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What changed in Capitol Federal Financial, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Capitol Federal Financial, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+377 added−355 removedSource: 10-K (2023-11-29) vs 10-K (2022-11-23)

Top changes in Capitol Federal Financial, Inc.'s 2023 10-K

377 paragraphs added · 355 removed · 273 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe 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.
Biggest changeWe 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.
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 Company are required to maintain specified levels of regulatory capital under regulations of the OCC and FRB, respectively.
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.
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.
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.
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 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.
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 interest rate pricing competition from other lending institutions. 2 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.
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. 2 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.
Competition in originating one- to four-family loans primarily comes from other savings institutions, commercial banks, credit unions, and mortgage bankers. 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.
Competition in originating one- to four-family loans primarily comes from other savings institutions, commercial banks, credit unions, mortgage brokers, and mortgage bankers. 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.
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.
The Board of Directors annually reviews the Company's diversity recruitment efforts and employment statistics. 8 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.
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.
These laws and regulations require 6 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.
Transactions between the Bank and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates, and 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.
Transactions between the Bank and its affiliates are required to be on terms as favorable to the institution as transactions with non-affiliates, and certain of these transactions are restricted to a percentage of the Bank's 7 capital, and, in the case of loans, require eligible collateral in specified amounts.
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. 4 Failure to meet this qualification is a statutory violation subject to enforcement action. As of September 30, 2022, the Bank met the qualification.
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. 4 Failure to meet this qualification is a statutory violation subject to enforcement action. As of September 30, 2023, the Bank met the qualification.
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 some limitations on capital distributions to the Company.
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.
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.
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.
In response to the Coronavirus Disease 2019 ("COVID-19") pandemic, the FRB reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At September 30, 2022, the reserve requirement of zero percent was still in place.
In response to the Coronavirus Disease 2019 ("COVID-19") pandemic, the FRB reduced reserve requirement ratios to zero percent effective on March 26, 2020, to support lending to households and businesses. At September 30, 2023, 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 6 institution can use primary credit. At September 30, 2022, the Bank had no outstanding borrowings from the discount window.
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, 2023, the Bank had no outstanding borrowings from the discount window.
The Bank ranked second in deposit market share, at 6.4%, in the state of Kansas as reported in the June 30, 2022 Federal Deposit Insurance Corporation ("FDIC") "Summary of Deposits - Market Share Report." Management considers our well-established banking network together with 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 second in deposit market share, at 6.2%, in the state of Kansas as reported in the June 30, 2023 Federal Deposit Insurance Corporation ("FDIC") "Summary of Deposits - Market Share Report." Management considers our well-established banking network together with our reputation for financial strength and customer service to be major factors in our success at attracting and retaining customers in our market areas.
As of September 30, 2022, the Bank and the Company met all capital adequacy requirements to which they are subject. Limitations on Dividends and Other Capital Distributions.
As of September 30, 2023, the Bank and the Company met all capital adequacy requirements to which they are subject. Limitations on Dividends and Other Capital Distributions.
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 our unimpaired capital and surplus, plus an additional 10% for loans fully secured by readily marketable collateral. At September 30, 2022, the Bank's lending limit under this restriction was $166.7 million.
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 our unimpaired capital and surplus, plus an additional 10% for loans fully secured by readily marketable collateral. At September 30, 2023, the Bank's lending limit under this restriction was $139.8 million.
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 provided by Washburn University's Center for Leadership. Annual employee educational requirements include targeted diversity, equity and inclusion training for all managers.
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.
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, anticipated growth opportunities and market and economic conditions, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.
The 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.
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 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.
At September 30, 2022, the Bank had a balance of $100.6 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.
At September 30, 2023, the Bank had a balance of $110.7 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.
We currently have a network of 54 branches (45 traditional branches and nine 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.
We currently have a network of 51 branches (46 traditional branches and five 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.
The Bank has no loans or loan relationships in excess of its lending limit. Total loan commitments and loans outstanding to the Bank's largest borrowing relationship was $124.4 million at September 30, 2022, all of which was current according to its terms.
The Bank has no loans or loan relationships in excess of its lending limit. Total loan commitments and loans outstanding to the Bank's largest borrowing relationship was $76.2 million at September 30, 2023, all of which was current according to its terms.
We serve a broad range of customers through relatively few branch locations. Our average deposit base per traditional branch at September 30, 2022 was approximately $126.3 million. This large average deposit base per branch helps to control costs.
We serve a broad range of customers through relatively few branch locations. Our average deposit base per traditional branch at September 30, 2023 was approximately $123.0 million. This large average deposit base per branch helps to control costs.
We seek to recognize and develop the unique contributions which each individual brings to our Company, and we are fully committed to supporting a culture of diversity as a pillar of our values and our success. These efforts are supported by our Board of Directors.
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.
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. As such, 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.
As such, 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.
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. As a member, the Bank is required to purchase and maintain capital stock in FHLB.
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, 2023, the Bank had $2.38 billion of FHLB advances, at par.
We also purchase one- to four-family loans from correspondent lenders. In addition, 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.
Historically, we have purchased one- to four-family loans from correspondent lenders but recently have reduced 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.
For Kansas privilege tax purposes, the minimum tax rate is 4.5% of earnings, which is calculated based on federal taxable income, subject to certain adjustments.
For Kansas privilege tax purposes, the minimum tax rate is 4.5% of earnings, 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 Company is no longer subject to federal income tax examination for fiscal years prior to 2019. 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.
The Company has not received notification from the IRS 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.
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, including the Bank's and Company's Community Bank Leverage Ratio (CBLR) as of September 30, 2022.
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, 2023, the Bank was considered well capitalized under OCC regulations.
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 incentivizes employees to live a healthy and balanced lifestyle. Volunteer opportunities are provided and encouraged for all employees.
Physical well-being is supported by the Company's health, dental, vision, life and various other insurances, and a wellness program that incentivizes employees to live a healthy and balanced lifestyle. Volunteer opportunities are provided and encouraged for all employees. Capitol Federal employees recorded over 3,628 hours in volunteer time for local organizations and charities during fiscal year 2023.
The full-time equivalent of our total employees at September 30, 2022 was 707. 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.
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.
In these states, the Bank has either established nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of interest derived from sources within the state. Employees and Human Capital Resources At September 30, 2022, we had a total of 733 employees, including 91 part-time employees.
Additionally, the Bank files state tax returns in various other states where it has significant purchased loans and/or foreclosure activities. In these states, the Bank has either established nexus under an economic nexus theory or has exceeded enumerated nexus thresholds based on the amount of interest derived from sources within the state.
The FDIC has authority to increase insurance assessments, and any significant increases would have an 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.
Management cannot predict what assessment rates will be in the future. In a banking industry emergency, the FDIC may also impose a special assessment.
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.
We strive to provide stockholder value while maintaining a strong capital position. We continue to generate returns to stockholders through dividend payments. Total dividends declared and paid during fiscal year 2023 were $83.2 million.
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").
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.
For the fiscal year ended September 30, 2022, the Bank paid $3.0 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.
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 further increase insurance assessments in the future, and any significant increases would have an adverse effect on the operating expenses and results of operations of the Company.
Removed
Following the pandemic and with high rates of inflation, there is also pressure to increase compensation for the Bank's staff. • 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.
Added
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.
Removed
Total dividends declared and paid during fiscal year 2022 were $103.1 million, including a $0.20 per share, or $27.1 million, True Blue® Capitol Dividend paid in June 2022.
Added
For fiscal year 2024, it is the current intention of the Board of Directors to pay out 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.
Removed
For fiscal year 2023, it is the current intention of the Board of Directors to continue the payout of 100% of the Company's earnings to its stockholders through regular quarterly dividends and a true-up dividend. Stockholder value has also been enhanced through stock repurchases. • Interest Rate Risk Management.
Added
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.
Removed
In October 2022, the FDIC announced that the assessment rate will be increasing from three basis points to five basis points beginning in January 2023.
Added
In October 2022, 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.
Removed
The Bank has not received notification from the state of any potential tax liability for any years still subject to audit. 7 Additionally, the Bank files state tax returns in various other states where it has significant purchased loans and/or foreclosure activities.
Added
While the Bank exceeded $10 billion in total assets at September 30, 2023, an institution is not considered a large institution under the FDIC assessment regulations until the institution exceeds $10 billion in total assets for four consecutive quarters.
Removed
Capitol Federal employees recorded over 5,150 hours in volunteer time for local organizations and charities during fiscal year 2022. Our Company respects, values and encourages diversity in our employees and customers.
Added
The Bank's total assets were in excess of $10 billion at March 31, 2023, June 30, 2023 and September 30, 2023, but total assets are anticipated to be below $10 billion at December 31, 2023. For the fiscal year ended September 30, 2023, the Bank paid $4.5 million in FDIC premiums.
Added
On October 24, 2023, the federal banking agencies, including the OCC, issued a final rule designed to strengthen and modernize the regulations implementing the CRA.
Added
The changes are designed to encourage banks to expand access to credit, investment and banking services in low- and moderate-income communities, adapt to changes in the banking industry, including mobile and internet banking, provide greater clarity and consistency in the application of the CRA regulations and tailor CRA evaluations and data collection to bank size and type.
Added
In March 2023, the FRB created a Bank Term Funding Program ("BTFP") to make additional funding available to eligible depository institutions. The BTFP offers loans up to one year in length that can be prepaid without penalty.
Added
The amount that can be borrowed under the BTFP is based upon the par value of the securities pledged as collateral to the FRB. Advances can be requested under the BTFP until at least March 11, 2024. At September 30, 2023, the Bank had $500.0 million of BTFP borrowings.
Added
In October 2023, the Bank paid off the $500.0 million of BTFP borrowings. Federal Home Loan Bank System.
Added
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.
Added
Employees and Human Capital Resources At September 30, 2023, we had a total of 649 employees, including 57 part-time employees. The full-time equivalent of our total employees at September 30, 2023 was 632, a decrease from 707 at September 30, 2022.
Added
The decrease was largely attributable to the Bank's improved ability to provide a comprehensive digital experience as a result of its implementation of a new core processing system ("the digital transformation").
Added
A large majority of our customers became comfortable carrying out daily transactions through the adoption of our technology efforts, resulting in decreased walk-in traffic and management's ability to more efficiently staff our branches.
Added
Our new staffing model includes officer-level decision makers at each of our locations, as well as narrowly focused efforts to hire and develop a more universal employee who can not only execute basic teller transactions, but also participate in consumer loan activity.
Added
The overall decrease in headcount was not achieved through layoffs, but rather management's decision to not backfill non-essential employees through natural attrition. We believe the new staffing model comprised of decision makers and well-rounded employees will add an elevated customer experience for those who still choose to bank with us in-person.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe 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.
Biggest changeIf 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. 12 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.
Like most financial institutions, the Bank significantly depends on technology to deliver its products and other 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.
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.
If an adverse development arising from the digital transformation is not sufficiently remediated or is not remediated in a timely fashion, the Company's reputation could be significantly impacted which could result in loss of customer business, subject the Company to regulatory scrutiny, or expose the Company to possible litigation, any of which could have a material impact on the Company's financial condition and results of operations.
If an adverse development arising from the digital transformation is not sufficiently remediated or is not remediated in a timely fashion, the Company's reputation could be significantly impacted, which could result in loss of customer business, subject the Company to regulatory scrutiny, or expose the Company to litigation, any of which could have a material impact on the Company's financial condition and results of operations.
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 10 significant impacts on other businesses' access to data and ability to provide services.
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.
Risks Related to Competition Strong competition may limit 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, credit unions, mortgage brokerage firms, investment banking firms, investment brokerage firms, and savings institutions.
Risks Related to Competition Strong competition may limit 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, credit unions, mortgage brokerage firms, investment banking firms, investment brokerage firms, mortgage bankers, and savings institutions.
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. 13 Our risk management and compliance programs and functions may not be effective in mitigating risk and loss.
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. Our risk management and compliance programs and functions may not be effective in mitigating risk and loss.
These regulations, along with the currently 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.
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 reputation damage, which could have an adverse effect on the Company's business, financial condition and results of operations. See "Part I, Item 1.
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.
We have implemented certain safeguards against these types of activities but they may not fully protect us from fraudulent financial losses.
We have implemented certain safeguards against these types of activities, but they may not fully protect us from financial losses.
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 name.
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.
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 cyber-attacks that could have a security impact.
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.
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, and on the availability of cash at the holding company level in the event earnings are not sufficient to pay dividends.
The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to generate earnings and to, therefore, make capital distributions to the Company, and on the availability of cash at the holding company level in the event earnings are not sufficient to pay dividends.
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 cyber-attacks and identity theft.
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.
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 cyber-attack or other security breach.
While we regularly conduct security and risk 11 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.
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.
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 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 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. Item 1B. Unresolved Staff Comments None.
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.
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 .
This type of risk is known as interest rate risk and is affected by prevailing economic and competitive conditions, including inflationary trends and/or monetary policies of the FRB and fiscal policies of the United States federal government. 8 The impact of changes in interest rates is generally observed on the income statement.
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.
Risks Related to Cybersecurity, Third Parties, and Technology The occurrence of any information system failure or interruption, breach of security or cyber-attack, 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.
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.
Any one or a combination of these events may have an adverse impact on borrowers' ability to repay their loans, which could result in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions. 9 The Company may not be able to attract and retain skilled employees.
Any one or a combination of these events may have an adverse impact on borrowers' ability to repay their loans, which could result in increased delinquencies, non-performing assets, loan losses, and future loan loss provisions.
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.
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.
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.
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 occurrence of a breach of security involving our customers' information, regardless of its origin, could damage our reputation and result in a loss of customers and business and subject us to additional regulatory scrutiny, and could expose us to litigation and possible financial liability.
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.
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.
The CFPB enforces consumer protection laws and regulations for the benefit of the consumer 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.
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.
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.
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.
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.
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.
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 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. Item 1B. Unresolved Staff Comments None.
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. 14 The Company may not be able to attract and retain skilled employees.
Our profitability depends upon our ability to compete in our local market areas. 12 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.
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.
The CFPB also has examination and enforcement authority over all banks with regulatory assets exceeding $10 billion at four consecutive quarter-ends. The Bank has not exceeded $10 billion in regulatory assets at four consecutive quarter-ends, but it may at some point in the future.
The CFPB also has examination and enforcement authority over all banks with regulatory assets exceeding $10 billion at four consecutive quarter-ends. The Bank exceeded $10 billion in 13 regulatory assets at March 31, 2023, June 30, 2023 and September 30, 2023.
Across our industry, the cost of minimizing these risks and investigating incidents has continued to increase with the frequency and sophistication of these threats. To date, the Company has no knowledge of a material information security breach affecting its systems.
Across our industry, the cost of minimizing these risks and investigating incidents has continued to increase with the frequency and sophistication of these threats.
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, and not for the protection or benefit of investors. The CFPB enforces consumer protection laws and regulations for the benefit of the consumer and not the protection or benefit of investors.
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.
Competition from other financial institutions and/or brokerage firms could affect our ability to attract and retain deposits and could result in us 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.
Fluctuations in interest rates also affect customer demand for loan and deposit products. Competition from other financial institutions and/or brokerage firms could affect our ability to attract and retain deposits and could result in us paying more for deposits.
Our primary lending emphasis is the origination and purchase of one- to four-family first mortgage loans secured by residential properties. 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 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.
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.
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.
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 deposit products.
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.
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.
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 9 and Supplementary Data – Notes to Consolidated Financial Statements – Note 15.
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.
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.
Smaller banks, like the Bank, will continue to be examined for compliance with the consumer laws and regulations of the CFPB by their primary bank regulators (the OCC, in the case of the Bank).
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.
Removed
Any of these events could have an adverse effect on our financial condition and results of operations. 11 Third party vendors subject the Company to potential business, reputation and financial risks.
Added
Our primary lending emphasis is the origination of one- to four-family first mortgage loans secured by residential properties. We have also purchased one- to four-family first mortgage loans, secured by properties that are typically outside our local market areas, from correspondent lenders.
Removed
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.
Added
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. 10 Commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the collateral underlying the loans.
Removed
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.
Added
During June 2023, a third-party service provider (the "Service Provider") to the Bank advised the Bank that files with personally identifiable information related to Bank customers had been compromised during a security incident experienced by the Service Provider (the "Incident"). The Bank used the Service Provider to process transactions.
Removed
There are operational and reputation risks associated with the planned digital transformation. Management is in the process of implementing a new core processing system ("digital transformation") for the Bank, which is expected to be operational by September 2023.
Added
The Incident resulted from a zero-day vulnerability in a managed file sharing software called MOVEit. MOVEit is used by thousands of organizations around the world for securely transferring sensitive and confidential information and other data. The vulnerability was exploited in a large-scale, cyber campaign that impacted government agencies, universities, and corporations around the world.
Removed
The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. This project may subject the Company to operational risks, such as disruptions in technology systems impacting customers.
Added
As a result of the Incident, an unauthorized party was able to obtain access to certain Bank customers' data in the Service Provider's possession that contained social security numbers, account numbers, and other personally identifiable information.
Added
The Bank confirmed the Service Provider has fixed the vulnerability noted above and the Bank has implemented additional security procedures when sharing files with the Service Provider. When the Bank received notice of the Incident from the Service Provider, the Bank promptly enacted response protocols. The Service Provider has provided appropriate notifications to potentially affected customers.
Added
The Bank worked with the Service Provider to identify any others potentially impacted by the Incident. The Bank is not aware of any other third-party incidents related to the MOVEit vulnerability that has affected personally identifiable information associated with Bank customers.
Added
In August 2023, the Company implemented a new core processing system ("digital transformation"). While the digital transformation was completed successfully, the Company may face operational risks, such as disruptions in technology systems, which may impact customers.
Added
The Bank intends to be below $10 billion in regulatory assets at December 31, 2023 so it will not exceed $10 billion in regulatory assets at four consecutive quarter-ends.
Added
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.

Item 2. Properties

Properties — owned and leased real estate

2 edited+1 added−1 removed0 unchanged
Biggest changeThere are four of the Bank's in-store branch offices for which the leases will not be renewed at the time of their upcoming expiration in January 2023. For additional information regarding our lease obligations, see "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 5.
Biggest changeFor 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 our number of current facilities meet the present and immediately foreseeable needs of our customers.
Item 2. Properties At September 30, 2022, we had 45 traditional branch offices and nine in-store branch offices. The Bank owns 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 18 branches are either leased or partially owned.
Item 2. Properties At September 30, 2023, we had 46 traditional branch offices and five in-store branch offices. The Bank owns 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 15 branches are either leased or partially owned.
Removed
Premises, Equipment and Leases." Management believes that our current facilities are adequate to meet our present and immediately foreseeable needs. However, we will continue to monitor customer growth and expand our branching network, if necessary, to serve our customers' needs.
Added
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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings In the normal course of business, the Company and the Bank are named defendants in various lawsuits and counterclaims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits are expected to have a materially adverse effect on the Company's consolidated financial statements.
Biggest changeItem 3. Legal Proceedings In the normal course of business, the Company and the Bank are involved as parties to various 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.
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. Item 4.
The plaintiffs have appealed this decision. 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. Item 4.
Mine Safety Disclosures Not applicable. 14 PART II
Mine Safety Disclosures Not applicable. 15 PART II
On November 2, 2022, the Bank was served with a putative class action complaint alleging it 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.
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. The Bank believes that this lawsuit is without merit and intends to vigorously defend against the asserted claims.
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 injunction relief. On April 5, 2023, the court granted the Bank's motion to dismiss the complaint, with prejudice.
Added
On November 2, 2022, the Bank was served a putative class action lawsuit, captioned Jennifer Harding, et al. vs.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShare Repurchases As of September 30, 2022, there was $44.7 million of common stock that could be repurchased under the Company's existing stock repurchase plan, which was approved in October 2015 for $70.0 million. This plan has no expiration date; however, the Federal Reserve Bank's approval for the Company to repurchase shares extends through August 2023.
Biggest changeThis plan has no expiration date; however, the Federal Reserve Bank's approval for the Company to repurchase shares extends through August 2024. Shares may be repurchased from time to time in the open market or in privately negotiated transactions based upon market conditions and available liquidity.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Listing Capitol Federal Financial, Inc. common stock is traded on the Global Select tier of the NASDAQ Stock Market under the symbol "CFFN". At November 17, 2022, there were approximately 7,790 Capitol Federal Financial, Inc. stockholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Listing Capitol Federal Financial, Inc. common stock is traded on the Global Select tier of the NASDAQ Stock Market under the symbol "CFFN". At November 22, 2023, there were approximately 7,495 holders of record of Capitol Federal Financial, Inc. common stock.
Total Number of Approximate Dollar Total Shares Purchased as Value of Shares Number of Average Part of Publicly that May Yet Be Shares Price Paid Announced Plans Purchased Under the Purchased per Share or Programs Plans or Programs July 1, 2022 through July 31, 2022 — $ — — $ 44,665,205 August 1, 2022 through August 31, 2022 — — — 44,665,205 September 1, 2022 through September 30, 2022 — — — 44,665,205 Total — — — 44,665,205 Stockholders and General Inquiries Copies of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 are available to stockholders at no charge in the Investor Relations section of our website, www.capfed.com. 15 Stockholder Return Performance Presentation The information presented below assumes $100 invested on September 30, 2017 in the Company's common stock and in each of the indices, and assumes the reinvestment of all dividends.
Total Number of Approximate Dollar Total Shares Purchased as Value of Shares Number of Average Part of Publicly that May Yet Be Shares Price Paid Announced Plans Purchased Under the Purchased per Share or Programs Plans or Programs July 1, 2023 through July 31, 2023 — $ — — $ 22,469,207 August 1, 2023 through August 31, 2023 — — — 22,469,207 September 1, 2023 through September 30, 2023 250,594 4.97 250,594 21,222,929 Total 250,594 4.97 250,594 21,222,929 Stockholders and General Inquiries Copies of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 are available to stockholders at no charge in the Investor Relations section of our website, www.capfed.com. 16 Stockholder Return Performance Presentation The information presented below assumes $100 invested on September 30, 2018 in the Company's common stock and in each of the indices, and assumes the reinvestment of all dividends.
BMI Banks Index 100.00 108.42 108.77 79.86 145.30 111.62 Source: S&P Global Market Intelligence Restrictions on the Payments of Dividends The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank.
BMI Banks Index 100.00 100.32 73.65 134.01 102.95 99.73 Source: S&P Global Market Intelligence Restrictions on the Payment of Dividends The Company's ability to pay dividends is dependent, in part, upon its ability to obtain capital distributions from the Bank.
Historical stock price performance is not necessarily indicative of future stock price performance. Period Ending Index 9/30/2017 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 Capitol Federal Financial, Inc. 100.00 92.67 108.03 76.51 101.82 78.95 NASDAQ Composite Index 100.00 125.17 125.82 177.36 231.03 170.38 S&P U.S.
Historical stock price performance is not necessarily indicative of future stock price performance. Period Ending Index 9/30/2018 9/30/2019 9/30/2020 9/30/2021 9/30/2022 9/30/2023 Capitol Federal Financial, Inc. 100.00 116.58 82.57 109.88 85.20 53.25 NASDAQ Composite Index 100.00 100.52 141.70 184.58 136.12 171.65 S&P U.S.
From the completion of the Company's second-step conversion in December 2010 through September 30, 2022, $393.4 million worth of common stock was repurchased. The following table summarizes our share repurchase activity during the three months ended September 30, 2022 and additional information regarding our share repurchase program.
Share Repurchases The following table summarizes our share repurchase activity during the three months ended September 30, 2023 and additional information regarding our share repurchase program. As of September 30, 2023, the Company had $21.2 million of common stock that could be repurchased under its existing stock repurchase plan.
Added
From December 2010 through September 30, 2023, $417.0 million worth of common stock was repurchased.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

151 edited+61 added−63 removed48 unchanged
Biggest changeFor the Year Ended September 30, 2022 2021 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans: Originated $ 3,985,267 $ 129,392 3.25 % $ 3,966,059 $ 137,461 3.47 % Correspondent purchased 2,072,677 55,227 2.66 2,010,823 48,066 2.39 Bulk purchased 159,152 2,053 1.29 191,029 3,601 1.89 Total one- to four-family loans 6,217,096 186,672 3.00 6,167,911 189,128 3.07 Commercial loans 884,126 37,223 4.15 788,702 36,085 4.51 Consumer loans 93,544 4,636 4.96 101,277 4,684 4.63 Total loans receivable (1) 7,194,766 228,531 3.17 7,057,890 229,897 3.25 MBS (2) 1,354,080 19,406 1.43 1,446,466 21,399 1.48 Investment securities (2)(3) 523,170 3,268 0.62 482,641 2,825 0.59 FHLB stock (4) 149,236 10,031 6.72 77,250 3,916 5.07 Cash and cash equivalents (5) 1,562,274 18,304 1.16 131,798 144 0.11 Total interest-earning assets 10,783,526 279,540 2.59 9,196,045 258,181 2.80 Other non-interest-earning assets 343,311 443,724 Total assets $ 11,126,837 $ 9,639,769 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 1,056,303 752 0.07 $ 972,920 772 0.08 Savings 543,609 299 0.06 487,146 280 0.06 Money market 1,840,898 4,578 0.25 1,598,838 4,128 0.26 Retail certificates 2,203,452 27,664 1.26 2,491,427 40,475 1.62 Commercial certificates 103,865 666 0.64 197,384 1,559 0.79 Wholesale certificates 150,689 497 0.33 252,623 1,192 0.47 Total deposits 5,898,816 34,456 0.58 6,000,338 48,406 0.81 Borrowings (6) 3,288,348 52,490 1.58 1,636,399 34,774 2.11 Total interest-bearing liabilities 9,187,164 86,946 0.94 7,636,737 83,180 1.09 Non-interest-bearing deposits 573,954 509,778 Other non-interest-bearing liabilities 178,526 219,328 Stockholders' equity 1,187,193 1,273,926 Total liabilities and stockholders' equity $ 11,126,837 $ 9,639,769 Net interest income (7) $ 192,594 $ 175,001 Net interest-earning assets $ 1,596,362 $ 1,559,308 Net interest margin (8)(9) 1.79 1.90 Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.20x 40 (1) Balances are adjusted for unearned loan fees and deferred costs.
Biggest changeFor the Year Ended September 30, 2023 2022 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans: Originated $ 4,047,209 $ 135,873 3.36 % $ 3,985,267 $ 129,392 3.25 % Correspondent purchased 2,428,257 76,335 3.14 2,072,677 55,227 2.66 Bulk purchased 143,105 1,923 1.34 159,152 2,053 1.29 Total one- to four-family loans 6,618,571 214,131 3.24 6,217,096 186,672 3.00 Commercial loans 1,150,831 57,991 4.97 884,126 37,223 4.15 Consumer loans 103,016 7,965 7.73 93,544 4,636 4.96 Total loans receivable (1) 7,872,418 280,087 3.55 7,194,766 228,531 3.17 MBS (2) 1,150,013 18,520 1.61 1,354,080 19,406 1.43 Investment securities (2)(3) 524,919 3,565 0.68 523,170 3,268 0.62 FHLB stock (4) 157,925 13,821 8.75 149,236 10,031 6.72 Cash and cash equivalents (5) 998,793 43,796 4.32 1,562,274 18,304 1.16 Total interest-earning assets 10,704,068 359,789 3.35 10,783,526 279,540 2.59 Other non-interest-earning assets 263,713 343,311 Total assets $ 10,967,781 $ 11,126,837 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking $ 961,779 1,504 0.16 $ 1,056,303 752 0.07 Savings 525,423 488 0.09 543,609 299 0.06 Money market 1,567,540 19,426 1.24 1,840,898 4,578 0.25 Retail certificates 2,266,740 54,724 2.41 2,203,452 27,664 1.26 Commercial certificates 40,258 993 2.47 103,865 666 0.64 Wholesale certificates 134,641 5,132 3.81 150,689 497 0.33 Total deposits 5,496,381 82,267 1.50 5,898,816 34,456 0.58 Borrowings (6) 3,658,015 124,250 3.38 3,288,348 52,490 1.58 Total interest-bearing liabilities 9,154,396 206,517 2.25 9,187,164 86,946 0.94 Non-interest-bearing deposits 562,023 573,954 Other non-interest-bearing liabilities 179,373 178,526 Stockholders' equity 1,071,989 1,187,193 Total liabilities and stockholders' equity $ 10,967,781 $ 11,126,837 Net interest income (7) $ 153,272 $ 192,594 Net interest-earning assets $ 1,549,672 $ 1,596,362 Net interest margin (8)(9) 1.43 1.79 Ratio of interest-earning assets to interest-bearing liabilities 1.17x 1.17x Operating expense ratio (10) 1.04 % 1.01 % 42 (1) Balances are adjusted for unearned loan fees and deferred costs.
While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of ACL and reserves for off-balance sheet credit exposures.
While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our portfolios, changes in the economic environment 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.
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. 47
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.
We generally pay a premium of 0.50% to 1.0% of the loan balance to purchase these loans, and 1.0% 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.
We generally pay 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.
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.
See "Part II, Item 8. Financial Statements and Supplementary Data – 48 Notes to Consolidated Financial Statements – Note 6. Low Income Housing Partnerships and Note 12. Commitments and Contingencies" for additional information regarding these commitments.
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.
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.
The ACL and reserves for off-balance sheet credit exposures may be materially affected by qualitative factors, especially during periods of economic uncertainty, 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.
The ACL and reserve for off-balance sheet credit exposures may be materially affected by qualitative factors, especially during periods of economic uncertainty, 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.
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.
Financial Statements and Supplementary Data – Notes to Financial Statements – Note 1. Summary of Significant Accounting Policies." 21 Financial Condition The following table summarizes the Company's financial condition at the dates indicated.
The Bank's owner-occupied construction-to-permanent loan program combines the construction loan and the permanent loan into one loan, 20 allowing the borrower to secure the same interest rate structure throughout the construction period and the permanent loan term.
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.
Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at September 30, 2022. Recent Accounting Pronouncements For a discussion of Recent Accounting Pronouncements, see "Part II, Item 8.
Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at September 30, 2023. Recent Accounting Pronouncements For a discussion of Recent Accounting Pronouncements, see "Part II, Item 8.
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, 2022, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
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, 2023, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
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. 21 The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.
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. 23 The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.
The qualitative factors applied by management at September 30, 2022 were (1) economic uncertainty that may not be adequately captured in the third party economic forecast scenarios and (2) other management considerations related to commercial loans to account for credit risks not fully reflected in the discounted cash flow model.
The qualitative factors applied by management at September 30, 2023 were (1) economic uncertainty that may not be adequately captured in the third-party economic forecast scenarios and (2) other management considerations related to commercial loans to account for credit risks not fully reflected in the discounted cash flow model.
Credit scores are updated at least annually, with the latest update in September 2022, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available.
Credit scores are updated at least annually, with the latest update in September 2023, 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.
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, 2022.
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, 2023.
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. 31 The following tables present ACL activity and related ratios at the dates and for the periods indicated.
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. 33 The following tables present ACL activity and related ratios at the dates and for the periods indicated.
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 the regulatory standards for well-capitalized financial institutions.
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.
The economic indices sourced from the macro-economic 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.
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.
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, 2022.
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, 2023.
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 2022 to 2021. For the comparison of fiscal years 2021 to 2020, see "Part II, Item 7.
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 2023 to 2022. For the comparison of fiscal years 2022 to 2021, see "Part II, Item 7.
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 2020 information, see "Part II, Item 7.
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 2021 information, see "Part II, Item 7.
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 was 50% of Bank Call Report total assets as of September 30, 2022, as approved by the president of FHLB.
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 was 50% of Bank Call Report total assets as of September 30, 2023, as approved by the president of FHLB.
As of September 30, 2022, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At September 30, 2022, the Bank did not have any brokered certificates of deposit and public unit certificates of deposit were approximately 2% of total deposits.
As of September 30, 2023, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At September 30, 2023, the Bank did not have any brokered certificates of deposit and public unit certificates of deposit were approximately 2% of total deposits.
The qualitative factors applied at September 30, 2022, 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 qualitative factors applied at September 30, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes 20 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.
Each reporting period, several macro-economic forecast scenarios are considered by management. Management selects the macro-economic forecast(s) that is/are most reflective of expectations at that point in time. Changes in the macro-economic forecast, especially for the national unemployment rate, could significantly impact the calculated estimated credit losses between reporting periods.
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.
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, 2021.
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, 2022.
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, 2021.
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, 2022.
Due to the nature of 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.
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.
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 macro-economic forecasts.
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.
Prepayment and 18 curtailment assumptions are 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.
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.
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 macro-economic forecast provided by a third party.
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.
Additionally, the level of ACL and reserves for off-balance sheet credit exposures may fluctuate based on the balance and mix of the loan portfolio and off-balance sheet credit exposures.
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.
(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. 29 The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure at September 30, 2022.
(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. 31 The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans, 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, 2023.
Additionally, FHLB borrowings may exceed 40% of Bank Call Report total assets as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets.
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.
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 hotels, office and retail buildings, senior housing facilities, and multi-family dwellings located in Kansas, Missouri, and 11 other states.
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 retail buildings, senior housing facilities, multi-family dwellings, hotels, and office buildings located in Kansas, Texas, and 22 Missouri, and 13 other states.
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, 2022 and 2021, approximately 73% and 61%, respectively, were 59 days or less delinquent.
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, 2023 and 2022, approximately 72% and 73%, respectively, were 59 days or less delinquent.
(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.
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.
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 and certain other characteristics of those securities.
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.
The majority of home equity loans assume a maximum term of 240 months. 23 The following table presents, as of September 30, 2022, the amount of loans due after September 30, 2023, and whether these loans have fixed or adjustable interest rates.
The majority of home equity loans assume a maximum term of 240 months. 25 The following table presents, as of September 30, 2023, the amount of loans due after September 30, 2024, and whether these loans have fixed or adjustable interest rates.
The macro-economic 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, 2022 was four quarters.
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, 2023 was four quarters.
The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer.
The 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, and line of credit borrowings are excluded.
Interest and Dividend Income The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
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.
Provision for Credit Losses The Bank recorded a negative provision for credit losses during the current year of $4.6 million, compared to a negative provision for credit losses of $8.5 million during the prior year.
Provision for Credit Losses The Bank recorded a provision for credit losses during the current year of $6.8 million, compared to a release of provision of $4.6 million during the prior year.
Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.
Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. All AFS securities are classified as Level 2.
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. The Company recognized net income of $84.5 million, or $0.62 per share, for fiscal year 2022 compared to net income of $76.1 million, or $0.56 per share, for the prior fiscal year.
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. The Company recognized net loss of $101.7 million, or $(0.76) per share, for fiscal year 2023 compared to net income of $84.5 million, or $0.62 per share, for fiscal year 2022.
(3) The average balance of investment securities includes an average balance of nontaxable securities of $1.7 million and $6.6 million for the years ended September 30, 2022 and 2021, respectively.
(3) The average balance of investment securities includes an average balance of nontaxable securities of $1.0 million and $1.7 million for the years ended September 30, 2023 and 2022, respectively.
The Bank had pledged securities with an estimated fair value 46 of $125.5 million as collateral for public unit certificates of deposit at September 30, 2022. 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.
The Bank had pledged securities with an estimated fair value of $178.4 million as collateral for public unit certificates of deposit at September 30, 2023. 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.
The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values.
The weighted average yields were calculated by multiplying each estimated fair value by its yield and dividing the sum of these results by the total estimated fair value.
(4) Included in this line, for the year ended September 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance $71.0 million and dividend income of $4.8 million at a weighted average yield of 6.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $78.2 million and dividend income of $5.2 million at a weighted average yield of 6.69%.
(4) Included in this line, for the years ended September 30, 2023 and September 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $41.6 million and $71.0 million, respectively, dividend income of $3.6 million and $4.8 million, respectively, at a weighted average yield of 8.69% and 6.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $116.3 million and $78.2 million, respectively, and dividend income of $10.2 million and $5.2 million, respectively, at a weighted average yield of 8.77% and 6.69%, respectively.
The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio.
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.
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.
Interest Expense The following table presents the components of interest expense for the years presented, along with the change measured in dollars and percent.
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, 2022 estimate of ACL.
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, 2023 estimate of ACL.
All AFS securities are classified as Level 2. 19 The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair values of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs.
The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair values of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs.
Calendar Year 2022 2021 2020 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31 $ 11,535 $ 0.085 $ 11,518 $ 0.085 $ 11,733 $ 0.085 Quarter ended June 30 11,534 0.085 11,516 0.085 11,733 0.085 Quarter ended September 30 11,534 0.085 11,518 0.085 11,733 0.085 Quarter ended December 31 11,508 0.085 11,535 0.085 11,514 0.085 True-up dividends paid 37,701 0.280 29,850 0.220 17,614 0.130 True Blue Capitol dividends paid 27,143 0.200 54,210 0.400 — — Calendar year-to-date dividends paid $ 110,955 $ 0.820 $ 130,147 $ 0.960 $ 64,327 $ 0.470 38 Rate/Volume Analysis.
Calendar Year 2023 2022 2021 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31 $ 11,319 $ 0.085 $ 11,535 $ 0.085 $ 11,518 $ 0.085 Quarter ended June 30 11,321 0.085 11,534 0.085 11,516 0.085 Quarter ended September 30 11,323 0.085 11,534 0.085 11,518 0.085 Quarter ended December 31 11,310 0.085 11,508 0.085 11,535 0.085 True-up dividends paid — — 37,701 0.280 29,850 0.220 True Blue Capitol dividends paid — — 27,143 0.200 54,210 0.400 Calendar year-to-date dividends paid $ 45,273 $ 0.340 $ 110,955 $ 0.820 $ 130,147 $ 0.960 40 Rate/Volume Analysis.
As of September 30, 2022 and September 30, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $100.4 million and $90.7 million, respectively, and commitments totaled $458 thousand and $16.9 million, respectively. 26 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, 2023 and September 30, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $158.5 million and $100.4 million, respectively, and commitments totaled $2.6 million and $458 thousand, respectively. 28 The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated.
(6) Included in this line, for the year ended September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $18.5 million, at a weighted average rate of 1.15%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.71 billion and interest paid of $34.0 million, at a weighted average rate of 1.98%.
(6) Included in this line, for the years ended September 30, 2023 and September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $924.4 million and $1.58 billion, respectively, and interest paid of $39.7 million and $18.5 million, respectively, at a weighted average rate of 4.24% and 1.15%, respectively, and borrowings not related to the leverage strategy with an average outstanding balance of $2.73 billion and $1.71 billion, respectively, and interest paid of $84.5 million and $34.0 million, respectively, at a weighted average rate of 3.08% and 1.98%, respectively.
Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations.
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.
As of September 30, 2022, the Bank had 25 commercial real estate and commercial construction loan commitments totaling $98.7 million, at a weighted average rate of 4.78%, which are not included in the table below.
As of September 30, 2023, the Bank had three commercial real estate and commercial construction loan commitments totaling $14.0 million, at a weighted average rate of 7.57%, which are not included in the table below.
At or For the Year Ended September 30, 2022 2021 2020 (Dollars in thousands) Balance at beginning of period $ 19,823 $ 31,527 $ 9,226 Adoption of CECL — (4,761) — Charge-offs (70) (715) (443) Recoveries 256 237 444 Net recoveries (charge-offs) 186 (478) 1 Provision for credit losses (3,638) (6,465) 22,300 Balance at end of period $ 16,371 $ 19,823 $ 31,527 Ratio of NCOs during the period to average non-performing assets (1.59) % 3.63 % (0.01) % ACL to nonaccrual loans at end of period 173.37 147.54 252.42 ACL to loans receivable, net at end of period 0.22 0.28 0.44 ACL to NCOs N/M (1) 41.5x N/M (1) (1) This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during the periods. 32 The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.
At or For the Year Ended September 30, 2023 2022 2021 (Dollars in thousands) Balance at beginning of period $ 16,371 $ 19,823 $ 31,527 Adoption of CECL — — (4,761) Charge-offs (115) (70) (715) Recoveries 9 256 237 Net (charge-offs) recoveries (106) 186 (478) Provision for credit losses 7,494 (3,638) (6,465) Balance at end of period $ 23,759 $ 16,371 $ 19,823 Ratio of NCOs during the period to average non-performing assets 1.09 % (1.59) % 3.63 % ACL to nonaccrual loans at end of period 252.51 173.37 147.54 ACL to loans receivable, net at end of period 0.30 0.22 0.28 ACL to NCOs 223x N/M 42x 34 The following table presents NCOs, average loans, and NCOs as a percentage of average loans, by loan type, for the periods indicated.
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.
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.
At September 30, 2022, $1.19 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $78.1 million of public unit certificates of deposit and $27.0 million of commercial certificates of deposit.
At September 30, 2023, $1.49 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $121.8 million of public unit certificates of deposit and $32.8 million of commercial certificates of deposit.
The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets.
The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At September 30, 2023, the Bank had total borrowings, at par, of $2.88 billion, or approximately 28% of total assets.
The Bank processed commercial loan disbursements, excluding lines of credit, of approximately $342.7 million at a weighted average rate of 4.26%.
The Bank processed commercial loan disbursements, excluding lines of credit, of approximately $474.6 million at a weighted average rate of 6.09%.
It is anticipated that the fiscal year 2023 cash true-up dividend will be paid in December 2023. 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.
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.
(9) The table below provides a reconciliation between certain performance ratios presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP.
(9) 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 effects of the leverage strategy and without the net loss on securities transactions associated with the securities strategy, which are not presented in accordance with GAAP.
September 30, 2022 2021 Number Amount Number Amount (Dollars in thousands) Loans 90 or More Days Delinquent or in Foreclosure: One- to four-family: Originated 29 $ 2,919 50 $ 3,693 Correspondent purchased 12 3,737 10 3,210 Bulk purchased 3 1,148 9 2,974 Commercial 8 1,167 6 1,214 Consumer 9 154 21 498 61 9,125 96 11,589 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.12 % 0.16 % Nonaccrual loans less than 90 Days Delinquent: (1) One- to four-family: Originated 3 $ 222 7 $ 1,288 Correspondent purchased — — — — Bulk purchased — — 1 131 Commercial 1 77 4 419 Consumer 1 19 1 9 5 318 13 1,847 Total nonaccrual loans 66 9,443 109 13,436 Nonaccrual loans as a percentage of total loans 0.13 % 0.19 % OREO: One- to four-family: Originated (2) 4 $ 307 3 $ 170 Consumer 1 21 — — 5 328 3 170 Total non-performing assets 71 $ 9,771 112 $ 13,606 Non-performing assets as a percentage of total assets 0.10 % 0.14 % (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.
September 30, 2023 2022 Number Amount Number Amount (Dollars in thousands) Loans 90 or More Days Delinquent or in Foreclosure: One- to four-family: Originated 24 $ 2,246 29 $ 2,919 Correspondent purchased 9 3,410 12 3,737 Bulk purchased 2 942 3 1,148 Commercial 12 2,183 8 1,167 Consumer 9 113 9 154 56 8,894 61 9,125 Loans 90 or more days delinquent or in foreclosure as a percentage of total loans 0.11 % 0.12 % Nonaccrual loans less than 90 Days Delinquent: (1) One- to four-family: Originated 2 $ 215 3 $ 222 Correspondent purchased 1 282 — — Bulk purchased — — — — Commercial 1 18 1 77 Consumer — — 1 19 4 515 5 318 Total nonaccrual loans 60 9,409 66 9,443 Nonaccrual loans as a percentage of total loans 0.12 % 0.13 % OREO: One- to four-family: Originated (2) — $ — 4 $ 307 Correspondent purchased 1 219 — — Consumer — — 1 21 1 219 5 328 Total non-performing assets 61 $ 9,628 71 $ 9,771 Non-performing assets as a percentage of total assets 0.09 % 0.10 % (1) Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.
These cash dividends totaled $0.76 per share and consisted of a $0.20 per share True Blue Capitol cash dividend, a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, and four regular quarterly cash dividends of $0.085 per share, totaling $0.34 per share.
These cash dividends totaled $0.62 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and four regular quarterly cash dividends of $0.085 per share.
Accumulated Other Comprehensive Income." On October 25, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.6 million, payable on November 18, 2022 to stockholders of record as of the close of business on November 4, 2022.
On October 24, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on November 17, 2023 to stockholders of record as of the close of business on November 3, 2023.
For the Year Ended September 30, 2022 September 30, 2021 Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,096,073 3.21 % $ 7,224,996 3.55 % Originated and refinanced 1,065,373 3.74 1,437,454 2.89 Purchased and participations 701,674 3.46 824,241 2.89 Change in undisbursed loan funds (53,811) (174,416) Repayments (1,337,034) (2,215,585) Principal recoveries/(charge-offs), net 186 (478) Other (791) (139) Ending balance $ 7,471,670 3.33 $ 7,096,073 3.21 24 The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total.
For the Year Ended September 30, 2023 September 30, 2022 Amount Rate Amount Rate (Dollars in thousands) Beginning balance $ 7,471,670 3.33 % $ 7,096,073 3.21 % Originated and refinanced 930,362 5.96 1,065,373 3.74 Purchased and participations 644,072 5.59 701,674 3.46 Change in undisbursed loan funds (99,179) (53,811) Repayments (956,562) (1,337,034) Principal (charge-offs)/recoveries, net (106) 186 Other (5,876) (791) Ending balance $ 7,984,381 3.76 $ 7,471,670 3.33 26 The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total.
For the Year Ended September 30, 2022 September 30, 2021 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 2,014,608 1.16 % 3.5 $ 1,560,950 1.63 % 3.1 Maturities and repayments (323,025) (594,294) Net amortization of (premiums)/discounts (4,967) (6,206) Purchases 88,026 2.56 4.3 1,079,351 1.01 5.0 Change in valuation on AFS securities (211,335) (25,193) Ending balance - carrying value $ 1,563,307 1.29 4.2 $ 2,014,608 1.16 3.5 34 Liabilities.
For the Year Ended September 30, 2023 September 30, 2022 Amount Yield WAL Amount Yield WAL (Dollars in thousands) Beginning balance - carrying value $ 1,563,307 1.29 % 4.2 $ 2,014,608 1.16 % 3.5 Maturities and repayments (186,860) (323,025) Net amortization of (premiums)/discounts (3,016) (4,967) Purchases — — — 88,026 2.56 4.3 Change in valuation on AFS securities 11,051 (211,335) Ending balance - carrying value $ 1,384,482 1.35 3.8 $ 1,563,307 1.29 4.2 36 Liabilities.
The negative provision in the current year was comprised of a $3.6 million decrease in the ACL for loans and a $992 thousand decrease in reserves for off-balance sheet credit exposures.
The provision for credit losses in the current year was comprised of a $7.5 million increase in the ACL for loans and a $656 thousand decrease in reserve for off-balance sheet credit exposures.
September 30, 2022 September 30, 2021 Amount Yield WAL (1) Amount Yield WAL (1) (Dollars in thousands) MBS $ 1,243,270 1.57 % 4.7 $ 1,484,211 1.35 % 3.5 Government-sponsored enterprises ("GSE") debentures 519,977 0.61 2.9 519,971 0.61 3.7 Corporate bonds 4,000 5.12 9.6 — — — Municipal bonds 1,243 2.63 6.5 4,274 1.81 0.3 $ 1,768,490 1.29 4.2 $ 2,008,456 1.16 3.5 (1) 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. 33 The composition and maturities of the securities portfolio at September 30, 2022 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.
September 30, 2023 September 30, 2022 Amount Yield WAL Amount Yield WAL (Dollars in thousands) MBS $ 901,440 1.71 % 4.7 $ 1,243,270 1.57 % 4.7 Government-sponsored enterprises ("GSE") debentures 479,610 0.64 1.9 519,977 0.61 2.9 Corporate bonds 4,000 5.12 8.6 4,000 5.12 9.6 Municipal bonds 942 2.55 6.9 1,243 2.63 6.5 $ 1,385,992 1.35 3.8 $ 1,768,490 1.29 4.2 35 The composition and maturities of the securities portfolio at September 30, 2023 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 ratio of ACL to loans receivable, net was lower in the current year compared to the prior year due primarily to a reduction in ACL.
The ratio of ACL to nonaccrual loans was higher in the current year compared to the prior year due to higher ACL compared to the prior year period. The ratio of ACL to loans receivable, net was higher in the current year compared to the prior year due primarily to a higher ACL balance, mainly related to commercial loans.
The ACL and the reserves for off-balance sheet credit exposures was $16.4 million and $4.8 million, respectively at September 30, 2022, compared to $19.8 million and $5.7 million, respectively, at September 30, 2021.
The ACL and the reserve for off-balance sheet credit exposures were $23.8 million and $4.1 million, respectively at September 30, 2023, compared to $16.4 million and $4.8 million, respectively, at September 30, 2022.
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 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.
For the Year Ended September 30, 2022 2021 Effective Effective Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 1,590,000 1.88 % 3.3 $ 1,790,000 2.31 % 3.0 Maturities and prepayments (177,500) 1.94 — (1,305,000) 2.18 — New FHLB borrowings 650,000 3.68 3.7 1,105,000 1.96 3.7 Ending balance $ 2,062,500 2.44 2.5 $ 1,590,000 1.88 3.3 36 Maturities of Interest-Bearing Liabilities.
For the Year Ended September 30, 2023 2022 Effective Effective Amount Rate WAM Amount Rate WAM (Dollars in thousands) Beginning balance $ 2,062,500 2.44 % 2.5 $ 1,590,000 1.88 % 3.3 Maturities and repayments (329,672) 2.01 — (177,500) 1.94 — New FHLB borrowings 650,000 4.47 3.2 650,000 3.68 3.7 BTFP, net 500,000 4.70 1.0 — — — Ending balance $ 2,882,828 3.34 1.8 $ 2,062,500 2.44 2.5 38 Maturities of Interest-Bearing Liabilities.
For the Year Ended September 30, 2022 2021 2020 NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans (Dollars in thousands) One- to four-family: Originated $ (129) $ 3,937,188 — % $ 20 $ 3,936,166 — % $ 23 $ 3,916,716 — % Correspondent — 2,072,677 — — 2,010,823 — — 2,348,120 — Bulk purchased — 159,152 — 21 191,029 0.01 (265) 230,720 (0.11) Construction — 48,079 — — 29,893 — — 33,709 — Total (129) 6,217,096 — 41 6,167,911 — (242) 6,529,265 — Commercial: Real estate (101) 692,115 (0.01) 465 637,712 0.07 215 602,482 0.04 Commercial and industrial 40 74,133 0.05 — 75,219 — 24 76,473 0.03 Construction — 117,878 — — 75,771 — — 106,172 — Total (61) 884,126 (0.01) 465 788,702 0.06 239 785,127 0.03 Consumer: Home equity 1 85,514 — (26) 92,495 (0.03) (13) 112,939 (0.01) Other 3 8,030 0.04 (2) 8,782 (0.02) 15 10,395 0.14 Total 4 93,544 — (28) 101,277 (0.03) 2 123,334 — $ (186) $ 7,194,766 — $ 478 $ 7,057,890 0.01 $ (1) $ 7,437,726 — Securities.
For the Year Ended September 30, 2023 2022 2021 NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans NCOs Average Loans % of Average Loans (Dollars in thousands) One- to four-family: Originated $ (6) $ 3,981,468 — % $ (129) $ 3,937,188 — % $ 20 $ 3,936,166 — % Correspondent — 2,428,257 — — 2,072,677 — — 2,010,823 — Bulk purchased — 143,105 — — 159,152 — 21 191,029 0.01 Construction — 65,741 — — 48,079 — — 29,893 — Total (6) 6,618,571 — (129) 6,217,096 — 41 6,167,911 — Commercial: Real estate (1) 875,850 — (101) 692,115 (0.01) 465 637,712 0.07 Commercial and industrial 75 93,840 0.08 40 74,133 0.05 — 75,219 — Construction — 181,141 — — 117,878 — — 75,771 — Total 74 1,150,831 0.01 (61) 884,126 (0.01) 465 788,702 0.06 Consumer: Home equity 21 94,131 0.02 1 85,514 — (26) 92,495 (0.03) Other 17 8,885 0.19 3 8,030 0.04 (2) 8,782 (0.02) Total 38 103,016 0.04 4 93,544 — (28) 101,277 (0.03) $ 106 $ 7,872,418 — $ (186) $ 7,194,766 — $ 478 $ 7,057,890 0.01 Securities.
There was no FHLB stock related to the leverage strategy during the year ended September 30, 2021. (5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.51 billion during the year ended September 30, 2022.
(5) The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $882.8 million and $1.51 billion during the years ended September 30, 2023 and September 30, 2022, respectively.
For the Year Ended September 30, 2022 September 30, 2021 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family $ 926,274 3.41 % 52.5 % $ 1,615,165 2.66 % 71.4 % One- to four-family construction 120,615 3.19 6.8 125,309 2.77 5.5 Commercial: Real estate 50,620 4.08 2.9 28,944 3.85 1.3 Commercial and industrial 23,846 4.14 1.3 49,857 2.45 2.2 Construction 86,023 3.47 4.9 42,505 3.65 1.9 Home equity 6,771 5.76 0.4 3,491 5.42 0.2 Other 3,923 5.66 0.2 2,994 5.48 0.1 Total fixed-rate 1,218,072 3.45 69.0 1,868,265 2.71 82.6 Adjustable-rate: One- to four-family 230,640 3.51 13.0 59,813 2.52 2.6 One- to four-family construction 26,080 3.31 1.5 11,069 2.64 0.5 Commercial: Real estate 137,150 4.21 7.8 120,202 3.70 5.3 Commercial and industrial 32,430 3.87 1.8 18,581 3.97 0.8 Construction 58,080 4.94 3.3 126,155 4.08 5.6 Home equity 62,832 4.97 3.5 55,740 4.42 2.5 Other 1,763 3.03 0.1 1,870 3.34 0.1 Total adjustable-rate 548,975 4.01 31.0 393,430 3.73 17.4 Total originated, refinanced and purchased $ 1,767,047 3.63 100.0 % $ 2,261,695 2.89 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent purchased - one- to four-family $ 452,093 3.35 $ 671,077 2.65 Purchases and participations - commercial 87,365 3.47 40,314 3.66 Total fixed-rate purchased/participations 539,458 3.37 711,391 2.70 Adjustable-rate: Correspondent purchased - one- to four-family 129,216 3.49 18,450 2.45 Purchases and participations - commercial 33,000 4.87 94,400 4.36 Total adjustable-rate purchased/participations 162,216 3.77 112,850 4.05 Total purchased/participation loans $ 701,674 3.46 $ 824,241 2.89 25 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, 2022.
For the Year Ended September 30, 2023 September 30, 2022 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family $ 404,598 5.47 % 25.7 % $ 926,274 3.41 % 52.5 % One- to four-family construction 39,599 5.72 2.5 120,615 3.19 6.8 Commercial: Real estate 43,408 7.48 2.7 50,620 4.08 2.9 Commercial and industrial 40,238 7.81 2.6 23,846 4.14 1.3 Construction 149,046 5.89 9.5 86,023 3.47 4.9 Home equity 6,080 8.20 0.4 6,771 5.76 0.4 Other 4,620 6.93 0.3 3,923 5.66 0.2 Total fixed-rate 687,589 5.87 43.7 1,218,072 3.45 69.0 Adjustable-rate: One- to four-family 342,093 4.97 21.7 230,640 3.51 13.0 One- to four-family construction 28,545 5.22 1.8 26,080 3.31 1.5 Commercial: Real estate 223,910 5.60 14.2 137,150 4.21 7.8 Commercial and industrial 57,295 7.28 3.6 32,430 3.87 1.8 Construction 177,471 6.22 11.3 58,080 4.94 3.3 Home equity 55,896 8.43 3.6 62,832 4.97 3.5 Other 1,635 4.25 0.1 1,763 3.03 0.1 Total adjustable-rate 886,845 5.75 56.3 548,975 4.01 31.0 Total originated, refinanced and purchased $ 1,574,434 5.81 100.0 % $ 1,767,047 3.63 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent purchased - one- to four-family $ 199,858 5.20 $ 452,093 3.35 Participations and purchases - commercial 19,016 9.43 87,365 3.47 Total fixed-rate purchased/participations 218,874 5.57 539,458 3.37 Adjustable-rate: Correspondent purchased - one- to four-family 215,939 4.86 129,216 3.49 Participations and purchases - commercial 209,259 6.36 33,000 4.87 Total adjustable-rate purchased/participations 425,198 5.60 162,216 3.77 Total purchased/participation loans $ 644,072 5.59 $ 701,674 3.46 27 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, 2023.
Total loans, net at September 30, 2022 was $7.46 billion, an increase of $383.1 million from September 30, 2021. The increase was primarily due to growth in the one- to four-family correspondent loan portfolio and commercial real estate and construction loan portfolio, along with a slow down in one- to four-family prepayment speeds due to higher market interest rates.
Total loans, net at September 30, 2023 were $7.97 billion, an increase of $506.7 million from September 30, 2022. The increase was due primarily to growth in the commercial real estate loan portfolio and one- to four-family correspondent loan portfolio.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAmount Yield/Rate WAL % of Category % of Total (Dollars in thousands) Securities $ 1,563,307 1.29 % 4.3 17.0 % Loans receivable: Fixed-rate one- to four-family 5,675,341 3.15 6.7 76.0 % 61.8 Fixed-rate commercial 420,266 4.12 3.8 5.6 4.6 All other fixed-rate loans 82,027 3.56 7.2 1.1 0.9 Total fixed-rate loans 6,177,634 3.22 6.5 82.7 67.3 Adjustable-rate one- to four-family 662,953 2.74 4.2 8.9 7.2 Adjustable-rate commercial 546,078 4.85 7.7 7.3 5.9 All other adjustable-rate loans 85,005 6.05 2.9 1.1 0.9 Total adjustable-rate loans 1,294,036 3.85 5.6 17.3 14.0 Total loans receivable 7,471,670 3.33 6.4 100.0 % 81.3 FHLB stock 100,624 7.72 2.7 1.1 Cash and cash equivalents 49,194 1.75 — 0.6 Total interest-earning assets $ 9,184,795 3.02 5.9 100.0 % Non-maturity deposits $ 3,399,726 0.28 5.9 60.7 % 43.9 % Retail certificates of deposit 2,073,542 1.34 1.4 37.0 26.8 Commercial certificates of deposit 36,275 0.97 0.9 0.6 0.5 Public unit certificates of deposit 93,936 1.61 0.5 1.7 1.2 Total interest-bearing deposits 5,603,479 0.70 4.1 100.0 % 72.4 Term borrowings 2,062,500 2.44 2.5 96.5 % 26.6 Line of credit borrowings 75,000 3.15 — 3.5 1.0 Total borrowings 2,137,500 2.47 2.4 100.0 % 27.6 Total interest-bearing liabilities $ 7,740,979 1.19 3.7 100.0 % 52
Biggest changeAmount Yield/Rate WAL % of Category % of Total (Dollars in thousands) Securities $ 1,384,482 1.35 % 4.2 14.3 % Loans receivable: Fixed-rate one- to four-family 5,605,281 3.29 6.9 70.2 % 57.6 Fixed-rate commercial 456,087 4.44 3.1 5.7 4.7 All other fixed-rate loans 78,005 4.48 7.3 1.0 0.8 Total fixed-rate loans 6,139,373 3.39 6.7 76.9 63.1 Adjustable-rate one- to four-family 916,660 3.73 4.5 11.5 9.4 Adjustable-rate commercial 831,400 5.92 7.6 10.4 8.5 All other adjustable-rate loans 96,948 8.26 3.1 1.2 1.0 Total adjustable-rate loans 1,845,008 4.95 5.8 23.1 18.9 Total loans receivable 7,984,381 3.75 6.5 100.0 % 82.0 FHLB stock 110,714 9.22 2.1 1.2 Cash and cash equivalents 245,605 4.70 — 2.5 Total interest-earning assets $ 9,725,182 3.50 5.9 100.0 % Non-maturity deposits $ 2,762,702 1.06 6.7 50.3 % 33.0 % Retail certificates of deposit 2,533,954 3.47 1.3 46.1 30.2 Commercial certificates of deposit 48,751 3.56 1.0 0.9 0.6 Public unit certificates of deposit 147,487 4.44 0.6 2.7 1.8 Total interest-bearing deposits 5,492,894 2.28 4.0 100.0 % 65.6 Term borrowings 2,882,828 3.34 1.8 34.4 Total interest-bearing liabilities $ 8,375,722 2.65 3.2 100.0 % 54
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.
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 financial 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.
Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis.
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.
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.
As interest rates increase, the WAL would be expected to increase, as well as increasing the sensitivity of these assets in higher rate environments. 52 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 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.
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 51 environments.
As interest rates increase in the rising interest rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets.
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 events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets.
All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2022, 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.
All other securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of September 30, 2023, 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 change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates).
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).
Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets increases the sensitivity of their market value to changes in interest rates.
Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The longer expected average lives of these assets increases the sensitivity of their market value to changes in interest rates.
As interest rates increase, borrowers 51 have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.
As interest rates increase, 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.
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, 2022. Qualitative Disclosure about Market Risk Gap Table.
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, 2023. 49 Qualitative Disclosure about Market Risk Gap Table.
Certain assets, such as adjustable-rate loans, have features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below.
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.
The Bank's net interest income projections are a reflection of the response to interest rates of the assets and liabilities that are expected to mature or reprice over the next year.
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.
If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $4.01 billion, for a cumulative one-year gap of (41.7)% of total assets.
If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.94 billion, for a cumulative one-year gap of (38.7)% of total assets.
A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests in a rising rate environment, that 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.
A positive gap generally means more cash flows from assets are expected to reprice than cash flows from liabilities and suggests in a rising rate environment, that net interest income should increase.
At September 30, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.14) billion, or (11.89)% of total assets, compared to $(664.1) million, or (6.9)% of total assets, at September 30, 2021.
At September 30, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.19) billion, or (11.7)% of total assets, compared to $(1.14) billion, or (11.9)% of total assets, at September 30, 2022.
This was driven primarily by a faster increase in the cost of liabilities during fiscal year 2022 compared to the rate of increase in asset yields.
This was primarily driven by faster increases in the cost of liabilities during fiscal year 2023, compared to the increase in asset yields.
If interest rates were to increase 200 basis points, as of September 30, 2022, the Bank's one-year gap is projected to be $(1.17) billion, or (12.1)% of total assets.
If interest rates were to increase 200 basis points, as of September 30, 2023, the Bank's one-year gap is projected to be $(1.21) billion, or (11.9)% of total assets. This compares to a one-year gap of $(1.17) billion, or (12.1)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2022.
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.
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.
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 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 net interest income projection was lower in the base case scenario at September 30, 2022 compared to September 30, 2021 due to higher interest expense projections on the Bank's liabilities than interest income projections on the Bank's assets as a result of higher interest rates at September 30, 2022.
The net interest income projection was lower in the base case scenario at September 30, 2023 compared to September 30, 2022 due primarily to higher interest expense projections on the Bank's liabilities compared to the increase in the interest income projections on the Bank's assets.
The change in the one-year gap amount was due primarily to a decrease in the amount of assets projected to reprice as higher interest rates resulted in lower prepayment projections on the Bank's mortgage-related assets. 49 The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder.
The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder.
The 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.
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 percentage change in the Bank's MVPE at September 30, 2022 and September 30, 2021 was negative in all rising interest rate scenarios.
The percentage change in the Bank's MVPE at both September 30, 2023 and September 30, 2022 was negative in all rising interest rate scenarios. The Bank's MVPE increased from $895.0 million at September 30, 2022 to $1.02 billion at September 30, 2023.
Change Net Interest Income At September 30, (in Basis Points) 2022 2021 in Interest Rates (1) Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%) (Dollars in thousands) -200 bp $ 182,458 $ (775) (0.4) % N/A N/A N/A -100 bp 183,363 130 0.1 N/A N/A N/A 000 bp 183,233 — — $ 185,285 $ — — % +100 bp 182,737 (496) (0.3) 190,060 4,775 2.6 +200 bp 182,081 (1,152) (0.6) 191,998 6,713 3.6 +300 bp 181,394 (1,839) (1.0) 192,590 7,305 3.9 (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
Change Net Interest Income At September 30, (in Basis Points) 2023 2022 in Interest Rates (1) Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%) (Dollars in thousands) -200 bp $ 126,495 $ (6,963) (5.2) % $ 182,458 $ (775) (0.4) % -100 bp 130,374 (3,084) (2.3) 183,363 130 0.1 000 bp 133,458 — — 183,233 — — +100 bp 136,147 2,689 2.0 182,737 (496) (0.3) +200 bp 138,804 5,346 4.0 182,081 (1,152) (0.6) +300 bp 141,494 8,036 6.0 181,394 (1,839) (1.0) (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
Change Market Value of Portfolio Equity At September 30, (in Basis Points) 2022 2021 in Interest Rates (1) Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%) (Dollars in thousands) -200 bp $ 1,299,340 $ 404,353 45.2 % N/A N/A N/A -100 bp 1,024,167 129,180 14.4 N/A N/A N/A 000 bp 894,987 — — $ 1,451,795 $ — — % +100 bp 759,165 (135,822) (15.2) 1,354,766 (97,029) (6.7) +200 bp 625,864 (269,123) (30.1) 1,170,646 (281,149) (19.4) +300 bp 500,730 (394,257) (44.1) 968,543 (483,252) (33.3) (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
Change Market Value of Portfolio Equity At September 30, (in Basis Points) 2023 2022 in Interest Rates (1) Amount ($) Change ($) Change (%) Amount ($) Change ($) Change (%) (Dollars in thousands) -200 bp $ 1,302,781 $ 283,093 27.8 % $ 1,299,340 $ 404,353 45.2 % -100 bp 1,145,404 125,716 12.3 1,024,167 129,180 14.4 000 bp 1,019,688 — — 894,987 — — +100 bp 888,642 (131,046) (12.9) 759,165 (135,822) (15.2) +200 bp 757,870 (261,818) (25.7) 625,864 (269,123) (30.1) +300 bp 632,716 (386,972) (38.0) 500,730 (394,257) (44.1) (1) Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
In the decreasing interest rate scenarios at September 30, 2022, the Bank's MVPE increased due to a larger increase in the market value of the Bank's assets than the Bank's liabilities.
In the increasing 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 higher duration in these interest rate scenarios which results in greater sensitivity in market value as interest rates change.
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. 53 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, 2023.
For additional 48 information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.
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 net interest income 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.
Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior as market rates change. At September 30, 2021, multiple yields along the yield curve were less than one percent, so the -100 basis points and -200 basis points scenarios were not applicable.
Projected cash flows for each scenario are based upon varying prepayment assumptions to model anticipated customer behavior as market rates change.
Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. At September 30, 2021, multiple yields along the yield curve were less than one percent, so the -100 basis points and -200 basis points scenarios were not applicable.
Projected cash flows for each scenario are based upon varying prepayment assumptions in an effort to model anticipated customer behavior changes as market rates change.
The negative impact to the Bank's MVPE was greater at September 30, 2022 compared to September 30, 2021 due primarily to an increase in the duration of the Bank's mortgage-related assets at September 30, 2022 compared to September 30, 2021. This was a result of higher interest rates at September 30, 2022.
As a result, in each interest rate scenario, there was a greater impact on net interest income at September 30, 2023 compared to September 30, 2022 due to the higher cash balance.
Removed
More Than More Than Within One Year to Three Years Over One Year Three Years to Five Years Five Years Total Interest-earning assets: (Dollars in thousands) Loans receivable (1) $ 1,343,380 $ 1,592,317 $ 1,317,900 $ 3,217,807 $ 7,471,404 Securities (2) 308,433 651,405 408,640 400,012 1,768,490 Other interest-earning assets 27,280 — — — 27,280 Total interest-earning assets 1,679,093 2,243,722 1,726,540 3,617,819 9,267,174 Interest-bearing liabilities: Non-maturity deposits (3) 1,230,019 418,354 361,496 2,085,221 4,095,090 Certificates of deposit 1,186,743 677,678 338,809 523 2,203,753 Borrowings (4) 406,166 1,002,478 635,185 129,438 2,173,267 Total interest-bearing liabilities 2,822,928 2,098,510 1,335,490 2,215,182 8,472,110 Excess (deficiency) of interest-earning assets over interest-bearing liabilities $ (1,143,835) $ 145,212 $ 391,050 $ 1,402,637 $ 795,064 Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $ (1,143,835) $ (998,623) $ (607,573) $ 795,064 Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities as a percent of total Bank assets at: September 30, 2022 (11.9) % (10.4) % (6.3) % 8.3 % September 30, 2021 (6.9) Cumulative one-year gap - interest rates +200 bps at: September 30, 2022 (12.1) September 30, 2021 (13.4) (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.
Added
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.
Removed
The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher interest rate environment.
Added
More Than More Than Within One Year to Three Years Over One Year Three Years to Five Years Five Years Total Interest-earning assets: (Dollars in thousands) Loans receivable (1) $ 1,432,766 $ 1,764,668 $ 1,405,268 $ 3,383,068 $ 7,985,770 Securities (2) 341,362 648,456 195,313 200,861 1,385,992 Other interest-earning assets 213,967 — — — 213,967 Total interest-earning assets 1,988,095 2,413,124 1,600,581 3,583,929 9,585,729 Interest-bearing liabilities: Non-maturity deposits (3) 653,670 407,782 351,235 1,991,741 3,404,428 Certificates of deposit 1,499,018 1,037,730 193,262 182 2,730,192 Borrowings (4) 1,021,214 1,287,580 582,261 26,046 2,917,101 Total interest-bearing liabilities 3,173,902 2,733,092 1,126,758 2,017,969 9,051,721 Excess (deficiency) of interest-earning assets over interest-bearing liabilities $ (1,185,807) $ (319,968) $ 473,823 $ 1,565,960 $ 534,008 Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities $ (1,185,807) $ (1,505,775) $ (1,031,952) $ 534,008 Cumulative excess (deficiency) of interest-earning assets over interest-bearing liabilities as a percent of total Bank assets at: September 30, 2023 (11.7) % (14.8) % (10.1) % 5.3 % September 30, 2022 (11.9) Cumulative one-year gap - interest rates +200 bps at: September 30, 2023 (11.9) September 30, 2022 (12.1) 50 (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.
Removed
This compares to a one-year gap of $(1.29) billion, or (13.4)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2021. Change in Net Interest Income.
Added
The change in the one-year gap amount was due primarily to an increase in the amount of liability cash flows coming due in one year at September 30, 2023 compared to September 30, 2022, partially offset by an increase in the amount of asset cash flows coming due for the same time period.
Removed
In the rising interest rate scenarios, the cost of liabilities is projected to continue to increase at a faster pace than asset yields, resulting in a projected decrease in net 50 interest income in these interest rate scenarios.
Added
This was due primarily to an increase in the amount of certificates of deposit and borrowings scheduled to mature within one year as of September 30, 2023 compared to September 30, 2022.
Removed
This was not the case at September 30, 2021, as interest rates were lower than at September 30, 2022, resulting in more mortgage-related cash flows projected to reprice as interest rates increased.
Added
The increase in the cost of liabilities was due mainly to an increase in the balance and rate of the certificate of deposit portfolio, an increase in the rates paid on money market accounts, and an increase in the balance of higher-costing borrowings during the current year.
Removed
In the decreasing interest rate scenarios at September 30, 2022, the net interest income projection remained relatively flat as the projected increase in mortgage-related assets repricing to lower interest rates was largely offset by liability cash flows repricing to lower interest rates as well. Change in MVPE.
Added
This was partially offset by higher projected income on loans receivable due to a higher balance and yield on the portfolio compared to September 30, 2022. In the rising and declining interest rate scenarios, the variability of net interest income projections has become more significant due to the composition of the balance sheet and the elevated interest rate environment.
Removed
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, 2022. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield.
Added
At September 30, 2023, the Bank's balance of cash and cash equivalents was $245.6 million with an average yield of 4.70% compared to a balance of $49.2 million with an average yield of 1.75% at September 30, 2022.
Added
Additionally, due to compositional changes in the Bank's deposit portfolio between periods (increase in certificates of deposit and decrease in non-maturity deposits), the impact from instantaneous, parallel and permanent changes in the various interest rate scenarios was less pronounced at September 30, 2023.
Added
More generally, however, increases in net interest income in the rising rate scenarios are due to the degree to which loan repayments that are projected to reprice upward are greater than the projected increase in deposit rates in the next 12 months.
Added
In the declining rate scenarios, loan repayments are repriced at rates that do not fully offset the higher cost of liabilities that are expected to reprice in the next 12 months. Change in MVPE. Changes in the estimated market values of our financial assets and liabilities drive changes in estimates of MVPE.
Added
The increase was primarily a result of refinements made during the current year in calculating the estimated fair value of the Bank's balance sheet; specifically, related to the treatment of unrealized gains and losses associated with its AFS securities portfolio.
Added
Previously, at September 30, 2022, net unrealized losses associated with the Bank's AFS securities portfolio were included in both the calculation of the estimated market value of assets and the estimated market value of securities. Unrealized gains and losses associated with the Bank's AFS securities portfolio are now only reflected in the estimated market value of its securities.
Added
The WAL presented for term borrowings includes the effect of interest rate swaps.

Other CFFN 10-K year-over-year comparisons