assets$9,341,344
     $9,346,186
    
            
Liabilities and stockholders' equity:           
Interest-bearing liabilities:           
Checking$1,107,232
 181
 0.07
 $1,085,818
 170
 0.06
Savings365,554
 74
 0.08
 357,674
 79
 0.09
Money market1,208,521
 1,981
 0.66
 1,173,545
 2,063
 0.70
Retail/business certificates2,691,029
 14,103
 2.11
 2,681,081
 14,111
 2.09
Wholesale certificates296,828
 1,465
 1.98
 275,941
 1,539
 2.21
Total deposits5,669,164
 17,804
 1.26
 5,574,059
 17,962
 1.28
Borrowings(5)
2,176,166
 12,483
 2.29
 2,233,327
 13,377
 2.36
Total interest-bearing liabilities7,845,330
 30,287
 1.55
 7,807,386
 31,339
 1.59
Other non-interest-bearing liabilities183,018
     206,253
    
Stockholders' equity1,312,996
     1,332,547
    
Total liabilities and stockholders' equity$9,341,344
     $9,346,186
    
            
Net interest income(6)
  $48,668
     $48,697
  
Net interest rate spread(7)(8)
    2.00
     1.99
Net interest-earning assets$1,041,327
     $1,110,942
    
Net interest margin(8)(9)
    2.19
     2.18
Ratio of interest-earning assets to interest-bearing liabilities 1.13x
     1.14x
            
Selected performance ratios:           
Return on average assets (annualized)(8)
    0.18%     0.96%
Return on average equity (annualized)(8)
    1.30
     6.76
Average equity to average assets    14.06
     14.26
Operating expense ratio(10)
    1.12
     1.13
Efficiency ratio(8)(11)
    49.05
     48.89


(1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.
(2)AFS securities are adjusted for unamortized purchase premiums or discounts.
(3)The average balance of investment securities includes an average balance of nontaxable securities of $15.0 million and $17.3 million for the quarters ended March 31, 2020 and December 31, 2019, respectively.
(4)There were no cash and cash equivalents related to the leverage strategy during the quarters ended March 31, 2020 and December 31, 2019.
(5)There were no FHLB borrowings related to the leverage strategy during the quarters ended March 31, 2020 and December 31, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(6)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.
(7)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(8)The leverage strategy was not in place during the quarters ended March 31, 2020 and December 31, 2019.
(9)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(10)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the three months ended March 31, 2020 to the three months ended December 31, 2019. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
 For the Three Months Ended
 March 31, 2020 vs. December 31, 2019
 Increase (Decrease) Due to
 Volume Rate Total
 (Dollars in thousands)
Interest-earning assets:     
Loans receivable$267
 $(568) $(301)
MBS(84) (152) (236)
Investment securities(19) (106) (125)
FHLB stock23
 (135) (112)
Cash and cash equivalents(220) (87) (307)
Total interest-earning assets(33) (1,048) (1,081)
      
Interest-bearing liabilities:     
Checking3
 9
 12
Savings1
 (6) (5)
Money market52
 (135) (83)
Certificates of deposit44
 (126) (82)
Borrowings(376) (518) (894)
Total interest-bearing liabilities(276) (776) (1,052)
      
Net change in net interest income$243
 $(272) $(29)




Liquidity and Capital Resources

Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repurchase agreements, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intentintention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.

We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios.

In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40%See "Part I, Item 1. Business - Sources of regulatory total assets without the pre-approval of FHLB senior management. The president of FHLB has approved an increase, through July 2020,Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for information regarding limits on the Bank's borrowing limit to 55% of Bank Call Report total assets. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs.borrowings. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities. Management had testedtests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing. At March 31, 2020, the Bank had pledged securities with an estimated value of $396.5 million as collateral at the FRB of Kansas City and had drawn down $30.0 million on the related line-of-credit. Management is currently using the FRB line of credit rather than the FHLB line of credit for short-term funding needs as the interest rate on the FRB line of credit is lower than the FHLB line of credit.

If management observes a trendunusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At March 31, 2020,2021, the Bank had total borrowings, at par, of $2.12$1.59 billion, or approximately 23%16% of total assets.assets, all of which were FHLB advances.

The amount of FHLB borrowings outstanding at March 31, 20202021 was $1.99$1.59 billion, of which $1.04 billion$640.0 million were advances scheduled to mature in the next 12 months, including $640.0$440.0 million of one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. At March 31, 2020, the ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 21%. When the full leverage strategy is in place, FHLB borrowings may be in excess of 40% of the Bank's Call Report total assets, and may be in excess of 40% as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the FHLB borrowings in conjunction with the leverage strategy can be repaid at any point in time while the strategy is in effect, if necessary or desired.

At March 31, 2020,2021, the Bank had no repurchase agreements of $100.0 million, or approximately 1% of total assets, all of which were scheduled to mature in the next 12 months.agreements. The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank has pledged securities with an estimated fair value of $109.4 million as collateral for repurchase agreements as of March 31, 2020. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.

The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At March 31, 2020,2021, the Bank had $759.3 million$1.72 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs. 


The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of March 31, 2020,2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At March 31, 2020,2021, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 5%4% of total deposits. The Bank had pledged securities with an estimated fair value of $321.5$311.5 million as collateral for public unit certificates of deposit at March 31, 2020.2021. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity.

At March 31, 2020, $1.482021, $1.59 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $236.8$241.6 million of public unit certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at the prevailing rate,rates, although no assurance can be given in this regard.  We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products.products, depending on availability and pricing.

While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers.
81



The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at March 31, 2020,2021, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of March 31, 2020,2021, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $202.9$377.0 million.
Loans(1)
MBSInvestment SecuritiesTotal
AmountYieldAmountYieldAmountYieldAmountYield
(Dollars in thousands)
Amounts due:
Within one year$151,503 3.86 %$1,722 2.73 %$4,226 1.75 %$157,451 3.79 %
After one year:
Over one to two years124,686 3.80 12,432 1.50 1,264 1.95 138,382 3.58 
Over two to three years56,004 4.56 14,436 1.89 74,991 0.36 145,431 2.13 
Over three to five years160,248 4.15 51,787 2.84 465,542 0.58 677,577 1.60 
Over five to ten years738,333 3.64 291,757 1.80 — — 1,030,090 3.12 
Over ten to fifteen years1,602,985 2.97 909,136 1.27 — — 2,512,121 2.35 
After fifteen years4,159,400 3.40 268,631 1.91 — — 4,428,031 3.31 
Total due after one year6,841,656 3.36 1,548,179 1.53 541,797 0.56 8,931,632 2.87 
$6,993,159 3.37 $1,549,901 1.54 $546,023 0.56 $9,089,083 2.89 
 
Loans(1)
 MBS Investment Securities Total
 Amount Yield Amount Yield Amount Yield Amount Yield
 (Dollars in thousands)
Amounts due:               
Within one year$313,736
 4.31% $5,196
 2.59% $55,245
 1.52% $374,177
 3.88%
                
After one year:               
Over one to two years40,947
 4.52
 5,544
 2.64
 4,270
 1.75
 50,761
 4.08
Over two to three years60,480
 4.42
 27,140
 1.53
 27,490
 1.98
 115,110
 3.16
Over three to five years113,991
 4.68
 35,098
 1.83
 175,714
 1.96
 324,803
 2.90
Over five to ten years689,582
 3.70
 309,180
 2.38
 —
 —
 998,762
 3.29
Over ten to fifteen years1,280,491
 3.54
 339,352
 2.50
 —
 —
 1,619,843
 3.33
After fifteen years4,994,053
 3.72
 251,808
 2.84
 —
 —
 5,245,861
 3.67
Total due after one year7,179,544
 3.71
 968,122
 2.50
 207,474
 1.96
 8,355,140
 3.53
                
 $7,493,280
 3.74
 $973,318
 2.50
 $262,719
 1.87
 $8,729,317
 3.54


(1)Demand loans, loans having no stated maturity, and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction. The maturity date for home equity loans assumes the customer always makes the required minimum payment.
(1)The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment. All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction.

Limitations on Dividends and Other Capital Distributions

Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings. A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.
The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company.  So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard. The Company has elected to not submit a regulatory non-objection notice of distribution of the Bank's current quarter earnings at this time due to the economic uncertainties associated with the COVID-19 pandemic. Management may submit a regulatory non-objection notice of distribution of the Bank's current quarter earnings in the future.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The Company, in the normal course of business, makes commitments to buy or sell assets, to extend credit, or to incur or fund liabilities. There have been no material changes in commitments, contractual obligations or off-balance sheet arrangements from September 30, 2019.2020. For additional information, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements, Commitments and Contractual Obligations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020. We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

The maximum balance of short-term FHLB borrowings outstanding at any month-end during the six months ended March 31, 20202021 was $1.24 billion,$840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $1.14 billion$731.7 million at a weighted average contractual rate of 1.97%0.56%. The balance of short-term FHLB borrowings outstanding at March 31, 20202021 was $1.04 billion,$640.0 million, at a weighted average contractual rate of 1.81%0.34%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months.
82

Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended March 31, 2020,2021, or future periods.

Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). In September 2019, the regulatory agencies, including the OCC and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifyingQualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain athe required minimum leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the well-capitalized ratio requirements. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is a minimum of 8%capital requirements for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank electedwell capitalized category under the CBLR framework during the current quarter.agencies' PCA framework. As of March 31, 2020,2021, the Bank's CBLR was 12.4%12.2% and the Company's CBLR was 13.9%13.4%, which exceeded the minimum requirements. See "Part I, Item 1. Business - Regulation and Supervision - Regulatory Capital Requirements" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for additional information related to regulatory capital.


The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of March 31, 2020,2021, for the Bank and the Company (dollars in thousands):
BankCompany
Total equity as reported under GAAP$1,164,295 $1,278,595 
AOCI18,953 18,953 
Goodwill and other intangibles, net of associated deferred taxes(13,072)(13,072)
Total tier 1 capital$1,170,176 $1,284,476 

83
 Bank Company
Total equity as reported under GAAP$1,145,134
 $1,287,793
AOCI21,978
 21,978
Goodwill and other intangibles, net of associated deferred taxes(14,478) (14,478)
Total tier 1 capital$1,152,634
 $1,295,293




Item 3. Quantitative and Qualitative Disclosure about Market Risk
Asset and Liability Management and Market Risk
For a complete discussion of the Bank's asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Bank's portfolios, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the year ended September 30, 2019.2020. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.

The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.

On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local and correspondent lending markets. Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.

The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.

Qualitative Disclosure about Market Risk
At March 31, 2020,2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $508.6$(652.3) million, or 5.43%(6.7)% of total assets, compared to $251.9$86.8 million, or 2.73%0.9% of total assets, at December 31, 2019.2020. The increasedecrease in the one-year gap amount was due primarily to lowerhigher interest rates as of March 31, 2020,2021 compared to December 31, 2019.2020. As interest rates decrease,increase, borrowers have moreless economic incentive to refinancerefinances their mortgages and agency debt issuers have moreless economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. In addition, the decrease was due to an increase in non-maturity deposits during the quarter. In the Bank's interest rate risk model, short-term increases in non-maturity deposits are assumed to be unstable and thus are not considered to be long-term core deposits. As a result, these deposits are assumed to reprice in the short term. This resulted in an increase in the amount of liabilities repricing in the one-year horizon.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, but did increase this quarter, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty, but did increase this quarter, as previously discussed.penalty. If interest rates were to increase 200 basis points, as of March 31, 2020,2021, the Bank's one-year gap is projected to be $(312.8) million,$(1.32) billion, or (3.34)(13.6)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(523.0)$(995.3) million, or (5.66)(10.36)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2019.2020.

84

During the current quarter, loan repayments totaled $328.6$606.9 million and cash flows from the securities portfolio totaled $145.9$112.5 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from

term liabilities that matured andand/or repriced into current market interest rates during the current quarter were $439.7$542.6 million, including $65.0$150.0 million in FHLBterm borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of March 31, 20202021 was 1.92.3 years. However, including the impact of interest rate swaps related to $640.0$440.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of March 31, 20202021 was 3.03.3 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities. It is anticipated that the Bank will renew the upcoming advances to lower costing term advances, or not renew them based upon our assessment of lending opportunities and our liquidity position at that time.

The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested in higher-yielding assets as interest rates rise.

In addition to these wholesale strategies, the Bank has sought tobenefited from an increase in non-maturity deposits. Non-maturity deposits are expected to reduce the risk of higherAs market interest rates because their interestrise, rates paid on non-maturity deposits are not expected to increase significantly as market interest rates rise.quickly. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historicalprevious interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. Additionally, to the extentas we expand the commercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.

With the significant decrease in interest rates during the current quarter,calendar year 2020, the Bank has decreased theits rates on certificates of deposit and money market accounts at aon pace with competitors in its market areas. The Bank currently expects it will continue to loweradjust rates as market conditions allow.



85

Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
  More Than More Than    More ThanMore Than
Within One Year to Three Years Over  WithinOne Year toThree YearsOver
One Year Three Years to Five Years Five Years TotalOne Year Three Years to Five Years Five Years Total
Interest-earning assets:(Dollars in thousands)Interest-earning assets:(Dollars in thousands)
Loans receivable(1)
$2,075,424
 $2,221,032
 $1,295,807
 $1,893,486
 $7,485,749
Loans receivable(1)
$1,759,790 $1,732,589 $1,006,908 $2,484,635 $6,983,922 
Securities(2)
620,926
 320,938
 139,868
 127,784
 1,209,516
Securities(2)
484,094 445,444 689,337 471,845 2,090,720 
Other interest-earning assets5,336
 —
 —
 —
 5,336
Other interest-earning assets121,258 — — — 121,258 
Total interest-earning assets2,701,686
 2,541,970
 1,435,675
 2,021,270
 8,700,601
Total interest-earning assets2,365,142 2,178,033 1,696,245 2,956,480 9,195,900 
         
Interest-bearing liabilities:         Interest-bearing liabilities:
Non-maturity deposits(3)
180,978
 313,620
 251,303
 2,087,371
 2,833,272
Non-maturity deposits(3)
1,151,749 414,891 353,820 1,825,286 3,745,746 
Certificates of deposit1,482,061
 1,276,351
 283,507
 437
 3,042,356
Certificates of deposit1,589,306 1,147,136 242,134 448 2,979,024 
Borrowings(4)
530,000
 575,000
 715,000
 339,971
 2,159,971
Borrowings(4)
276,401 467,940 653,134 231,139 1,628,614 
Total interest-bearing liabilities2,193,039
 2,164,971
 1,249,810
 2,427,779
 8,035,599
Total interest-bearing liabilities3,017,456 2,029,967 1,249,088 2,056,873 8,353,384 
         
Excess (deficiency) of interest-earning assets overExcess (deficiency) of interest-earning assets over        Excess (deficiency) of interest-earning assets over
interest-bearing liabilities$508,647
 $376,999
 $185,865
 $(406,509) $665,002
interest-bearing liabilities$(652,314)$148,066 $447,157 $899,607 $842,516 
         
Cumulative excess of interest-earning assets overCumulative excess of interest-earning assets over        Cumulative excess of interest-earning assets over
interest-bearing liabilities$508,647
 $885,646
 $1,071,511
 $665,002
  interest-bearing liabilities$(652,314)$(504,248)$(57,091)$842,516 
         
Cumulative excess of interest-earning assets over interest-bearingCumulative excess of interest-earning assets over interest-bearing      Cumulative excess of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:liabilities as a percent of total Bank assets at:        liabilities as a percent of total Bank assets at:
March 31, 20205.43 % 9.45% 11.44% 7.10%  
September 30, 20195.21
        
March 31, 2021March 31, 2021(6.73)%(5.20)%(0.59)%8.69 %
September 30, 2020September 30, 20204.58 
         
Cumulative one-year gap - interest rates +200 bps at:Cumulative one-year gap - interest rates +200 bps at:        Cumulative one-year gap - interest rates +200 bps at:
March 31, 2020(3.34)        
September 30, 2019(3.88)        
March 31, 2021March 31, 2021(13.58)
September 30, 2020September 30, 2020(6.44)

(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of March 31, 2021, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.25 billion, for a cumulative one-year gap of (33.5)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $440.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.

86

(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of March 31, 2020, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $2.14 billion, for a cumulative one-year gap of (22.9)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $640.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.


Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
ChangeNet Interest Income At
(in Basis Points)March 31, 2021September 30, 2020
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$186,156 $— — %$183,596 $— — %
+100 bp188,988 2,832 1.52 188,084 4,488 2.44 
+200 bp188,894 2,738 1.47 188,417 4,821 2.63 
+300 bp187,566 1,410 0.76 186,441 2,845 1.55 
Change Net Interest Income At
(in Basis Points) March 31, 2020 September 30, 2019
in Interest Rates(1)
 Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
  (Dollars in thousands)
  000 bp $202,863
 $—
 — % $193,329
 $—
 — %
+100 bp 207,807
 4,944
 2.44
 194,093
 764
 0.40
+200 bp 206,017
 3,154
 1.55
 192,111
 (1,218) (0.63)
+300 bp 202,361
 (502) (0.25) 188,752
 (4,577) (2.37)

(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The net interest income projection was higher in the base case scenario at March 31, 20202021 compared to September 30, 20192020 due primarily to a larger projected decrease in interest expense than interest income. The decrease in interest expense was driven primarily by a decrease in the actual cost of deposits and borrowings. During the current quarter, the Bank modified $350.0 million of term borrowings into new long-term borrowings with a lower cost. As a result, the cost on the Bank's term borrowings portfolio decreased by 12 basis points. The Bank was also able to lower the cost of its deposit portfolio by two basis points due to lower money market rates and a decrease in the interest rates offeredexpense projection on certificatesdeposits and borrowings. The decrease in the deposit expense projection was due primarily to a decrease in the cost of deposit.deposits at March 31, 2021 compared to September 30, 2020. This was partially offset by an increase in the balance of deposits. The projected expense on borrowings was due primarily to the restructuring of the borrowings portfolio and a lower balance of borrowings compared to September 30, 2020. The Bank terminated two interest rate swaps during the quarter, leaving the adjustable-rate advances outstanding. This resulted in a significant decrease in the effective cost of the borrowings portfolio. In addition, the Bank modified $200.0 million of fixed-rate advances during the fiscal year into lower costing long-term fixed-rate advances.

The lower interest expense projection was offset by a lower income projection on the Bank's loan portfolio. As a result of the low level of interest rates during the current quarter management changedfiscal year, the way that future certificate of deposit rates are forecastedBank continued to see a decrease in the Bank's interest rate risk model. This change was madeyield on loans receivable due to more closely alignrefinances and endorsements. In addition, the forecasted rates withBank experienced a decrease in the current rates offered, thus loweringoverall balance of the projected interest expense.loans receivable portfolio, resulting in these cash flows being deployed into lower yielding securities.

The net interest income projections increase from the base case in the +100 and +200 basis pointall rising interest rate scenarios at March 31, 2021 and September 30, 2020. The increase in net interest income projection was more adversely impacted in the rising interest rate scenariossmaller at September 30, 2019March 31, 2021 compared to March 31,September 30, 2020, due primarily to higher interest rates at September 30, 2019. In addition,a decrease in the modification of $350.0 million of borrowingsgap during the current quarter lengthened the Bank's liabilities, thus reducing the risk to higher interest rates.quarter. The positive impact of rising interest rates is diminished as interest rates increase until turning negative in the +300 basis point scenario.increase. Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus increasingdecreasing the negativepositive impact of rising interest rates.rates compared to the base case. In addition, the negative gap results in liabilities repricing at a faster pace in the rising interest rate scenarios.




87

Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable.  The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.
ChangeMarket Value of Portfolio Equity At
(in Basis Points)March 31, 2021September 30, 2020
in Interest Rates(1)
Amount ($)Change ($)Change (%)Amount ($)Change ($)Change (%)
(Dollars in thousands)
  000 bp$1,525,744 $— — %$1,301,409 $— — %
+100 bp1,405,477 (120,267)(7.88)1,290,877 (10,532)(0.81)
+200 bp1,213,376 (312,368)(20.47)1,157,368 (144,041)(11.07)
+300 bp1,004,068 (521,676)(34.19)967,997 (333,412)(25.62)
Change Market Value of Portfolio Equity At
(in Basis Points) March 31, 2020 September 30, 2019
in Interest Rates(1)
 Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%)
  (Dollars in thousands)
  000 bp $1,087,074
 $—
 — % $1,283,429
 $—
 — %
+100 bp 1,185,836
 98,762
 9.09
 1,286,446
 3,017
 0.24
+200 bp 1,116,523
 29,449
 2.71
 1,162,151
 (121,278) (9.45)
+300 bp 980,783
 (106,291) (9.78) 992,060
 (291,369) (22.70)

(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The percentage change in the Bank's MVPE at March 31, 2021 and September 30, 2020 was positive in the +100 and +200 basis point scenarios and negative in the +300 basis point scenario. At September 30, 2019 the percentage change inall scenarios. The negative impact to the Bank's MVPE was negative in the +200 and +300 basis point scenarios.is greater at March 31, 2021 compared to September 30, 2020. This change was due primarily to loweran increase in the duration of the Bank's mortgage-related assets at March 31, 2021 compared to September 30, 2020. This was due in part to higher interest rates at March 31, 2020 and the modification of $350.0 million of borrowings during the current quarter into long-term liabilities which reduced the Bank's risk to higher interest rates.2021. As interest rates increase, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. In addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase as further prepayments are diminished.

InOn the +100 and +200 basis point scenarios,liability side of the market value of liabilities decrease at a faster pace than the market value of assetsbalance sheet, non-maturity deposit durations increased between periods due to having a recalibration of the Bank's core deposit analytics model. The Bank uses historical deposit behavior to project future behavior. The Bank's core deposit analytics model is updated semi-annually or more frequently if back-testing identifies material variances between projected and actual behavior. The update resulted in longer duration in these scenarios. The longer duration makesdurations on the market valueBank's retail core deposits, which partially offset the impact of these liabilities more sensitive to changes inhigher interest rates. Inrates on the +300 basis point scenario, prepayment speeds on mortgage-related assets and call projections on investment securities decrease to a point where the durations of assets are longer, and thus more sensitive to rising interest rates. This results in a larger decrease in the market value of assets than liabilities in this scenario.Bank's assets.


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The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2020.2021. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
AmountYield/RateWAL% of Category% of Total
(Dollars in thousands)
Investment securities$546,023 0.56 %3.6 26.0 %5.9 %
MBS - fixed1,389,393 1.46 4.3 66.3 14.9 
MBS - adjustable160,508 2.24 3.5 7.7 1.7 
Total securities2,095,924 1.28 4.0 100.0 %22.5 
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years1,233,559 2.78 3.8 17.6 %13.3 
> 15 years4,142,479 3.46 6.1 59.3 44.5 
Fixed-rate commercial440,168 4.29 4.2 6.3 4.7 
All other fixed-rate loans42,361 4.29 6.3 0.6 0.5 
Total fixed-rate loans5,858,567 3.39 5.5 83.8 63.0 
Adjustable-rate one- to four-family:
<= 36 months175,872 1.98 5.0 2.5 1.9 
> 36 months518,858 2.92 3.5 7.4 5.6 
Adjustable-rate commercial354,846 4.23 6.8 5.1 3.8 
All other adjustable-rate loans85,016 4.26 2.4 1.2 0.9 
Total adjustable-rate loans1,134,592 3.29 4.7 16.2 12.2 
Total loans receivable6,993,159 3.37 5.4 100.0 %75.2 
FHLB stock74,464 5.15 2.3 0.8 
Cash and cash equivalents139,472 0.09 — 1.5 
Total interest-earning assets$9,303,019 2.87 5.0 100.0 %
Non-maturity deposits$3,671,841 0.13 5.7 55.2 %44.6 %
Retail/business certificates of deposit2,730,354 1.55 1.3 41.1 33.1 
Public unit certificates of deposit248,670 0.45 0.4 3.7 3.0 
Total deposits6,650,865 0.73 3.7 100.0 %80.7 
Term borrowings1,590,000 1.94 3.3 19.3 
Total interest-bearing liabilities$8,240,865 0.96 3.6 100.0 %
 Amount Yield/Rate WAL % of Category % of Total
 (Dollars in thousands)
Investment securities$262,719
 1.87% 0.3
 21.3% 2.9%
MBS - fixed713,154
 2.33
 3.1
 57.7
 8.0
MBS - adjustable260,164
 2.97
 2.4
 21.0
 2.9
Total securities1,236,037
 2.36
 2.3
 100.0% 13.8
Loans receivable:         
Fixed-rate one- to four-family:         
<= 15 years1,061,681
 3.09
 3.4
 14.2% 11.9
> 15 years4,515,742
 3.82
 4.8
 60.3
 50.5
Fixed-rate commercial441,343
 4.45
 3.1
 5.9
 4.9
All other fixed-rate loans49,676
 4.81
 3.3
 0.7
 0.6
Total fixed-rate loans6,068,442
 3.75
 4.4
 81.1
 67.9
Adjustable-rate one- to four-family:         
<= 36 months205,019
 2.55
 2.8
 2.7
 2.3
> 36 months776,977
 3.27
 2.1
 10.4
 8.7
Adjustable-rate commercial331,312
 4.84
 7.1
 4.4
 3.7
All other adjustable-rate loans111,530
 5.30
 1.6
 1.4
 1.2
Total adjustable-rate loans1,424,838
 3.69
 3.3
 18.9
 15.9
Total loans receivable7,493,280
 3.74
 4.2
 100.0% 83.8
FHLB stock101,575
 6.72
 2.0
   1.1
Cash and cash equivalents118,374
 —
 —
   1.3
Total interest-earning assets$8,949,266
 3.53
 3.9
   100.0%
          
Non-maturity deposits$2,732,263
 0.31
 15.3
 47.3% 34.6%
Retail/business certificates of deposit2,765,142
 2.11
 1.5
 47.9
 35.0
Public unit certificates of deposit277,214
 1.87
 0.5
 4.8
 3.5
Total deposits5,774,619
 1.25
 7.9
 100.0% 73.1
Term borrowings2,090,000
 2.25
 3.0
 98.6% 26.5
Line of credit borrowings30,000
 0.25
 —
 1.4
 0.4
Total borrowings2,120,000
 2.22
 3.0
 100.0% 26.9
Total interest-bearing liabilities$7,894,619
 1.51
 6.6
   100.0%


Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of March 31, 2020.2021. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of March 31, 2020,2021, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.


89

Changes in Internal Control Over Financial Reporting
Management reviewed the Company’s internal control over financial reporting in consideration of operational changes as a result of COVID-19.  There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended March 31, 20202021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings
The Company and the Bank are involved as plaintiff or defendant in various legal actions arising in the normal course of business. In our opinion, after consultation with legal counsel, we believe it unlikely that such pending legal actions will have a material adverse effect on our financial condition, results of operations or liquidity.

Item 1A. Risk Factors
There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019; however, in light of recent developments relating to the COVID-19 pandemic, the Company is supplementing its risk factors in this Form 10-Q.2020.

The Impact of the COVID-19 Pandemic on Our Customers, Employees and Business Operations Has Had, and Will Likely Continue to Have, a Significant Adverse Effect on Our Business, Results of Operations and Financial Condition

The COVID-19 pandemic has created a global public-health crisis that has resulted in widespread market volatility and deteriorating economic conditions for households and businesses. The deteriorating economic conditions, most of which are unprecedented, include more than 20 million people becoming unemployed in the United States in one month's time, cuts in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others. In the Bank's local markets, governments put stay-at-home orders into effect which only allow for essential businesses to remain open.

In response to the COVID-19 pandemic, an essential business, the Company implemented business continuity measures, including activating its Crisis Management Team to put into action our business continuity plan, monitoring potential business interruptions, making further improvements to our information technology allowing nearly half of our employees to work from home, and conducting regular discussions with our third-party service providers providing services to facilities that are open. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. Preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in the office, adjusting branch banking hours and operational measures to promote social distancing when customers do visit branches, and preventative cleaning at offices and branches. These actions have resulted in changes to our business operations, but have not yet significantly impacted most business operations. Depending on the severity and length of the COVID-19 pandemic, which is impossible to predict, we could experience significant disruptions in our business operations if key personnel or a significant number of employees were to become unavailable due to the effects of, and restrictions resulting from, the COVID-19 pandemic, as well as decreased demand for our products and services.

There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. The unknown economic recovery time resulting from the COVID-19 pandemic creates risks that loan modification programs made available to our customers will be insufficient to prevent or reduce delinquencies or help our customers stay in business. Businesses that do not take advantage of loan modification programs provided by the Bank could also be at risk of becoming delinquent or going out of business. The PPP loans made by the Bank are guaranteed by the SBA and, if used by the borrower for authorized purposes, may be fully forgiven. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from the Bank.

Since the commencement of the PPP, several larger banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.

It is likely that many of our individual borrowers have become unemployed and may not be able to continue making mortgage payments under the terms of their loans. Also included in the CARES Act were Economic Impact Payments to individuals meeting certain income requirements. Individuals began receiving those payments in mid-April 2020. This may help mitigate the risk that some borrowers become delinquent or delay the potential for default until they can return to work. However, it is uncertain how long borrowers may need some form of assistance or forbearance.

In order to help our customers, it is likely that utilization of our COVID-19 loan modification programs may increase in the future. Asset quality may deteriorate further and the amount of our ACL may not be sufficient for future loan losses we may experience. This could require us to increase our reserves and recognize more expense in future periods. The changes in market rates of interest and the impact that has on our ability to price our products may reduce our net interest income in the future or negatively impact the demand for our products. There is some risk that operational costs could increase as we maintain existing facilities in accordance with health guidelines as well as potentially continuing to have staff work remotely.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See "Liquidity and Capital Resources - Capital" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding OCC restrictions on dividends from the Bank to the Company.

The following table summarizes our stock repurchase activity during the three months ended March 31, 20202021 and additional information regarding our stock repurchase program. The Company has $70.0$44.7 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan.plan; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares is through August 2021. Shares may be repurchased from time to time in the open-market or in privately negotiated transactions based upon market conditions and available liquidity.
Total Number ofApproximate Dollar
TotalShares Purchased asValue of Shares
Number ofAveragePart of Publiclythat May Yet Be
SharesPrice PaidAnnounced PlansPurchased Under the
Purchasedper Shareor ProgramsPlans or Programs
January 1, 2021 through
January 31, 2021— $— — $44,665,205 
February 1, 2021 through
February 28, 2021— — — 44,665,205 
March 1, 2021 through
March 31, 2021— — — 44,665,205 
Total— — — 44,665,205 
     Total Number of Approximate Dollar
 Total   Shares Purchased as Value of Shares
 Number of Average Part of Publicly that May Yet Be
 Shares Price Paid Announced Plans Purchased Under the
 Purchased per Share or Programs Plans or Programs
January 1, 2020 through       
January 31, 2020—
 $—
 —
 $70,000,000
February 1, 2020 through       
February 29, 2020—
 —
 —
 70,000,000
March 1, 2020 through       
March 31, 2020—
 —
 —
 70,000,000
Total—
 —
 —
 70,000,000


Item 3. Defaults Upon Senior Securities
Not applicable.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
Not applicable.

Item 6. Exhibits
See Index to Exhibits.
90

INDEX TO EXHIBITS
Exhibit

Number
Document
Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference
Bylaws of Capitol Federal Financial, Inc., as amended, filed on March 30, 2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference

Description of the Registrant's Securities, as filed on November 27, 2019, as Exhibit 4 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
Employment Agreement with Robert D. Kobbeman, as amended, filed on November 29, 2018 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
10.1(vi)
Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q and incorporated herein by reference
Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
Description of Director Fee Arrangements filed on November 29, 2018 as Exhibit 10.6 to the Registrant's September 30, 2018 Form 10-K and incorporated herein by reference
Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference
Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer

91

101
The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020,2021, filed with the Securities and Exchange Commission on May 8, 2020,10, 2021, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at March 31, 20202021 and September 30, 2019,2020, (ii) Consolidated Statements of Income for the three and six months ended March 31, 20202021 and 2019,2020, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 20202021 and 2019,2020, (iv) Consolidated Statements of Stockholders' Equity for the three and six months ended March 31, 20202021 and 2019,2020, (v) Consolidated Statements of Cash Flows for the six months ended March 31, 20202021 and 2019,2020, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
92

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAPITOL FEDERAL FINANCIAL, INC.
CAPITOL FEDERAL FINANCIAL, INC.
Date: May 8, 202010, 2021By:/s/ John B. Dicus
John B. Dicus, Chairman, President and Chief Executive Officer
Date: May 8, 202010, 2021By:/s/ Kent G. Townsend
Kent G. Townsend, Executive Vice President,
Chief Financial Officer and Treasurer


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