# Capitol Federal Financial, Inc.: Form 10-K for the period ended Sep 30, 2024 - Company: [Capitol Federal Financial, Inc.](/companies/cffn.md) (CIK 1490906) - Form: 10-K - Filed: 2024-11-27 - Accepted by EDGAR: Nov 27, 2024, 13:59 ET - Period: 2024-09-30 - Accession: 0001490906-24-000035 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1490906/000149090624000035/cffn-20240930.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1490906/000149090624000035/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 12 months, 2023-10-01 to 2024-09-30 | $15.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Income tax | 12 months, 2023-10-01 to 2024-09-30 | $16.1m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 12 months, 2023-10-01 to 2024-09-30 | $38.0m | us-gaap:NetIncomeLoss | | Diluted EPS | 12 months, 2023-10-01 to 2024-09-30 | $0.29 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 12 months, 2023-10-01 to 2024-09-30 | $0.29 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 12 months, 2023-10-01 to 2024-09-30 | 130,670,780 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 12 months, 2023-10-01 to 2024-09-30 | $31.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 12 months, 2023-10-01 to 2024-09-30 | $7.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Dividends paid | 12 months, 2023-10-01 to 2024-09-30 | $44.5m | us-gaap:PaymentsOfDividends | | Share repurchases | 12 months, 2023-10-01 to 2024-09-30 | $19.4m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2024-09-30 | $217.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Total assets | at 2024-09-30 | $9.53bn | us-gaap:Assets | | Total liabilities | at 2024-09-30 | $8.50bn | us-gaap:Liabilities | | Shareholders' equity | at 2024-09-30 | $1.03bn | us-gaap:StockholdersEquity | ## Business As filed, 36,785 characters. ### General The Company is a Maryland corporation with its common stock traded on the Global Select tier of the NASDAQ Stock Market. The Bank is a wholly-owned subsidiary of the Company and is a federally chartered and insured savings bank headquartered in Topeka, Kansas. We have been, and intend to continue to be, a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. We attract deposits primarily from the general public and from businesses, and invest those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences and in commercial loans, either secured by real estate or for commercial and industrial purposes. We also participate with other lenders in commercial loans, and have purchased loans primarily secured by mortgages on one- to four-family residences. The Bank also invests in certain investment securities and mortgage-backed securities ("MBS") using funding from deposits and Federal Home Loan Bank of Topeka ("FHLB") borrowings. We offer a variety of deposit accounts having a wide range of interest rates and terms, which generally include savings accounts, money market accounts, interest-bearing and non-interest-bearing checking accounts, and certificates of deposit with terms ranging from 91 days to 120 months. The Bank offers a suite of treasury management services designed to support business customers in managing their financial operations efficiently and securely. Our treasury management solutions include cash flow optimization, fraud prevention tools, and payment services tailored to meet the needs of commercial clients. By leveraging these services, we help businesses streamline their operations, reduce financial risk, and maximize liquidity while helping the Bank gather deposit and fee income. The Company's results of operations are primarily dependent on net interest income, which is the difference between the interest earned on loans, securities, and cash, and the interest paid on deposits and borrowings. On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market interest rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local lending markets. Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The Company is significantly affected by prevailing economic conditions, including federal monetary and fiscal policies and federal regulation of financial institutions. Deposit balances are influenced by a number of factors, including interest rates paid on competing investment products, the level of personal income, and the personal rate of savings within our market areas. Lending activities are influenced by the demand for housing and business activity levels, our loan underwriting guidelines compared to those of our competitors, as well as the interest rate environment and interest rate pricing competition from other lending institutions. ### Management Strategy We seek to provide qualified borrowers the broadest possible access to home ownership through our mortgage lending programs and to offer a complete set of personal and commercial banking products and services to our customers. We strive to enhance stockholder value while maintaining a strong capital position. To achieve these goals, we focus on the following strategies: - **Lending.** We are one of the leading originators of one- to four-family loans in the state of Kansas. We originate these loans primarily for our own portfolio, and we service the loans we originate. Historically, we purchased one- to four-family loans from correspondent lenders but recently suspended that activity for balance sheet management purposes. We offer several commercial lending options and participate in commercial loans with other lenders, both locally and outside our market areas. We offer both fixed- and adjustable-rate products with various terms to maturity and pricing options. We maintain strong relationships with local real estate agents to attract loan business. We rely on our marketing efforts and customer service reputation to attract business from walk-in customers, customers that apply online, and existing customers. Our business development efforts help to bring new business relationships to the Bank. - **Deposit Services.** We offer a wide array of retail and business deposit products and services. These products include checking, savings, money market, certificates of deposit, and retirement accounts. We also offer Treasury Management solutions tailored to meet the needs of our commercial clients. Our deposit services are provided through our network of traditional branches and retail in-store locations, our call center (which operates on extended hours), mobile banking, telephone banking, and online banking and bill payment services. - **Cost Control.** We generally are effective at controlling our costs of operations. We centralize our loan servicing and deposit support functions for efficient processing. We serve a broad range of customers through relatively few branch locations. Our average deposit base per traditional branch at September 30, 2024 was approximately $128.7 million. This large average deposit base per branch helps to control costs. Our one- to four-family lending strategy and our effective management of credit risk allow us to service a large portfolio of loans at efficient levels because it costs less to service a portfolio of performing loans. We recognize it is more expensive to offer a full suite of commercial products and services, but we will continue our efforts to control those costs. The Bank continues to invest in its infrastructure, which can increase costs. - **Asset Quality.** We utilize underwriting standards for all of our lending products, including the loans we purchase and participate in, that are designed to limit our exposure to credit risk. We require complete documentation for both originated and purchased loans, and make credit decisions based on our assessment of the borrower's ability to repay the loan in accordance with its terms. Additionally, we monitor the asset quality of existing loans and strive to work proactively with customers who face challenging financial conditions. - **Capital Position.** Our policy has always been to protect the safety and soundness of the Bank through credit and operational risk management, balance sheet strength, and sound operations. The end result of these activities has been capital ratios that meet or exceed the well-capitalized standards set by the Office of the Comptroller of the Currency (the "OCC"). We believe that maintaining a strong capital position safeguards the long-term interests of the Bank, the Company, and our stockholders. - **Stockholder Value.** We strive to provide stockholder value while maintaining a strong capital position. We continue to generate returns to stockholders through dividend payments and share repurchases. Total dividends declared and paid during fiscal year 2024 were $44.5 million. The Company repurchased 3,280,110 shares for $19.3 million during fiscal year 2024, which all occurred in the first half of the year. The Company's cash dividend payout policy is reviewed quarterly by management and the Board of Directors, and the ability to pay dividends under the policy depends 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. For fiscal year 2025, it is the current intention of the Board of Directors to continue the regular quarterly cash dividend of $0.085 per share. - **Interest Rate Risk Management.** Changes in interest rates are our primary market risk as our balance sheet is almost entirely comprised of interest-earning assets and interest-bearing liabilities. Therefore, fluctuations in interest rates have a significant impact not only upon our net income but also upon the cash flows related to those assets and liabilities and the market value of our assets and liabilities. In order to maintain what we believe to be acceptable levels of net interest income in varying interest rate environments, we actively manage our interest rate risk and assume a moderate amount of interest rate risk consistent with policies approved by the Board of Directors. ### Market Area and Competition Our corporate office is located in Topeka, Kansas. As of September 30, 2024, we had a network of 48 branches (44 traditional branches and four in-store branches) located in nine counties throughout Kansas and three counties in Missouri. We primarily serve the metropolitan areas of Topeka, Wichita, Lawrence, Manhattan, Emporia, and Salina, Kansas and a portion of the metropolitan area of greater Kansas City. Competition in originating one- to four-family and consumer loans and attracting retail deposits primarily comes from local, regional, and national banks, savings institutions, credit unions, mortgage brokerage firms, investment banking and brokerage firms, and online competitors that are not confined to any specific market area. The Bank has consistently been one of the top originators of residential one- to four-family loans in the state of Kansas. This has been achieved through strong relationships with real estate agents and targeted marketing campaigns which emphasize the strength of Capitol Federal's brand, competitive pricing, and the Bank's history as a portfolio lender. The Bank offers a diversified retail deposit product line, and trust and brokerage services. Management considers our well-established banking network and our reputation for financial strength and customer service to be major factors in our success at attracting and retaining customers in our market areas. The Bank ranked third in deposit market share, at 6.1%, in the state of Kansas as reported in the June 30, 2024 Federal Deposit Insurance Corporation ("FDIC") "Summary of Deposits - Market Share Report." There is similarly intense competition for quality commercial lending relationships in the areas we serve. Larger national, regional and local financial institutions, as well as credit unions, farm credit lenders, commercial finance companies, insurance companies, and other non-bank lenders have increased their presence in our market areas, ultimately placing downward pressure on pricing. We also compete with smaller local financial institutions that may have aggressive pricing and unique terms. We compete in a number of ways including customer service, quality of execution, range of products offered, price and reputation among others. While we provide competitive interest rates on both deposit and lending products, we believe that we can compete most successfully by focusing on the financial needs of growing companies and small and middle-market businesses, pairing these companies with experienced relationship managers who can offer a broad range of customized services, digital platforms and sophisticated cash management tools tailored to their business through our Treasury Management solutions. ### Available Information Our website address is www.capfed.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our website. These reports are available on our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These reports are also available on the SEC's website at http://www.sec.gov. ### Regulation and Supervision The Bank is examined and regulated by the OCC, its primary regulator, and its deposits are insured up to applicable limits by the Deposit Insurance Fund ("DIF"), which is administered by the FDIC. The Company, as a savings and loan holding company, is examined and regulated by the FRB. Set forth below is a description of certain laws and regulations that are applicable to the Company and the Bank. This description is intended as a brief summary of selected features of such laws and regulations and is qualified in its entirety by reference to the laws and regulations applicable to the Company and the Bank. ***General.*** The Bank, as a federally chartered savings bank, is subject to regulation and oversight by the OCC in all aspects of its operations. This regulation and oversight of the Bank is intended for the protection of depositors and other customers and not for the purpose of protecting the Company's stockholders. The investment and lending authority of the Bank is prescribed by federal laws and regulations and the Bank is prohibited from engaging in any activities not permitted by such laws and regulations. The Bank and Company are required to maintain minimum levels of regulatory capital and the Bank is subject to limitations on making capital distributions to the Company. The Company is a unitary savings and loan holding company within the meaning of the Home Owners' Loan Act ("HOLA"). As such, the Company is registered with the FRB and subject to FRB regulations, examinations, supervision, and reporting requirements. In addition, the FRB has enforcement authority over the Company. Among other things, this authority permits the FRB to restrict or prohibit activities by the Company that are determined to be a serious risk to the Bank. The enforcement authority of the OCC and of the FRB includes, among other things, the ability to assess civil monetary penalties, to issue cease-and-desist or removal orders, and to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely filed reports. Except under certain circumstances, public disclosure of final enforcement actions by the OCC or the FRB is required by law. As a federally chartered savings bank, the Bank is required to maintain a significant portion of its assets in residential housing-related loans and investments in at least nine months of the most recent 12-month period. An institution that fails to do so is immediately subject to restrictions on its operations, including a prohibition against capital distributions, except with the prior approval of both the OCC and the FRB. Failure to meet this qualification is a statutory violation subject to enforcement action. As of September 30, 2024, the Bank met the qualification. The Bank's relationship with its depositors and borrowers is regulated to a great extent by federal laws and regulations, especially in such matters as the ownership of savings accounts and the form and content of mortgage requirements. In addition, the branching authority of the Bank is regulated by the OCC. The Bank is generally authorized to branch nationwide. The Bank is subject to a statutory lending limit on aggregate loans to one person or a group of related persons. The general limit is 15% of the Bank's unimpaired capital and surplus, plus an additional 10% for loans fully secured by readily marketable collateral. At September 30, 2024, the Bank's lending limit under this restriction was $135.5 million. The Bank has no loans or loan relationships in excess of its lending limit. Loan commitments and loans outstanding to the Bank's largest borrowing relationship totaled $113.0 million at September 30, 2024, all of which was current according to its terms. The OCC has adopted guidelines establishing safety and soundness standards on matters such as loan underwriting and documentation, asset quality, earnings standards, internal controls and audit systems, interest rate risk exposure, and compensation and other employee benefits. The Bank is subject to periodic examinations by the OCC regarding these and related matters. During these examinations, the examiners may require the Bank to increase its ACL, change the classification of loans, and/or recognize additional charge-offs based on their judgments, which can impact our capital and earnings. ***Regulatory Capital Requirements.*** The Bank and the Company are required to maintain specified levels of regulatory capital under regulations of the OCC and FRB, respectively. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 13. Regulatory Capital Requirements" for additional regulatory capital information. At September 30, 2024, the Bank was considered well capitalized under OCC regulations. The OCC can establish individual minimum capital requirements for a particular institution which vary from the capital levels that would otherwise be required under the applicable capital regulations based on such factors as concentrations of credit risk, levels of interest rate risk, the risks of non-traditional activities, and other circumstances. The OCC has not imposed any such requirements on the Bank. The OCC is authorized and, under certain circumstances, required to take certain actions against federal savings banks that are not adequately capitalized because they fail to meet the minimum requirements associated with their elected capital framework. Any such institution must submit a capital restoration plan for OCC approval and may be restricted in, among other things, increasing its assets, acquiring another institution, establishing a branch or engaging in any new activities, and may not make capital distributions. Institutions that are deemed by the OCC to be "critically undercapitalized" are subject to the appointment of a conservator or receiver. As of September 30, 2024, the Bank and the Company met all capital adequacy requirements to which they are subject. ***Limitations on Dividends and Other Capital Distributions.*** OCC regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, a savings institution generally may make capital distributions during any calendar year equal to net income of the previous two calendar years and current year-to-date net income (to the extent not previously distributed). A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must file an application and obtain regulatory non-objection prior to making such a distribution. The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution, and operates in a safe and sound manner, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard. ***Insurance of Accounts and Regulation by the FDIC.*** The Bank also is subject to regulation and examination by the FDIC, which insures the deposits of the Bank to the maximum extent permitted by law. The DIF of the FDIC insures deposit accounts in the Bank up to applicable limits, with a maximum amount of deposit insurance for banks and savings institutions of $250 thousand per separately insured deposit ownership right or category. The FDIC assesses deposit insurance premiums on all FDIC-insured institutions quarterly based on annualized rates. Under these rules, assessment rates for an institution with total assets of less than $10 billion are determined by capital adequacy, asset quality, management, earnings, liquidity, and sensitivity (CAMELS) composite ratings and certain financial ratios, and range from 2.5 to 32.0 basis points, subject to certain adjustments. Assessment rates for an institution with $10 billion or more in total assets are assigned an individual rate based on a scorecard that measures the institution's composite rating, ability to withstand asset-related and funding-related stress and the magnitude of potential losses to the FDIC in the event of failure. The current assessment rates were set in October 2022, when the FDIC adopted a final rule that increased the initial base deposit assessment rate schedule uniformly by two basis points, beginning with the first quarterly assessment period of 2023. The increased assessment rate will remain in effect unless and until the reserve ratio meets or exceeds 2%, absent further action by the FDIC's Board of Directors. For the fiscal year ended September 30, 2024, the Bank paid $6.1 million in FDIC premiums. Assessment rates are applied to an institution's assessment base, which is its average consolidated total assets minus its average tangible equity during the assessment period. The FDIC has authority to increase insurance assessments in the future, and any significant increases could have a material adverse effect on the operating expenses and results of operations of the Company. Management cannot predict what assessment rates will be in the future. In a banking industry emergency, the FDIC may also impose a special assessment. Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not know of any practice, condition, or violation that may lead to termination of our deposit insurance. ***Community Reinvestment and Consumer Protection Laws.*** In connection with its lending activities, the Bank is subject to a number of federal laws designed to protect borrowers and promote lending to various sectors of the economy and population. These include the Equal Credit Opportunity Act, the Truth-in-Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 ("SAFE Act"), and the Community Reinvestment Act ("CRA"). With respect to federal consumer protection laws, regulations are generally promulgated by the Consumer Financial Protection Bureau ("CFPB"), but the OCC, rather than the CFPB, currently examines the Bank for compliance with such laws and regulations because the Bank's regulatory assets have yet to exceed $10 billion for four consecutive quarter-ends. The CRA requires the appropriate federal banking agency, in connection with its examination of an FDIC-insured institution, to assess its record in meeting the credit needs of the communities served by the institution, including low and moderate income neighborhoods. The federal banking regulators take into account the institution's record of performance under the CRA when considering applications for mergers, acquisitions, and branches. Under the CRA, institutions are assigned a rating of outstanding, satisfactory, needs to improve, or substantial non-compliance. The Bank received a satisfactory rating in its most recently completed CRA evaluation. ***Bank Secrecy Act /Anti-Money Laundering Laws.*** The Bank is subject to the Bank Secrecy Act and other anti-money laundering laws, including the USA PATRIOT Act of 2001 and regulations thereunder. These laws and regulations require the Bank to implement policies, procedures, and controls to detect, prevent, and report money laundering and terrorist financing and to verify the identity and source of deposits and wealth of its customers. Violations of these laws and regulations can result in substantial civil and criminal sanctions. In addition, provisions of the USA PATRIOT Act require the federal financial institution regulatory agencies to consider the effectiveness of a financial institution's anti-money laundering activities when reviewing mergers and acquisitions. ***Federal Reserve System.*** In response to the Coronavirus Disease 2019 ("COVID-19") pandemic, the FRB reduced reserve requirement ratios to zero percent effective March 26, 2020, to support lending to households and businesses. At September 30, 2024, the reserve requirement of zero percent was still in place. The Bank is authorized to borrow from the Federal Reserve Bank "discount window." An eligible institution need not exhaust other sources of funds before going to the discount window, nor are there restrictions on the purposes for which the institution can use primary credit. At September 30, 2024, the Bank had no outstanding borrowings from the discount window. In March 2023, the FRB created a Bank Term Funding Program ("BTFP") to make additional funding available to eligible depository institutions. Advances could have been requested under the BTFP until March 11, 2024. The BTFP offered loans up to one year in length that could be prepaid without penalty. The amount that could be borrowed under the BTFP was based upon the par value of the securities pledged as collateral to the FRB. At September 30, 2023, the Bank had $500.0 million of BTFP borrowings. In October 2023, the Bank paid off the $500.0 million of BTFP borrowings and did not enter into additional BTFP borrowings during fiscal year 2024. ***Federal Home Loan Bank System.*** The Bank is a member of one of 11 regional Federal Home Loan Banks, each of which serves as a reserve, or central bank, for its members within its assigned region and is funded primarily from proceeds derived from the sale of consolidated obligations of the Federal Home Loan Bank System. The Federal Home Loan Banks make loans, called advances, to members and provide access to a line of credit in accordance with policies and procedures established by the Board of Directors of FHLB, which are subject to the oversight of the Federal Housing Finance Agency. At September 30, 2024, the Bank had $2.18 billion of FHLB advances, at par. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Financial Statements – Note 8. Deposits and Borrowed Funds" for additional information regarding FHLB advances. As a member, the Bank is required to purchase and maintain capital stock in FHLB. The minimum required FHLB stock amount is generally 4.5% of the Bank's FHLB advances and outstanding balance against the FHLB line of credit, and 2% of the outstanding principal balance of loans sold into the Mortgage Partnership Finance Program. At September 30, 2024, the Bank had $101.2 million in FHLB stock, which was in compliance with the FHLB's stock requirement. In past years, the Bank has received dividends on its FHLB stock, although no assurance can be given that these dividends will continue. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Financial Statements – Note 1. Summary of Significant Accounting Policies" for additional information regarding FHLB stock. ***Federal Savings and Loan Holding Company Regulation.*** The HOLA prohibits a savings and loan holding company (directly or indirectly, or through one or more subsidiaries) from acquiring another savings association, or holding company thereof, without prior written approval from the FRB; acquiring or retaining, with certain exceptions, more than 5% of a non-subsidiary savings association, a non-subsidiary holding company, or a non-subsidiary company engaged in activities other than those permitted by the HOLA; or acquiring or retaining control of a depository institution that is not federally insured. In evaluating applications by savings and loan holding companies to acquire savings associations, the FRB must consider the financial and managerial resources and future prospects of the company and institution involved, the effect of the acquisition on the risk to the insurance funds, the convenience and needs of the community, competitive factors, and other factors. The FRB has long set forth in its regulations its "source of strength" policy, which requires bank holding companies to act as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times of financial stress. This policy now also applies to savings and loan holding companies. ***Transactions with Affiliates.*** Transactions between the Bank and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates. Certain of these transactions are restricted to a percentage of the Bank's capital, and, in the case of loans, require eligible collateral in specified amounts. The Bank may not lend to any affiliate engaged in activities not permissible for a bank holding company or purchase or invest in the securities of affiliates. In addition, transactions with affiliates must be consistent with safe and sound banking practices and not involve the purchase of low-quality assets. ### Taxation ***Federal Taxation.*** The Company and the Bank are subject to federal income taxation in the same general manner as other corporations. The Company files a consolidated federal income tax return. The Company has not received notification from the Internal Revenue Service of any potential tax liability for any years still subject to audit. For federal income tax purposes, the Bank currently reports its income and expenses on the accrual method of accounting and uses a fiscal year ending on September 30 for filing its federal income tax return. Changes to the corporate federal income tax rate would result in changes to the Company's effective income tax rate and would require the Company to remeasure its deferred tax assets and liabilities based on the tax rate in the years in which those temporary differences are expected to be recovered or settled. Prior to the enactment of the Small Business Job Protection Act (the "1996 Act"), the Bank was permitted to deduct, up to a specified formula limit, a certain percentage of income as bad debts, for which the Bank was not required to establish a deferred tax liability. The difference between actual bad debts and the formula limit bad debt amount ("excess reserves") was recorded in the Bank's retained earnings. As a result of the 1996 Act, savings institutions, like the Bank, were required to use the specific charge-off method in computing bad debts on their tax returns beginning with their 1996 Federal tax returns. The 1996 Act required the recapture of excess reserves over the base year, which was September 30, 1988 for the Bank. The excess reserves established prior to September 30, 1988 remain in retained earnings ("pre-1988 bad debt reserves") subject to recapture by the Bank on the occurrence of certain distributions in excess of current earnings and profits accumulated in tax years beginning after December 31, 1951 ("accumulated earnings and profits"). The Bank had $75.9 million in pre-1988 bad debt reserves at September 30, 2024, which equates to an unrecorded deferred tax liability of $15.9 million. See additional discussion regarding the Bank's pre-1988 bad debt recapture in "Part IA. Risk Factors - Other Risks", "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Operating Results for the Years Ended September 30, 2024 and 2023" and "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 9. Income Taxes". ***State Taxation.*** The earnings/losses of Capitol Federal Financial, Inc., Capitol Funds, Inc. and Capital City Investments, Inc. are combined for purposes of filing a consolidated Kansas corporate tax return. The Kansas corporate tax rate is 4.0%, plus a surcharge of 3.0% on earnings greater than $50 thousand. The Bank files a Kansas privilege tax return. For Kansas privilege tax purposes, the minimum tax rate is 4.5% of earnings during fiscal year 2024, which is calculated based on federal taxable income, subject to certain adjustments. The Bank has not received notification from the state of any potential tax liability for any years still subject to audit. The Bank's minimum rate for the Kansas privilege tax return will be reduced to 4.18% of earnings starting in fiscal year 2025. Additionally, the Bank files state tax returns in 16 other states and two cities where it has significant loan balances. In these states and cities, the Bank has either established a nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of interest income derived from loans within the state. ### Employees and Human Capital Resources At September 30, 2024, we had a total of 659 employees, including 76 part-time employees. The full-time equivalent of our total employees at September 30, 2024 was 636, an increase from 632 at September 30, 2023. Our employees are not represented by any collective bargaining group. Management considers its employee relations to be good. We believe our ability to attract and retain employees is a key to our success. Accordingly, we strive to offer competitive salaries and employee benefits to all employees and monitor salaries in our market areas. Physical well-being is supported by the Company's health, dental, vision, life and various other insurances, and a wellness program that encourages employees to live a healthy and balanced lifestyle. Volunteer opportunities are provided and encouraged for all employees. Capitol Federal employees recorded over 3,690 hours in volunteer time for local organizations and charities during fiscal year 2024. Our Company respects, values and encourages diversity in our employees and customers. We seek to recognize and develop the unique contributions each individual brings to our Company, and we are fully committed to maintaining a culture of diversity as a pillar of our values and our success. These efforts are supported by our Board of Directors. Since 1977, at least one woman has served as a director of the Bank and, since its inception in 1999, at least one woman has served on the Board of Directors of the Company. In addition, since 2012, at least one underrepresented minority has served as a director of the Company and the Bank. The Board of Directors annually reviews the Company's diversity recruitment efforts and employment statistics. To assist in expanding diversity, the Company recruits employees through sources and organizations targeted at diverse communities. The Company also provides multiple opportunities for professional development and growth, including continuing education when applicable and specialty education within banking. Leadership development is supported through our Leadership Forum services, on a biannual basis, for mid-level leaders within the organization. Education for this program is currently provided by Banktastic. Annual employee educational requirements include targeted diversity, equity and inclusion training for all managers. All employees receive annual training on providing fair, high-quality service and understanding the causes of discrimination. The Company actively participates in initiatives to promote diversity and inclusion, both internally and externally. The Company has an Inclusion Task Force that promotes diversity and inclusion. During the current fiscal year, the Inclusion Task Force hosted events such as book and documentary discussions and developed an internal community webpage. Our employees, together with the Capitol Federal Foundation, contribute to programs that promote educational opportunities in all communities as well as housing in low-and-moderate income communities, including scholarships specifically for diverse candidates. ## Risk factors As filed, 32,841 characters. There are risks inherent in the Bank's and Company's business. The following is a summary of material risks and uncertainties relating to the operations of the Bank and the Company. Adverse experiences with these could have a material impact on the Company's financial condition and results of operations. Some of these risks and uncertainties are interrelated, and the occurrence of one or more of them may exacerbate the effect of others. These material risks and uncertainties are not necessarily presented in order of significance. In addition to the risks set forth below and the other risks described in this Annual Report, there may be risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results. ### Risks Related to Macroeconomic Conditions **Changes in interest rates could have an adverse impact on our results of operations and financial condition.** Our results of operations are primarily dependent on net interest income, which is the difference between the interest earned on loans, securities, cash at the Federal Reserve Bank and dividends received on FHLB stock, and the interest paid on deposits and borrowings. Changes in interest rates could have an adverse impact on our results of operations and financial condition because the majority of our interest-earning assets are long-term, fixed-rate loans, while the majority of our interest-bearing liabilities are shorter term, and therefore subject to a greater degree of interest rate fluctuations. This type of risk is known as interest rate risk and is affected by prevailing economic and competitive conditions that are beyond the Company's control, including general economic conditions, inflationary trends and/or monetary policies of the FRB and fiscal policies of the United States federal government. The impact of changes in interest rates is generally observed on the income statement. The magnitude of the impact will be determined by the difference between the amount of interest-earning assets and interest-bearing liabilities, both of which either reprice or mature within a given period of time, in addition to the yields earned on interest-earning assets and rates paid on interest-bearing liabilities. This difference provides an indication of the extent to which our net interest rate spread will be impacted by changes in interest rates. In addition, changes in interest rates will impact the expected level of repricing of the Bank's mortgage-related assets and callable debt securities. Generally, as interest rates decline, the amount of interest-earning assets expected to reprice will increase as borrowers have an economic incentive to reduce the cost of their mortgage or debt, which would negatively impact the Bank's interest income. Conversely, as interest rates rise, the amount of interest-earning assets expected to reprice will decline as the economic incentive to refinance the mortgage or debt is diminished. As this occurs, the amount of interest-earning assets repricing could diminish to the point where interest-bearing liabilities reprice to a higher interest rate at a faster pace than interest-earning assets, thus negatively impacting the Bank's net interest income. For additional information about the interest-rate risk we face, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk." Changes in interest rates can also have an adverse effect on our financial condition, as available-for-sale ("AFS") securities are reported at estimated fair value. Stockholders' equity, specifically accumulated other comprehensive income (loss) ("AOCI"), is increased or decreased by the amount of change in the estimated fair value of our AFS securities, net of deferred income taxes. Increases in interest rates generally decrease the fair value of AFS securities, which adversely impacts stockholders' equity. For additional information, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Strategic Securities Transaction," "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Stockholders' Equity" and "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 15. Accumulated Other Comprehensive Income." Changes in interest rates, as they relate to customers, can also have an adverse impact on our financial condition and results of operations. In times of rising interest rates, default risk may increase among borrowers with adjustable-rate loans as the rates on their loans adjust upward and their payments increase. Fluctuations in interest rates also affect customer demand for loan and deposit products. Competition from financial institutions and others could affect our ability to attract and retain deposits and could result in the Bank paying more for deposits. In addition to general changes in interest rates, changes that affect the shape of the yield curve could negatively impact the Bank. The Bank's interest-bearing liabilities are generally priced based on short-term interest rates while the majority of the Bank's interest-earning assets are priced based on long-term interest rates. Income for the Bank is primarily driven by the spread between these rates. As a result, a steeper yield curve, meaning long-term interest rates are significantly higher than short-term interest rates, would provide the Bank with a better opportunity to increase net interest income. When the yield curve is flat, meaning long-term interest rates and short-term interest rates are essentially the same, or when the yield curve is inverted, meaning long-term interest rates are lower than short-term interest rates, the net yield between interest-earning assets and interest-bearing liabilities that reprice is compressed or diminished and would likely negatively impact the Bank's net interest income. See "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for additional information about the Bank's interest rate risk management. **An economic downturn, including a decline in real estate values, especially affecting our geographic market areas and certain regions of the country where we have commercial real estate loans or correspondent loans secured by one- to four-family properties, could have an adverse impact on our business and financial results.** As we have grown our commercial real estate lending portfolio, we have continued to maintain relationships not only in our local markets but in geographically diverse markets. As a result, we are particularly exposed to downturns in regional housing and commercial real estate markets and, to a lesser extent, housing and commercial real estate markets nationwide, along with changes in the levels of unemployment or underemployment. We monitor the current status and trends of local and national employment levels and trends and current conditions in the real estate and housing markets, as well as commercial real estate markets, in our local market areas and certain areas where we have commercial real estate loans and correspondent loans. Decreases in local real estate values could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, the decreases in the value of collateral securing our loans as a result of natural disasters or other related events could adversely impact our financial condition and results of operations. If insurance coverage is unavailable to our borrowers due to the reluctance of insurance companies to renew policies covering the collateral or due to other factors, the resulting increase in cost of home ownership could affect the ability of borrowers to repay loans. In addition, a decline in commercial real estate values would likewise adversely affect the value of collateral securing commercial real estate loans. Adverse conditions in our local economies and in certain areas where we have commercial real estate loans and correspondent loans, such as inflation, unemployment, supply chain disruptions, recession, natural disasters or pandemics, or other factors beyond our control, could adversely impact the ability of our borrowers to repay their loans. Declines in collateral values and adverse economic conditions could result in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions. ### Risks Related to Lending Activities **The increase in commercial loans in our loan portfolio exposes us to increased lending and credit risks, which could adversely impact our financial condition and results of operations.** A growing portion of our loan portfolio consists of commercial loans. These loan types tend to be larger than and in different geographic regions from most of our existing loan portfolio and are generally considered to have different and greater risks than one- to four-family residential real estate loans and may involve multiple loans to groups of related borrowers. A growing commercial loan portfolio also subjects us to greater regulatory scrutiny. Furthermore, these loan types can expose us to a greater risk of delinquencies, non-performing assets, loan losses, and future loan loss provisions than one- to four-family residential real estate loans because repayment of such loans often depends on the successful operation of a business or of the underlying property. Repayment of such loans may be affected by factors outside the borrower's control, such as adverse conditions in the real estate market, the economy, environmental factors, natural disasters or pandemics, and/or changes in government regulation. Also, there are risks inherent in commercial real estate construction lending as the value of the project is uncertain prior to the completion of construction and subsequent lease-up. A sudden downturn in the economy, labor and/or supply chain issues, or other unforeseen events could result in stalled projects or collateral shortfalls, thus exposing us to increased credit risk. Commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans. The borrowers' cash flow may prove to be unpredictable, and collateral securing these loans may fluctuate in value. Most often, this collateral consists of accounts receivable, inventory and equipment. Significant adverse changes in a borrower's industries and businesses could cause rapid declines in values of, and collectability associated with, those business assets, which could result in inadequate collateral coverage for our commercial and industrial loans and expose us to future losses. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients. Inventory and equipment may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business. If the cash flow from business operations is reduced, the borrower's ability to repay the loan may be impaired. An increase in valuation allowances and charge-offs related to our commercial and industrial loan portfolio could have an adverse effect on our business, financial condition, results of operations and future prospects. ***Risks Related to Cybersecurity, Third Parties, and Technology.*** **The occurrence of any information system failure or interruption, breach of security or cyberattack, at the Company, at its third-party service providers or counterparties may have an adverse effect on our business, reputation, financial condition and results of operations.** Information systems are essential to the conduct of our business, as we use such systems to manage our customer relationships, our general ledger, our deposits and our loans. In the normal course of our business, we collect, process, retain and transmit (by email and other electronic means) sensitive and confidential information regarding our customers, employees and others. We also outsource certain aspects of our data processing, data processing operations, remote network monitoring, engineering and managed security services to third-party service providers. In addition to confidential information regarding our customers, employees and others, we, and in some cases a third party, compile, process, transmit and store proprietary, non-public information concerning our business, operations, plans and strategies. Information security risks for financial institutions continue to increase in part because of evolving technologies, the use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. Cyber criminals use a variety of tactics, such as ransomware, denial of service, and theft of sensitive business and customer information to extort payment or other concessions from victims. In some cases, these attacks have caused significant impacts on other businesses' access to data and ability to provide services. We are not able to anticipate or implement effective preventive measures against all incidents of these types, especially because the techniques used change frequently and because attacks can originate from a wide variety of sources, including attacks on third-party vendors and their applications and products used by the Bank. We use a variety of physical, procedural and technological safeguards to prevent or limit the impact of system failures, interruptions and security breaches and to protect confidential information from mishandling, misuse or loss, including detection and response mechanisms designed to contain and mitigate security incidents. However, there can be no assurance that such events will not occur or that they will be promptly detected and adequately addressed if they do, and early detection of security breaches may be thwarted by sophisticated attacks and malware designed to avoid detection. If there is a failure in or breach of our information systems, or those of a third-party service provider, the confidential and other information processed and stored in, and transmitted through, such information systems could be jeopardized, or could otherwise cause interruptions or malfunctions in our operations or the operations of our customers, employees, or others. Our business and operations depend on the secure processing, storage and transmission of confidential and other information in our information systems and those of our third-party service providers. Although we devote significant resources and management focus to ensuring the integrity of our information systems through information security measures, risk management practices, relationships with threat intelligence providers and business continuity planning, our facilities, computer systems, software and networks, and those of our third-party service providers, may be vulnerable to external or internal security breaches, acts of vandalism, unauthorized access, misuse, computer viruses or other malicious code and cyberattacks that could have a security impact. In addition, breaches of security may occur through intentional or unintentional acts by those having authorized or unauthorized access to our confidential or other information or the confidential or other information of our customers, employees or others. While we regularly conduct security and risk assessments on our systems and those of our third-party service providers, there can be no assurance that their information security protocols are sufficient to withstand a cyberattack or other security breach. Across our industry, the cost of minimizing these risks and investigating incidents has continued to increase with the frequency and sophistication of these threats. The occurrence of any of the foregoing could subject us to litigation or regulatory scrutiny, cause us significant reputational damage or erode confidence in the security of our information systems, products and services, cause us to lose customers or have greater difficulty in attracting new customers, have an adverse effect on the value of our common stock or subject us to financial losses that may not be covered by insurance, any of which could have an adverse effect on our business, financial condition and results of operations. As information security risks and cyber threats continue to evolve, we may be required to expend significant additional resources to further enhance or modify our information security measures and/or to investigate and remediate any information security vulnerabilities or other exposures arising from operational and security risks. Furthermore, there continues to be heightened legislative and regulatory focus on privacy, data protection and information security. New or revised laws and regulations may significantly impact our current and planned privacy, data protection and information security-related practices, the collection, use, sharing, retention and safeguarding of consumer and employee information, and current or planned business activities. Compliance with current or future privacy, data protection and information security laws could result in higher compliance and technology costs and could restrict our ability to provide certain products and services, which could have an adverse effect on our business, financial condition and results of operations. Our customers are also targets of cyberattacks and identity theft. There continues to be instances involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information or the destruction or theft of corporate data. Large scale identity theft could result in customers' accounts being compromised and fraudulent activities being performed in their names. We have implemented certain safeguards against these types of activities, but they may not fully protect us from financial losses. The occurrence of a security breach involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny, and expose us to litigation and possible financial liability. Any of these events could have an adverse effect on our business, financial condition and results of operations. See "Part I, Item 1C. Cybersecurity" for additional discussion related to cybersecurity. **Third-party vendors subject the Company to potential business, reputation and financial risks.** Third-party vendors are sources of operational and information security risk to the Company, including risks associated with operations errors, information system interruptions or breaches, and unauthorized disclosures of sensitive or confidential customer information. The Company requires third-party vendors to maintain certain levels of information security; however, vendors may remain vulnerable to breaches, unauthorized access, misuse, computer viruses, and/or other malicious attacks that could ultimately compromise sensitive information. We have developed procedures and processes for selecting and monitoring third-party vendors, but ultimately are dependent on these third-party vendors to secure their information. If these vendors encounter any of these types of issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have an adverse effect on our business, financial condition and results of operations. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor's organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which could have an adverse effect on our business and, in turn, our financial condition and results of operations. Additionally, replacing certain third-party vendors could also entail significant delay and expense. **We are heavily reliant on technology, and a failure to effectively implement technology initiatives or anticipate future technology needs or demands could adversely affect our business or performance.** Like most financial institutions, the Bank significantly depends on technology to deliver its products and services and to otherwise conduct business. To remain technologically competitive and operationally efficient, the Bank invests in system upgrades, new technological solutions, and other technology initiatives. Many of these solutions and initiatives have a significant duration, are tied to critical information systems, and require substantial resources. Although the Bank takes steps to mitigate the risks and uncertainties associated with these solutions and initiatives, there is no guarantee that they will be implemented on time, within budget, or without negative operational or customer impact. The Bank also may not succeed in anticipating its future technology needs, the technology demands of its customers, or the competitive landscape for technology. If the Bank were to falter in any of these areas, it could have an adverse effect on our business, financial condition and results of operations. ### Risks Related to Competition ### Strong competition may limit our growth and profitability. While we are one of the largest mortgage loan originators in the state of Kansas, we compete in the same market areas as local, regional, and national banks, savings institutions, credit unions, mortgage brokerage firms, investment banking and brokerage firms, mortgage bankers and online competitors. We also compete with online investment and mortgage brokerages and online banks that are not confined to any specific market area. Many of these competitors operate on a national or regional level, are a conglomerate of various financial services providers housed under one corporation, or otherwise have substantially greater financial or technological resources than the Bank. We compete primarily on the basis of the interest rates offered to depositors, the terms of loans offered to borrowers, and the benefits afforded to customers as a local institution and portfolio lender. Should we face competitive pressure to increase deposit rates or decrease loan rates, our net interest income could be adversely affected. Additionally, our competitors may offer products and services that we do not or cannot provide, as certain deposit and loan products fall outside of our accepted level of risk. Our profitability depends upon our ability to compete in our local market areas. ### Risks Related to Regulation **We operate in a highly regulated environment, which limits the manner and scope of our business activities, and we may be adversely affected by new and/or changes in laws and regulations or interpretation of existing laws and regulations.** We are subject to extensive regulation, supervision, and examination by the OCC, the FRB, and the FDIC. These regulatory authorities exercise broad discretion in connection with their supervisory and enforcement activities, including the ability to impose restrictions on a bank's operations, reclassify assets, determine the adequacy of a bank's ACL, and determine the level of deposit insurance premiums assessed. The CFPB has broad powers to supervise and enforce consumer protection laws, including a wide range of consumer protection laws that apply to all banks and savings institutions, like the authority to prohibit unfair, deceptive or abusive acts and practices. The CFPB also has examination and enforcement authority over all banks with regulatory assets exceeding $10 billion at four consecutive quarter-ends. There are increased direct costs, additional regulatory burdens with indirect costs, and lost revenue, mainly related to interchange fees, associated with the Bank being over $10 billion in regulatory assets at certain points in time and for four consecutive quarter-ends. As long as the Bank does not exceed $10 billion in regulatory assets for four consecutive quarter ends, it will continue to be examined for compliance with consumer protection laws and the regulations of the CFPB by the Bank's primary bank regulator, the OCC. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations and gives state attorneys general the ability to enforce federal consumer protection laws. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation, interpretation or application, could have an adverse impact on our operations. Moreover, bank regulatory agencies have been active in responding to concerns and trends identified in examinations and have issued formal enforcement orders requiring capital ratios in excess of regulatory requirements and/or assessing monetary penalties. Bank regulatory agencies, such as the OCC, the FRB and the FDIC, govern the activities in which we may engage, primarily for the protection of depositors' funds, the DIF and the safety and soundness of the banking system as a whole, and not for the protection or benefit of investors. The CFPB enforces consumer protection laws and regulations for the benefit of consumers and not the protection or benefit of investors. In addition, new laws and regulations, including those related to environmental, social, and governance initiatives, may continue to increase our costs of regulatory compliance and of doing business, and otherwise affect our operations. New laws and regulations may significantly affect the markets in which we do business, the markets for and value of our loans and securities, the products we offer, the fees we can charge and our ongoing operations, costs, and profitability. The Company is also directly subject to the requirements of entities that set and interpret accounting standards such as the Financial Accounting Standards Board, and indirectly subject to the actions and interpretations of the Public Company Accounting Oversight Board, which establishes auditing and related professional practice standards for registered public accounting firms and inspects registered firms to assess their compliance with certain laws, rules, and professional standards in public company audits. These regulations, along with existing tax, accounting, securities, and monetary laws, regulations, rules, standards, policies and interpretations, control the methods by which financial institutions and their holding companies conduct business, engage in strategic and tax planning, implement strategic initiatives, and govern financial reporting. The Company's failure to comply with laws, regulations or policies could result in civil or criminal sanctions and money penalties by state and federal agencies, and/or reputational damage, which could have an adverse effect on the Company's business, financial condition and results of operations. See "Part I, Item 1. Business - Regulation and Supervision" for more information about the regulations to which the Company is subject. ### Other Risks **The Company's ability to pay dividends and repurchase shares is subject to the ability of the Bank to make capital distributions to the Company.** The long-term ability of the Company to pay dividends to its stockholders and repurchase shares is based primarily upon the ability of the Bank to generate sufficient earnings to make capital distributions to the Company and on the availability of cash at the holding company level in the event the Bank's earnings are not sufficient to make capital distributions to the Company. Under certain circumstances, capital distributions from the Bank to the Company may be subject to regulatory approvals. See "Item 1. Business – Regulation and Supervision" for additional information. **The Bank's bad debt recapture amount may impact the amount and timing of capital distributions to the Company.** The Bank will report a net loss for tax purposes for fiscal year 2024 due to the sale of securities in October 2023 associated with the securities strategy and will therefore have negative current and accumulated earnings and profits for fiscal year 2024. As a result of the negative current and accumulated earnings and profits, capital distributions from the Bank to the holding company during fiscal year 2024 were deemed to be drawn out of the Bank's pre-1988 bad debt reserves and resulted in the recognition of income tax expense based on the amount of the capital distribution multiplied by the then-current Bank income tax rate. This additional tax expense reduced the amount of earnings available to be distributed to the holding company during fiscal year 2024. The Bank had $75.9 million in pre-1988 bad debt reserves at September 30, 2024, which equates to an unrecorded deferred tax liability of $15.9 million. Given the amount of cash at the holding company level ($50.1 million as of September 30, 2024), and in an effort to minimize the tax associated with the bad debt recapture, it is currently the intention of management and the Board of Directors to not distribute earnings from the Bank to the Company during fiscal year 2025. It is anticipated that the Bank will have sufficient taxable income during fiscal year 2025 to replenish tax accumulated earnings and profits to a positive level, allowing the Bank to make capital distributions to the Company during fiscal year 2026 and not be taxed on those distributions. See additional discussion regarding the Bank's pre-1988 bad debt recapture in "Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Operating Results for the Years Ended September 30, 2024 and 2023" and "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 9. Income Taxes". **Our risk management and compliance programs and functions may not be effective in mitigating risk and loss.** We maintain an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that we face. These risks include: interest-rate, credit, liquidity, operations, reputation, compliance and litigation. We also maintain a compliance program to identify, measure, assess, and report on our adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all risk and limit losses in our business. If conditions or circumstances arise that expose flaws or gaps in our risk management or compliance programs, or if our controls do not function as designed, the performance and value of our business could be adversely affected. ### The Company may not be able to attract and retain skilled employees. The Company's success depends, in large part, on its ability to attract and retain key people. Competition for the best people can be intense, and the Company spends considerable time and resources attracting and hiring qualified people for its operations. The unexpected loss of the services of one or more of the Company's key personnel could have an adverse impact on the Company's business because of their skills, knowledge of the Company's market, and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel. **The Company may be adversely affected by an increasing prevalence of fraud and other financial crimes.** Reported instances of fraud and related financial crimes are rising nationwide. Like all financial institutions, the Company is vulnerable to increasing fraud losses as fraud schemes perpetrated against the Company and its customers continue to evolve and become more sophisticated. While the Company has procedures and systems in place to detect, prevent, and mitigate fraud losses, fraud losses may still occur and could be material to the Company's results of operations. ## Cybersecurity As filed, 11,823 characters. #### Risk Management and Strategy Information security and privacy are an important part of our culture and foundational to our goal of delivering safe, secure and quality products and services. This philosophy is emphasized throughout the Bank by its Board of Directors, senior leaders, officers, managers and other employees to promote a Bank-wide culture of cybersecurity risk management. As a financial institution we collect, store, and transmit sensitive, confidential, and proprietary data and other information, including intellectual property, business information, funds-transfer instructions, payment card data, and personally identifiable information of our customers and employees. This information can be of significant value to criminal actors, and, as described in Item 1A. Risk Factors, cybersecurity incidents and other security breaches involving this information at the Bank, at our service providers or counterparties, may negatively impact our business or performance. We have implemented a strategy to address threats to Bank assets and confidential information. Our information security program, under the responsibility of the Chief Information Officer and the Chief Compliance & Risk Management Officer, balances security risks with business goals and provides appropriate protections for the confidentiality, integrity and availability of Bank and customer information. We annually benchmark our information security program to assess its strength as measured against recommended industry security best practices. Due to our heavy reliance on the strength and capability of our technology systems, which we use both to interface with our customers and to manage our internal financial reporting and other systems, we utilize a layered cybersecurity model designed to protect our systems and sensitive data. This model is composed of a variety of different components including administrative controls, technical controls and other safeguards. These various components are centrally managed and monitored, creating a multi-layered and interlocking cybersecurity defense system. Unauthorized access to our customers' confidential or proprietary information as a result of a cybersecurity incident or otherwise could expose us to reputational harm and litigation and adversely affect our ability to attract and retain customers. We maintain a variety of programs and policies to support the management of cybersecurity risk with a focus on prevention, detection and recovery processes. These programs and policies leverage frameworks and controls from the National Institute of Standards and Technology ("NIST") Cybersecurity Framework, Federal Financial Institutions Examination Council ("FFIEC") cybersecurity guidance, Center for Internet Security ("CIS") Benchmarks, as well as various other regulatory requirements and industry-specific standards. The Bank also participates in the federally recognized Financial Services Information Sharing and Analysis Center and requires its employees and contractors to complete various education and training programs related to information security. The Bank's Information Technology ("IT") and Compliance and Risk Management ("C&RM") teams have the primary responsibility for establishing appropriate policies and procedures that are responsive to cybersecurity threats and other information security risks. Members of these teams have a wide variety of relevant certifications, such as Certified Information Systems Security Professional, Certified Information Security Manager, Certification in Risk Management Assurance and Certified in Risk and Information Systems Control. Our C&RM team provides risk management oversight to the IT team. The Bank's Internal Audit function, using internal and outside expertise, independently oversees, reviews and validates the IT and C&RM activities and reports to the Board of Directors' Audit Committee on the effectiveness of governance, risk management and internal controls. We have established an Enterprise Risk Management program. As part of this program, the C&RM team reviews our IT risk management practices, which are designed to identify, assess, manage, monitor, and report cybersecurity risks. The IT team is responsible for implementing risk management practices set forth in the IT risk management program. As one of the critical elements of the Bank's overall risk management approach, our cybersecurity risk management program and strategy is focused on the following key areas: - Incident Response and Recovery Planning: The Bank has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner. - Technical Safeguards: The Bank deploys technical safeguards that are designed to protect the sensitive information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and multifactor authentication and other access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence. - Outside Experts: The Bank routinely works with outside experts, consultants, auditors and other third parties in connection with managing its cybersecurity risks and for advice regarding best practices and technical expertise. - Education and Awareness: The Bank provides regular, mandatory training for personnel regarding cybersecurity threats on matters such as phishing and email security best practices to equip our personnel with effective tools to address cybersecurity threats, and to communicate the Bank's evolving information security policies, standards, processes and practices. While processes are in place to minimize the chance of a successful cyberattack, the Bank has established incident response procedures to address a cyberattack that may occur despite these safeguards. The response procedures are designed to identify, analyze, contain and remediate any such cyber incident that occurs. The Bank engages in the periodic assessment and testing of our policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. These efforts include a wide range of activities, including audits, assessments, tabletop exercises, threat modeling, vulnerability testing and other exercises focused on evaluating the effectiveness of our cybersecurity measures and planning. We regularly engage third parties to perform assessments on our cybersecurity measures, including information security maturity assessments, audits, penetration tests and independent reviews of our information security control environment and operating effectiveness. The results of such assessments, audits and reviews are analyzed by the cybersecurity team and the Information Technology Oversight Committee ("ITOC") and provided to the Bank's Board of Directors. We adjust our cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews. We have implemented a third-party risk program to oversee and manage information security and privacy risks associated with third-party relationships. The program includes the assessment of third parties that provide key services or will access, store, process, or transmit sensitive information during initial onboarding and throughout the lifecycle of the relationship, and management of applicable contractual requirements relating to confidentiality, integrity, availability and privacy obligations, including timely notification of incidents. Third-party services related to advice, assessments, auditing, testing and support related to cybersecurity and information technology processes and services, where appropriate, are also subject to the third-party risk program. Like other financial institutions, the Bank experiences malicious cyber activity on an ongoing basis directed at its websites, computer systems, software, networks and users. This malicious activity includes attempts at unauthorized access and implantation of computer viruses or malware. The Bank also experiences large volumes of phishing and other forms of social engineering attempted for the purpose of perpetuating fraud. Notwithstanding the breadth of our information security and privacy program, it may not be successful in preventing or mitigating a cybersecurity incident that could have a material adverse impact. Unauthorized access to our computer systems or stored data could result in theft, including cyber theft, or improper disclosure of confidential information, and the deletion or modification of records could cause interruptions in our operations. The impact of a material information technology event could have a materially adverse effect on our competitive position, reputation, results of operations, financial condition or cash flows. #### Board Governance The members of the Boards of Directors of the Company and the Bank are identical. The Bank's Board of Directors oversees cybersecurity risk management and strategy for both entities through management updates regarding the policies, practices and security results related to the Gramm-Leach-Bliley Act, IT risk management, IT security metrics, penetration testing, tabletop exercises, IT risk assessments, disaster recovery testing, and security awareness testing and training. Management is responsible for designing and implementing policies, processes and procedures, and deploying physical and virtual technology and safeguards to measure, monitor, and control cybersecurity risk. The Bank's Chief Information Officer provides an annual comprehensive update to the Board of Directors on the status of IT, and the plans for the future as well as quarterly updates which include any cyber incidents. The Bank's Chief Technology Officer provides annual training on cyber security topics and reports to the Board of Directors on the Bank's cyber incidents, if any. Cyber incidents with (i) the potential of materiality; (ii) anticipated publicity; or (iii) anticipated written notices to a significant number of customers; have been promptly reported to the Board with ongoing updates during regular Board meetings. The Bank's Chief Information Officer presents updates on new security measures, programs and services to ITOC. The minutes and materials from the ITOC meetings are available to the Board of Directors on the Directors' Board Portal. The Bank's Information Security Officer provides the Board of Directors an annual report on all aspects of Information Security, including steps taken to minimize the risk of cyber incidents through training and testing employees on phishing, social engineering, etc. This annual report also includes an independent third-party assessment of the Bank's information security systems together with information on steps taken to address any identified weaknesses. The Board of Directors also participates in an annual evaluation of risk and is presented with management's assessment of the top risks, which generally includes several cybersecurity components. #### Material Cybersecurity Incidents As of September 30, 2024, we were not aware of any cybersecurity incidents that have materially affected or are reasonably likely to materially affect the Bank, including its business strategies, results of operations or financial condition. For more information on our cybersecurity-related risks, see "Item 1A. Risk Factors – Risks Related to Cybersecurity, Third Parties, and Technology”. ## Properties As filed, 994 characters. At September 30, 2024, we had 44 traditional branch offices and four in-store branch offices. As of September 30, 2024, the Bank owned the office building and related land in which its home office and executive offices are located, and 35 of its other branch offices. The remaining 12 branches are either leased or partially owned. For additional information regarding our lease obligations, see "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 5. Premises, Equipment and Leases." Management believes that the number of branch offices we currently have meets the present and immediately foreseeable needs of our customers. Management will continue to evaluate the performance of these locations through a number of metrics, including but not limited to, customer traffic, and determine on at least an annual basis whether or not we are branched in a way that most effectively serves our existing and prospective customer bases. ## Legal proceedings As filed, 1,901 characters. In the normal course of business, the Company and the Bank are involved as parties to various routine legal actions. In our opinion, after consultation with legal counsel, we believe it is unlikely that any such pending legal actions will have a material adverse effect on our financial condition, results of operations or liquidity. On November 2, 2022, the Bank was served a putative class action lawsuit, captioned Jennifer Harding, et al. vs. Capitol Federal Savings Bank (Case No. 2022-CV-00598), filed in the Third Judicial District Court, Shawnee County, Kansas against the Bank, alleging the Bank improperly charged overdraft fees on (1) debit card transactions that were authorized for payment on sufficient funds but later settled against a negative account balance (commonly known as "authorize positive purportedly settle negative" or "APPSN" transactions) and (2) merchant re-presentments of previously rejected payment requests. The complaint asserts a breach of contract claim (including breach of an implied covenant of good faith and fair dealing) for each practice and seeks restitution for alleged improper fees, alleged actual damages, costs and disbursements, and injunctive relief. On April 5, 2023, the court granted the Bank's motion to dismiss the complaint, with prejudice. The plaintiffs appealed this decision to the Kansas Court of Appeals, which issued an opinion on October 4, 2024 reversing the district court's ruling. In response, the Bank filed a petition for review with the Kansas Supreme Court on November 1, 2024. The review is currently pending. The Company assesses the liabilities and loss contingencies in connection with pending or threatened legal and regulatory proceedings on at least a quarterly basis and establishes accruals when it is believed to be probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. ## Management's discussion and analysis As filed, 118,576 characters. The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company except where the context indicates otherwise. ### Executive Summary The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety. In October 2023, the Company initiated a strategic securities transaction ("securities strategy") by selling $1.30 billion of securities, representing 94% of its securities portfolio. Since the Company had the intent to sell the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities of $192.6 million which was reflected in the Company's financial statements for the fiscal year ended September 30, 2023. During the quarter ended December 31, 2023, the Company sold the securities and recognized $13.3 million ($10.0 million net of tax), or $0.08 per share, of additional loss related to the sale of the securities. The securities strategy was designed to allow the Company to improve its earnings stream going forward, beginning in the current fiscal year, by redeploying most of the proceeds into current market rate securities and to provide liquidity to deleverage the balance sheet utilizing the remaining proceeds. See additional information regarding the impact of the securities strategy on our financial measurements in "Average Balance Sheets" below. The $1.30 billion of securities sold had a weighted average yield of 1.22% and an average duration of 3.6 years. With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a weighted average cost of 4.70%, and held the remaining cash at the FRB earning interest at the reserve balance rate until such time as it could be used to fund commercial loan activity or for other Bank operations. A taxable net loss will be reported on the Company's September 30, 2024 federal tax return due to the net losses associated with the securities strategy, which resulted in the Bank and Company having a negative current and accumulated earnings and profit tax position. This required the Bank to draw upon the pre-1988 bad debt reserves for distributions from the Bank to the Company during the current fiscal year. See additional information regarding the Bank's pre-1988 bad debt recapture in "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Financial Statements - Note 9. Income Taxes". During the current year, the Bank was required to pay income taxes on the reductions to the pre-1988 bad debt reserves equal to the current corporate tax rate at the time of the distribution multiplied by the amount of Bank earnings paid to the Company ("pre-1988 bad debt recapture"). The Bank recorded $5.4 million of income tax expense on earnings distributions from the Bank to the Company during the current year due to the pre-1988 bad debt recapture. As of September 30, 2024, the amount of the Bank's remaining pre-1988 bad debt reserves was $75.9 million, or $15.9 million tax effected. It is currently the intention of management and the Board of Directors to make no distributions from the Bank to the Company during fiscal year 2025. By not making distributions during fiscal year 2025, the Bank will not incur income tax expense related to the pre-1988 bad debt recaptures as occurred during the current year. See "Financial Condition - Stockholders' Equity" section below for additional discussion. The Company recognized net income of $38.0 million, or $0.29 per share, for fiscal year 2024 compared to a net loss of $101.7 million, or $(0.76) per share, for the prior fiscal year. The net loss in the prior year resulted from the impairment loss on securities associated with the securities strategy. Excluding the net loss associated with the securities strategy, earnings per share would have been $0.37 for the current year and $0.33 for the prior year. The increase in earnings per share excluding the effects of the net loss associated with the securities strategy was due primarily to higher net interest income and a lower provision for credit losses in the current year, partially offset by higher income tax expense due primarily to the pre-1988 bad debt recapture. Periodically at management's discretion, we have utilized a strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the cost to purchase FHLB stock to meet FHLB stock holding requirements, at the FRB of Kansas City (the "leverage strategy"). See additional discussion regarding the leverage strategy in "Financial Condition - Borrowings" section below. When the leverage strategy is in place, it increases assets and liabilities and reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. The leverage strategy was not utilized in the current fiscal year but it was in the prior fiscal year. The net interest margin increased 34 basis points, from 1.43% for the prior year to 1.77% for the current year. The leverage strategy negatively impacted the net interest margin for the prior year by 12 basis points. The remaining improvement in the net interest margin absent the leverage strategy was due to higher yields on securities and loans, which outpaced the increase in the cost of deposits, largely in retail certificates of deposit. The Company's efficiency ratio was 66.91% for the current year compared to (626.63)% for the prior year. Excluding the net losses from the securities strategy, the efficiency ratio would have been 61.97% for the current year and 65.31% for the prior year. The improvement in the efficiency ratio, excluding the net losses from the securities strategy, was due primarily to higher net interest income and lower non-interest expense in the current year compared to the prior year. Total assets were $9.53 billion at September 30, 2024, a decrease of $649.9 million from September 30, 2023. The decrease was due primarily to a $528.2 million decrease in securities, mainly as a result of the securities strategy, along with a $63.6 million decrease in the loan portfolio. The loan portfolio mix shifted toward higher earning commercial loans during the current fiscal year with a $287.2 million decrease in one- to four-family loans, partially offset by a $221.5 million increase in commercial loans. Management expects one- to four-family loans will continue to decrease as a percentage of total loans as cash flows generated from the one- to four-family loan portfolio will be used to fund commercial loan growth. Total liabilities at September 30, 2024 were $8.50 billion, a decrease of $638.1 million from September 30, 2023. The decrease was due primarily to a $699.6 million decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP and not all maturing FHLB borrowings were replaced during the current fiscal year. The decrease in borrowings was partially offset by an increase in deposits. Total deposits increased $78.8 million from September 30, 2023, primarily in retail certificates of deposit, all in the 14 months or shorter term category, partially offset by a decrease in retail money market accounts as some customers elected to move funds to the Bank's certificate of deposit offerings or the Bank's higher yielding savings account offering. Total stockholders' equity was $1.03 billion at September 30, 2024, a decrease of $11.8 million from September 30, 2023 due primarily to stock buybacks early in fiscal year 2024, partially offset by an increase in accumulated other comprehensive income, net of tax. The improvement in accumulated other comprehensive income, net of tax, was mainly a result of the securities strategy. The Bank's asset quality remains strong, reflected in the continued low level of loan delinquency and charge-off ratios. At September 30, 2024, loans 30 to 89 days delinquent were 0.20% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.12% of total loans receivable, net. The ratio of net charge-offs (recoveries) ("NCOs") during the current year to average loans outstanding during the current year was 0% as there were only $111 thousand of NCOs during the current year. At September 30, 2024, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.51) billion, or (15.8)% of total assets, meaning the amount of interest-bearing liabilities exceeded the amount of interest-earning assets maturing or expected to reprice during the same period. See additional discussion in "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk." ### The Bank's Digital Transformation and Business Initiatives With the implementation of our new core system and its ancillary systems ("digital transformation") in August 2023, we improved our internal and customer-facing technology. The digital transformation implemented technology needed to enhance our customers' experience, deepen our wallet share with existing customers, and attract new customers. In addition to the improvements in technology, management has adjusted staffing in several areas to better align with the Bank's strategy to grow and enhance commercial banking and lending. Pairing improved technology, products and services with the right organizational structure has provided benefits in each of the Bank's customer segments: consumer, small business and commercial. The Bank has gained immediate traction with the new and improved True Blue Online ("TBO"), the Bank's digital banking platform for consumers and small businesses. Those gains include: aMobile app store ratings have improved by over 115% for Android comparing the ratings from the pre-digital transformation to the end of fiscal year 2024 and over 25% for iOS since the digital transformation, bVolume of deposit accounts opened online through the digital channel is over 62% higher in the current fiscal year compared to the prior fiscal year, cAchieved over 27,000 active users of our credit score service in TBO since August 2023, and dContinued growth in person-to-person payment volume following the integration of Zelle into TBO: iSettlement volume is up 92% year-over-year, and iiTransaction volume is up 117% year-over-year. Our small business customers now have access to improved digital services, and management has realigned staffing to focus on growing small business banking. We are in the process of adding more small business services into TBO to continue deposit and fee income growth in this area. For commercial banking, alignment of technology, people, products and services is crucial to our objective of capturing complete banking relationships as we continue to strategically grow this business. Management has continued to adjust staffing in numerous areas of the Bank, including deposit operations, lending, and commercial banking, to ensure resources are aligned with our priorities and strategies. The technology implemented with the digital transformation provides more flexibility for structuring commercial loan transactions and has allowed us to build digital banking services to meet our customers' deposit and payment requirements to grow deposit and treasury management fee income. During the current fiscal year, several new treasury management services were added in response to the needs of customers in the sales pipeline. Additionally, during the current fiscal year we began a project to improve pricing tools to equip staff to price new business in a profitable manner. The project is expected to be completed mid-fiscal year 2025 and is anticipated to provide immediate benefits to the Bank such as ensuring profitable pricing, more efficient pricing processes, and faster pricing negotiations with our customers. Leveraging our new technology and organizational structure to quickly respond to customer needs in the sales pipeline is central to our growth strategy for commercial deposits. ### Critical Accounting Estimates Our most critical accounting estimate is the methodology used to determine the ACL and reserve for off-balance sheet credit exposures. This estimate is important to the presentation of our financial condition and results of operations, involves a high degree of complexity, and requires management to make difficult and subjective judgments that may require assumptions about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. This critical accounting estimate and its application is reviewed at least annually by our audit committee. The following is a description of our critical accounting estimate and an explanation of the methods and assumptions underlying its application. **Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures.** The ACL is a valuation amount that is deducted from the amortized cost basis of loans and represents management's estimate of lifetime credit losses expected on the Company's loan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Management estimates the ACL by projecting future loss rates which are dependent upon forecasted economic indices and applying qualitative factors when deemed appropriate by management. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of ACL required by the calculation. Management then considers qualitative factors when assessing the overall level of ACL. See "Allowance for Credit Losses on Loans Receivable" and "Reserve for Off-Balance Sheet Credit Exposures" within "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies" for additional information. One of the most significant judgments used in projecting loss rates when estimating the ACL and reserves for off-balance sheet credit exposures is the macroeconomic forecast provided by a third party. The economic indices sourced from the macroeconomic forecast and used in projecting loss rates are the national unemployment rate, changes in commercial real estate prices, changes in home values, and changes in the United States gross domestic product. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate. Each reporting period, several macroeconomic forecast scenarios are considered by management. Management selects the macroeconomic forecast(s) that is/are most reflective of expectations at that point in time. Changes in the macroeconomic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods. Other key assumptions in the calculation of the ACL and reserve for off-balance sheet credit exposures estimates include the forecast and reversion to mean time periods and prepayment and curtailment assumptions. The calculation is less sensitive to these assumptions than the macroeconomic forecasts. The macroeconomic forecast is applied for a reasonable and supportable time period before reverting to long-term historical averages for each economic index. The forecast and reversion to mean time period used for each economic index at September 30, 2024 was four quarters. Prepayment and curtailment assumptions are generally based on the Company's historical experience and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on loan product type. The ACL and reserve for off-balance sheet credit exposures may be materially affected by qualitative factors, for items not reflected in the economic forecast and/or discounted cash flow model, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors. Such qualitative factors may include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect of other external factors such as significant unique events or conditions, and actual and/or expected changes in economic conditions, real estate values, and/or other economic developments. Management applied qualitative factors at September 30, 2024 to account for large dollar commercial loan concentrations and potential downside market risk with the recent housing price appreciation related to one- to four-family loans. The qualitative factors applied at September 30, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4. Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the qualitative factors applied at September 30, 2024. The ACL and the reserve for off-balance sheet credit exposures were $23.0 million and $6.0 million, respectively at September 30, 2024, compared to $23.8 million and $4.1 million, respectively, at September 30, 2023. The decrease in the ACL between periods was mainly related to one- to four-family loans due to a decrease in the ACL to loan ratio and a decrease in overall one- to four-family loan balances, partially offset by an increase in the ACL for commercial loans due to commercial loan growth. The $1.9 million increase in the reserve for off-balance sheet credit exposures was due primarily to an increase in the balance of off-balance sheet credit exposures and an increase in the ACL to loan ratio, which is applied to the off-balance sheet credit exposures, between periods, specifically for commercial construction loans. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4. Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the assumptions used in the Company's September 30, 2024 estimate of ACL. While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our loan portfolio, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserve for off-balance sheet credit exposures. Additionally, the level of ACL and reserve for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures. If actual results differ significantly from our assumptions, our ACL and reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses. ### Recent Accounting Pronouncements For a discussion of Recent Accounting Pronouncements, see "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Financial Statements – Note 1. Summary of Significant Accounting Policies." ### Financial Condition The following table summarizes the Company's financial condition at the dates indicated. *(Dollars and shares in thousands)* | | September 30, 2024 | 2023 | Change expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Total assets | $9,527,608 | $10,177,461 | $(649,853) | (6.4)% | | AFS securities | 856,266 | 1,384,482 | (528,216) | (38.2) | | Loans receivable, net | 7,907,338 | 7,970,949 | (63,611) | (0.8) | | Deposits | 6,129,982 | 6,051,220 | 78,762 | 1.3 | | Borrowings | 2,179,564 | 2,879,125 | (699,561) | (24.3) | | Stockholders' equity | 1,032,270 | 1,044,054 | (11,784) | (1.1) | | Equity to total assets at end of period | 10.8% | 10.3% | | | | Average number of basic shares outstanding | 130,671 | 133,557 | (2,886) | (2.2) | | Average number of diluted shares outstanding | 130,671 | 133,557 | (2,886) | (2.2) | **Loans Receivable.** Total loans, net at September 30, 2024 were $7.91 billion, a decrease of $63.6 million from September 30, 2023. The decrease in the loan portfolio was due mainly to a $287.2 million decrease in one- to four-family loans, partially offset by a $221.5 million increase in commercial loans. Originating one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans. In addition, the Bank historically purchased one- to four-family loans from correspondent lenders. The Bank has a portfolio concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri. As a result of continued high interest rates and lack of housing inventory which has reduced housing market transactions, our single-family origination activity has slowed which has directly impacted the Bank's one- to four-family loan portfolio. Origination and refinance activity has slowed considerably, and one- to four-family loan balances have been reduced through scheduled repayments and loan payoffs. During the June 30, 2024 quarter, the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future. Management expects that the balance of one- to four-family loans will continue to decrease as a percentage of the Bank's loan portfolio as cash flows generated from one- to four-family loans are used to fund commercial loan growth. As noted above, the Bank suspended its one- to four-family correspondent lending channels for the foreseeable future during the current year. The Bank previously purchased one- to four-family loans, on a loan-by-loan basis, from a select group of correspondent lenders ("correspondent purchased"). Loan purchases enabled the Bank to attain geographic diversification in the one- to four-family loan portfolio. We generally paid a premium of 0.50% to 1.00% of the loan balance to purchase these loans, and 1.00% of the loan balance to purchase the servicing of these loans. The premium paid is amortized against the interest earned over the life of the loan, which reduces the loan yield. If a loan pays off before the scheduled maturity date, the remaining premium is recognized as reduction in interest income. In the past, the Bank has also purchased one- to four-family loans from correspondent and nationwide lenders in bulk loan packages ("bulk purchased"). The majority of the Bank's bulk purchased loans were guaranteed by one seller. The Bank has not experienced any losses with this group of loans since the loan package was purchased in August 2012. The Bank originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. The majority of these loans are secured by property located within the Bank's Kansas City market area. The Bank's owner-occupied construction-to-permanent loan program combines the construction loan and the permanent loan into one loan, allowing the borrower to secure the same interest rate structure throughout the construction period and the permanent loan term. The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by savings deposits. The Bank also originates a very limited amount of unsecured loans. Generally, consumer loans are originated in the Bank's market areas. The majority of our consumer loan portfolio is comprised of home equity lines of credit, which have adjustable interest rates. For a majority of the home equity lines of credit, the Bank has the first mortgage or the Bank is in the first lien position. The Bank's commercial loan portfolio is composed of commercial real estate loans, commercial construction loans and commercial and industrial loans. Our commercial real estate loans include a variety of property types, including multi-family dwellings, senior housing facilities, hotels, retail buildings, and office buildings located in Kansas, Texas, and Missouri, and 15 other states. The Bank's commercial and industrial loan portfolio consists largely of loans secured by accounts receivable, inventory and equipment. These loans are generally made to borrowers and secured by assets located in the Bank's market area. Commercial borrowers are generally required to provide financial information annually, including borrower financial statements, subject property rental rates and income, maintenance costs, updated real estate property tax and insurance payments, and personal financial information for the guarantor(s). This allows the Bank to monitor compliance with loan covenants and review the borrower's performance, including cash flows from operations, debt service coverage, and comparison of performance to projections and year-over-year performance trending. Additionally, the Bank monitors and performs site visits, or in the case of participation loans, obtains updates from the lead bank as needed to determine the condition of the collateral securing the loan. Depending on the financial strength of the project and/or the complexity of the borrower's financials, the Bank may also perform a global analysis of cash flows to account for all other properties owned by the borrower or guarantor. If signs of weakness are identified, the Bank may begin performing more frequent financial and/or collateral reviews or initiate contact with the borrower, or the lead bank will contact the borrower if the loan is a participation loan, to ensure cash flows from operations are maintained at a satisfactory level to meet the debt requirements. The Bank mitigates the risk of commercial real estate construction lending during the construction period by monitoring inspection reports from an independent third-party, project budget, percentage of completion, on-site inspections and percentage of advanced funds. Commercial and industrial loans are monitored through a review of borrower performance as indicated by borrower financial statements, borrowing base reports, accounts receivable aging reports, and inventory aging reports. These reports are required to be provided by the borrowers monthly, quarterly, or annually depending on the nature of the borrowing relationship. The Bank regularly monitors the level of risk in the entire commercial loan portfolio, including concentrations in such factors as geographic locations, collateral types, tenant brand name, borrowing relationships, and lending relationships in the case of participation loans, among other factors. The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentage of total as of the dates indicated. *(Dollars in thousands)* | One- to four-family: | September 30, 2024 Amount | Rate | September 30, 2023 Amount | Rate | | --- | ---: | ---: | ---: | ---: | | Originated | $3,941,952 | 3.60% | $3,978,837 | 3.39% | | Correspondent purchased | 2,212,587 | 3.48 | 2,405,911 | 3.44 | | Bulk purchased | 127,161 | 2.80 | 137,193 | 1.85 | | Construction | 22,970 | 6.05 | 69,974 | 3.68 | | Total | 6,304,670 | 3.55 | 6,591,915 | 3.38 | | Commercial: | | | | | | Commercial real estate | 1,191,624 | 5.43 | 995,788 | 5.29 | | Commercial and industrial | 129,678 | 6.66 | 112,953 | 6.36 | | Construction | 187,676 | 6.40 | 178,746 | 5.01 | | Total | 1,508,978 | 5.65 | 1,287,487 | 5.35 | | Consumer loans: | | | | | | Home equity | 99,988 | 8.90 | 95,723 | 8.83 | | Other | 9,615 | 5.72 | 9,256 | 5.20 | | Total | 109,603 | 8.62 | 104,979 | 8.51 | | Total loans receivable | 7,923,251 | 4.02 | 7,984,381 | 3.76 | | Less: | | | | | | ACL | 23,035 | | 23,759 | | | Deferred loan fees/discounts | 30,336 | | 31,335 | | | Premiums/deferred costs | (37,458) | | (41,662) | | | Total loans receivable, net | $7,907,338 | | $7,970,949 | | 27 The following table presents the contractual maturity of our loan portfolio, along with associated weighted average yields, at September 30, 2024. Loans that have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. *(Dollars in thousands)* | One year or less(1) Amount One- to four-family: | Yield | Over one year to five years Amount | Yield | Over five years to 15 years Amount | Yield | Over 15 years Amount | Yield | Total Amount | Yield | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Originated $1,128 | 3.83% | $59,901 | 3.33% | $1,097,701 | 2.99% | $2,783,222 | 3.88% | $3,941,952 | 3.62% | | Correspondent purchased 43 | 3.02 | 16,997 | 2.59 | 375,859 | 2.46 | 1,819,688 | 3.57 | 2,212,587 | 3.38 | | Bulk purchased 6 | 7.06 | 234 | 5.12 | 26,033 | 4.54 | 100,888 | 2.46 | 127,161 | 2.89 | | Construction(2) — | — | — | — | 1,778 | 4.67 | 21,192 | 6.21 | 22,970 | 6.09 | | Total 1,177 | 3.82 | 77,132 | 3.17 | 1,501,371 | 2.89 | 4,724,990 | 3.74 | 6,304,670 | 3.53 | | Commercial: | | | | | | | | | | | Commercial real estate 118,520 | 6.22 | 328,552 | 5.15 | 510,013 | 4.99 | 234,539 | 6.62 | 1,191,624 | 5.48 | | Commercial and industrial 28,039 | 7.19 | 52,771 | 7.18 | 43,669 | 5.81 | 5,199 | 4.57 | 129,678 | 6.62 | | Construction(2) 11,014 | 7.94 | 156,617 | 6.21 | 14,302 | 7.05 | 5,743 | 6.57 | 187,676 | 6.39 | | Total 157,573 | 6.51 | 537,940 | 5.66 | 567,984 | 5.11 | 245,481 | 6.58 | 1,508,978 | 5.69 | | Consumer: | | | | | | | | | | | Home equity(3) 640 | 9.90 | 1,924 | 6.53 | 46,934 | 8.66 | 50,490 | 8.59 | 99,988 | 8.59 | | Other 479 | 1.73 | 8,146 | 5.62 | 941 | 7.60 | 49 | 18.00 | 9,615 | 5.68 | | Total 1,119 | 6.40 | 10,070 | 5.80 | 47,875 | 8.63 | 50,539 | 8.60 | 109,603 | 8.33 | | Total loans receivable $159,869 | 6.49 | $625,142 | 5.35 | $2,117,230 | 3.61 | $5,021,010 | 3.93 | 7,923,251 | 4.01 | | Less: | | | | | | | | | | | ACL | | | | | | | | 23,035 | | | Deferred loan fees/discounts | | | | | | | | 30,336 | | | Premiums/deferred costs | | | | | | | | (37,458) | | | Total loans receivable, net | | | | | | | | $7,907,338 | | (1) Includes demand loans, loans having no stated maturity, and overdraft loans. (2) Construction loans are presented based upon the contractual maturity date, which includes the permanent financing period for construction-to-permanent loans. (3) For home equity loans, including those that do not have a stated maturity date, the maturity date calculated assumes the borrower always makes the required minimum payment. The majority of home equity loans assume a maximum term of 240 months. The following table presents, as of September 30, 2024, the amount of loans due after September 30, 2025, and whether these loans have fixed or adjustable interest rates. *(Dollars in thousands)* | One- to four-family: | Fixed | Adjustable | Total | | --- | ---: | ---: | ---: | | Originated | $3,535,348 | $405,476 | $3,940,824 | | Correspondent purchased | 1,836,292 | 376,252 | 2,212,544 | | Bulk purchased | 3,671 | 123,484 | 127,155 | | Construction | 9,211 | 13,759 | 22,970 | | Total | 5,384,522 | 918,971 | 6,303,493 | | Commercial: | | | | | Commercial real estate | 310,636 | 762,468 | 1,073,104 | | Commercial and industrial | 41,628 | 60,011 | 101,639 | | Construction | 74,805 | 101,857 | 176,662 | | Total | 427,069 | 924,336 | 1,351,405 | | Consumer: | | | | | Home equity | 20,639 | 78,709 | 99,348 | | Other | 6,015 | 3,121 | 9,136 | | Total | 26,654 | 81,830 | 108,484 | | Total loans receivable | $5,838,245 | $1,925,137 | $7,763,382 | *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 presented 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. *(Dollars in thousands)* | | For the Year Ended September 30, 2024 Amount | Rate | September 30, 2023 Amount | Rate | | --- | ---: | ---: | ---: | ---: | | Beginning balance | $7,984,381 | 3.76% | $7,471,670 | 3.33% | | Originated and refinanced | 660,937 | 7.21 | 930,362 | 5.96 | | Purchased and participations | 47,712 | 7.80 | 644,072 | 5.59 | | Change in undisbursed loan funds | 168,483 | | (99,179) | | | Repayments | (917,871) | | (956,562) | | | Principal (charge-offs)/recoveries, net | (111) | | (106) | | | Other | (20,280) | | (5,876) | | | Ending balance | $7,923,251 | 4.02 | $7,984,381 | 3.76 | 29 The following table presents loan origination, refinance, and purchase/participation activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases/participations, and refinances are reported together. *(Dollars in thousands)* | Fixed-rate: | For the Year Ended September 30, 2024 Amount | Rate | % of Total | September 30, 2023 Amount | Rate | % of Total | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | One- to four-family | $207,757 | 6.39% | 29.3% | $404,598 | 5.47% | 25.7% | | One- to four-family construction | 24,578 | 6.56 | 3.5 | 39,599 | 5.72 | 2.5 | | Commercial: | | | | | | | | Real estate | 7,920 | 7.63 | 1.1 | 43,408 | 7.48 | 2.7 | | Commercial and industrial | 22,251 | 6.96 | 3.1 | 40,238 | 7.81 | 2.6 | | Construction | 3,632 | 7.07 | 0.5 | 149,046 | 5.89 | 9.5 | | Home equity | 8,402 | 9.00 | 1.2 | 6,080 | 8.20 | 0.4 | | Consumer other | 2,975 | 7.22 | 0.4 | 4,620 | 6.93 | 0.3 | | Total fixed-rate | 277,515 | 6.58 | 39.1 | 687,589 | 5.87 | 43.7 | | Adjustable-rate: | | | | | | | | One- to four-family | 53,910 | 6.37 | 7.6 | 342,093 | 4.97 | 21.7 | | One- to four-family construction | 16,875 | 6.51 | 2.4 | 28,545 | 5.22 | 1.8 | | Commercial: | | | | | | | | Real estate | 114,502 | 7.56 | 16.2 | 223,910 | 5.60 | 14.2 | | Commercial and industrial | 49,593 | 7.65 | 7.0 | 57,295 | 7.28 | 3.6 | | Construction | 152,739 | 7.96 | 21.5 | 177,471 | 6.22 | 11.3 | | Home equity | 40,248 | 9.39 | 5.7 | 55,896 | 8.43 | 3.6 | | Consumer other | 3,267 | 5.42 | 0.5 | 1,635 | 4.25 | 0.1 | | Total adjustable-rate | 431,134 | 7.68 | 60.9 | 886,845 | 5.75 | 56.3 | | Total originated, refinanced and purchased/participations | $708,649 | 7.25 | 100.0% | $1,574,434 | 5.81 | 100.0% | | Purchased and participation loans included above: | | | | | | | | Fixed-rate: | | | | | | | | Correspondent purchased - one- to four-family | $2,978 | 6.43 | | $199,858 | 5.20 | | | Participations and purchases - commercial | 4,400 | 7.08 | | 19,016 | 9.43 | | | Total fixed-rate purchased/participations | 7,378 | 6.82 | | 218,874 | 5.57 | | | Adjustable-rate: | | | | | | | | Correspondent purchased - one- to four-family | 519 | 2.93 | | 215,939 | 4.86 | | | Participations and purchases - commercial | 39,815 | 8.04 | | 209,259 | 6.36 | | | Total adjustable-rate purchased/participations | 40,334 | 7.98 | | 425,198 | 5.60 | | | Total purchased/participation loans | $47,712 | 7.80 | | $644,072 | 5.59 | | 30 *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 rate, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of September 30, 2024. Credit scores were updated in September 2024, 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. *(Dollars in thousands)* | | Amount | % of Total | Rate | Credit Score | LTV | Average Balance | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Originated | $3,941,952 | 62.5% | 3.60% | 771 | 59% | $168 | | Correspondent purchased | 2,212,587 | 35.1 | 3.48 | 767 | 63 | 404 | | Bulk purchased | 127,161 | 2.0 | 2.80 | 772 | 54 | 280 | | Construction | 22,970 | 0.4 | 6.05 | 778 | 52 | 410 | | | $6,304,670 | 100.0% | 3.55 | 770 | 60 | 214 | 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 LTV ratios and weighted average credit scores for the current year. *(Dollars in thousands)* | | Amount | Rate | LTV | Credit Score | | --- | ---: | ---: | ---: | ---: | | Originated | $299,623 | 6.41% | 75% | 770 | | Correspondent purchased | 3,497 | 5.91 | 70 | 765 | | | $303,120 | 6.40 | 75 | 770 | As of September 30, 2024, the Bank had one- to four-family loan origination and refinance commitments of $46.3 million at a weighted average rate of 6.10%. There were no one- to four-family correspondent loan purchase commitments at September 30, 2024, as during the current year the Bank suspended purchasing one- to four-family loans from correspondent lenders. *Commercial Loans -* During the year ended September 30, 2024, the Bank originated commercial loans and entered into commercial loan participations totaling $350.6 million, which was comprised of $156.4 million in commercial construction real estate loans, $122.4 million in commercial real estate loans, and $71.8 million in commercial and industrial loans. During the current fiscal year, the Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $326.7 million at a weighted average rate of 6.58%, which included $245.0 million, $60.1 million, and $21.6 million of disbursements on new and existing commercial construction, commercial real estate, and commercial and industrial loans, respectively. As of September 30, 2024 and September 30, 2023, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $163.6 million and $158.5 million, respectively, and commitments totaled $3.2 million and $2.6 million, respectively. Of the $163.6 million outstanding at September 30, 2024, $74.1 million, or 46%, of the portfolio related to working capital loans, $43.8 million, or 27%, related to financing/leasing/purchasing vehicles and equipment, and $37.9 million, or 24%, related to purchasing/refinancing business/assets. 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 September 30, 2024, the Bank had 12 commercial real estate and commercial construction loan commitments totaling $186.1 million, at a weighted average rate of 7.19%. Management anticipates fully funding the majority of the undisbursed amounts as most are not cancellable by the Bank. Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of September 30, 2024, management anticipates funding approximately $150 million during the December 2024 quarter, $78 million during the March 2025 quarter, $83 million during the June 2025 quarter, and $149.7 million during the September 2025 quarter or later. At September 30, 2024, the unpaid principal balance of non-owner occupied commercial real estate loans was $886.1 million and the unpaid principal balance of owner occupied commercial real estate loans was $165.3 million, which are included in the table below. *(Dollars in thousands)* | | September 30, 2024 Count | Unpaid Principal | Undisbursed Amount | Gross Loan Amount | September 30, 2023 Gross Loan Amount | | --- | ---: | ---: | ---: | ---: | ---: | | Multi-family | 38 | $172,674 | $187,033 | $359,707 | $308,846 | | Senior housing | 36 | 327,144 | 5,190 | 332,334 | 331,207 | | Hotel | 20 | 293,720 | 29,676 | 323,396 | 233,012 | | Retail building | 133 | 263,877 | 52,384 | 316,261 | 352,499 | | Office building | 77 | 127,289 | 672 | 127,961 | 130,921 | | One- to four-family property | 321 | 59,467 | 3,949 | 63,416 | 70,265 | | Single use building | 32 | 43,176 | 262 | 43,438 | 47,193 | | Warehouse/manufacturing | 47 | 34,243 | 413 | 34,656 | 35,963 | | Other | 69 | 57,710 | 4,303 | 62,013 | 53,032 | | | 773 | $1,379,300 | $283,882 | $1,663,182 | $1,562,938 | | Weighted average rate | | 5.56% | 6.79% | 5.77% | 5.47% | The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated. *(Dollars in thousands)* | | September 30, 2024 Count | Unpaid Principal | Undisbursed Amount | Gross Loan Amount | September 30, 2023 Gross Loan Amount | | --- | ---: | ---: | ---: | ---: | ---: | | Kansas | 571 | $562,079 | $151,358 | $713,437 | $670,498 | | Texas | 21 | 301,486 | 46,580 | 348,066 | 348,707 | | Missouri | 140 | 260,890 | 52,256 | 313,146 | 332,610 | | New York | 1 | 60,000 | — | 60,000 | — | | Colorado | 8 | 42,604 | 7,413 | 50,017 | 49,385 | | Arkansas | 5 | 35,522 | 1,066 | 36,588 | 33,046 | | Nebraska | 7 | 32,418 | 4 | 32,422 | 37,609 | | California | 2 | 12,271 | 2,769 | 15,040 | — | | Other | 18 | 72,030 | 22,436 | 94,466 | 91,083 | | | 773 | $1,379,300 | $283,882 | $1,663,182 | $1,562,938 | 32 The following table presents the Bank's commercial real estate and commercial construction loans by unpaid principal balance, aggregated by type of primary collateral and state, along with weighted average LTV ratio and weighted average debt service coverage ratio ("DSCR") as of September 30, 2024. The LTV ratio is calculated using the gross loan amount (composed of unpaid principal and undisbursed amounts) as of September 30, 2024 and the most current collateral value available, which is most often the value at origination/purchase. For existing real estate, the "as is" value is used. If the property is to be constructed, the "as completed" value of the collateral is utilized. The DSCR is calculated based on historical borrower performance, or projected borrower performance for newly formed entities with no performance history. The DSCR is calculated at the time of origination, and is updated at the time of subsequent loan renewals or reviews of borrower financials. The DSCR presented in the table below is based on the DSCR at the time of origination unless an updated DSCR has been calculated. As of September 30, 2024 approximately 50% of the loans, based on unpaid principal balance, had updated DSCRs. *(Dollars in thousands)* | | Kansas | Texas | Missouri | New York | Other | Total | Weighted LTV | Weighted DSCR | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Senior Housing | $161,146 | $— | $109,820 | $— | $56,178 | $327,144 | 70.2% | 1.41x | | Hotel | 42,633 | 140,054 | 9,672 | 60,000 | 41,361 | 293,720 | 57.3% | 1.45 | | Retail Building | 85,366 | 84,515 | 50,317 | — | 43,678 | 263,876 | 60.5% | 1.91 | | Multi-family | 95,935 | 15,546 | 40,517 | — | 20,677 | 172,675 | 62.6% | 1.41 | | Office Building | 57,477 | 60,471 | 8,983 | — | 358 | 127,289 | 49.0% | 2.68 | | Other | 119,522 | 900 | 41,581 | — | 32,593 | 194,596 | 51.6% | 3.10 | | | $562,079 | $301,486 | $260,890 | $60,000 | $194,845 | $1,379,300 | 59.6% | 1.87 | | Weighted LTV | 60.0% | 59.4% | 59.7% | 46.2% | 62.8% | 59.6% | | | | Weighted DSCR | 2.05x | 1.50x | 2.18x | 1.18x | 1.74x | 1.87x | | | The following table presents the Bank's commercial real estate and construction loans and outstanding loan commitments, categorized by aggregate gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, average loan amount, weighted average LTV ratio and weighted average DSCR, as of September 30, 2024. See information above for the weighted average LTV ratio and DSCR calculations. For loans and commitments over $50.0 million, $182.2 million were related to hotels in California, New York, and Texas, $143.1 million were related to multi-family properties located in Kansas, and $60.0 million was related to an office building in Texas. *(Dollars in thousands)* | | Count | Amount | Average Amount | Weighted LTV | Weighted DSCR | | --- | ---: | ---: | ---: | ---: | ---: | | Greater than $50 million | 6 | $385,283 | $64,214 | 54.4% | 1.49x | | \>$30 to $50 million | 6 | 211,210 | 35,202 | 63.4 | 1.41 | | \>$20 to $30 million | 15 | 368,147 | 24,543 | 67.9 | 1.28 | | \>$15 to $20 million | 9 | 153,069 | 17,008 | 61.3 | 1.83 | | \>$10 to $15 million | 12 | 143,695 | 11,975 | 71.8 | 1.57 | | \>$5 to $10 million | 27 | 195,657 | 7,247 | 64.7 | 1.83 | | $1 to $5 million | 114 | 263,607 | 2,312 | 59.7 | 2.11 | | Less than $1 million | 596 | 128,604 | 216 | 40.0 | 4.06 | | | 785 | $1,849,272 | 2,356 | 60.0 | 1.77 | 33 ### Asset Quality **Delinquent and nonaccrual loans and other real estate owned ("OREO").** The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at September 30, 2024 and 2023, approximately 66% and 72%, respectively, were 59 days or less delinquent. The increase in commercial real estate loans that were 30 to 89 days delinquent from September 30, 2023 was not due to one underlying reason. Management is working closely with the borrowers to address payment issues. *September 30,* *(Dollars in thousands)* | 2024 Number One- to four-family: | Amount | 2023 Number | Amount | | --- | ---: | ---: | ---: | | Originated 69 | $8,884 | 88 | $9,078 | | Correspondent purchased 12 | 3,049 | 17 | 5,192 | | Bulk purchased 2 | 68 | 1 | 149 | | Construction — | — | 4 | 1,123 | | Commercial: | | | | | Commercial real estate 11 | 2,996 | 1 | 36 | | Commercial and industrial 4 | 391 | 4 | 58 | | Consumer 35 | 642 | 30 | 730 | | 133 | $16,030 | 145 | $16,366 | | Loans 30 to 89 days delinquent | | | | | to total loans receivable, net | 0.20% | | 0.21% | 34 The following table presents the Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. 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. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO. *September 30,* *(Dollars in thousands)* | 2024 Number Loans 90 or More Days Delinquent or in Foreclosure: One- to four-family: | Amount | 2023 Number | Amount | | --- | ---: | ---: | ---: | | Originated 29 | $2,274 | 24 | $2,246 | | Correspondent purchased 8 | 4,024 | 9 | 3,410 | | Bulk purchased 5 | 1,535 | 2 | 942 | | Commercial: | | | | | Commercial real estate 7 | 1,163 | 8 | 1,966 | | Commercial and industrial 2 | 82 | 4 | 217 | | Consumer 20 | 436 | 9 | 113 | | 71 | 9,514 | 56 | 8,894 | | Loans 90 or more days delinquent or in foreclosure | | | | | as a percentage of total loans | 0.12% | | 0.11% | | Nonaccrual loans less than 90 Days Delinquent:(1) | | | | | One- to four-family: | | | | | Originated — | $— | 2 | $215 | | Correspondent purchased — | — | 1 | 282 | | Bulk purchased — | — | — | — | | Commercial: | | | | | Commercial real estate 3 | 326 | 1 | 18 | | Commercial and industrial 2 | 252 | — | — | | Consumer — | — | — | — | | 5 | 578 | 4 | 515 | | Total nonaccrual loans 76 | 10,092 | 60 | 9,409 | | Nonaccrual loans as a percentage of total loans | 0.13% | | 0.12% | | OREO: | | | | | One- to four-family: | | | | | Originated(2) 1 | $55 | — | $— | | Correspondent purchased — | — | 1 | 219 | | 1 | 55 | 1 | 219 | | Total non-performing assets 77 | $10,147 | 61 | $9,628 | | Non-performing assets as a percentage of total assets | 0.11% | | 0.09% | (1) Includes loans required to be reported as nonaccrual pursuant to accounting 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 the states where the properties securing ten percent or more of the total amount of our one- to four-family loans, excluding construction loans, are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at September 30, 2024. The amounts in the table represent the unpaid principal balance of the loans, less related charge-offs, if any. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. At September 30, 2024, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off. *(Dollars in thousands)* | State | One- to Four-Family Amount | % of Total | Loans 30 to 89 Days Delinquent Amount | % of Total | Loans 90 or More Days Delinquent or in Foreclosure Amount | % of Total | LTV | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Kansas | $3,491,566 | 55.4% | $7,911 | 65.9% | $2,233 | 28.5% | 53% | | Missouri | 1,084,592 | 17.2 | 3,447 | 28.7 | 991 | 12.7 | 58 | | Other states | 1,728,512 | 27.4 | 643 | 5.4 | 4,609 | 58.8 | 56 | | | $6,304,670 | 100.0% | $12,001 | 100.0% | $7,833 | 100.0% | 56 | **Classified Assets.** In accordance with the Bank's asset classification policy, management regularly reviews the problem assets in the Bank's portfolio to determine whether any assets require classification. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 4. Loans Receivable and Allowance for Credit Losses" for asset classification definitions. The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. The increase in commercial real estate special mention loans at September 30, 2024 compared to September 30, 2023 was due mainly to three loans moving to special mention during the current year as certain underlying economic considerations related to the loans are being monitored by management. The decrease in commercial and industrial special mention loans at September 30, 2024 compared to September 30, 2023 was due mainly to two loans being upgraded to pass due to an improvement in financial results. *(Dollars in thousands)* | | September 30, 2024 Special Mention | Substandard | September 30, 2023 Special Mention | Substandard | | --- | ---: | ---: | ---: | ---: | | One- to four-family | $17,528 | $22,715 | $18,603 | $19,314 | | Commercial: | | | | | | Commercial real estate | 16,169 | 2,302 | 2,488 | 1,138 | | Commercial and industrial | 413 | 335 | 13,919 | 155 | | Consumer | 326 | 487 | 327 | 190 | | | $34,436 | $25,839 | $35,337 | $20,797 | **Allowance for Credit Losses.** The following table presents the distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates", "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies and Note 4. Loans Receivable and Allowance for Credit Losses” for additional information regarding the Bank's ACL, including management's qualitative factors. *(Dollars in thousands)* | One- to four-family: | September 30, 2024 Amount of ACL | ACL to Loans Ratio | % of ACL to Total ACL | % of Loans to Total Loans | September 30, 2023 Amount of ACL | ACL to Loans Ratio | % of ACL to Total ACL | % of Loans to Total Loans | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Originated | $1,650 | 0.04% | 7.2% | 49.8% | $2,084 | 0.05% | 8.8% | 49.9% | | Correspondent purchased | 1,861 | 0.08 | 8.1 | 27.9 | 2,972 | 0.12 | 12.4 | 30.1 | | Bulk purchased | 146 | 0.11 | 0.6 | 1.6 | 207 | 0.15 | 0.9 | 1.7 | | Construction | 16 | 0.07 | 0.1 | 0.3 | 65 | 0.09 | 0.3 | 0.9 | | Total | 3,673 | 0.06 | 16.0 | 79.6 | 5,328 | 0.08 | 22.4 | 82.6 | | Commercial: | | | | | | | | | | Real estate | 15,719 | 1.32 | 68.2 | 15.0 | 15,589 | 1.57 | 65.6 | 12.5 | | Commercial and industrial | 1,186 | 0.91 | 5.1 | 1.6 | 1,104 | 0.98 | 4.6 | 1.4 | | Construction | 2,249 | 1.20 | 9.8 | 2.4 | 1,487 | 0.83 | 6.3 | 2.2 | | Total | 19,154 | 1.27 | 83.1 | 19.0 | 18,180 | 1.41 | 76.5 | 16.1 | | Consumer loans: | | | | | | | | | | Home equity | 112 | 0.11 | 0.5 | 1.3 | 142 | 0.15 | 0.6 | 1.2 | | Other consumer | 96 | 1.00 | 0.4 | 0.1 | 109 | 1.18 | 0.5 | 0.1 | | Total consumer loans | 208 | 0.19 | 0.9 | 1.4 | 251 | 0.24 | 1.1 | 1.3 | | | $23,035 | 0.29% | 100.0% | 100.0% | $23,759 | 0.30% | 100.0% | 100.0% | Historically, the Bank has maintained very low delinquency ratios and NCO rates. Over the past two years, the Bank's highest ratio of commercial loans 90 days or more delinquent to total commercial loans at a quarter end was 0.17%. The highest such ratio for one- to four-family originated and correspondent loans, combined, was 0.12%. The amount of total NCOs during fiscal year 2024 was $111 thousand. During the 10-year period ended September 30, 2024, the Bank recognized $1.4 million of total NCOs. As of September 30, 2024, the ACL balance was $23.0 million and the reserve for off-balance sheet credit exposures totaled $6.0 million. Management believes that this level of ACL and reserves is adequate for the risk characteristics in our loan portfolio. The Bank's commercial real estate ACL ratios, in aggregate, continue to be higher than those of our peers. The following tables present the average and median commercial real estate ACL ratios for the Bank and two of the Bank's peer groups at the month ends for the periods noted. The OCC peer group consists of all savings banks greater than $1 billion in assets and the Asset Size peer group consists of all banks between $5 billion and $15 billion in asset size. The peer group information is sourced from the respective peers' Call Reports. | Average | September 2022 | December 2022 | March 2023 | June 2023 | September 2023 | December 2023 | March 2024 | June 2024 | September 2024 | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- | | Bank | 1.17% | 1.30% | 1.28% | 1.45% | 1.57% | 1.58% | 1.60% | 1.57% | 1.32% | | OCC | 0.96 | 0.92 | 1.21 | 1.22 | 1.21 | 1.14 | 1.10 | 1.11 | N/A | | Asset Size | 1.17 | 1.18 | 1.18 | 1.19 | 1.24 | 1.16 | 1.16 | 1.15 | N/A | | **Median** | **September 2022** | **December 2022** | **March 2023** | **June 2023** | **September 2023** | **December 2023** | **March 2024** | **June 2024** | **September 2024** | | Bank | 1.17% | 1.30% | 1.28% | 1.45% | 1.57% | 1.58% | 1.60% | 1.57% | 1.32% | | OCC | 0.90 | 0.84 | 1.00 | 0.98 | 1.06 | 1.02 | 0.98 | 1.02 | N/A | | Asset Size | 1.13 | 1.15 | 1.13 | 1.12 | 1.12 | 1.10 | 1.13 | 1.06 | N/A | 37 The following table presents ACL activity and related ratios at the dates and for the periods indicated. On October 1, 2023, the Bank adopted Accounting Standards Update ("ASU") 2022-02, *Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures* ("ASU 2022-02"), which eliminated the accounting guidance for troubled debt restructurings by creditors. The Company applied a modified retrospective approach when adopting ASU 2022-02, resulting in a cumulative-effect adjustment which is reflected in the table below ("ASU 2022-02 Adoption"). *(Dollars in thousands)* | | At or For the Year Ended September 30, 2024 | 2023 | 2022 | | --- | ---: | ---: | ---: | | Balance at beginning of period | $23,759 | $16,371 | $19,823 | | ASU 2022-02 Adoption | 20 | — | — | | Charge-offs | (160) | (115) | (70) | | Recoveries | 49 | 9 | 256 | | Net (charge-offs) recoveries | (111) | (106) | 186 | | Provision for credit losses | (633) | 7,494 | (3,638) | | Balance at end of period | $23,035 | $23,759 | $16,371 | | Ratio of NCOs during the period | | | | | to average non-performing assets | 1.12% | 1.09% | (1.59)% | | ACL to nonaccrual loans at end of period | 228.25 | 252.51 | 173.37 | | ACL to loans receivable, net at end of period | 0.29 | 0.30 | 0.22 | | ACL at end of period to NCOs during the period | 207x | 223x | N/M | The ratio of NCOs to average non-performing assets during the current year was higher than the prior year due to higher NCOs compared to the prior year. The ratio of ACL to nonaccrual loans was lower at the end of the current year compared to the prior year-end due to a higher balance of nonaccrual loans and a lower ACL balance. The decrease in the ratio of the ACL to total loans as of September 30, 2024 from September 30, 2023 was due mainly to a decrease in the one- to four-family ACL to loan ratio and a decrease in overall one- to four-family loan balances, partially offset by an increase in the ACL for commercial loans due to commercial loan growth. The ratio of ACL at end of period to NCOs during the period was lower in the current year due to higher NCOs along with a lower ACL balance compared to the prior year. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories. The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated. *(Dollars in thousands)* | One- to four-family: | For the Year Ended September 30, 2024 NCOs | Average Loans | % of Average Loans | 2023 NCOs | Average Loans | % of Average Loans | 2022 NCOs | Average Loans | % of Average Loans | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | Originated | $(28) | $3,951,870 | —% | $(6) | $3,981,468 | —% | $(129) | $3,937,188 | —% | | Correspondent | — | 2,340,841 | — | — | 2,428,257 | — | — | 2,072,677 | — | | Bulk purchased | — | 132,460 | — | — | 143,105 | — | — | 159,152 | — | | Construction | — | 33,101 | — | — | 65,741 | — | — | 48,079 | — | | Total | (28) | 6,458,272 | — | (6) | 6,618,571 | — | (129) | 6,217,096 | — | | Commercial: | | | | | | | | | | | Real estate | 80 | 1,073,219 | 0.01 | (1) | 875,850 | — | (101) | 692,115 | (0.01) | | Commercial and industrial | (5) | 120,354 | — | 75 | 93,840 | 0.08 | 40 | 74,133 | 0.05 | | Construction | — | 184,848 | — | — | 181,141 | — | — | 117,878 | — | | Total | 75 | 1,378,421 | 0.01 | 74 | 1,150,831 | 0.01 | (61) | 884,126 | (0.01) | | Consumer: | | | | | | | | | | | Home equity | 46 | 97,694 | 0.05 | 21 | 94,131 | 0.02 | 1 | 85,514 | — | | Other | 18 | 9,663 | 0.19 | 17 | 8,885 | 0.19 | 3 | 8,030 | 0.04 | | Total | 64 | 107,357 | 0.06 | 38 | 103,016 | 0.04 | 4 | 93,544 | — | | | $111 | $7,944,050 | — | $106 | $7,872,418 | — | $(186) | $7,194,766 | — | **Securities.** The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 95% of our securities portfolio at September 30, 2024. 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. *(Dollars in thousands)* | | September 30, 2024 Amount | Yield | WAL | September 30, 2023 Amount | Yield | WAL | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | MBS | $756,775 | 5.63% | 5.7 | $901,440 | 1.71% | 4.7 | | Government-sponsored enterprises ("GSE") debentures | 69,077 | 5.63 | 0.4 | 479,610 | 0.64 | 1.9 | | Corporate bonds | 4,000 | 5.12 | 7.6 | 4,000 | 5.12 | 8.6 | | Municipal bonds | — | — | — | 942 | 2.55 | 6.9 | | | $829,852 | 5.63 | 5.2 | $1,385,992 | 1.35 | 3.8 | 39 The composition and maturities of the securities portfolio at September 30, 2024 is indicated in the following table by remaining contractual maturity, without consideration of call features or pre-refunding dates, along with associated weighted average yields. The weighted average yields are current yields and includes the amortization of premiums or discounts and are calculated by multiplying each estimated fair value by its current yield and dividing the sum of these results by the total estimated fair value. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis. *(Dollars in thousands)* | | 1 year or less Estimated Fair Value | Yield | More than 1 to 5 years Estimated Fair Value | Yield | More than 5 to 10 years Estimated Fair Value | Yield | Over 10 years Estimated Fair Value | Yield | Total Securities Estimated Fair Value | Yield | | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | | MBS | $376 | 2.60% | $42,353 | 5.58% | $199,403 | 5.98% | $541,441 | 5.50% | $783,573 | 5.63% | | GSE debentures | — | — | 10,000 | 5.52 | 59,305 | 5.64 | — | — | 69,305 | 5.63 | | Corporate bonds | — | — | — | — | 3,388 | 5.12 | — | — | 3,388 | 5.12 | | | $376 | 2.60 | $52,353 | 5.57 | $262,096 | 5.90 | $541,441 | 5.50 | $856,266 | 5.63 | The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods 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 and projected call option assumptions have been applied. *(Dollars in thousands)* | | For the Year Ended September 30, 2024 Amount | Yield | WAL | September 30, 2023 Amount | Yield | WAL | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Beginning balance - carrying value | $1,384,482 | 1.35% | 3.8 | $1,563,307 | 1.29% | 4.2 | | Maturities and repayments | (455,110) | | | (186,860) | | | | Proceeds from sale | (1,272,512) | | | — | | | | Net amortization of (premiums)/discounts | 8,182 | | | (3,016) | | | | Purchases | 1,176,645 | 5.55 | 5.1 | — | — | — | | Net loss from securities sales | (13,345) | | | — | | | | Change in valuation on AFS securities | 27,924 | | | 11,051 | | | | Ending balance - carrying value | $856,266 | 5.63 | 5.2 | $1,384,482 | 1.35 | 3.8 | **Liabilities.** Total liabilities were $8.50 billion at September 30, 2024, compared to $9.13 billion at September 30, 2023. The decrease was due primarily to a decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP, partially offset by an increase in deposits. **Deposits.** The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. Total deposits increased from September 30, 2023, primarily in retail certificates of deposit, all in the 14 months or shorter term category, partially offset by a decrease in retail money market accounts, as some customers elected to move funds to the Bank's certificate of deposit offerings or the Bank's higher yielding savings account offering. The amount of commercial non-maturity deposits included in the table below at September 30, 2024 and 2023 was $259.7 million and $267.3 million, respectively. The increase in the deposit portfolio rate at September 30, 2024 compared to September 30, 2023 was due mainly to higher rates on retail certificates of deposit. *(Dollars in thousands)* | | At September 30, 2024 Amount | Rate | % of Total | 2023 Amount | Rate | % of Total | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Non-interest-bearing checking | $549,596 | —% | 9.0% | $558,326 | —% | 9.2% | | Interest-bearing checking | 847,542 | 0.23 | 13.8 | 901,994 | 0.19 | 14.9 | | Savings | 540,572 | 0.82 | 8.8 | 480,091 | 0.12 | 7.9 | | Money market | 1,226,962 | 1.46 | 20.0 | 1,380,617 | 1.96 | 22.8 | | Retail certificates of deposit | 2,830,579 | 4.23 | 46.2 | 2,533,954 | 3.47 | 41.9 | | Commercial certificates of deposit | 58,236 | 4.40 | 1.0 | 48,751 | 3.56 | 0.8 | | Public unit certificates of deposit | 76,495 | 4.62 | 1.2 | 147,487 | 4.44 | 2.5 | | | $6,129,982 | 2.45 | 100.0% | $6,051,220 | 2.07 | 100.0% | During the current year, management sought to grow certificates of deposit with terms of 14 months or less by offering market competitive rates. We focused on terms that should allow us to price down certificates of deposit as and when the FRB reduces overnight rates, which first occurred in September 2024 and occurred again in November 2024. The weighted average maturity ("WAM") of our retail certificate of deposit portfolio as of September 30, 2024 was approximately 10 months. Our retail certificate of deposit retention rate has been approximately 87% over the past 12-months. Additionally, management focused on retaining and growing deposits through the introduction of a high-yield savings account early in fiscal year 2024 which had an annual percentage yield of 4.30% for balances over $10 thousand as of September 30, 2024. The high-yield savings account balance was $96.2 million as of September 30, 2024. Of this amount, approximately 45% relates to existing Bank customers increasing their balances during the year by bringing in funds from outside the Bank, approximately 40% is from internal Bank transfers from other deposit products, largely the money market portfolio, and the remaining 15% is composed of new deposit relationships. While there is an immediate repricing and increase in cost on internal transfers within the Bank, we believe we have captured rate sensitive money by offering this product, rather than having those funds leave the Bank. As of September 30, 2024 and 2023, approximately $766.8 million (or approximately 12%) and $789.0 million (or approximately 13%), respectively, of the Bank's Call Report deposit balance was uninsured. Of the $766.8 million at September 30, 2024, approximately $460.1 million related to commercial and retail deposit accounts, with the remainder mainly comprised of fully collateralized public unit deposits and intercompany accounts. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements. The following table sets forth the portion of the Bank's certificate of deposit portfolio, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of September 30, 2024 (dollars in thousands). | | | | --- | ---: | | 3 months or less | $139,686 | | Over 3 through 6 months | 124,002 | | Over 6 through 12 months | 137,847 | | Over 12 months | 114,722 | | | $516,257 | 41 **Borrowings.** Total borrowings at September 30, 2024 were $2.18 billion, which was comprised of $1.98 billion in fixed-rate FHLB advances, $200.0 million in FHLB variable-rate advances tied to interest rate swaps, and $1.1 million in finance leases. Borrowings decreased $699.6 million from September 30, 2023 as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP and not all maturing FHLB borrowings were replaced during the current fiscal year. The following table presents the maturity of term borrowings, which consist of FHLB advances, along with associated weighted average contractual and effective rates as of September 30, 2024. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates. *(Dollars in thousands)* | Maturity by Fiscal Year | Amount | Contractual Rate | Effective Rate(1) | | --- | ---: | ---: | ---: | | 2025 | 650,000 | 3.23 | 2.94 | | 2026 | 575,000 | 2.81 | 2.95 | | 2027 | 477,500 | 3.14 | 3.24 | | 2028 | 310,656 | 4.78 | 4.13 | | 2029 | 167,500 | 4.44 | 4.44 | | | $2,180,656 | 3.41 | 3.29 | (1) 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. Line of credit borrowings and finance leases are excluded from the table. 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 WAM is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. During the current year, management paid down BTFP borrowings with the proceeds received from the securities strategy. *(Dollars in thousands)* | | For the Year Ended September 30, 2024 Amount | Effective Rate | WAM | 2023 Amount | Effective Rate | WAM | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Beginning balance | $2,882,828 | 3.34% | 1.8 | $2,062,500 | 2.44% | 2.5 | | Maturities and repayments | (527,172) | 2.95 | — | (329,672) | 2.01 | — | | New FHLB borrowings | 325,000 | 4.54 | 4.4 | 650,000 | 4.47 | 3.2 | | BTFP, net | (500,000) | 4.70 | — | 500,000 | 4.70 | 1.0 | | Ending balance | $2,180,656 | 3.29 | 1.6 | $2,882,828 | 3.34 | 1.8 | #### Leverage Strategy Periodically, the Bank has utilized a leverage strategy to increase earnings, which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB. The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. The profitability of the leverage strategy is attributable to net income derived from the dividends received on the increased FHLB stock holdings, plus the net interest rate spread between the yield on the leverage strategy cash at the FRB and the rate paid on the leverage strategy FHLB borrowings, less applicable FDIC premiums and estimated income tax expense. Leverage strategy borrowings are repaid prior to each quarter end so there is no impact to quarter end capital ratios. The leverage strategy was not in place at any time during the current year due to the strategy being unprofitable, but it was in place at points during the prior year. During the prior year, the average balance of cash associated with the leverage strategy was $882.8 million and interest earned on that cash was $37.8 million, the average balance of FHLB stock associated with the leverage strategy was $41.6 million and dividends earned on that stock were $3.6 million, and the average balance of FHLB borrowings associated with the leverage strategy was $924.4 million and the related interest expense was $39.7 million. Additionally, the Company recognized $406 thousand of FDIC premiums and $215 thousand of income tax expense during the prior year related to the leverage strategy. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy. **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 non-amortizing term borrowings for the next four quarters as of September 30, 2024. *(Dollars in thousands)* | Retail/Commercial Certificates: | December 31, 2024 | March 31, 2025 | June 30, 2025 | September 30, 2025 | Total | | --- | ---: | ---: | ---: | ---: | ---: | | Amount | $681,571 | $636,105 | $520,483 | $307,071 | $2,145,230 | | Repricing Rate | 4.49% | 4.56% | 4.61% | 4.41% | 4.53% | | Public Unit Certificates: | | | | | | | Amount | $30,025 | $17,526 | $5,841 | $5,853 | $59,245 | | Repricing Rate | 4.68% | 4.90% | 4.62% | 4.64% | 4.74% | | Term Borrowings: | | | | | | | Amount | $200,000 | $150,000 | $200,000 | $100,000 | $650,000 | | Repricing Rate | 3.35% | 1.93% | 3.27% | 2.97% | 2.94% | | Total | | | | | | | Amount | $911,596 | $803,631 | $726,324 | $412,924 | $2,854,475 | | Repricing Rate | 4.25% | 4.08% | 4.24% | 4.07% | 4.17% | The following table sets forth the WAM information for our certificates of deposit, in years, as of September 30, 2024. | | | | --- | ---: | | Retail certificates of deposit | 0.8 | | Commercial certificates of deposit | 0.6 | | Public unit certificates of deposit | 0.6 | | Total certificates of deposit | 0.8 | **Stockholders' Equity.** Stockholders' equity totaled $1.03 billion at September 30, 2024. During the year ended September 30, 2024, the Company repurchased $19.3 million of shares and paid regular quarterly cash dividends totaling $44.5 million, or $0.34 per share. On October 22, 2024, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.1 million, payable on November 15, 2024 to stockholders of record as of the close of business on November 1, 2024. 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 September 30, 2024, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank exceeded all internal policy thresholds for sensitivity to changes in rates. As of September 30, 2024, the Bank's community bank leverage ratio was 9.2%. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 13. Regulatory Capital Requirements" for additional regulatory capital information. During the current year, the Company repurchased 3,280,110 shares of common stock at an average price of $5.87 per share. These repurchases occurred in the first half of the current year. The Company currently has $75.0 million authorized for repurchase under existing stock repurchase plans. The FRB's current approval for the Company to repurchase shares up to the $75.0 million authorization expires in February 2025. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. Based on the Company's accumulated earnings and profits at the beginning of its 2024 tax year and the current year tax earnings and profits deficit as a result of the losses associated with the securities strategy (See "Comparison of Operating Results for the Years Ended September 30, 2024 and 2023 - Income Tax Expense" below), the Company believes that all dividends paid to stockholders by the Company during fiscal year 2024 should be treated as a return of capital, pursuant to Internal Revenue Code Section 301(c)(2), which reduced the tax basis in the stockholders' shares by the amount of the dividend received. Stockholders should consult their own tax advisors to determine the income tax consequences of their specific situation. The Company is providing this for informational purposes only and not as legal or tax advice. Based on the Company's proposed actions for fiscal year 2025 (as discussed further below), the Company anticipates that the majority, if not all, of the dividend payments to Company stockholders in fiscal year 2025 will be treated as dividends for U.S. federal income tax purposes. At September 30, 2024, Capitol Federal Financial, Inc. at the holding company level, had $50.1 million in cash on deposit at the Bank. Given the amount of cash at the holding company level, and in an effort to minimize the tax associated with the pre-1988 bad debt recapture, it is currently the intention of management and the Board of Directors to not distribute earnings from the Bank to the Company during fiscal year 2025. See additional information regarding the pre-1988 bad debt recapture in "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 9. Income Taxes". It is currently anticipated that the Bank will have sufficient taxable income during fiscal year 2025 to replenish tax accumulated earnings and profits to a positive level, allowing the Bank to make earnings distributions to the Company during fiscal year 2026 and not be taxed on those distributions. For fiscal year 2025, it is the intention of the Company's Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year. To the extent that earnings in fiscal year 2025 exceed $0.34 per share, the Board of Directors will consider the payment of additional dividends. 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, the Bank's taxable current earnings and accumulated earnings and profits, and the amount of cash at the holding company level. The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2024, 2023, and 2022. *(Dollars in thousands, except per share amounts)* | Regular quarterly dividends paid | Calendar Year 2024 Amount | Per Share | 2023 Amount | Per Share | 2022 Amount | Per Share | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Quarter ended March 31 | $11,127 | $0.085 | $11,319 | $0.085 | $11,535 | $0.085 | | Quarter ended June 30 | 11,044 | 0.085 | 11,321 | 0.085 | 11,534 | 0.085 | | Quarter ended September 30 | 11,043 | 0.085 | 11,323 | 0.085 | 11,534 | 0.085 | | Quarter ended December 31 | 11,061 | 0.085 | 11,308 | 0.085 | 11,508 | 0.085 | | True-up dividends paid | — | — | — | — | 37,701 | 0.280 | | True Blue Capitol dividends paid | — | — | — | — | 27,143 | 0.200 | | Calendar year-to-date dividends paid | $44,275 | $0.340 | $45,271 | $0.340 | $110,955 | $0.820 | 44 **Rate/Volume Analysis.** The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing fiscal years 2024 to 2023. For the comparison of fiscal years 2023 to 2022, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. *(Dollars in thousands)* | Interest-earning assets: | For the Year Ended September 30, 2024 vs. 2023 Increase (Decrease) Due to Volume | Rate | Total | | --- | ---: | ---: | ---: | | Loans receivable | $6,962 | $21,659 | $28,621 | | MBS | (11,843) | 26,973 | 15,130 | | Investment securities | (3,724) | 8,907 | 5,183 | | FHLB stock | (4,795) | 982 | (3,813) | | Cash and cash equivalents | (36,895) | 8,827 | (28,068) | | Total interest-earning assets | (50,295) | 67,348 | 17,053 | | Interest-bearing liabilities: | | | | | Checking | (148) | 623 | 475 | | Savings | (31) | 1,369 | 1,338 | | Money market | (3,645) | 6,552 | 2,907 | | Certificates of deposit | 11,380 | 41,183 | 52,563 | | Borrowings | (56,483) | 7,466 | (49,017) | | Total interest-bearing liabilities | (48,927) | 57,193 | 8,266 | | Net change in net interest income | $(1,368) | $10,155 | $8,787 | **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 on our interest-earning assets and interest-bearing liabilities for the periods indicated. For fiscal year 2022 information, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023. Weighted average yields are derived by dividing annual income by the average balance of the related assets, and weighted average rates are derived by dividing annual 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 Year Ended September 30,* *(Dollars in thousands)* | 2024 Average Interest Outstanding Earned/ Amount Paid Assets: Interest-earning assets: One- to four-family loans: | Yield/ Rate | 2023 Average Outstanding Amount | Interest Earned/ Paid | Yield/ Rate | | --- | ---: | ---: | ---: | ---: | | Originated $3,984,971 $142,011 | 3.56% | $4,047,209 | $135,873 | 3.36% | | Correspondent purchased 2,340,841 76,493 | 3.27 | 2,428,257 | 76,335 | 3.14 | | Bulk purchased 132,460 2,999 | 2.26 | 143,105 | 1,923 | 1.34 | | Total one- to four-family loans 6,458,272 221,503 | 3.43 | 6,618,571 | 214,131 | 3.24 | | Commercial loans 1,378,421 78,042 | 5.57 | 1,150,831 | 57,991 | 4.97 | | Consumer loans 107,357 9,162 | 8.53 | 103,016 | 7,965 | 7.73 | | Total loans receivable(1) 7,944,050 308,707 | 3.87 | 7,872,418 | 280,087 | 3.55 | | MBS(2) 619,521 33,650 | 5.43 | 1,150,013 | 18,520 | 1.61 | | Investment securities(2)(3) 180,640 8,749 | 4.84 | 524,919 | 3,565 | 0.68 | | FHLB stock(4) 106,064 10,009 | 9.44 | 157,925 | 13,821 | 8.75 | | Cash and cash equivalents(5) 286,988 15,728 | 5.39 | 998,793 | 43,796 | 4.32 | | Total interest-earning assets 9,137,263 376,843 | 4.11 | 10,704,068 | 359,789 | 3.35 | | Other non-interest-earning assets 460,278 | | 263,713 | | | | Total assets $9,597,541 | | $10,967,781 | | | | Liabilities and stockholders' equity: | | | | | | Interest-bearing liabilities: | | | | | | Checking $873,097 1,978 | 0.23 | $961,779 | 1,504 | 0.16 | | Savings 493,456 1,826 | 0.37 | 525,423 | 488 | 0.09 | | Money market 1,302,817 22,333 | 1.71 | 1,567,540 | 19,426 | 1.24 | | Retail certificates 2,680,003 106,204 | 3.96 | 2,266,740 | 54,724 | 2.41 | | Commercial certificates 54,484 2,247 | 4.12 | 40,258 | 993 | 2.47 | | Wholesale certificates 109,217 4,961 | 4.54 | 134,641 | 5,132 | 3.81 | | Total deposits 5,513,074 139,549 | 2.53 | 5,496,381 | 82,267 | 1.50 | | Borrowings(6) 2,338,222 75,233 | 3.21 | 3,658,015 | 124,250 | 3.38 | | Total interest-bearing liabilities 7,851,296 214,782 | 2.73 | 9,154,396 | 206,517 | 2.25 | | Non-interest-bearing deposits 533,821 | | 562,023 | | | | Other non-interest-bearing liabilities 180,979 | | 179,373 | | | | Stockholders' equity 1,031,445 | | 1,071,989 | | | | Total liabilities and stockholders' equity $9,597,541 | | $10,967,781 | | | | Net interest income(7) $162,061 | | | $153,272 | | | Net interest-earning assets $1,285,967 | | $1,549,672 | | | | Net interest margin(8) | 1.77 | | | 1.43 | | Ratio of interest-earning assets to interest-bearing liabilities | 1.16x | | | 1.17x | | Selected performance ratios: | | | | | | Return on average assets(9)(14) | 0.40% | | | (0.93)% | | Return on average equity(10)(14) | 3.69 | | | (9.48) | | Average equity to average assets | 10.75 | | | 9.77 | | Operating expense ratio(11) | 1.17 | | | 1.04 | | Efficiency ratio(12)(14) | 66.91 | | | (626.63) | | Pre-tax yield on leverage strategy(13) | — | | | 0.13 | 46 (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 $51 thousand and $1.0 million for the years ended September 30, 2024 and 2023, respectively. (4) There was no FHLB stock related to the leverage strategy for the year ended September 30, 2024. Included in this line, for the year ended September 30, 2023, is FHLB stock related to the leverage strategy with an average outstanding balance of $41.6 million and dividend income of $3.6 million, at a weighted average yield of 8.69%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $116.3 million, and dividend income of $10.2 million, at a weighted average yield of 8.77%. (5) There was no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2024. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $882.8 million and interest income of $37.8 million, at a weighted average yield of 4.22% during the year ended September 30, 2023. (6) There were no borrowings related to the leverage strategy during the year ended September 30, 2024. Included in this line, for the year ended September 30, 2023 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $924.4 million and interest paid of $39.7 million, at a weighted average rate of 4.24%, and borrowings not related to the leverage strategy with an average outstanding balance of $2.73 billion, and interest paid of $84.5 million, at a weighted average rate of 3.08%. 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 net interest income as a percentage of average interest-earning assets. Management believes the net interest margin is important to investors as it is a profitability measure for financial institutions. (9) Return on average assets represents net income as a percentage of total average assets. Management believes that the return on average assets is important to investors as it shows the Company's profitability in relation to the Company's average assets. (10) Return on average equity represents net income as a percentage of total average equity. Management believes that the return on average equity is important to investors as it shows the Company's profitability in relation to the Company's average equity. (11) The operating expense ratio represents non-interest expense as a percentage of average assets. Management believes the operating expense ratio is important to investors as it provides insight into how efficiently the Company is managing its expenses in relation to its assets. It is a financial measurement ratio that does not take into consideration changes in interest rates. (12) 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. Management believes the efficiency ratio is important to investors as it 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 lower value generally indicates that it is costing the financial institution less money to generate revenue, related to its net interest margin and non-interest income. (13) 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. Management believes this ratio is important to investors as it provides the yield the Company is earning on the leverage strategy transaction. (14) The table below provides a reconciliation between performance measures presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the same performance measures excluding the impact of the net loss on the securities transactions associated with the securities strategy, which are not presented in accordance with GAAP. The securities strategy was non-recurring in nature; therefore management believes it is meaningful to investors to present certain financial measures excluding the securities strategy to better evaluate the Company's core operations. See information regarding the securities strategy in the "Executive Summary" discussion above. | | For the Year Ended September 30, 2024 Actual (GAAP) | Securities Strategy | Without Securities Strategy (Non-GAAP) | 2023 Actual (GAAP) | Securities Strategy | Without Securities Strategy (Non-GAAP) | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | Return on average assets | 0.40% | (0.10)% | 0.50% | (0.93)% | (1.33)% | 0.40% | | Return on average equity | 3.69 | (0.97) | 4.66 | (9.48) | (13.58) | 4.10 | | Efficiency Ratio | 66.91 | 4.94 | 61.97 | (626.63) | (691.94) | 65.31 | | Earnings per share(15) | $0.29 | $(0.08) | $0.37 | $(0.76) | $(1.09) | $0.33 | (15) Earnings per share is calculated as net income divided by average shares outstanding. Management believes earnings per share is an important measure to investors as it shows the Company's earnings in relation to the Company's outstanding shares. ### Comparison of Operating Results for the Years Ended September 30, 2024 and 2023 The Company recognized net income of $38.0 million, or $0.29 per share, for the current year, compared to net loss of $101.7 million, or $(0.76) per share, for the prior year. The net loss in the prior year resulted from a $192.6 million impairment loss ($145.6 million net of tax) on the securities associated with the securities strategy. See additional discussion regarding the securities strategy in the "Executive Summary" section above. The securities associated with the securities strategy were sold in the first quarter of fiscal year 2024 resulting in $13.3 million ($10.0 million net of tax) of net losses related to the sale. Excluding the effects of the net loss associated with the securities strategy, earnings per share would have been $0.37 for the current year and $0.33 for the prior year. The increase in earnings per share excluding the effects of the net losses associated with the securities strategy was due primarily to higher net interest income and a lower provision for credit losses in the current year, partially offset by higher income tax expense. Periodically, at management's discretion, we have utilized the leverage strategy to increase earnings which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB. See additional information regarding the leverage strategy in the "Financial Condition - Borrowings" section above. 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. The net interest margin increased 34 basis points, from 1.43% for the prior year to 1.77% for the current year. The leverage strategy negatively impacted the net interest margin for the prior year by 12 basis points. The remaining improvement in the net interest margin absent the leverage strategy was due to higher yields on securities and loans which outpaced the increase in the cost of deposits, largely in retail certificates of deposit. #### Interest and Dividend Income The following table presents the components of interest and dividend income for the years presented, along with the change measured in dollars and percent. *(Dollars in thousands)* | INTEREST AND DIVIDEND INCOME: | For the Year Ended September 30, 2024 | 2023 | Change Expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Loans receivable | $308,707 | $280,087 | $28,620 | 10.2% | | MBS | 33,650 | 18,520 | 15,130 | 81.7 | | Cash and cash equivalents | 15,728 | 43,796 | (28,068) | (64.1) | | FHLB stock | 10,009 | 13,821 | (3,812) | (27.6) | | Investment securities | 8,749 | 3,565 | 5,184 | 145.4 | | Total interest and dividend income | $376,843 | $359,789 | $17,054 | 4.7 | The increase in interest income on loans receivable was due largely to an increase in the weighted average yield, along with an increase in the average balance of the portfolio primarily as a result of growth in the commercial loan portfolio as the loan portfolio mix continued to shift from one- to four-family loans to commercial loans. The increase in the weighted average yield was due primarily to originations and purchases at higher market rates between periods, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in the average balance was mainly in the commercial loan portfolio which was partially offset by a decrease in the average balance of the one-to four-family loan portfolio. See additional discussion in the "Financial Condition - Loans Receivable" section above. The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield, partially offset by a decrease in the average balance, both a result of the securities strategy. The decrease in interest income on cash and cash equivalents and the decrease in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the prior year and not being utilized during the current year. Interest income on cash and cash equivalents related to the leverage strategy decreased $37.8 million and dividend income on FHLB stock related to the leverage strategy decreased $3.6 million compared to the prior year. Interest income on cash and cash equivalents not associated with the leverage strategy increased $9.7 million due largely to an increase in the average balance of cash and cash equivalents. The increase in the average balance was mainly a result of the securities strategy as not all of the proceeds from the securities strategy were immediately redeployed due to future anticipated commercial loan fundings and the higher rate paid on amounts held at the FRB. #### Interest Expense The following table presents the components of interest expense for the years presented, along with the change measured in dollars and percent. *(Dollars in thousands)* | INTEREST EXPENSE: | For the Year Ended September 30, 2024 | 2023 | Change Expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Deposits | $139,549 | $82,267 | $57,282 | 69.6% | | Borrowings | 75,233 | 124,250 | (49,017) | (39.5) | | Total interest expense | $214,782 | $206,517 | $8,265 | 4.0 | The increase in interest expense on deposits was due almost entirely to an increase in the weighted average rate paid on deposits, specifically retail certificates of deposit and money market accounts. To a lesser extent, the average balance of retail certificates of deposit also increased interest expense on deposits, partially offset by a decrease in the average balance of money market accounts. See additional information regarding the deposit portfolio composition in the "Financial Condition - Deposits" section above. Interest expense on borrowings associated with the leverage strategy decreased $39.7 million compared to the prior year due to the leverage strategy being in place during the prior year and not being in place during the current year. Interest expense on borrowings not associated with the leverage strategy decreased $9.3 million due mainly to a decrease in borrowings under the BTFP, which were repaid during the current year, and a reduction in the average outstanding balance on the Bank's FHLB line of credit compared to the prior year. The decrease in these borrowings was partially offset by new borrowings in the current year at market interest rates higher than the overall portfolio rate, to replace maturing advances and fund operational needs. #### Provision for Credit Losses The Company recorded a provision for credit losses of $1.3 million during the current year, compared to a provision for credit losses of $6.8 million for the prior year. The provision for credit losses in the current year was comprised of a $1.9 million increase in the reserve for off-balance sheet credit exposures, partially offset by a $633 thousand release in the ACL for loans. The increase in the reserve for off-balance sheet credit exposures was due primarily to an increase in the balance of off-balance sheet credit exposures and an increase in the ACL to loan ratio, which is applied to off-balance sheet credit exposures, between periods, specifically for commercial construction loans. The change in the balance of the ACL from the prior fiscal year end to the end of the current fiscal year was a decrease of $724 thousand which differs from the $633 thousand above primarily due to NCOs. The reduction in ACL was due to a decrease in the ACL for our one- to four-family loans as a result of a decrease in the ACL to loan ratio and a decrease in loan balances, partially offset by an increase in the ACL for our commercial loans due to growth in the commercial loan portfolio. See discussion regarding the ACL in the "Management's Discussion and Analysis of Financial Condition and Results of Operation - Critical Accounting Estimates" section above. #### Non-Interest Income The following table presents the components of non-interest income for the years presented, along with the change measured in dollars and percent. *(Dollars in thousands)* | NON-INTEREST INCOME: | For the Year Ended September 30, 2024 | 2023 | Change Expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Deposit service fees | $10,562 | $12,745 | $(2,183) | (17.1)% | | Insurance commissions | 3,257 | 3,487 | (230) | (6.6) | | Net loss from securities transactions | (13,345) | (192,622) | 179,277 | 93.1 | | Other non-interest income | 4,770 | 4,935 | (165) | (3.3) | | Total non-interest income | $5,244 | $(171,455) | $176,699 | 103.1 | The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the Bank's digital transformation. The decrease in insurance commissions was primarily due to adjustments to accrued contingent commissions made in anticipation of lower commissions largely related to industry changes in underwriting and loss experience which is adversely impacting new business and projected loss ratios. The industry changes impacting commissions are expected to persist for the foreseeable future, so management is currently evaluating other insurance revenue streams while maintaining our current lines of business. The net loss from securities transactions in the prior year related to the impairment loss on securities associated with the securities strategy while the $13.3 million loss in the current year related to additional losses incurred on those securities when they were ultimately sold during the first quarter of fiscal year 2024. #### Non-Interest Expense The following table presents the components of non-interest expense for the years presented, along with the change measured in dollars and percent. *(Dollars in thousands)* | NON-INTEREST EXPENSE: | For the Year Ended September 30, 2024 | 2023 | Change Expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Salaries and employee benefits | $52,272 | $51,491 | $781 | 1.5% | | Information technology and related expense | 20,324 | 23,425 | (3,101) | (13.2) | | Occupancy, net | 13,558 | 14,236 | (678) | (4.8) | | Federal insurance premium | 6,052 | 4,456 | 1,596 | 35.8 | | Regulatory and outside services | 5,743 | 6,039 | (296) | (4.9) | | Advertising and promotional | 4,264 | 4,305 | (41) | (1.0) | | Deposit and loan transaction costs | 2,719 | 2,694 | 25 | 0.9 | | Office supplies and related expense | 1,691 | 2,499 | (808) | (32.3) | | Other non-interest expense | 5,320 | 4,789 | 531 | 11.1 | | Total non-interest expense | $111,943 | $113,934 | $(1,991) | (1.7) | The increase in salaries and employee benefits was mainly attributable to higher incentive compensation in the current year compared to the prior year, as no incentive compensation was paid in the prior year due to the net loss recognized by the Company. The decrease in information technology and related expense was due mainly to lower third-party project management expenses associated with the Bank's digital transformation during the prior year along with the discontinuation of other costs associated with the previous core system, partially offset by higher software licensing expenses resulting from new agreements associated with the digital transformation. The increase in the federal insurance premium was due primarily to an increase in the FDIC assessment rate as a result of the way the assessment rate was adjusted for the occurrence of the Bank's net loss during the quarter ending September 30, 2023. The decrease in regulatory and outside services was due to the prior year including expenses related to the digital transformation. The decrease in office supplies and related expense was due primarily to the outsourcing of statement processing related to the digital transformation, and the timing of office supply purchases between periods. The increase in other non-interest expense was due mainly to an increase in customer fraud losses. The Company's efficiency ratio was 66.91% for the current year compared to (626.63)% for the prior year. Excluding the net losses from the securities strategy, the efficiency ratio would have been 61.97% for the current year and 65.31% for the prior year. The improvement in the efficiency ratio, excluding the net losses from the securities strategy, was due primarily to higher net interest income and lower non-interest expense in the current year compared to the prior year. #### Income Tax Expense The following table presents pretax income, income tax expense, and net income for the periods presented, along with the change measured in dollars and percent and effective tax rate. *(Dollars in thousands)* | | For the Year Ended September 30, 2024 | 2023 | Change Expressed in: Dollars | Percent | | --- | ---: | ---: | ---: | ---: | | Income (loss) before income tax expense (benefit) | $54,103 | $(138,955) | $193,058 | 138.9% | | Income tax expense (benefit) | 16,093 | (37,296) | 53,389 | 143.1 | | Net income (loss) | $38,010 | $(101,659) | $139,669 | 137.4 | | Effective Tax Rate | 29.7% | 26.8% | | | For the prior year, absent the net loss, the effective income tax rate would have been 18.1%. The higher effective tax rate in the current year was due primarily to recording $5.4 million of income tax expense on the current year distributions of earnings from the Bank to the Company in association with the pre-1988 bad debt recapture ($0.04/share reduction in earnings per share), along with higher state income tax expense mainly related to the tax treatment of the bad debt recapture, partially offset by a $3.3 million tax benefit related to the $13.3 million net loss on the securities sale associated with the securities strategy. #### Fiscal Year 2025 Outlook Salaries and employee benefits expense is expected to be $5.7 million higher in fiscal year 2025 compared to fiscal year 2024 due to an anticipated increase in incentive compensation, merit increases, and the filling of vacant positions. Information technology and related expenses are anticipated to be $1.4 million higher in fiscal year 2025 compared to fiscal year 2024 due to these expenses returning to a more normal run rate and implementation of new banking technologies. We anticipate that the federal deposit insurance premium will be approximately $1.7 million less in fiscal year 2025 compared to fiscal year 2024 because there is no longer an increase in our assessment rate due to the net loss in fiscal year 2023. Overall, management is expecting a 4.8% increase in operating expenses for fiscal year 2025 compared to fiscal year 2024. Management anticipates the effective income tax rate for fiscal year 2025 will be 19% to 20%. The effective income tax rate is anticipated to be lower than fiscal year 2024 as it is currently the intention of management and the Board of Directors to not make capital distributions from the Bank to the Company during fiscal year 2025. By not making capital distributions during fiscal year 2025, the Bank will not incur income tax expense related to the bad debt recapture as occurred during fiscal year 2024. See "Financial Condition - Stockholders' Equity" section above for additional discussion. ### Comparison of Operating Results for the Years Ended September 30, 2023 and 2022 For this discussion, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Operating Results for the Years Ended September 30, 2023 and 2022" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023. ### Liquidity and Capital Resources Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents and AFS securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage long-term liquidity needs and the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios that meet or exceed the regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings. We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios. In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at the FHLB, in addition to the FRB of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management. The Bank's FHLB borrowing limit approved by FHLB senior management was 50% of Bank Call Report total assets as of September 30, 2024. The Bank's FHLB borrowing limit approved by FHLB senior management became 45% of Bank Call Report total assets effective November 1, 2024. The reduction in the percentage from 50% to 45% was related to FHLB's internal lending limit guidelines. FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs. Additionally, FHLB borrowings may exceed 40% of Bank Call Report total assets if the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the short-term FHLB borrowings in conjunction with the leverage strategy can be repaid at maturity, if necessary or desired. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral. At September 30, 2024, the amount of securities pledged for the discount window was $111.3 million. At September 30, 2024, there were no borrowings from the FRB of Kansas City's discount window. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal overnight borrowing. If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. Recently, the Bank started entering into fully-amortizing FHLB advances that require periodic payments of principal over the term of the advance. This type of advance allows the Bank the opportunity to start repricing its liability cash flows sooner in a down-rate environment and generally provides for favorable pricing when compared to similar long term bullet advances with comparable average lives as a result of the current term structure of interest rates. The Bank's internal policy limits total borrowings to 55% of total assets. At September 30, 2024, the Bank had total borrowings, at par, of $2.18 billion, or approximately 23% of total assets. The borrowings balance was composed primarily of FHLB advances, of which, $714.7 million is scheduled to be repaid (amortizing advances) or mature in the next 12 months. Management estimated that the Bank had $2.93 billion in additional liquidity available at September 30, 2024 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities. At September 30, 2024, the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank has the ability to utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At September 30, 2024, the Bank had $744.2 million of securities that were eligible but unused as collateral for borrowing or other liquidity needs. The Bank also has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of September 30, 2024, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At September 30, 2024, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 1% of total deposits. The Bank had pledged securities with an estimated fair value of $108.7 million as collateral for public unit certificates of deposit at September 30, 2024. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon deposit maturity. At September 30, 2024, $2.20 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $59.2 million of public unit certificates of deposit and $49.0 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard. Due to the nature of public unit certificates of deposit and commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments consist primarily of commitments to originate, purchase, or participate in loans or fund lines of credit. Additionally, the Company has investments in several low-income housing partnerships and, under the terms of the agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements. See "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 6. Low Income Housing Partnerships and Note 12. Commitments and Contingencies" for additional information regarding these commitments. While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. We anticipate we will continue to have sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments. ## Market risk As filed, 26,357 characters. ### Asset and Liability Management and Market Risk The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management. The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and with management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. The MVPE ratio continues to be an important measurement for management as we consider the changes in market interest rates, liquidity needs and portfolio balances. MVPE represents a long-term view of the interest sensitivity of the Bank's balance sheet while our net interest income projections inform management of the short-term impacts of pricing decisions. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve. General assumptions used by management to evaluate the sensitivity of our financial performance to changes in interest rates presented in the tables below are utilized in, and set forth under, the gap table and related notes. Although management finds these assumptions reasonable, the interest rate sensitivity of our assets and liabilities and the estimated effects of changes in interest rates on our net interest income and MVPE indicated in the below tables could vary substantially if different assumptions were used or actual experience differs from the assumptions. To illustrate this point, the projected cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities within the next 12 months as a percent of total assets ("one-year gap") is also provided for an up 200 basis point scenario, as of September 30, 2024. ### Qualitative Disclosure about Market Risk **Gap Table.** The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment rates would likely deviate significantly from those assumed in calculating the gap table below. A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests that in a rising rate environment, earnings should increase. A negative gap generally means more cash flows from liabilities are expected to reprice than cash flows from assets and suggests, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables. *(Dollars in thousands)* | Interest-earning assets: | Within One Year | More Than One Year to Three Years | More Than Three Years to Five Years | Over Five Years | Total | | --- | ---: | ---: | ---: | ---: | ---: | | Loans receivable(1) | $1,678,859 | $1,846,594 | $1,417,793 | $2,977,546 | $7,920,792 | | Securities(2) | 260,983 | 270,581 | 151,144 | 147,144 | 829,852 | | Other interest-earning assets | 192,251 | — | — | — | 192,251 | | Total interest-earning assets | 2,132,093 | 2,117,175 | 1,568,937 | 3,124,690 | 8,942,895 | | Interest-bearing liabilities: | | | | | | | Non-maturity deposits(3) | 716,264 | 487,721 | 368,611 | 1,642,186 | 3,214,782 | | Certificates of deposit | 2,204,475 | 654,578 | 106,060 | 197 | 2,965,310 | | Borrowings(4) | 721,264 | 1,157,685 | 310,331 | 25,188 | 2,214,468 | | Total interest-bearing liabilities | 3,642,003 | 2,299,984 | 785,002 | 1,667,571 | 8,394,560 | | Excess (deficiency) of interest-earning assets over | | | | | | | interest-bearing liabilities | $(1,509,910) | $(182,809) | $783,935 | $1,457,119 | $548,335 | | Cumulative excess (deficiency) of interest-earning assets over | | | | | | | interest-bearing liabilities | $(1,509,910) | $(1,692,719) | $(908,784) | $548,335 | | | Cumulative excess (deficiency) of interest-earning assets over interest-bearing | | | | | | | liabilities as a percent of total Bank assets at: | | | | | | | September 30, 2024 | (15.9)% | (17.8)% | (9.5)% | 5.8% | | | September 30, 2023 | (11.7) | | | | | | Cumulative one-year gap - interest rates +200 bps at: | | | | | | | September 30, 2024 | (17.9) | | | | | | September 30, 2023 | (11.9) | | | | | (1) Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure. (2) MBS reflect projected prepayments at amortized cost. All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2024, at amortized cost. (3) Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts are based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $4.01 billion, for a cumulative one-year gap of (42.1)% of total assets. (4) Borrowings exclude deferred prepayment penalty costs. Included in this line item are $200.0 million of FHLB adjustable-rate advances tied to interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap. At September 30, 2024, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.51) billion, or (15.8)% of total assets, compared to $(1.19) billion, or (11.7)% of total assets, at September 30, 2023. The change in the one-year gap amount was due to a net increase in the amount of liability cash flows coming due in one year, partially offset by an increase in the amount of interest-earning asset cash flows coming due in one year, as of September 30, 2024, compared to September 30, 2023. The net increase in liability cash flows coming due in one year primarily related to the Bank's retail certificate of deposit portfolio, partially offset by a net decrease in borrowings coming due in one year as the Bank repaid its BTFP amount outstanding in conjunction with the securities strategy during the current year. The increase in the one-year cash flow for retail certificates of deposit was due to the Bank continuing to offer higher rates on shorter-term certificates of deposit. The increase in interest-earning assets projected to mature or reprice within one year was due primarily to an increase in the amount of loans expected to mature or reprice, partially offset by decreases in securities in conjunction with the securities strategy and the balance of cash between periods. 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 penalty. If interest rates were to increase 200 basis points, as of September 30, 2024, the Bank's one-year gap is projected to be $(1.71) billion, or (17.9)% of total assets. The change in the gap compared to when there is no change in rates was due to lower anticipated net cash flows primarily as a result of lower prepayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(1.21) billion, or (11.9)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2023. **Change in Net Interest Income.** The Bank's net interest income projections are a reflection of the response to interest rates of assets and liabilities that are expected to mature or reprice over the next year. Repricing occurs as a result of cash flows that are received or paid on assets or due on liabilities which would be replaced at then current market interest rates or on adjustable-rate products that reset during the next year. The Bank's borrowings and certificate of deposit portfolios have stated maturities, and the cash flows related to those liabilities do not generally fluctuate as a result of changes in interest rates. Cash flows from mortgage-related assets and callable agency debentures can vary significantly as a result of changes in interest rates. As interest rates decrease, borrowers have an economic incentive to lower their cost of debt by refinancing or endorsing their mortgage to a lower interest rate. Similarly, agency debt issuers are more likely to exercise embedded call options and issue new securities at a lower interest rate. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the zero basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior changes as market rates change. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities do not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management. Estimates for the -300 basis point scenario were not prepared at September 30, 2023. *(Dollars in thousands)* | Change (in Basis Points) in Interest Rates(1) | Net Interest Income At September 30, 2024 Amount ($) | Change ($) | Change (%) | 2023 Amount ($) | Change ($) | Change (%) | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | -300 bp | $188,322 | $11,696 | 6.6% | N/A | N/A | N/A | | -200 bp | 183,769 | 7,143 | 4.0 | 126,495 | (6,963) | (5.2) | | -100 bp | 180,936 | 4,310 | 2.4 | 130,374 | (3,084) | (2.3) | | 000 bp | 176,626 | — | — | 133,458 | — | — | | +100 bp | 171,222 | (5,404) | (3.1) | 136,147 | 2,689 | 2.0 | | +200 bp | 165,422 | (11,204) | (6.3) | 138,804 | 5,346 | 4.0 | | +300 bp | 158,758 | (17,868) | (10.1) | 141,494 | 8,036 | 6.0 | (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. In general, increases/(decreases) in the Bank's net interest income projections under the various interest rate scenarios presented are due to the degree in which cash flows are realized and the rates projected to be earned on funds received through loan and securities repayments, in each scenario, are greater/(less) than the rates projected to be paid on deposits and borrowings in the next 12 months. The net interest income projection was higher in the base case scenario at September 30, 2024 compared to September 30, 2023, due primarily to transactions associated with the securities strategy, which resulted in a decrease in interest expense on borrowings due to the Bank repaying its BTFP borrowing and an increase in interest income on securities due to reinvestment of proceeds into higher-yielding securities. During the current fiscal year, growth in the Bank's deposit portfolio was almost entirely within its certificate of deposit portfolio; more specifically, in short-term certificates of deposit as the Bank's highest offer rates were on products in this category. The WAM of the Bank's retail certificate of deposit portfolio decreased from 1.3 years as of September 30, 2023, to 0.8 years as of September 30, 2024, due in part to the passage of time, but primarily due to growth in the balance of shorter-term certificates of deposit. The current Federal Open Market Committee ("FOMC") tightening cycle reached its peak during the prior year and expectations of easing have now become the consensus. By shortening the WAL of its certificate of deposit portfolio, the Bank will be better positioned to reprice its highest-costing deposits as short-term market interest rates decrease. This dynamic, when coupled with the growth in the certificate of deposit portfolio and increases in deposit betas, is the primary driver of the change in the Bank's net interest income profile projections between September 30, 2023 and 2024. **Change in MVPE.** Changes in the estimated market values of our financial assets and liabilities drive changes in estimates of MVPE. The market value of an asset or liability reflects the present value of all the projected cash flows over its remaining life, discounted at market interest rates. As interest rates rise, generally the market value for both financial assets and liabilities decrease. The opposite is generally true as interest rates fall. The MVPE represents the theoretical market value of capital that is calculated by netting the market value of assets, liabilities, and off-balance sheet instruments. If the market values of financial assets increase at a faster pace than the market values of financial liabilities, or if the market values of financial liabilities decrease at a faster pace than the market values of financial assets, the MVPE will increase. The market value of shorter term-to-maturity financial instruments is less sensitive to changes in interest rates than is the case with longer term-to-maturity financial instruments. Because of this, the market values of our certificates of deposit (which generally have relatively shorter average lives) tend to display less sensitivity to changes in interest rates than do our mortgage-related assets (which generally have relatively longer average lives). The average life expected on our mortgage-related assets varies under different interest rate environments because borrowers have the ability to prepay their mortgage loans. Therefore, as interest rates decrease, the WAL of mortgage-related assets decrease as well. As interest rates increase, the WAL would be expected to increase, as well as increasing the sensitivity of these assets in higher rate environments. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior as market rates change. The estimations of the MVPE used in preparing the table below were based upon the assumption that the total composition of interest-earning assets and interest-bearing liabilities do not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates. Estimates for the -300 basis point scenario were not prepared at September 30, 2023. *(Dollars in thousands)* | Change (in Basis Points) in Interest Rates(1) | Market Value of Portfolio Equity At September 30, 2024 Amount ($) | Change ($) | Change (%) | 2023 Amount ($) | Change ($) | Change (%) | | --- | ---: | ---: | ---: | ---: | ---: | ---: | | -300 bp | $1,460,440 | $359,922 | 32.7% | N/A | N/A | N/A | | -200 bp | 1,345,708 | 245,190 | 22.3 | 1,302,781 | 283,093 | 27.8 | | -100 bp | 1,218,938 | 118,420 | 10.8 | 1,145,404 | 125,716 | 12.3 | | 000 bp | 1,100,518 | — | — | 1,019,688 | — | — | | +100 bp | 962,354 | (138,164) | (12.6) | 888,642 | (131,046) | (12.9) | | +200 bp | 797,497 | (303,021) | (27.5) | 757,870 | (261,818) | (25.7) | | +300 bp | 634,145 | (466,373) | (42.4) | 632,716 | (386,972) | (38.0) | (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. The Bank's MVPE increased from $1.02 billion at September 30, 2023 to $1.10 billion at September 30, 2024. The increase was due primarily to a decrease in market interest rates between the two periods, most notably across the intermediate and long-term tenors of the yield curve, as well as to the Bank's balance sheet composition changes resulting from the securities strategy. The decrease in market interest rates resulted in an increase in the value of the Bank's interest-earning assets more than it increased the value of its interest-bearing liabilities. As interest rates increase, borrowers have less economic incentive to prepay or to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. As interest rates increase in the rising interest rate scenarios, prepayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other major events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average lives of mortgage-related assets. Similarly, call projections for callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to their contractual maturity dates. The longer expected average lives of these assets increases the sensitivity of their market value to changes in interest rates. Conversely, as interest rates decrease, borrowers who obtained or issued credit in a higher rate environment have more economic incentive to prepay or to refinance their mortgages and agency debt issuers have more economic incentive and opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in higher projected cash flows on these assets. The then shorter expected average lives of these assets decrease the sensitivity of their market value to changes in interest rates. In the increasing interest rate scenarios, the sensitivity reflects the negative impacts of rates on the value of the Bank's loan and securities portfolios more so than on its deposit and borrowings portfolios. In the decreasing interest rate scenarios, the Bank's MVPE increased due to a larger increase in the market value of the Bank's assets than the Bank's liabilities. This is because the Bank's mortgage-related assets continue to have a longer duration in these interest rate scenarios which results in greater sensitivity in market value as interest rates change. 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, 2024. 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. *(Dollars in thousands)* | | Amount | Yield/Rate | WAL | % of Category | % of Total | | --- | ---: | ---: | ---: | ---: | ---: | | Securities | $856,266 | 5.63% | 2.9 | | 9.4% | | Loans receivable: | | | | | | | Fixed-rate one- to four-family | 5,376,460 | 3.41 | 6.6 | 67.9% | 59.1 | | Fixed-rate commercial | 506,754 | 4.82 | 2.8 | 6.4 | 5.6 | | All other fixed-rate loans | 36,321 | 6.93 | 6.2 | 0.5 | 0.4 | | Total fixed-rate loans | 5,919,535 | 3.55 | 6.3 | 74.8 | 65.1 | | Adjustable-rate one- to four-family | 905,240 | 4.18 | 3.9 | 11.4 | 9.9 | | Adjustable-rate commercial | 1,002,224 | 6.13 | 5.1 | 12.6 | 11.0 | | All other adjustable-rate loans | 96,252 | 8.33 | 2.8 | 1.2 | 1.1 | | Total adjustable-rate loans | 2,003,716 | 5.35 | 4.5 | 25.2 | 22.0 | | Total loans receivable | 7,923,251 | 4.01 | 5.8 | 100.0% | 87.1 | | FHLB stock | 101,175 | 9.47 | 1.9 | | 1.1 | | Cash and cash equivalents | 217,307 | 4.60 | — | | 2.4 | | Total interest-earning assets | $9,097,999 | 4.24 | 5.4 | | 100.0% | | Non-maturity deposits | $2,615,076 | 0.93 | 5.8 | 46.9% | 33.7% | | Retail certificates of deposit | 2,830,579 | 4.23 | 0.8 | 50.7 | 36.5 | | Commercial certificates of deposit | 58,236 | 4.40 | 0.6 | 1.0 | 0.7 | | Public unit certificates of deposit | 76,495 | 4.62 | 0.6 | 1.4 | 1.0 | | Total interest-bearing deposits | 5,580,386 | 2.69 | 3.2 | 100.0% | 71.9 | | Term borrowings | 2,181,738 | 3.29 | 1.6 | | 28.1 | | Total interest-bearing liabilities | $7,762,124 | 2.86 | 2.7 | | 100.0% | 59 ## Controls and procedures As filed, 4,185 characters. ### Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of September 30, 2024. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of September 30, 2024, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. ### Management's Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act). The Company's internal control system is a process designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation of published financial statements. The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or untimely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial reporting. Further, because of changes in conditions, the effectiveness of any system of internal control may vary over time. The design of any internal control system also factors in resource constraints and consideration for the benefit of the control relative to the cost of implementing the control. Because of these inherent limitations in any system of internal control, management cannot provide absolute assurance that all control issues and instances of fraud within the Company have been detected. Management assessed the effectiveness of the Company's internal control over financial reporting as of September 30, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in *Internal Control - Integrated Framework (2013)*. Management has concluded that the Company maintained an effective system of internal control over financial reporting based on these criteria as of September 30, 2024. The Company's independent registered public accounting firm, KPMG LLP, Kansas City, Missouri (Auditor Firm ID: 185), who audited the consolidated financial statements (as of and for the fiscal year ended September 30, 2024) included in Item 8 of this annual report, has issued an audit report on the Company's internal control over financial reporting as of September 30, 2024 and it is included in Item 8. ### Changes in Internal Control Over Financial Reporting There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Filed Nov 27, 2024. Source: SEC EDGAR, the filing index for accession 0001490906-24-000035. Last ingested by Listed: Oct 28, 2026, 09:46 ET. No prices; not investment advice.