The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company. 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. Net income for fiscal year 2021 increased$11.5 million , or 17.9% compared to the prior year, due primarily to recording a$22.3 million provision for credit losses during the prior year compared to recording a negative provision for credit losses of$8.5 million in the current year, as a result of improvements in economic conditions between periods. This was partially offset by a decrease in net interest income and an increase in income tax expense. The net interest margin was 1.90% for the current year compared to 2.12% in the prior year. The decrease in the net interest margin was due primarily to a reduction in asset yields due to the low interest rate environment, partially offset by a decrease in the cost of deposits and borrowings. Additionally, cash flows from the one-to four-family loan portfolio not reinvested into loans were used to purchase lower yielding securities, which also decreased the overall asset yield. During the latter portion of the current year, the pace of loan refinance and payoff activity slowed, resulting in lower premium amortization related to correspondent one- to four-family loans compared to earlier in the year, and there was a reduction in the purchases of lower-yielding securities as cash flows from the loan and deposit portfolios slowed, all of which helped stabilize the net interest margin. As discussed above, the Bank experienced high levels of loan refinance and payoff activity for the majority of the current year, before slowing later in the year. This was a trend continued from the last half of the prior year. Additionally, there was significant deposit growth during the latter part of the prior year and the first half of the current year due to a reduction in customer spending and high levels of government assistance. The loan portfolio decreased$121.7 million , or 1.7%, during the current year, primarily in the correspondent one-to four-family loan portfolio, while the securities portfolio increased$453.7 million , or 29.1%. Deposit growth during the current year was used to pay down certain maturing advances and purchase securities. The deposit portfolio increased$406.0 million , or 6.6%, during the current year, while borrowings decreased$206.5 million , or 11.5%. The deposit growth was primarily in non-maturity deposit accounts, partially offset by a decrease in retail certificates of deposit as customers moved some of the funds from maturing certificates into more liquid investment options such as the Bank's retail money market accounts. There is some uncertainty regarding how long the increased balance of non-maturity deposits will be retained by the Bank as customers return to more normal spending habits and/or choose to invest in higher-yielding investment options outside of the Bank. The Bank may be required to replace deposit outflows with higher costing borrowings, which would increase the cost of funds over time. The Bank's asset quality continued to remain strong during the current fiscal year, reflected in low delinquency and charge-off ratios. AtSeptember 30, 2021 , loans 30 to 89 days delinquent were 0.11% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.16% of total loans receivable, net. The ratio of net charge-offs (recoveries) ("NCOs") during the current year to average loans outstanding during the current year was 0.01%. InMarch 2020 , the Bank initiated loan modification programs to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 modifications"). As ofSeptember 30, 2021 ,$2.7 million of one- to four-family loans and$146.4 million of commercial loans with COVID-19 modifications were still in their deferral period, compared to$39.8 million and$367.4 million , respectively, as ofSeptember 30, 2020 . We have observed very low delinquency rates for loans that were previously subject to COVID-19 modifications and have since resumed full payments. Additionally, inMarch 2020 , the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans, and this suspension remained in place atSeptember 30, 2021 . Approximately 75% of non-performing one- to four family loans atSeptember 30, 2021 either had foreclosure proceedings initiated prior to the foreclosure suspension or would have had foreclosure proceedings initiated if the suspension were not in place. 18 -------------------------------------------------------------------------------- AtSeptember 30, 2021 , the Bank had a one-year gap position of$(664.1) million , or (6.9)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period. Despite the negative gap, net interest income is projected to increase in a rising interest rate environment due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the interest rate change. This assumption is based on a historical analysis of the Bank's deposit pricing behavior. See additional discussion in "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk." Critical Accounting Estimates Our most critical accounting estimates are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements. These estimates are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and require management to make difficult and subjective judgments that may require assumptions about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application. Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures. The ACL is a valuation amount that is deducted from the amortized cost basis of loans and represents management's estimate of lifetime credit losses expected on the Company's loan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Management estimates the ACL by projecting future loss rates which are dependent upon forecasted economic indices and applying qualitative factors when deemed appropriate by management. The key assumptions used in projecting future loss rates include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. The assumptions are used to calculate and aggregate estimated cash flows for the time period that remains in each loan's contractual life. The cash flows are discounted back to the balance sheet date using each loan's effective yield, to arrive at a present value of future cash flows, which is compared to the amortized cost basis of the loan pool to determine the amount of ACL required by the calculation. Management then considers qualitative factors when accessing the overall level of ACL. See "Allowance for Credit Losses on Loans Receivable" and "Reserve for Off-Balance Sheet Credit Exposures" within "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 1. Summary of Significant Accounting Policies" for additional information. One of the most significant judgments used in projecting loss rates when estimating the ACL and reserves for off-balance sheet credit exposures is the macro-economic forecast provided by a third party. The economic indices sourced from the macro-economic forecast and used in projecting loss rates are national unemployment rate, changes in commercial real estate prices, changes in home values, and changes inthe United States gross domestic product. The economic index used in the calculation to which the calculation is most sensitive is the national unemployment rate. Each reporting period, several 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. 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 much less sensitive to these assumptions than the macro-economic forecasts. 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 atSeptember 30, 2021 was four quarters. Prepayment and curtailment assumptions are based on the Company's historical experience over the trailing 12 months and are adjusted by management as deemed necessary. The prepayment and curtailment assumptions vary based on loan product type. 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 lifetime credit loss calculation, but which are deemed appropriate by management's current assessment of the risks related to the loan portfolio and/or external factors. Such qualitative factors may include changes in the Bank's loan portfolio composition and credit concentrations, changes in the balances and/or trends in asset quality and/or loan credit performance, changes in lending underwriting standards, the effect 19 -------------------------------------------------------------------------------- of other external factors such as significant unique events or conditions, and actual and/or expected change in economic conditions, real estate values, and/or other economic developments. The qualitative factors applied by management atSeptember 30, 2021 were (1) the balance and trending of large-dollar special mention loans, (2) economic uncertainties related to the job market and the unevenness of the recovery in certain industries, and (3) COVID-19 loan modifications related to commercial real estate loans. The qualitative factors applied atSeptember 30, 2021 , and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 4. Loans Receivable and Allowance for Credit Losses - Allowance for Credit Losses" for additional information regarding the qualitative factors applied atSeptember 30, 2021 . The ACL and the reserves for off balance sheet credit exposures was$19.8 million and$5.7 million , respectively atSeptember 30, 2021 , compared to$26.8 million and$7.8 million , respectively, atOctober 1, 2020 , which was the date we adopted Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The$7.0 million decrease in the ACL and$2.0 million decrease in the reserves for off-balance sheet credit exposures was primarily attributable to the improved economic conditions between time periods, specifically in the national unemployment rate. The average national unemployment rate during the four-quarter macro-economic forecast selected by management as ofOctober 1, 2020 was 10.8%, compared to 3.8% during the four-quarter macro-economic forecast selected atSeptember 30, 2021 . 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'sSeptember 30, 2021 estimate of ACL. While management utilizes its best judgment and information available, the adequacy of the ACL and reserve for off-balance sheet credit exposures is determined by certain factors outside of the Company's control, such as the performance of our 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. 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. If actual results differ significantly from our assumptions, our ACL and reserve for off-balance sheet credit exposures may not be sufficient to cover inherent losses in our loan portfolio, resulting in additions to our ACL and an increase in the provision for credit losses. Fair Value Measurements. The Company uses fair value measurements to record fair value adjustments to certain financial instruments and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 820 and ASC 825. The Company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value, with Level 1 (quoted prices for identical assets in an active market) being considered the most reliable, and Level 3 having the most unobservable inputs and therefore being considered the least reliable. The Company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The Company's AFS securities are measured at fair value on a recurring basis. Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity. The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities. 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. The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. 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 atSeptember 30, 2021 . 20 -------------------------------------------------------------------------------- Recent Accounting Pronouncements For a discussion of Recent Accounting Pronouncements, see "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Financial Statements - Note 1. Summary of Significant Accounting Policies."
Financial condition
The following table summarizes the Company's financial condition at the dates
indicated.
September 30, Change expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
Total assets $ 9,631,246 $ 9,487,218 $ 144,028 1.5 %
AFS securities 2,014,608 1,560,950 453,658 29.1
Loans receivable, net 7,081,142 7,202,851 (121,709) (1.7)
Deposits 6,597,396 6,191,408 405,988 6.6
Borrowings 1,582,850 1,789,313 (206,463) (11.5)
Stockholders' equity 1,242,273 1,284,859 (42,586) (3.3)
Equity to total assets at end
of period 12.9 % 13.5 %
Average number of basic shares
outstanding 135,481 137,897 (2,416) (1.8)
Average number of diluted
shares outstanding 135,496 137,901 (2,405) (1.7)
Assets. Total assets increased primarily due to an increase in the securities portfolio, partially offset by decreases in cash and cash equivalents and loans receivable. The cash flows from the deposit portfolio were used to purchase securities and repay certain maturing borrowings.
Ready to receive. The issuance and purchase of loans secured by residential properties of one to four families is the primary lending activity of the Bank, resulting in a concentration in senior residential mortgages secured by properties located in
The Bank purchases one- to four-family loans, on a loan-by-loan basis, from a
select group of correspondent lenders ("correspondent purchased"). Loan
purchases enable the Bank to attain geographic diversification in the one- to
four-family loan portfolio. 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. If a loan pays
off before the scheduled maturity date, the remaining premium is recognized as
reduction in interest income. During the current fiscal year, the Bank
recognized a significant amount of premium amortization due to payoffs and
endorsements.
In the past, the Bank has also purchased one- to four-family loans from
correspondent and nationwide lenders in bulk loan packages ("bulk purchased").
The majority of the Bank's bulk purchased loans were guaranteed by one seller.
The Bank has not experienced any losses with this group of loans since the loan
package was purchased in August 2012 .
The Bank originates owner-occupied construction-to-permanent loans secured by
one- to four-family residential real estate. The majority of these loans are
secured by property located within the Bank's Kansas City market area. The
Bank's owner-occupied construction-to-permanent loan program combines the
construction loan and the permanent loan into one loan, allowing the borrower to
secure the same interest rate structure throughout the construction period and
the permanent loan term.
The Bank offers a variety of secured consumer loans, including home equity loans
and lines of credit, home improvement loans, vehicle loans, and loans secured by
savings deposits. The Bank also originates a very limited amount of unsecured
loans. Generally, consumer loans are originated in the Bank's market areas. The
majority of our consumer loan portfolio is comprised of home equity lines of
credit which have adjustable interest rates. For a majority of the home equity
lines of credit, the Bank has the first mortgage or the Bank is in the first
lien position.
21
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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 12 other states. The Bank's
commercial and industrial loan portfolio consists largely of loans secured by
accounts receivable, inventory and equipment.
Commercial borrowers are generally required to provide financial information
annually, including borrower financial statements, subject property rental rates
and income, maintenance costs, updated real estate property tax and insurance
payments, and personal financial information for the guarantor(s). This allows
the Bank to monitor compliance with loan covenants and review the borrower's
performance, including cash flows from operations, debt service coverage, and
comparison of performance to projections and year-over-year performance
trending. Additionally, the Bank monitors and performs site visits, or in the
case of participation loans, obtains updates from the lead bank as needed to
determine the condition of the collateral securing the loan. Depending on the
financial strength of the project and/or the complexity of the borrower's
financials, the Bank may also perform a global analysis of cash flows to account
for all other properties owned by the borrower or guarantor. If signs of
weakness are identified, the Bank may begin performing more frequent financial
and/or collateral reviews or will initiate contact with the borrower, or the
lead bank will contact the borrower if the loan is a participation loan, to
ensure cash flows from operations are maintained at a satisfactory level to meet
the debt requirements. Both macro-level and loan-level stress-test scenarios
based on existing and forecasted market conditions are part of the on-going
portfolio management process for the commercial real estate portfolio. The Bank
mitigates the risk of commercial real estate construction lending during the
construction period by monitoring inspection reports from an independent
third-party, project budget, percentage of completion, on-site inspections and
percentage of advanced funds. Commercial and industrial loans are monitored
through a review of borrower performance as indicated by borrower financial
statements, borrowing base reports, accounts receivable aging reports, and
inventory aging reports. These reports are required to be provided by the
borrowers monthly, quarterly, or annually depending on the nature of the
borrowing relationship. The Bank regularly monitors the level of risk in the
entire commercial loan portfolio, including concentrations in such factors as
geographic locations, collateral types, tenant brand name, borrowing
relationships, and lending relationships in the case of participation loans,
among other factors.
22
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The following table shows the balance and the weighted average rate of our loan portfolio on the dates indicated.
September 30, 2021 September 30, 2020
Amount Rate Amount Rate
(Dollars in thousands)
One- to four-family:
Originated $ 3,956,064 3.18 % $ 3,937,310 3.50 %
Correspondent purchased 2,003,477 3.02 2,101,082 3.49
Bulk purchased 173,662 1.65 208,427 2.41
Construction 39,142 2.82 34,593 3.30
Total 6,172,345 3.09 6,281,412 3.46
Commercial:
Commercial real estate 676,908 4.00 626,588 4.29
Commercial and industrial 66,497 3.83 97,614 2.79
Construction 85,963 4.03 105,458 4.04
Total 829,368 3.99 829,660 4.08
Consumer loans:
Home equity 86,274 4.60 103,838 4.66
Other 8,086 4.19 10,086 4.40
Total 94,360 4.57 113,924 4.64
Total loans receivable 7,096,073 3.21 7,224,996 3.55
Less:
ACL 19,823 31,527
Discounts/unearned loan fees 29,556 29,190
Premiums/deferred costs (34,448) (38,572)
Total loans receivable, net $ 7,081,142 $ 7,202,851
23
-------------------------------------------------------------------------------- The following table presents the contractual maturity of our loan portfolio, along with associated weighted average yields, atSeptember 30, 2021 . Loans which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. Over one year
at five
One year or less(1) years Over five years to 15 years Over 15 years Total
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in thousands)
One- to four-family: Originated$ 845 4.17 %$ 63,633 3.81 %$ 1,438,945 2.93 %$ 2,452,641 3.39 %$ 3,956,064 3.23 % Correspondent purchased 79 3.63 4,515 3.16 508,895 2.49 1,489,988 3.05 2,003,477 2.91 Bulk purchased 6 5.88 313 4.39 34,651 2.10 138,692 1.42 173,662 1.56 Construction(2) - - - - 2,568 2.71 36,574 2.83 39,142 2.82 Total 930 4.13 68,461 3.77 1,985,059 2.80 4,117,895 3.20 6,172,345 3.08 Commercial: Commercial real estate 117,713 3.75 142,047 4.46 329,868 4.25 87,280 4.08 676,908 4.18 Commercial and industrial 17,626 4.17 34,216 4.00 9,615 4.59 5,040 4.17 66,497 4.14 Construction(2) 6,369 4.05 38,260 3.87 15,706 3.78 25,628 4.57 85,963 4.07 Total 141,708 3.81 214,523 4.28 355,189 4.24 117,948 4.19 829,368 4.17 Consumer: Home equity(3) 1,672 4.83 2,071 5.74 44,874 4.51 37,657 4.57 86,274 4.57 Other 868 3.02 6,770 4.30 448 6.64 - - 8,086 4.29 Total 2,540 4.21 8,841 4.64 45,322 4.53 37,657 4.57 94,360 4.55 Total loans receivable$ 145,178 3.82$ 291,825 4.17$ 2,385,570 3.05$ 4,273,500 3.24 7,096,073 3.23 Less: ACL 19,823 Discounts/unearned loan fees 29,556 Premiums/deferred costs (34,448) Total loans receivable, net$ 7,081,142 (1)Includes demand loans, loans having no stated maturity, and overdraft loans. (2)Construction loans are presented based upon the contractual maturity date, which includes the permanent financing period for construction-to-permanent loans. (3)For home equity loans, including those that do not have a stated maturity date, the maturity date calculated assumes the borrower always makes the required minimum payment. The majority of home equity loans assume a maximum term of 240 months. 24
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The following table presents, as ofSeptember 30, 2021 , the amount of loans due afterSeptember 30, 2022 , and whether these loans have fixed or adjustable interest rates. Fixed Adjustable Total (Dollars in thousands) One- to four-family: Originated$ 3,709,020 $ 246,199 $ 3,955,219 Correspondent purchased 1,838,138 165,260 2,003,398 Bulk purchased 5,477 168,179 173,656 Construction 36,492 2,650 39,142 Total 5,589,127 582,288 6,171,415 Commercial: Commercial real estate 304,031 255,164 559,195 Commercial and industrial 35,197 13,674 48,871 Construction 37,956 41,638 79,594 Total 377,184 310,476 687,660 Consumer: Home equity 11,518$ 73,084 84,602 Other 5,262 1,956 7,218 Total 16,780 75,040 91,820 Total loans receivable$ 5,983,091 $ 967,804 $ 6,950,895 Loan Activity - The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate. For the Year Ended September 30, 2021 September 30, 2020 Amount Rate Amount Rate (Dollars in thousands) Beginning balance$ 7,224,996 3.55 %$ 7,412,473 3.81 % Originated and refinanced 1,437,454 2.89 1,166,235 3.30 Purchased and participations 824,241 2.89 541,596 3.44 Change in undisbursed loan funds (174,416) (3,998) Repayments (2,215,585)
(1,890,975)
Principal recoveries/(charge-offs), net (478) 1 Other (139) (336) Ending balance$ 7,096,073 3.21$ 7,224,996 3.55 25
-------------------------------------------------------------------------------- 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. During the current fiscal year, the Bank endorsed$765.5 million of one- to four-family loans, reducing the average rate on those loans by 92 basis points. Commercial loan renewals are not included in the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together. For the Year Ended September 30, 2021 September 30, 2020 Amount Rate % of Total Amount Rate % of Total (Dollars in thousands) Fixed-rate: One- to four-family$ 1,615,165 2.66 % 71.4 %$ 1,189,835 3.21 % 69.6 % One- to four-family construction 125,309 2.77 5.5 44,754 3.28 2.6 Commercial: Real estate 28,944 3.85 1.3 44,005 4.17 2.7 Commercial and industrial 49,857 2.45 2.2 65,174 1.92 3.8 Construction 42,505 3.65 1.9 39,346 4.71 2.3 Home equity 3,491 5.42 0.2 4,493 5.83 0.3 Other 2,994 5.48 0.1 4,209 5.67 0.2 Total fixed-rate 1,868,265 2.71 82.6 1,391,816 3.24 81.5 Adjustable-rate: One- to four-family 59,813 2.52 2.6 131,665 2.94 7.7 One- to four-family construction 11,069 2.64 0.5 12,984 2.97 0.8 Commercial: Real estate 120,202 3.70 5.3 50,697 4.56 3.0 Commercial and industrial 18,581 3.97 0.8 6,360 4.72 0.4 Construction 126,155 4.08 5.6 53,563 4.06 3.1 Home equity 55,740 4.42 2.5 58,709 4.95 3.4 Other 1,870 3.34 0.1 2,037 3.86 0.1 Total adjustable-rate 393,430 3.73 17.4 316,015 3.81 18.5 Total originated, refinanced and purchased$ 2,261,695 2.89 100.0 %$ 1,707,831 3.35 100.0 % Purchased and participation loans included above: Fixed-rate: Correspondent purchased - one- to four-family$ 671,077 2.65$ 395,778 3.34 Participations - commercial 40,314 3.66 46,126 4.29 Total fixed-rate purchased/participations 711,391 2.70 441,904 3.44 Adjustable-rate: Correspondent purchased - one- to four-family 18,450 2.45 52,192 2.94 Participations - commercial 94,400 4.36 47,500 4.04 Total adjustable-rate purchased/participations 112,850 4.05 99,692 3.47 Total purchased/participation loans$ 824,241 2.89$ 541,596 3.44 26
-------------------------------------------------------------------------------- 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 ofSeptember 30, 2021 . Credit scores are updated at least annually, with the latest update inSeptember 2021 , from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination. % of Credit Average Amount Total Rate Score LTV Balance (Dollars in thousands) Originated$ 3,956,064 64.5 % 3.18 % 771 61 %$ 152 Correspondent purchased 2,003,477 32.7 3.02 765 64 407 Bulk purchased 173,662 2.8 1.65 771 58 294$ 6,133,203 100.0 % 3.09 769 62 194 The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the current fiscal year. Credit Amount Rate LTV Score (Dollars in thousands) Originated$ 1,121,829 2.68 % 70 % 767 Correspondent purchased 689,527 2.64 69 772$ 1,811,356 2.66 70 769 The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as ofSeptember 30, 2021 , along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs. Amount Rate (Dollars in thousands) Originate/refinance $ 87,117 2.78 % Correspondent 95,395 2.54$ 182,512 2.65 Commercial Loans - During fiscal year 2021, the Bank originated$251.5 million of commercial loans, including$22.8 million of Paycheck Protection Program ("PPP") loans, and entered into commercial loan participations totaling$134.7 million . The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately$270.0 million at a weighted average rate of 3.59%. Additionally, during the current fiscal year,$63.5 million of PPP loans were paid off, primarily by theU.S. Small Business Administration (SBA) following completion of the loan forgiveness process. 27 -------------------------------------------------------------------------------- The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as ofSeptember 30, 2021 . Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects. Unpaid Undisbursed Gross Loan Outstanding % of Count Principal Amount Amount Commitments Total Total (Dollars in thousands) Senior housing 34$ 229,082 $ 36,202 $ 265,284 $ 30,500 $ 295,784 27.8 % Retail building 135 158,834 49,705 208,539 11,622 220,161 20.7 Hotel 10 137,301 57,364 194,665 - 194,665 18.3 Office building 92 49,608 60,379 109,987 - 109,987 10.3 One- to four-family property 385 61,717 7,457 69,174 1,453 70,627 6.6 Single use building 25 42,155 4,873 47,028 21,300 68,328 6.4 Multi-family 38 53,173 13,026 66,199 690 66,889 6.3 Other 101 31,001 5,166 36,167 1,502 37,669 3.6 820$ 762,871 $ 234,172 $ 997,043 $ 67,067 $ 1,064,110 100.0 % Weighted average rate 4.00 % 4.03 % 4.01 % 3.73 % 3.99 %
The following table summarizes the Bank’s commercial real estate and commercial construction loans and loan commitments by state in
Unpaid Undisbursed Gross Loan Outstanding % of
Count Principal Amount Amount Commitments Total Total
(Dollars in thousands)
Kansas 636 $ 327,419 $ 21,416 $ 348,835 $ 44,302 $ 393,137 36.9 %
Texas 11 135,644 137,480 273,124 - 273,124 25.7
Missouri 146 205,989 26,052 232,041 21,265 253,306 23.8
Colorado 7 16,087 20,012 36,099 - 36,099 3.4
Arkansas 3 12,143 21,620 33,763 - 33,763 3.2
Nebraska 6 33,464 4 33,468 - 33,468 3.1
Other 11 32,125 7,588 39,713 1,500 41,213 3.9
820 $ 762,871 $ 234,172 $ 997,043 $ 67,067 $ 1,064,110 100.0 %
The following table presents the Bank's commercial loan portfolio and
outstanding loan commitments, categorized by gross loan amount (unpaid principal
plus undisbursed amounts) or outstanding loan commitment amount, as of
September 30, 2021 .
Count Amount
(Dollars in thousands)
Greater than $30 million 4 $ 180,500
>$15 to $30 million 16 363,129
>$10 to $15 million 7 85,141
>$5 to $10 million 15 96,776
$1 to $5 million 111 251,794
Less than $1 million 1,324 194,423
1,477 $ 1,171,763
28
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Asset quality
Delinquent and nonaccrual loans and other real estate owned ("OREO"). The
following table presents the Company's 30 to 89 day delinquent loans at the
dates indicated. Loans subject to payment forbearance under the Bank's COVID-19
loan modification program are not reported as delinquent during the forbearance
time period. 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, 2021 and 2020, approximately 61% and 70%,
respectively, were 59 days or less delinquent.
Loans Delinquent for 30 to 89 Days at September 30,
2021 2020
Number Amount Number Amount
(Dollars in thousands)
One- to four-family:
Originated 48 $ 4,156 42 $ 3,012
Correspondent purchased 7 2,590 8 3,123
Bulk purchased 4 541 12 2,532
Commercial 2 37 2 45
Consumer 25 498 26 398
86 $ 7,822 90 $ 9,110
Loans 30 to 89 days delinquent
to total loans receivable, net 0.11 % 0.13 %
29
-------------------------------------------------------------------------------- The following table presents the Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO. OREO primarily includes assets acquired in settlement of loans. In lateMarch 2020 , the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans. AtSeptember 30, 2021 , there were$7.4 million of nonaccrual one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place. September 30, 2021 2020 Number Amount Number Amount (Dollars in thousands) Loans 90 or More Days Delinquent or in Foreclosure: One- to four-family: Originated 50$ 3,693 51$ 4,362 Correspondent purchased 10 3,210 6 2,397 Bulk purchased 9 2,974 12 2,903 Commercial 6 1,214 5 1,360 Consumer 21 498 14 304 96 11,589 88 11,326
Loans 90 days or more past due or foreclosed
as a percentage of total loans 0.16 % 0.16 % Nonaccrual loans less than 90 Days Delinquent:(1) One- to four-family: Originated 7$ 1,288 9$ 691 Correspondent purchased - - - - Bulk purchased 1 131 - - Commercial 4 419 3 464 Consumer 1 9 1 9 13 1,847 13 1,164 Total nonaccrual loans 109 13,436 101 12,490 Nonaccrual loans as a percentage of total loans 0.19 % 0.17 % OREO: One- to four-family: Originated(2) 3$ 170 4$ 183 Total non-performing assets 112$ 13,606 105$ 12,673 Non-performing assets as a percentage of total assets 0.14 % 0.13 % (1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. (2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property. Of the one- to four-family COVID-19 loan modifications that had completed the deferral period bySeptember 30, 2021 ,$2.2 million were 30 to 89 days delinquent and$2.8 million were 90 or more days delinquent as ofSeptember 30, 2021 . Of the commercial COVID-19 loan modifications that had completed the deferral period bySeptember 30, 2021 ,$3 thousand were 30 to 89 days delinquent and none were 90 or more days delinquent as ofSeptember 30, 2021 . 30 -------------------------------------------------------------------------------- The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average LTV ratios for loans 90 or more days delinquent or in foreclosure atSeptember 30, 2021 . The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. AtSeptember 30, 2021 , potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off. Loans 30 to 89 Loans 90 or More Days Delinquent One- to Four-Family Days Delinquent or in Foreclosure State Amount % of Total Amount % of Total Amount % of Total LTV (Dollars in thousands) Kansas$ 3,516,327 57.3 %$ 3,900 53.5 %$ 3,511 35.6 % 57 % Missouri 1,042,467 17.0 1,316 18.1 1,442 14.6 56 Texas 597,161 9.8 - - 1,929 19.5 41 Other states 977,248 15.9 2,071 28.4 2,995 30.3 56$ 6,133,203 100.0 %$ 7,287 100.0 %$ 9,877 100.0 % 53 Classified Assets. In accordance with the Bank's asset classification policy, management regularly reviews the problem assets in the Bank's portfolio to determine whether any assets require classification. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 4. Loans Receivable and Allowance for Credit Losses" for asset classification definitions. The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. The increase in commercial special mention loans atSeptember 30, 2021 compared toSeptember 30, 2020 was due mainly to the addition of two commercial loans for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. Subsequent toSeptember 30, 2021 , the underlying economic considerations being monitored for these two loans returned to levels deemed appropriate by the Company, and the loans were removed from special mention, resulting in a$49.4 million reduction in the balance of special mention loans. The special mention ACL associated with these two loans atSeptember 30, 2021 was approximately$2.2 million . September 30, 2021
Special Mention Substandard Special Mention Substandard
(Dollars in thousands)
One- to four-family $ 14,332 $ 23,458 $ 11,339 $ 25,630
Commercial 99,729 3,259 52,006 4,914
Consumer 135 718 332 589
$ 114,196 $ 27,435 $ 63,677 $ 31,133
31
-------------------------------------------------------------------------------- Allowance for Credit Losses. The distribution of our ACL at the dates indicated is summarized below. The Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments onOctober 1, 2020 . The ASU, as amended, replaces the incurred loss methodology in accounting principles generally accepted inthe United States of America ("GAAP"), which required credit losses to be recognized when it is probable that a loss has been incurred, with an expected credit loss methodology, which is commonly known as the current expected credit loss ("CECL") methodology. Information as ofOctober 1, 2020 is included in the tables below for comparability purposes. September 30, 2021 October 1, 2020 September 30, 2020 % of % of % of Amount Loans to Amount Loans to Amount Loans to of ACL Total Loans of ACL Total Loans of ACL Total Loans (Dollars in thousands) One- to four-family: Originated$ 1,590 55.8 %$ 1,609 54.5 %$ 6,044 54.5 % Correspondent purchased 2,062 28.2 2,324 29.1 2,691 29.1 Bulk purchased 304 2.4 903 2.9 467 2.9 Construction 22 0.6 25 0.5 41 0.5 Total 3,978 87.0 4,861 87.0 9,243 87.0 Commercial: Real estate 13,706 9.6 16,595 8.6 16,869 8.6 Commercial and industrial 344 0.9 559 1.4 1,451 1.4 Construction 1,602 1.2 4,452 1.5 3,480 1.5 Total 15,652 11.7 21,606 11.5 21,800 11.5 Consumer loans: Home equity 126 1.2 81 1.4 370 1.4 Other consumer 67 0.1 218 0.1 114 0.1 Total consumer loans 193 1.3 299 1.5 484 1.5$ 19,823 100.0 %$ 26,766 100.0 %$ 31,527 100.0 % The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. September 30, October 1, September 30, 2021 2020 2020 One- to four-family: Originated 0.04 % 0.04 % 0.15 % Correspondent purchased 0.10 0.11 0.13 Bulk purchased 0.18 0.43 0.22 Construction 0.06 0.07 0.12 Total 0.06 0.08 0.15 Commercial: Commercial real estate 2.02 2.65 2.69 Commercial and industrial 0.52 0.57 1.49 Construction 1.86 4.22 3.30 Total 1.89 2.60 2.63 Consumer 0.20 0.26 0.42 Total 0.28 0.37 0.44 See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 1. Summary of Significant Accounting Policies and Note 4. Loans Receivable and Allowance for Credit Losses" for additional information regarding the Bank's ACL. 32 -------------------------------------------------------------------------------- The following tables present ACL activity and related ratios at the dates and for the periods indicated. The current year NCOs were primarily in the commercial loan portfolio. The ratio of NCOs during the current year to average non-performing assets was higher than the prior year due to higher NCOs in the current year compared to a net recovery in the prior year. The ACL to nonaccrual loans at end of period ratio and ACL to loans receivable, net at end of period ratio were lower in the current year compared to the prior year due primarily to a lower ACL balance atSeptember 30, 2021 . As discussed above, onOctober 1, 2020 , the Company adopted CECL, which is a different credit loss estimate methodology than the methodology applicable atSeptember 30, 2020 . Year Ended September 30, 2021 2020 2019 (Dollars in thousands) Balance at beginning of period$ 31,527 $ 9,226 $ 8,463 Adoption of CECL (4,761) - - Charge-offs (715) (443) (262) Recoveries 237 444 275 Net (charge-offs) recoveries (478) 1 13 Provision for credit losses (6,465) 22,300 750 Balance at end of period$ 19,823 $ 31,527 $ 9,226 Ratio of NCOs during the period to average non-performing assets 3.63 % (0.01) %
(0.12)%
ACL on loans not accrued at the end of the period 147.54 252.42
121.99
ACL to loans receivable, net at end of period 0.28 0.44 0.12 ACL to NCOs 41.5x N/M(1) N/M(1)
(1) This ratio is not presented for the periods shown due to loan recoveries exceeding loan write-offs during the periods.
33
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The following table shows NCOs, Average Loans, and NCOs as a Percentage of Average Loans, by Loan Type, for the periods shown.
Year Ended September 30,
2021 2020 2019
NCOs as a NCOs as a NCOs as a
% of % of % of
Average Average Average
NCOs Average Loans Loans NCOs Average Loans Loans NCOs Average Loans Loans
(Dollars in thousands)
One- to four-family:
Originated $ 20 $ 3,936,166 0.00 % $ 23 $ 3,916,716 0.00 % $ 53 $ 3,892,585 0.00 %
Correspondent - 2,010,823 0.00 - 2,348,120 0.00 - 2,487,560 0.00
Bulk purchased 21 191,029 0.01 (265) 230,720 (0.11) (80) 274,289 (0.03)
Construction - 29,893 0.00 - 33,709 0.00 - 27,007 0.00
Total 41 6,167,911 0.00 (242) 6,529,265 0.00 (27) 6,681,441 0.00
Commercial:
Real estate 465 637,712 0.07 215 602,482 0.04 (22) 535,151 0.00
Commercial and industrial - 75,219 0.00 24 76,473 0.03 122 61,044 0.20
Construction - 75,771 0.00 - 106,172 0.00 (25) 105,576 (0.02)
Total 465 788,702 0.06 239 785,127 0.03 75 701,771 0.01
Consumer:
Home equity (26) 92,495 (0.03) (13) 112,939 (0.01) (52) 125,164 (0.04)
Other (2) 8,782 (0.02) 15 10,395 0.14 (9) 10,519 (0.09)
Total (28) 101,277 (0.03) 2 123,334 0.00 (61) 135,683 (0.04)
$ 478 $ 7,057,890 0.01 $ (1) $ 7,437,726 0.00 $ (13) $ 7,518,895 0.00
34
-------------------------------------------------------------------------------- Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 94% of our securities portfolio atSeptember 30, 2021 . During the current fiscal year purchases exceeded maturities and repayments, resulting in a$453.7 million increase in the balance. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings. The portfolio weighted average yield decreased due to purchases of securities at yields lower than the existing portfolio due to the low interest rate environment during the current year. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.September 30, 2021
Amount Yield WAL(1) Amount Yield WAL(1)
(Dollars in
thousands)
Fixed-rate securities: MBS$ 1,363,645 1.30 % 3.5 $ 945,432 1.82 % 3.7U.S. government-sponsored enterprises ("GSE") debentures 519,971 0.61 3.7 369,967 0.62 1.7 Municipal bonds 4,274 1.81 0.3 9,716 1.69 0.7 Total fixed-rate securities 1,887,890 1.11 3.6 1,325,115 1.49 3.1 Adjustable-rate securities: MBS 120,566 1.99 3.2 204,490 2.49 2.9 Total securities portfolio$ 2,008,456 1.16 3.5$ 1,529,605 1.62 3.1 (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. The composition and maturities of the investment and MBS portfolio atSeptember 30, 2021 are indicated in the following table by remaining contractual maturity, without consideration of call features or pre-refunding dates, along with associated weighted average yields. The weighted average yields were calculated by multiplying each carrying value by its yield and dividing the sum of these results by the total carrying values. Yields on tax-exempt investments are not calculated on a fully tax equivalent basis. 1 year or less More than 1 to 5 years More than 5 to 10 years Over 10 yearsTotal Securities Carrying Carrying Carrying Carrying Carrying Value Yield Value Yield Value Yield Value Yield Value Yield (Dollars in thousands)
MBS $ 325 2.87 %$ 58,838 2.48 %$ 277,200 1.65 %$ 1,157,630 1.23 %$ 1,493,993 1.35 % GSE debentures - - 491,475 0.59 24,851 1.00 - - 516,326 0.61 Municipal bonds 4,079 1.80 210 2.00 - - - - 4,289 1.81$ 4,404 1.87$ 550,523 0.79$ 302,051 1.60$ 1,157,630 1.23$ 2,014,608 1.16 35
--------------------------------------------------------------------------------
The following table summarizes the activity in our securities portfolio for the
periods presented. The weighted average yields and WALs for purchases are
presented as recorded at the time of purchase. The weighted average yields for
the beginning balances are as of the last day of the period previous to the
period presented and the weighted average yields for the ending balances are as
of the last day of the period presented and are generally derived from recent
prepayment activity on the securities in the portfolio as of the dates
presented. The beginning and ending WALs are the estimated remaining principal
repayment terms (in years) after three-month historical prepayment speeds have
been applied.
For the Year Ended
September 30, 2021 September 30, 2020
Amount Yield WAL Amount Yield WAL
(Dollars in thousands)
Beginning balance -
carrying value $ 1,560,950 1.63 % 3.1 $ 1,204,863 2.55 % 2.9
Maturities and
repayments (594,294) (667,952)
Net amortization of
(premiums)/discounts (6,206) (1,661)
Purchases 1,079,351 1.01 5.0 1,007,763 1.11 3.9
Change in valuation on
AFS securities (25,193) 17,937
Ending balance -
carrying value $ 2,014,608 1.16 3.5 $ 1,560,950 1.63 3.1
Liabilities. Total liabilities increased
Deposits. The following table presents the amount, weighted average rate and
percent of total for the components of our deposit portfolio at the dates
presented. The decrease in the deposit portfolio rate during the current year
was due to a reduction in offered rates due to the low interest rate
environment, which resulted in certificates of deposit repricing to lower
offered rates as balances renewed, along with growth in lower costing
non-maturity deposits.
At September 30,
2021 2020
% of % of
Amount Rate Total Amount Rate Total
(Dollars in thousands)
Non-interest-bearing checking $ 543,849 - % 8.2 % $ 451,394 - % 7.3 %
Interest-bearing checking 1,037,362 0.07 15.7 865,782 0.10 14.0
Savings 519,069 0.05 7.9 433,808 0.06 7.0
Money market 1,753,525 0.19 26.6 1,419,180 0.37 22.9
Retail certificates of deposit 2,341,531 1.41 35.5 2,623,336 1.88 42.4
Commercial certificates of
deposit 190,215 0.66 2.9 143,125 1.05 2.3
Public unit certificates of
deposit 211,845 0.21 3.2 254,783 0.74 4.1
$ 6,597,396 0.59 100.0 % $ 6,191,408 0.95 100.0 %
The following table presents information on the weighted average maturity (“WAM”) of our certificates of deposit, in years, at
1.3
Commercial certificates of deposit 0.5
Public unit certificates of deposit 0.5
Total certificates of deposit 1.1
36
-------------------------------------------------------------------------------- As ofSeptember 30, 2021 and 2020, approximately$866.0 million and$557.0 million , respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.
The following table shows the proportion of the Bank’s term deposits, by account, which exceeds the
$ 179,393 Over 3 through 6 months 130,300 Over 6 through 12 months 158,123 Over 12 months 129,588$ 597,404 Borrowings. The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period.
The following table shows the maturity of the term loans, which are entirely made up of FHLB advances, as well as the contractual and weighted average rates associated with the
Maturity by FHLB Interest rate Contractual Effective
Fiscal Year Advances swaps(1) Rate Rate(2)
(Dollars in thousands)
2022 $ 75,000 $ 100,000 0.26 % 1.92 %
2023 300,000 - 1.70 1.81
2024 150,000 165,000 1.32 2.46
2025 300,000 100,000 1.33 2.09
2026 250,000 - 0.96 1.27
2027 150,000 - 0.93 1.24
$ 1,225,000 $ 365,000 1.18 1.88
(1)Represents adjustable-rate FHLB advances for which the Bank has entered into
interest rate swaps with a notional amount of $365.0 million to hedge the
variability in cash flows associated with the advances. These advances are
presented based on their contractual maturity dates and will be renewed
periodically until the maturity or termination of the interest rate swaps. The
expected WAL of the interest rate swaps was 4.1 years at September 30, 2021 .
(2)The effective rate includes the impact of interest rate swaps and the
amortization of deferred prepayment penalties resulting from FHLB advances
previously prepaid.
37
--------------------------------------------------------------------------------
The following table presents borrowing activity for the periods shown with
borrowings being reported at par. 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 decrease in
total borrowings during the current year was due to not renewing borrowings that
matured. Cash flows from deposit growth were used to pay off maturing
borrowings. The effective rate is shown as a weighted average and includes the
impact of interest rate swaps and the amortization of deferred prepayment
penalties resulting from FHLB advances previously prepaid. The decrease in the
effective rate during the current year was due primarily to terminating certain
interest rate swaps, prepaying certain advances, and replacing maturing advances
at lower market interest rates. The WAM is the remaining weighted average
contractual term in years. The beginning and ending WAMs represent the remaining
maturity at each date presented. For new borrowings, the WAMs presented are as
of the date of issue.
For the Year Ended
September 30, 2021 September 30, 2020
Effective Effective
Amount Rate WAM Amount Rate WAM
(Dollars in thousands)
Beginning balance $ 1,790,000 2.31 % 3.0 $ 2,140,000 2.38 % 2.6
Maturities and
prepayments (1,305,000) 2.18 - (1,505,000) 2.44 -
New FHLB borrowings 1,105,000 1.96 3.7 1,155,000 2.36 4.3
Ending balance $ 1,590,000 1.88 3.3 $ 1,790,000 2.31 3.0
Maturities of Interest-Bearing Liabilities. The following table presents the
maturity and weighted average repricing rate, which is also the weighted average
effective rate, of certificates of deposit, split between retail/commercial and
public unit amounts, and term borrowings for the next four quarters as of
September 30, 2021 .
December 31, March 31, June 30, September 30,
2021 2022 2022 2022 Total
(Dollars in thousands)
Retail/Commercial Certificates:
Amount $ 385,038 $ 329,419 $ 314,758 $ 432,378 $ 1,461,593
Repricing Rate 1.09 % 1.15 % 1.15 % 1.40 % 1.21 %
Public Unit
Certificates:
Amount $ 69,063 $ 70,776 $ 32,175 $ 21,501 $ 193,515
Repricing Rate 0.26 % 0.28 % 0.09 % 0.09 % 0.22 %
Term Borrowings:(1)
Amount $ - $ - $ - $ 75,000 $ 75,000
Repricing Rate - % - % - % 0.29 % 0.29 %
Total
Amount $ 454,101 $ 400,195 $ 346,933 $ 528,879 $ 1,730,108
Repricing Rate 0.96 % 0.99 % 1.05 % 1.19 % 1.06 %
(1) The maturity date of FHLB advances linked to interest rate swaps is based on the maturity date of the corresponding interest rate swap.
Stockholders' Equity. During the current year, the Company paid cash dividends totaling$117.9 million and repurchased common stock totaling$1.5 million . The cash dividends paid during the current year totaled$0.87 per share and consisted of a$0.40 per share True Blue Capitol cash dividend, a$0.13 per share cash true-up dividend related to fiscal year 2020 earnings, and four regular quarterly cash dividends of$0.085 per share, totaling$0.34 per share. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. AtSeptember 30, 2021 , this ratio was 11.5%. 38 -------------------------------------------------------------------------------- OnOctober 19, 2021 , the Company announced a regular quarterly cash dividend of$0.085 per share, or approximately$11.5 million , payable onNovember 19, 2021 to stockholders of record as of the close of business onNovember 5, 2021 . OnOctober 28, 2021 , the Company announced a fiscal year 2021 cash true-up dividend of$0.22 per share, or approximately$29.9 million , related to fiscal year 2021 earnings. The$0.22 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2021 and total regular quarterly cash dividends paid during fiscal year 2021, divided by the number of shares outstanding. The cash true-up dividend is payable onDecember 3, 2021 to stockholders of record as of the close of business onNovember 19, 2021 , and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2021. There remains$44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the FRB's existing approval for the Company to repurchase shares extends throughAugust 2022 . AtOctober 1, 2021 ,Capitol Federal Financial, Inc. , at the holding company level, had$93.8 million on deposit at the Bank. For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. The payout is expected to be in the form of regular quarterly cash dividends of$0.085 per share, totaling$0.34 for the year, and a cash true-up dividend equal to fiscal year 2022 earnings in excess of the amount paid as regular quarterly cash dividends during fiscal year 2022. It is anticipated that the fiscal year 2022 cash true-up dividend will be paid inDecember 2022 . 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. The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of$0.25 per share in June for six consecutive years ending in 2019. Given the state of economic uncertainty, the Company elected to defer the annual True Blue dividend inJune 2020 . InJune 2021 , the Company paid a True Blue Capitol cash dividend of$0.40 per share. The$0.40 per share True Blue Capitol cash dividend represented a$0.20 per share cash dividend from fiscal year 2020 and a$0.20 per share cash dividend from fiscal year 2021. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend. The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, and 2019. The amounts represent cash dividends paid during each period. The 2021 true-up dividend amount presented represents the dividend payable onDecember 3, 2021 to stockholders of record as ofNovember 19, 2021 . Calendar Year 2021 2020 2019 Amount Per Share Amount Per Share Amount Per Share (Dollars in thousands, except per share amounts) Regular quarterly dividends paid Quarter ended March 31$ 11,518 $ 0.085 $ 11,733 $ 0.085 $ 11,700 $ 0.085 Quarter ended June 30 11,516 0.085 11,733 0.085 11,708 0.085 Quarter ended September 30 11,518 0.085 11,733 0.085 11,713 0.085 Quarter ended December 31 11,534 0.085 11,514 0.085 11,731 0.085 True-up dividends paid 29,853 0.220 17,614 0.130 46,932 0.340 True Blue dividends paid 54,210 0.400 - - 34,446 0.250 Calendar year-to-date dividends paid$ 130,149 $ 0.960 $ 64,327 $ 0.470 $ 128,230 $ 0.930 39
-------------------------------------------------------------------------------- Average Balance Sheets. The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated. For fiscal year 2019 information, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 . Weighted average yields are derived by dividing annual income by the average balance of the related assets, and weighted average rates are derived by dividing annual expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis. For the Year Ended September 30, 2021 2020 Average Interest Average Interest Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Amount Paid Rate Amount Paid Rate Assets: (Dollars in thousands) Interest-earning assets: One- to four-family loans: Originated$ 3,966,059 $ 137,461 3.47 %$ 3,950,425 $ 150,526 3.81 % Correspondent purchased 2,010,823 48,066 2.39 2,348,120 70,112 2.99 Bulk purchased 191,029 3,601 1.89 230,720 6,065 2.63 Total one- to four-family loans 6,167,911 189,128 3.07 6,529,265 226,703 3.47 Commercial loans 788,702 36,085 4.51 785,127 37,320 4.68 Consumer loans 101,277 4,684 4.63 123,334 6,471 5.25 Total loans receivable(1) 7,057,890 229,897 3.25 7,437,726 270,494 3.63 MBS(2) 1,446,466 21,399 1.48 954,197 23,009 2.41 Investment securities(2)(3) 482,641 2,825 0.59 270,683 4,467 1.65 FHLB stock 77,250 3,916 5.07 100,251 5,827 5.81 Cash and cash equivalents 131,798 144 0.11 179,142 1,181 0.65 Total interest-earning assets 9,196,045 258,181 2.80 8,941,999 304,978 3.40 Other non-interest-earning assets 443,724 461,614 Total assets$ 9,639,769 $ 9,403,613 Liabilities and stockholders' equity: Interest-bearing liabilities: Checking$ 1,482,698 772 0.05$ 1,180,110 762 0.06 Savings 487,146 280 0.06 388,662 292 0.08 Money market 1,598,838 4,128 0.26 1,252,992 6,647 0.53 Retail/commercial certificates 2,688,811 42,034 1.56 2,716,945 55,238 2.03 Wholesale certificates 252,623 1,192 0.47 282,947 4,659 1.65 Total deposits 6,510,116 48,406 0.74 5,821,656 67,598 1.16 Borrowings(4) 1,636,399 34,774 2.11 2,065,966 48,045 2.31 Total interest-bearing liabilities 8,146,515 83,180 1.02 7,887,622 115,643 1.46 Other non-interest-bearing liabilities 219,328 203,990 Stockholders' equity 1,273,926 1,312,001 Total liabilities and stockholders' equity$ 9,639,769 $ 9,403,613 Net interest income(5)$ 175,001 $ 189,335 Net interest rate spread(6) 1.78 1.94 Net interest-earning assets$ 1,049,530 $ 1,054,377 Net interest margin(7) 1.90 2.12 Ratio of interest-earning assets to interest-bearing liabilities 1.13x 1.13x 40
-------------------------------------------------------------------------------- (1)Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent. (2)AFS securities are adjusted for unamortized purchase premiums or discounts. (3)The average balance of investment securities includes an average balance of nontaxable securities of$6.6 million , and$13.8 million , for the years endedSeptember 30, 2021 and 2020, respectively. (4)The FHLB advance amounts and rates included in this line item include the effect of interest rate swaps and are net of deferred prepayment penalties. (5)Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. (6)Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (7)Net interest margin represents net interest income as a percentage of average interest-earning assets. Rate/Volume Analysis. The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing fiscal years 2021 to 2020. For the comparison of fiscal years 2020 to 2019, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2020 . For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous year's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate. For the Year Ended September 30, 2021 vs. 2020 Increase (Decrease) Due to Volume Rate Total (Dollars in thousands) Interest-earning assets: Loans receivable$ (13,055) $ (27,542) $ (40,597) MBS 9,247 (10,857) (1,610) Investment securities 2,261 (3,903) (1,642) FHLB stock (1,235) (676) (1,911) Cash and cash equivalents (250) (787) (1,037) Total interest-earning assets (3,032) (43,765)
(46,797)
Interest-bearing liabilities: Checking 172 (163) 9 Savings 65 (77) (12) Money market 1,495 (4,014) (2,519) Certificates of deposit (1,154) (15,516) (16,670) Borrowings (7,892) (5,379) (13,271) Total interest-bearing liabilities (7,314) (25,149)
(32,463)
Net change in net interest income$ 4,282 $ (18,616) $ (14,334) 41
-------------------------------------------------------------------------------- Comparison of Operating Results for the Years EndedSeptember 30, 2021 and 2020 The Company recognized net income of$76.1 million , or$0.56 per share, for fiscal year 2021 compared to net income of$64.5 million , or$0.47 per share, for fiscal year 2020. The increase in net income was due primarily to recording a$22.3 million provision for credit losses during the prior year compared to recording a negative provision for credit losses of$8.5 million in the current year, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased$14.3 million , or 7.6%, from the prior year to$175.0 million for the current year. The net interest margin decreased 22 basis points, from 2.12% for the prior year to 1.90% for the current year. The decreases in net interest income and net interest margin were due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings. Interest and Dividend Income The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. For the Year Ended September 30, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST AND DIVIDEND INCOME: Loans receivable$ 229,897 $ 270,494 $ (40,597) (15.0) % MBS 21,399 23,009 (1,610) (7.0) FHLB stock 3,916 5,827 (1,911) (32.8) Investment securities 2,825 4,467 (1,642) (36.8) Cash and cash equivalents 144 1,181 (1,037) (87.8) Total interest and dividend income$ 258,181 $ 304,978 $ (46,797) (15.3) The decrease in interest income on loans receivable was due mainly to a decrease in the weighted average yield, primarily in the one- to four-family loan portfolio. The decrease in the weighted average yield on the one- to four-family loan portfolio was due to endorsements and refinances to lower market rates, higher premium amortization related to correspondent one- to four-family loans due to high payoff and endorsement activity, along with adjustable-rate loans repricing to lower market rates, and the origination and purchase of new loans at lower market rates. Additionally, the average balance of the portfolio decreased compared to the prior year due primarily to a reduction in the correspondent one-to four-family loan portfolio. See "Average Balance Sheets" above. The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by an increase in the average balance of the portfolio. Cash flows from the loan portfolio were used to purchase securities during the current fiscal year. The decrease in dividend income on FHLB stock was due mainly to a decrease in the average balance of FHLB stock, along with a decrease in the dividend rate paid by FHLB. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements. The decrease in interest income on investment securities was due to a decrease in the weighted average yield as a result of purchases at lower market yields, partially offset by an increase in the average balance of the portfolio. The decrease in interest income on cash and cash equivalents was due primarily to a decrease in the yield earned on cash held at theFederal Reserve Bank of Kansas City ("FRB ofKansas City "). 42 -------------------------------------------------------------------------------- Interest Expense The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. For the Year Ended September 30, Change Expressed in: 2021 2020 Dollars Percent (Dollars in thousands) INTEREST EXPENSE: Deposits$ 48,406 $ 67,598 $ (19,192) (28.4) % Borrowings 34,774 48,045 (13,271) (27.6) Total interest expense$ 83,180 $ 115,643 $ (32,463) (28.1) The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, money market accounts, and wholesale certificates of deposit. Since the onset of the COVID-19 pandemic, retail certificates of deposit have been repricing downward as they renew or are replaced at lower offered rates, and rates on money market accounts have been lowered. The decrease in interest expense on borrowings was due primarily to a decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with liquidity generated from the deposit portfolio. The decrease in interest expense on borrowings was also a result of lowering the cost of FHLB advances by prepaying certain advances during the current and prior years. Provision for Credit Losses The Bank recorded a negative provision for credit losses during the current year of$8.5 million , compared to a$22.3 million provision for credit losses during the prior year. The negative provision in the current fiscal year was composed of a$6.5 million decrease in the ACL for loans and a$2.0 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses in the current fiscal year was due primarily to favorable forecasted economic outlooks during the year, largely related to commercial loans. See additional discussion regarding the Bank's ACL and reserve for off-balance sheet credit exposures atSeptember 30, 2021 in the "Asset Quality" section and in the "Critical Accounting Estimates - Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures" section above. Non-Interest Income The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent. For the Year Ended September 30,
Change expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees $ 12,282 $ 11,285 $ 997 8.8 %
Gain on sale of Visa Class B
shares 7,386 - 7,386 N/A
Insurance commissions 3,030 2,487 543 21.8
Other non-interest income 5,388 5,827 (439) (7.5)
Total non-interest income
43.3 The increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume. During the current year, the Bank sold its Visa ClassB Shares , resulting in a$7.4 million gain. The increase in insurance commissions was due primarily to higher annual contingent insurance commissions received in the current year compared to the prior year. The decrease in other non-interest income was primarily related to lower income from bank- 43
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life insurance held (“BOLI”), due to reduced yields due to lower market rates and lower death benefits.
Non-Interest Expense
The following table presents the components of non-interest expense for the time
periods presented, along with the change measured in dollars and percent.
For the Year Ended
September 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits $ 56,002 $ 52,996 $ 3,006 5.7 %
Information technology and related
expense 17,922 16,974 948 5.6
Occupancy, net 14,045 13,870 175 1.3
Regulatory and outside services 5,764 5,762 2 -
Advertising and promotional 5,133 4,889 244 5.0
Loss on interest rate swap
termination 4,752 - 4,752 N/A
Deposit and loan transaction costs 2,761 2,890 (129) (4.5)
Federal insurance premium 2,545 914 1,631 178.4
Office supplies and related expense 1,715 2,195 (480) (21.9)
Other non-interest expense 4,930 5,514 (584) (10.6)
Total non-interest expense $ 115,569 $ 106,004 $ 9,565 9.0
The increase in salaries and employee benefits was due primarily to an increase
in incentive compensation, as well as an increase in loan commissions related to
higher loan origination activity. The increase in information technology and
related expense was due mainly to an increase in software licensing expense and
professional services expense. During the current fiscal year, the Bank
terminated interest rate swaps designated as cash flow hedges with a notional
amount of $200.0 million resulting in the reclassification of unrealized losses
totaling $4.8 million from AOCI into earnings. The increase in the federal
insurance premium was due mainly to the Bank utilizing an assessment credit from
the FDIC during the prior year.
The Company's efficiency ratio was 56.91% for the current year compared to
50.74% for the prior year. The change in the efficiency ratio was due to lower
net interest income and higher non-interest expense, partially offset by higher
non-interest income. The efficiency ratio is a measure of a financial
institution's total non-interest expense as a percentage of the sum of net
interest income (pre-provision for credit losses) and non-interest income. A
higher value indicates that the financial institution is generating revenue with
a proportionally higher level of expense, relative to the net interest margin
and non-interest income. Management continues to strive to control operating
costs. The increase in the efficiency ratio in the current year related to
higher non-interest expense was due primarily to the loss on the termination of
interest rate swaps, which was a unique transaction during the current year,
along with higher federal insurance premium expense as the Bank utilized an
assessment credit from the FDIC during the prior year.
44
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Income Tax Expense
The following table presents pretax income, income tax expense, and net income
for the time periods presented, along with the change measured in dollars and
percent.
For the Year Ended
September 30, Change Expressed in:
2021 2020 Dollars Percent
(Dollars in thousands)
Profit before tax charge
15,398 19.1 % Income tax expense 19,946 16,090 3,856 24.0 Net income$ 76,082 $ 64,540 $ 11,542 17.9 Effective Tax Rate 20.8 % 20.0 % The increase in income tax expense was due primarily to higher pretax income in the current year, as well as a higher effective tax rate compared to the prior year. The effective tax rate was lower in the prior year due primarily to a discrete benefit recognized in the prior year related to certain previously acquired BOLI policies. Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21% to 22%, absent any tax law changes. Comparison of Operating Results for the Years EndedSeptember 30, 2020 and 2019 For this discussion, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Operating Results for the Years EndedSeptember 30, 2020 and 2019" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020. 45
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Liquidity and capital resources
Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, 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 Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intention to improve the earnings of the Bank while maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings. We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various liquidity ratios. In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB ofKansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of Bank Call Report total assets without the pre-approval of FHLB senior management. The Bank's borrowing limit was 50% of Bank Call Report total assets during the current year, as approved by the president of FHLB. The amount that can be borrowed from the FRB ofKansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics of those securities. Management tests the Bank's access to the FRB ofKansas City's discount window annually with a nominal, overnight borrowing. If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. AtSeptember 30, 2021 , the Bank had total borrowings, at par, of$1.59 billion , or approximately 16% of total assets, all of which were FHLB advances. The amount of FHLB borrowings outstanding atSeptember 30, 2021 was$1.59 billion , of which$175.0 million were advances scheduled to mature in the next 12 months, all of which were one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. AtSeptember 30, 2021 , the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above. The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. AtSeptember 30, 2021 , the Bank had$1.68 billion of securities that were eligible but unused as collateral for borrowing or other liquidity needs. The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As ofSeptember 30, 2021 , the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. AtSeptember 30, 2021 , the Bank did not have any brokered certificates of deposit and public unit certificates of deposit were approximately 3% of total deposits. The Bank had pledged securities with an estimated fair value of$264.9 million as collateral for public unit certificates of deposit atSeptember 30, 2021 . 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. 46 -------------------------------------------------------------------------------- AtSeptember 30, 2021 ,$1.66 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including$193.5 million of public unit certificates of deposit and$176.6 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard. The same is anticipated for our commercial certificates of deposit; however, due to the nature of these funds, retention rates are not as predictable as for retail certificates of deposit. We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of customers. These financial instruments consist primarily of commitments to originate, purchase, or participate in loans or fund lines of credit. Additionally, the Company has investments in several low income housing partnerships and, under the terms of the agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements. See "Part II, Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 6. Low Income Housing Partnerships and Note 12. Commitments and Contingencies" for additional information regarding these commitments. While scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. We anticipate we will continue to have sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments. 47
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