Capitol Federal Financial, Inc. - Quarter Report: 2017 December (Form 10-Q)

UNITED STATES SECURITIES

AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

Form 10-Q

_________________

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2017

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-34814

Capitol Federal Financial, Inc.

(Exact name of registrant as specified in its charter)




Maryland	27-2631712
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

700 South Kansas Avenue, Topeka, Kansas	66603
(Address of principal executive offices)	(Zip Code)

(785) 235-1341

Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.) Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller Reporting Company ¨		Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of February 2, 2018, there were 138,235,235 shares of Capitol Federal Financial, Inc. common stock outstanding.



PART I - FINANCIAL INFORMATION		Page Number
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets at December 31, 2017 and September 30, 2017	3
	Consolidated Statements of Income for the three months ended December 31, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017 and 2016	5
	Consolidated Statement of Stockholders' Equity for the three months ended December 31, 2017	6
	Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016	7
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Financial Condition - Loans Receivable	33
	Financial Condition - Asset Quality	39
	Financial Condition - Liabilities	46
	Financial Condition - Stockholders' Equity	49
	Operating Results	50
	Comparison of Operating Results for the three months ended December 31, 2017 and 2016	54
	Comparison of Operating Results for the three months ended December 31, 2017 and September 30, 2017	56
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	63
Item 4.	Controls and Procedures	68


PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	69
Item 1A.	Risk Factors	69
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	69


INDEX TO EXHIBITS		70


SIGNATURES		72

PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
	(Unaudited)
	December 31,			September 30,
	2017			2017
ASSETS:
Cash and cash equivalents (includes interest-earning deposits of $9,582 and $340,748)	$	29,120		$	351,659
Securities:
Available-for-sale ("AFS"), at estimated fair value (amortized cost of $498,469 and $410,541)	501,884			415,831
Held-to-maturity ("HTM"), at amortized cost (estimated fair value of $770,425 and $833,009)	770,806			827,738
Loans receivable, net (allowance for credit losses ("ACL") of $8,370 and $8,398)	7,189,744			7,195,071
Federal Home Loan Bank Topeka ("FHLB") stock, at cost	195,470			100,954
Premises and equipment, net	84,591			84,818
Other assets	218,544			216,845
TOTAL ASSETS	$	8,990,159		$	9,192,916

LIABILITIES:
Deposits	$	5,266,217		$	5,309,868
FHLB borrowings	2,174,146			2,173,808
Repurchase agreements	100,000			200,000
Advance payments by borrowers for taxes and insurance	27,804			63,749
Income taxes payable, net	6,440			530
Deferred income tax liabilities, net	17,981			24,458
Accounts payable and accrued expenses	46,960			52,190
Total liabilities	7,639,548			7,824,603

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding	—			—
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,230,735 and 138,223,835
shares issued and outstanding as of December 31, 2017 and September 30, 2017, respectively	1,382			1,382
Additional paid-in capital	1,167,692			1,167,368
Unearned compensation, Employee Stock Ownership Plan ("ESOP")	(37,582		)	(37,995		)
Retained earnings	216,045			234,640
Accumulated other comprehensive income ("AOCI"), net of tax	3,074			2,918
Total stockholders' equity	1,350,611			1,368,313
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	8,990,159		$	9,192,916

See accompanying notes to consolidated financial statements.



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

	For the Three Months Ended
	December 31,
	2017		2016
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	64,189	$	61,945
Cash and cash equivalents	7,114		2,969
Mortgage-backed securities ("MBS")	5,252		6,362
FHLB stock	3,095		2,939
Investment securities	994		1,107
Total interest and dividend income	80,644		75,322
INTEREST EXPENSE:
FHLB borrowings	17,917		16,117
Deposits	11,961		10,396
Repurchase agreements	1,392		1,503
Total interest expense	31,270		28,016
NET INTEREST INCOME	49,374		47,306
PROVISION FOR CREDIT LOSSES	—		—
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	49,374		47,306
NON-INTEREST INCOME:
Retail fees and charges	3,965		3,709
Income from bank-owned life insurance ("BOLI")	534		523
Other non-interest income	859		1,036
Total non-interest income	5,358		5,268
NON-INTEREST EXPENSE:
Salaries and employee benefits	10,528		10,634
Information technology and related expense	3,331		2,834
Occupancy, net	2,765		2,675
Deposit and loan transaction costs	1,407		1,386
Regulatory and outside services	1,140		1,346
Federal insurance premium	852		894
Advertising and promotional	685		690
Office supplies and related expense	442		437
Other non-interest expense	886		701
Total non-interest expense	22,036		21,597
INCOME BEFORE INCOME TAX EXPENSE	32,696		30,977
INCOME TAX EXPENSE	860		10,399
NET INCOME	$	31,836	$	20,578

Basic earnings per share ("EPS")	$	0.24	$	0.15
Diluted EPS	$	0.24	$	0.15
Dividends declared per share	$	0.38	$	0.38

Basic weighted average common shares	134,372,980		133,696,574
Diluted weighted average common shares	134,467,309		133,949,796

See accompanying notes to consolidated financial statements.



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

	For the Three Months Ended
	December 31,
	2017			2016
Net income	$	31,836		$	20,578
Other comprehensive income (loss), net of tax:
Changes in unrealized gains (losses) on AFS securities,
net of taxes of $709 and $799	(1,166		)	(1,314		)
Changes in unrealized gains (losses) on cash flow hedges,
net of taxes of $(804) and $0	1,322			—
Comprehensive income	$	31,992		$	19,264

See accompanying notes to consolidated financial statements.



CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(Dollars in thousands, except per share amounts)

			Additional		Unearned								Total
	Common		Paid-In		Compensation			Retained					Stockholders'
	Stock		Capital		ESOP			Earnings			AOCI		Equity
Balance at October 1, 2017	$	1,382	$	1,167,368	$	(37,995	)	$	234,640		$	2,918	$	1,368,313
Net income								31,836					31,836
Other comprehensive income, net of tax											156		156
ESOP activity, net			165		413								578
Stock-based compensation			94										94
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-09			19					(19		)			—
Stock options exercised			46										46
Cash dividends to stockholders ($0.38 per share)								(50,412		)			(50,412		)
Balance at December 31, 2017	$	1,382	$	1,167,692	$	(37,582	)	$	216,045		$	3,074	$	1,350,611

See accompanying notes to consolidated financial statements.



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

	For the Three Months Ended
	December 31,
	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	31,836		$	20,578
Adjustments to reconcile net income to net cash provided by operating activities:
FHLB stock dividends	(3,095		)	(2,939		)
Proceeds from sales of loans receivable held-for-sale ("LHFS")	15,642			—
Amortization and accretion of premiums and discounts on securities	902			1,362
Depreciation and amortization of premises and equipment	2,058			1,891
Amortization of deferred amounts related to FHLB advances, net	338			365
Common stock committed to be released for allocation - ESOP	578			634
Stock-based compensation	94			157
Changes in deferred income tax liabilities, net	(6,572		)	—
Changes in:
Other assets, net	1,531			(437		)
Income taxes payable, net	5,909			8,899
Accounts payable and accrued expenses	(5,909		)	(3,556		)
Net cash provided by operating activities	43,312			26,954

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of AFS securities	(101,782		)	(35,890		)
Proceeds from calls, maturities and principal reductions of AFS securities	11,760			61,274
Proceeds from calls, maturities and principal reductions of HTM securities	56,055			77,309
Proceeds from sale of AFS securities	2,078			—
Proceeds from the redemption of FHLB stock	—			98,950
Purchase of FHLB stock	(91,421		)	(91,405		)
Net increase in loans receivable	(10,979		)	(114,245		)
Purchase of premises and equipment	(2,034		)	(1,981		)
Proceeds from sale of other real estate owned ("OREO")	434			1,272
Net cash used in investing activities	(135,889		)	(4,716		)

				(Continued)



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

	For the Three Months Ended
	December 31,
	2017			2016
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid	(50,412		)	(50,198		)
Net change in deposits	(43,651		)	28,656
Proceeds from borrowings	4,300,000			2,100,000
Repayments on borrowings	(4,400,000		)	(2,200,000		)
Change in advance payments by borrowers for taxes and insurance	(35,945		)	(37,240		)
Stock options exercised	46			5,147
Excess tax benefits from stock options	—			193
Net cash used in financing activities	(229,962		)	(153,442		)

NET DECREASE IN CASH AND CASH EQUIVALENTS	(322,539		)	(131,204		)

CASH AND CASH EQUIVALENTS:
Beginning of period	351,659			281,764
End of period	$	29,120		$	150,560

SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Loans transferred to/from LHFS	$	15,814		$	—

See accompanying notes to consolidated financial statements.				(Concluded)

Notes to Consolidated Financial Statements (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The consolidated financial statements include the accounts of Capitol Federal® Financial, Inc. (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has a wholly-owned subsidiary, Capitol Funds, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol Federal Mortgage Reinsurance Company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.

Net Presentation of Cash Flows Related to Borrowings - During the current fiscal year, the Bank entered into certain FHLB advances with contractual maturities of 90 days or less. Cash flows related to these advances are reported on a net basis in the consolidated statements of cash flows.

Income Taxes - The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Recent Accounting Pronouncements - In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers. The ASU, as amended, implements a common revenue standard that clarifies the principles for recognizing revenue. The core principle of the amended guidance is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the amended guidance identifies specific steps an entity should apply in order to achieve this principle. The amended guidance requires entities to disclose both quantitative and qualitative information regarding contracts with customers. ASU 2014-09 will become effective for the Company on October 1, 2018. The majority of the Company's revenue is composed of interest income from loans and securities which are explicitly excluded from the amended ASU; therefore the amended ASU will likely not have a material impact to the Company's consolidated financial condition and results of operations, but it will likely result in expanded disclosures. The Company's evaluation of the amended ASU and its impact on components of non-interest income is ongoing.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments, Recognition and Measurement of Financial Assets and Liabilities. The ASU supersedes certain accounting guidance related to equity securities with readily determinable fair values and the related impairment assessment. An entity's equity investments that are accounted for under the equity method of accounting or result in consolidation of an investee are not included within the scope of this ASU. The ASU requires public business entities to utilize the exit price notation in determining fair value for financial instruments measured at amortized cost on the balance sheet. The ASU requires additional reporting in other comprehensive income for financial liabilities measured at fair value in accordance with the fair value option. The ASU also requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balances or in the notes to the financial statements. ASU 2016-01 will become effective for the Company on October 1, 2018. The Company is currently evaluating the impact that this ASU may have on the Company's consolidated financial condition, results of operations and disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU amends lease accounting guidance by requiring that lessees recognize the assets and liabilities arising from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. ASU 2016-02 will become effective for the Company on October 1, 2019. The Company is continuing to work on the development of a lease inventory including determining whether other contracts exist that are deemed to be in scope. The Company expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption. The Company is continuing to evaluate the impact this ASU may have on the Company's consolidated financial condition, results of operations and disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, along with simplifying the classification in the statement of cash flows. The Company adopted the ASU on October 1, 2017. Upon adoption, the Company elected to account for forfeitures of stock-based compensation awards when they occur. The Company will recognize excess tax benefits and tax deficiencies in income tax expense on the consolidated statements of income and present them within operating activities on the consolidated statements of cash flows. This ASU did not have a material impact on the Company's consolidated financial condition or results of operations at the time of adoption. However, the impact of tax benefits and the timing of their recognition within income tax expense is unpredictable, as these benefits are recognized primarily as a result of stock options being exercised.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU replaces the incurred loss impairment methodology in current GAAP, which requires credit losses to be recognized when it is probable that a loss has incurred, with a new impairment methodology. The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans, HTM debt securities, and loan commitments, over their contractual lives. Under the new impairment methodology, expected credit losses will be measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the current credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU will become effective for the Company on October 1, 2020. The Company continues to follow its implementation plan and is currently in the process of analyzing historical loan and loss data for portfolio segmentation purposes. Additionally, the Company has formed a cross-functional working group comprised of individuals from various functional areas to assist with the implementation of the ASU. While we are currently unable to reasonably estimate the impact of adopting this ASU, we expect the impact of adoption will be influenced by the composition of our loan and securities portfolios as well as the economic conditions and forecasts at the time of adoption.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Target Improvements to Accounting for Hedging Activities. The ASU amends the hedge accounting recognition and presentation requirements in current GAAP. The purpose of the ASU was to improve transparency of hedging relationships in the financial statements and to reduce the complexity of applying hedge accounting for preparers. The ASU will become effective for the Company on October 1, 2019. The Company is currently evaluating the effect of the ASU on the Company's consolidated financial condition, results of operations and disclosures.

2. EARNINGS PER SHARE

Shares acquired by the ESOP are not considered in the basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that determines EPS for each class of common stock and participating security.



	For the Three Months Ended
	December 31,
	2017			2016
	(Dollars in thousands, except per share amounts)
Net income	$	31,836		$	20,578
Income allocated to participating securities	(13		)	(13		)
Net income available to common stockholders	$	31,823		$	20,565

Average common shares outstanding	134,372,531			133,696,125
Average committed ESOP shares outstanding	449			449
Total basic average common shares outstanding	134,372,980			133,696,574

Effect of dilutive stock options	94,329			253,222

Total diluted average common shares outstanding	134,467,309			133,949,796

Net EPS:
Basic	$	0.24		$	0.15
Diluted	$	0.24		$	0.15

Antidilutive stock options, excluded from the diluted average
common shares outstanding calculation	498,900			236,400

3. SECURITIES

The following tables reflect the amortized cost, estimated fair value, and gross unrealized gains and losses of AFS and HTM securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States government-sponsored enterprises ("GSEs").



	December 31, 2017
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Dollars in thousands)
AFS:
GSE debentures	$	296,327	$	—	$	1,423	$	294,904
MBS	200,616		5,131		280		205,467
Municipal bonds	1,526		—		13		1,513
	$	498,469	$	5,131	$	1,716	$	501,884
HTM:
MBS	$	745,771	$	8,286	$	8,626	$	745,431
Municipal bonds	25,035		24		65		24,994
	$	770,806	$	8,310	$	8,691	$	770,425



	September 30, 2017
			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(Dollars in thousands)
AFS:
GSE debentures	$	271,300	$	16	$	587	$	270,729
MBS	135,644		5,923		51		141,516
Trust preferred securities	2,067		—		16		2,051
Municipal bonds	1,530		5		—		1,535
	$	410,541	$	5,944	$	654	$	415,831
HTM:
MBS	$	800,931	$	10,460	$	5,295	$	806,096
Municipal bonds	26,807		119		13		26,913
	$	827,738	$	10,579	$	5,308	$	833,009

The following tables summarize the estimated fair value and gross unrealized losses of those securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.



	December 31, 2017
	Less Than 12 Months				Equal to or Greater Than 12 Months
	Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
AFS:
GSE debentures	$	120,921	$	442	$	148,983	$	981
MBS	84,672		274		661		6
Municipal bonds	1,513		13		—		—
	$	207,106	$	729	$	149,644	$	987


HTM:
MBS	$	184,796	$	1,875	$	276,338	$	6,751
Municipal bonds	16,036		65		445		—
	$	200,832	$	1,940	$	276,783	$	6,751



	September 30, 2017
	Less Than 12 Months				Equal to or Greater Than 12 Months
	Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses
	(Dollars in thousands)
AFS:
GSE debentures	$	224,421	$	539	$	24,952	$	48
MBS	9,648		46		673		5
Trust preferred securities	—		—		2,051		16
	$	234,069	$	585	$	27,676	$	69


HTM:
MBS	$	259,200	$	1,582	$	201,094	$	3,713
Municipal bonds	5,638		8		1,460		5
	$	264,838	$	1,590	$	202,554	$	3,718

The unrealized losses at December 31, 2017 and September 30, 2017 were primarily a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management generally views changes in fair value caused by changes in interest rates as temporary; therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporary because scheduled coupon payments have been made, it is anticipated that the entire principal balance will be collected as scheduled, and management neither intends to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized cost amount, which could be at maturity. As a result of the analysis, management has concluded that no other-than-temporary impairments existed at December 31, 2017 or September 30, 2017.

The amortized cost and estimated fair value of debt securities as of December 31, 2017, by contractual maturity, are shown below. Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without prepayment penalty. For this reason, MBS are not included in the maturity categories.



	AFS				HTM
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(Dollars in thousands)
One year or less	$	146,363	$	146,082	$	6,113	$	6,109
One year through five years	151,490		150,335		18,922		18,885
	297,853		296,417		25,035		24,994
MBS	200,616		205,467		745,771		745,431
	$	498,469	$	501,884	$	770,806	$	770,425

The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.



	For the Three Months Ended
	December 31,
	2017		2016
	(Dollars in thousands)
Taxable	$	881	$	964
Non-taxable	113		143
	$	994	$	1,107

The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.



	December 31, 2017		September 30, 2017
	(Dollars in thousands)
Public unit deposits	$	439,595	$	499,993
Repurchase agreements	108,709		214,298
Federal Reserve Bank of Kansas City ("FRB of Kansas City")	11,073		11,769
	$	559,377	$	726,060

During the current quarter, the Company sold trust preferred securities and received proceeds of $2.1 million. The Company recognized a gain of $9 thousand on the sale. All other dispositions of securities during the quarter were the result of principal repayments, calls, or maturities.

4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Loans receivable, net at the dates presented is summarized as follows:



	December 31, 2017			September 30, 2017
	(Dollars in thousands)
Real estate loans:
One- to four-family:
Originated	$	3,940,288		$	3,959,232
Correspondent purchased	2,453,625			2,445,311
Bulk purchased	338,084			351,705
Construction	33,063			30,647
Total	6,765,060			6,786,895
Commercial:
Permanent	205,020			183,030
Construction	80,062			86,952
Total	285,082			269,982
Total real estate loans	7,050,142			7,056,877

Consumer loans:
Home equity	123,124			122,066
Other	4,238			3,808
Total consumer loans	127,362			125,874

Total loans receivable	7,177,504			7,182,751

Less:
ACL	8,370			8,398
Discounts/unearned loan fees	25,110			24,962
Premiums/deferred costs	(45,720		)	(45,680		)
	$	7,189,744		$	7,195,071

Lending Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial real estate loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.

One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are currently underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function and approved by our Board of Directors.

The underwriting standards for loans purchased from correspondent and nationwide lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters.

The Bank also originates construction-to-permanent loans secured by one- to four-family residential real estate. Construction loans are obtained by homeowners who will occupy the property when construction is complete. The Bank does not originate construction loans to builders for speculative purposes. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications provided.

Commercial real estate loans - The Bank's commercial real estate loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank.

At the time of origination, loan-to-value ("LTV") ratios on commercial real estate loans generally do not exceed 80% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.25. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.

Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, auto loans, and loans secured by savings deposits. The Bank also originates a very limited amount of unsecured loans. The Bank does not originate any consumer loans on an indirect basis, such as contracts purchased from retailers of goods or services which have extended credit to their customers. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.

The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.

Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial real estate. The one- to four-family and consumer loan portfolios are further segmented into classes for purposes of providing disaggregated information about the credit quality of the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, and consumer - other.

The Bank's primary credit quality indicators for the one- to four-family and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial real estate and consumer - other loan portfolios are delinquency status and asset classifications.

The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At December 31, 2017 and September 30, 2017, all loans 90 or more days delinquent were on nonaccrual status.



	December 31, 2017
			90 or More Days		Total				Total
	30 to 89 Days		Delinquent or		Delinquent		Current		Recorded
	Delinquent		in Foreclosure		Loans		Loans		Investment
	(Dollars in thousands)
One- to four-family - originated	$	11,403	$	5,962	$	17,365	$	3,941,643	$	3,959,008
One- to four-family - correspondent	1,135		561		1,696		2,486,562		2,488,258
One- to four-family - bulk purchased	4,724		3,732		8,456		331,204		339,660
Commercial real estate	—		—		—		283,826		283,826
Consumer - home equity	604		511		1,115		122,009		123,124
Consumer - other	33		3		36		4,202		4,238
	$	17,899	$	10,769	$	28,668	$	7,169,446	$	7,198,114



	September 30, 2017
			90 or More Days		Total				Total
	30 to 89 Days		Delinquent or		Delinquent		Current		Recorded
	Delinquent		in Foreclosure		Loans		Loans		Investment
	(Dollars in thousands)
One- to four-family - originated	$	13,216	$	5,500	$	18,716	$	3,956,598	$	3,975,314
One- to four-family - correspondent	1,855		92		1,947		2,477,916		2,479,863
One- to four-family - bulk purchased	3,233		3,399		6,632		346,807		353,439
Commercial real estate	—		—		—		268,979		268,979
Consumer - home equity	467		406		873		121,193		122,066
Consumer - other	33		4		37		3,771		3,808
	$	18,804	$	9,401	$	28,205	$	7,175,264	$	7,203,469

The recorded investment of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2017 and September 30, 2017 was $3.9 million and $4.3 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $875 thousand at December 31, 2017 and $1.4 million at September 30, 2017.

The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.



	December 31, 2017		September 30, 2017
	(Dollars in thousands)
One- to four-family - originated	$	9,339	$	10,054
One- to four-family - correspondent	1,340		1,804
One- to four-family - bulk purchased	4,179		4,264
Commercial real estate	—		—
Consumer - home equity	597		519
Consumer - other	3		4
	$	15,458	$	16,645

In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows:


•	Special mention - These loans are performing loans on which known information about the collateral pledged or the possible credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the non-performing loan categories.


•	Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.


•	Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values highly questionable and improbable.


•	Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.

The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss. At the dates presented, there were no loans classified as doubtful, and all loans classified as loss were fully charged-off.



	December 31, 2017				September 30, 2017
	Special Mention		Substandard		Special Mention		Substandard
	(Dollars in thousands)
One- to four-family - originated	$	10,485	$	27,425	$	7,031	$	30,059
One- to four-family - correspondent	1,089		4,074		261		3,800
One- to four-family - bulk purchased	—		7,889		—		8,005
Commercial real estate	—		—		—		—
Consumer - home equity	163		1,014		9		1,032
Consumer - other	—		3		—		4
	$	11,737	$	40,405	$	7,301	$	42,900

The following table shows the weighted average credit score and weighted average LTV for one- to four-family loans and consumer home equity loans at the dates presented. Borrower credit scores are intended to provide an indication as to the likelihood that a borrower will repay their debts. Credit scores are updated at least semiannually, with the last update in September 2017, from a nationally recognized consumer rating agency. The LTV ratios provide an estimate of the extent to which the Bank may incur a loss on any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.



	December 31, 2017			September 30, 2017
	Credit Score	LTV		Credit Score	LTV
One- to four-family - originated	767	63	%	767	63	%
One- to four-family - correspondent	764	68		764	68
One- to four-family - bulk purchased	757	62		757	63
Consumer - home equity	756	19		755	19
	765	64		765	64

Troubled Debt Restructurings ("TDRs") - The following tables present the recorded investment prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investment at the end of the periods indicated. Any increase in the recorded investment at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances. During the fourth quarter of fiscal year 2017, management refined its methodology for assessing whether a loan modification qualifies as a TDR which, though not material, resulted in fewer loans being classified as TDRs in the current fiscal year.



	For the Three Months Ended
	December 31, 2017
	Number	Pre-		Post-
	of	Restructured		Restructured
	Contracts	Outstanding		Outstanding
	(Dollars in thousands)
One- to four-family - originated	1	$	74	$	82
One- to four-family - correspondent	—	—		—
One- to four-family - bulk purchased	—	—		—
Commercial real estate	—	—		—
Consumer - home equity	—	—		—
Consumer - other	—	—		—
	1	$	74	$	82



	For the Three Months Ended
	December 31, 2016
	Number	Pre-		Post-
	of	Restructured		Restructured
	Contracts	Outstanding		Outstanding
	(Dollars in thousands)
One- to four-family - originated	38	$	3,928	$	4,185
One- to four-family - correspondent	—	—		—
One- to four-family - bulk purchased	—	—		—
Commercial real estate	—	—		—
Consumer - home equity	8	206		212
Consumer - other	—	—		—
	46	$	4,134	$	4,397

The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.



	For the Three Months Ended
	December 31, 2017			December 31, 2016
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(Dollars in thousands)
One- to four-family - originated	12	$	820	11	$	978
One- to four-family - correspondent	—	—		—	—
One- to four-family - bulk purchased	3	1,040		—	—
Commercial real estate	—	—		—	—
Consumer - home equity	4	133		4	115
Consumer - other	—	—		—	—
	19	$	1,993	15	$	1,093

Impaired loans - The following information pertains to impaired loans, by class, as of the dates presented.



	December 31, 2017						September 30, 2017
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		ACL		Investment		Balance		ACL
	(Dollars in thousands)
With no related allowance recorded
One- to four-family - originated	$	27,165	$	27,861	$	—	$	30,251	$	30,953	$	—
One- to four-family - correspondent	3,605		3,578		—		3,800		3,771		—
One- to four-family - bulk purchased	6,787		8,004		—		7,403		8,606		—
Commercial real estate	—		—		—		—		—		—
Consumer - home equity	636		876		—		775		997		—
Consumer - other	—		24		—		—		24		—
	38,193		40,343		—		42,229		44,351		—
With an allowance recorded
One- to four-family - originated	—		—		—		—		—		—
One- to four-family - correspondent	—		—		—		—		—		—
One- to four-family - bulk purchased	—		—		—		—		—		—
Commercial real estate	—		—		—		—		—		—
Consumer - home equity	—		—		—		—		—		—
Consumer - other	—		—		—		—		—		—
	—		—		—		—		—		—
Total
One- to four-family - originated	27,165		27,861		—		30,251		30,953		—
One- to four-family - correspondent	3,605		3,578		—		3,800		3,771		—
One- to four-family - bulk purchased	6,787		8,004		—		7,403		8,606		—
Commercial real estate	—		—		—		—		—		—
Consumer - home equity	636		876		—		775		997		—
Consumer - other	—		24		—		—		24		—
	$	38,193	$	40,343	$	—	$	42,229	$	44,351	$	—

The following information pertains to impaired loans, by class, for the periods presented. During the fourth quarter of fiscal year 2017, management refined its methodology for classifying loans as impaired. The change resulting from this refinement was immaterial. Impaired loans include loans partially charged-off and TDRs. All impaired loans are individually evaluated for loss and all losses are charged-off, resulting in no related ACL for these loans.



	For the Three Months Ended
	December 31, 2017				December 31, 2016
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(Dollars in thousands)
With no related allowance recorded
One- to four-family - originated	$	28,461	$	297	$	22,687	$	205
One- to four-family - correspondent	3,717		33		3,138		24
One- to four-family - bulk purchased	7,210		53		10,898		46
Commercial real estate	—		—		—		—
Consumer - home equity	668		10		991		30
Consumer - other	—		—		11		—
	40,056		393		37,725		305
With an allowance recorded
One- to four-family - originated	—		—		13,289		125
One- to four-family - correspondent	—		—		2,254		20
One- to four-family - bulk purchased	—		—		1,428		6
Commercial real estate	—		—		—		—
Consumer - home equity	—		—		587		15
Consumer - other	—		—		13		—
	—		—		17,571		166
Total
One- to four-family - originated	28,461		297		35,976		330
One- to four-family - correspondent	3,717		33		5,392		44
One- to four-family - bulk purchased	7,210		53		12,326		52
Commercial real estate	—		—		—		—
Consumer - home equity	668		10		1,578		45
Consumer - other	—		—		24		—
	$	40,056	$	393	$	55,296	$	471

Allowance for Credit Losses - The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, and the ending balance of ACL based on the Company's impairment methodology.



	For the Three Months Ended December 31, 2017
	One- to Four-Family
				Correspondent			Bulk					Commercial
	Originated			Purchased			Purchased		Total			Real Estate		Consumer			Total
	(Dollars in thousands)
Beginning balance	$	3,173		$	1,922		$	1,000	$	6,095		$	2,112	$	191		$	8,398
Charge-offs	(3		)	—			—		(3		)	—		(31		)	(34		)
Recoveries	—			—			—		—			—		6			6
Provision for credit losses	(55		)	(20		)	—		(75		)	45		30			—
Ending balance	$	3,115		$	1,902		$	1,000	$	6,017		$	2,157	$	196		$	8,370



	For the Three Months Ended December 31, 2016
	One- to Four-Family
				Correspondent			Bulk						Commercial
	Originated			Purchased			Purchased			Total			Real Estate		Consumer			Total
	(Dollars in thousands)
Beginning balance	$	3,928		$	2,102		$	1,065		$	7,095		$	1,208	$	237		$	8,540
Charge-offs	(24		)	—			—			(24		)	—		(8		)	(32		)
Recoveries	—			—			—			—			—		13			13
Provision for credit losses	(161		)	(38		)	(53		)	(252		)	287		(35		)	—
Ending balance	$	3,743		$	2,064		$	1,012		$	6,819		$	1,495	$	207		$	8,521

The following is a summary of the loan portfolio and related ACL balances, at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method. There was no ACL for loans individually evaluated for impairment at either date as all losses were charged-off.



	December 31, 2017
	One- to Four-Family
			Correspondent		Bulk				Commercial
	Originated		Purchased		Purchased		Total		Real Estate		Consumer		Total
	(Dollars in thousands)
Recorded investment in loans
collectively evaluated for impairment	$	3,931,843	$	2,484,653	$	332,873	$	6,749,369	$	283,826	$	126,726	$	7,159,921

Recorded investment in loans
individually evaluated for impairment	27,165		3,605		6,787		37,557		—		636		38,193
	$	3,959,008	$	2,488,258	$	339,660	$	6,786,926	$	283,826	$	127,362	$	7,198,114

ACL for loans collectively
evaluated for impairment	$	3,115	$	1,902	$	1,000	$	6,017	$	2,157	$	196	$	8,370



	September 30, 2017
	One- to Four-Family
			Correspondent		Bulk				Commercial
	Originated		Purchased		Purchased		Total		Real Estate		Consumer		Total
	(Dollars in thousands)
Recorded investment in loans
collectively evaluated for impairment	$	3,945,063	$	2,476,063	$	346,035	$	6,767,161	$	268,979	$	125,100	$	7,161,240

Recorded investment in loans
individually evaluated for impairment	30,251		3,800		7,404		41,455		—		774		42,229
	$	3,975,314	$	2,479,863	$	353,439	$	6,808,616	$	268,979	$	125,874	$	7,203,469

ACL for loans collectively
evaluated for impairment	$	3,173	$	1,922	$	1,000	$	6,095	$	2,112	$	191	$	8,398

5. INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made significant changes to the U.S. corporate income tax laws, such as a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018, bonus depreciation that will allow full expensing of qualified property, and other changes to and/or limitations on certain corporate income tax deductions. As required by Section 15 of the Internal Revenue Code, the Company will have a blended statutory federal income tax rate of 24.5% for fiscal year 2018, which is based on the applicable income tax rates prior to and subsequent to January 1, 2018 and the number of days in the fiscal year. In accordance with GAAP, the Company applied the blended federal income tax rate to pretax income in the current quarter and revalued its deferred tax assets and liabilities as of December 22, 2017 to account for the future impact of a lower federal income tax rate. The revaluation of the Company's deferred tax assets and liabilities resulted in a $7.5 million reduction in income tax expense in the current quarter and a corresponding reduction in the Company's net deferred tax liability.

Management estimates the effective income tax rate for fiscal year 2018 to be between 20% and 21% which is significantly lower than the effective tax rate of 34.2% for fiscal year 2017. The effective income tax rate is anticipated to be lower in the current fiscal year than the prior fiscal year due primarily to the revaluation of the Company's deferred tax assets and liabilities along with a lower blended statutory federal income tax rate. Management reviewed the carrying value of the Bank’s low income housing partnership investments in relation to the remaining tax benefits, considering the reduction in the corporate income tax rate, and determined there was no impairment present at December 31, 2017.

6. REPURCHASE AGREEMENTS

At December 31, 2017 and September 30, 2017, the Company had repurchase agreements outstanding in the amount of $100.0 million and $200.0 million, respectively, with a weighted average contractual rate of 2.53% and 2.94%, respectively. The $100.0 million outstanding at December 31, 2017 is scheduled to mature during fiscal year 2020. All of the Company's repurchase agreements at December 31, 2017 and September 30, 2017 were fixed-rate. See Note 3 for information regarding the amount of securities pledged as collateral in conjunction with repurchase agreements. Securities are delivered to the party with whom each transaction is executed and the party agrees to resell the same securities to the Bank at the maturity of the agreement. The Bank retains the right to substitute similar or like securities throughout the terms of the agreements. The repurchase agreements and collateral are subject to valuation at current market levels and the Bank may ask for the return of excess collateral or be required to post additional collateral due to changes in the market values of these items. The Bank may also be required to post additional collateral as a result of principal payments received on the securities pledged.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

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's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.

The Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are:


•	Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.


•	Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

•

Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.

The Company bases its fair values on the price that would be received from the sale of a financial instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis.

AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2017 or during fiscal year 2017. The Company's major security types, based on the nature and risks of the securities, are:


•	GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2)


•	MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2)


•	Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2)


•	Trust Preferred Securities - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking prepayment and underlying credit considerations into account. The discount rates are derived from secondary trades and bid/offer prices. (Level 3)

Interest Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in accounts payable and accrued expenses on the consolidated balance sheet, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. The estimated fair value of the interest rates swaps are obtained from a third party and are determined using a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values obtained from the third party by internally calculating the estimated fair value using a discounted cash flow analysis using independent observable market-based inputs. The Company did not make any adjustments to the estimated fair value received from the third party during the three months ended December 31, 2017 or during fiscal year 2017. (Level 2)

The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented.



	December 31, 2017
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
AFS Securities:
GSE debentures	$	294,904	$	—	$	294,904	$	—
MBS	205,467		—		205,467		—
Municipal bonds	1,513		—		1,513		—
	501,884		—		501,884		—
Interest Rate Swaps	1,528		—		1,528		—
	$	503,412	$	—	$	503,412	$	—



	September 30, 2017
			Quoted Prices		Significant		Significant
			in Active Markets		Other Observable		Unobservable
	Carrying		for Identical Assets		Inputs		Inputs
	Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Assets:
AFS Securities:
GSE debentures	$	270,729	$	—	$	270,729	$	—
MBS	141,516		—		141,516		—
Municipal bonds	1,535		—		1,535		—
Trust preferred securities	2,051		—		—		2,051
	415,831		—		413,780		2,051

Liabilities:
Interest Rate Swaps	598		—		598		—

The Company sold its Level 3 AFS security during the three months ended December 31, 2017, received proceeds of $2.1 million, and recognized a gain on sale of $9 thousand, which is included in other non-interest income in the Company's consolidated statement of income. The Company's Level 3 AFS securities had no activity during the three months ended December 31, 2016, except for principal repayments of $19 thousand and a decrease in net unrealized losses included in other comprehensive income of $80 thousand.

The following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis.

Loans Receivable - The amount of loans individually evaluated for impairment on a non-recurring basis during the three months ended December 31, 2017 and 2016 that were still held in the portfolio as of December 31, 2017 and 2016 was $1.9 million and $9.4 million, respectively. All of these loans were secured by residential real estate and were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of 10%. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value, except for the estimated sales cost noted above. The primary significant unobservable input for loans individually evaluated for impairment was the appraisal. Fair values of loans individually evaluated for impairment cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3. Based on this evaluation, the Bank charged-off all loss amounts as of December 31, 2017 and 2016; therefore, the fair value was equal to the carrying value and there was no ACL related to these loans.

OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. Fair value is estimated through current appraisals or listing prices, less estimated selling costs of 10%. Management does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2017 and 2016 that was still held in the portfolio as of December 31, 2017 and 2016 was $313 thousand and $1.3 million, respectively. The carrying value of the properties equaled the fair value of the properties at December 31, 2017 and 2016.

Fair Value Disclosures - The Company determined estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company would realize from a current market exchange at subsequent dates.

The carrying amounts and estimated fair values of the Company's financial instruments, at the dates presented, were as follows:



	December 31, 2017				September 30, 2017
			Estimated				Estimated
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	29,120	$	29,120	$	351,659	$	351,659
AFS securities	501,884		501,884		415,831		415,831
HTM securities	770,806		770,425		827,738		833,009
Loans receivable	7,189,744		7,306,923		7,195,071		7,354,100
FHLB stock	195,470		195,470		100,954		100,954
Interest rate swaps	1,528		1,528		—		—
Liabilities:
Deposits	5,266,217		5,261,378		5,309,868		5,318,249
FHLB borrowings	2,174,146		2,167,670		2,173,808		2,182,841
Repurchase agreements	100,000		100,571		200,000		202,004
Interest rate swaps	—		—		598		598

The following methods and assumptions were used to estimate the fair value of the financial instruments:

Cash and cash equivalents - The carrying amounts of cash and cash equivalents are considered to approximate their fair value due to the nature of the financial assets. (Level 1)

HTM securities - Estimated fair values of securities are based on one of three methods: (1) quoted market prices where available; (2) quoted market prices for similar instruments if quoted market prices are not available; (3) unobservable data that represents the Bank's assumptions about items that market participants would consider in determining fair value where no market data is available. HTM securities are carried at amortized cost. (Level 2)

Loans receivable - The fair value of one- to four-family loans and home equity loans are generally estimated using the present value of expected future cash flows, assuming future prepayments and using discount factors determined by prices obtained from securitization markets, less a discount for the cost of servicing and lack of liquidity. The estimated fair value of the Bank's commercial and consumer loans are based on the expected future cash flows assuming future prepayments and discount factors based on current offering rates. (Level 3)

FHLB stock - The carrying value and estimated fair value of FHLB stock equals cost, which is based on redemption at par value. (Level 1)

Deposits - The estimated fair value of demand deposits, savings, and money market accounts is the amount payable on demand at the reporting date. The estimated fair value of these deposits at December 31, 2017 and September 30, 2017 was $2.44 billion and $2.40 billion, respectively. (Level 1) The fair value of certificates of deposit is estimated by discounting future cash flows using current London Interbank Offered Rates ("LIBOR"). The estimated fair value of certificates of deposit at December 31, 2017 and September 30, 2017 was $2.82 billion and $2.92 billion, respectively. (Level 2)

FHLB borrowings and repurchase agreements - The fair value of fixed-maturity borrowed funds is estimated by discounting estimated future cash flows using current offer rates. (Level 2) The carrying value of FHLB line of credit is considered to approximate its fair value due to the nature of the financial liability. (Level 1)

Interest rate swaps - The fair value of the interest rate swaps was determined using discounted cash flow analysis using observable market-based inputs. (Level 2)

8. OTHER COMPREHENSIVE INCOME

The following table presents the changes in the components of AOCI, net of tax, for the three months ended December 31, 2017. During the three months ended December 31, 2016, the only changes in AOCI, net of tax, were related to unrealized gains (losses) on AFS securities and there were no amounts reclassified from AOCI.



	For the Three Months Ended December 31, 2017
	Unrealized			Unrealized
	Gains (Losses)			Gains (Losses)
	on AFS			on Cash Flow			Total
	Securities			Hedges			AOCI
	(dollars in thousands)
Beginning balance	$	3,290		$	(372	)	2,918
Other comprehensive income (loss), before reclassifications	(1,166		)	1,596			430
Amount reclassified from AOCI	—			(274		)	(274	)
Other comprehensive income (loss)	(1,166		)	1,322			156
Ending balance	$	2,124		$	950		3,074

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the Company's press releases, and in other communications by the Company, which are made in good faith by us pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:


•	our ability to maintain overhead costs at reasonable levels;


•	our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;


•	our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;


•	our ability to access cost-effective funding;


•	fluctuations in deposit flows;


•	the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;


•	the strength of the U.S. economy in general and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;


•	changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;


•	increases in non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;


•	results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;


•	changes in accounting principles, policies, or guidelines;


•	the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System ("FRB");


•	the effects of, and changes in, trade and fiscal policies and laws of the United States government;


•	the effects of, and changes in, foreign and military policies of the United States government;


•	inflation, interest rate, market, monetary, and currency fluctuations;


•	the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;


•	the willingness of users to substitute competitors' products and services for our products and services;


•	our success in gaining regulatory approval of our products and services and branching locations, when required;


•	the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection and insurance and the impact of other governmental initiatives affecting the financial services industry;


•	implementing business initiatives may be more difficult or expensive than anticipated;


•	significant litigation;


•	technological changes;


•	acquisitions and dispositions;


•	changes in consumer spending, borrowing and saving habits; and


•	our success at managing the risks involved in our business.

This list of important factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.

As used in this Form 10-Q, unless we specify otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc.

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. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017, filed with the SEC.

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.

We have been, and intend to continue to be, a community-oriented financial institution offering a variety of financial services to meet the needs of the communities we serve. We attract retail deposits from the general public and invest those funds primarily in permanent loans secured by first mortgages on owner-occupied, one- to four-family residences. We also originate consumer loans primarily secured by mortgages on one- to four-family residences and originate and participate in commercial real estate loans. We also invest in certain investment securities and MBS using funding from deposits, FHLB borrowings, and repurchase agreements.

The Company's results of operations are primarily dependent on net interest income, which is the difference between the interest earned on loans, securities, and cash, and the interest paid on deposits and borrowings. On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest rates based on secondary market prices and competitor pricing for our local lending markets, and secondary market prices and competitor pricing for our correspondent lending markets. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.

The Company is significantly affected by prevailing economic conditions, including federal monetary and fiscal policies and federal regulation of financial institutions. Retail deposit balances are influenced by a number of factors, including interest rates paid on competing investment products, the level of personal income, and the personal rate of savings within our market areas. Lending activities are influenced by the demand for housing and other loans, our loan underwriting guidelines compared to those of our competitors, as well as interest rate pricing competition from other lending institutions.

Local economic conditions have a significant impact on the ability of borrowers to repay loans and the value of the collateral securing these loans. The industries in the Bank's local market areas, where the properties securing approximately 67% of the Bank's one- to four-family loans are located, are diversified, especially in the Kansas City metropolitan statistical area, which comprises the largest segment of our loan portfolio and deposit base. As of December 2017, the unemployment rate was 3.4% for Kansas and 3.5% for Missouri, compared to the national average of 4.1%, based on information from the Bureau of Labor Statistics. The Kansas City market area has an average household income of approximately $80 thousand per annum, based on 2017 estimates from Claritas Pop-Facts Premier. The average household income in our combined local market areas is approximately $76 thousand per annum, with 91% of the population at or above the poverty level, also based on the 2017 estimates from Claritas Pop-Facts Premier. The Federal Housing Finance Agency price index for Kansas and Missouri continues to indicate relative stability in property values in our local market areas. Management also monitors broad industry and economic indicators and trends in the states and/or metropolitan statistical areas with the highest concentrations of correspondent purchased loans.

The Tax Act enacted on December 22, 2017 made significant changes to the U.S. corporate income tax laws, such as a permanent reduction in the federal corporate income tax rate from 35% to 21% effective January 1, 2018, and changes to and/or limitations on certain income tax deductions. The Company has a fiscal year end of September 30th, so the change in the income tax rate will result in the use of a blended federal income tax rate for fiscal year 2018. In accordance with GAAP, the Company applied the blended federal income tax rate to pretax income in the current quarter and revalued its deferred tax assets and liabilities as of December 22, 2017 to account for the future impact of a lower income tax rate. The revaluation of the Company's deferred tax assets and liabilities contributed $7.5 million to the decrease in income tax expense in the current quarter. The benefit of the lower income tax rate is partially offset by the Company recognizing more proportional amortization expense related to its low income housing partnerships in fiscal year 2018 resulting from an adjustment to account for a higher portion of those benefits realized prior to the income tax rate change. Management estimates the effective income tax rate for fiscal year 2018 to be between 20% and 21% and approximately 22% for fiscal year 2019.

For the quarter ended December 31, 2017, the Company recognized net income of $31.8 million, or $0.24 per share, an increase of $11.3 million, or 54.7%, from the quarter ended December 31, 2016. The increase in net income was due primarily to a decrease in income tax expense resulting from the enactment of the Tax Act on December 22, 2017, the impact of which was an increase in basic

and diluted EPS of $0.08 for the current quarter. The $0.08 EPS was composed of $0.06 per share related to the revaluation of the Company's deferred tax liabilities ($7.5 million) and $0.02 per share as a result of applying the lower blended corporate income tax rate to pretax income in the current quarter ($3.0 million).

The Bank has continued to utilize a leverage strategy to increase earnings in fiscal year 2018. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end for regulatory purposes. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 6.4% during the current quarter, were deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $767 thousand during the current quarter, compared to $642 thousand for the prior year quarter. The increase was due primarily to a decrease in the fiscal year 2018 estimated effective tax rate applied to pretax income attributable to the leverage strategy.

The net interest margin increased 10 basis points, from 1.73% for the prior year quarter to 1.83% for the current year quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased 13 basis points, from 2.07% for the prior year quarter to 2.20% for the current year quarter. The increase in the net interest margin was due mainly to an increase in interest-earning asset yields, as well as a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans and a net decrease in the cost of liabilities not related to the leverage strategy. The Company's efficiency ratio was 40.26% for the current quarter compared to 41.08% for the prior year quarter.

Total assets were $8.99 billion at December 31, 2017 compared to $9.19 billion at September 30, 2017. The $202.8 million decrease was due primarily to a $322.5 million decrease in cash and cash equivalents, partially offset by an increase in FHLB stock. At December 31, 2017, the Bank was not required by the FHLB to redeem the FHLB stock associated with the leverage strategy, which contributed to the lower cash balance compared to September 30, 2017, when this stock was redeemed. Additionally, cash was used during the current quarter to pay off maturing term borrowings, fund disbursements from borrower escrow accounts, and purchase securities.

The loan receivable portfolio was $7.19 billion at December 31, 2017, a decrease of $5.3 million from September 30, 2017. During the current quarter, the Bank originated and refinanced $146.6 million of loans with a weighted average rate of 3.84% and purchased $99.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.59%. The Bank also entered into participations totaling $50.4 million of commercial real estate loans with a weighted average rate of 4.19%, of which $45.2 million had not yet been funded as of December 31, 2017.

The Bank is continuing to manage the size of its loan portfolio as it manages its liquidity levels. Loan volume has primarily been maintained through the rates offered to correspondent lenders. Generally, over the past couple of years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances. By moving cash from lower yielding assets to higher yielding assets and repaying higher cost liabilities, we have been able to maintain our net interest margin. In addition to the repayment of securities, the Bank has emphasized growth in the deposit portfolio in part to pay down FHLB advances. The ratio of securities and cash to total assets was approximately 15% at December 31, 2017, which is approximately where management would like to maintain that percentage. In the long run, management considers a 10% ratio of stockholders' equity to total assets at the Bank an appropriate level of capital. At December 31, 2017, this ratio was 13.5%.

Total liabilities were $7.64 billion at December 31, 2017 compared to $7.82 billion at September 30, 2017. The $185.1 million decrease was due mainly to decreases in repurchase agreements and deposits. Repurchase agreements decreased due to the maturity of a $100.0 million repurchase agreement during the quarter. Deposits decreased $43.7 million, to $5.27 billion at December 31, 2017, due mainly to a decrease in wholesale certificates of deposit.

Stockholders' equity was $1.35 billion at December 31, 2017 compared to $1.37 billion at September 30, 2017. The $17.7 million decrease was due primarily to the payment of $50.4 million in cash dividends, partially offset by net income of $31.8 million.

Available Information

Financial and other Company information, including press releases, 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 investor relations website, http://ir.capfed.com. SEC filings are available on our website immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.

Critical Accounting Policies

Our most critical accounting policies are the methodologies used to determine the ACL and fair value measurements. These policies 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 or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting policies and their application are reviewed at least annually by our audit committee. For a full discussion of our critical accounting policies, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

Financial Condition

The following table presents selected balance sheet information as of the dates indicated.



	December 31,			September 30,			June 30,			March 31,			December 31,
	2017			2017			2017			2017			2016
	(Dollars in thousands)
Total assets	$	8,990,159		$	9,192,916		$	9,103,280		$	9,246,390		$	9,139,510
Cash and cash equivalents	29,120			351,659			130,249			240,587			150,560
AFS securities	501,884			415,831			452,894			465,083			499,792
HTM securities	770,806			827,738			891,037			954,110			1,022,215
Loans receivable, net	7,189,744			7,195,071			7,240,594			7,193,721			7,071,410
FHLB stock, at cost	195,470			100,954			101,039			105,475			105,364
Deposits	5,266,217			5,309,868			5,267,685			5,269,234			5,192,674
FHLB borrowings	2,174,146			2,173,808			2,173,472			2,273,113			2,272,754
Repurchase agreements	100,000			200,000			200,000			200,000			200,000
Stockholders' equity	1,350,611			1,368,313			1,358,986			1,382,289			1,368,175
Equity to total assets at end of period	15.0		%	14.9		%	14.9		%	14.9		%	15.0		%

Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. Within the one- to four-family loan portfolio at December 31, 2017, 57% of this amount had a balance at origination of less than $424 thousand.



	December 31, 2017					September 30, 2017
	Amount			Rate		Amount			Rate
	(Dollars in thousands)
Real estate loans:
One- to four-family:
Originated	$	3,940,288		3.69	%	$	3,959,232		3.70	%
Correspondent purchased	2,453,625			3.54		2,445,311			3.53
Bulk purchased	338,084			2.31		351,705			2.29
Construction	33,063			3.47		30,647			3.45
Total	6,765,060			3.57		6,786,895			3.56
Commercial:
Permanent	205,020			4.22		183,030			4.24
Construction	80,062			3.89		86,952			3.80
Total	285,082			4.13		269,982			4.10
Total real estate loans	7,050,142			3.59		7,056,877			3.58

Consumer loans:
Home equity	123,124			5.40		122,066			5.40
Other	4,238			4.04		3,808			4.05
Total consumer loans	127,362			5.36		125,874			5.36
Total loans receivable	7,177,504			3.62		7,182,751			3.61

Less:
ACL	8,370					8,398
Discounts/unearned loan fees	25,110					24,962
Premiums/deferred costs	(45,720		)			(45,680		)
Total loans receivable, net	$	7,189,744				$	7,195,071

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 and loans that are sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the three months ended December 31, 2017, the Bank endorsed $8.9 million of one- to four-family loans, reducing the average rate on those loans by 49 basis points.



	For the Three Months Ended
	December 31, 2017					September 30, 2017					June 30, 2017					March 31, 2017
	Amount			Rate		Amount			Rate		Amount			Rate		Amount			Rate
	(Dollars in thousands)
Beginning balance	$	7,182,751		3.61	%	$	7,228,425		3.60	%	$	7,182,346		3.59	%	$	7,061,557		3.58	%
Originated and refinanced:
Fixed	109,102			3.70		102,687			3.82		116,422			3.94		115,560			3.66
Adjustable	37,502			4.26		44,900			4.10		59,372			3.87		36,417			3.82
Purchased and participations:
Fixed	85,565			3.73		76,906			3.92		135,041			3.97		143,852			3.69
Adjustable	64,689			3.87		17,046			3.33		17,930			3.24		27,158			2.98
Change in undisbursed loan funds	(17,706		)			21,823					13,648					37,862
Repayments	(283,880		)			(307,909		)			(295,988		)			(239,072		)
Principal (charge-offs) recoveries, net	(28		)			(88		)			39					(74		)
Other	(491		)			(1,039		)			(385		)			(914		)
Ending balance	$	7,177,504		3.62		$	7,182,751		3.61		$	7,228,425		3.60		$	7,182,346		3.59

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. Loan originations, purchases, and refinances are reported together. The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.



	For the Three Months Ended
	December 31, 2017						December 31, 2016
	Amount		Rate		% of Total		Amount		Rate		% of Total
	(Dollars in thousands)
Fixed-rate:
One- to four-family:
<= 15 years	$	36,915	3.15	%	12.5	%	$	84,347	2.78	%	19.3	%
> 15 years	151,907		3.82		51.2		246,730		3.52		56.6
Commercial real estate	4,792		4.13		1.6		32,291		3.96		7.4
Home equity	950		5.94		0.3		733		6.09		0.2
Other	103		9.36		—		127		9.90		—
Total fixed-rate	194,667		3.71		65.6		364,228		3.39		83.5

Adjustable-rate:
One- to four-family:
<= 36 months	767		2.75		0.3		1,427		2.42		0.3
> 36 months	35,970		3.14		12.1		52,031		2.76		12.0
Commercial real estate	45,650		4.20		15.4		—		—		—
Home equity	18,826		5.31		6.3		17,933		4.77		4.1
Other	978		3.79		0.3		437		3.30		0.1
Total adjustable-rate	102,191		4.02		34.4		71,828		3.25		16.5

Total originated, refinanced and purchased	$	296,858	3.82		100.0	%	$	436,056	3.37		100.0	%

Purchased and participation loans included above:
Fixed-rate:
Correspondent - one- to four-family	$	80,773	3.71				$	155,383	3.43
Participations - commercial real estate	4,792		4.13				32,291		3.96
Total fixed-rate purchased/participations	85,565		3.73				187,674		3.52

Adjustable-rate:
Correspondent - one- to four-family	19,039		3.10				25,262		2.73
Participations - commercial real estate	45,650		4.20				—		—
Total adjustable-rate purchased/participations	64,689		3.87				25,262		2.73
Total purchased/participation loans	$	150,254	3.79				$	212,936	3.43

One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least semiannually, with the latest update in September 2017, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.



	December 31, 2017									September 30, 2017
			% of		Credit			Average				% of		Credit			Average
	Amount		Total		Score	LTV		Balance		Amount		Total		Score	LTV		Balance
	(Dollars in thousands)
Originated	$	3,940,288	58.5	%	767	63	%	$	135	$	3,959,232	58.6	%	767	63	%	$	135
Correspondent purchased	2,453,625		36.5		764	68		377		2,445,311		36.2		764	68		375
Bulk purchased	338,084		5.0		757	62		304		351,705		5.2		757	63		305
	$	6,731,997	100.0	%	765	64		183		$	6,756,248	100.0	%	765	65		182

The following table presents originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Of the loans originated during the current quarter, $20.3 million were refinanced from another lender. Of the loans originated during the prior year quarter, $52.1 million were refinanced from another lender. Of the loans originated and refinanced during the current year quarter, 72% had loan values of $424 thousand or less. Of the correspondent loans purchased during the current year quarter, 10% had loan values of $424 thousand or less.



	For the Three Months Ended
	December 31, 2017					December 31, 2016
					Credit					Credit
	Amount		LTV		Score	Amount		LTV		Score
	(Dollars in thousands)
Originated	$	101,420	77	%	763	$	144,737	76	%	771
Refinanced by Bank customers	24,327		66		754	59,153		66		768
Correspondent purchased	99,812		75		766	180,645		72		767
	$	225,559	75		764	$	384,535	73		769

The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the quarter ended December 31, 2017.



State	Amount		% of Total		Rate
	(Dollars in thousands)
Kansas	$	111,798	49.5	%	3.60	%
Texas	40,960		18.2		3.55
Missouri	39,261		17.4		3.60
Other states	33,540		14.9		3.63
	$	225,559	100.0	%	3.60

One- to Four-Family Loan Commitments - The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 2017, 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 future cash needs.



	Fixed-Rate
	15 years			More than			Adjustable-			Total
	or less			15 years			Rate			Amount		Rate
	(Dollars in thousands)
Originate/refinance	$	8,408		$	25,039		$	7,891		$	41,338	3.58	%
Correspondent	5,511			70,994			16,002			92,507		3.82
	$	13,919		$	96,033		$	23,893		$	133,845	3.75

Rate	3.21		%	3.95		%	3.24		%

Commercial Real Estate Loans - Commercial real estate loans are originated or participated in based on the income producing potential of the property, the collateral value, and the financial strength of the borrower. Additionally, the Bank generally requires personal guarantees. The Bank generally requires a minimum debt service coverage ratio of 1.25 and limits LTV ratios to 80% for commercial real estate loans depending on the property type. During the current quarter, the Bank entered into commercial real estate loan participations of $50.4 million, which included $45.7 million of commercial real estate construction loans. Substantially all of the $45.7 million of commercial real estate construction loans had not yet been funded as of December 31, 2017. The Bank intends to continue to grow its commercial real estate loan portfolio through participations with correspondent lenders and other select lead banks.

The following table presents the Bank's commercial real estate loans and loan commitments by industry classification, as defined by the North American Industry Classification System, as of December 31, 2017. Included in the table are fixed-rate loans totaling $323.6 million at a weighted average rate of 4.07% and adjustable-rate loans totaling $128.3 million at a weighted average rate of 4.54%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at December 31, 2017 having shorter terms. Based on the terms of the construction loans as of December 31, 2017, of the $131.3 million of undisbursed amounts in the table, approximately $24.4 million is projected to be disbursed by March 31, 2018, and an additional $77.2 million is projected to be disbursed by December 31, 2018. It is possible that not all of the funds will be disbursed due to the nature of the funding of construction projects. For outstanding commitments, in certain cases, the weighted average rate presented represents our best estimate.



	Unpaid			Undisbursed			Gross Loan			Outstanding						% of
	Principal			Amount			Amount			Commitments			Total			Total
	(Dollars in thousands)
Accommodation and food services	$	135,904		$	33,663		$	169,567		$	11,631		$	181,198		40.1	%
Health care and social assistance	46,868			40,969			87,837			23,892			111,729			24.7
Real estate rental and leasing	26,603			34,375			60,978			—			60,978			13.5
Arts, entertainment, and recreation	33,534			—			33,534			—			33,534			7.4
Multi-family	10,168			20,950			31,118			—			31,118			6.9
Retail trade	25,577			1,374			26,951			—			26,951			6.0
Manufacturing	6,428			—			6,428			—			6,428			1.4
	$	285,082		$	131,331		$	416,413		$	35,523		$	451,936		100.0	%

Weighted average rate	4.13		%	4.40		%	4.21		%	4.07		%	4.20		%

The following table summarizes the Bank's commercial real estate loans and loan commitments by state as of December 31, 2017.



	Unpaid		Undisbursed		Gross Loan		Outstanding				% of
	Principal		Amount		Amount		Commitments		Total		Total
	(Dollars in thousands)
Texas	$	105,618	$	67,646	$	173,264	$	—	$	173,264	38.3	%
Missouri	74,562		41,235		115,797		35,523		151,320		33.5
Kansas	74,481		—		74,481		—		74,481		16.5
Nebraska	—		20,950		20,950		—		20,950		4.6
Colorado	14,622		—		14,622		—		14,622		3.2
Arkansas	7,934		—		7,934		—		7,934		1.8
California	6,428		—		6,428		—		6,428		1.4
Montana	1,437		1,500		2,937		—		2,937		0.7
	$	285,082	$	131,331	$	416,413	$	35,523	$	451,936	100.0	%

The following table presents the Bank's commercial real estate loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2017.



	Count	Amount
	(Dollars in thousands)
Greater than $30 million	4	$	156,770
>$15 to $30 million	7	166,271
>$10 to $15 million	3	37,376
>$5 to $10 million	2	14,363
$1 to $5 million	24	70,181
Less than $1 million	15	6,975
	55	$	451,936

Asset Quality. The Bank's traditional underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets compared to national levels. Of particular importance is the complete and full documentation required for each loan the Bank originates, participates in or purchases. Generally, one- to four-family owner occupied loans are currently underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the CFPB, with total debt-to-income ratios not exceeding 43% of the borrower's verified income. This allows the Bank to make an informed credit decision based upon a thorough assessment of the borrower's ability to repay the loan. See additional discussion regarding underwriting standards in "Part I, Item 1. Business - Lending Practices and Underwriting Standards" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

Delinquent and non-performing loans and OREO - The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Of the loans 30 to 89 days delinquent at December 31, 2017, approximately 60% were 59 days or less delinquent.



	Loans Delinquent for 30 to 89 Days at:
	December 31,				September 30,				June 30,				March 31,				December 31,
	2017				2017				2017				2017				2016
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
One- to four-family:
Originated	129	$	11,435		129	$	13,257		120	$	10,455		122	$	10,886		130	$	11,232
Correspondent purchased	4	1,118			8	1,827			5	1,278			4	739			17	7,809
Bulk purchased	21	4,691			22	3,194			15	2,511			19	3,527			26	4,844
Consumer:
Home equity	32	604			30	467			30	412			36	761			38	665
Other	6	33			5	33			5	14			7	34			7	17
	192	$	17,881		194	$	18,778		175	$	14,670		188	$	15,947		218	$	24,567

Loans 30 to 89 days delinquent
to total loans receivable, net		0.25		%		0.26		%		0.20		%		0.22		%		0.35		%

The table below presents the Company's non-performing loans and OREO at the dates indicated. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to regulatory reporting requirements, 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 non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. Over the past 12 months, OREO properties acquired in settlement of loans were owned by the Bank, on average, for approximately seven months before the properties were sold.



	Non-Performing Loans and OREO at:
	December 31,				September 30,				June 30,				March 31,				December 31,
	2017				2017				2017				2017				2016
	Number	Amount			Number	Amount			Number	Amount			Number	Amount			Number	Amount
	(Dollars in thousands)
Loans 90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated	67	$	5,981		67	$	5,515		50	$	4,264		65	$	5,348		79	$	6,647
Correspondent purchased	2	553			1	91			—	—			3	901			2	553
Bulk purchased	14	3,693			13	3,371			18	4,805			24	7,097			27	7,982
Consumer:
Home equity	25	511			21	406			27	484			22	423			29	456
Other	1	3			1	4			2	10			3	7			7	18
	109	10,741			103	9,387			97	9,563			117	13,776			144	15,656

Loans 90 or more days delinquent or in foreclosure
as a percentage of total loans		0.15		%		0.13		%		0.13		%		0.19		%		0.22		%

Nonaccrual loans less than 90 Days Delinquent:⁽¹⁾
One- to four-family:
Originated	32	$	3,385		50	$	4,567		89	$	9,493		92	$	10,675		82	$	11,393
Correspondent purchased	3	768			8	1,690			9	1,589			4	583			6	1,231
Bulk purchased	2	442			4	846			3	1,023			3	809			2	147
Consumer:
Home equity	5	86			7	113			12	251			14	346			14	371
	42	4,681			69	7,216			113	12,356			113	12,413			104	13,142
Total non-performing loans	151	15,422			172	16,603			210	21,919			230	26,189			248	28,798

Non-performing loans as a percentage of total loans		0.21		%		0.23		%		0.30		%		0.36		%		0.41		%

OREO:
One- to four-family:
Originated⁽²⁾	2	$	40		4	$	58		9	$	200		9	$	831		10	$	888
Bulk purchased	2	768			5	1,279			5	1,671			6	1,830			3	1,196
Consumer:
Home equity	1	67			1	67			1	82			—	—			—	—
Other	—	—			—	—			—	—			—	—			1	1,278
	5	875			10	1,404			15	1,953			15	2,661			14	3,362
Total non-performing assets	156	$	16,297		182	$	18,007		225	$	23,872		245	$	28,850		262	$	32,160

Non-performing assets as a percentage of total assets		0.18		%		0.20		%		0.26		%		0.31		%		0.35		%

(1)

Represents loans required to be reported as nonaccrual pursuant to regulatory reporting requirements even if the loans are current. At December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017, and December 31, 2016, this amount was comprised of $1.8 million, $1.8 million, $2.7 million, $2.0 million, and $2.0 million, respectively, of loans that were 30 to 89 days delinquent and were reported as such, and $2.9 million, $5.4 million, $9.7 million, $10.4 million, and $11.1 million, respectively, of loans that were current.


(2)	Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents the states where the properties securing one 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 December 31, 2017. 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 December 31, 2017, 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	$	3,648,027	54.2	%	$	8,731	50.6	%	$	5,252	51.4	%	69	%
Missouri	1,236,378		18.4		3,323		19.3		1,343		13.1		60
Texas	695,805		10.3		1,208		7.0		453		4.4		46
Tennessee	221,811		3.3		—		—		—		—		n/a
California	212,318		3.2		—		—		—		—		n/a
Pennsylvania	104,050		1.5		308		1.8		—		—		n/a
Alabama	95,645		1.4		—		—		—		—		n/a
Georgia	89,059		1.3		—		—		404		4.0		46
Oklahoma	66,150		1.0		—		—		—		—		n/a
Other states	362,754		5.4		3,674		21.3		2,775		27.1		70
	$	6,731,997	100.0	%	$	17,244	100.0	%	$	10,227	100.0	%	66

TDRs - The following table presents the Company's TDRs, based on accrual status, at the dates indicated.



	At
	December 31,		September 30,		June 30,		March 31,		December 31,
	2017		2017		2017		2017		2016
	(Dollars in thousands)
Accruing TDRs	$	25,670	$	27,383	$	27,343	$	26,209	$	22,726
Nonaccrual TDRs⁽¹⁾	9,355		11,742		15,947		16,868		17,983
Total TDRs	$	35,025	$	39,125	$	43,290	$	43,077	$	40,709


(1)	Nonaccrual TDRs are included in the non-performing loan table above.

Allowance for credit losses and Provision for credit losses - Management maintains an ACL to absorb inherent losses in the loan portfolio based on ongoing quarterly assessments of the loan portfolio. The ACL is maintained through provisions for credit losses which are either charged to or credited to income. Our ACL methodology considers a number of factors including the trend and composition of delinquent loans, trends in foreclosed property and short sale transactions and charge-off activity, the current status and trends of local and national employment levels, trends and current conditions in the real estate and housing markets, loan portfolio growth and concentrations, industry and peer charge-off information, and certain ACL ratios. For our commercial real estate portfolio, we also consider qualitative factors such as geographic locations, property types, tenant brand name, borrowing relationships, and lending relationships in the case of participation loans, among other factors. See "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance for Credit Losses" and "Part II, Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for a full discussion of our ACL methodology. See "Part I, Item 1. Financial Statements - Notes to Consolidated Financial Statements - Note 4. Loans Receivable and Allowance for Credit Losses" for additional information on the ACL.

The Bank did not record a provision for credit losses during the current quarter or the prior year quarter. Based on management's assessment of the ACL formula analysis model and several other factors, management determined that no provision for credit losses was necessary. Net charge-offs were $28 thousand during the current quarter and $19 thousand during the prior year quarter. At December 31, 2017, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.15% of total loans.

The distribution of our ACL at the dates indicated is summarized below. Included in bulk purchased loans are $210.7 million of loans, or 62% of the total bulk purchased loan portfolio, at December 31, 2017, for which the seller of the loans has guaranteed to repurchase or replace any delinquent loans. The Bank has not experienced any losses on loans acquired from this seller as all delinquent loans have been repurchased by this seller since the loan package was purchased in fiscal year 2012. For the $127.4 million of bulk purchased loans at December 31, 2017 that do not have the above noted guarantee, the Bank has continued to experience a reduction in loan losses due to an improvement in collateral values. A large portion of these loans were originally interest-only loans with interest-only terms up to 10 years. All of the bulk purchased interest-only loans are now fully amortizing loans. Our correspondent purchased loans are purchased on a loan-by-loan basis from a select group of correspondent lenders and are underwritten by the Bank's underwriters based on underwriting standards that are generally the same as for our originated loans.



	At
	December 31, 2017								September 30, 2017
			% of ACL				% of				% of ACL				% of
	Amount		to Total		Total		Loans to		Amount		to Total		Total		Loans to
	of ACL		ACL		Loans		Total Loans		of ACL		ACL		Loans		Total Loans
	(Dollars in thousands)
Real estate loans:
One- to four-family:
Originated	$	3,090	36.9	%	$	3,940,288	54.9	%	$	3,149	37.5	%	$	3,959,232	55.1	%
Correspondent purchased	1,902		22.7		2,453,625		34.2		1,922		22.9		2,445,311		34.0
Bulk purchased	1,000		11.9		338,084		4.6		1,000		11.9		351,705		4.9
Construction	25		0.3		33,063		0.5		24		0.3		30,647		0.4
Total	6,017		71.8		6,765,060		94.2		6,095		72.6		6,786,895		94.4
Commercial:
Permanent	1,356		16.2		205,020		2.9		1,242		14.8		183,030		2.6
Construction	801		9.6		80,062		1.1		870		10.3		86,952		1.2
Total	2,157		25.8		285,082		4.0		2,112		25.1		269,982		3.8
Total real estate loans	8,174		97.6		7,050,142		98.2		8,207		97.7		7,056,877		98.2
Consumer loans:
Home equity	166		2.0		123,124		1.7		159		1.9		122,066		1.7
Other consumer	30		0.4		4,238		0.1		32		0.4		3,808		0.1
Total consumer loans	196		2.4		127,362		1.8		191		2.3		125,874		1.8
	$	8,370	100.0	%	$	7,177,504	100.0	%	$	8,398	100.0	%	$	7,182,751	100.0	%

The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories. Using the Bank's annualized net historical loan losses from the Bank's formula analysis model over the past five years, the Bank would have approximately 16 years of net loan loss coverage based on the ACL balance at December 31, 2017.



	For the Three Months Ended
	December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016
	(Dollars in thousands)
ACL beginning balance	$	8,398		$	8,486		$	8,447		$	8,521		$	8,540
Charge-offs	(34		)	(193		)	(41		)	(82		)	(32		)
Recoveries	6			105			80			8			13
Provision for credit losses	—			—			—			—			—
ACL ending balance	$	8,370		$	8,398		$	8,486		$	8,447		$	8,521

ACL to loans receivable, net at end of period	0.12		%	0.12		%	0.12		%	0.12		%	0.12		%
ACL to non-performing loans at end of period	54.27			50.58			38.72			32.25			29.59
Ratio of net charge-offs (recoveries) during the
period to average loans outstanding	—			—			—			—			—
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets	0.16			0.43			(0.15		)	0.24			0.06
ACL to net charge-offs (annualized)	76.4x			23.6x			N/M⁽¹⁾			28.6x			111.5x


(1)	The ACL coverage ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.

Securities. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 74% of our securities portfolio at December 31, 2017. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.



	December 31, 2017					September 30, 2017					December 31, 2016
	Amount		Yield		WAL	Amount		Yield		WAL	Amount		Yield		WAL
	(Dollars in thousands)
Fixed-rate securities:
MBS	$	611,466	2.15	%	2.9	$	632,422	2.14	%	2.9	$	784,640	2.14	%	2.8
GSE debentures	296,327		1.39		1.1	271,300		1.29		1.3	321,246		1.21		1.8
Municipal bonds	26,561		1.51		1.9	28,337		1.65		2.0	33,203		1.78		2.4
Total fixed-rate securities	934,354		1.89		2.3	932,059		1.88		2.4	1,139,089		1.87		2.5

Adjustable-rate securities:
MBS	334,921		2.59		5.1	304,153		2.55		4.6	373,409		2.26		4.8
Trust preferred securities	—		—		—	2,067		2.58		19.7	2,112		2.22		20.5
Total adjustable-rate securities	334,921		2.59		5.1	306,220		2.55		4.7	375,521		2.26		4.9
Total securities portfolio	$	1,269,275	2.07		3.0	$	1,238,279	2.05		3.0	$	1,514,610	1.97		3.1

The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.



	December 31, 2017		September 30, 2017		December 31, 2016
	(Dollars in thousands)
Federal National Mortgage Association ("FNMA")	$	584,298	$	575,142	$	708,540
Federal Home Loan Mortgage Corporation ("FHLMC")	309,223		306,196		382,236
Government National Mortgage Association	57,717		61,109		75,550
	$	951,238	$	942,447	$	1,166,326

Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $8.8 million, from $942.4 million at September 30, 2017, to $951.2 million at December 31, 2017. The following table summarizes the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WAL is the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.



	For the Three Months Ended
	December 31, 2017						September 30, 2017						June 30, 2017						March 31, 2017
	Amount			Yield		WAL	Amount			Yield		WAL	Amount			Yield		WAL	Amount			Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	942,447		2.28	%	3.5	$	1,017,145		2.26	%	3.6	$	1,090,870		2.25	%	3.9	$	1,166,326		2.18	%	3.5
Maturities and repayments	(66,116		)				(72,966		)				(71,763		)				(73,801		)
Net amortization of (premiums)/discounts	(854		)				(937		)				(992		)				(1,015		)
Purchases:
Fixed	25,908			2.46		5.5	—			—		—	—			—		—	—			—		—
Adjustable	50,874			2.35		4.7	—			—		—	—			—		—	—			—		—
Change in valuation on AFS securities	(1,021		)				(795		)				(970		)				(640		)
Ending balance - carrying value	$	951,238		2.31		3.7	$	942,447		2.28		3.5	$	1,017,145		2.26		3.6	$	1,090,870		2.25		3.9

Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, increased $20.4 million, from $301.1 million at September 30, 2017, to $321.5 million at December 31, 2017. The following table summarizes the activity of investment securities 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. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.



	For the Three Months Ended
	December 31, 2017						September 30, 2017						June 30, 2017						March 31, 2017
	Amount			Yield		WAL	Amount			Yield		WAL	Amount			Yield		WAL	Amount			Yield		WAL
	(Dollars in thousands)
Beginning balance - carrying value	$	301,122		1.33	%	1.5	$	326,786		1.29	%	1.6	$	328,323		1.29	%	1.9	$	355,681		1.27	%	2.0
Maturities, calls and sales	(3,768		)				(25,818		)				(1,538		)				(28,863		)
Net amortization of (premiums)/discounts	(48		)				(55		)				(57		)				(61		)
Purchases:
Fixed	25,000			2.45		1.0	—			—		—	—			—		—	1,535			1.30		3.4
Change in valuation on AFS securities	(854		)				209						58						31
Ending balance - carrying value	$	321,452		1.40		1.2	$	301,122		1.33		1.5	$	326,786		1.29		1.6	$	328,323		1.29		1.9

Liabilities. Total liabilities were $7.64 billion at December 31, 2017 compared to $7.82 billion at September 30, 2017. The $185.1 million decrease was due mainly to decreases in repurchase agreements and deposits. Repurchase agreements decreased due to the maturity of a $100.0 million repurchase agreement during the quarter. Deposits decreased $43.7 million, to $5.27 billion at December 31, 2017, due mainly to a decrease in wholesale certificates of deposit.

Deposits - Deposits were $5.27 billion at December 31, 2017 compared to $5.31 billion at September 30, 2017. We continue to be competitive on deposit rates and, in some cases, our offer rates for longer-term certificates of deposit have been higher than peers. Offering competitive rates on longer-term certificates of deposit has been an on-going balance sheet strategy by management in anticipation of higher interest rates. If short-term interest rates continue to rise, our customers may move funds from their checking, savings and money market accounts to higher yielding deposit products within the Bank or withdraw their funds from these accounts, including certificates of deposit, to invest in higher yielding investments outside of the Bank.

The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented.



	December 31, 2017						September 30, 2017						December 31, 2016
					% of						% of						% of
	Amount		Rate		Total		Amount		Rate		Total		Amount		Rate		Total
	(Dollars in thousands)
Non-interest-bearing checking	$	250,621	—	%	4.8	%	$	243,670	—	%	4.6	%	$	223,896	—	%	4.3	%
Interest-bearing checking	646,043		0.05		12.3		615,615		0.05		11.6		626,379		0.05		12.1
Savings	352,051		0.31		6.7		349,977		0.24		6.6		338,661		0.21		6.5
Money market	1,195,530		0.38		22.7		1,190,185		0.24		22.4		1,218,545		0.24		23.5
Retail certificates of deposit	2,419,380		1.57		45.9		2,450,418		1.52		46.1		2,414,489		1.44		46.5
Public units	402,592		1.37		7.6		460,003		1.28		8.7		370,704		0.74		7.1
	$	5,266,217	0.94		100.0	%	$	5,309,868	0.89		100.0	%	$	5,192,674	0.80		100.0	%

The following tables set forth scheduled maturity information for our certificates of deposit, including public units, along with associated weighted average rates, at December 31, 2017.



	Amount Due
				More than			More than
	1 year			1 year to			2 years to 3			More than			Total
Rate range	or less			2 years			years			3 years			Amount		Rate
	(Dollars in thousands)
0.00 – 0.99%	$	380,487		$	36,521		$	—		$	15		$	417,023	0.74	%
1.00 – 1.99%	646,938			682,969			438,976			411,468			2,180,351		1.62
2.00 – 2.99%	1,264			49,828			112,646			60,860			224,598		2.22
	$	1,028,689		$	769,318		$	551,622		$	472,343		$	2,821,972	1.54

Percent of total	36.5		%	27.3		%	19.5		%	16.7		%
Weighted average rate	1.15			1.57			1.88			1.95
Weighted average maturity (in years)	0.5			1.5			2.5			3.9			1.7
Weighted average maturity for the retail certificate of deposit portfolio (in years)													1.8



	Amount Due
			Over		Over
	3 months		3 to 6		6 to 12		Over
	or less		months		months		12 months		Total
	(Dollars in thousands)
Retail certificates of deposit less than $100,000	$	150,936	$	144,978	$	231,647	$	959,115	$	1,486,676
Retail certificates of deposit of $100,000 or more	67,731		67,786		122,046		675,141		932,704
Public unit deposits of $100,000 or more	118,488		72,794		52,283		159,027		402,592
	$	337,155	$	285,558	$	405,976	$	1,793,283	$	2,821,972

Borrowings - The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer. FHLB advances are presented at par. The weighted average effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.



	For the Three Months Ended
	December 31, 2017						September 30, 2017						June 30, 2017						March 31, 2017
				Effective						Effective						Effective					Effective
	Amount			Rate		WAM	Amount			Rate		WAM	Amount			Rate		WAM	Amount		Rate		WAM
	(Dollars in thousands)
Beginning balance	$	2,375,000		2.16	%	2.7	$	2,175,000		2.23	%	2.5	$	2,475,000		2.35	%	2.5	$	2,475,000	2.35	%	2.7
Maturities:
FHLB advances	(100,000		)	2.53			(100,000		)	3.12			(300,000		)	3.24			—		—
Repurchase agreements	(100,000		)	3.35			—			—			—			—			—		—
New FHLB borrowings:
Fixed-rate	—			—		—	100,000			1.85		3.0	—			—		—	—		—		—
Interest rate swaps⁽¹⁾	—			—		—	200,000			2.05		6.0	—			—		—	—		—		—
Ending balance	$	2,175,000		2.09		2.7	$	2,375,000		2.16		2.7	$	2,175,000		2.23		2.5	$	2,475,000	2.35		2.5


(1)	Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $200.0 million to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.

Maturities - The following table presents the maturity of term borrowings (including FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of December 31, 2017. Included in the table are $200.0 million of 12-month adjustable-rate FHLB advances that are hedged with interest rate swaps with a notional amount of $200.0 million. The 12-month adjustable-rate FHLB advances are presented in the table below based on the contractual maturity date of the advance. The interest rate swaps have an expected WAL of 5.6 years at December 31, 2017.



	FHLB		Repurchase
Maturity by	Advances		Agreements		Total		Contractual		Effective
Fiscal Year	Amount		Amount		Amount		Rate		Rate⁽¹⁾
	(Dollars in thousands)
2018	$	375,000	$	—	$	375,000	1.76	%	2.34	%
2019	500,000		—		500,000		1.56		1.69
2020	350,000		100,000		450,000		2.11		2.11
2021	550,000		—		550,000		2.27		2.27
2022	200,000		—		200,000		2.23		2.23
2023	100,000		—		100,000		1.82		1.82
	$	2,075,000	$	100,000	$	2,175,000	1.96		2.09


(1)	The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail and public unit amounts, and term borrowings for the next four quarters as of December 31, 2017.



	Retail				Public Unit				Term
Maturity by	Certificate		Repricing		Deposit		Repricing		Borrowings		Repricing				Repricing
Quarter End	Amount		Rate		Amount		Rate		Amount		Rate		Total		Rate
	(Dollars in thousands)
March 31, 2018	$	218,667	1.07	%	$	118,488	1.21	%	$	—	—	%	$	337,155	1.12	%
June 30, 2018	212,764		1.02		72,794		1.30		100,000		2.82		385,558		1.54
September 30, 2018	152,587		1.08		21,362		1.22		275,000		2.17		448,949		1.75
December 31, 2018	201,106		1.30		30,921		1.41		300,000		1.73		532,027		1.55
	$	785,124	1.12		$	243,565	1.26		$	675,000	2.07		$	1,703,689	1.52

Stockholders' Equity. Stockholders' equity was $1.35 billion at December 31, 2017 compared to $1.37 billion at September 30, 2017. The $17.7 million decrease was due primarily to the payment of $50.4 million in cash dividends, partially offset by net income of $31.8 million. The cash dividends paid during the current quarter totaled $0.375 per share and consisted of a $0.29 per share cash true-up dividend related to fiscal year 2017 earnings per the Company's dividend policy, and a regular quarterly cash dividend of $0.085 per share. On January 23, 2018, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.4 million, payable on February 16, 2018 to stockholders of record as of the close of business on February 2, 2018.

At December 31, 2017, Capitol Federal Financial, Inc., at the holding company level, had $90.6 million on deposit at the Bank. For fiscal year 2018, it is the intent of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to its stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

Capitol Federal Financial, Inc. works to find multiple ways to provide stockholder value. Primarily this has been through stock buybacks and the payment of cash dividends. The Company has maintained a dividend policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual true-up dividend in December of each year. In addition, due to the excess capital levels at the Company and the Bank, the Company has paid out a True Blue dividend of $0.25 cash per share in June of each of the past four years and in December prior to that. 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 considerations, including capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.

The following table presents regular quarterly dividends and special dividends paid in calendar years 2018, 2017, and 2016. The amounts represent cash dividends paid during each period. For the quarter ending March 31, 2018, the amount presented represents the dividend payable on February 16, 2018 to stockholders of record as of February 2, 2018.



	Calendar Year
	2018				2017				2016
	Amount		Per Share		Amount		Per Share		Amount		Per Share
	(Dollars in thousands, except per share amounts)
Regular quarterly dividends paid
Quarter ended March 31	$	11,427	$	0.085	$	11,386	$	0.085	$	11,305	$	0.085
Quarter ended June 30					11,409		0.085		11,314		0.085
Quarter ended September 30					11,411		0.085		11,323		0.085
Quarter ended December 31					11,427		0.085		11,363		0.085
True-up dividends paid					38,985		0.290		38,835		0.290
True Blue dividends paid					33,559		0.250		33,274		0.250
Calendar year-to-date dividends paid	$	11,427	$	0.085	$	118,177	$	0.880	$	117,414	$	0.880

In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock. It is anticipated that shares will be purchased from time to time based upon market conditions and available liquidity. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

Operating Results

The following table presents selected income statement and other information for the quarters indicated.



	For the Three Months Ended
	December 31,			September 30,			June 30,			March 31,			December 31,
	2017			2017			2017			2017			2016
	(Dollars in thousands, except per share data)
Interest and dividend income:
Loans receivable	$	64,189		$	64,329		$	64,013		$	63,106		$	61,945
MBS	5,252			5,435			5,821			6,191			6,362
Cash and cash equivalents	7,114			6,669			5,619			4,132			2,969
FHLB stock	3,095			3,080			3,114			3,100			2,939
Investment securities	994			1,061			1,063			1,131			1,107
Total interest and dividend income	80,644			80,574			79,630			77,660			75,322

Interest expense:
FHLB borrowings	17,917			18,099			17,884			16,771			16,117
Deposits	11,961			11,313			10,895			10,364			10,396
Repurchase agreements	1,392			1,504			1,487			1,471			1,503
Total interest expense	31,270			30,916			30,266			28,606			28,016

Net interest income	49,374			49,658			49,364			49,054			47,306

Provision for credit losses	—			—			—			—			—

Net interest income
(after provision for credit losses)	49,374			49,658			49,364			49,054			47,306

Non-interest income	5,358			5,895			5,460			5,573			5,268
Non-interest expense	22,036			23,479			22,645			21,937			21,597
Income tax expense	860			11,472			10,809			11,103			10,399
Net income	$	31,836		$	20,602		$	21,370		$	21,587		$	20,578

Efficiency ratio	40.26		%	42.26		%	41.30		%	40.16		%	41.08		%

Basic EPS	$	0.24		$	0.15		$	0.16		$	0.16		$	0.15
Diluted EPS	0.24			0.15			0.16			0.16			0.15

Average Balance Sheet

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated and the weighted average yield/rate on our interest-earning assets and interest-bearing liabilities at December 31, 2017, as well as selected performance ratios and other information as of the dates and for the periods shown. The borrowings and cash related to the leverage strategy was not in place at December 31, 2017, so the end of period yields/rates presented at December 31, 2017 in the table below do not reflect the full effects of this strategy. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.



	At	For the Three Months Ended
	December 31,	December 31, 2017						September 30, 2017						December 31, 2016
	2017	Average		Interest				Average		Interest				Average		Interest
	Yield/	Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
	Rate	Amount		Paid		Rate		Amount		Paid		Rate		Amount		Paid		Rate
Assets:		(Dollars in thousands)
Interest-earning assets:
Loans receivable⁽¹⁾	3.59%	$	7,195,938	$	64,189	3.56	%	$	7,223,607	$	64,329	3.56	%	$	7,015,151	$	61,945	3.53	%
MBS⁽²⁾	2.31	932,801		5,252		2.25		978,126		5,435		2.22		1,200,425		6,362		2.12
Investment securities⁽²⁾⁽³⁾	1.40	300,110		994		1.32		326,649		1,061		1.30		356,623		1,107		1.24
FHLB stock	6.49	191,482		3,095		6.41		188,369		3,080		6.49		195,801		2,939		5.97
Cash and cash equivalents⁽⁴⁾	1.36	2,159,019		7,114		1.29		2,088,585		6,669		1.25		2,152,621		2,969		0.54
Total interest-earning assets⁽¹⁾⁽²⁾	3.43	10,779,350		80,644		2.98		10,805,336		80,574		2.98		10,920,621		75,322		2.76
Other non-interest-earning assets		304,850						304,860						296,084
Total assets		$	11,084,200					$	11,110,196					$	11,216,705

Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking	0.04	$	844,932	77		0.04		$	838,141	76		0.04		$	800,342	74		0.04
Savings	0.31	348,573		248		0.28		351,308		217		0.24		335,192		155		0.18
Money market	0.38	1,189,511		791		0.26		1,214,694		727		0.24		1,191,175		708		0.24
Retail certificates	1.57	2,429,711		9,413		1.54		2,419,930		9,097		1.49		2,444,812		8,768		1.43
Wholesale certificates	1.37	428,246		1,432		1.33		406,862		1,196		1.17		385,224		691		0.71
Total deposits	0.94	5,240,973		11,961		0.91		5,230,935		11,313		0.86		5,156,745		10,396		0.80
FHLB borrowings⁽⁵⁾	2.04	4,146,750		17,917		1.71		4,182,283		18,099		1.71		4,329,037		16,117		1.48
Repurchase agreements	2.53	187,522		1,392		2.90		200,000		1,504		2.94		200,000		1,503		2.94
Total borrowings	2.06	4,334,272		19,309		1.76		4,382,283		19,603		1.76		4,529,037		17,620		1.54
Total interest-bearing liabilities	1.28	9,575,245		31,270		1.29		9,613,218		30,916		1.27		9,685,782		28,016		1.15
Other non-interest-bearing liabilities		144,613						130,112						138,767
Stockholders' equity		1,364,342						1,366,866						1,392,156
Total liabilities and stockholders' equity		$	11,084,200					$	11,110,196					$	11,216,705

Net interest income⁽⁶⁾				$	49,374					$	49,658					$	47,306
Net interest rate spread⁽⁷⁾⁽⁸⁾	2.15					1.69						1.71						1.61
Net interest-earning assets		$	1,204,105					$	1,192,118					$	1,234,839
Net interest margin⁽⁸⁾⁽⁹⁾						1.83						1.84						1.73
Ratio of interest-earning assets to interest-bearing liabilities						1.13x						1.12x						1.13x

Selected performance ratios:
Return on average assets (annualized)⁽⁸⁾						1.15	%					0.74	%					0.73	%
Return on average equity (annualized)⁽⁸⁾						9.33						6.03						5.91
Average equity to average assets						12.31						12.30						12.41
Operating expense ratio⁽¹⁰⁾						0.80						0.85						0.77
Efficiency ratio⁽¹¹⁾						40.26						42.26						41.08
Pre-tax yield on leverage strategy⁽¹²⁾						0.19						0.20						0.19


(1)	Calculated net of 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)	MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts.


(3)	The average balance of investment securities includes an average balance of nontaxable securities of $27.5 million, $28.8 million and $33.3 million for the three months ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively.


(4)	The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.92 billion for each of the quarters ended December 31, 2017, September 30, 2017 and December 31, 2016.

(5)

Included in this line, for the quarters ended December 31, 2017, September 30, 2017 and December 31, 2016, respectively, are FHLB borrowings related to the leverage strategy with an average outstanding amount of $2.01 billion for each of the three periods, interest paid of $6.7 million, $6.4 million and $2.9 million, respectively, at a rate of 1.31%, 1.26%, and 0.56%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding amount of $2.14 billion, $2.17 billion, and $2.32 billion, respectively, interest paid of $11.2 million, $11.7 million, and $13.2 million, respectively, at a rate of 2.08%, 2.12%, and 2.27%, respectively. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.


(6)	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 balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.


(7)	Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(8)

The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.



	For the Three Months Ended
	December 31, 2017						September 30, 2017						December 31, 2016
	Actual		Leverage		Adjusted		Actual		Leverage		Adjusted		Actual		Leverage		Adjusted
	(GAAP)		Strategy		(Non-GAAP)		(GAAP)		Strategy		(Non-GAAP)		(GAAP)		Strategy		(Non-GAAP)
Return on average assets (annualized)	1.15	%	(0.22	)%	1.37	%	0.74	%	(0.14	)%	0.88	%	0.73	%	(0.14	)%	0.87	%
Return on average equity (annualized)	9.33		0.22		9.11		6.03		0.19		5.84		5.91		0.18		5.73
Net interest margin	1.83		(0.37	)	2.20		1.84		(0.37	)	2.21		1.73		(0.34	)	2.07
Net interest rate spread	1.69		(0.33	)	2.02		1.71		(0.33	)	2.04		1.61		(0.29	)	1.90


(9)	Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.


(10)	The operating expense ratio represents annualized non-interest expense as a percentage of average assets.


(11)	The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.


(12)	The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

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 the three months ended December 31, 2017 to the three months ended December 31, 2016 and September 30, 2017. 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 period. 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 Three Months Ended
	December 31, 2017 vs. December 31, 2016									December 31, 2017 vs. September 30, 2017
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Total			Volume			Rate			Total
	(Dollars in thousands)
Interest-earning assets:
Loans receivable	$	1,593		$	651		$	2,244		$	(233	)	$	93		$	(140	)
MBS	(1,488		)	378			(1,110		)	(254		)	71			(183		)
Investment securities	(183		)	70			(113		)	(87		)	20			(67		)
FHLB stock	(66		)	222			156			50			(35		)	15
Cash and cash equivalents	9			4,136			4,145			228			217			445
Total interest-earning assets	(135		)	5,457			5,322			(296		)	366			70

Interest-bearing liabilities:
Checking	4			(2		)	2			1			—			1
Savings	6			87			93			(2		)	33			31
Money market	(1		)	84			83			(15		)	79			64
Certificates of deposit	94			1,293			1,387			114			438			552
FHLB borrowings	(988		)	2,788			1,800			(170		)	(12		)	(182		)
Repurchase agreements	(92		)	(19		)	(111		)	(93		)	(19		)	(112		)
Total interest-bearing liabilities	(977		)	4,231			3,254			(165		)	519			354

Net change in net interest income	$	842		$	1,226		$	2,068		$	(131	)	$	(153	)	$	(284	)

Comparison of Operating Results for the Three Months Ended December 31, 2017 and 2016

The Company recognized net income of $31.8 million, or $0.24 per share, for the current quarter compared to net income of $20.6 million, or $0.15 per share, for the quarter ended December 31, 2016. The increase in net income was due primarily to a decrease in income tax expense resulting from the enactment of the Tax Act on December 22, 2017, the impact of which was an increase in basic and diluted EPS of $0.08 for the current quarter. The $0.08 EPS was composed of $0.06 per share related to the revaluation of the Company's deferred tax liabilities ($7.5 million) and $0.02 per share as a result of applying the lower blended corporate income tax rate to pretax income in the current quarter ($3.0 million).

The net interest margin increased 10 basis points, from 1.73% for the prior year quarter to 1.83% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have increased 13 basis points, from 2.07% for the prior year quarter to 2.20% for the current quarter. The increase in the net interest margin was due mainly to an increase in interest-earning asset yields, as well as a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans and a net decrease in the cost of liabilities not related to the leverage strategy.

Interest and Dividend Income

The weighted average yield on total interest-earning assets increased 22 basis points, from 2.76% for the prior year quarter to 2.98% for the current quarter, while the average balance of interest-earning assets decreased $141.3 million from the prior year quarter. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 11 basis points, from 3.20% for the prior year quarter to 3.31% for the current quarter. The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.



	For the Three Months Ended
	December 31,				Change Expressed in:
	2017		2016		Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	64,189	$	61,945	$	2,244		3.6	%
Cash and cash equivalents	7,114		2,969		4,145			139.6
MBS	5,252		6,362		(1,110		)	(17.4	)
FHLB stock	3,095		2,939		156			5.3
Investment securities	994		1,107		(113		)	(10.2	)
Total interest and dividend income	$	80,644	$	75,322	$	5,322		7.1

The increase in interest income on loans receivable was due mainly to a $180.8 million increase in the average balance of the portfolio, as well as a three basis point increase in the weighted average yield on the portfolio to 3.56% for the current quarter. Loan growth was funded through cash flows from the securities portfolio. The increase in the weighted average yield was due primarily to a decrease in the amortization of premiums related to correspondent loans.

The increase in interest income on cash and cash equivalents was due to a 75 basis point increase in the weighted average yield resulting from an increase in the yield earned on balances held at the FRB of Kansas City.

The decrease in interest income on the MBS portfolio was due to a $267.6 million decrease in the average balance of the portfolio, partially offset by a 13 basis point increase in the weighted average yield on the portfolio to 2.25% for the current quarter. Cash flows not reinvested were used primarily to fund loan growth and pay off certain maturing FHLB borrowings. The increase in the weighted average yield was due primarily to adjustable-rate MBS repricing to higher market rates, as well as a decrease in the impact of net premium amortization. Net premium amortization of $854 thousand during the current quarter decreased the weighted average yield on the portfolio by 37 basis points. During the prior year quarter, $1.3 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 43 basis points. As of December 31, 2017, the remaining net balance of premiums on our portfolio of MBS was $8.8 million.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities increased 14 basis points, from 1.15% for the prior year quarter to 1.29% for the current quarter, while the average balance of interest-bearing liabilities decreased $110.5 million from the prior year quarter. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased one basis point, from 1.30% for the prior year quarter to 1.29% for the current quarter. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.



	For the Three Months Ended
	December 31,				Change Expressed in:
	2017		2016		Dollars			Percent
	(Dollars in thousands)
INTEREST EXPENSE:
FHLB borrowings	$	17,917	$	16,117	$	1,800		11.2	%
Deposits	11,961		10,396		1,565			15.1
Repurchase agreements	1,392		1,503		(111		)	(7.4	)
Total interest expense	$	31,270	$	28,016	$	3,254		11.6

The table above includes interest expense on FHLB borrowings both associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $2.0 million from the prior year quarter due to a $182.3 million decrease in the average balance of the portfolio and a 19 basis point decrease in the weighted average rate paid on the portfolio, to 2.08% for the current quarter. The decrease in the average balance was a result of using cash flows from the securities portfolio and funds generated from deposit growth to pay off certain advances that matured between periods. The decrease in the weighted average rate paid was due to certain advances maturing between periods being replaced at lower effective rates. Interest expense on FHLB borrowings associated with the leverage strategy increased $3.8 million from the prior year quarter due to a 75 basis point increase in the weighted average rate paid as a result of an increase in interest rates between periods.

The increase in interest expense on deposits was due primarily to an 11 basis point increase in the weighted average rate, to 0.91% for the current quarter. The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased 18 basis points to 1.51% for the current quarter. The weighted average rate paid on wholesale certificates increased 62 basis points, to 1.33% for the current quarter.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter or the prior year quarter. Based on management's assessment of the ACL formula analysis model and several other factors, it was determined that no provision for credit losses was necessary. Net loan charge-offs were $28 thousand during the current quarter compared to $19 thousand in the prior year quarter. At December 31, 2017, loans 30 to 89 days delinquent were 0.25% of total loans and loans 90 or more days delinquent or in foreclosure were 0.15% of total loans.

Non-Interest Income

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



	For the Three Months Ended
	December 31,				Change Expressed in:
	2017		2016		Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Retail fees and charges	$	3,965	$	3,709	$	256		6.9	%
Income from BOLI	534		523		11			2.1
Other non-interest income	859		1,036		(177		)	(17.1	)
Total non-interest income	$	5,358	$	5,268	$	90		1.7

The increase in retail fees and charges was due mainly to increases in debit card income and service charges earned. The decrease in other non-interest income was due primarily to a loss on the sale of loans during the current quarter as management continues to test loan sale processes for liquidity purposes, compared to no loan sales during the prior year quarter.

Non-Interest Expense

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



	For the Three Months Ended
	December 31,				Change Expressed in:
	2017		2016		Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	10,528	$	10,634	$	(106	)	(1.0	)%
Information technology and related expense	3,331		2,834		497			17.5
Occupancy, net	2,765		2,675		90			3.4
Deposit and loan transaction costs	1,407		1,386		21			1.5
Regulatory and outside services	1,140		1,346		(206		)	(15.3	)
Federal insurance premium	852		894		(42		)	(4.7	)
Advertising and promotional	685		690		(5		)	(0.7	)
Office supplies and related expense	442		437		5			1.1
Other non-interest expense	886		701		185			26.4
Total non-interest expense	$	22,036	$	21,597	$	439		2.0

The increase in information technology and related expense and the decrease in regulatory and outside services were due mainly to a change in the presentation of certain information technology professional and consulting expenses beginning in fiscal year 2018, as well as those expenses being higher than the prior year. Information technology professional and consulting expenses are now being reported in information technology and related expenses rather than regulatory and outside services. The increase in other non-interest expense was due mainly to an increase in OREO operations expense.

The Company's efficiency ratio was 40.26% for the current quarter compared to 41.08% for the prior year quarter. The improvement in the efficiency ratio was due primarily to higher net interest income in the current quarter compared to the prior year quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.

Income Tax Expense

Income tax expense was $860 thousand for the current quarter compared to $10.4 million for the prior year quarter. The effective tax rate was 2.6% for the current quarter compared to 33.6% for the prior year quarter. The lower effective income tax rate and income tax expense were due primarily to revaluing the Company's deferred tax assets and liabilities due to the enactment of the Tax Act, as well as applying a lower corporate income tax rate to the Company's current quarter pretax income. Management estimates the effective income tax rate for fiscal year 2018 to be between 20% and 21% and approximately 22% for fiscal year 2019.

Comparison of Operating Results for the Three Months Ended December 31, 2017 and September 30, 2017

For the quarter ended December 31, 2017, the Company recognized net income of $31.8 million, or $0.24 per share, compared to net income of $20.6 million, or $0.15 per share, for the quarter ended September 30, 2017. The increase in net income was due primarily to a decrease in income tax expense resulting from the Tax Act being signed into law during the quarter.

Net interest income decreased $284 thousand, or 0.6%, from the prior quarter to $49.4 million for the current quarter. The net interest margin decreased one basis point from 1.84% for the prior quarter to 1.83% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased one basis point from 2.21% for the prior quarter to 2.20% for the current quarter.

Interest and Dividend Income

The weighted average yield on total interest-earning assets for the current quarter was 2.98%, unchanged from the prior quarter, while the average balance of interest-earning assets decreased $26.0 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point from the prior quarter, to 3.31%. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.



	For the Three Months Ended
	December 31,		September 30,		Change Expressed in:
	2017		2017		Dollars			Percent
	(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable	$	64,189	$	64,329	$	(140	)	(0.2	)%
Cash and cash equivalents	7,114		6,669		445			6.7
MBS	5,252		5,435		(183		)	(3.4	)
FHLB stock	3,095		3,080		15			0.5
Investment securities	994		1,061		(67		)	(6.3	)
Total interest and dividend income	$	80,644	$	80,574	$	70		0.1

The increase in interest income on cash and cash equivalents was due primarily to a $70.4 million increase in the average balance, as well as a four basis point increase in the weighted average yield, to 1.29% for the current quarter, resulting from an increase in the yield earned on balances held at the FRB of Kansas City.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased two basis points from the prior quarter, to 1.29%, while the average balance of interest-bearing liabilities decreased $38.0 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities for the current quarter would have increased one basis point from the prior quarter, to 1.29%. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.



	For the Three Months Ended
	December 31,		September 30,		Change Expressed in:
	2017		2017		Dollars			Percent
	(Dollars in thousands)
INTEREST EXPENSE:
FHLB borrowings	$	17,917	$	18,099	$	(182	)	(1.0	)%
Deposits	11,961		11,313		648			5.7
Repurchase agreements	1,392		1,504		(112		)	(7.4	)
Total interest expense	$	31,270	$	30,916	$	354		1.1

The increase in interest expense on deposits was due primarily to a five basis point increase in the weighted average rate, to 0.91% for the current quarter. The increase in the weighted average rate was primarily related to the certificate of deposit portfolio, which increased seven basis points to 1.51% for the current quarter.

The decrease in interest expense on repurchase agreements was due to the maturity of a $100.0 million repurchase agreement during the quarter.

Non-Interest Income

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



	For the Three Months Ended
	December 31,		September 30,		Change Expressed in:
	2017		2017		Dollars			Percent
	(Dollars in thousands)
NON-INTEREST INCOME:
Retail fees and charges	$	3,965	$	3,930	$	35		0.9	%
Income from BOLI	534		564		(30		)	(5.3	)
Other non-interest income	859		1,401		(542		)	(38.7	)
Total non-interest income	$	5,358	$	5,895	$	(537	)	(9.1	)

The decrease in other non-interest income was due primarily to a loss on the sale of loans during the current quarter compared to a gain on the sale of loans during the prior quarter as management continues to test loan sale processes for liquidity purposes, along with a decrease in insurance commissions resulting from the receipt of annual commissions from certain insurance providers during the prior quarter and no such commissions received during the current quarter.

Non-Interest Expense

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



	For the Three Months Ended
	December 31,		September 30,		Change Expressed in:
	2017		2017		Dollars			Percent
	(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits	$	10,528	$	11,049	$	(521	)	(4.7	)%
Information technology and related expense	3,331		2,758		573			20.8
Occupancy, net	2,765		2,716		49			1.8
Deposit and loan transaction costs	1,407		1,366		41			3.0
Regulatory and outside services	1,140		1,827		(687		)	(37.6	)
Federal insurance premium	852		888		(36		)	(4.1	)
Advertising and promotional	685		1,398		(713		)	(51.0	)
Office supplies and related expense	442		511		(69		)	(13.5	)
Other non-interest expense	886		966		(80		)	(8.3	)
Total non-interest expense	$	22,036	$	23,479	$	(1,443	)	(6.1	)

The decrease in salaries and employee benefits expense was due primarily to the prior quarter including compensation expense on unallocated ESOP shares related to the True Blue Capitol dividend paid during the prior fiscal year. The increase in information technology and related expense and the decrease in regulatory and outside services were due mainly to a change in the presentation of certain information technology professional and consulting expenses beginning in fiscal year 2018. The decrease in advertising and promotional expense was due primarily to the timing of media campaigns and sponsorships.

The Company's efficiency ratio was 40.26% for the current quarter compared to 42.26% for the prior quarter. The change in the efficiency ratio was due primarily to lower non-interest expense in the current quarter compared to the prior quarter.

Income Tax Expense

Income tax expense was $860 thousand for the current quarter, compared to $11.5 million for the prior quarter. The effective tax rate was 2.6% for the current quarter compared to 35.8% for the prior quarter. The decrease in effective tax rate was due mainly to the Tax Act being signed into law during the current quarter.

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, repurchase agreements, 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 intent 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 of Kansas City's discount window. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40% of regulatory total assets without the pre-approval of FHLB senior management. In July 2017, the president of FHLB approved an increase, through July 2018, in the Bank's borrowing limit to 55% of Bank Call Report total assets. 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. 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, and is used only when other sources of short-term liquidity are unavailable. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.

If management observes a trend in the amount and frequency of line of credit utilization and/or short-term borrowings that is not in conjunction with a planned strategy, such as the leverage strategy, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At December 31, 2017, the Bank had total borrowings, at par, of $2.28 billion, or approximately 25% of total assets.

The amount of FHLB advances outstanding at December 31, 2017 was $2.08 billion, of which $675.0 million was scheduled to mature in the next 12 months. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. At December 31, 2017, the Bank's ratio of the par value of FHLB borrowings to Call Report total assets was 24%. When the full leverage strategy is in place, FHLB borrowings may be in excess of 40% of the Bank's Call Report total assets, and may be in excess of 40% as long as the Bank continues its leverage strategy and FHLB senior management continue to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the FHLB borrowings in conjunction with the leverage strategy could be repaid at any point in time while the strategy is in effect, if necessary.

At December 31, 2017, the Bank had repurchase agreements of $100.0 million, or approximately 1% of total assets, none of which were scheduled to mature in the next 12 months. The Bank may enter into additional repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings limit of 55% discussed above. The Bank has pledged securities with an estimated fair value of $109.0 million as collateral for repurchase agreements as of December 31, 2017. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.

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. At December 31, 2017, the Bank had $600.8 million 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 deposits. As of December 31, 2017, the Bank's policy allowed for combined brokered and public unit deposits up to 15% of total deposits. At December 31, 2017, the Bank had public unit deposits totaling $402.6 million, which had an average remaining term to maturity of ten months, or approximately 8% of total deposits, and no brokered deposits. Management continuously monitors the wholesale deposit market for opportunities to obtain funds at attractive rates. The Bank had pledged securities with an estimated fair value of $437.1 million as collateral for public unit deposits at December 31, 2017. The securities pledged as collateral for public unit deposits are held under joint custody with FHLB and generally will be released upon deposit maturity.

At December 31, 2017, $1.03 billion of the Bank's certificate of deposit portfolio was scheduled to mature within one year, including $243.6 million of public unit deposits. 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 at the prevailing rate, although no assurance can be given in this regard. We also anticipate the majority of the maturing public unit deposits will be replaced with similar wholesale funding products.

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.

The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at December 31, 2017, along with associated weighted average yields. Loans and securities 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. As of December 31, 2017, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $148.2 million.



	Loans⁽¹⁾				MBS				Investment Securities				Total
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
	(Dollars in thousands)
Amounts due:
Within one year	$	42,069	3.81	%	$	1,848	3.77	%	$	152,195	1.14	%	$	196,112	1.74	%

After one year:
Over one to two years	95,862		4.10		5,134		4.22		27,407		1.37		128,403		3.52
Over two to three years	16,730		4.45		11,293		3.22		81,468		1.57		109,491		2.18
Over three to five years	58,898		3.95		57,618		2.26		60,382		1.81		176,898		2.67
Over five to ten years	590,296		3.66		429,598		2.06		—		—		1,019,894		2.99
Over ten to fifteen years	1,327,987		3.30		108,722		2.15		—		—		1,436,709		3.21
After fifteen years	5,045,662		3.64		337,025		2.61		—		—		5,382,687		3.58
Total due after one year	7,135,435		3.59		949,390		2.30		169,257		1.62		8,254,082		3.40

	$	7,177,504	3.59		$	951,238	2.31		$	321,452	1.40		$	8,450,194	3.36


(1)	Demand loans, loans having no stated maturity, and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction. The maturity date for home equity loans assumes the customer always makes the required minimum payment.

Limitations on Dividends and Other Capital Distributions

Office of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings. Savings institutions must also maintain an applicable capital conservation buffer above minimum risk-based capital requirements in order to avoid restrictions on capital distributions, including dividends. A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.

The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution, operates in a safe and sound manner, and maintains an applicable capital conservation buffer above its minimum risk-based capital requirements, it is management's belief that the OCC and FRB will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The Company, in the normal course of business, makes commitments to buy or sell assets, extend credit, or to incur or fund liabilities. There have been no material changes in commitments, contractual obligations or off-balance sheet arrangements from September 30, 2017. For additional information, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements, Commitments and Contractual Obligations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2017. We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.

The maximum balance of short-term FHLB borrowings outstanding at any month-end during the three months ended December 31, 2017 was $2.78 billion, and the average balance of short-term FHLB borrowings outstanding during this period was $2.66 billion at a weighted average contractual rate of 1.40%. Short-term FHLB borrowings for this disclosure are defined as those with maturity dates within the next 12 months. The majority of the short-term FHLB borrowings amount related to borrowings associated with the leverage strategy. This compares to a balance of short-term FHLB borrowings outstanding at December 31, 2017 of $775.0 million at a weighted average contractual rate of 1.63%.

Contingencies

In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. 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 for the quarter ended December 31, 2017, or future periods.

Capital

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). As of December 31, 2017, the Bank and Company exceeded all regulatory capital requirements. The following table presents the regulatory capital ratios of the Bank and the Company at December 31, 2017.



							Regulatory
							Requirement For
					Minimum		Well-Capitalized
	Bank		Company		Regulatory		Status of Bank
	Ratios		Ratios		Requirement		Under PCA Provisions
Tier 1 leverage ratio	10.9	%	12.1	%	4.0	%	5.0	%
Common Equity Tier 1 capital ratio	27.3		30.3		4.5		6.5
Tier 1 capital ratio	27.3		30.3		6.0		8.0
Total capital ratio	27.5		30.5		8.0		10.0

The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of December 31, 2017, for the Bank and the Company (dollars in thousands):



	Bank			Company
Total equity as reported under GAAP	$	1,216,888		$	1,350,611
AOCI	(3,074		)	(3,074		)
Total tier 1 capital	1,213,814			1,347,537
ACL	8,370			8,370
Total capital	$	1,222,184		$	1,355,907

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Asset and Liability Management and Market Risk

For a complete discussion of the Bank's asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Bank's portfolios, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the year ended September 30, 2017. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.

The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.

The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analysis are also conducted to estimate our sensitivity to rates for future time horizons based upon market conditions as of the date of the analysis. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a

result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.

Qualitative Disclosure about Market Risk

At December 31, 2017, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $185.2 million, or 2.06% of total assets, compared to $641.6 million, or 6.98% of total assets, at September 30, 2017. The decrease in the one-year gap amount was due primarily to a decrease in the amount of cash held at December 31, 2017, along with a decrease in the amount of repayments and prepayments from mortgage-related assets projected to reprice due to higher interest rates. As interest rates rise, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates. This increase in interest rates resulted in lower projected cash flows on these assets over the next year compared to September 30, 2017.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on mortgage loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of December 31, 2017, the Bank's one-year gap is projected to be $(305.9) million, or (3.40)% of total assets. This compares to a one-year gap of $81.3 million, or 0.88% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2017.

During the current quarter, loan repayments totaled $283.9 million and cash flows from the securities portfolio totaled $69.9 million. The asset cash flows of $353.8 million were reinvested into new assets at current market interest rates. Total cash flows from fixed-rate liabilities that matured or repriced during the current quarter were approximately $600.0 million, including $200.0 million of term borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

Other strategies include managing the Bank's wholesale assets and liabilities. 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 WAL of the Bank's term borrowings as of December 31, 2017 was 2.2 years. However, including the impact of interest rate swaps related to $200.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of December 31, 2017 was 2.7 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Purchases in the securities portfolio over the past couple of years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested as interest rates rise or used to purchase higher-yielding assets. The WAL of the Bank's securities portfolio as of December 31, 2017 was 2.5 years.

In addition to the wholesale strategies, the Bank has sought to increase core deposits and long-term certificates of deposit. Core deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. At December 31, 2017 the WAL of the Bank's non-maturity deposits was 13.5 years.

Over the last couple years, the Bank has priced long-term certificates of deposit more aggressively than short-term certificates of deposit with the goal of giving customers incentive to move funds into longer-term certificates of deposit when interest rates were lower. The balance of our retail certificates of deposit with terms of 36 months or longer increased $253.1 million, or 18%, since December 31, 2015. Long-term certificates of deposit reduce the amount of liabilities repricing as interest rates rise in a given time period.

Because of the on-balance sheet strategies implemented over the past several years, management believes the Bank is well-positioned to move into a market rate environment where interest rates are higher.

Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate mortgage ("ARM") 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. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and Change in MVPE discussions and tables.



				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⁾	$	1,719,476		$	1,881,955		$	1,138,830		$	2,426,502		$	7,166,763
Securities⁽²⁾	558,046			443,104			159,607			108,518			1,269,275
Other interest-earning assets	1,082			—			—			—			1,082
Total interest-earning assets	2,278,604			2,325,059			1,298,437			2,535,020			8,437,120

Interest-bearing liabilities:
Non-maturity deposits⁽³⁾	273,981			309,043			238,198			1,713,652			2,534,874
Certificates of deposit	1,044,473			1,306,307			469,799			1,393			2,821,972
Borrowings⁽⁴⁾	775,000			800,000			600,000			142,557			2,317,557
Total interest-bearing liabilities	2,093,454			2,415,350			1,307,997			1,857,602			7,674,403

Excess (deficiency) of interest-earning assets over
interest-bearing liabilities	$	185,150		$	(90,291	)	$	(9,560	)	$	677,418		$	762,717

Cumulative excess of interest-earning assets over
interest-bearing liabilities	$	185,150		$	94,859		$	85,299		$	762,717

Cumulative excess of interest-earning assets over interest-bearing
liabilities as a percent of total Bank assets at:
December 31, 2017	2.06		%	1.06		%	0.95		%	8.48		%
September 30, 2017	6.98

Cumulative one-year gap - interest rates +200 bps at:
December 31, 2017	(3.40		)
September 30, 2017	0.88

(1)

ARM loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days delinquent or in foreclosure.


(2)	MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of December 31, 2017, at amortized cost.

(3)

Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $2.08 billion, for a cumulative one-year gap of (23.1)% of total assets.


(4)	Borrowings exclude deferred prepayment penalty costs.

Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates is presented. 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). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.



Change	Net Interest Income At
(in Basis Points)	December 31, 2017							September 30, 2017
in Interest Rates⁽¹⁾	Amount ($)		Change ($)			Change (%)		Amount ($)		Change ($)			Change (%)
	(Dollars in thousands)
-100 bp	$	191,063	$	(2,197	)	(1.14	)%	$	181,200	$	(6,623	)	(3.53	)%
000 bp	193,260		—			—		187,823		—			—
+100 bp	191,757		(1,503		)	(0.78	)	189,259		1,436			0.76
+200 bp	187,675		(5,585		)	(2.89	)	188,508		685			0.36
+300 bp	182,217		(11,043		)	(5.71	)	186,299		(1,524		)	(0.81	)


(1)	Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The net interest income projections were lower in the rising rate scenarios at December 31, 2017 compared to September 30, 2017. This change was due primarily to a change in the balance sheet composition primarily from a decrease in cash between the two periods as well as higher market interest rates at December 31, 2017 which reduced projected cash flows on mortgage-related assets, both of which resulted in a decrease in the level of earnings in the higher interest rate environments. The decrease in cash, which reprices daily, reduced the amount of assets projected to reprice in the twelve-month horizon. In addition, as interest rates rise, the one-year gap eventually becomes negative due to a reduction in cash flows from the Bank's mortgage-related assets and callable agency debentures. At December 31, 2017, as interest rates move higher, liabilities would reprice to higher interest rates at a faster pace than assets and have a negative impact on the Bank's net interest income projection. At September 30, 2017, modeled in the +300 basis point scenario, liabilities would reprice to higher interest rates at a faster pace than assets and have a negative impact on the Bank's net interest income projection.

Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the MVPE for alternative interest rates.



Change	Market Value of Portfolio Equity At
(in Basis Points)	December 31, 2017							September 30, 2017
in Interest Rates⁽¹⁾	Amount ($)		Change ($)			Change (%)		Amount ($)		Change ($)			Change (%)
	(Dollars in thousands)
-100 bp	$	1,460,928	$	(3,453	)	(0.24	)%	$	1,446,537	$	(13,891	)	(0.95	)%
000 bp	1,464,381		—			—		1,460,428		—			—
+100 bp	1,340,074		(124,307		)	(8.49	)	1,352,558		(107,870		)	(7.39	)
+200 bp	1,149,174		(315,207		)	(21.52	)	1,173,891		(286,537		)	(19.62	)
+300 bp	935,518		(528,863		)	(36.12	)	969,747		(490,681		)	(33.60	)


(1)	Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.

The percentage change in the Bank's MVPE at December 31, 2017 was more adversely impacted in the increasing interest rate scenarios than at September 30, 2017. This was due to a decrease in cash held between the two quarters as well as market interest rates being higher at December 31, 2017. The market value of cash is not impacted by changes in interest rates due to the fact that the interest rates on cash changes daily as short-term interest rates change. As long-term interest rates increase, 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. This results in an increase in the average life of mortgage-related assets. 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, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. As a result, the projected decrease in the market value of the Bank's financial assets was more significant than the projected decrease in the market value of its financial liabilities, which resulted in a projected decrease in MVPE in all of the rising interest rate scenarios presented.

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 December 31, 2017. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.



	Amount		Yield/Rate		WAL	% of Category		% of Total
	(Dollars in thousands)
Investment securities	$	321,452	1.40	%	1.2	25.3	%	3.7	%
MBS - fixed	612,450		2.15		2.9	48.1		7.1
MBS - adjustable	338,788		2.59		5.1	26.6		3.9
Total securities	1,272,690		2.07		3.0	100.0	%	14.7
Loans receivable:
Fixed-rate one- to four-family:
<= 15 years	1,177,173		3.08		4.0	16.4	%	13.6
> 15 years	4,451,629		3.84		6.0	62.0		51.3
All other fixed-rate loans	277,219		4.22		3.8	3.9		3.2
Total fixed-rate loans	5,906,021		3.71		5.5	82.3		68.1
Adjustable-rate one- to four-family:
<= 36 months	260,703		1.80		3.5	3.6		3.0
> 36 months	842,492		3.10		2.6	11.7		9.7
All other adjustable-rate loans	168,288		4.89		3.4	2.4		1.9
Total adjustable-rate loans	1,271,483		3.07		2.9	17.7		14.6
Total loans receivable	7,177,504		3.59		5.1	100.0	%	82.7
FHLB stock	195,470		6.49		1.1			2.3
Cash and cash equivalents	29,120		1.36		—			0.3
Total interest-earning assets	$	8,674,784	3.43		4.7			100.0	%

Non-maturity deposits	$	2,444,245	0.24		13.5	46.4	%	32.4	%
Retail certificates of deposit	2,419,380		1.57		1.8	45.9		32.1
Public units	402,592		1.37		0.8	7.7		5.3
Total deposits	5,266,217		0.94		7.2	100.0	%	69.8
Term borrowings	2,175,000		2.09		2.7	95.6	%	28.9
FHLB line of credit	100,000		1.47		—	4.4		1.3
Total borrowings	2,275,000		2.06		2.6	100.0	%	30.2
Total interest-bearing liabilities	$	7,541,217	1.28		5.8			100.0	%

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of December 31, 2017. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2017, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company and the Bank are involved as plaintiff or defendant in various legal actions arising in the normal course of business. In our opinion, after consultation with legal counsel, we believe it unlikely that such pending legal actions will have a material adverse effect on our financial condition, results of operations or liquidity.

Item 1A. Risk Factors

There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See "Liquidity and Capital Resources - Capital" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding OCC restrictions on dividends from the Bank to the Company.

The following table summarizes our share repurchase activity during the three months ended December 31, 2017 and additional information regarding our share repurchase program. In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock. It is anticipated that shares will be purchased from time to time in the open-market based upon market conditions and available liquidity. There is no expiration for this repurchase plan.



					Approximate
	Total			Total Number of	Dollar Value of
	Number of	Average		Shares Purchased as	Shares that May
	Shares	Price Paid		Part of Publicly	Yet Be Purchased
	Purchased	per Share		Announced Plans	Under the Plan
October 1, 2017 through
October 31, 2017	—	$	—	—	$	70,000,000
November 1, 2017 through
November 30, 2017	—	—		—	70,000,000
December 1, 2017 through
December 31, 2017	—	—		—	70,000,000
Total	—	—		—	70,000,000

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

See Index to Exhibits.

INDEX TO EXHIBITS



Exhibit Number		Document
3(i)		Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578) and incorporated herein by reference
3(ii)		Bylaws of Capitol Federal Financial, Inc., as amended, filed on September 30, 2016, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference
10.1(i)		Capitol Federal Financial, Inc.'s Employee Stock Ownership Plan, as amended, filed on May 10, 2011 as Exhibit 10.1(ii) to the March 31, 2011 Form 10-Q for Capitol Federal Financial, Inc., and incorporated herein by reference
10.1(ii)		Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference
10.1(iii)		Form of Change of Control Agreement with each of Natalie G. Haag and Carlton A. Ricketts filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
10.1(iv)		Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference
10.2		Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
10.3		Capitol Federal Financial Deferred Incentive Bonus Plan, as amended, filed on May 5, 2009 as Exhibit 10.4 to the March 31, 2009 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
10.4		Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
10.5		Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference
10.6		Description of Director Fee Arrangements filed on August 1, 2014 as Exhibit 10.9 to the Registrant's June 30, 2014 Form 10-Q and incorporated herein by reference
10.7		Short-term Performance Plan filed on August 4, 2015 as Exhibit 10.10 to the Registrant's June 30, 2015 Form 10-Q and incorporated herein by reference
10.8		Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
10.9		Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.10		Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.11		Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
10.12		Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference
11		Calculations of Basic and Diluted EPS (See "Part I, Item 1. Financial Statements – Notes to Consolidated Financial Statements – Note 2 – Earnings Per Share")
31.1		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer
31.2		Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer



101		The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2017, filed with the Securities and Exchange Commission on February 8, 2018, has been formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets at December 31, 2017 and September 30, 2017, (ii) Consolidated Statements of Income for the three months ended December 31, 2017 and 2016, (iii) Consolidated Statements of Comprehensive Income for the three months ended December 31, 2017 and 2016, (iv) Consolidated Statement of Stockholders' Equity for the three months ended December 31, 2017, (v) Consolidated Statements of Cash Flows for the three months ended December 31, 2017 and 2016, and (vi) Notes to the Unaudited Consolidated Financial Statements

SIGNATURES

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



CAPITOL FEDERAL FINANCIAL, INC.



	Date: February 8, 2018	By:	/s/ John B. Dicus
			John B. Dicus, Chairman, President and Chief Executive Officer

	Date: February 8, 2018	By:	/s/ Kent G. Townsend
			Kent G. Townsend, Executive Vice President,
			Chief Financial Officer and Treasurer