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Section 1: 8-K (CURRENT REPORT, ITEMS 2.02 AND 9.01)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)
January 28, 2021
CAPITOL FEDERAL FINANCIAL, INC.
(Exact name of Registrant as specified in its Charter)

Maryland001-3481427-2631712
(State or other jurisdiction of incorporation)(Commission File Number)(IRS Employer Identification No.)


700 South Kansas Avenue,TopekaKansas66603
(Address of principal executive offices)(Zip Code)


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

N/A
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock,
par value $0.01 per share		CFFNThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
    Emerging growth company ☐
    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐




ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Registrant’s press release dated January 28, 2021, announcing financial results for the quarter ended December 31, 2020 is attached hereto as Exhibit 99, and is incorporated herein by reference.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits

Exhibit 99 – Press release announcing earnings dated January 28, 2021
Exhibit 104 – Cover page interactive data file, formatted in Inline XBRL.





SIGNATURES

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

CAPITOL FEDERAL FINANCIAL, INC.
Date: January 28, 2021By: /s/ Kent G. Townsend
Kent G. Townsend, Executive Vice-President,
Chief Financial Officer, and Treasurer

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Section 2: EX-99 (PRESS RELEASE ANNOUNCING EARNINGS)

Document


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NEWS RELEASE
FOR IMMEDIATE RELEASE
January 28, 2021
CAPITOL FEDERAL FINANCIAL, INC.®
REPORTS FIRST QUARTER FISCAL YEAR 2021 RESULTS

Topeka, KS - Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2020. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 9, 2021 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:
•net income of $18.9 million;
•basic and diluted earnings per share of $0.14;
•net interest margin of 1.92%;
•annualized deposit growth of approximately 14%;
•paid dividends of $29.1 million, or $0.215 per share;
•the Company adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, on October 1, 2020 which resulted in a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand); and
•on January 26, 2021, announced a cash dividend of $0.085 per share, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021.

Comparison of Operating Results for the Three Months Ended December 31, 2020 and September 30, 2020

For the quarter ended December 31, 2020, the Company recognized net income of $18.9 million, or $0.14 per share, compared to net income of $18.3 million, or $0.13 per share, for the quarter ended September 30, 2020. The increase was due primarily to a lower effective tax rate compared to the prior quarter. The net interest margin decreased 11 basis points, from 2.03% for the prior quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio yields, along with a decrease in the average balance of the loan portfolio, partially offset by a decrease in the cost of deposits.

Since the onset of the Coronavirus Disease 2019 ("COVID-19") pandemic, the Bank has lowered its offered rates on all deposit products except retail checking and savings accounts. The impact of reducing rates offered on our certificate of deposit products lowers the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. We responded to lower market rates for lending by lowering rates offered on our loan products. Given current rates offered on new loans, increased prepayments on existing loans, and the volume of one- to four-family refinances and endorsements, the yield on the total loan portfolio is likely to continue to decrease. With significant cash inflows realized due to investment securities being called and prepayments on loans and mortgage-backed securities ("MBS"), the current yields on reinvested funds into new securities are lower than existing portfolio yields, reducing the yield on our investments significantly. Considering the drastic changes in market rates and the ongoing economic uncertainty, our net interest margin could continue to decrease, with further downside risk as a result of high levels of prepayments and premium amortization on correspondent one- to four-family loans and MBS.

1

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 19 basis points, from 3.17% for the prior quarter to 2.98% for the current quarter, while the average balance of interest-earning assets increased $122.5 million between the two periods. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$60,694 $64,315 $(3,621)(5.6)%
MBS5,710 5,425 285 5.3 
Federal Home Loan Bank Topeka ("FHLB") stock1,069 1,080 (11)(1.0)
Investment securities683 731 (48)(6.6)
Cash and cash equivalents51 55 (4)(7.3)
Total interest and dividend income$68,207 $71,606 $(3,399)(4.7)

The decrease in interest income on loans receivable was due to a $242.0 million decrease in the average balance and eight basis point decrease in the weighted average portfolio yield. The decrease in the average balance was primarily in the correspondent loan portfolio, as payoff activity outpaced purchases during the current quarter, along with a decrease in the commercial loan portfolio due primarily to the payoff of two large loans at the beginning of the current quarter. The weighted average yield on the loans receivable portfolio decreased from 3.49% for the prior quarter to 3.41% for the current quarter, due mainly to endorsements and refinances of one- to four-family loans to lower current market rates, along with an increase in premium amortization related to correspondent loan payoff activity.

The increase in interest income on the MBS portfolio was due to a $274.2 million increase in the average balance as a result of purchases, primarily utilizing funds received from loan repayments. This was partially offset by a 36 basis point decrease in the weighted average yield, to 1.75% for the current quarter, due primarily to purchases at lower market yields, along with an increase in the impact of net premium amortization.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 10 basis points, from 1.30% for the prior quarter to 1.20% for the current quarter, while the average balance of interest-bearing liabilities increased $119.7 million between the two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$14,067 $15,299 $(1,232)(8.1)%
Borrowings10,327 10,624 (297)(2.8)
Total interest expense$24,394 $25,923 $(1,529)(5.9)

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the certificate of deposit portfolio. Management has generally reduced deposit offer rates as discussed above. See the Financial Condition section below for additional information on deposits.

The decrease in interest expense on borrowings was due primarily to not replacing term borrowings that matured during the current quarter and prior quarter. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarters. The average balance of borrowings decreased $44.2 million compared to the prior quarter.

2

Provision for Credit Losses
ASU 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating allowance for credit losses ("ACL") under accounting principles generally accepted in the United States of America ("GAAP") with a new impairment methodology, commonly known as the current expected credit loss ("CECL") methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and off-balance sheet credit exposures over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts.

For the quarter ended December 31, 2020, the Bank recorded a negative provision for credit losses of $1.5 million, compared to no provision for credit losses for the quarter ended September 30, 2020. The negative provision in the current quarter was composed of a $177 thousand decrease in the ACL for loans and a $1.4 million decrease in the reserve for off-balance sheet credit exposures. The $177 thousand decrease in the ACL for loans was due primarily to a reduction in the correspondent one- to four-family loan portfolio, partially offset by a slight increase in the ACL for commercial loans due to an increase in the balance of special mention loans during the current quarter. The $1.4 million reduction in the reserve for off-balance sheet credit exposures was due primarily to an improved economic forecast during the current quarter with consideration given to the current economic climate in which these loans are being underwritten. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit exposures at December 31, 2020 in the Asset Quality section below.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$2,947 $2,901 $46 1.6 %
Insurance commissions638 725 (87)(12.0)
Other non-interest income1,485 1,359 126 9.3 
Total non-interest income$5,070 $4,985 $85 1.7 

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$14,138 $13,231 $907 6.9 %
Information technology and related expense4,233 4,280 (47)(1.1)
Occupancy, net3,379 3,658 (279)(7.6)
Regulatory and outside services1,585 1,574 11 0.7 
Advertising and promotional838 1,116 (278)(24.9)
Deposit and loan transaction costs766 804 (38)(4.7)
Federal insurance premium621 627 (6)(1.0)
Office supplies and related expense424 609 (185)(30.4)
Other non-interest expense1,083 1,277 (194)(15.2)
Total non-interest expense$27,067 $27,176 $(109)(0.4)

The increase in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the current quarter in appreciation of all the hard work and dedication by our non-officer employees during these challenging times, along with an increase in loan commissions. The decrease in occupancy, net was due mainly to a decrease in utilities and maintenance
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during the current quarter. The decrease in advertising and promotional expenses was due to the timing of campaigns. The decrease in office supplies and related expenses was due to the timing of supply purchases. The decrease in other non-interest expense was due to a reduction in customer debit card fraud losses, a decrease in mortgage servicing asset valuation charges related to changes in prepayment speeds, and a decrease in amortization of deposit intangibles.

The Company's efficiency ratio was 55.37% for the current quarter compared to 53.64% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter compared to the prior quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, September 30, Change Expressed in:
20202020DollarsPercent
(Dollars in thousands)
Income before income tax expense$23,348 $23,492 $(144)(0.6)%
Income tax expense4,450 5,213 (763)(14.6)
Net income$18,898 $18,279 $619 3.4 
Effective Tax Rate19.1 %22.2 %

The decrease in income tax expense was due mainly to a lower effective tax rate compared to the prior quarter. The lower effective tax rate was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21% to 22%.

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

The Company recognized net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020 compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease in net income was due primarily to a decrease in net interest income compared to the prior year quarter, partially offset by recording a negative provision for credit losses in the current quarter. Net interest income decreased $4.9 million, or 10.0%, from the prior year quarter to $43.8 million for the current quarter. The net interest margin decreased 26 basis points, from 2.18% for the prior year quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

4

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 60 basis points, from 3.58% for the prior year quarter to 2.98% for the current quarter, while the average balance of interest-earning assets increased $202.2 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable$60,694 $69,914 $(9,220)(13.2)%
MBS5,710 6,102 (392)(6.4)
FHLB stock1,069 1,826 (757)(41.5)
Investment securities683 1,507 (824)(54.7)
Cash and cash equivalents51 687 (636)(92.6)
Total interest and dividend income$68,207 $80,036 $(11,829)(14.8)

The decrease in interest income on loans receivable was due mainly to a 34 basis point decrease in the weighted average yield on the portfolio, from 3.75% for the prior year quarter to 3.41% for the current quarter, primarily on correspondent loans related to higher premium amortization resulting from increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $339.4 million compared to the prior year quarter. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio as we suspended accepting new applications for these loans in mid-March 2020 to mid-June 2020. This was done to manage the influx of refinance requests from current customers in our local market areas during that time period while also managing changing Bank operations due to the COVID-19 pandemic.

The decrease in interest income on the MBS portfolio was due to an 86 basis point decrease in the weighted average yield to 1.75% in the current quarter as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $368.6 million increase in the average balance of the portfolio.

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

The decrease in interest income on investment securities was due to a 149 basis point decrease in the weighted average yield to 0.63% for the current quarter as a result of new purchases at lower market yields, partially offset by a $146.9 million increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due to a decrease in the yield earned on cash held at the Federal Reserve Bank of Kansas City, partially offset by a $39.3 million increase in the average balance.

5

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 39 basis points, from 1.59% for the prior year quarter to 1.20% for the current quarter, while the average balance of interest-bearing liabilities increased $244.0 million. The increase in the average balance was primarily in checking, savings and money market accounts, partially offset by a decrease in borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
INTEREST EXPENSE:
Deposits$14,067 $17,962 $(3,895)(21.7)%
Borrowings10,327 13,377 (3,050)(22.8)
Total interest expense$24,394 $31,339 $(6,945)(22.2)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 33 basis points, 38 basis points, and 155 basis points, respectively. Since the onset of the COVID-19 pandemic, certificates of deposit have been gradually repricing down as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $457.9 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $1.5 million, compared to a $225 thousand provision for credit losses during the prior year quarter. See the Comparison of Operating Results for the Three Months Ended December 31, 2020 and September 30, 2020 above for discussion regarding the negative provision for credit losses in the current quarter. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit exposures at December 31, 2020 in the Asset Quality section below.

Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees$2,947 $3,062 $(115)(3.8)%
Insurance commissions638 691 (53)(7.7)
Other non-interest income1,485 1,751 (266)(15.2)
Total non-interest income$5,070 $5,504 $(434)(7.9)

The decrease in other non-interest income was mainly the result of a decrease in income from bank-owned life insurance ("BOLI") compared to the prior year quarter due to a reduction in the yield and lower death benefit receipts between the two periods.

6

Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits$14,138 $13,471 $667 5.0 %
Information technology and related expense4,233 4,141 92 2.2 
Occupancy, net3,379 3,207 172 5.4 
Regulatory and outside services1,585 1,343 242 18.0 
Advertising and promotional838 1,410 (572)(40.6)
Deposit and loan transaction costs766 711 55 7.7 
Federal insurance premium621 — 621 N/A
Office supplies and related expense424 519 (95)(18.3)
Other non-interest expense1,083 1,698 (615)(36.2)
Total non-interest expense$27,067 $26,500 $567 2.1 

The increase in salaries and employee benefits was due primarily to an increase in loan commissions, an increase in full-time equivalent employees, and higher non-officer related bonuses paid in the current quarter. The increase in regulatory and outside services was due mainly to higher progress billings from our external auditors and other professional service fees. The decrease in advertising and promotional expenses was due mainly to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year quarter. The decrease in other non-interest expense was due primarily to a decrease in write-downs of other real estate owned ("OREO") properties in the current quarter compared to the prior year quarter.

The Company's efficiency ratio was 55.37% for the current quarter compared to 48.89% for the prior year quarter. The change in the efficiency ratio was due to lower net interest income in the current quarter compared to the prior year quarter.

Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December 31, Change Expressed in:
20202019DollarsPercent
(Dollars in thousands)
Income before income tax expense$23,348 $27,476 $(4,128)(15.0)%
Income tax expense4,450 4,965 (515)(10.4)
Net income$18,898 $22,511 $(3,613)(16.0)
Effective Tax Rate19.1 %18.1 %

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, partially offset by an increase in the effective tax rate. The effective tax rate was lower in the prior year due primarily to a discrete benefit recognized in the prior year quarter related to certain BOLI policies that were acquired in fiscal year 2018.

Financial Condition as of December 31, 2020
The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. Many areas of consumer spending, not related to travel and entertainment, have rebounded in recent months. We adjusted our operations in
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response to the COVID-19 pandemic and continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

We continue to respond to local market conditions regarding the loan and deposit rates we offer. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially in the near future. As previously noted, since the onset of the pandemic the Bank has lowered rates paid on money market accounts and certificate of deposit products. Despite this, since March 31, 2020, the Bank's retail deposits increased $408.3 million and business deposits increased $264.6 million. The Bank secured a new business deposit relationship during the prior fiscal year, which between March 31, 2020 and December 31, 2020 brought $206.4 million of new deposit balances. Because some of the deposits received from the new relationship are COVID-19-related payments, we do not expect the full balance of deposits received to be retained through fiscal year 2021. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid investment options such as the Bank's retail money market accounts.

Total assets increased $119.7 million, or 1.3% from September 30, 2020 to December 31, 2020, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio.

Total loans decreased $198.8 million from September 30, 2020 to December 31, 2020. The decrease was primarily in the one- to four-family correspondent loans and commercial loans. During the current quarter, the Bank originated and refinanced $329.6 million of one- to four-family and consumer loans with a weighted average rate of 2.76% and purchased $105.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.85%. The Bank also originated $38.1 million of commercial loans with a weighted average rate of 3.77% and entered into commercial real estate loan participations of $60.0 million at a weighted average rate of 4.00%. The commercial loan portfolio totaled $763.9 million at December 31, 2020 and was composed of 80% commercial real estate, 9% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $275.9 million, was $970.4 million at December 31, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.2 million, was $91.6 million at December 31, 2020.

Total securities increased $352.9 million, or 22.6%, from September 30, 2020 to December 31, 2020, including a $278.5 million increase in MBS and a $74.4 million increase in investment securities. The increase was due primarily to cash flows from the loan portfolio being reinvested into the securities portfolio.

Total deposits increased $219.4 million, or 3.5%, from September 30, 2020 to December 31, 2020. The increase was in non-maturity deposits, which increased $222.5 million, including a $131.1 million increase in checking accounts, a $69.6 million increase in money market accounts, and a $21.8 million increase in savings accounts. Retail/business certificates of deposit increased $11.5 million during the quarter, offset by a $14.6 million decrease in public unit certificates of deposit.

Total borrowings at December 31, 2020 were $1.73 billion, a decrease of $55.0 million, or 3.0%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the deposit portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.28 billion at both December 31, 2020 and September 30, 2020. During the quarter, the Company paid cash dividends totaling $29.1 million and repurchased common stock totaling $1.5 million, partially offset by net income of $18.9 million. The cash dividends paid during the current quarter totaled $0.215 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and a regular quarterly cash dividend of $0.085 per share. On January 26, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At December 31, 2020, this ratio was 12.2%.

At December 31, 2020, Capitol Federal Financial, Inc., at the holding company level, had $66.7 million on deposit at the Bank. For fiscal year 2021, it is currently the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

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

The following table presents the balance of stockholders' equity and related information as of the dates presented.
December 31, September 30, December 31,
202020202019
(Dollars in thousands)
Stockholders' equity$1,276,548 $1,284,859 $1,306,594 
Equity to total assets at end of period13.3 %13.5 %14.1 %

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2020.
Total shares outstanding 138,792,496 
Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock(3,347,761)
Net shares outstanding 135,444,735 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the community bank leverage ratio ("CBLR") requirement is a minimum of 8% at December 31, 2020, 8.5% for calendar year 2021, and 9% thereafter. As of December 31, 2020, the Bank's CBLR was 12.2%, which exceeded the minimum requirement.

The following table presents a reconciliation of the Bank's equity under GAAP to regulatory tier 1 capital as of December 31, 2020 (dollars in thousands):
Total Bank equity as reported under GAAP$1,169,923 
Accumulated Other Comprehensive Income ("AOCI")11,371 
Goodwill and other intangibles, net of associated deferred taxes(13,493)
Total tier 1 capital$1,167,801 

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

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's market area; the future earnings and capital levels of the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

For further information contact:
Kent TownsendInvestor Relations
Executive Vice President,(785) 270-6055
Chief Financial Officer and Treasurerinvestorrelations@capfed.com
(785) 231-6360
ktownsend@capfed.com
9


SUPPLEMENTAL FINANCIAL INFORMATION
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
(Dollars in thousands, except per share amounts)

December 31, September 30,
20202020
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $139,031 and $172,430)$168,032 $185,148 
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $1,880,972 and $1,529,605)1,913,866 1,560,950 
Loans receivable, net (ACL of $26,125 and $31,527)7,004,094 7,202,851 
FHLB stock, at cost84,693 93,862 
Premises and equipment, net101,238 101,875 
Other assets335,041 342,532 
TOTAL ASSETS$9,606,964 $9,487,218 
LIABILITIES:
Deposits$6,410,842 $6,191,408 
Borrowings1,734,275 1,789,313 
Advance payments by borrowers for taxes and insurance33,216 65,721 
Income taxes payable, net3,180 795 
Deferred income tax liabilities, net9,318 8,180 
Accounts payable and accrued expenses139,585 146,942 
Total liabilities8,330,416 8,202,359 
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding— — 
Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,792,496 and 138,956,296
 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively1,388 1,389 
Additional paid-in capital1,188,636 1,189,853 
Unearned compensation, ESOP(32,627)(33,040)
Retained earnings130,522 143,162 
AOCI, net of tax(11,371)(16,505)
Total stockholders' equity1,276,548 1,284,859 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$9,606,964 $9,487,218 
10

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

For the Three Months Ended
December 31, September 30, December 31,
202020202019
INTEREST AND DIVIDEND INCOME:
Loans receivable$60,694 $64,315 $69,914 
MBS5,710 5,425 6,102 
FHLB stock1,069 1,080 1,826 
Investment securities683 731 1,507 
Cash and cash equivalents51 55 687 
Total interest and dividend income68,207 71,606 80,036 
INTEREST EXPENSE:
Deposits14,067 15,299 17,962 
Borrowings10,327 10,624 13,377 
Total interest expense24,394 25,923 31,339 
NET INTEREST INCOME43,813 45,683 48,697 
PROVISION FOR CREDIT LOSSES(1,532)— 225 
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES45,345 45,683 48,472 
NON-INTEREST INCOME:
Deposit service fees2,947 2,901 3,062 
Insurance commissions638 725 691 
Other non-interest income1,485 1,359 1,751 
Total non-interest income5,070 4,985 5,504 
NON-INTEREST EXPENSE:
Salaries and employee benefits14,138 13,231 13,471 
Information technology and related expense4,233 4,280 4,141 
Occupancy, net3,379 3,658 3,207 
Regulatory and outside services1,585 1,574 1,343 
Advertising and promotional838 1,116 1,410 
Deposit and loan transaction costs766 804 711 
Federal insurance premium621 627 — 
Office supplies and related expense424 609 519 
Other non-interest expense1,083 1,277 1,698 
Total non-interest expense27,067 27,176 26,500 
INCOME BEFORE INCOME TAX EXPENSE23,348 23,492 27,476 
INCOME TAX EXPENSE4,450 5,213 4,965 
NET INCOME$18,898 $18,279 $22,511 

11

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods indicated.
For the Three Months Ended
December 31, September 30, December 31,
202020202019
(Dollars in thousands, except per share amounts)
Net income$18,898 $18,279 $22,511 
Income allocated to participating securities(13)(14)(19)
Net income available to common stockholders$18,885 $18,265 $22,492 
Average common shares outstanding135,397,242 137,580,179 137,897,561 
Average committed ESOP shares outstanding449 124,346 449 
Total basic average common shares outstanding135,397,691 137,704,525 137,898,010 
Effect of dilutive stock options 1,193 — 78,112 
Total diluted average common shares outstanding135,398,884 137,704,525 137,976,122 
Net earnings per share:
Basic$0.14 $0.13 $0.16 
Diluted$0.14 $0.13 $0.16 
Antidilutive stock options, excluded from the diluted
average common shares outstanding calculation 431,212 813,645 435,750 


12

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.
December 31, 2020September 30, 2020December 31, 2019
% of % of % of
AmountRateTotalAmountRateTotalAmountRateTotal
(Dollars in thousands)
One- to four-family:
Originated$3,946,073 3.39 %56.2 %$3,937,310 3.50 %54.5 %$3,927,015 3.71 %52.9 %
Correspondent purchased1,974,086 3.40 28.1 2,101,082 3.49 29.1 2,343,750 3.62 31.6 
Bulk purchased199,673 2.24 2.8 208,427 2.41 2.9 237,691 2.93 3.2 
Construction32,871 3.22 0.5 34,593 3.30 0.5 38,771 3.82 0.5 
Total6,152,703 3.36 87.6 6,281,412 3.46 87.0 6,547,227 3.65 88.2 
Commercial:
Commercial real estate609,936 4.23 8.7 626,588 4.29 8.7 583,848 4.48 7.9 
Commercial and industrial 69,378 3.41 1.0 97,614 2.79 1.4 57,019 4.97 0.8 
Construction84,564 3.89 1.2 105,458 4.04 1.4 107,372 4.68 1.4 
Total763,878 4.12 10.9 829,660 4.08 11.5 748,239 4.54 10.1 
Consumer loans:
Home equity97,717 4.64 1.4 103,838 4.66 1.4 118,491 5.73 1.6 
Other9,328 4.40 0.1 10,086 4.40 0.1 10,877 4.58 0.1 
Total107,045 4.62 1.5 113,924 4.64 1.5 129,368 5.63 1.7 
Total loans receivable7,023,626 3.46 100.0 %7,224,996 3.55 100.0 %7,424,834 3.77 100.0 %
Less:
ACL26,125 31,527 9,435 
Discounts/unearned loan fees 28,825 29,190 30,323 
Premiums/deferred costs(35,418)(38,572)(44,131)
Total loans receivable, net$7,004,094 $7,202,851 $7,429,207 

13

Loan Activity: The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current quarter, the Bank endorsed $285.2 million of one- to four-family loans, reducing the average rate on those loans by 87 basis points. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.
For the Three Months Ended
December 31, 2020September 30, 2020June 30, 2020March 31, 2020
AmountRateAmountRateAmountRateAmountRate
(Dollars in thousands)
Beginning balance $7,224,996 3.55 %$7,407,442 3.64 %$7,493,280 3.74 %$7,424,834 3.77 %
Originated and refinanced:
Fixed318,690 2.75 265,424 2.98 277,904 2.83 172,891 3.44 
Adjustable48,946 3.60 44,625 3.68 60,626 3.75 55,946 4.11 
Purchased and participations:
Fixed100,518 2.86 61,435 3.07 131,739 3.28 125,612 3.46 
Adjustable65,315 3.89 4,396 2.76 62,510 3.76 18,985 2.96 
Change in undisbursed loan funds(70,323)13,898 (32,202)24,049 
Repayments(664,055)(572,536)(586,434)(328,644)
Principal (charge-offs)/recoveries, net(464)312 19 (314)
Other3 — — (79)
Ending balance$7,023,626 3.46 $7,224,996 3.55 $7,407,442 3.64 $7,493,280 3.74 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores were updated in December 2020 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
December 31, 2020September 30, 2020
% ofCreditAverage% ofCreditAverage
AmountTotalScoreLTVBalanceAmount Total Score LTV Balance
(Dollars in thousands)
Originated$3,946,073 64.5 %770 62 %$147 $3,937,310 63.0 %771 62 %$145 
Correspondent purchased1,974,086 32.2 764 64 380 2,101,082 33.6 765 64 379 
Bulk purchased199,673 3.3 770 59 301 208,427 3.4 767 60 300 
$6,119,832 100.0 %768 62 187 $6,246,819 100.0 %768 63 187 


14

The following table presents originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the originated line item for the current quarter are $101.5 million of loans that were refinanced from other lenders.
For the Three Months Ended
December 31, 2020December 31, 2019
Credit Credit
AmountLTVScoreAmountLTVScore
(Dollars in thousands)
Originated$221,196 71 %768 $172,386 74 %768 
Refinanced by Bank customers92,850 64 769 64,523 68 761 
Correspondent purchased105,833 69 776 108,493 72 767 
$419,879 69 770 $345,402 72 766 

The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current year period.
For the Three Months Ended
December 31, 2020
StateAmount% of TotalRate
(Dollars in thousands)
Kansas$264,680 63.0 %2.69 %
Missouri78,150 18.6 2.69 
Texas24,302 5.8 2.87 
Other states52,747 12.6 2.84 
$419,879 100.0 %2.72 

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs.
Fixed-Rate
15 yearsMore thanAdjustable-Total
or less15 yearsRateAmountRate
(Dollars in thousands)
Originate/refinance$40,270 $58,716 $8,301 $107,287 2.74 %
Correspondent27,737 84,768 9,236 121,741 2.69 
$68,007 $143,484 $17,537 $229,028 2.72 
Rate2.35 %2.91 %2.56 %

As of December 31, 2020, there were $14.2 million of one- to-four family loans with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period. There were $218.3 million of one- to four-family loans with COVID-19 modifications that were out of their deferral period by December 31, 2020. Of the COVID-19 loan modifications that had completed the deferral period by December 31, 2020, $4.3 million were 30 to 89 days delinquent and $1.5 million were 90 or more days delinquent as of December 31, 2020.

15

Commercial Loans: During the current quarter, the Bank originated $38.1 million of commercial loans and entered into commercial real estate loan participations totaling $60.0 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $45.4 million at a weighted average rate of 3.99%. Early during the current quarter, two large participation loans totaling $57.3 million, with a weighted average rate of 3.93%, were paid off. Additionally, during the current quarter $25.5 million of Paycheck Protection Program ("PPP") loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of December 31, 2020. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Senior housing25 $175,348 $29,801 $205,149 $35,500 $240,649 24.8 %
Hotel9 132,194 46,717 178,911 — 178,911 18.4 
Retail building131 126,963 12,023 138,986 15,113 154,099 15.9 
Office building101 59,008 63,566 122,574 556 123,130 12.7 
Multi-family42 67,792 17,418 85,210 25,052 110,262 11.4 
One- to four-family property380 60,037 4,749 64,786 944 65,730 6.8 
Single use building22 43,069 5,095 48,164 14,155 62,319 6.4 
Other95 30,089 3,469 33,558 1,709 35,267 3.6 
805 $694,500 $182,838 $877,338 $93,029 $970,367 100.0 %
Weighted average rate4.19 %4.06 %4.16 %3.81 %4.13 %

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of December 31, 2020.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Kansas624 $287,371 $21,118 $308,489 $52,120 $360,609 37.2 %
Texas11 121,514 108,930 230,444 31,777 262,221 27.0 
Missouri146 181,235 45,025 226,260 7,632 233,892 24.1 
Nebraska6 33,745 16 33,761 — 33,761 3.5 
Kentucky1 25,559 — 25,559 — 25,559 2.6 
California3 5,810 4,300 10,110 1,500 11,610 1.2 
Other14 39,266 3,449 42,715 — 42,715 4.4 
805 $694,500 $182,838 $877,338 $93,029 $970,367 100.0 %

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of December 31, 2020. Included in the working capital line item are $17.3 million of PPP loans.
UnpaidUndisbursedGross LoanOutstanding% of
CountPrincipalAmountAmountCommitmentsTotalTotal
(Dollars in thousands)
Working capital569 $28,694 $15,474 $44,168 $200 $44,368 48.4 %
Equipment124 13,737 302 14,039 2,715 16,754 18.3 
Purchase/lease autos201 11,962 19 11,981 669 12,650 13.8 
Business investment67 10,232 50 10,282 245 10,527 11.5 
Other22 4,753 2,538 7,291 — 7,291 8.0 
983 $69,378 $18,383 $87,761 $3,829 $91,590 100.0 %

16

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2020.
CountAmount
(Dollars in thousands)
Greater than $30 million4 $185,500 
>$15 to $30 million13 308,014 
>$10 to $15 million4 45,795 
>$5 to $10 million15 94,788 
$1 to $5 million104 225,597 
Less than $1 million1,648 202,263 
1,788 $1,061,957 

The Bank's commercial lending team continues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As of December 31, 2020, there were commercial loans with a gross balance, including undisbursed amounts, totaling $75.1 million with COVID-19 loan modifications that were still in their deferral period, which includes one loan with a $50.0 million balance. Approximately 88% of the commercial loan balance with COVID-19 loan modifications during fiscal year 2020 was either out of the deferral period or paid off as of December 31, 2020. Of the loans that had completed the deferral period by December 31, 2020, one loan for $340 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of December 31, 2020.
17

Asset Quality
The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO as of the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. Of the loans 30 to 89 days delinquent at December 31, 2020, approximately 76% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and other loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current. Non-performing assets include non-performing loans and OREO. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately four months before they were sold.
Loans Delinquent for 30 to 89 Days at:
December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
One- to four-family:
Originated62 $5,844 42 $3,012 57 $5,085 92 $8,360 96 $9,004 
Correspondent purchased13 4,694 8 3,123 10 2,919 13 4,531 13 4,117 
Bulk purchased9 1,750 12 2,532 19 4,536 12 2,914 14 3,307 
Commercial8 1,047 2 45 9 1,543 7 1,555 7 1,192 
Consumer30 515 26 398 21 431 43 628 40 488 
122 $13,850 90 $9,110 116 $14,514 167 $17,988 170 $18,108 
30 to 89 days delinquent loans
to total loans receivable, net0.20 %0.13 %0.20 %0.24 %0.24 %
18

Non-Performing Loans and OREO at:
December 31, 2020September 30, 2020June 30, 2020March 31, 2020December 31, 2019
NumberAmountNumberAmountNumberAmountNumberAmountNumberAmount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated51 $4,370 51 $4,362 47 $4,026 53 $4,517 44 $3,552 
Correspondent purchased9 3,371 6 2,397 7 2,740 4 1,342 4 1,376 
Bulk purchased13 3,724 12 2,903 3 1,291 1 630 2 689 
Commercial5 820 5 1,360 4 709 4 716 — — 
Consumer26 473 14 304 23 278 17 326 20 340 
104 12,758 88 11,326 84 9,044 79 7,531 70 5,957 
Loans 90 or more days delinquent or in foreclosure
 as a percentage of total loans0.18 %0.16 %0.12 %0.10 %0.08 %
Nonaccrual loans less than 90 Days Delinquent:(1)
One- to four-family:
Originated9 $968 9 $691 14 $1,132 13 $811 11 $634 
Correspondent purchased— — — — — — 1 189 — — 
Bulk purchased— — — — — — 1 134 1 134 
Commercial3 411 3 464 1 6 2 129 6 363 
Consumer1 9 1 9 1 33 2 43 — — 
13 1,388 13 1,164 16 1,171 19 1,306 18 1,131 
Total non-performing loans117 14,146 101 12,490 100 10,215 98 8,837 88 7,088 
Non-performing loans as a percentage of total loans0.20 %0.17 %0.14 %0.12 %0.10 %
OREO:
One- to four-family:
Originated(2)
3 $129 4 $183 4 $183 5 $187 8 $414 
Commercial— — — — — — — — — — 
Consumer— — — — — — — — 1 98 
3 129 4 183 4 183 5 187 9 512 
Total non-performing assets120 $14,275 105 $12,673 104 $10,398 103 $9,024 97 $7,600 
Non-performing assets as a percentage of total assets0.15 %0.13 %0.11 %0.10 %0.08 %

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


19

The following table presents loans classified as special mention or substandard at the dates presented. The increase in commercial special mention loans at December 31, 2020 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $51.3 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification during the current quarter.
December 31, 2020September 30, 2020December 31, 2019
Special MentionSubstandardSpecial MentionSubstandardSpecial MentionSubstandard
(Dollars in thousands)
One- to four-family$12,536 $27,607 $11,339 $25,630 $15,778 $25,376 
Commercial101,921 4,772 52,006 4,914 52,809 5,356 
Consumer257 726 332 589 375 683 
$114,714 $33,105 $63,677 $31,133 $68,962 $31,415 

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

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

The economic forecast scenario selected by management improved at December 31, 2020 compared to October 1, 2020 which resulted in a reduction in the ACL as calculated by the model. Due to the continued economic uncertainty regarding political party changes in U.S. government offices, the effectiveness of the latest federal stimulus package, potential additional economic stimulus from the federal government, increasing COVID-19 cases, limited vaccine distribution as of December 31, 2020, and an increase in commercial special mention loan balances, management applied qualitative factors to account for those uncertainties which mostly offset the reduction in the ACL due to the improvement of the economic forecasts. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, if COVID-19 cases continue to increase and the vaccine distribution and adoption is more limited than anticipated, or if future government programs, if any, do not provide adequate relief to businesses and individuals, it is possible the Bank's ACL and reserve for off-balance sheet credit exposures will need to increase in future periods.

20

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended December 31, 2020.
ACLReserve for off-balance sheet credit exposuresACL and Reserve for off-balance sheet credit exposures
(Dollars in thousands)
Balance at September 30, 2020$31,527 $— $31,527 
Adoption of CECL(4,761)7,788 3,027 
Balance at October 1, 202026,766 7,788 34,554 
For the quarter ended December 31, 2020:
Charge-offs(532)— (532)
Recoveries68 — 68 
Net charge-offs(464)— (464)
Provision for credit losses(177)(1,355)(1,532)
Balance at December 31, 2020$26,125 $6,433 $32,558 

The negative provision for credit losses related to the ACL was due primarily to a reduction in the correspondent one-to four-family loan portfolio during the current quarter. It was partially offset by an increase in the commercial loan ACL due to an increase in special mention loans during the current quarter. The commercial loan portfolio balance decreased during the current quarter, but due to the increase in commercial special mention loans, any reduction in ACL associated with the decrease in the commercial loan portfolio balance was offset by the ACL related to the higher balance of special mention loans at December 31, 2020.

The negative provision for credit losses related to the reserve for off-balance sheet credit exposures was a result of the improvement in the economic forecast since October 1, 2020, after taking into consideration the fact these loans are being underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The balance of off-balance sheet credit exposures increased during the current quarter, but the improvement in the economic forecast as of December 31, 2020 more than offset the impact of the increase in the balance.

21

The following tables present ACL activity and related ratios at the dates and for the periods indicated.
For the Three Months Ended
December 31, September 30, June 30, March 31, December 31,
20202020202020202019
(Dollars in thousands)
Balance at beginning of period$31,527 $31,215 $31,196 $9,435 $9,226 
Adoption of CECL(4,761)— — — — 
Charge-offs:
One- to four-family(14)— — (46)(18)
Commercial(515)— — (325)(24)
Consumer(3)(15)(5)(4)(6)
Total charge-offs(532)(15)(5)(375)(48)
Recoveries:
One- to four-family34 303 — 3 — 
Commercial12 12 17 54 27 
Consumer22 12 7 4 5 
Total recoveries68 327 24 61 32 
Net (charge-offs) recoveries (464)312 19 (314)(16)
Provision for credit losses(177)— — 22,075 225 
Balance at end of period$26,125 $31,527 $31,215 $31,196 $9,435 
Ratio of net charge-offs during the period
to average loans outstanding during the period0.01 %— %— %— %— %
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets3.44 (2.70)(0.20)3.78 0.19 
ACL to non-performing loans at end of period184.68 252.42 305.58 353.02 133.11 
ACL to loans receivable at end of period0.37 0.44 0.42 0.42 0.13 
ACL to net charge-offs (annualized)14.1x
N/M(1)
N/M(1)
24.9x144.5x

(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.
The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13. The decrease in the ACL on correspondent one- to four-family loans and commercial construction loans since October 1, 2020 was due primarily to a reduction in the loan balance during the current quarter. The increase in the ACL on commercial real estate loans since October 1, 2020 was due mainly to an increase in special mention loans during the current quarter.
At
December 31, October 1,September 30, June 30, March 31, December 31,
20202020 2020202020202019
(Dollars in thousands)
One- to four-family:
Originated$1,516 $1,609 $6,044 $6,298 $6,420 $2,027 
Correspondent purchased1,758 2,324 2,691 3,189 3,355 1,200 
Bulk purchased852 903 467 506 557 612 
Construction22 25 41 48 47 20 
Total 4,148 4,861 9,243 10,041 10,379 3,859 
Commercial:
Commercial real estate17,813 16,595 16,869 16,353 14,672 3,608 
Commercial and industrial 553 559 1,451 1,465 1,489 710 
Construction3,341 4,452 3,480 2,886 4,167 1,100 
Total 21,707 21,606 21,800 20,704 20,328 5,418 
Consumer270 299 484 470 489 158 
Total $26,125 $26,766 $31,527 $31,215 $31,196 $9,435 

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The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
At
December 31, October 1,September 30, June 30, March 31, December 31,
20202020 2020202020202019
One- to four-family:
Originated0.04 %0.04 %0.15 %0.16 %0.16 %0.05 %
Correspondent purchased0.09 0.11 0.13 0.14 0.14 0.05 
Bulk purchased0.43 0.43 0.22 0.23 0.24 0.26 
Construction0.07 0.07 0.12 0.13 0.13 0.05 
Total 0.07 0.08 0.15 0.16 0.16 0.06 
Commercial:
Commercial real estate2.92 2.65 2.69 2.62 2.51 0.62 
Commercial and industrial 0.80 0.57 1.49 1.47 2.40 1.25 
Construction3.95 4.22 3.30 3.30 3.30 1.02 
Total 2.84 2.60 2.63 2.55 2.63 0.72 
Consumer0.25 0.26 0.42 0.40 0.39 0.12 
Total 0.37 0.37 0.44 0.42 0.42 0.13 

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The amount is reported in accounts payable and accrued expenses on the consolidated balance sheet. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded. The $1.4 million reduction in the reserve between October 1, 2020 and December 31, 2020 was recorded as a negative provision for credit losses during the current quarter.
At
December 31, October 1,
20202020
(Dollars in thousands)
One- to four-family$131 $144 
Commercial6,261 7,584 
Consumer41 60 
$6,433 $7,788 
23

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 91% of our securities portfolio at December 31, 2020. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
December 31, 2020September 30, 2020December 31, 2019
AmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Fixed-rate securities:
MBS$1,249,115 1.56 %4.1 $945,432 1.82 %3.7 $648,663 2.40 %2.8 
U.S. government-sponsored enterprise debentures444,964 0.52 1.0 369,967 0.62 1.7 274,994 2.03 0.8 
Municipal bonds8,792 1.66 0.5 9,716 1.69 0.7 17,050 1.60 0.9 
Total fixed-rate securities1,702,871 1.29 3.3 1,325,115 1.49 3.1 940,707 2.28 2.2 
Adjustable-rate securities:
MBS178,101 2.44 3.3 204,490 2.49 2.9 276,069 3.09 4.3 
Total securities portfolio$1,880,972 1.40 3.3 $1,529,605 1.62 3.1 $1,216,776 2.46 2.7 

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MBS: The following tables summarize the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WAL are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.
For the Three Months Ended
December 31, 2020September 30, 2020June 30, 2020March 31, 2020
AmountYieldWALAmountYieldWALAmountYieldWALAmountYieldWAL
(Dollars in thousands)
Beginning balance - carrying value$1,180,803 1.94 %3.5 $982,587 2.35 %3.3 $973,318 2.50 %3.6 $937,317 2.61 %3.3 
Maturities and repayments(101,496)(95,842)(75,293)