Capitol Federal Financial, Inc.® Reports Second Quarter Fiscal Year 2022 Results

By: Capitol Federal Financial, Inc. via Business Wire

April 27, 2022 at 09:00 AM EDT

Capitol Federal Financial, Inc.^® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended March 31, 2022. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 will be filed with the Securities and Exchange Commission ("SEC") on or about May 9, 2022 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 $21.6 million;
basic and diluted earnings per share of $0.16;
net interest margin of 1.69% (2.01% excluding the effects of the leverage strategy);
paid dividends of $11.5 million, or $0.085 per share; and
on April 20, 2022, announced a cash dividend of $0.085 per share, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and December 31, 2021

For the quarter ended March 31, 2022, the Company recognized net income of $21.6 million, or $0.16 per share, compared to net income of $22.2 million, or $0.16 per share, for the quarter ended December 31, 2021. The decrease in net income was due primarily to higher non-interest expense and income tax expense, partially offset by an increase in net interest income. The net interest margin decreased 30 basis points, from 1.99% for the prior quarter to 1.69% for the current quarter. During the current quarter, the Company's leverage strategy, which had not been in place since 2019, was reimplemented. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have increased two basis points, from 1.99% for the prior quarter to 2.01% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to a decrease in the cost of retail certificates of deposit.

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's line of credit with Federal Home Loan Bank Topeka ("FHLB") or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 5.75% from dividends during the current quarter, were deposited at the Federal Reserve Bank of Kansas City ("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 deposited 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 $545 thousand during the current quarter. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will continue to be utilized as long as it remains profitable.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

	For the Three Months Ended
	March 31,		December 31,		Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	55,412	$	55,788	$	(376	)	(0.7	) %
Mortgage-backed securities ("MBS")		4,821		4,625		196		4.2
FHLB stock		2,240		1,231		1,009		82.0
Investment securities		800		808		(8	)	(1.0	)
Cash and cash equivalents		949		14		935		6,678.6
Total interest and dividend income	$	64,222	$	62,466	$	1,756		2.8

The increase in interest income on MBS was due to a decrease in premium amortization related to a slowdown in prepayment activity. The increase in dividend income on FHLB stock was due mainly to the leverage strategy being utilized during the current quarter, partially offset by a special 1.00% year-end dividend received in the prior quarter. The increase in interest income on cash and cash equivalents was due mainly to the leverage strategy being utilized during the current quarter.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

	For the Three Months Ended
	March 31,		December 31,		Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	8,389	$	9,267	$	(878	)	(9.5	) %
Borrowings		8,732		7,585		1,147		15.1
Total interest expense	$	17,121	$	16,852	$	269		1.6

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio. The increase in interest expense on borrowings was due to the leverage strategy being utilized during the current quarter.

Provision for Credit Losses

For the quarter ended March 31, 2022, the Bank recorded a negative provision for credit losses of $3.2 million, compared to a negative provision for credit losses of $3.4 million for the prior quarter. The negative provision in the current quarter was comprised of a $2.2 million decrease in the allowance for credit losses ("ACL") for loans and a $952 thousand decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL was due primarily to a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, as well as a decrease in the commercial loan Coronavirus Disease 2019 ("COVID-19") modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to a reduction in the reserve for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

	For the Three Months Ended
	March 31,		December 31,		Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	3,300	$	3,430	$	(130	)	(3.8	) %
Insurance commissions		543		711		(168	)	(23.6	)
Other non-interest income		1,573		1,365		208		15.2
Total non-interest income	$	5,416	$	5,506	$	(90	)	(1.6	)

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which was lower than expected, and the related accrual adjustments. The increase in other non-interest income was due mainly to a gain on a loan-related financial derivative agreement.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

	For the Three Months Ended
	March 31,		December 31,		Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	14,023	$	13,728	$	295		2.1	%
Information technology and related expense		4,493		4,432		61		1.4
Occupancy, net		3,493		3,379		114		3.4
Regulatory and outside services		1,272		1,368		(96	)	(7.0	)
Advertising and promotional		1,494		1,064		430		40.4
Federal insurance premium		777		639		138		21.6
Deposit and loan transaction costs		689		697		(8	)	(1.1	)
Office supplies and related expense		502		468		34		7.3
Other non-interest expense		1,217		919		298		32.4
Total non-interest expense	$	27,960	$	26,694	$	1,266		4.7

The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships. The increase in federal insurance premium expense was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current quarter. The increase in other non-interest expense was due mainly to an increase in debit card and deposit account fraud losses, along with an increase in dues and subscriptions related to annual payments, and an increase in insurance expense due to a premium refund received in the prior quarter.

The Company's efficiency ratio was 53.24% for the current quarter compared to 52.22% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense. 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 it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense

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

	For the Three Months Ended
	March 31,			December 31,			Change Expressed in:
		2022			2021		Dollars			Percent
	(Dollars in thousands)
Income before income tax expense	$	27,745		$	27,865		$	(120	)	(0.4	) %
Income tax expense		6,122			5,679			443		7.8
Net income	$	21,623		$	22,186		$	(563	)	(2.5	)

Effective Tax Rate		22.1	%		20.4	%

The increase in income tax expense was due primarily to a higher effective tax rate in the current quarter. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2021 tax returns. Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Six Months Ended March 31, 2022 and 2021

The Company recognized net income of $43.8 million, or $0.32 per share, for the current year period compared to net income of $39.3 million, or $0.29 per share, for the prior year period. The increase in net income was due primarily to an increase in net interest income and a higher negative provision for credit losses in the current year period, partially offset by higher income tax expense. The net interest margin decreased seven basis points, from 1.90% for the prior year period to 1.83% for the current year period. Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 1.90% for the prior year period to 2.00% for the current year period. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

	For the Six Months Ended
	March 31,				Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	111,200	$	117,979	$	(6,779	)	(5.7	) %
MBS		9,446		11,139		(1,693	)	(15.2	)
FHLB Stock		3,471		2,020		1,451		71.8
Investment securities		1,608		1,312		296		22.6
Cash and cash equivalents		963		91		872		958.2
Total interest and dividend income	$	126,688	$	132,541	$	(5,853	)	(4.4	)

The decrease in interest income on loans receivable was due primarily to a decrease in the weighted average rate on the originated and correspondent one- to four-family loan portfolio, partially offset by the increase in the average balance of the loan portfolio. The decrease in the weighted average rate was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates between periods. Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year period due to the slow-down in prepayments and endorsements, partially offsetting the decrease in the weighted average rate.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields between periods, along with higher premium amortization related to prepayment activity.

The increase in dividend income on FHLB stock and the increase in interest income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current year period.

The increase in interest income on investment securities was due primarily to an increase in the average balance of the portfolio.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

	For the Six Months Ended
	March 31,				Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
INTEREST EXPENSE:
Deposits	$	17,656	$	26,596	$	(8,940	)	(33.6	) %
Borrowings		16,317		19,059		(2,742	)	(14.4	)
Total interest expense	$	33,973	$	45,655	$	(11,682	)	(25.6	)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, wholesale certificates of deposit, and money market accounts. Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered between periods.

The decrease in interest expense on borrowings was due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021. Cash flows from the deposit portfolio were used to pay down certain FHLB advances. This was partially offset by the leverage strategy being utilized during the current year period and not being utilized during the prior year period.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $6.6 million, compared to a negative provision for credit losses of $4.5 million during the prior year period. The negative provision in the current year period was comprised of a $4.5 million decrease in the ACL for loans and a $2.1 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL in the current year period was due to (1) a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, (2) a reduction in the large-dollar special mention commercial loan qualitative factor due to two large-dollar special mention commercial loans moving to the pass classification during the December 31, 2021 quarter, (3) a decrease in the commercial loan COVID-19 modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter, and (4) a decrease in the economic uncertainty qualitative factor for commercial loans due to continued improvement in economic conditions. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was due primarily to a reduction in the commercial loan economic uncertainty qualitative factor and to a reduction in the reserves for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

Non-Interest Income

The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.

	For the Six Months Ended
	March 31,				Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees	$	6,730	$	5,761	$	969		16.8	%
Insurance commissions		1,254		1,526		(272	)	(17.8	)
Gain on sale of Visa Class B shares		—		7,386		(7,386	)	(100.0	)
Other non-interest income		2,938		2,874		64		2.2
Total non-interest income	$	10,922	$	17,547	$	(6,625	)	(37.8	)

The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction and settlement volume, in addition to an increase in the average transaction amount. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which was lower than expected, and the related accrual adjustments. During the prior year period, the Bank sold its Visa Class B shares, resulting in a $7.4 million gain, with no similar transaction during the current year period.

Non-Interest Expense

The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.

	For the Six Months Ended
	March 31,				Change Expressed in:
		2022		2021	Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	27,751	$	27,535	$	216		0.8	%
Information technology and related expense		8,925		8,832		93		1.1
Occupancy, net		6,872		6,902		(30	)	(0.4	)
Regulatory and outside services		2,640		2,819		(179	)	(6.3	)
Advertising and promotional		2,558		2,322		236		10.2
Federal insurance premium		1,416		1,255		161		12.8
Deposit and loan transaction costs		1,386		1,430		(44	)	(3.1	)
Office supplies and related expense		970		887		83		9.4
Loss on interest rate swap termination		—		4,752		(4,752	)	(100.0	)
Other non-interest expense		2,136		2,986		(850	)	(28.5	)
Total non-interest expense	$	54,654	$	59,720	$	(5,066	)	(8.5	)

The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic. During the prior year period, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of accumulated other comprehensive income ("AOCI") to earnings. The decrease in other non-interest expense was due primarily to the write-down during the prior year period of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 52.74% for the current year period compared to 57.19% for the prior year period. The improvement in the efficiency ratio was due primarily to lower non-interest expense and higher net interest income, partially offset by lower non-interest income.

Management intends to implement a new core processing system for the Bank by September 2023. The replacement system will better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. The implementation of the new core system and related conversion of data may result in increased third party expenses later in fiscal year 2022 and into fiscal year 2023.

Income Tax Expense

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

	For the Six Months Ended
	March 31,						Change Expressed in:
		2022			2021		Dollars		Percent
	(Dollars in thousands)

Income before income tax expense	$	55,610		$	49,209		$	6,401	13.0	%
Income tax expense		11,801			9,867			1,934	19.6
Net income	$	43,809		$	39,342		$	4,467	11.4

Effective Tax Rate		21.2	%		20.1	%

The increase in income tax expense was due primarily to higher pretax income in the current year period. Additionally, the effective tax rate increased slightly compared to the prior year period, and is in line with management's anticipation of an effective tax rate of approximately 21% for fiscal year 2022.

Financial Condition as of March 31, 2022

The following table summarizes the Company's financial condition at the dates indicated.

			Annualized		Annualized
	March 31,	December 31,	Percent	September 30,	Percent
	2022	2021	Change	2021	Change
	(Dollars in thousands)
Total assets	$ 9,531,296	$ 9,609,157	(3.2) %	$ 9,631,246	(2.1) %
Available-for-sale ("AFS") securities	1,780,419	1,890,653	(23.3)	2,014,608	(23.2)
Loans receivable, net	7,108,810	7,095,605	0.7	7,081,142	0.8
Deposits	6,614,844	6,648,004	(2.0)	6,597,396	0.5
Borrowings	1,583,747	1,583,303	0.1	1,582,850	0.1
Stockholders' equity	1,174,752	1,216,660	(13.8)	1,242,273	(10.9)
Equity to total assets at end of period	12.3%	12.7%		12.9%
Average number of basic shares outstanding	135,677	135,627	0.1	135,571	0.2
Average number of diluted shares outstanding	135,677	135,627	0.1	135,571	0.2

The decrease in total assets from September 30, 2021 and December 31, 2021 to March 31, 2022 was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents. The decrease in stockholders' equity from September 30, 2021 and December 31, 2021 to March 31, 2022 was due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities.

The following table summarizes loan originations and purchases and borrowing activity, along with the related weighted average rates, during the periods indicated. The borrowings presented in the table have original contractual terms of one year or longer.

	For the Three Months Ended				For the Six Months Ended
	March 31, 2022				March 31, 2022
	Amount		Rate		Amount			Rate
	(Dollars in thousands)
Loan originations and purchases
One- to four-family and consumer:
Originated	$	180,117	3.08	%	$	389,557		2.97	%
Purchased		118,096	2.81			248,649		2.73

Commercial:
Originated		88,034	3.96			137,279		3.90
Purchased		37,394	3.25			74,057		3.30
	$	423,641	3.20		$	849,542		3.08
Borrowing activity
Maturities and prepayments	$	—	—		$	(100,000	)	3.14
New borrowings		—	—			100,000		3.44

Stockholders' Equity

During the six months ended March 31, 2022, the Company paid cash dividends totaling $52.9 million. These cash dividends totaled $0.39 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2022, this ratio was 11.1%.

At March 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $81.1 million in cash on deposit at the Bank. For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2022.

The following table presents a reconciliation of total to net shares outstanding as of March 31, 2022.

Total shares outstanding	138,846,684
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock	(3,127,914	)
Net shares outstanding	135,718,770

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. As of March 31, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.7%, which exceeded the minimum requirement of 9%. The CBLR decreased from 11.6% as of December 31, 2021 due to the reimplementation of the leverage strategy during the current quarter, which increased average assets and decreased the CBLR.

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 and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could 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)

	March 31,			December 31,			September 30,
		2022			2021			2021
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $110,444, $106,225 and $24,289)	$	166,869		$	135,475		$	42,262
AFS securities, at estimated fair value (amortized cost of $1,875,361, $1,899,027 and $2,008,456)		1,780,419			1,890,653			2,014,608
Loans receivable, net (ACL of $15,312, $17,535 and $19,823)		7,108,810			7,095,605			7,081,142
FHLB stock, at cost		74,456			75,261			73,421
Premises and equipment, net		96,952			97,718			99,127
Deferred income tax assets, net		12,399			—			—
Other assets		291,391			314,445			320,686
TOTAL ASSETS	$	9,531,296		$	9,609,157		$	9,631,246

LIABILITIES:
Deposits	$	6,614,844		$	6,648,004		$	6,597,396
Borrowings		1,583,747			1,583,303			1,582,850
Advance payments by borrowers for taxes and insurance		65,901			38,227			72,729
Income taxes payable, net		1,113			3,733			918
Deferred income tax liabilities, net		—			3,981			5,810
Other liabilities		90,939			115,249			129,270
Total liabilities		8,356,544			8,392,497			8,388,973

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, 138,846,684, 138,842,784 and 138,832,284 shares issued and outstanding as of March 31, 2022, December 31, 2021, and September 30, 2021, respectively		1,388			1,388			1,388
Additional paid-in capital		1,189,999			1,189,827			1,189,633
Unearned compensation, ESOP		(30,561	)		(30,974	)		(31,387	)
Retained earnings		89,833			79,745			98,944
Accumulated other comprehensive (loss) income, net of tax		(75,907	)		(23,326	)		(16,305	)
Total stockholders' equity		1,174,752			1,216,660			1,242,273
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	9,531,296		$	9,609,157		$	9,631,246

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)

	For the Three Months Ended						For the Six Months Ended
	March 31,			December 31,			March 31,
		2022			2021			2022			2021
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	55,412		$	55,788		$	111,200		$	117,979
MBS		4,821			4,625			9,446			11,139
FHLB stock		2,240			1,231			3,471			2,020
Investment securities		800			808			1,608			1,312
Cash and cash equivalents		949			14			963			91
Total interest and dividend income		64,222			62,466			126,688			132,541

INTEREST EXPENSE:
Deposits		8,389			9,267			17,656			26,596
Borrowings		8,732			7,585			16,317			19,059
Total interest expense		17,121			16,852			33,973			45,655

NET INTEREST INCOME		47,101			45,614			92,715			86,886

PROVISION FOR CREDIT LOSSES		(3,188	)		(3,439	)		(6,627	)		(4,496	)
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES		50,289			49,053			99,342			91,382

NON-INTEREST INCOME:
Deposit service fees		3,300			3,430			6,730			5,761
Insurance commissions		543			711			1,254			1,526
Gain on sale of Visa Class B shares		—			—			—			7,386
Other non-interest income		1,573			1,365			2,938			2,874
Total non-interest income		5,416			5,506			10,922			17,547

NON-INTEREST EXPENSE:
Salaries and employee benefits		14,023			13,728			27,751			27,535
Information technology and related expense		4,493			4,432			8,925			8,832
Occupancy, net		3,493			3,379			6,872			6,902
Regulatory and outside services		1,272			1,368			2,640			2,819
Advertising and promotional		1,494			1,064			2,558			2,322
Federal insurance premium		777			639			1,416			1,255
Deposit and loan transaction costs		689			697			1,386			1,430
Office supplies and related expense		502			468			970			887
Loss on interest rate swap termination		—			—			—			4,752
Other non-interest expense		1,217			919			2,136			2,986
Total non-interest expense		27,960			26,694			54,654			59,720
INCOME BEFORE INCOME TAX EXPENSE		27,745			27,865			55,610			49,209
INCOME TAX EXPENSE		6,122			5,679			11,801			9,867
NET INCOME	$	21,623		$	22,186		$	43,809		$	39,342

Average Balance Sheets

The following tables present the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

	For the Three Months Ended
	March 31, 2022						December 31, 2021
	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:
Originated	$	3,965,844	$	31,993	3.23	%	$	3,971,049	$	32,422	3.27	%
Correspondent purchased		2,026,120		13,060	2.58			2,035,631		12,746	2.50
Bulk purchased		161,149		503	1.25			170,537		610	1.43
Total one- to four-family loans		6,153,113		45,556	2.96			6,177,217		45,778	2.96
Commercial loans		869,205		8,851	4.07			841,217		8,943	4.16
Consumer loans		90,326		1,005	4.51			92,794		1,067	4.56
Total loans receivable⁽¹⁾		7,112,644		55,412	3.12			7,111,228		55,788	3.13
MBS⁽²⁾		1,357,693		4,821	1.42			1,435,562		4,625	1.29
Investment securities⁽²⁾⁽³⁾		522,019		800	0.61			523,931		808	0.62
FHLB stock⁽⁴⁾		158,546		2,240	5.73			73,481		1,231	6.64
Cash and cash equivalents⁽⁵⁾		1,971,341		949	0.19			37,221		14	0.15
Total interest-earning assets		11,122,243		64,222	2.31			9,181,423		62,466	2.71
Other non-interest-earning assets		385,323						412,115
Total assets	$	11,507,566					$	9,593,538

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	$	1,069,282		176	0.07		$	1,052,413		179	0.07
Savings		540,348		71	0.05			520,770		70	0.05
Money market		1,879,799		876	0.19			1,767,134		825	0.19
Retail certificates		2,241,080		7,012	1.27			2,298,678		7,835	1.35
Commercial certificates		116,181		183	0.64			169,200		272	0.64
Wholesale certificates		197,335		71	0.15			199,692		86	0.17
Total deposits		6,044,025		8,389	0.56			6,007,887		9,267	0.61
Borrowings⁽⁶⁾		3,499,010		8,732	1.01			1,589,258		7,585	1.88
Total interest-bearing liabilities		9,543,035		17,121	0.73			7,597,145		16,852	0.88
Non-interest-bearing deposits		577,989						550,492
Other non-interest-bearing liabilities		177,995						209,890
Stockholders' equity		1,208,547						1,236,011
Total liabilities and stockholders' equity	$	11,507,566					$	9,593,538

Net interest income⁽⁷⁾			$	47,101					$	45,614
Net interest-earning assets	$	1,579,208					$	1,584,278
Net interest margin⁽⁸⁾⁽⁹⁾					1.69						1.99
Ratio of interest-earning assets to interest-bearing liabilities					1.17x						1.21x

Selected performance ratios:
Return on average assets (annualized)⁽⁹⁾					0.75	%					0.93	%
Return on average equity (annualized)⁽⁹⁾					7.16						7.18
Average equity to average assets					10.50						12.88
Operating expense ratio (annualized)⁽¹⁰⁾					0.97						1.11
Efficiency ratio^(9)(11)					53.24						52.22
Pre-tax yield on leverage strategy⁽¹²⁾					0.14						—

	For the Six Months Ended
	March 31, 2022			March 31, 2021
	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:
Originated	$ 3,968,475	$ 64,415	3.25%	$ 3,953,137	$ 70,755	3.58%
Correspondent purchased	2,030,928	25,805	2.54	2,023,781	24,757	2.45
Bulk purchased	165,895	1,114	1.34	200,918	2,045	2.04
Total one- to four-family loans	6,165,298	91,334	2.96	6,177,836	97,557	3.16
Commercial loans	855,057	17,794	4.12	768,552	17,963	4.62
Consumer loans	91,573	2,072	4.54	106,371	2,459	4.64
Total loans receivable⁽¹⁾	7,111,928	111,200	3.12	7,052,759	117,979	3.34
MBS⁽²⁾	1,397,056	9,446	1.35	1,372,531	11,139	1.62
Investment securities⁽²⁾⁽³⁾	522,986	1,608	0.61	448,595	1,312	0.58
FHLB stock⁽⁴⁾	115,546	3,471	6.02	81,332	2,020	4.98
Cash and cash equivalents⁽⁵⁾	993,653	963	0.19	180,242	91	0.10
Total interest-earning assets	10,141,169	126,688	2.49	9,135,459	132,541	2.90
Other non-interest-earning assets	398,355			449,883
Total assets	$ 10,539,524			$ 9,585,342

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	$ 1,060,755	355	0.07	$ 929,976	407	0.09
Savings	530,451	141	0.05	460,252	136	0.06
Money market	1,822,848	1,701	0.19	1,508,935	2,222	0.30
Retail certificates	2,270,195	14,847	1.31	2,565,182	22,293	1.74
Commercial certificates	142,982	455	0.64	184,414	801	0.87
Wholesale certificates	198,527	157	0.16	256,123	737	0.58
Total deposits	6,025,758	17,656	0.59	5,904,882	26,596	0.90
Borrowings⁽⁶⁾	2,533,641	16,317	1.28	1,690,363	19,059	2.25
Total interest-bearing liabilities	8,559,399	33,973	0.79	7,595,245	45,655	1.20
Non-interest-bearing deposits	564,089			479,894
Other non-interest-bearing liabilities	193,606			227,189
Stockholders' equity	1,222,430			1,283,014
Total liabilities and stockholders' equity	$ 10,539,524			$ 9,585,342


Net interest income⁽⁷⁾		$ 92,715			$ 86,886
Net interest-earning assets	$ 1,581,770			$ 1,540,214
Net interest margin⁽⁸⁾⁽⁹⁾			1.83			1.90
Ratio of interest-earning assets to interest-bearing liabilities			1.18x			1.20x

Selected performance ratios:
Return on average assets (annualized)⁽⁹⁾			0.83%			0.82%
Return on average equity (annualized)⁽⁹⁾			7.17			6.13
Average equity to average assets			11.60			13.39
Operating expense ratio (annualized)⁽¹⁰⁾			1.04			1.25
Efficiency ratio^(9)(11)			52.74			57.19
Pre-tax yield on leverage strategy⁽¹²⁾			0.15			—

(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 $2.0 million and $4.0 million for the quarters ended March 31, 2022 and December 31, 2021, respectively, and $3.0 million and $8.3 million for the six-month periods ended March 31, 2022 and March 31, 2021, respectively.
(4)	Included in this line, for the quarter and six month period ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and $42.6 million, respectively, and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and $72.9 million, respectively, and dividend income of $1.0 million and $2.2 million, respectively, at a weighted average yield of 5.71% and 6.18%, respectively. There was no FHLB stock related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.
(5)	The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.83 billion and $904.6 million during the quarter and six month period ended March 31, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.
(6)	Included in this line, for the quarter and six month period ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and $947.3 million, respectively, and interest paid of $1.3 million and $1.3 million, respectively, at a weighted average rate of 0.26% and 0.26%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and $1.59 billion, respectively, and interest paid of $7.5 million and $15.1 million, respectively, at a weighted average rate of 1.90% and 1.89%, respectively. There were no FHLB borrowings related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.
(7)	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.
(8)	Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(9)	The tables below provide a reconciliation between certain performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("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 amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.

	For the Three Months Ended
	March 31, 2022						December 31, 2021
	Actual		Leverage		Adjusted		Actual		Leverage		Adjusted
	(GAAP)		Strategy		(Non-GAAP)		(GAAP)		Strategy		(Non-GAAP)
Yield on interest-earning assets	2.31	%	(0.39	) %	2.70	%	2.71	%	—	%	2.71	%
Cost of interest-bearing liabilities	0.73		(0.11	)	0.84		0.88		—		0.88
Return on average assets (annualized)	0.75		(0.13	)	0.88		0.93		—		0.93
Return on average equity (annualized)	7.16		0.18		6.98		7.18		—		7.18
Net interest margin	1.69		(0.32	)	2.01		1.99		—		1.99
Efficiency Ratio	53.24		(0.58	)	53.82		52.22		—		52.22

	For the Six Months Ended
	March 31, 2022						March 31, 2021
	Actual		Leverage		Adjusted		Actual		Leverage		Adjusted
	(GAAP)		Strategy		(Non-GAAP)		(GAAP)		Strategy		(Non-GAAP)
Yield on interest-earning assets	2.49	%	(0.22	) %	2.71	%	2.90	%	—	%	2.90	%
Cost of interest-bearing liabilities	0.79		(0.07	)	0.86		1.20		—		1.20
Return on average assets (annualized)	0.83		(0.07	)	0.90		0.82		—		0.82
Return on average equity (annualized)	7.17		0.09		7.08		6.13		—		6.13
Net interest margin	1.83		(0.17	)	2.00		1.90		—		1.90
Efficiency Ratio	52.74		(0.29	)	53.03		57.19		—		57.19

(10)	The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(11)	The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
(12)	The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

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.

	March 31, 2022							December 31, 2021							September 30, 2021
						% of							% of							% of
	Amount			Rate		Total		Amount			Rate		Total		Amount			Rate		Total
	(Dollars in thousands)
One- to four-family:
Originated	$	3,943,327		3.14	%	55.4	%	$	3,941,568		3.15	%	55.5	%	$	3,956,064		3.18	%	55.8	%
Correspondent purchased		1,995,167		2.95		28.0			1,991,944		2.97		28.0			2,003,477		3.02		28.2
Bulk purchased		155,657		1.33		2.2			165,339		1.52		2.3			173,662		1.65		2.4
Construction		50,512		2.78		0.7			47,508		2.76		0.7			39,142		2.82		0.6
Total		6,144,663		3.03		86.3			6,146,359		3.05		86.5			6,172,345		3.09		87.0
Commercial:
Commercial real estate		671,324		3.94		9.4			687,518		3.98		9.6			676,908		4.00		9.6
Commercial and industrial		78,363		3.92		1.1			76,254		3.85		1.1			66,497		3.83		0.9
Construction		133,597		4.06		1.9			105,702		4.04		1.5			85,963		4.03		1.2
Total		883,284		3.96		12.4			869,474		3.98		12.2			829,368		3.99		11.7
Consumer loans:
Home equity		82,878		4.57		1.2			84,400		4.59		1.2			86,274		4.60		1.2
Other		7,858		4.18		0.1			7,825		4.13		0.1			8,086		4.19		0.1
Total		90,736		4.54		1.3			92,225		4.55		1.3			94,360		4.57		1.3
Total loans receivable		7,118,683		3.16		100.0	%		7,108,058		3.18		100.0	%		7,096,073		3.21		100.0	%

Less:
ACL		15,312							17,535							19,823
Deferred loan fees/discounts		29,264							29,363							29,556
Premiums/deferred costs		(34,703	)						(34,445	)						(34,448	)
Total loans receivable, net	$	7,108,810						$	7,095,605						$	7,081,142

Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, 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. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.

	For the Three Months Ended					For the Six Months Ended
	March 31, 2022					March 31, 2022
	Amount			Rate		Amount			Rate
	(Dollars in thousands)
Beginning balance	$	7,108,058		3.18	%	$	7,096,073		3.21	%
Originated and refinanced		268,151		3.37			526,836		3.21
Purchased and participations		155,490		2.92			322,706		2.86
Change in undisbursed loan funds		(23,311	)				(45,237	)
Repayments		(389,719	)				(781,498	)
Principal recoveries/(charge-offs), net		14					45
Other		—					(242	)
Ending balance	$	7,118,683		3.16		$	7,118,683		3.16

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, weighted average rate, percent of total, weighted average credit score, and weighted average loan-to-value ("LTV") ratio as of March 31, 2022. Credit scores were updated in March 2022 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.

					% of		Credit
	Amount		Rate		Total		Score	LTV
	(Dollars in thousands)
Originated	$	3,943,327	3.14	%	64.7	%	772	61	%
Correspondent purchased		1,995,167	2.95		32.7		765	64
Bulk purchased		155,657	1.33		2.6		773	58
	$	6,094,151	3.03		100.0	%	770	62

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated.

	For the Three Months Ended							For the Six Months Ended
	March 31, 2022							March 31, 2022
							Credit							Credit
	Amount		Rate		LTV		Score	Amount		Rate		LTV		Score
	(Dollars in thousands)
Originated	$	164,477	2.96	%	70	%	767	$	358,584	2.63	%	70	%	766
Correspondent purchased		118,096	2.81		71		768		248,649	2.70		72		772
	$	282,573	2.90		70		768	$	607,233	2.65		71		768

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2022, along with associated weighted average rates.

	Amount		Rate
	(Dollars in thousands)
Originate/refinance	$	151,633	3.30	%
Correspondent		53,515	3.08
	$	205,148	3.24

Commercial Loans: During the six months ended March 31, 2022, the Bank originated $137.3 million of commercial loans and entered into commercial loan participations totaling $74.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $174.1 million at a weighted average rate of 3.93%.

As of March 31, 2022, December 31, 2021, and September 30, 2021, the Bank's commercial and industrial gross loan amount (unpaid principal plus undisbursed amounts) totaled $101.3 million, $99.8 million, and $90.7 million, respectively, and commitments totaled $1.4 million at March 31, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of March 31, 2022, the Bank had commercial real estate and commercial construction loan commitments totaling $28.7 million, at a weighted average rate of 4.35%. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.

	March 31, 2022										December 31, 2021			September 30, 2021
		Unpaid			Undisbursed			Gross Loan			Gross Loan			Gross Loan
	Count	Principal			Amount			Amount			Amount			Amount
		(Dollars in thousands)
Senior housing	35	$	244,786		$	86,444		$	331,230		$	295,929		$	265,284
Retail building	147		186,325			39,972			226,297			215,593			208,539
Hotel	11		150,735			43,552			194,287			188,472			194,665
Office building	87		50,115			54,672			104,787			109,851			109,987
Multi-family	34		57,764			13,416			71,180			65,839			66,199
One- to four-family property	398		62,626			8,294			70,920			69,292			69,174
Single use building	28		19,410			4,769			24,179			52,471			47,028
Other	95		33,160			2,757			35,917			37,887			36,167
	835	$	804,921		$	253,876		$	1,058,797		$	1,035,334		$	997,043

Weighted average rate			3.96	%		3.83	%		3.93	%		3.97	%		4.01	%

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of the dates indicated.

	March 31, 2022							December 31, 2021		September 30, 2021
		Unpaid		Undisbursed		Gross Loan		Gross Loan		Gross Loan
	Count	Principal		Amount		Amount		Amount		Amount
		(Dollars in thousands)
Kansas	630	$	313,861	$	52,542	$	366,403	$	386,332	$	348,835
Missouri	169		226,952		54,278		281,230		239,943		232,041
Texas	11		162,660		111,360		274,020		269,772		273,124
Colorado	6		18,722		16,730		35,452		35,552		36,099
Arkansas	3		20,254		13,335		33,589		33,676		33,763
Nebraska	6		33,265		4		33,269		33,370		33,468
Other	10		29,207		5,627		34,834		36,689		39,713
	835	$	804,921	$	253,876	$	1,058,797	$	1,035,334	$	997,043

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of March 31, 2022.

	Count	Amount
	(Dollars in thousands)
Greater than $30 million	6	$	246,996
>$15 to $30 million	14		306,167
>$10 to $15 million	7		84,696
>$5 to $10 million	18		112,795
$1 to $5 million	111		249,997
Less than $1 million	1,274		189,611
	1,430	$	1,190,262

As of March 31, 2022 and December 31, 2021, there were commercial loans with a gross loan amount (unpaid principal plus undisbursed amounts) of $74.3 million and $143.5 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period.

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. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. 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 March 31, 2022, approximately 64% were 59 days or less delinquent. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. Non-performing assets include nonaccrual loans and OREO. Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2022, $2.9 million were 30 to 89 days delinquent and $2.8 million were 90 or more days delinquent as of March 31, 2022 and are included in the tables below.

	Loans Delinquent for 30 to 89 Days at:
	March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				March 31, 2021
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
One- to four-family:
Originated	64	$	6,931		74	$	7,009		48	$	4,156		51	$	5,141		45	$	4,151
Correspondent purchased	10		2,421		11		5,133		7		2,590		9		3,650		9		2,910
Bulk purchased	2		396		1		154		4		541		6		958		5		352
Commercial	4		373		2		222		2		37		1		35		5		806
Consumer	14		215		16		164		25		498		25		354		17		287
	94	$	10,336		104	$	12,682		86	$	7,822		92	$	10,138		81	$	8,506
30 to 89 days delinquent loans to total loans receivable, net			0.15	%			0.18	%			0.11	%			0.14	%			0.12	%

	Non-Performing Loans and OREO at:
	March 31, 2022		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021
	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	44	$ 3,999	48	$ 3,943	50	$ 3,693	53	$ 3,696	55	$ 4,433
Correspondent purchased	11	3,967	10	3,115	10	3,210	12	4,230	10	3,749
Bulk purchased	5	1,819	6	1,945	9	2,974	7	2,596	10	3,172
Commercial	6	1,167	6	1,170	6	1,214	7	1,278	6	1,068
Consumer	19	400	25	477	21	498	23	445	26	531
	85	11,352	95	10,650	96	11,589	102	12,245	107	12,953


Loans 90 or more days delinquent or in foreclosure as a percentage of total loans		0.16%		0.15%		0.16%		0.17%		0.19%

Nonaccrual loans less than 90 Days Delinquent:⁽¹⁾
One- to four-family:
Originated	5	$ 505	5	$ 451	7	$ 1,288	7	$ 1,392	9	$ 1,646
Correspondent purchased	—	—	—	—	—	—	—	—	—	—
Bulk purchased	—	—	—	—	1	131	1	131	—	—
Commercial	2	34	3	62	4	419	3	403	4	642
Consumer	2	27	—	—	1	9	—	—	—	—
	9	566	8	513	13	1,847	11	1,926	13	2,288
Total nonaccrual loans	94	11,918	103	11,163	109	13,436	113	14,171	120	15,241

Nonaccrual loans as a percentage of total loans		0.17%		0.16%		0.19%		0.20%		0.22%

OREO:
One- to four-family:
Originated⁽²⁾	—	$ —	2	$ 319	3	$ 170	3	$ 177	2	$ 105
Total non-performing assets	94	$ 11,918	105	$ 11,482	112	$ 13,606	116	$ 14,348	122	$ 15,346

Non-performing assets as a percentage of total assets		0.13%		0.12%		0.14%		0.15%		0.16%

(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. The decrease in commercial special mention loans at March 31, 2022 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the December 31, 2021 quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.

	March 31, 2022				September 30, 2021
	Special Mention		Substandard		Special Mention		Substandard
	(Dollars in thousands)
One- to four-family	$	13,323	$	22,494	$	14,332	$	23,458
Commercial		47,093		3,493		99,729		3,259
Consumer		306		618		135		718
	$	60,722	$	26,605	$	114,196	$	27,435

Allowance for Credit Losses: The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. Management applied qualitative factors at March 31, 2022 to account for economic uncertainty that may not be adequately captured in the third party economic forecast scenarios, along with the balance of large-dollar special mention commercial loans, and commercial loan COVID-19 modifications. The main economic uncertainties associated with the economic uncertainty qualitative factor were related to (1) the unemployment rate, which is a key economic index in the Bank's model, and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships.

The following tables present ACL activity and related ratios at the dates and for the periods indicated. The reserve for off-balance sheet credit exposures totaled $3.7 million at March 31, 2022, $4.6 million at December 31, 2021, and $5.7 million at September 30, 2021.

	For the Three Months Ended			For the Six Months Ended
	March 31, 2022			March 31, 2022
	(Dollars in thousands)
Balance at beginning of period	$	17,535		$	19,823
Charge-offs:
One- to four-family		—			(4	)
Commercial		—			(10	)
Consumer		(5	)		(6	)
Total charge-offs		(5	)		(20	)
Recoveries:
One- to four-family		2			11
Commercial		13			49
Consumer		4			5
Total recoveries		19			65
Net recoveries (charge-offs)		14			45
Provision for credit losses		(2,237	)		(4,556	)
Balance at end of period	$	15,312		$	15,312

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		(0.12	)		(0.35	)
ACL to non-performing loans at end of period		128.48			128.48
ACL to loans receivable at end of period		0.22			0.22
ACL to net charge-offs (annualized)		N/M⁽¹⁾			N/M⁽¹⁾

(1)	This ratio is not presented due to loan recoveries exceeding loan charge-offs during the period.

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

	Distribution of ACL				Ratio of ACL to Loans Receivable
	March 31,		December 31,		March 31,		December 31,
		2022		2021	2022		2021
	(Dollars in thousands)
One- to four-family	$	4,079	$	3,989	0.07	%	0.06	%
Commercial:
Commercial real estate		8,991		11,257	1.34		1.64
Commercial and industrial		389		376	0.50		0.49
Construction		1,651		1,720	1.24		1.63
Total		11,031		13,353	1.25		1.54
Consumer		202		193	0.22		0.21
Total	$	15,312	$	17,535	0.22		0.25

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at March 31, 2022. Overall, fixed-rate securities comprised 95% of our securities portfolio at March 31, 2022. 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 tax-equivalent basis.

	Amount		Yield		WAL
	(Dollars in thousands)
MBS	$	1,354,637	1.49	%	4.3
U.S. government-sponsored enterprise debentures		519,974	0.61		3.4
Municipal bonds		750	2.24		0.1
Total securities portfolio	$	1,875,361	1.24		4.1

The following table summarizes the activity in our securities portfolio 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 and ending balances are as of the first and last days of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.

	For the Three Months Ended						For the Six Months Ended
	March 31, 2022						March 31, 2022
	Amount			Yield		WAL	Amount			Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	1,890,653		1.16	%	3.5	$	2,014,608		1.16	%	3.5
Maturities and repayments		(80,993	)					(188,658	)
Net amortization of (premiums)/discounts		(1,219	)					(2,983	)
Purchases		58,546		2.26		4.3		58,546		2.26		4.3
Change in valuation on AFS securities		(86,568	)					(101,094	)
Ending balance - carrying value	$	1,780,419		1.25		4.1	$	1,780,419		1.25		4.1

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.

	March 31, 2022						December 31, 2021						September 30, 2021
					% of						% of						% of
	Amount		Rate		Total		Amount		Rate		Total		Amount		Rate		Total
	(Dollars in thousands)
Non-interest-bearing checking	$	600,457	—	%	9.1	%	$	599,969	—	%	9.0	%	$	543,849	—	%	8.2	%
Interest-bearing checking		1,097,287	0.07		16.6			1,092,342	0.07		16.4			1,037,362	0.07		15.7
Savings		558,337	0.05		8.4			526,714	0.05		7.9			519,069	0.05		7.9
Money market		1,885,873	0.19		28.5			1,840,049	0.19		27.7			1,753,525	0.19		26.6
Retail certificates of deposit		2,213,617	1.22		33.5			2,254,560	1.31		33.9			2,341,531	1.41		35.5
Commercial certificates of deposit		100,739	0.61		1.5			137,419	0.64		2.1			190,215	0.66		2.9
Public unit certificates of deposit		158,534	0.14		2.4			196,951	0.17		3.0			211,845	0.21		3.2
	$	6,614,844	0.49		100.0	%	$	6,648,004	0.53		100.0	%	$	6,597,396	0.59		100.0	%

Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of March 31, 2022.

	Term Borrowings Amount
Maturity by	FHLB		Interest rate		Contractual		Effective
Fiscal Year	Advances		swaps⁽¹⁾		Rate		Rate⁽²⁾
	(Dollars in thousands)
2022	$	75,000	$	—	0.29	%	0.29	%
2023		300,000		—	1.70		1.81
2024		150,000		165,000	1.44		2.46
2025		300,000		100,000	1.38		2.09
2026		250,000		—	0.96		1.27
2027		150,000		—	0.93		1.24
2028		—		100,000	0.78		3.44
	$	1,225,000	$	365,000	1.25		1.90

(1)	Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 million to hedge the variability in cash flows associated with the advances. Each interest rate swap matures on the same date as the related FHLB advance. The expected WAL of the interest rate swaps and related advances was 3.6 years at March 31, 2022.
(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 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. 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 and includes the impact of interest rate swaps. 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					For the Six Months Ended
	March 31, 2022					March 31, 2022
			Effective						Effective
	Amount		Rate		WAM	Amount			Rate		WAM
	(Dollars in thousands)
Beginning balance	$	1,590,000	1.90	%	3.1	$	1,590,000		1.88	%	3.3
Maturities and prepayments		—	—				(100,000	)	3.14
New FHLB borrowings		—	—		—		100,000		3.44		6.5
Ending balance	$	1,590,000	1.90		2.8	$	1,590,000		1.90		2.8

Maturities of Interest-Bearing Liabilities

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/commercial and public unit amounts, and term borrowings for the next four quarters as of March 31, 2022.

	June 30,			September 30,			December 31,			March 31,
		2022			2022			2022			2023		Total
	(Dollars in thousands)
Retail/Commercial Certificates:
Amount	$	373,869		$	460,633		$	315,308		$	253,771		$	1,403,581
Repricing Rate		0.99	%		1.30	%		1.22	%		1.22	%		1.19	%
Public Unit Certificates:
Amount	$	99,192		$	29,003		$	15,000		$	3,503		$	146,698
Repricing Rate		0.10	%		0.09	%		0.50	%		0.10	%		0.14	%
Term Borrowings:
Amount	$	—		$	75,000		$	—		$	100,000		$	175,000
Repricing Rate		—	%		0.29	%		—	%		1.46	%		0.95	%
Total
Amount	$	473,061		$	564,636		$	330,308		$	357,274		$	1,725,279
Repricing Rate		0.80	%		1.11	%		1.19	%		1.28	%		1.07	%

The following table sets forth the WAM information for our certificates of deposit, in years, as of March 31, 2022.

Retail certificates of deposit	1.2
Commercial certificates of deposit	0.5
Public unit certificates of deposit	0.3
Total certificates of deposit	1.1

Average Rates and Lives

At March 31, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.46) billion, or (15.3)% of total assets, compared to $(928.0) million, or (9.7)% of total assets, at December 31, 2021. The change in the one-year gap amount was due primarily to a decrease in the amount of asset cash flows projected at March 31, 2022 compared to December 31, 2021. As interest rates rise, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.

The amount of interest-bearing liabilities expected to reprice in a given period is not typically significantly impacted by changes in interest rates, 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 March 31, 2022, the Bank's one-year gap is projected to be $(1.54) billion, or (16.2)% of total assets. The change 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 $(1.44) billion, or (15.0)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2021.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2022. 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.

	Amount		Yield/Rate		WAL	% of Category		% of Total
	(Dollars in thousands)
Securities	$	1,780,419	1.24	%	4.6			19.5	%
Loans receivable:
Fixed-rate one- to four-family		5,583,265	3.08		7.5	78.4	%	61.1
Fixed-rate commercial		462,907	4.07		3.6	6.5		5.0
All other fixed-rate loans		61,990	3.49		8.0	0.9		0.7
Total fixed-rate loans		6,108,162	3.16		7.2	85.8		66.8
Adjustable-rate one- to four-family		510,886	2.33		4.8	7.2		5.6
Adjustable-rate commercial		420,377	4.08		7.4	5.9		4.6
All other adjustable-rate loans		79,258	4.22		2.6	1.1		0.9
Total adjustable-rate loans		1,010,521	3.21		5.7	14.2		11.1
Total loans receivable		7,118,683	3.17		7.0	100.0	%	77.9
FHLB stock		74,456	5.71		2.8			0.8
Cash and cash equivalents		166,869	0.26		—			1.8
Total interest-earning assets	$	9,140,427	2.76		6.3			100.0	%

Non-maturity deposits	$	3,541,497	0.13		5.4	58.9	%	46.6	%
Retail certificates of deposit		2,213,617	1.22		1.2	36.8		29.1
Commercial certificates of deposit		100,739	0.61		0.5	1.7		1.3
Public unit certificates of deposit		158,534	0.14		0.3	2.6		2.1
Total interest-bearing deposits		6,014,387	0.54		3.6	100.0	%	79.1
Term borrowings		1,590,000	1.90		2.8			20.9
Total interest-bearing liabilities	$	7,604,387	0.82		3.5			100.0	%

View source version on businesswire.com: https://www.businesswire.com/news/home/20220427005146/en/

Contacts

Kent Townsend

Executive Vice President,

Chief Financial Officer and Treasurer

(785) 231-6360

ktownsend@capfed.com

Investor Relations

(785) 270-6055

investorrelations@capfed.com

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Capitol Federal Financial, Inc.® Reports Second Quarter Fiscal Year 2022 Results

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