Business Wire | Oct 28, 2020 09:01AM EDT

Capitol Federal Financial, Inc.(r) Reports Fiscal Year 2020 Results

Oct. 28, 2020

TOPEKA, Kan.--(BUSINESS WIRE)--Oct. 28, 2020--Capitol Federal Financial, Inc.(r) (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the fiscal year ended September 30, 2020. Detailed results will be available in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020, which will be filed with the Securities and Exchange Commission ("SEC") on or about November 25, 2020 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

* net income of $18.3 million; * basic and diluted earnings per share of $0.13; * net interest margin of 2.03%; * annualized deposit growth of 8.0%; * repurchased $23.8 million of common stock, or 2,558,100 shares, at an average price of $9.31 per share; * paid dividends of $11.7 million, or $0.085 per share; and * on October 20, 2020, announced a cash dividend of $0.085 per share, payable on November 20, 2020 to stockholders of record as of the close of business on November 6, 2020.

Highlights for the fiscal year include:

* net income of $64.5 million; * basic and diluted earnings per share of $0.47; * net interest margin of 2.12%; * deposit growth of 10.9%; * paid dividends of $93.9 million, or $0.68 per share; and * on October 28, 2020, announced a fiscal year 2020 cash true-up dividend of $0.13 per share, payable on December 4, 2020 to stockholders of record as of the close of business on November 20, 2020.

Impact on Operations Due to the Coronavirus Disease 2019 ("COVID-19") Pandemic During the Current Quarter

Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business during the current quarter are summarized below.

Bank operations - Due to the increase in COVID-19 cases in late June into July, management changed lobby services in early July. Lobby services were limited to appointment only while drive-through, mobile, and online banking became the Bank's primary channels of serving customers. Retail loan closings were conducted with customers coming to our drive-through facilities and commercial loans have been closed in person only when necessary. In mid-September 2020, lobbies were reopened once again. Management continues to monitor COVID-19 cases and will adjust operational plans as necessary.

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 of principal, interest and, in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. See additional discussion regarding COVID-19 loan modifications in the Loan Portfolio section below.

As of September 30, 2020, the Bank had 193 one- to four-family loans totaling $39.8 million and 27 consumer loans totaling $795 thousand that were still in their deferral period. The deferral period concluded by September 30, 2020 for $199.7 million of one- to four-family loans and $1.6 million of consumer loans.

As of September 30, 2020, the Bank had 203 commercial loans with a combined gross loan amount of $317.4 million, which includes undisbursed amounts, that were still in their deferral period. The deferral period concluded by September 30, 2020 for $93.5 million, or 23%, of the commercial loans subject to COVID-19 loan modifications. All of these loans were current as of September 30, 2020. The deferral period for the majority of the remaining commercial loans concluded in October 2020.

Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - As of September 30, 2020, the Bank had originated and funded 791 PPP loans totaling $43.9 million, with a median loan amount of $19 thousand, and received origination fees totaling $1.9 million associated with these loans. These loans are fully guaranteed by the SBA. The program ended August 8, 2020.

On October 8, 2020 the SBA released a streamlined loan forgiveness application for PPP loans in amounts of $50 thousand or less. Of the PPP loans originated by the Bank, 611 loans totaling $9.6 million, or 22% of the Bank's total PPP loan balance, were in amounts less than $50 thousand and will be eligible for the streamlined forgiveness process.

Capital, liquidity, and dividends - Management continues to anticipate 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.

Deposit balances have increased due primarily to the economic stimulus payments, a reduction in consumer spending, and PPP loan proceeds being deposited at the Bank. As a result, management is currently faced with the challenge of excess liquidity. Due to the nature of deposit cash flows, management does not know how long the excess liquidity will continue. As such, management has elected, for the time being, to reduce the Bank's level of borrowings and increase the balance of securities using the excess liquidity from the deposit portfolio.

With earnings of $0.47 per share for fiscal year 2020, and a cash balance at the holding company level of $82.5 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 state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask at that time for a regulatory non-objection 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 this dividend when economic conditions are more certain. It is currently the Company's intention to pay out 100% of its fiscal year 2021 earnings.

Comparison of Operating Results for the Years Ended September 30, 2020 and 2019

The Company recognized net income of $64.5 million, or $0.47 per share, for the year ended September 30, 2020 compared to net income of $94.2 million, or $0.68 per share, for the year ended September 30, 2019. The decrease in net income was due primarily to a $21.6 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $17.1 million, or 8.3%, from the prior year to $189.3 million for the current year. The net interest margin decreased 14 basis points, from 2.26% for the prior year to 2.12% for the current year. The leverage strategy was suspended at certain times during the prior year and during all of the current year due to the negative interest rate spreads between the related Federal Home Loan Bank Topeka ("FHLB") borrowings and cash held at the Federal Reserve Bank of Kansas City ("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 increases our net interest income but 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 18 basis points, from 2.30% for the prior year to 2.12% for the current year. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio.

Markets responded to the COVID-19 pandemic in many ways, with a dramatic lowering of interest rates in a short period of time having the most impact on the operations and performance of the Bank. Since the onset of the pandemic, the rate paid on our interest-bearing liabilities has decreased. The Bank has lowered its offered rates on all retail deposit products except checking and savings accounts. Changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits, while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as certificates of deposit reprice lower when they mature. As the Bank further monitors rates offered and the cost of borrowings, we anticipate that the average cost of our interest-bearing liabilities will continue to decrease.

We responded to lower market rates for lending by lowering rates offered on our one- to four-family loan products over the course of the year. Given current market interest rates, rates offered on new loans and the recent volume of one- to four-family refinances and endorsements allowing borrowers to take advantage of the lower current market interest rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally, with significant cash inflows realized due to investment securities being called and prepayments on mortgage-backed securities ("MBS") increasing, the yields on reinvested funds into new securities are lower than portfolio yields.

Considering the drastic changes in market rates and the ongoing economic uncertainty, even with the changes the Bank has made to its cost of funding, with the lower rates on new mortgage loans, refinances, endorsements and new securities also at lower rates, our net interest margin could continue to decrease, with further downside risk as a result of high levels of prepayments and premium amortization on correspondent one- to four-family loans and MBS.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 21 basis points, from 3.61% for the prior year to 3.40% for the current year, and the average balance of interest-earning assets decreased $193.4 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased 22 basis points, from 3.62% for the prior year to 3.40% for the current year, and the average balance of interest-earning assets would have decreased $35.6 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield. 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 Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 270,494 $ 284,229 $ (13,735) (4.8) %

MBS 23,009 25,730 (2,721) (10.6)

FHLB stock 5,827 7,823 (1,996) (25.5)

Investment securities 4,467 6,366 (1,899) (29.8)

Cash and cash equivalents 1,181 5,806 (4,625) (79.7)

Total interest and dividend $ 304,978 $ 329,954 $ (24,976) (7.6) income

The decrease in interest income on loans receivable was due mainly to a decrease in yield on correspondent loans, including a $5.8 million increase in the amortization of premiums related to increases in 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 $152.2 million, or 2.3%, partially offset by a $64.9 million, or 9.2%, increase in the average balance of higher-yielding commercial loans, excluding PPP loans. The weighted average yield on the loans receivable portfolio decreased 14 basis points, from 3.77% for the prior year to 3.63% for the current year.

The decrease in interest income on the MBS portfolio was due primarily to a 22 basis point decrease in the weighted average yield to 2.41% in the current year as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields. The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, as well as to the leverage strategy not being in place during the current year. The decrease in interest income on investment securities was due mainly to a 61 basis point decrease in the weighted average yield to 1.65% in the current year as a result of calls and maturities either being replaced at lower market rates or not being replaced. The decrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a portion of the prior year and not being in place during the current year, along with a decrease in the yield earned on cash held at the FRB of Kansas City.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased eight basis points, from 1.54% for the prior year to 1.46% for the current year, and the average balance of interest-bearing liabilities decreased $126.0 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased six basis points, from 1.52% for the prior year to 1.46% for the current year, while the average balance of interest-bearing liabilities would have increased $31.8 million. 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 Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

Deposits $ 67,598 $ 66,201 $ 1,397 2.1 %

Borrowings 48,045 57,363 (9,318) (16.2)

Total interest expense $ 115,643 $ 123,564 $ (7,921) (6.4)

The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio, partially offset by decreases in the cost of wholesale certificates of deposit and money market accounts. The weighted average rate of the retail/business certificate of deposit portfolio increased 11 basis points, to 2.03% for the current year, and the average balance increased $185.0 million, or approximately 7%. 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 terms. During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign with above-market rates, resulting in growth in the short-term and certain intermediate-term certificates of deposit. Since the onset of the COVID-19 pandemic, the retail/business certificate of deposit portfolio has been gradually repricing down as certificates renew to lower offered rates.

The borrowings line item 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 $5.4 million from the prior year due primarily to a decrease in the average balance of such borrowings, 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 increase in deposits. Interest expense on FHLB borrowings associated with the leverage strategy decreased $3.9 million from the prior year due to the leverage strategy being in place for a portion of the prior year and not being in place at all during the current year.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current year of $22.3 million, compared to $750 thousand during the prior year. The $22.3 million provision for credit losses in the current year was primarily related to the deterioration of economic conditions as a result of COVID-19. See additional discussion regarding management's evaluation of the adequacy of the Bank's allowance for credit losses ("ACL") at September 30, 2020 in the Asset Quality section below.

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 Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

NON-INTEREST INCOME:

Deposit service fees $ 11,285 $ 12,740 $ (1,455) (11.4) %

Insurance commissions 2,487 2,821 (334) (11.8)

Other non-interest income 5,827 6,397 (570) (8.9)

Total non-interest income $ 19,599 $ 21,958 $ (2,359) (10.7)

The decrease in deposit service fees was due mainly to a decrease in service charge income, primarily resulting from a decrease in consumer activity related to the COVID-19 pandemic, along with the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019. The decrease in insurance commissions was due primarily to a decrease in the amount of annual contingent insurance commissions. The decrease in other non-interest income was due mainly to a decrease in loan-related fees, primarily prepayment fees and late charges, compared to the prior year.

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 Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)

NON-INTEREST EXPENSE:

Salaries and employee benefits $ 52,996 $ 53,145 $ (149) (0.3) %

Information technology and 16,974 17,615 (641) (3.6) related expense

Occupancy, net 13,870 13,032 838 6.4

Regulatory and outside services 5,762 5,813 (51) (0.9)

Advertising and promotional 4,889 5,244 (355) (6.8)

Deposit and loan transaction 2,890 2,478 412 16.6 costs

Office supplies and related 2,195 2,439 (244) (10.0) expense

Federal insurance premium 914 1,172 (258) (22.0)

Other non-interest expense 5,514 6,006 (492) (8.2)

Total non-interest expense $ 106,004 $ 106,944 $ (940) (0.9)

The decrease in information technology and related expense was due mainly to the prior year including costs related to the integration of the operations of Capital City Bancshares, Inc. ("CCB"), which the Company acquired in August 2018. The increase in occupancy, net was due primarily to an increase in facility-related costs resulting from the impact of the COVID-19 pandemic, along with an increase in depreciation expense. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules, postponements of campaigns, and cancellations of certain sponsorships as a result of the COVID-19 pandemic. The increase in deposit and loan transaction costs was due mainly to the timing of loan origination-related costs. The decrease in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the majority of the current year. The decrease in other non-interest expense was due primarily to a decrease in amortization of deposit intangibles, as well as a decrease in debit card fraud losses.

The Company's efficiency ratio was 50.74% for the current year compared to 46.83% for the prior year. The change in the efficiency ratio was due to lower net interest income in the current year compared to the prior year. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.

For the Year Ended

September 30, Change Expressed in:

2020 2019 Dollars Percent

(Dollars in thousands)



Income before income tax $ 80,630 $ 120,654 $ (40,024) (33.2) %expense

Income tax expense 16,090 26,411 (10,321) (39.1)

Net income $ 64,540 $ 94,243 $ (29,703) (31.5)



Effective Tax Rate 20.0 % 21.9 %

The decrease in income tax expense was due primarily to lower pretax income in the current year. The lower effective tax rate in the current year compared to the prior year was due mainly to the Company's permanent differences, such as low income housing partnership tax credits, which generally reduce our tax expense, having a proportionately larger impact given the lower pretax income in the current year period. Additionally, an income tax benefit was recognized during the current year as a result of favorable federal tax guidance issued during the current year related to certain bank-owned life insurance policies added in the CCB acquisition. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21% to 22%.

Comparison of Operating Results for the Three Months Ended September 30, 2020 and June 30, 2020

For the quarter ended September 30, 2020, the Company recognized net income of $18.3 million, or $0.13 per share, compared to net income of $19.5 million, or $0.14 per share, for the quarter ended June 30, 2020. The decrease was due primarily to an increase in non-interest expense and a decrease in net interest income compared to the prior quarter. The net interest margin decreased four basis points, from 2.07% for the prior quarter to 2.03% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield and securities portfolio yield, 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 15 basis points, from 3.32% for the prior quarter to 3.17% for the current quarter, while the average balance of interest-earning assets increased $33.4 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

September June 30, Change Expressed in: 30,

2020 2020 Dollars Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 64,315 $ 66,652 $ (2,337) (3.5) %

MBS 5,425 5,616 (191) (3.4)

FHLB stock 1,080 1,207 (127) (10.5)

Investment securities 731 847 (116) (13.7)

Cash and cash equivalents 55 59 (4) (6.8)

Total interest and dividend $ 71,606 $ 74,381 $ (2,775) (3.7) income

The decrease in interest income on loans receivable was due to a decrease in the average balance and weighted average portfolio yield. The decrease in the average balance was primarily in the correspondent loan portfolio, as payoff activity outpaced new purchases during the current quarter. The weighted average yield on the loans receivable portfolio decreased six basis points, from 3.55% for the prior quarter to 3.49% for the current quarter. The decrease in the weighted average yield was due mainly to a decrease in recognition of net purchase discounts and deferred loan fees related to commercial loan activity in the prior quarter, along with the origination and purchase of new loans at yields lower than the existing portfolio.

The decrease in interest income on the MBS portfolio was due to a 29 basis point decrease in the weighted average yield to 2.11% for the current quarter, partially offset by a $93.4 million increase in the average balance due to purchases during the current quarter. The decrease in the weighted average yield was due primarily to new purchases at lower market yields, along with an increase in the impact of net premium amortization.

The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior quarter.

The decrease in interest income on the investment securities portfolio was due to a 68 basis point decrease in the weighted average yield to 0.95% in the current quarter, partially offset by a $101.6 million increase in the average balance due to purchases during the current quarter. The decrease in the weighted average yield was due primarily to the purchase of securities at market rates lower than the existing portfolio.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased 11 basis points, from 1.41% for the prior quarter to 1.30% for the current quarter, and the average balance of interest-bearing liabilities decreased $35.0 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

September 30, June 30, Change Expressed in:

2020 2020 Dollars Percent

(Dollars in thousands)

INTEREST EXPENSE:

Deposits $ 15,299 $ 16,533 $ (1,234) (7.5) %

Borrowings 10,624 11,561 (937) (8.1)

Total interest expense $ 25,923 $ 28,094 $ (2,171) (7.7)

The decrease in interest expense on deposits was due to a decrease in the weighted average rate paid on retail/business certificates of deposit and wholesale certificates of deposit, partially offset by an increase in the average balance of deposits. Management has generally reduced deposit offer rates as discussed above.

The decrease in interest expense on borrowings was due primarily to not replacing term borrowings that matured during the current quarter and prior quarter. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarter. The average balance of borrowings decreased $216.0 million compared to the prior quarter, while the weighted average rate paid on borrowings increased slightly, as certain borrowings that matured during the quarter were at rates lower than the rest of the portfolio.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter or the prior quarter. There was no significant deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current quarter. Loans 30 to 89 days delinquent were 0.13% of total loans at September 30, 2020 and 0.20% of total loans at June 30, 2020. Loans 90 days or more delinquent or in foreclosure were 0.16% of total loans at September 30, 2020 and 0.12% of total loans at June 30, 2020. The ACL to loans receivable ratio was 0.44% at September 30, 2020 and 0.42% at June 30, 2020. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at September 30, 2020 in the Asset Quality section below.

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

September 30, June 30, Change Expressed in:

2020 2020 Dollars Percent

(Dollars in thousands)

NON-INTEREST INCOME:

Deposit service fees $ 2,901 $ 2,539 $ 362 14.3 %

Insurance commissions 725 671 54 8.0

Other non-interest income 1,359 1,229 130 10.6

Total non-interest income $ 4,985 $ 4,439 $ 546 12.3

The increase in deposit service fees was due mainly to an increase in service charge income as consumer activity has begun to increase after being negatively impacted by the COVID-19 pandemic.

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

September June 30, Change Expressed 30, in:

2020 2020 Dollars Percent

(Dollars in thousands)

NON-INTEREST EXPENSE:

Salaries and employee benefits $ 13,231 $ 13,059 $ 172 1.3 %

Information technology and 4,280 4,285 (5) (0.1) related expense

Occupancy, net 3,658 3,556 102 2.9

Regulatory and outside services 1,574 1,548 26 1.7

Advertising and promotional 1,116 1,004 112 11.2

Deposit and loan transaction 804 697 107 15.4 costs

Office supplies and related 609 475 134 28.2 expense

Federal insurance premium 627 287 340 118.5

Other non-interest expense 1,277 1,253 24 1.9

Total non-interest expense $ 27,176 $ 26,164 $ 1,012 3.9

The increase in the federal insurance premium was due mainly to the Bank recognizing a full quarterly federal insurance premium accrual, as the remaining assessment credit from the FDIC was utilized during the prior quarter.

The Company's efficiency ratio was 53.64% for the current quarter compared to 51.58% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense in the current quarter compared to the prior quarter.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.

For the Three Months Ended

September June 30, Change Expressed in: 30,

2020 2020 Dollars Percent

(Dollars in thousands)

Income before income tax $ 23,492 $ 24,562 $ (1,070) (4.4) %expense

Income tax expense 5,213 5,088 125 2.5

Net income $ 18,279 $ 19,474 $ (1,195) (6.1)



Effective Tax Rate 22.2 % 20.7 %

The higher effective tax rate in the current quarter was due to adjustments to our low income housing partnership permanent differences as a result of receiving updated information.

Financial Condition as of September 30, 2020

The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. Deteriorating economic conditions included more than 20 million people becoming unemployed in the United States in one month's time, with more than 58 million in total filing for unemployment benefits, along with immediate reductions 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, and had a devastating impact on the economy. Since that time, many areas of consumer spending have rebounded, generally locally and not related to travel and entertainment. As previously described, we adjusted our operations in response to the COVID-19 pandemic and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the Coronavirus Aid, Relief, and Economic Security ("CARES") Act have allowed. There is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

We have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially in the near future. As previously noted, since the onset of the pandemic the Bank lowered rates paid on money market accounts and certificate of deposit products. Despite this, since March 31, 2020, the Bank's retail deposits increased $237.2 million and business deposits increased $201.8 million. The Bank secured a new business deposit relationship during the year, which between March 31, 2020 and September 30, 2020, brought $163.6 million of new deposit balances. Because some of the deposits received from the new relationship are COVID-19-related payments, we do not expect the full balance of deposits received in fiscal year 2020 to be retained through fiscal year 2021. Retail certificates of deposit decreased $62.7 million between March 31, 2020 and September 30, 2020 while business certificates of deposit increased $64.0 million. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid investment options such as the Bank's retail money market accounts, which increased $131.2 million from March 31, 2020 to September 30, 2020. During fiscal year 2020, the Bank's weighted average retention rate of maturing retail certificates of deposit was approximately 80%.

Total assets were $9.49 billion at September 30, 2020, a decrease of $71.6 million, or 0.7%, from June 30, 2020, due to a decrease in cash and cash equivalents and loans receivable, largely offset by an increase in securities. Excess operating cash and cash flows from the loan portfolio were generally used to purchase securities. Total loans were $7.20 billion at September 30, 2020, a decrease of $185.2 million, or 2.5%, from June 30, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases during the current quarter. During the current quarter, the Bank originated and refinanced $280.7 million of one- to four-family and consumer loans with a weighted average rate of 2.99% and purchased $65.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.04%. The Bank also originated $29.4 million of commercial loans with a weighted average rate of 3.94%.

Total deposits were $6.19 billion at September 30, 2020, an increase of $121.7 million, or 2.0%, from June 30, 2020. The increase was primarily in non-maturity deposits, including a $98.8 million increase in money market accounts and a $22.0 million increase in checking accounts, along with an $21.8 million increase in retail/business certificates of deposit.

Stockholders' equity was $1.28 billion at September 30, 2020, a decrease of $15.7 million from June 30, 2020. The decrease was due primarily to the repurchase of common stock totaling $23.8 million, or 2,558,100 shares, during the current quarter. Subsequent to September 30, 2020, through the date of this release, the Company repurchased an additional $1.5 million, or 164,400 shares, of common stock. There is still $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 Federal Reserve Bank's approval for the Company to repurchase shares extends through August 2021.

Total assets increased $147.2 million, or 1.6% from September 30, 2019 to 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. Total loans decreased $213.9 million from September 30, 2019 to September 30, 2020. The decrease was primarily in the one- to four-family correspondent loans and one- to four-family bulk purchased loans, partially offset by an increase in one- to four-family originated loans and commercial loans. During the current year, the Bank originated and refinanced $1.00 billion of one- to four-family and consumer loans with a weighted average rate of 3.27% and purchased $448.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.29%. The Bank also originated $165.5 million of commercial loans with a weighted average rate of 3.52% and entered into commercial real estate loan participations of $93.6 million at a weighted average rate of 4.16%. The commercial loan portfolio totaled $829.7 million at September 30, 2020 and was composed of 76% commercial real estate, 12% commercial and industrial, and 13% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $205.5 million, was $937.5 million at September 30, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $21.7 million, was $119.3 million at September 30, 2020.

Total deposits increased $609.5 million, or 10.9%, from September 30, 2019 to September 30, 2020. Non-maturity deposits increased $575.9 million, including a $242.8 million increase in checking accounts, a $220.8 million increase in money market accounts, and a $112.3 million increase in savings accounts. Retail/business certificates of deposit increased $73.7 million during the current year. These increases were partially offset by a $40.1 million decrease in public unit certificates of deposit.

Total borrowings at September 30, 2020 were $1.79 billion, a decrease of $450.7 million, or 20.1%, from September 30, 2019. The decrease was due to not renewing a portion of the FHLB advances and repurchase agreements that matured during the current year and repaying the FHLB line of credit balance. Cash flows from the deposit portfolio were used to pay off maturing borrowings and the FHLB line of credit.

Stockholders' equity was $1.28 billion at September 30, 2020 compared to $1.34 billion at September 30, 2019. The $51.5 million decrease was due primarily to the payment of cash dividends totaling $93.9 million and the repurchase of common stock totaling $23.8 million, partially offset by net income of $64.5 million during the current year. In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At September 30, 2020, this ratio was 12.3%. The cash dividends paid during the current year totaled $0.68 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings, are deposited 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. The leverage strategy was not in place during the current year, 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.

On October 20, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on November 20, 2020 to stockholders of record as of the close of business on November 6, 2020. On October 28, 2020, the Company announced a fiscal year 2020 cash true-up dividend of $0.13 per share, or approximately $17.6 million, related to fiscal year 2020 earnings. The $0.13 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2020 and total regular quarterly cash dividends paid during fiscal year 2020, divided by the number of shares outstanding as of October 16, 2020. The cash true-up dividend is payable on December 4, 2020 to stockholders of record as of the close of business on November 20, 2020, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2020.

At September 30, 2020, Capitol Federal Financial, Inc., at the holding company level, had $82.5 million on deposit at the Bank. For fiscal year 2021, it is currently the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

The following table presents the balance of stockholders' equity and related information as of the dates presented.

September 30, June 30, September 30,

2020 2020 2019

(Dollars in thousands)

Stockholders' equity $ 1,284,859 $ 1,300,520 $ 1,336,326

Equity to total assets at end of 13.5 % 13.6 % 14.3 %period

The following table presents a reconciliation of total to net shares outstanding as of September 30, 2020.

Total shares outstanding 138,956,296

Less unallocated Employee Stock Ownership Plan ("ESOP") shares (3,408,810 ) and unvested restricted stock

Net shares outstanding 135,547,486

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. In September 2019, the regulatory agencies, including the Office of the Comptroller of the Currency and Board of Governors of the Federal Reserve System, adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio ("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, qualifying institutions that elect to use the CBLR framework and that maintain a 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% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank elected to use the CBLR framework beginning with the quarter ended March 31, 2020. As of September 30, 2020, the Bank's CBLR was 12.4%, which exceeded the minimum requirement.

The following table presents a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory tier 1 capital as of September 30, 2020 (dollars in thousands):

Total Bank equity as reported under GAAP $ 1,165,813

Accumulated Other Comprehensive Income ("AOCI") 16,505

Goodwill and other intangibles, net of associated deferred (13,510 ) taxes

Total tier 1 capital $ 1,168,808

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning 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. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's market area, the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share amounts)

September 30, September 30,

2020 2019

ASSETS:

Cash and cash equivalents (includesinterest-earning deposits of $185,148 and $ 185,148 $ 220,370 $198,809)

Available-for-sale ("AFS") securities, at 1,560,950 1,204,863 estimated fair value

Loans receivable, net (ACL of $31,527 and 7,202,851 7,416,747 $9,226)

FHLB stock, at cost 93,862 98,456

Premises and equipment, net 101,875 96,784

Income taxes receivable, net - 2

Other assets 342,532 302,796

TOTAL ASSETS $ 9,487,218 $ 9,340,018



LIABILITIES:

Deposits $ 6,191,408 $ 5,581,867

Borrowings 1,789,313 2,239,989

Advance payments by borrowers for taxes and 65,721 65,686 insurance

Income taxes payable, net 795 -

Deferred income tax liabilities, net 8,180 14,282

Accounts payable and accrued expenses 146,942 101,868

Total liabilities 8,202,359 8,003,692



STOCKHOLDERS' EQUITY:

Preferred stock, $0.01 par value;100,000,000 shares authorized, no shares - - issued or outstanding

Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,956,296 and 141,440,030

shares issued and outstanding as of 1,389 1,414 September 30, 2020 and 2019, respectively

Additional paid-in capital 1,189,853 1,210,226

Unearned compensation, ESOP (33,040 ) (34,692 )

Retained earnings 143,162 174,277

AOCI, net of tax (16,505 ) (14,899 )

Total stockholders' equity 1,284,859 1,336,326

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,487,218 $ 9,340,018

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

For the Three Months Ended

For the Year Ended

September 30,

June 30,

September 30,

2020

2020

2020

2019

INTEREST AND DIVIDEND INCOME:

Loans receivable

$

64,315

$

66,652

$

270,494

$

284,229

MBS

5,425

5,616

23,009

25,730

FHLB stock

1,080

1,207

5,827

7,823

Investment securities

731

847

4,467

6,366

Cash and cash equivalents

55

59

1,181

5,806

Total interest and dividend income

71,606

74,381

304,978

329,954

INTEREST EXPENSE:

Deposits

15,299

16,533

67,598

66,201

Borrowings

10,624

11,561

48,045

57,363

Total interest expense

25,923

28,094

115,643

123,564

NET INTEREST INCOME

45,683

46,287

189,335

206,390

PROVISION FOR CREDIT LOSSES

-

-

22,300

750

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES

45,683

46,287

167,035

205,640

NON-INTEREST INCOME:

Deposit service fees

2,901

2,539

11,285

12,740

Insurance commissions

725

671

2,487

2,821

Other non-interest income

1,359

1,229

5,827

6,397

Total non-interest income

4,985

4,439

19,599

21,958

NON-INTEREST EXPENSE:

Salaries and employee benefits

13,231

13,059

52,996

53,145

Information technology and related expense

4,280

4,285

16,974

17,615

Occupancy, net

3,658

3,556

13,870

13,032

Regulatory and outside services

1,574

1,548

5,762

5,813

Advertising and promotional

1,116

1,004

4,889

5,244

Deposit and loan transaction costs

804

697

2,890

2,478

Office supplies and related expense

609

475

2,195

2,439

Federal insurance premium

627

287

914

1,172

Other non-interest expense

1,277

1,253

5,514

6,006

Total non-interest expense

27,176

26,164

106,004

106,944

INCOME BEFORE INCOME TAX EXPENSE

23,492

24,562

80,630

120,654

INCOME TAX EXPENSE

5,213

5,088

16,090

26,411

NET INCOME

$

18,279

$

19,474

$

64,540

$

94,243

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

For the Three Months For the Year Ended Ended

September June 30, September 30, 30,

2020 2020 2020 2019

INTEREST AND DIVIDEND INCOME:

Loans receivable $ 64,315 $ 66,652 $ 270,494 $ 284,229

MBS 5,425 5,616 23,009 25,730

FHLB stock 1,080 1,207 5,827 7,823

Investment securities 731 847 4,467 6,366

Cash and cash equivalents 55 59 1,181 5,806

Total interest and dividend 71,606 74,381 304,978 329,954 income



INTEREST EXPENSE:

Deposits 15,299 16,533 67,598 66,201

Borrowings 10,624 11,561 48,045 57,363

Total interest expense 25,923 28,094 115,643 123,564



NET INTEREST INCOME 45,683 46,287 189,335 206,390



PROVISION FOR CREDIT LOSSES - - 22,300 750

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES 45,683 46,287 167,035 205,640



NON-INTEREST INCOME:

Deposit service fees 2,901 2,539 11,285 12,740

Insurance commissions 725 671 2,487 2,821

Other non-interest income 1,359 1,229 5,827 6,397

Total non-interest income 4,985 4,439 19,599 21,958



NON-INTEREST EXPENSE:

Salaries and employee 13,231 13,059 52,996 53,145 benefits

Information technology and 4,280 4,285 16,974 17,615 related expense

Occupancy, net 3,658 3,556 13,870 13,032

Regulatory and outside 1,574 1,548 5,762 5,813 services

Advertising and promotional 1,116 1,004 4,889 5,244

Deposit and loan transaction 804 697 2,890 2,478 costs

Office supplies and related 609 475 2,195 2,439 expense

Federal insurance premium 627 287 914 1,172

Other non-interest expense 1,277 1,253 5,514 6,006

Total non-interest expense 27,176 26,164 106,004 106,944

INCOME BEFORE INCOME TAX 23,492 24,562 80,630 120,654 EXPENSE

INCOME TAX EXPENSE 5,213 5,088 16,090 26,411

NET INCOME $ 18,279 $ 19,474 $ 64,540 $ 94,243

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.

For the Three Months Ended For the Year Ended

September 30, June 30, September 30,

2020 2020 2020 2019

(Dollars in thousands, except per share amounts)

Net income $ 18,279 $ 19,474 $ 64,540 $ 94,243

Incomeallocated to (14 ) (16 ) (52 ) (55 ) participatingsecurities

Net incomeavailable to $ 18,265 $ 19,458 $ 64,488 $ 94,188 commonstockholders



Averagecommon shares 137,580,179 137,935,000 137,834,304 137,614,465 outstanding

Averagecommitted 124,346 83,052 62,400 62,458 ESOP sharesoutstanding

Total basicaverage 137,704,525 138,018,052 137,896,704 137,676,923 common sharesoutstanding



Effect ofdilutive - - 4,484 58,478 stock options



Total dilutedaverage 137,704,525 138,018,052 137,901,188 137,735,401 common sharesoutstanding



Net earnings per share:

Basic $ 0.13 $ 0.14 $ 0.47 $ 0.68

Diluted $ 0.13 $ 0.14 $ 0.47 $ 0.68



Antidilutive stock options, excluded from the diluted

averagecommon shares 813,645 813,645 437,731 470,938 outstandingcalculation

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.

September 30, 2020 June 30, 2020 September 30, 2019

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

(Dollars in thousands)

One- to four-family:

Originated $ 3,937,310 3.50 % 54.5 % $ 3,955,668 3.61 % 53.4 % $ 3,873,851 3.74 % 52.2 %

Correspondent purchased 2,101,082 3.49 29.1 2,268,031 3.54 30.6 2,349,877 3.64 31.7

Bulk purchased 208,427 2.41 2.9 217,652 2.73 3.0 252,347 2.94 3.4

Construction 34,593 3.30 0.5 36,595 3.46 0.5 36,758 4.00 0.5

Total 6,281,412 3.46 87.0 6,477,946 3.56 87.5 6,512,833 3.68 87.8

Commercial:

Commercial real estate 626,588 4.29 8.7 625,106 4.32 8.4 583,617 4.48 7.9

Commercial and 97,614 2.79 1.4 99,735 2.92 1.4 61,094 5.14 0.8 industrial

Construction 105,458 4.04 1.4 87,448 3.98 1.2 123,159 4.81 1.7

Total 829,660 4.08 11.5 812,289 4.11 11.0 767,870 4.58 10.4

Consumer loans:

Home equity 103,838 4.66 1.4 107,174 4.68 1.4 120,587 6.15 1.6

Other 10,086 4.40 0.1 10,033 4.46 0.1 11,183 4.57 0.2

Total 113,924 4.64 1.5 117,207 4.66 1.5 131,770 6.02 1.8

Total loans receivable 7,224,996 3.55 100.0 % 7,407,442 3.64 100.0 % 7,412,473 3.81 100.0 %



Less:

ACL 31,527 31,215 9,226

Discounts/unearned loan 29,190 30,312 31,058 fees

Premiums/deferred costs (38,572 ) (42,175 ) (44,558 )

Total loans receivable, $ 7,202,851 $ 7,388,090 $ 7,416,747 net

Loan Activity:The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current year, the Bank endorsed $695.4 million of one- to four-family loans, reducing the average rate on those loans by 83 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. During the initial days of the COVID-19 pandemic, correspondent one- to four-family loan application acceptance was suspended by the Bank but existing correspondent applications and commitments continued to progress through the approval and funding process. One- to four-family correspondent new loan application acceptance was resumed in mid-June 2020.

For the Three Months Ended

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Rate Amount Rate Amount Rate Amount Rate

(Dollars in thousands)

Beginning balance $ 7,407,442 3.64 % $ 7,493,280 3.74 % $ 7,424,834 3.77 % $ 7,412,473 3.81 %

Originated and refinanced:

Fixed 265,424 2.98 277,904 2.83 172,891 3.44 233,693 3.52

Adjustable 44,625 3.68 60,626 3.75 55,946 4.11 55,126 4.30

Purchased and participations:

Fixed 61,435 3.07 131,739 3.28 125,612 3.46 123,118 3.77

Adjustable 4,396 2.76 62,510 3.76 18,985 2.96 13,801 3.06

Change in undisbursed loan 13,898 (32,202 ) 24,049 (9,743 ) funds

Repayments (572,536 ) (586,434 ) (328,644 ) (403,361 )

Principal recoveries/ 312 19 (314 ) (16 ) (charge-offs), net

Other - - (79 ) (257 )

Ending balance $ 7,224,996 3.55 $ 7,407,442 3.64 $ 7,493,280 3.74 $ 7,424,834 3.77

For the Year Ended

September 30, 2020

September 30, 2019

Amount

Rate

Amount

Rate

(Dollars in thousands)

Beginning balance

$

7,412,473

3.81

%

$

7,507,645

3.74

%

Originated and refinanced:

Fixed

949,912

3.15

505,334

4.10

Adjustable

216,323

3.97

319,608

4.77

Purchased and participations:

Fixed

441,904

3.44

186,135

4.64

Adjustable

99,692

3.47

76,305

4.40

Change in undisbursed loan funds

(3,998

)

52,220

Repayments

(1,890,975

)

(1,233,157

)

Principal recoveries, net

1

13

Other

(336

)

(1,630

)

Ending balance

$

7,224,996

3.55

$

7,412,473

3.81

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 loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores were updated in September 2020 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

For the Year Ended

September 30, 2020 September 30, 2019

Amount Rate Amount Rate

(Dollars in thousands)

Beginning balance $ 7,412,473 3.81 % $ 7,507,645 3.74 %

Originated and refinanced:

Fixed 949,912 3.15 505,334 4.10

Adjustable 216,323 3.97 319,608 4.77

Purchased and participations:

Fixed 441,904 3.44 186,135 4.64

Adjustable 99,692 3.47 76,305 4.40

Change in undisbursed loan (3,998 ) 52,220 funds

Repayments (1,890,975 ) (1,233,157 )

Principal recoveries, net 1 13

Other (336 ) (1,630 )

Ending balance $ 7,224,996 3.55 $ 7,412,473 3.81

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 loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores were updated in September 2020 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

September 30, 2020 September 30, 2019

% of Credit Average % of Credit Average

Amount Total Score LTV Balance Amount Total Score LTV Balance

(Dollars in thousands)

Originated $ 3,937,310 63.0 % 771 62 % $ 145 $ 3,873,851 59.8 % 768 62 % $ 140

Correspondent 2,101,082 33.6 765 64 379 2,349,877 36.3 765 65 371 purchased

Bulk purchased 208,427 3.4 767 60 300 252,347 3.9 762 61 304

$ 6,246,819 100.0 % 768 63 187 $ 6,476,075 100.0 % 767 63 186

The following table presents 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 originated line item for the current year are $300.4 million of loans that were refinanced from other lenders.

For the Three Months Ended For the Year Ended

September 30, 2020 September 30, 2020

Credit Credit

Amount LTV Score Amount LTV Score

(Dollars in thousands)

Originated $ 182,927 74 % 772 $ 662,678 74 % 767

Refinanced by Bank 78,427 65 771 268,590 67 765 customers

Correspondent 65,831 71 768 447,970 71 768 purchased

$ 327,185 71 771 $ 1,379,238 72 767

The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period.

For the Three Months Ended For the Year Ended

September 30, 2020 September 30, 2020

State Amount % of Rate Amount % of Rate Total Total

(Dollars in thousands)

Kansas $ 220,298 67.3 % 2.87 % $ 804,919 58.4 % 3.15 %

Missouri 51,327 15.7 2.89 234,730 17.0 3.20

Texas 28,980 8.9 3.04 177,752 12.9 3.23

Other 26,580 8.1 3.08 161,837 11.7 3.32 states

$ 327,185 100.0 % 2.91 $ 1,379,238 100.0 % 3.19

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 September 30, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.

Fixed-Rate

15 years More than Adjustable- Total

or less 15 years Rate Amount Rate

(Dollars in thousands)

Originate/ $ 35,869 $ 56,110 $ 11,300 $ 103,279 2.87 %refinance

Correspondent 15,687 49,912 5,080 70,679 2.89

$ 51,556 $ 106,022 $ 16,380 $ 173,958 2.88



Rate 2.49 % 3.08 % 2.79 %

Through September 30, 2020, the Bank had processed COVID-19 loan modifications for 942 one- to four-family loans totaling $239.5 million. Of this amount, $39.8 million, or 17%, were still in the deferral period as of September 30, 2020, while 83% had completed the deferral period by September 30, 2020. Of the COVID-19 loan modifications that had completed the deferral period by September 30, 2020 and were not delinquent prior to requesting assistance, $1.4 million were 30 to 89 days delinquent and none were 90 or more days delinquent as of September 30, 2020. The modifications still in the deferral period as of September 30, 2020 are summarized in the table below, along with the weighted average credit score and weighted average LTV as of September 30, 2020. Credit scores were updated in September 2020 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

Credit

Count Amount Score LTV

(Dollars in thousands)

Originated 159 $ 26,859 715 67 %

Correspondent purchased 34 12,984 749 67

193 $ 39,843 727 67

Commercial Loans: During the current year, the Bank originated $165.5 million of commercial loans, of which $43.9 million were PPP loans, entered into commercial real estate loan participations totaling $93.6 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $228.7 million at a weighted average rate of 3.78%.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of September 30, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $534.6 million at a weighted average rate of 4.15% and adjustable-rate loans totaling $331.1 million at a weighted average rate of 4.38%. 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 September 30, 2020 having shorter terms to maturity. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Senior 25 $ 225,062 $ 32,638 $ 257,700 $ - $ 257,700 27.5 %housing

Hotel 9 129,488 49,686 179,174 - 179,174 19.1

Retail 133 126,439 11,960 138,399 1,771 140,170 14.9 building

Office 98 56,131 4,745 60,876 60,875 121,751 13.0 building

Multi-family 40 63,115 18,801 81,916 2,800 84,716 9.0

One- tofour-family 391 57,754 7,251 65,005 215 65,220 7.0 property

Single use 21 43,596 5,163 48,759 1,500 50,259 5.4 building

Other 91 30,461 3,459 33,920 4,598 38,518 4.1

808 $ 732,046 $ 133,703 $ 865,749 $ 71,759 $ 937,508 100.0 %



Weighted 4.25 % 4.19 % 4.24 % 4.05 % 4.23 % average rate

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of September 30, 2020.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Kansas 627 $ 285,184 $ 15,744 $ 300,928 $ 8,254 $ 309,182 33.0 %

Missouri 149 227,101 56,545 283,646 2,005 285,651 30.5

Texas 9 117,675 53,107 170,782 60,000 230,782 24.6

Nebraska 6 33,820 16 33,836 - 33,836 3.6

Kentucky 1 25,450 109 25,559 - 25,559 2.7

California 3 5,843 4,300 10,143 1,500 11,643 1.2

Other 13 36,973 3,882 40,855 - 40,855 4.4

808 $ 732,046 $ 133,703 $ 865,749 $ 71,759 $ 937,508 100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of September 30, 2020. Including in the working capital loan category are $43.9 million of PPP loans.

Unpaid Undisbursed Gross Loan Outstanding % of

Count Principal Amount Amount Commitments Total Total

(Dollars in thousands)

Working capital 942 $ 56,348 $ 17,237 $ 73,585 $ 331 $ 73,916 62.0 %

Equipment 119 14,184 303 14,487 850 15,337 12.9

Purchase/lease 178 11,275 97 11,372 - 11,372 9.5 autos

Business 70 11,029 80 11,109 - 11,109 9.3 investment

Other 22 4,778 2,785 7,563 - 7,563 6.3

1,331 $ 97,614 $ 20,502 $ 118,116 $ 1,181 $ 119,297 100.0 %

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 September 30, 2020.

Count Amount

(Dollars in thousands)

Greater than $30 million 4 $ 181,677

>$15 to $30 million 13 314,054

>$10 to $15 million 3 34,761

>$5 to $10 million 13 81,202

$1 to $5 million 103 217,178

Less than $1 million 2,003 227,933

2,139 $ 1,056,805

The Bank's commercial lending team is working proactively with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed previously, through September 30, 2020, we have modified $410.9 million of commercial loans under our COVID-19 loan modification program. Of this amount, $317.4 million, or 77%, were still in the deferral period as of September 30, 2020. We have also processed 791 PPP loans for $43.9 million, for which we received approximately $1.9 million in fees. Approximately 60% of PPP loans processed were in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade.

The following table presents the gross loan amount, including undisbursed balances, of the Bank's commercial real estate loans by type of primary collateral, and commercial and industrial loans by business purpose, that have been modified per the Bank's COVID-19 loan modification program, and had not completed the deferral period as of September 30, 2020. The information is broken down by type of modification and presented as a percentage of total modifications, as well as by a percentage of the total gross loan amount and undisbursed balances of the related property type or business purpose category. Included in the table are $57.3 million of loans that were paid off in October 2020.

Modification Type % of

Interest Payment % of Property Type/

Only Deferral Total Total Business Purpose

(Dollars in thousands)

Commercial real estate

Senior Housing $ 115,082 $ 57,258 $ 172,340 54.3 % 66.9 %

Hotel 26,208 10,049 36,257 11.4 20.2

Retail Building 27,197 5,815 33,012 10.4 23.9

Single Use Building 30,304 1,625 31,929 10.1 65.5

Office Building 14,618 4,375 18,993 6.0 31.2

One- to four-family 7,643 336 7,979 2.5 12.3 Property

Multi-family 7,390 - 7,390 2.3 9.0

Other 2,318 - 2,318 0.7 6.8

230,760 79,458 310,218 97.7 35.8

Commercial and industrial

Equipment 4,136 - 4,136 1.3 32.7

Working Capital 848 - 848 0.3 1.2

Business Investment 719 - 719 0.2 5.5

Purchase/lease 651 - 651 0.2 5.7 autos

Other 786 - 786 0.3 32.6

7,140 - 7,140 2.3 6.0

Total $ 237,900 $ 79,458 $ 317,358 100.0 % 32.3

Of the loans presented in the table above, $189.4 million were scheduled to complete their deferral period in October 2020. Overall, of the commercial loans modified per the Bank's COVID-19 loan modification program, seven loans with a combined gross loan amount, including undisbursed balances, of $79.7 million have requested additional assistance. We have either completed or are in the process of completing a second modification for these loans.

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of 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. Of the loans 30 to 89 days delinquent at September 30, 2020, approximately 70% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and other loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current. Non-performing assets include non-performing loans and OREO. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately four months before they were sold.

Loans Delinquent for 30 to 89 Days at:

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

Number Amount Number Amount Number Amount Number Amount Number Amount

(Dollars in thousands)

One- to four-family:

Originated 42 $ 3,012 57 $ 5,085 92 $ 8,360 96 $ 9,004 90 $ 7,223

Correspondent 8 3,123 10 2,919 13 4,531 13 4,117 9 2,721 purchased

Bulk purchased 12 2,532 19 4,536 12 2,914 14 3,307 16 3,581

Commercial 2 45 9 1,543 7 1,555 7 1,192 8 826

Consumer 26 398 21 431 43 628 40 488 42 525

90 $ 9,110 116 $ 14,514 167 $ 17,988 170 $ 18,108 165 $ 14,876

30 to 89 days delinquent loans

to total loans 0.13 % 0.20 % 0.24 % 0.24 % 0.20 %receivable, net

Non-Performing Loans and OREO at:

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

Number

Amount

Number

Amount

Number

Amount

Number

Amount

Number

Amount

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

One- to four-family:

Originated

51

$

4,362

47

$

4,026

53

$

4,517

44

$

3,552

44

$

3,268

Correspondent purchased

6

2,397

7

2,740

4

1,342

4

1,376

4

1,008

Bulk purchased

12

2,903

3

1,291

1

630

2

689

6

1,465

Commercial

5

1,360

4

709

4

716

-

-

4

170

Consumer

14

304

23

278

17

326

20

340

25

362

88

11,326

84

9,044

79

7,531

70

5,957

83

6,273

Loans 90 or more days delinquent or in foreclosure

as a percentage of total loans

0.16

%

0.12

%

0.10

%

0.08

%

0.08

%

Nonaccrual loans less than 90 Days Delinquent:(1)

One- to four-family:

Originated

9

$

691

14

$

1,132

13

$

811

11

$

634

16

$

1,183

Correspondent purchased

-

-

-

-

1

189

-

-

-

-

Bulk purchased

-

-

-

-

1

134

1

134

1

65

Commercial

3

464

1

6

2

129

6

363

1

7

Consumer

1

9

1

33

2

43

-

-

2

35

13

1,164

16

1,171

19

1,306

18

1,131

20

1,290

Total non-performing loans

101

12,490

100

10,215

98

8,837

88

7,088

103

7,563

Non-performing loans as a percentage of total loans

0.17

%

0.14

%

0.12

%

0.10

%

0.10

%

OREO:

One- to four-family:

Originated(2)

4

$

183

4

$

183

5

$

187

8

$

414

8

$

745

Commercial

-

-

-

-

-

-

-

-

1

600

Consumer

-

-

-

-

-

-

1

98

-

-

4

183

4

183

5

187

9

512

9

1,345

Total non-performing assets

105

$

12,673

104

$

10,398

103

$

9,024

97

$

7,600

112

$

8,908

Non-performing assets as a percentage of total assets

0.13

%

0.11

%

0.10

%

0.08

%

0.10

%

Non-Performing Loans and OREO at:

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 September 30, 2019

Number Amount Number Amount Number Amount Number Amount Number Amount

(Dollars in thousands)

Loans 90 orMore DaysDelinquent or inForeclosure:

One- to four-family:

Originated 51 $ 4,362 47 $ 4,026 53 $ 4,517 44 $ 3,552 44 $ 3,268

Correspondent 6 2,397 7 2,740 4 1,342 4 1,376 4 1,008 purchased

Bulk purchased 12 2,903 3 1,291 1 630 2 689 6 1,465

Commercial 5 1,360 4 709 4 716 - - 4 170

Consumer 14 304 23 278 17 326 20 340 25 362

88 11,326 84 9,044 79 7,531 70 5,957 83 6,273



Loans 90 ormore days delinquent orin foreclosure

as apercentage of 0.16 % 0.12 % 0.10 % 0.08 % 0.08 %total loans



Nonaccrualloans lessthan 90 Days Delinquent:^(1)

One- to four-family:

Originated 9 $ 691 14 $ 1,132 13 $ 811 11 $ 634 16 $ 1,183

Correspondent - - - - 1 189 - - - - purchased

Bulk purchased - - - - 1 134 1 134 1 65

Commercial 3 464 1 6 2 129 6 363 1 7

Consumer 1 9 1 33 2 43 - - 2 35

13 1,164 16 1,171 19 1,306 18 1,131 20 1,290

Totalnon-performing 101 12,490 100 10,215 98 8,837 88 7,088 103 7,563 loans



Non-performingloans as a 0.17 % 0.14 % 0.12 % 0.10 % 0.10 %percentage oftotal loans



OREO:

One- to four-family:

Originated^(2) 4 $ 183 4 $ 183 5 $ 187 8 $ 414 8 $ 745

Commercial - - - - - - - - 1 600

Consumer - - - - - - 1 98 - -

4 183 4 183 5 187 9 512 9 1,345

Totalnon-performing 105 $ 12,673 104 $ 10,398 103 $ 9,024 97 $ 7,600 112 $ 8,908 assets



Non-performingassets as a 0.13 % 0.11 % 0.10 % 0.08 % 0.10 %percentage oftotal assets

(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.

The following table presents loans classified as special mention or substandard at the dates presented.

Includes loans required to be reported as nonaccrual pursuant to(1) accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current.

Real estate-related consumer loans where we also hold the first mortgage(2) are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents loans classified as special mention or substandard at the dates presented.

September 30, 2020 June 30, 2020 September 30, 2019

Special Substandard Special Substandard Special Substandard Mention Mention Mention

(Dollars in thousands)

One- to $ 11,339 $ 25,630 $ 12,309 $ 26,788 $ 15,428 $ 23,783 four-family

Commercial 52,006 4,914 52,054 5,128 54,134 5,543

Consumer 332 589 320 564 283 758

$ 63,677 $ 31,133 $ 64,683 $ 32,480 $ 69,845 $ 30,084

The following tables present ACL activity and related ratios at the dates and for the periods indicated.

For the Three Months Ended

September June 30, March 31, December September 30, 31, 30,

2020 2020 2020 2019 2019

(Dollars in thousands)

Balance atbeginning of $ 31,215 $ 31,196 $ 9,435 $ 9,226 $ 9,036 period

Charge-offs:

One- to - - (46 ) (18 ) - four-family

Commercial - - (325 ) (24 ) (124 )

Consumer (15 ) (5 ) (4 ) (6 ) (9 )

Total (15 ) (5 ) (375 ) (48 ) (133 ) charge-offs

Recoveries:

One- to 303 - 3 - 14 four-family

Commercial 12 17 54 27 5

Consumer 12 7 4 5 4

Total 327 24 61 32 23 recoveries

Net recoveries 312 19 (314 ) (16 ) (110 ) (charge-offs)

Provision for - - 22,075 225 300 credit losses

Balance at end $ 31,527 $ 31,215 $ 31,196 $ 9,435 $ 9,226 of period



Ratio of net charge-offs during the period

to averageloansoutstanding - % - % - % - % - %during theperiod

Ratio of net charge-offs (recoveries) during the

period toaverage (2.70 ) (0.20 ) 3.78 0.19 1.09 non-performingassets

ACL tonon-performing 252.42 305.58 353.02 133.11 121.99 loans at endof period

ACL to loansreceivable at 0.44 0.42 0.42 0.13 0.12 end of period

ACL to netcharge-offs N/M^(1) N/M^(1) 24.9x 144.5x 21.1x(annualized)

For the Year Ended

September 30,

2020

2019

(Dollars in thousands)

Balance at beginning of period

$

9,226

$

8,463

Charge-offs:

One- to four-family

(64

)

(101

)

Commercial

(349

)

(124

)

Consumer

(30

)

(37

)

Total charge-offs

(443

)

(262

)

Recoveries:

One- to four-family

306

128

Commercial

110

49

Consumer

28

98

Total recoveries

444

275

Net recoveries

1

13

Provision for credit losses

22,300

750

Balance at end of period

$

31,527

$

9,226

Ratio of net charge-offs during the period

to average loans outstanding during the period

-

%

-

%

Ratio of net charge-offs (recoveries) during the

period to average non-performing assets

(0.01

)

(0.12

)

ACL to net charge-offs

N/M(1)

N/M (1)

For the Year Ended

September 30,

2020 2019

(Dollars in thousands)

Balance at beginning of period $ 9,226 $ 8,463

Charge-offs:

One- to four-family (64 ) (101 )

Commercial (349 ) (124 )

Consumer (30 ) (37 )

Total charge-offs (443 ) (262 )

Recoveries:

One- to four-family 306 128

Commercial 110 49

Consumer 28 98

Total recoveries 444 275

Net recoveries 1 13

Provision for credit losses 22,300 750

Balance at end of period $ 31,527 $ 9,226



Ratio of net charge-offs during the period

to average loans outstanding during the period - % - %

Ratio of net charge-offs (recoveries) during the

period to average non-performing assets (0.01 ) (0.12 )

ACL to net charge-offs N/M^(1) 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.

Management considered several factors when evaluating the adequacy of the ACL at September 30, 2020, such as: economic conditions including the impact of additional unemployment benefits provided by the government, our commercial lending team's ongoing evaluation of commercial loans, the Bank's COVID-19 loan modification programs and the performance of loans leaving the programs, and certain loan credit quality indicators.

There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried through the remainder of our fiscal year. Many of the stay-at-home orders issued in March and April have been lifted or significantly reduced which resulted in some people returning to work, while not necessarily at the same level as prior to March 2020. Consumer spending has continued to gradually rebound, but generally not related to travel and entertainment. Unemployment benefit claims continue to be at high levels, but the level at which individuals are filing initial unemployment benefit claims has decreased significantly from the late March/early April timeframe. Individuals that are unemployed have benefited from the Federal Pandemic Unemployment Compensation Program ("FPUC") which the CARES Act created. FPUC provided an additional $600 per week to individuals collecting regular unemployment compensation. The FPUC expired in late July 2020. There were other unemployment compensation benefits created under the CARES Act which have benefited individuals that have exhausted their regular unemployment insurance benefits and that are generally not eligible for regular unemployment compensation, like self-employed individuals. In early August 2020, President Trump signed an executive memorandum authorizing the Federal Emergency Management Agency to provide $300 per week in extra unemployment benefits for six weeks, starting retroactively on August 1, 2020. The financial assistance provided by the government, which had tapered off significantly by September 30, 2020, may be masking our actual credit exposure.

The Bank's commercial lending team has closely analyzed the Bank's largest commercial relationships. Approximately 91% of all commercial loans, excluding PPP loans, had been evaluated through September 30, 2020. The commercial lending team primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns, which had an aggregate unpaid principal balance of $201.2 million at September 30, 2020, and was primarily in the following categories: senior housing facilities, hotels, retail buildings, office buildings and single use buildings. These loan categories were among the categories with the highest usage of the Bank's COVID-19 loan modification program. The weighted average LTV ratios based on the aggregate unpaid principal balances of senior housing, hotel, retail building, office building, and single use building loans were 69%, 58%, 67%, 75%, and 69%, respectively, at September 30, 2020. The commercial lending team 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 September 30, 2020.

In late March 2020, the Bank began offering COVID-19 loan modifications for one- to four-family loans and consumer loans consistent with the CARES Act or interagency guidance. This provides for a three-month payment deferral of principal, interest and, in some cases, escrow payments. Through September 30, 2020, the Bank processed COVID-19 loan modifications for $239.5 million of one- to four-family loans, with $39.8 million still in their deferral period at September 30, 2020. While the intent of the CARES Act was to keep customers current on their payments and therefore in their homes during the worst of the economic downturn, it may be masking our actual credit exposure on these loans. Because of this, it is possible that in the months following the end of the deferral time periods, the Bank's credit quality indicators may worsen, which may increase the need for additional provisions for credit losses and decrease earnings. However, to date, the vast majority of borrowers whose deferral periods were concluded by September 30, 2020 have made their scheduled payments.

Through September 30, 2020, the Bank processed COVID-19 loan modifications of $410.9 million for commercial loans, including undisbursed amounts, with $317.4 million still in their deferral period at September 30, 2020. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment period, but a three-month deferral of principal and interest was also offered to our borrowers. Some of the borrowers who requested and received a three-month deferral of principal and interest have requested an additional three-month deferral. We have either completed or are in the process of completing those second payment deferral requests. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of our borrowers; however, as is the case with one- to four-family loans, the modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. Through September 30, 2020, all of the commercial loan borrowers whose deferral periods were concluded by September 30, 2020 have made their scheduled payments.

There was no significant deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current fiscal year; however, as noted above, the financial assistance provided by the government and our COVID-19 loan modifications may be masking our actual credit exposure which could result in worsening credit quality indicators in the coming months. Loans 30 to 89 days delinquent were 0.13% of total loans at September 30, 2020 and 0.20% of total loans at September 30, 2019. Loans 90 days or more delinquent or in foreclosure were 0.16% of total loans at September 30, 2020 and 0.08% of total loans at September 30, 2019. Loans classified as special mention were $63.7 million at September 30, 2020 compared to $69.8 million at September 30, 2019. Loans classified as substandard were $31.1 million at September 30, 2020 compared to $30.1 million at September 30, 2019. The weighted average credit score for our one- to four-family loan portfolio was 768 at September 30, 2020 compared to 767 at September 30, 2019. We completed a credit score update from a nationally recognized consumer rating agency during the current quarter.

Management believes the ACL at September 30, 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 at September 30, 2020. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

The distribution of our ACL at the dates indicated is summarized below. The increase in the ACL from June 30, 2020 to September 30, 2020 was due to net recoveries.

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

Management considered several factors when evaluating the adequacy of the ACL at September 30, 2020, such as: economic conditions including the impact of additional unemployment benefits provided by the government, our commercial lending team's ongoing evaluation of commercial loans, the Bank's COVID-19 loan modification programs and the performance of loans leaving the programs, and certain loan credit quality indicators.

There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried through the remainder of our fiscal year. Many of the stay-at-home orders issued in March and April have been lifted or significantly reduced which resulted in some people returning to work, while not necessarily at the same level as prior to March 2020. Consumer spending has continued to gradually rebound, but generally not related to travel and entertainment. Unemployment benefit claims continue to be at high levels, but the level at which individuals are filing initial unemployment benefit claims has decreased significantly from the late March/early April timeframe. Individuals that are unemployed have benefited from the Federal Pandemic Unemployment Compensation Program ("FPUC") which the CARES Act created. FPUC provided an additional $600 per week to individuals collecting regular unemployment compensation. The FPUC expired in late July 2020. There were other unemployment compensation benefits created under the CARES Act which have benefited individuals that have exhausted their regular unemployment insurance benefits and that are generally not eligible for regular unemployment compensation, like self-employed individuals. In early August 2020, President Trump signed an executive memorandum authorizing the Federal Emergency Management Agency to provide $300 per week in extra unemployment benefits for six weeks, starting retroactively on August 1, 2020. The financial assistance provided by the government, which had tapered off significantly by September 30, 2020, may be masking our actual credit exposure.

The Bank's commercial lending team has closely analyzed the Bank's largest commercial relationships. Approximately 91% of all commercial loans, excluding PPP loans, had been evaluated through September 30, 2020. The commercial lending team primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns, which had an aggregate unpaid principal balance of $201.2 million at September 30, 2020, and was primarily in the following categories: senior housing facilities, hotels, retail buildings, office buildings and single use buildings. These loan categories were among the categories with the highest usage of the Bank's COVID-19 loan modification program. The weighted average LTV ratios based on the aggregate unpaid principal balances of senior housing, hotel, retail building, office building, and single use building loans were 69%, 58%, 67%, 75%, and 69%, respectively, at September 30, 2020. The commercial lending team 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 September 30, 2020.

In late March 2020, the Bank began offering COVID-19 loan modifications for one- to four-family loans and consumer loans consistent with the CARES Act or interagency guidance. This provides for a three-month payment deferral of principal, interest and, in some cases, escrow payments. Through September 30, 2020, the Bank processed COVID-19 loan modifications for $239.5 million of one- to four-family loans, with $39.8 million still in their deferral period at September 30, 2020. While the intent of the CARES Act was to keep customers current on their payments and therefore in their homes during the worst of the economic downturn, it may be masking our actual credit exposure on these loans. Because of this, it is possible that in the months following the end of the deferral time periods, the Bank's credit quality indicators may worsen, which may increase the need for additional provisions for credit losses and decrease earnings. However, to date, the vast majority of borrowers whose deferral periods were concluded by September 30, 2020 have made their scheduled payments.

Through September 30, 2020, the Bank processed COVID-19 loan modifications of $410.9 million for commercial loans, including undisbursed amounts, with $317.4 million still in their deferral period at September 30, 2020. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment period, but a three-month deferral of principal and interest was also offered to our borrowers. Some of the borrowers who requested and received a three-month deferral of principal and interest have requested an additional three-month deferral. We have either completed or are in the process of completing those second payment deferral requests. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of our borrowers; however, as is the case with one- to four-family loans, the modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. Through September 30, 2020, all of the commercial loan borrowers whose deferral periods were concluded by September 30, 2020 have made their scheduled payments.

There was no significant deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current fiscal year; however, as noted above, the financial assistance provided by the government and our COVID-19 loan modifications may be masking our actual credit exposure which could result in worsening credit quality indicators in the coming months. Loans 30 to 89 days delinquent were 0.13% of total loans at September 30, 2020 and 0.20% of total loans at September 30, 2019. Loans 90 days or more delinquent or in foreclosure were 0.16% of total loans at September 30, 2020 and 0.08% of total loans at September 30, 2019. Loans classified as special mention were $63.7 million at September 30, 2020 compared to $69.8 million at September 30, 2019. Loans classified as substandard were $31.1 million at September 30, 2020 compared to $30.1 million at September 30, 2019. The weighted average credit score for our one- to four-family loan portfolio was 768 at September 30, 2020 compared to 767 at September 30, 2019. We completed a credit score update from a nationally recognized consumer rating agency during the current quarter.

Management believes the ACL at September 30, 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 at September 30, 2020. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

The distribution of our ACL at the dates indicated is summarized below. The increase in the ACL from June 30, 2020 to September 30, 2020 was due to net recoveries.

At

September June 30, March 31, December September 30, 31, 30,

2020 2020 2020 2019 2019

(Dollars in thousands)

One- to four-family:

Originated $ 6,044 $ 6,298 $ 6,420 $ 2,027 $ 1,982

Correspondent 2,691 3,189 3,355 1,200 1,203 purchased

Bulk purchased 467 506 557 612 687

Construction 41 48 47 20 18

Total 9,243 10,041 10,379 3,859 3,890

Commercial:

Commercial real 16,869 16,353 14,672 3,608 3,448 estate

Commercial and 1,451 1,465 1,489 710 472 industrial

Construction 3,480 2,886 4,167 1,100 1,251

Total 21,800 20,704 20,328 5,418 5,171

Consumer 484 470 489 158 165

Total $ 31,527 $ 31,215 $ 31,196 $ 9,435 $ 9,226

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The reduction in the ACL to loans ratio at June 30, 2020 and September 30, 2020 compared to March 31, 2020 for commercial and industrial loans was due primarily to PPP loans. PPP loans are 100% guaranteed by the SBA so the Bank did not record ACL on those loans at June 30, 2020 or September 30, 2020. The increase in the overall commercial ACL to total commercial loans from June 30, 2020 to September 30, 2020 was due to a change in the product mix within the portfolio.

At

September June March December September 30, 30, 31, 31, 30,

2020 2020 2020 2019 2019

One- to four-family:

Originated 0.15 % 0.16 % 0.16 % 0.05 % 0.05 %

Correspondent 0.13 0.14 0.14 0.05 0.05 purchased

Bulk purchased 0.22 0.23 0.24 0.26 0.27

Construction 0.12 0.13 0.13 0.05 0.05

Total 0.15 0.16 0.16 0.06 0.06

Commercial:

Commercial real 2.69 2.62 2.51 0.62 0.59 estate

Commercial and 1.49 1.47 2.40 1.25 0.77 industrial

Construction 3.30 3.30 3.30 1.02 1.02

Total 2.63 2.55 2.63 0.72 0.67

Consumer 0.42 0.40 0.39 0.12 0.13

Total 0.44 0.42 0.42 0.13 0.12

Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, replaces the current incurred loss impairment methodology in GAAP. The new impairment 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, over their contractual lives. This ASU is effective for the Company on October 1, 2020. The Company has been working with a software provider on the application and implementation of the new accounting guidance and model. At September 30, 2020, the Company ran the new model using various assumptions and forecast scenarios. Preliminary results indicate the Bank's ACL and reserves on unfunded commitments would be between $28 million and $35 million. The ACL calculated under the new accounting methodology could be lower than that under the existing incurred loss methodology due to having the ability to forecast improvements in economic conditions over a loan's contractual life rather than only being able to consider current conditions as is required under the incurred loss methodology.

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 87% of our securities portfolio at September 30, 2020. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

September 30, 2020 June 30, 2020 September 30, 2019

Amount Yield WAL Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Fixed-rate securities:

MBS $ 945,432 1.82 % 3.7 $ 714,730 2.22 % 3.2 $ 625,840 2.46 % 2.9

U.S.government-sponsored 369,967 0.62 1.7 225,020 1.20 0.8 249,828 2.15 0.7 enterprise debentures

Municipal bonds 9,716 1.69 0.7 11,857 1.68 0.7 18,371 1.63 1.0

Total fixed-rate 1,325,115 1.49 3.1 951,607 1.97 2.6 894,039 2.35 2.3 securities



Adjustable-rate securities:

MBS 204,490 2.49 2.9 234,618 2.73 3.9 297,416 3.10 4.7

Total securities $ 1,529,605 1.62 3.1 $ 1,186,225 2.12 2.8 $ 1,191,455 2.54 2.9 portfolio

MBS 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 WAL are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.

For the Three Months Ended

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Beginning balance - carrying $ 982,587 2.35 % 3.3 $ 973,318 2.50 % 3.6 $ 937,317 2.61 % 3.3 $ 936,487 2.67 % 3.5 value

Maturities and repayments (95,842 ) (75,293 ) (65,767 ) (72,635 )

Net amortization of (premiums) (608 ) (363 ) (279 ) (248 ) /discounts

Purchases:

Fixed 297,024 1.06 5.9 77,455 1.29 5.0 88,863 1.80 4.5 74,359 2.05 3.8

Change in valuation on AFS (2,358 ) 7,470 13,184 (646 ) securities

Ending balance - carrying $ 1,180,803 1.94 3.5 $ 982,587 2.35 3.3 $ 973,318 2.50 3.6 $ 937,317 2.61 3.3 value

For the Year Ended

September 30, 2020

September 30, 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

(309,537

)

(275,116

)

Net amortization of (premiums)/discounts

(1,498

)

(1,304

)

Purchases:

Fixed

537,701

1.35

5.2

77,755

2.53

4.1

Adjustable

-

-

-

84,138

2.74

4.4

Valuation transferred from held-to-maturity ("HTM") to AFS

-

3,039

Change in valuation on AFS securities

17,650

10,985

Ending balance - carrying value

$

1,180,803

1.94

3.5

$

936,487

2.67

3.5

Investment Securities 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 Year Ended

September 30, 2020 September 30, 2019

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Beginningbalance - $ 936,487 2.67 % 3.5 $ 1,036,990 2.57 % 3.4 carrying value

Maturities and (309,537 ) (275,116 ) repayments

Net amortizationof (premiums)/ (1,498 ) (1,304 ) discounts

Purchases:

Fixed 537,701 1.35 5.2 77,755 2.53 4.1

Adjustable - - - 84,138 2.74 4.4

Valuationtransferred from - 3,039 held-to-maturity("HTM") to AFS

Change invaluation on AFS 17,650 10,985 securities

Ending balance - $ 1,180,803 1.94 3.5 $ 936,487 2.67 3.5 carrying value

Investment Securities 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

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Amount Yield WAL Amount Yield WAL Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Beginning balance - carrying $ 237,467 1.23 % 0.8 $ 262,719 1.87 % 0.3 $ 292,270 2.00 % 0.8 $ 268,376 2.11 % 0.8 value

Maturities, calls and sales (102,115 ) (125,000 ) (80,125 ) (51,175 )

Net amortization of (premiums) (54 ) (80 ) (49 ) 20 /discounts

Purchases:

Fixed 244,975 0.51 3.2 99,990 0.58 1.2 50,097 1.42 0.4 75,000 1.90 1.7

Change in valuation on AFS (126 ) (162 ) 526 49 securities

Ending balance - carrying $ 380,147 0.65 1.7 $ 237,467 1.23 0.8 $ 262,719 1.87 0.3 $ 292,270 2.00 0.8 value

For the Year Ended

September 30, 2020

September 30, 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

(358,415

)

(249,771

)

Net amortization of (premiums)/discounts

(163

)

62

Purchases:

Fixed

470,062

0.84

2.3

224,809

2.44

0.9

Valuation transferred from HTM to AFS

-

47

Change in valuation on AFS securities

287

3,287

Ending balance - carrying value

$

380,147

0.65

1.7

$

268,376

2.11

0.8

Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented.

For the Year Ended

September 30, 2020 September 30, 2019

Amount Yield WAL Amount Yield WAL

(Dollars in thousands)

Beginning balance - $ 268,376 2.11 % 0.8 $ 289,942 2.05 % 2.2 carrying value

Maturities, calls and (358,415 ) (249,771 ) sales

Net amortization of (163 ) 62 (premiums)/discounts

Purchases:

Fixed 470,062 0.84 2.3 224,809 2.44 0.9

Valuation transferred - 47 from HTM to AFS

Change in valuation on 287 3,287 AFS securities

Ending balance - $ 380,147 0.65 1.7 $ 268,376 2.11 0.8 carrying value

Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented.

September 30, 2020 June 30, 2020 September 30, 2019

% of % of % of

Amount Rate Total Amount Rate Total Amount Rate Total

(Dollars in thousands)

Non-interest-bearing checking $ 451,394 - % 7.3 % $ 457,917 - % 7.5 % $ 357,284 - % 6.4 %

Interest-bearing checking 865,782 0.10 14.0 837,304 0.10 13.8 717,121 0.09 12.8

Savings 433,808 0.06 7.0 420,924 0.07 6.9 321,494 0.05 5.8

Money market 1,419,180 0.37 22.9 1,320,379 0.39 21.8 1,198,343 0.70 21.5

Retail/business certificates of 2,766,461 1.83 44.7 2,744,661 1.97 45.2 2,692,770 2.08 48.2 deposit

Public unit certificates of 254,783 0.74 4.1 288,499 1.09 4.8 294,855 2.29 5.3 deposit

$ 6,191,408 0.95 100.0 % $ 6,069,684 1.05 100.0 % $ 5,581,867 1.29 100.0 %

The following table presents scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of September 30, 2020.

Amount Due

More than More than

1 year 1 year to 2 years to More than Total 3

Rate or less 2 years years 3 years Amount Raterange

(Dollars in thousands)

0.00 - $ 449,875 $ 55,037 $ 8,103 $ 1,374 $ 514,389 0.55 %0.99%

1.00 - 713,300 355,888 104,335 186,939 1,360,462 1.65 1.99%

2.00 - 342,326 362,353 313,831 127,632 1,146,142 2.38 2.99%

3.00 - - - 251 - 251 3.00 3.99%

$ 1,505,501 $ 773,278 $ 426,520 $ 315,945 $ 3,021,244 1.74



Percent 49.8 % 25.6 % 14.1 % 10.5 % of total

Weightedaverage 1.46 1.99 2.16 1.88 rate

Weightedaveragematurity 0.5 1.5 2.4 3.7 1.4 (inyears)

Weighted average maturity for the retail/business certificate of 1.5 deposit portfolio (in years)

Borrowings

The following table presents the maturity of term borrowings which includes FHLB advances, at par, and repurchase agreements, along with associated weighted average contractual and effective rates as of September 30, 2020.

Term Borrowings Amount

Maturity by Interest rate Contractual Effective

Fiscal Year Fixed-rate swaps^(1) Rate Rate^(2)

(Dollars in thousands)

2021 $ 203,000 $ 640,000 0.76 % 2.56 %

2022 200,000 - 2.23 2.23

2023 300,000 - 1.70 1.81

2024 100,000 - 3.39 3.39

2025 250,000 - 1.82 1.94

2026 100,000 - 1.28 1.60

$ 1,153,000 $ 640,000 1.41 2.31

(1)

Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.5 years at September 30, 2020.

(2)

The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of September 30, 2020.

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(1) are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.5 years at September 30, 2020.

The effective rate includes the impact of interest rate swaps and the(2) amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of September 30, 2020.

Retail/ Public Unit Term Business

Maturity by Certificate Repricing Certificate Repricing Borrowings Repricing Repricing

Quarter End Amount Rate Amount Rate Amount^(1) Rate Total Rate

(Dollars in thousands)

December 31, $ 311,855 1.76 % $ 100,761 0.43 % $ 53,000 1.98 % $ 465,616 1.50 %2020

March 31, 307,863 1.78 39,310 1.19 150,000 1.97 497,173 1.79 2021

June 30, 2021 342,662 1.51 49,185 0.48 - - 391,847 1.38

September 30, 305,591 1.40 48,274 0.95 75,000 2.99 428,865 1.63 2021

$ 1,267,971 1.61 $ 237,530 0.67 $ 278,000 2.24 $ 1,783,501 1.59

(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 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. Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year. 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.

(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 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. Excluded from this table is a $3.0 million FHLB advance that had an original contractual term of less than one year. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.

For the Three Months Ended

September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019

Effective Effective Effective Effective

Amount Rate WAM Amount Rate WAM Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

Beginning balance $ 1,990,000 2.29 % 2.9 $ 2,090,000 2.25 % 3.0 $ 2,090,000 2.37 % 2.6 $ 2,140,000 2.38 % 2.6

Maturities and prepayments:

FHLB advances (440,000 ) 2.49 (200,000 ) 2.35 (415,000 ) 2.45 (350,000 ) 2.40

Repurchase agreements (100,000 ) 2.53 - - - - - -

New FHLB borrowings:

Fixed-rate - - - - - - 350,000 1.70 4.7 100,000 1.96 5.0

Interest rate swaps^(1) 340,000 2.73 3.5 100,000 3.20 8.0 65,000 2.61 4.0 200,000 2.57 2.5

Ending balance $ 1,790,000 2.31 3.0 $ 1,990,000 2.29 2.9 $ 2,090,000 2.25 3.0 $ 2,090,000 2.37 2.6

For the Year Ended

September 30, 2020

September 30, 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

(1,405,000

)

2.44

(875,000

)

2.10

Repurchase agreements

(100,000

)

2.53

-

-

CCB acquisition - junior subordinated debentures assumed (redeemed)

-

-

-

(10,052

)

8.76

12.3

New FHLB borrowings:

Fixed-rate

450,000

1.76

4.8

200,000

2.77

4.5

Interest rate swaps(1)

705,000

2.74

3.9

640,000

2.67

5.0

Ending balance

$

1,790,000

2.31

3.0

$

2,140,000

2.38

2.6

For the Year Ended

September 30, 2020 September 30, 2019

Effective Effective

Amount Rate WAM Amount Rate WAM

(Dollars in thousands)

Beginning $ 2,140,000 2.38 % 2.6 $ 2,185,052 2.17 % 2.9 balance

Maturities and prepayments:

FHLB (1,405,000 ) 2.44 (875,000 ) 2.10 advances

Repurchase (100,000 ) 2.53 - - agreements

CCBacquisition- juniorsubordinated - - - (10,052 ) 8.76 12.3 debenturesassumed(redeemed)

New FHLB borrowings:

Fixed-rate 450,000 1.76 4.8 200,000 2.77 4.5

Interestrate swaps^ 705,000 2.74 3.9 640,000 2.67 5.0 (1)

Ending $ 1,790,000 2.31 3.0 $ 2,140,000 2.38 2.6 balance

(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.

Average Rates and Lives

At September 30, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $436.4 million, or 4.60% of total assets, compared to $857.3 million, or 8.97% of total assets, at June 30, 2020. The decrease in the one-year gap amount was due primarily to the implementation of a new interest rate risk model by the Bank during the current quarter. The largest driver of the change was a shift in the cash flow projections on the Bank's non-maturity deposits. This change shortened the average life of these liabilities from approximately 15 years to six years and thus increased the amount of projected cash flows in the 12-month horizon compared to the previous model.

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. If interest rates were to increase 200 basis points, as of September 30, 2020, the Bank's one-year gap is projected to be $(609.6) million, or (6.43)% 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 $53.6 million, or 0.56% of total assets, if interest rates were to have increased 200 basis points as of June 30, 2020.

During the current quarter, loan repayments totaled $572.5 million and cash flows from the securities portfolio totaled $198.0 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 and/or repriced into current market interest rates during the current quarter were $965.8 million, including $540.0 million in term borrowings of which $340.0 million was tied to interest rate swaps. 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 September 30, 2020 was 1.9 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of September 30, 2020 was 3.0 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

In addition to these wholesale strategies, the Bank has benefited from an increase in non-maturity deposits. Rates paid on non-maturity deposits are not expected to increase as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical 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, as 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 year, the Bank has decreased the rates on certificates of deposit and money market accounts on pace with competitors in its market areas. The Bank will continue to adjust rates as market conditions allow.

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 September 30, 2020. 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.

Represents adjustable-rate FHLB advances for which the Bank has entered(1) 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.

Average Rates and Lives

At September 30, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $436.4 million, or 4.60% of total assets, compared to $857.3 million, or 8.97% of total assets, at June 30, 2020. The decrease in the one-year gap amount was due primarily to the implementation of a new interest rate risk model by the Bank during the current quarter. The largest driver of the change was a shift in the cash flow projections on the Bank's non-maturity deposits. This change shortened the average life of these liabilities from approximately 15 years to six years and thus increased the amount of projected cash flows in the 12-month horizon compared to the previous model.

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. If interest rates were to increase 200 basis points, as of September 30, 2020, the Bank's one-year gap is projected to be $(609.6) million, or (6.43)% 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 $53.6 million, or 0.56% of total assets, if interest rates were to have increased 200 basis points as of June 30, 2020.

During the current quarter, loan repayments totaled $572.5 million and cash flows from the securities portfolio totaled $198.0 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 and/or repriced into current market interest rates during the current quarter were $965.8 million, including $540.0 million in term borrowings of which $340.0 million was tied to interest rate swaps. 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 September 30, 2020 was 1.9 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of September 30, 2020 was 3.0 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

In addition to these wholesale strategies, the Bank has benefited from an increase in non-maturity deposits. Rates paid on non-maturity deposits are not expected to increase as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical 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, as 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 year, the Bank has decreased the rates on certificates of deposit and money market accounts on pace with competitors in its market areas. The Bank will continue to adjust rates as market conditions allow.

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 September 30, 2020. 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.

Amount Yield/ WAL % of % of Rate Category Total

(Dollars in thousands)

Investment securities $ 380,147 0.65 % 1.0 24.3 % 4.2 %

MBS - fixed 970,369 1.82 3.3 62.2 10.7

MBS - adjustable 210,434 2.49 3.1 13.5 2.3

Total securities 1,560,950 1.62 2.7 100.0 % 17.2

Loans receivable:

Fixed-rate one- to four-family:

<= 15 years 1,130,538 2.98 3.1 15.6 % 12.5

> 15 years 4,287,229 3.67 4.2 59.3 47.3

Fixed-rate commercial 556,195 4.14 3.5 7.7 6.1

All other fixed-rate loans 47,855 4.53 4.9 0.7 0.5

Total fixed-rate loans 6,021,817 3.59 3.9 83.3 66.4

Adjustable-rate one- to four-family:

<= 36 months 189,591 2.25 4.8 2.6 2.1

> 36 months 639,461 3.09 3.2 8.9 7.1

Adjustable-rate commercial 273,465 4.75 6.6 3.8 3.0

All other adjustable-rate 100,662 4.23 2.5 1.4 1.1 loans

Total adjustable-rate 1,203,179 3.43 4.2 16.7 13.3 loans

Total loans receivable 7,224,996 3.57 4.0 100.0 % 79.7

FHLB stock 93,862 4.64 1.9 1.0

Cash and cash equivalents 185,148 0.09 - 2.1

Total interest-earning $ 9,064,956 3.18 3.6 100.0 %assets



Non-maturity deposits $ 3,170,164 0.20 6.1 51.2 % 39.7 %

Retail/business 2,766,461 1.83 1.5 44.7 34.6 certificates of deposit

Public unit certificates 254,783 0.74 0.5 4.1 3.2 of deposit

Total deposits 6,191,408 0.95 3.8 100.0 % 77.5

Term borrowings 1,793,000 2.31 3.0 22.5

Total interest-bearing $ 7,984,408 1.26 3.6 100.0 %liabilities

Average Balance Sheets

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates (annualized for the three-month periods) 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 shown. Weighted average yields are derived by dividing income (annualized for the three-month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three-month periods) 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 Year Ended September 30,

2020 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 $ 6,529,265 $ 226,703 3.47 % $ 6,681,441 $ 240,919 3.61 %

Commercial loans 785,127 37,320 4.68 701,771 34,810 4.90

Consumer loans 123,334 6,471 5.25 135,683 8,500 6.26

Total loans receivable^(1) 7,437,726 270,494 3.63 7,518,895 284,229 3.77

MBS^(2) 954,197 23,009 2.41 977,925 25,730 2.63

Investment securities^(2)(3) 270,683 4,467 1.65 281,490 6,366 2.26

FHLB stock 100,251 5,827 5.81 106,057 7,823 7.38

Cash and cash equivalents^ 179,142 1,181 0.65 251,015 5,806 2.28 (4)

Total interest-earning 8,941,999 304,978 3.40 9,135,382 329,954 3.61 assets^(1)(2)

Other non-interest-earning 461,614 385,803 assets

Total assets $ 9,403,613 $ 9,521,185



Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,180,110 762 0.06 $ 1,073,825 615 0.06

Savings 388,662 292 0.08 342,617 197 0.06

Money market 1,252,992 6,647 0.53 1,255,001 8,861 0.71

Retail/business certificates 2,716,945 55,238 2.03 2,531,923 48,496 1.92

Wholesale certificates 282,947 4,659 1.65 369,282 8,032 2.18

Total deposits 5,821,656 67,598 1.16 5,572,648 66,201 1.19

Borrowings^(5) 2,065,966 48,045 2.31 2,441,002 57,363 2.34

Total interest-bearing 7,887,622 115,643 1.46 8,013,650 123,564 1.54 liabilities

Other non-interest-bearing 203,990 149,156 liabilities

Stockholders' equity 1,312,001 1,358,379

Total liabilities and $ 9,403,613 $ 9,521,185 stockholders' equity



Net interest income^(6) $ 189,335 $ 206,390

Net interest rate spread^(7) 1.94 2.07 (8)

Net interest-earning assets $ 1,054,377 $ 1,121,732

Net interest margin^(8)(9) 2.12 2.26

Ratio of interest-earning assets to interest-bearing 1.13x 1.14xliabilities



Selected performance ratios:

Return on average assets^(8) 0.69 % 0.99 %

Return on average equity^(8) 4.92 6.94

Average equity to average 13.95 14.27 assets

Operating expense ratio^(10) 1.13 1.12

Efficiency ratio^(8)(11) 50.74 46.83

Pre-tax yield on leverage strategy^(12) - 0.03

For the Three Months Ended

September 30, 2020

June 30, 2020

Average

Interest

Average

Interest

Outstanding

Earned/

Yield/

Outstanding

Earned/

Yield/

Amount

Paid

Rate

Amount

Paid

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

One- to four-family loans

$

6,411,923

$

53,858

3.36

%

$

6,568,945

$

55,646

3.39

%

Commercial loans

815,222

9,092

4.37

799,600

9,576

4.74

Consumer loans

115,247

1,365

4.71

121,139

1,430

4.75

Total loans receivable(1)

7,342,392

64,315

3.49

7,489,684

66,652

3.55

MBS(2)

1,027,875

5,425

2.11

934,464

5,616

2.40

Investment securities(2)(3)

309,118

731

0.95

207,541

847

1.63

FHLB stock

101,163

1,080

4.25

101,588

1,207

4.78

Cash and cash equivalents(4)

217,475

55

0.10

231,354

59

0.10

Total interest-earning assets(1)(2)

8,998,023

71,606

3.17

8,964,631

74,381

3.32

Other non-interest-earning assets

466,789

499,291

Total assets

$

9,464,812

$

9,463,922

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking

$

1,294,557

212

0.07

$

1,232,611

199

0.06

Savings

426,798

70

0.07

404,545

69

0.07

Money market

1,362,042

1,252

0.37

1,267,535

1,350

0.43

Retail/business certificates

2,760,645

13,142

1.89

2,734,940

13,882

2.04

Wholesale certificates

267,967

623

0.92

291,292

1,033

1.43

Total deposits

6,112,009

15,299

1.00

5,930,923

16,533

1.12

Borrowings(5)

1,819,601

10,624

2.31

2,035,637

11,561

2.27

Total interest-bearing liabilities

7,931,610

25,923

1.30

7,966,560

28,094

1.41

Other non-interest-bearing liabilities

227,915

200,339

Stockholders' equity

1,305,287

1,297,023

Total liabilities and stockholders' equity

$

9,464,812

$

9,463,922

Net interest income(6)

$

45,683

$

46,287

Net interest rate spread(7)(8)

1.87

1.91

Net interest-earning assets

$

1,066,413

$

998,071

Net interest margin(8)(9)

2.03

2.07

Ratio of interest-earning assets to interest-bearing liabilities

1.13x

1.13x

Selected performance ratios:

Return on average assets (annualized)(8)

0.77

%

0.82

%

Return on average equity (annualized)(8)

5.60

6.01

Average equity to average assets

13.79

13.70

Operating expense ratio(10)

1.15

1.11

Efficiency ratio(8)(11)

53.64

51.58

For the Three Months Ended

September 30, 2020 June 30, 2020

Average Interest Average Interest

Outstanding Earned/ Yield/ Outstanding Earned/ Yield/

Amount Paid Rate Amount Paid Rate

Assets: (Dollars in thousands)

Interest-earning assets:

One- to four-family loans $ 6,411,923 $ 53,858 3.36 % $ 6,568,945 $ 55,646 3.39 %

Commercial loans 815,222 9,092 4.37 799,600 9,576 4.74

Consumer loans 115,247 1,365 4.71 121,139 1,430 4.75

Total loans receivable^(1) 7,342,392 64,315 3.49 7,489,684 66,652 3.55

MBS^(2) 1,027,875 5,425 2.11 934,464 5,616 2.40

Investment securities^(2)(3) 309,118 731 0.95 207,541 847 1.63

FHLB stock 101,163 1,080 4.25 101,588 1,207 4.78

Cash and cash equivalents^ 217,475 55 0.10 231,354 59 0.10 (4)

Total interest-earning 8,998,023 71,606 3.17 8,964,631 74,381 3.32 assets^(1)(2)

Other non-interest-earning 466,789 499,291 assets

Total assets $ 9,464,812 $ 9,463,922



Liabilities and stockholders' equity:

Interest-bearing liabilities:

Checking $ 1,294,557 212 0.07 $ 1,232,611 199 0.06

Savings 426,798 70 0.07 404,545 69 0.07

Money market 1,362,042 1,252 0.37 1,267,535 1,350 0.43

Retail/business certificates 2,760,645 13,142 1.89 2,734,940 13,882 2.04

Wholesale certificates 267,967 623 0.92 291,292 1,033 1.43

Total deposits 6,112,009 15,299 1.00 5,930,923 16,533 1.12

Borrowings^(5) 1,819,601 10,624 2.31 2,035,637 11,561 2.27

Total interest-bearing 7,931,610 25,923 1.30 7,966,560 28,094 1.41 liabilities

Other non-interest-bearing 227,915 200,339 liabilities

Stockholders' equity 1,305,287 1,297,023

Total liabilities and $ 9,464,812 $ 9,463,922 stockholders' equity



Net interest income^(6) $ 45,683 $ 46,287

Net interest rate spread^(7) 1.87 1.91 (8)

Net interest-earning assets $ 1,066,413 $ 998,071

Net interest margin^(8)(9) 2.03 2.07

Ratio of interest-earning assets to interest-bearing 1.13x 1.13xliabilities



Selected performance ratios:

Return on average assets (annualized)^(8) 0.77 % 0.82 %

Return on average equity (annualized)^(8) 5.60 6.01

Average equity to average 13.79 13.70 assets

Operating expense ratio^(10) 1.15 1.11

Efficiency ratio^(8)(11) 53.64 51.58

(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 $13.8 million and $21.6 million for the years ended September 30, 2020 and September 30, 2019, respectively, and $10.9 million and $11.9 million for the quarters ended September 30, 2020 and June 30, 2020, respectively.

(4)

There were no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $150.7 million for the year ended September 30, 2019.

(5)

There were no borrowings related to the leverage strategy during the year ended September 30, 2020. Included in this line item, for the year ended September 30, 2019, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $157.8 million and interest paid of $3.9 million, at a weighted average rate of 2.46%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.28 billion and interest paid of $53.4 million, at a weighted average rate of 2.33%. 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 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.

Balances are adjusted for unearned loan fees and deferred costs. Loans(1) 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.

The average balance of investment securities includes an average balance of nontaxable securities of $13.8 million and $21.6 million for the years(3) ended September 30, 2020 and September 30, 2019, respectively, and $10.9 million and $11.9 million for the quarters ended September 30, 2020 and June 30, 2020, respectively.

There were no cash and cash equivalents related to the leverage strategy(4) during the year ended September 30, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $150.7 million for the year ended September 30, 2019.

There were no borrowings related to the leverage strategy during the year ended September 30, 2020. Included in this line item, for the year ended September 30, 2019, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $157.8 million and interest paid of(5) $3.9 million, at a weighted average rate of 2.46%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.28 billion and interest paid of $53.4 million, at a weighted average rate of 2.33%. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing(6) 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.

Net interest rate spread represents the difference between the average(7) yield on interest-earning assets and the average cost of interest-bearing liabilities.

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(8) 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.

For the Year Ended September 30,

2020

2019

Actual

Leverage

Adjusted

Actual

Leverage

Adjusted

(GAAP)

Strategy

(Non-GAAP)

(GAAP)

Strategy

(Non-GAAP)

Return on average assets

0.69

%

-

%

0.69

%

0.99

%

(0.02

)

%

1.01

%

Return on average equity

4.92

-

4.92

6.94

-

6.94

Net interest margin

2.12

-

2.12

2.26

(0.04

)

2.30

Net interest rate spread

1.94

-

1.94

2.07

(0.03

)

2.10

Efficiency Ratio

50.74

-

50.74

46.83

-

46.83

For the Year Ended September 30,

2020 2019

Actual Leverage Adjusted Actual Leverage Adjusted

(GAAP) Strategy (Non-GAAP) (GAAP) Strategy (Non-GAAP)

Return onaverage 0.69 % - % 0.69 % 0.99 % (0.02 ) % 1.01 %assets

Return onaverage 4.92 - 4.92 6.94 - 6.94 equity

Netinterest 2.12 - 2.12 2.26 (0.04 ) 2.30 margin

Netinterest 1.94 - 1.94 2.07 (0.03 ) 2.10 rate spread

Efficiency 50.74 - 50.74 46.83 - 46.83 Ratio

(9)

Net interest margin represents net interest income (annualized for the three-month periods) as a percentage of average interest-earning assets.

(10)

The operating expense ratio represents non-interest expense (annualized for the three-month periods) 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 pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201028005388/en/

CONTACT: Kent Townsend Executive Vice President, Chief Financial Officer and Treasurer (785) 231-6360 ktownsend@capfed.com

CONTACT: Investor Relations (785) 270-6055 investorrelations@capfed.com