Capitol Federal Financial Inc

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, 2023; however, the Company is supplementing its risk factors in this Form 10-Q, with the following:

The Company's ability to pay dividends and repurchase shares is subject to the ability of the Bank to make capital distributions to the Company.

The long-term ability of the Company to pay dividends to its stockholders and repurchase shares is based primarily upon the ability of the Bank to generate earnings and to, therefore, make capital distributions to the Company, and on the availability of cash at the holding company level in the event the Bank's earnings are not sufficient to pay dividends or repurchase shares. Under certain circumstances, capital distributions from the Bank to the Company may be subject to regulatory approvals.

The Bank's bad debt recapture amount may impact the amount and timing of capital distributions to the Company

The Bank had $85.5 million in pre-1988 bad debt reserves at June 30, 2024, which equates to an unrecorded deferred tax liability of $18.0 million. The Bank is anticipated to have a net loss for tax purposes in the current year due to the sale of securities in October 2023 associated with the securities strategy and will therefore have a negative accumulated earnings and profits for fiscal year 2024. As a result of the negative accumulated earnings and profits, any capital distributions from the Bank to the holding company during fiscal year 2024 would be deemed to be drawn out of the Bank's pre-1988 bad debt reserves and will result in the recognition of income tax expense at the then-current rate by the Bank. This additional tax expense will reduce the amount of earnings that will be available to be distributed to the holding company during the current fiscal year, at a minimum.

Management is currently evaluating the income tax issues associated with the pre-1988 bad debt reserves and the timing and amount of capital distributions to be made from the Bank to the holding company during the remainder of the current fiscal year and in future periods. There is some uncertainty related to how the Bank's current earnings and profits, beginning in fiscal year 2025, should be treated in relation to distributions from the Bank to the Company and the associated impact, if any, on the pre-1988 bad debt reserves.

See additional discussion regarding the Bank's pre-1988 bad debt recapture in "Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024" and "Item 1. Financial Statements - Note 6. Income Taxes".