Capitol Federal Financial Inc

Liabilities. Total liabilities were $8.58 billion at June 30, 2024, compared to $9.13 billion at September 30, 2023. The decrease was due primarily to a decrease in borrowings as some of the funds from the securities strategy were used to repay all $500.0 million of outstanding borrowings under the BTFP.

Deposits. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. The amount of commercial non-maturity deposits included in the table below at June 30, 2024, March 31, 2024, and September 30, 2023 was $247.5 million, $251.8 million, and $267.3 million, respectively. The increase in the deposit portfolio rate at June 30, 2024 compared to March 31, 2024, and September 30, 2023 was due mainly to higher rates on retail certificates of deposit.

Management has focused on retaining and growing deposits through the introduction of a high-yield savings account early in fiscal year 2024 which has a current rate of 4.21% for balances over $10 thousand. The high-yield savings account balance was $58.2 million as of June 30, 2024. A portion of the decrease in the money market portfolio during the current year period has been attributable to the growth in this product, along with the growth in retail certificates of deposit. Management has sought to grow certificates of deposit with terms of 14 months or less by offering market competitive rates. We have focused on terms that will allow us to price down certificates of deposit if the FRB reduces overnight rates. Our certificate of deposit retention rate has been approximately 90% over the past 12-months.

As of June 30, 2024, approximately $751.2 million (or approximately 12%) of the Bank's Call Report deposit balance was uninsured, of which approximately $440.0 million related to commercial and retail deposit accounts and the remainder was mainly comprised of fully collateralized public unit deposits and intercompany accounts. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

Borrowings. Total borrowings at June 30, 2024 were $2.29 billion, which was comprised of $1.99 billion in fixed-rate FHLB advances, $300.0 million in FHLB variable-rate advances tied to interest rate swaps, and $1.1 million in finance leases.

The following table presents the maturity of term borrowings, which consist of FHLB advances, along with associated weighted average contractual and effective rates as of June 30, 2024. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.

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

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. Line of credit borrowings and finance leases are excluded from the table. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The 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. During the current year nine month period, BTFP borrowings were paid off with the proceeds received from the securities strategy.

Leverage Strategy

Periodically, the Bank has utilized a leverage strategy to increase earnings, which entails entering into short-term FHLB borrowings and depositing the proceeds from these FHLB borrowings, net of the purchases of FHLB stock made to meet FHLB stock holding requirements, at the FRB of Kansas City. The leverage strategy is not a core operating business for the Company. It provides the Company the ability to utilize excess capital to generate earnings. Additionally, it is a strategy that can be exited quickly without additional costs. The profitability of the leverage strategy is attributable to net income derived from the dividends received on the increased FHLB stock holdings, plus the net interest rate spread between the yield on the leverage strategy cash at the FRB of Kansas City and the rate paid on the leverage strategy FHLB borrowings, less applicable Federal Deposit Insurance Corporation ("FDIC") premiums and estimated income tax expense. Leverage strategy borrowings are repaid prior to each quarter end so there is no impact to quarter end capital ratios. The leverage strategy was not in place at any time during the current year period due to the strategy being unprofitable, but it was in place at points during the prior year period. During the prior year period, the average balance of cash associated with the leverage strategy was $1.10 billion and interest earned on that cash was $34.7 million, the average balance of FHLB stock associated with the leverage strategy was $52.0 million and dividends earned on that stock were $3.4 million, and the average balance of FHLB borrowings associated with the leverage strategy was $1.16 billion and the related interest expense was $36.5 million. Additionally, the Company recognized $368 thousand of FDIC premiums and $209 thousand of income tax expense during the prior year period related to the leverage strategy. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.

Maturities of Interest-Bearing Liabilities. The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing FHLB advances for the next four quarters as of June 30, 2024.

The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2024.