Capitol Federal Financial, Inc. (CFFN)

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 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 generate a sufficient volume of loans in order to maintain the loan portfolio balance at a level desired by management;

•our ability to invest funds in wholesale or secondary markets at favorable yields;

•our ability to access cost-effective funding and maintain sufficient liquidity;

•our ability to expand our commercial banking, treasury management, and wealth management products and services across our market areas;

•fluctuations in deposit flows;

•transactions or activities that would result in the recapture of base-year, tax basis bad debt reserves;

•the future earnings and capital levels of the Bank, the impact of potential pre-1988 bad debt recapture 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 Company's income tax expense and the Company's ability to pay dividends in accordance with its dividend policy and/or repurchase shares;

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

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

•increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs, or not recognize income for a period of time, 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 foreign and military policies of the United States government;

•inflation, interest rate, market, monetary, and currency fluctuations and the effects of a potential economic recession or slower economic growth;

•the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment;

•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, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;

•the ability to attract and retain skilled employees;

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

•significant litigation;

•technological changes and the costs thereof;

•our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities, including the ability to withstand cyberattacks;

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

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

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This list of 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, 2025 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. 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 or the context indicates otherwise, "the Company," "we," "us," and "our" refer to Capitol Federal Financial, Inc. a Maryland corporation, and its subsidiaries. "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 except where the context indicates otherwise. 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, 2025, filed with the SEC.

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, https://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 Estimates

Our most critical accounting estimate is our methodology used to determine the ACL and reserve for off-balance sheet credit exposures. This estimate is important to the presentation of our financial condition and results of operations, involves a high degree of complexity, and requires management to make difficult and subjective judgments that may require assumptions about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. This critical accounting estimate and its application is reviewed at least annually by the audit committee of our Board of Directors. For a full discussion of our critical accounting estimates, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2025.

Executive Summary

The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.

The Company recognized net income of $64.0 million, or $0.51 per share, for the current year nine-month period compared to net income of $49.2 million, or $0.38 per share, for the prior year nine-month period. The increase in net income was due mainly to higher net interest income, partially offset by higher non-interest expense and income tax expense. The net interest margin increased 33 basis points, from 1.92% for the prior year nine-month period to 2.25% for the current year nine-month period. The increase was due mainly to growth in the higher yielding commercial loan portfolio, along with a decrease in the average cost of certificates of deposit and the average balance of borrowings, partially offset by an increase in the average balance of deposits, mainly high yield savings accounts.

As a full-service consumer and commercial bank we are strategically investing in technology, products and employees, allowing us to deliver new products and services and deliver first-in-class service to our customers. For additional discussion, see the "Strategic Banking Initiatives" section below.

The Company's efficiency ratio was 52.72% for the current year nine-month period compared to 58.89% for the prior year nine-month period. The improvement in the efficiency ratio was due primarily to higher net interest income compared to the prior year period, partially offset by higher non-interest expense. The Company's operating expense ratio (annualized) for the current year nine-month period was 1.25% compared to 1.20% for the prior year nine-month period. The operating expense ratio was higher in the current year period due mainly to higher non-interest expense, partially offset by higher average assets compared to the prior year period.

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The loan portfolio totaled $8.17 billion at June 30, 2026, a $54.8 million increase from September 30, 2025, which was attributable to a $357.0 million increase in commercial loans, mainly in the commercial real estate portfolio, partially offset by a $302.4 million decrease in one- to four-family loans, as the Bank continued to redirect cash flows received from the one- to four-family loan portfolio to the commercial loan portfolio. Maintaining strong credit quality remains a top priority as we expand our commercial loan portfolio. The weighted average DSCR for commercial loan originations and new participations during the nine months ended June 30, 2026 was 2.22x and the weighted average LTV for commercial real estate and construction loans originated and new participations was 70%. The weighted average DSCR and LTV for our commercial real estate and construction loan portfolio was 1.77x and 63%, respectively, at June 30, 2026.

The Bank's asset quality remains strong, reflected in the continued low level of loan delinquency and charge-off ratios. At June 30, 2026, loans 30 to 89 days delinquent were 0.17% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.13% of total loans receivable, net. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Asset Quality - Delinquent and nonaccrual loans and OREO" below for additional discussion. During the current year nine-month period, the Bank had net charge-offs ("NCOs") of $304 thousand.

Total deposits were $6.85 billion at June 30, 2026

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 except where the context indicates otherwise.

Executive Summary

The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.

The Company recognized net income of $68.0 million, or $0.52 per share, for fiscal year 2025 compared to net income of $38.0 million, or $0.29 per share, for the prior fiscal year. The increase in net income was due mainly to higher net interest and non-interest income, partially offset by higher non-interest expense. Non-interest income was lower in the prior fiscal year due mainly to the net losses on the sale of securities associated with the securities strategy. See additional discussion regarding the securities strategy in the "Securities Strategy to Improve Earnings" section below. Excluding the effects of the net loss associated with the securities strategy, earnings per share ("EPS") would have been $0.37 for the prior fiscal year. The increase in EPS, excluding the effects of the net loss associated with the securities strategy, was due primarily to higher net interest income in the current fiscal year.

The net interest margin increased 19 basis points, from 1.77% for the prior fiscal year to 1.96% for the current fiscal year. The increase was due mainly to higher yields on the loan portfolio due to the continued shift of loan balances from the one- to four-family loan portfolio to the higher yielding commercial loan portfolio, which outpaced the increase in the cost of deposits.

The Bank continues to transition from a primarily retail oriented financial institution to one with an expanded focus on commercial customers by strategically growing all aspects of commercial banking through investments in technology, people, products, and services. The Bank is active in commercial lending markets even when the lending opportunity is outside of the Bank's local footprint. For additional discussion, see the "Strategic Banking Initiatives" section below.

The Company's efficiency ratio was 58.33% for the current fiscal year compared to 66.91% for the prior fiscal year. Excluding the net losses from the securities strategy, the efficiency ratio would have been 61.97% for the prior fiscal year. The improvement in the efficiency ratio, excluding the net losses from the securities strategy, was due primarily to higher net interest income compared to the prior fiscal year, partially offset by higher non-interest expense. The Company's operating expense ratio for the current fiscal year was 1.22% compared to 1.17% for the prior fiscal year. The operating expense ratio was higher in the current fiscal year due mainly to higher non-interest expense.

Total assets were $9.78 billion at September 30, 2025, an increase of $251.1 million from September 30, 2024. The increase was due primarily to growth in the loan portfolio, which was largely funded with deposit growth, mainly through the Bank's high yield savings account offering.

Total loans receivable increased $204.6 million from September 30, 2024. The increase was due mainly to the commercial loan portfolio, which increased $607.0 million, or approximately 40%, during the current fiscal year, due primarily to commercial real estate loan growth. The increase was partially offset by a decrease of $400.0 million in one- to four-family loans. It is expected that repayments from our one- to four-family loan portfolio will continue to be directed toward supporting commercial loan growth, aligning with our ongoing commitment to expand commercial banking services. Maintaining strong credit quality remains a top priority as we grow our commercial loan portfolio. The weighted average debt service coverage ratio ("DSCR") for commercial loan originations and purchases during the current fiscal year was 1.76x and the weighted average loan-to-value ("LTV") for commercial real estate and construction loans originated and purchased was 65%. The weighted average DSCR and LTV for our commercial real estate and construction loans was 1.65x and 61%, respectively, at September 30, 2025.

The Bank's asset quality remains strong, reflected in the continued low level of loan delinquency and charge-off ratios. At September 30, 2025, loans 30 to 89 days delinquent were 0.15% of total loans receivable, net, and loans 90 or more days

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delinquent or in foreclosure were 0.09% of total loans receivable, net. See "Management's Discussion and Analysis of Financial Condition and Results of Operation - Asset Quality - Delinquent and nonaccrual loans and other real estate owned ("OREO")" below for additional discussion. During the current fiscal year, net charge-offs ("NCOs") were $198 thousand.

Total liabilities at September 30, 2025 were $8.73 billion, an increase of $235.7 million from September 30, 2024. The increase was due mainly to deposit growth, largely through the Bank's high yield savings account offering, which increased $364.5 million. Management has continued to focus on retaining and growing deposits through the Bank's high yield savings account product, which, as of September 30, 2025, had an annual percentage yield of 4.00% for accounts that meet the $10 thousand minimum balance requirement. The increase in deposits was partially offset by a $228.8 million decrease in borrowings due to principal repayments made on the Bank's amortizing FHLB advances, along with borrowings that matured but were not replaced. Management estimates that the Bank had $2.92 billion in liquidity available at September 30, 2025, based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

Stockholders' equity totaled $1.05 billion at September 30, 2025, an increase of $15.4 million from September 30, 2024. As of September 30, 2025, the Bank's capital ratios exceeded the well-capitalized requirements. The Bank's community bank leverage ratio ("CBLR") as of September 30, 2025 was 9.6%. During the current fiscal year, the Company paid regular quarterly cash dividends totaling $44.2 million, or $0.34 per share and repurchased 618,260 shares for $3.9 million.

At September 30, 2025, the gap between the Bank's interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(983.6) million, or (10.1)% of total assets, compared to $(1.51) billion, or (15.8)% of total assets, at September 30, 2024. As of September 30, 2025, the Bank exceeded internal policy thresholds for sensitivity to changes in interest rates. See additional discussion in "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk."

Securities Strategy to Improve Earnings

In October 2023, the Company initiated a securities strategy (the "securities strategy") by selling $1.30 billion of securities, representing 94% of its securities portfolio. Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities of $192.6 million which was reflected in the Company's financial statements for the quarter and fiscal year ended September 30, 2023. The securities strategy allowed the Company to improve its earnings stream going forward, beginning in the quarter ended December 31, 2023, by redeploying most of the proceeds into then-current market rate securities. The Company utilized the remaining proceeds to deleverage the balance sheet. During the quarter ended December 31, 2023, the Company completed the sale of securities and recognized $13.3 million ($10.0 million net of tax), or $0.08 per share, of additional loss. See additional information regarding the impact of the securities strategy on our financial measurements in "Management's Discussion and Analysis of Financial Condition and Results of Operation - Average Balance Sheets" below. The $1.30 billion of securities sold had a weighted average yield of 1.22% and an average duration of 3.6 years. With the proceeds from the sale of the securities, the Company purchased $632.0 million of securities yielding 5.75%, paid down $500.0 million of borrowings with a weighted average cost of 4.70%, and held the remaining cash at the FRB of Kansas City earning interest at the reserve balance rate until such time as it could be used to fund commercial lending activities or for other Bank operations.

Strategic Banking Initiatives

The Company is committed to its progression to a full-service commercial bank and is investing in technology, people, products and services to make that happen. Our investments in technology to date have allowed us to launch new services and products, while the addition of seasoned and well-connected commercial bankers, and trust and wealth advisors gives us access to an exciting new customer group. Expanding our product suite of treasury management services enables us to service this new customer group, and expanded marketing and business development has increased the depth of customer relationships. Having completed the second year since embarking on our digital transformation, we have seen our efforts bear fruit and expect progress to accelerate going forward.

Strategic Actions. The long-term success of this transformation is predicated on management's continued focus on deepening relationships with consumer and commercial customers. Management and the Board have committed resources through the growth of talented, skilled and experienced bankers, investments in technology, expanded marketing and outreach, as well as the development and increased internal monitoring of performance metrics that ensure we are on the path to achieve our performance objectives. Through our experienced relationship managers, we deliver customized solutions

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using advanced digital platforms, and sophisticated cash management tools. Additionally, we are leveraging our centralized organizational structure to respond quickly to customers. We are actively pursuing opportunities to expand our non-interest-bearing deposit base and diversify fee-based revenue streams through strategic growth in treasury management services, trust and wealth management services, insurance, and small business banking.

Commercial Lending. During the current fiscal year, we closed on $901.9 million in commercial loans compared to $350.6 million in the prior fiscal year and commercial loans continue to grow as a percentage of our overall loan portfolio. As of September 30, 2025, commercial loans comprised 26% of our loan portfolio compared to 19% at the prior fiscal year end. To maintain strong credit quality, in addition to disciplined underwriting and ongoing credit administration, we monitor concentration levels by collateral type, geographic location and borrowing relationship. During the current fiscal year, the Bank implemented commercial loan pricing and profitability software that provides insights based on the full customer banking relationship. We also implemented software that provides market insight regarding competitor pricing to assist loan officers when preparing a loan offering. This has increased our ability to profitably compete with other financial institutions in our markets as well as those outside our markets.

Treasury Management. The Bank services commercial customers through a competitive suite of treasury management products and an experie

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