Capitol Federal Financial, Inc.® Reports Third Quarter Fiscal Year 2022 Results

Jul 27th, 2022 13:00 EST

TOPEKA, Kan.--(BUSINESS WIRE)--Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended June 30, 2022. The Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 will be filed with the Securities and Exchange Commission ("SEC") on or about August 8, 2022 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $21.2 million;
  • basic and diluted earnings per share of $0.16;
  • net interest margin of 1.79% (2.11% excluding the effects of the leverage strategy);
  • annualized loan growth of 7.2%;
  • paid dividends of $38.7 million, or $0.285 per share, including a $0.20 per share True Blue® Capitol dividend; and
  • on July 19, 2022, announced a cash dividend of $0.085 per share, payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 2022.

Comparison of Operating Results for the Three Months Ended June 30, 2022 and March 31, 2022

For the quarter ended June 30, 2022, the Company recognized net income of $21.2 million, or $0.16 per share, compared to net income of $21.6 million, or $0.16 per share, for the quarter ended March 31, 2022. The decrease in net income was due primarily to a higher provision for credit losses, partially offset by an increase in net interest income and lower income tax expense. The net interest margin increased 10 basis points, from 1.69% for the prior quarter to 1.79% for the current quarter. When the leverage strategy discussed below 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. Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 2.01% for the prior quarter to 2.11% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in asset yields and a change in the mix of interest-earning assets, as cash was used to fund loan growth.

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion by entering into short-term Federal Home Loan Bank Topeka ("FHLB") advances. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 6.5% during the current quarter, were deposited at the Federal Reserve Bank of Kansas City ("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 deposited 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 $1.2 million during the current quarter and $1.8 million during the current year-to-date period. Management continues to monitor the net interest rate spread and overall profitability of the strategy. In July 2022, the level of borrowings associated with the leverage strategy was increased to $2.60 billion to further increase earnings, in response to the increase in the dividend rate paid by FHLB. It is expected that the strategy will continue to be utilized as long as it remains profitable.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. The weighted average yield on loans receivable increased four basis points and the weighted average yield on mortgage-backed securities ("MBS") increased eight basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

56,886

 

$

55,412

 

$

1,474

 

2.7

%

MBS

 

5,048

 

 

4,821

 

 

227

 

4.7

 

FHLB stock

 

2,695

 

 

2,240

 

 

455

 

20.3

 

Cash and cash equivalents

 

3,968

 

 

949

 

 

3,019

 

318.1

 

Investment securities

 

815

 

 

800

 

 

15

 

1.9

 

Total interest and dividend income

$

69,412

 

$

64,222

 

$

5,190

 

8.1

 

The increase in interest income on loans receivable was due primarily to a decrease in correspondent loan premium amortization related to a reduction in payoff activity, as well as growth in the correspondent loan portfolio. The increase in interest income on MBS was due mainly to a decrease in premium amortization related to a slowdown in prepayment activity. The increase in dividend income on FHLB stock was due mainly to an increase in the dividend rate paid by FHLB. The increase in interest income on cash and cash equivalents was due to an increase in the yield earned on balances held at the FRB of Kansas City, the majority of which were related to the leverage strategy, due to an increase in market interest rates.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. The weighted average rate paid on deposits and the weighted average rate paid on borrowings not associated with the leverage strategy each decreased three basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

11,644

 

$

8,732

 

$

2,912

 

 

33.3

%

Deposits

 

7,787

 

 

8,389

 

 

(602

)

 

(7.2

)

Total interest expense

$

19,431

 

$

17,121

 

$

2,310

 

 

13.5

 

The increase in interest expense on borrowings was due primarily to an increase in the rate paid on the short-term borrowings associated with the leverage strategy during the current quarter, due to higher market interest rates. Additionally, the average balance of borrowings not associated with the leverage strategy increased compared to the prior quarter due to new borrowings added near the end of the quarter, totaling $250.0 million at a weighted average rate of 3.51%, which contributed to the increase in interest expense. The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on retail certificates of deposit and a decrease in the average balance of the portfolio, as maturing accounts either were not renewed or were replaced at offered rates, which were lower than the existing portfolio.

Provision for Credit Losses

For the quarter ended June 30, 2022, the Bank recorded a provision for credit losses of $937 thousand, compared to a negative provision for credit losses of $3.2 million for the prior quarter. The provision for credit losses in the current quarter was comprised of a $796 thousand increase in the allowance for credit losses ("ACL") for loans and a $141 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses was due primarily to selecting a weighted economic forecast to incorporate a recessionary outlook into the model, as well as commercial loan growth.

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

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

3,601

 

$

3,300

 

$

301

 

9.1

%

Insurance commissions

 

788

 

 

543

 

 

245

 

45.1

 

Other non-interest income

 

1,726

 

 

1,573

 

 

153

 

9.7

 

Total non-interest income

$

6,115

 

$

5,416

 

$

699

 

12.9

 

The increase in deposit service fees was due mainly to increases in debit card income and service charges as a result of higher transaction activity. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions in the prior quarter, which were lower than expected, and the related accrual adjustments. The increase in other non-interest income was due mainly to an increase in income on bank-owned life insurance related to the receipt of death benefits.

Non-Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

14,581

 

$

14,023

 

$

558

 

 

4.0

%

Information technology and related expense

 

4,343

 

 

4,493

 

 

(150

)

 

(3.3

)

Occupancy, net

 

3,721

 

 

3,493

 

 

228

 

 

6.5

 

Regulatory and outside services

 

1,572

 

 

1,272

 

 

300

 

 

23.6

 

Advertising and promotional

 

1,068

 

 

1,494

 

 

(426

)

 

(28.5

)

Federal insurance premium

 

784

 

 

777

 

 

7

 

 

0.9

 

Deposit and loan transaction costs

 

664

 

 

689

 

 

(25

)

 

(3.6

)

Office supplies and related expense

 

494

 

 

502

 

 

(8

)

 

(1.6

)

Other non-interest expense

 

1,163

 

 

1,217

 

 

(54

)

 

(4.4

)

Total non-interest expense

$

28,390

 

$

27,960

 

$

430

 

 

1.5

 

The increase in salaries and employee benefits was due mainly to an increase in commissions due to an increase in loan origination activity, along with annual merit increases during the current quarter. The increase in regulatory and outside services was due primarily to the timing of external audit expenses, as well as an increase in consulting expenses related to the Bank's upcoming implementation of a new core processing system. The decrease in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships.

The Company's efficiency ratio was 50.61% for the current quarter compared to 53.24% for the prior quarter. The improvement in the efficiency ratio was due primarily to higher net interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that it is costing the financial institution less money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

 

2022

 

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

26,769

 

 

$

27,745

 

 

$

(976

)

 

(3.5

) %

Income tax expense

 

5,617

 

 

 

6,122

 

 

 

(505

)

 

(8.2

)

Net income

$

21,152

 

 

$

21,623

 

 

$

(471

)

 

(2.2

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.0

%

 

 

22.1

%

 

 

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate as a result of higher deductible expenses associated with dividends paid on allocated Employee Stock Ownership Plan ("ESOP") shares due to the True Blue Capitol dividend paid in June 2022. Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Nine Months Ended June 30, 2022 and 2021

The Company recognized net income of $65.0 million, or $0.48 per share, for the current year period compared to net income of $57.5 million, or $0.42 per share, for the prior year period. The increase in net income was due to an increase in net interest income, partially offset by higher income tax expense and a lower negative provision for credit losses. The net interest margin decreased six basis points, from 1.88% for the prior year period to 1.82% for the current year period. Excluding the effects of the leverage strategy, the net interest margin would have increased 16 basis points, from 1.88% for the prior year period to 2.04% for the current year period. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

Interest and Dividend Income

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

 

For the Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

168,086

 

$

172,758

 

$

(4,672

)

 

(2.7

) %

MBS

 

14,494

 

 

16,499

 

 

(2,005

)

 

(12.2

)

FHLB stock

 

6,166

 

 

2,964

 

 

3,202

 

 

108.0

 

Cash and cash equivalents

 

4,931

 

 

117

 

 

4,814

 

 

4,114.5

 

Investment securities

 

2,423

 

 

2,075

 

 

348

 

 

16.8

 

Total interest and dividend income

$

196,100

 

$

194,413

 

$

1,687

 

 

0.9

 

The decrease in interest income on loans receivable was due to a decrease in the weighted average rate on the originated and correspondent one- to four-family loan portfolio, partially offset by the increase in the average balance of the loan portfolio. The decrease in the weighted average rate was due to endorsements, refinances, originations and purchases at lower market rates at the time of the transactions between periods, which are being fully reflected in the current year. Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year period due to the slow-down in prepayments and endorsements resulting from an increase in market interest rates, partially offsetting the decrease in the weighted average rate.

The decrease in interest income on the MBS portfolio was due primarily to a decrease in the weighted average yield as a result of purchases at lower market yields between periods, along with a decrease in the average balance of the portfolio.

The increase in dividend income on FHLB stock and the increase in interest income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current year period and not being utilized during the prior period.

The increase in interest income on investment securities was due primarily to an increase in the average balance of the portfolio.

Interest Expense

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

 

For the Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

27,961

 

$

26,885

 

$

1,076

 

 

4.0

%

Deposits

 

25,443

 

 

38,071

 

 

(12,628

)

 

(33.2

)

Total interest expense

$

53,404

 

$

64,956

 

$

(11,552

)

 

(17.8

)

The increase in interest expense on borrowings was due to the leverage strategy being utilized during a portion of the current year period and not being utilized during the prior year period. Interest expense on borrowings associated with the leverage strategy totaled $4.9 million during the current year period. This was partially offset by a lower cost of FHLB borrowings not associated with the leverage strategy due primarily to terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, along with a decrease in the average balance of the portfolio. Retail certificates of deposit repriced downward between periods as they were renewed or were replaced at lower offered rates, along with some certificates of deposit not renewing.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $5.7 million, compared to a negative provision for credit losses of $7.2 million during the prior year period. The negative provision in the current year period was comprised of a $3.8 million decrease in the ACL for loans and a $1.9 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL in the current year period was due primarily to a reduction in commercial loan qualitative factors, partially offset by an increase in ACL related to loan growth during the current year period. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was due primarily to a reduction in commercial loan qualitative factors.

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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

10,331

 

$

8,988

 

$

1,343

 

 

14.9

%

Insurance commissions

 

2,042

 

 

2,249

 

 

(207

)

 

(9.2

)

Gain on sale of Visa Class B shares

 

 

 

7,386

 

 

(7,386

)

 

(100.0

)

Other non-interest income

 

4,664

 

 

4,160

 

 

504

 

 

12.1

 

Total non-interest income

$

17,037

 

$

22,783

 

$

(5,746

)

 

(25.2

)

The increase in deposit service fees was due primarily to an increase in debit card income and service charges as a result of higher transaction and settlement volume, in addition to an increase in the average transaction amount. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which were lower than expected, and the related accrual adjustments. During the prior year period, the Bank sold its Visa Class B shares, resulting in a $7.4 million gain, with no similar transaction during the current year period. The increase in other non-interest income was due primarily to a gain on a loan-related financial derivative agreement.

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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

42,332

 

$

41,402

 

$

930

 

 

2.2

%

Information technology and related expense

 

13,268

 

 

13,568

 

 

(300

)

 

(2.2

)

Occupancy, net

 

10,593

 

 

10,406

 

 

187

 

 

1.8

 

Regulatory and outside services

 

4,212

 

 

4,288

 

 

(76

)

 

(1.8

)

Advertising and promotional

 

3,626

 

 

3,729

 

 

(103

)

 

(2.8

)

Federal insurance premium

 

2,200

 

 

1,888

 

 

312

 

 

16.5

 

Deposit and loan transaction costs

 

2,050

 

 

2,123

 

 

(73

)

 

(3.4

)

Office supplies and related expense

 

1,464

 

 

1,289

 

 

175

 

 

13.6

 

Loss on interest rate swap termination

 

 

 

4,752

 

 

(4,752

)

 

(100.0

)

Other non-interest expense

 

3,299

 

 

3,877

 

 

(578

)

 

(14.9

)

Total non-interest expense

$

83,044

 

$

87,322

 

$

(4,278

)

 

(4.9

)

The increase in salaries and employee benefits was due primarily to merit increases and an increase in incentive compensation, partially offset by a decrease in commissions due to a reduction in loan origination activity compared to the prior year period. The increase in federal insurance premium expense was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current year period. During the prior year period, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of accumulated other comprehensive income ("AOCI") to earnings. The decrease in other non-interest expense was due primarily to the write-down during the prior year period of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 51.99% for the current year period compared to 57.36% for the prior year period. The improvement in the efficiency ratio was due primarily to higher net interest income.

Management intends to implement a new core processing system for the Bank by September 2023. The replacement system is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. The implementation of the new core system and related conversion of data may result in increased third party expenses later in fiscal year 2022 and during fiscal year 2023.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and effective tax rate.

 

For the Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

$

82,379

 

 

$

72,105

 

 

$

10,274

 

14.2

%

Income tax expense

 

17,418

 

 

 

14,576

 

 

 

2,842

 

19.5

 

Net income

$

64,961

 

 

$

57,529

 

 

$

7,432

 

12.9

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.1

%

 

 

20.2

%

 

 

 

 

The increase in income tax expense was due primarily to higher pretax income in the current year period. Additionally, the effective tax rate increased slightly compared to the prior year period, and is in line with management's anticipation of an effective tax rate of approximately 21% for fiscal year 2022.

Financial Condition as of June 30, 2022

The following table summarizes the Company's financial condition at the dates indicated.

 

 

 

 

 

Annualized

 

 

 

Annualized

 

June 30,

 

March 31,

 

Percent

 

September 30,

 

Percent

 

2022

 

2022

 

Change

 

2021

 

Change

 

(Dollars in thousands)

Total assets

$

9,476,053

 

 

$

9,531,296

 

 

(2.3

) %

 

$

9,631,246

 

 

(2.1

) %

Available-for-sale ("AFS") securities

 

1,694,160

 

 

 

1,780,419

 

 

(19.4

)

 

 

2,014,608

 

 

(21.2

)

Loans receivable, net

 

7,236,196

 

 

 

7,108,810

 

 

7.2

 

 

 

7,081,142

 

 

2.9

 

Deposits

 

6,329,883

 

 

 

6,614,844

 

 

(17.2

)

 

 

6,597,396

 

 

(5.4

)

Borrowings

 

1,869,897

 

 

 

1,583,747

 

 

72.3

 

 

 

1,582,850

 

 

24.2

 

Stockholders' equity

 

1,131,740

 

 

 

1,174,752

 

 

(14.6

)

 

 

1,242,273

 

 

(11.9

)

Equity to total assets at end of period

 

11.9

%

 

 

12.3

%

 

 

 

 

12.9

%

 

 

Average number of basic shares outstanding

 

135,725

 

 

 

135,677

 

 

0.1

 

 

 

135,571

 

 

0.2

 

Average number of diluted shares outstanding

 

135,725

 

 

 

135,677

 

 

0.1

 

 

 

135,571

 

 

0.2

 

During the current quarter and current year period, total assets decreased as cash and/or securities were partially reinvested in loans receivable. Deposit outflows, the majority of which occurred during the quarter ended June 30, 2022, were replaced by an increase in borrowings. The decrease in stockholders' equity from September 30, 2021 and March 31, 2022 to June 30, 2022 was due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities, along with the payment of a $0.20 per share True Blue Capitol dividend in June 2022.

During the current quarter, the deposit portfolio decreased $284.9 million, or 17.2% annualized. The decrease was primarily in retail certificates of deposit ($83.9 million), checking accounts ($70.0 million), public unit deposits ($67.0 million), and commercial certificates of deposit ($45.7 million). The decrease in checking accounts was mainly in retail accounts, as depositors used accumulated savings for other purposes during the quarter. The decrease in public unit deposits was due to the rapidly increasing costs of available funds in this category, to the point that rates were in excess of other funding sources available to the Bank. The decrease in commercial certificates of deposit was expected, as certain maturities were anticipated to be used to fund operations at the depositors' related businesses during the current year. The Bank has begun to increase offered rates on certificates of deposit and money market accounts, which has reduced the runoff in these portfolios.

Loans receivable, net, increased $127.4 million during the current quarter due primarily to a $101.7 million increase in one- to four-family loans and a $20.6 million increase in commercial loans.

The following table summarizes loan originations and purchases and borrowing activity, along with the related weighted average rates, during the periods indicated. The borrowings presented in the table have original contractual terms of one year or longer.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations and purchases

 

 

 

 

 

 

 

One- to four-family and consumer:

 

 

 

 

 

 

 

Originated

$

223,153

 

3.82

%

 

$

612,710

 

 

3.28

%

Purchased

 

145,362

 

3.48

 

 

 

394,011

 

 

3.01

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Originated

 

37,646

 

4.28

 

 

 

174,925

 

 

3.98

 

Purchased

 

8,000

 

3.75

 

 

 

82,057

 

 

3.35

 

 

$

414,161

 

3.74

 

 

$

1,263,703

 

 

3.30

 

Borrowing activity

 

 

 

 

 

 

 

Maturities and prepayments

$

 

 

 

$

(100,000

)

 

3.14

 

New borrowings

 

250,000

 

3.51

 

 

 

350,000

 

 

3.49

 

Stockholders' Equity

During the nine months ended June 30, 2022, the Company paid cash dividends totaling $91.6 million. These cash dividends totaled $0.675 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, a $0.20 per share True Blue Capitol cash dividend, and three regular quarterly cash dividends of $0.085 per share. On July 19, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on August 19, 2022 to stockholders of record as of the close of business on August 5, 2022. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At June 30, 2022, this ratio was 10.6%.

At June 30, 2022, Capitol Federal Financial, Inc., at the holding company level, had $91.9 million in cash on deposit at the Bank. For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. 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 level.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2022.

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2022.

Total shares outstanding

138,854,084

 

Less unallocated ESOP shares and unvested restricted stock

(3,086,165

)

Net shares outstanding

135,767,919

 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of June 30, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.4%, which exceeded the minimum requirement of 9%. The CBLR is based on average assets. The leverage strategy increases average assets which reduces the Bank's CBLR.

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning 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. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share amounts)

 

June 30,

 

March 31,

 

September 30,

 

 

2022

 

 

 

2022

 

 

 

2021

 

ASSETS:

 

 

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $31,589, $110,444 and $24,289)

$

54,789

 

 

$

166,869

 

 

$

42,262

 

AFS securities, at estimated fair value (amortized cost of $1,830,262, $1,875,361 and $2,008,456)

 

1,694,160

 

 

 

1,780,419

 

 

 

2,014,608

 

Loans receivable, net (ACL of $16,283, $15,312 and $19,823)

 

7,236,196

 

 

 

7,108,810

 

 

 

7,081,142

 

FHLB stock, at cost

 

87,696

 

 

 

74,456

 

 

 

73,421

 

Premises and equipment, net

 

96,008

 

 

 

96,952

 

 

 

99,127

 

Income taxes receivable, net

 

1,993

 

 

 

 

 

 

 

Deferred income tax assets, net

 

19,636

 

 

 

12,399

 

 

 

 

Other assets

 

285,575

 

 

 

291,391

 

 

 

320,686

 

TOTAL ASSETS

$

9,476,053

 

 

$

9,531,296

 

 

$

9,631,246

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

$

6,329,883

 

 

$

6,614,844

 

 

$

6,597,396

 

Borrowings

 

1,869,897

 

 

 

1,583,747

 

 

 

1,582,850

 

Advance payments by borrowers for taxes and insurance

 

55,955

 

 

 

65,901

 

 

 

72,729

 

Income taxes payable, net

 

 

 

 

1,113

 

 

 

918

 

Deferred income tax liabilities, net

 

 

 

 

 

 

 

5,810

 

Other liabilities

 

88,578

 

 

 

90,939

 

 

 

129,270

 

Total liabilities

 

8,344,313

 

 

 

8,356,544

 

 

 

8,388,973

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

Preferred stock, $0.01 par value; 100,000,000 shares authorized, no shares issued or outstanding

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,854,084, 138,846,684 and 138,832,284 shares issued and outstanding as of June 30, 2022, March 31, 2022, and September 30, 2021, respectively

 

1,388

 

 

 

1,388

 

 

 

1,388

 

Additional paid-in capital

 

1,190,117

 

 

 

1,189,999

 

 

 

1,189,633

 

Unearned compensation, ESOP

 

(30,148

)

 

 

(30,561

)

 

 

(31,387

)

Retained earnings

 

72,308

 

 

 

89,833

 

 

 

98,944

 

Accumulated other comprehensive (loss) income, net of tax

 

(101,925

)

 

 

(75,907

)

 

 

(16,305

)

Total stockholders' equity

 

1,131,740

 

 

 

1,174,752

 

 

 

1,242,273

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,476,053

$

9,531,296

 

$

9,631,246

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30,

 

March 31,

 

June 30,

 

2022

 

 

2022

 

 

 

2022

 

 

 

2021

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

56,886

 

$

55,412

 

 

$

168,086

 

 

$

172,758

 

MBS

 

5,048

 

 

4,821

 

 

 

14,494

 

 

 

16,499

 

FHLB stock

 

2,695

 

 

2,240

 

 

 

6,166

 

 

 

2,964

 

Cash and cash equivalents

 

3,968

 

 

949

 

 

 

4,931

 

 

 

117

 

Investment securities

 

815

 

 

800

 

 

 

2,423

 

 

 

2,075

 

Total interest and dividend income

 

69,412

 

 

64,222

 

 

 

196,100

 

 

 

194,413

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

 

11,644

 

 

8,732

 

 

 

27,961

 

 

 

26,885

 

Deposits

 

7,787

 

 

8,389

 

 

 

25,443

 

 

 

38,071

 

Total interest expense

 

19,431

 

 

17,121

 

 

 

53,404

 

 

 

64,956

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

49,981

 

 

47,101

 

 

 

142,696

 

 

 

129,457

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

937

 

 

(3,188

)

 

 

(5,690

)

 

 

(7,187

)

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

49,044

 

 

50,289

 

 

 

148,386

 

 

 

136,644

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

 

3,601

 

 

3,300

 

 

 

10,331

 

 

 

8,988

 

Insurance commissions

 

788

 

 

543

 

 

 

2,042

 

 

 

2,249

 

Gain on sale of Visa Class B shares

 

 

 

 

 

 

 

 

 

7,386

 

Other non-interest income

 

1,726

 

 

1,573

 

 

 

4,664

 

 

 

4,160

 

Total non-interest income

 

6,115

 

 

5,416

 

 

 

17,037

 

 

 

22,783

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

 

14,581

 

 

14,023

 

 

 

42,332

 

 

 

41,402

 

Information technology and related expense

 

4,343

 

 

4,493

 

 

 

13,268

 

 

 

13,568

 

Occupancy, net

 

3,721

 

 

3,493

 

 

 

10,593

 

 

 

10,406

 

Regulatory and outside services

 

1,572

 

 

1,272

 

 

 

4,212

 

 

 

4,288

 

Advertising and promotional

 

1,068

 

 

1,494

 

 

 

3,626

 

 

 

3,729

 

Federal insurance premium

 

784

 

 

777

 

 

 

2,200

 

 

 

1,888

 

Deposit and loan transaction costs

 

664

 

 

689

 

 

 

2,050

 

 

 

2,123

 

Office supplies and related expense

 

494

 

 

502

 

 

 

1,464

 

 

 

1,289

 

Loss on interest rate swap termination

 

 

 

 

 

 

 

 

 

4,752

 

Other non-interest expense

 

1,163

 

 

1,217

 

 

 

3,299

 

 

 

3,877

 

Total non-interest expense

 

28,390

 

 

27,960

 

 

 

83,044

 

 

 

87,322

 

INCOME BEFORE INCOME TAX EXPENSE

 

26,769

 

 

27,745

 

 

 

82,379

 

 

 

72,105

 

INCOME TAX EXPENSE

 

5,617

 

 

6,122

 

 

 

17,418

 

 

 

14,576

 

NET INCOME

$

21,152

 

$

21,623

 

 

$

64,961

 

 

$

57,529

 

Average Balance Sheets

The following tables present 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, as well as selected performance ratios and other information for the periods shown. 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.

 

For the Three Months Ended

 

June 30, 2022

 

March 31, 2022

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,982,602

 

$

32,168

 

3.23

%

 

$

3,965,844

 

$

31,993

 

3.23

%

Correspondent purchased

 

2,060,947

 

 

14,027

 

2.72

 

 

 

2,026,120

 

 

13,060

 

2.58

 

Bulk purchased

 

154,663

 

 

464

 

1.20

 

 

 

161,149

 

 

503

 

1.25

 

Total one- to four-family loans

 

6,198,212

 

 

46,659

 

3.01

 

 

 

6,153,113

 

 

45,556

 

2.96

 

Commercial loans

 

890,455

 

 

9,104

 

4.05

 

 

 

869,205

 

 

8,851

 

4.07

 

Consumer loans

 

92,790

 

 

1,123

 

4.85

 

 

 

90,326

 

 

1,005

 

4.51

 

Total loans receivable(1)

 

7,181,457

 

 

56,886

 

3.16

 

 

 

7,112,644

 

 

55,412

 

3.12

 

MBS(2)

 

1,343,891

 

 

5,048

 

1.50

 

 

 

1,357,693

 

 

4,821

 

1.42

 

Investment securities(2)(3)

 

522,147

 

 

815

 

0.62

 

 

 

522,019

 

 

800

 

0.61

 

FHLB stock(4)

 

166,879

 

 

2,695

 

6.48

 

 

 

158,546

 

 

2,240

 

5.73

 

Cash and cash equivalents(5)

 

1,930,539

 

 

3,968

 

0.81

 

 

 

1,971,341

 

 

949

 

0.19

 

Total interest-earning assets

 

11,144,913

 

 

69,412

 

2.49

 

 

 

11,122,243

 

 

64,222

 

2.31

 

Other non-interest-earning assets

 

293,882

 

 

 

 

 

 

385,323

 

 

 

 

Total assets

$

11,438,795

 

 

 

 

 

$

11,507,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,068,329

 

 

180

 

0.07

 

 

$

1,069,282

 

 

176

 

0.07

 

Savings

 

556,553

 

 

74

 

0.05

 

 

 

540,348

 

 

71

 

0.05

 

Money market

 

1,861,302

 

 

952

 

0.21

 

 

 

1,879,799

 

 

876

 

0.19

 

Retail certificates

 

2,169,262

 

 

6,383

 

1.18

 

 

 

2,241,080

 

 

7,012

 

1.27

 

Commercial certificates

 

84,231

 

 

129

 

0.61

 

 

 

116,181

 

 

183

 

0.64

 

Wholesale certificates

 

113,101

 

 

69

 

0.24

 

 

 

197,335

 

 

71

 

0.15

 

Total deposits

 

5,852,778

 

 

7,787

 

0.53

 

 

 

6,044,025

 

 

8,389

 

0.56

 

Borrowings(6)

 

3,687,592

 

 

11,644

 

1.26

 

 

 

3,499,010

 

 

8,732

 

1.01

 

Total interest-bearing liabilities

 

9,540,370

 

 

19,431

 

0.81

 

 

 

9,543,035

 

 

17,121

 

0.73

 

Non-interest-bearing deposits

 

586,876

 

 

 

 

 

 

577,989

 

 

 

 

Other non-interest-bearing liabilities

 

147,938

 

 

 

 

 

 

177,995

 

 

 

 

Stockholders' equity

 

1,163,611

 

 

 

 

 

 

1,208,547

 

 

 

 

Total liabilities and stockholders' equity

$

11,438,795

 

 

 

 

 

$

11,507,566

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

49,981

 

 

 

 

 

$

47,101

 

 

Net interest-earning assets

$

1,604,543

 

 

 

 

 

$

1,579,208

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.79

 

 

 

 

 

 

1.69

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17x

 

 

 

 

 

1.17x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.74

%

 

 

 

 

 

0.75

%

Return on average equity (annualized)(9)

 

 

 

7.27

 

 

 

 

 

 

7.16

 

Average equity to average assets

 

 

 

 

10.17

 

 

 

 

 

 

10.50

 

Operating expense ratio (annualized)(10)

 

 

 

0.99

 

 

 

 

 

 

0.97

 

Efficiency ratio(9)(11)

 

 

 

50.61

 

 

 

 

 

 

53.24

 

Pre-tax yield on leverage strategy(12)

 

 

 

 

0.31

 

 

 

 

 

 

0.14

 

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2021

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,973,184

 

$

96,583

 

3.24

%

 

$

3,963,088

 

$

104,482

 

3.52

%

Correspondent purchased

 

2,040,934

 

 

39,832

 

2.60

 

 

 

2,006,257

 

 

35,124

 

2.33

 

Bulk purchased

 

162,151

 

 

1,578

 

1.30

 

 

 

195,678

 

 

2,870

 

1.96

 

Total one- to four-family loans

 

6,176,269

 

 

137,993

 

2.98

 

 

 

6,165,023

 

 

142,476

 

3.08

 

Commercial loans

 

866,856

 

 

26,898

 

4.09

 

 

 

780,941

 

 

26,707

 

4.51

 

Consumer loans

 

91,979

 

 

3,195

 

4.64

 

 

 

103,241

 

 

3,575

 

4.63

 

Total loans receivable(1)

 

7,135,104

 

 

168,086

 

3.14

 

 

 

7,049,205

 

 

172,758

 

3.26

 

MBS(2)

 

1,379,334

 

 

14,494

 

1.40

 

 

 

1,424,914

 

 

16,499

 

1.54

 

Investment securities(2)(3)

 

522,706

 

 

2,423

 

0.62

 

 

 

476,755

 

 

2,075

 

0.58

 

FHLB stock(4)

 

132,657

 

 

6,166

 

6.21

 

 

 

78,784

 

 

2,964

 

5.03

 

Cash and cash equivalents(5)

 

1,305,949

 

 

4,931

 

0.50

 

 

 

152,792

 

 

117

 

0.10

 

Total interest-earning assets

 

10,475,750

 

 

196,100

 

2.49

 

 

 

9,182,450

 

 

194,413

 

2.82

 

Other non-interest-earning assets

 

362,229

 

 

 

 

 

 

443,370

 

 

 

 

Total assets

$

10,837,979

 

 

 

 

 

$

9,625,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,063,280

 

 

535

 

0.07

 

 

$

955,731

 

 

588

 

0.08

 

Savings

 

539,152

 

 

215

 

0.05

 

 

 

478,011

 

 

209

 

0.06

 

Money market

 

1,835,666

 

 

2,653

 

0.19

 

 

 

1,554,947

 

 

3,220

 

0.28

 

Retail certificates

 

2,236,551

 

 

21,230

 

1.27

 

 

 

2,530,969

 

 

31,824

 

1.68

 

Commercial certificates

 

123,398

 

 

584

 

0.63

 

 

 

195,066

 

 

1,208

 

0.83

 

Wholesale certificates

 

170,051

 

 

226

 

0.18

 

 

 

254,606

 

 

1,022

 

0.54

 

Total deposits

 

5,968,098

 

 

25,443

 

0.57

 

 

 

5,969,330

 

 

38,071

 

0.85

 

Borrowings(6)

 

2,918,291

 

 

27,961

 

1.27

 

 

 

1,654,544

 

 

26,885

 

2.16

 

Total interest-bearing liabilities

 

8,886,389

 

 

53,404

 

0.80

 

 

 

7,623,874

 

 

64,956

 

1.14

 

Non-interest-bearing deposits

 

571,685

 

 

 

 

 

 

499,737

 

 

 

 

Other non-interest-bearing liabilities

 

177,081

 

 

 

 

 

 

219,204

 

 

 

 

Stockholders' equity

 

1,202,824

 

 

 

 

 

 

1,283,005

 

 

 

 

Total liabilities and stockholders' equity

$

10,837,979

 

 

 

 

 

$

9,625,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

142,696

 

 

 

 

 

$

129,457

 

 

Net interest-earning assets

$

1,589,361

 

 

 

 

 

$

1,558,576

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.82

 

 

 

 

 

 

1.88

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.18x

 

 

 

 

 

1.20x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.80

%

 

 

 

 

 

0.80

%

Return on average equity (annualized)(9)

 

 

 

7.20

 

 

 

 

 

 

5.98

 

Average equity to average assets

 

 

 

 

11.10

 

 

 

 

 

 

13.33

 

Operating expense ratio (annualized)(10)

 

 

 

1.02

 

 

 

 

 

 

1.21

 

Efficiency ratio(9)(11)

 

 

 

 

51.99

 

 

 

 

 

 

57.36

 

Pre-tax yield on leverage strategy(12)

 

 

 

0.23

 

 

 

 

 

 

 

(1)

Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(2)

AFS securities are adjusted for unamortized purchase premiums or discounts.

(3)

The average balance of investment securities includes an average balance of nontaxable securities of $326 thousand and $2.0 million for the quarters ended June 30, 2022 and March 31, 2022, respectively, and $2.1 million and $7.2 million for the nine-month periods ended June 30, 2022 and June 30, 2021, respectively.

(4)

Included in this line, for the quarter and nine-month period ended June 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $89.4 million and $58.2 million, respectively, and dividend income of $1.4 million and $2.7 million, respectively, at a weighted average yield of 6.48% and 6.12%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $77.5 million and $74.5 million, respectively, and dividend income of $1.3 million and $3.5 million, respectively, at a weighted average yield of 6.48% and 6.29%, respectively. Included in this line for the quarter ended March 31, 2022 is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and dividend income of $1.2 million, at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and dividend income of $1.0 million, at a weighted average yield of 5.71%. There was no FHLB stock related to the leverage strategy during the nine-month period ended June 30, 2021.

(5)

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.89 billion, $1.83 billion, and $1.23 billion during the quarter ended June 30, 2022, the quarter ended March 31, 2022 and nine-month period ended June 30, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the nine-month period ended June 30, 2021.

(6)

Included in this line, for the quarter and nine-month period ended June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.99 billion and $1.30 billion, respectively, and interest paid of $3.7 million and $4.9 million, respectively, at a weighted average rate of 0.73% and 0.50%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.70 billion and $1.62 billion, respectively, and interest paid of $8.0 million and $23.0 million, respectively, at a weighted average rate of 1.87% and 1.89%, respectively. Included in this line for the quarter ended March 31, 2022 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and interest paid of $1.3 million at a weighted average rate of 0.26%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and interest paid of $7.5 million at a weighted average rate of 1.90%. There were no FHLB borrowings related to the leverage strategy during the nine-month period ended June 30, 2021. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(7)

Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

(8)

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

(9)

The tables below provide a reconciliation between certain performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("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

 

June 30, 2022

 

March 31, 2022

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.49

%

 

(0.30

)%

 

2.79

%

 

2.31

%

 

(0.39

)%

 

2.70

%

Cost of interest-bearing liabilities

0.81

 

 

(0.03

)

 

0.84

 

 

0.73

 

 

(0.11

)

 

0.84

 

Return on average assets (annualized)

0.74

 

 

(0.10

)

 

0.84

 

 

0.75

 

 

(0.13

)

 

0.88

 

Return on average equity (annualized)

7.27

 

 

0.42

 

 

6.85

 

 

7.16

 

 

0.18

 

 

6.98

 

Net interest margin

1.79

 

 

(0.32

)

 

2.11

 

 

1.69

 

 

(0.32

)

 

2.01

 

Efficiency Ratio

50.61

 

 

(1.31

)

 

51.92

 

 

53.24

 

 

(0.58

)

 

53.82

 

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2021

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.49

%

 

(0.25

) %

 

2.74

%

 

2.82

%

 

%

 

2.82

%

Cost of interest-bearing liabilities

0.80

 

 

(0.05

)

 

0.85

 

 

1.14

 

 

 

 

1.14

 

Return on average assets (annualized)

0.80

 

 

(0.08

)

 

0.88

 

 

0.80

 

 

 

 

0.80

 

Return on average equity (annualized)

7.20

 

 

0.20

 

 

7.00

 

 

5.98

 

 

 

 

5.98

 

Net interest margin

1.82

 

 

(0.22

)

 

2.04

 

 

1.88

 

 

 

 

1.88

 

Efficiency Ratio

51.99

 

 

(0.65

)

 

52.64

 

 

57.36

 

 

 

 

57.36

 

(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.

Loan Portfolio

The following table presents information related to the composition of our loan portfolio in terms of dollar amounts, weighted average rates, and percentages as of the dates indicated.

 

June 30, 2022

 

March 31, 2022

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,963,608

 

 

3.16

%

 

54.7

%

 

$

3,943,327

 

 

3.14

%

 

55.4

%

 

$

3,956,064

 

 

3.18

%

 

55.8

%

Correspondent purchased

 

2,070,822

 

 

2.99

 

 

28.6

 

 

 

1,995,167

 

 

2.95

 

 

28.0

 

 

 

2,003,477

 

 

3.02

 

 

28.2

 

Bulk purchased

 

151,461

 

 

1.27

 

 

2.1

 

 

 

155,657

 

 

1.33

 

 

2.2

 

 

 

173,662

 

 

1.65

 

 

2.4

 

Construction

 

60,426

 

 

2.84

 

 

0.8

 

 

 

50,512

 

 

2.78

 

 

0.7

 

 

 

39,142

 

 

2.82

 

 

0.6

 

Total

 

6,246,317

 

 

3.05

 

 

86.2

 

 

 

6,144,663

 

 

3.03

 

 

86.3

 

 

 

6,172,345

 

 

3.09

 

 

87.0

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

717,947

 

 

4.09

 

 

9.9

 

 

 

671,324

 

 

3.94

 

 

9.4

 

 

 

676,908

 

 

4.00

 

 

9.6

 

Commercial and industrial

 

70,932

 

 

3.98

 

 

1.0

 

 

 

78,363

 

 

3.92

 

 

1.1

 

 

 

66,497

 

 

3.83

 

 

0.9

 

Construction

 

115,031

 

 

4.33

 

 

1.6

 

 

 

133,597

 

 

4.06

 

 

1.9

 

 

 

85,963

 

 

4.03

 

 

1.2

 

Total

 

903,910

 

 

4.11

 

 

12.5

 

 

 

883,284

 

 

3.96

 

 

12.4

 

 

 

829,368

 

 

3.99

 

 

11.7

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

87,235

 

 

5.03

 

 

1.2

 

 

 

82,878

 

 

4.57

 

 

1.2

 

 

 

86,274

 

 

4.60

 

 

1.2

 

Other

 

8,289

 

 

4.14

 

 

0.1

 

 

 

7,858

 

 

4.18

 

 

0.1

 

 

 

8,086

 

 

4.19

 

 

0.1

 

Total

 

95,524

 

 

4.96

 

 

1.3

 

 

 

90,736

 

 

4.54

 

 

1.3

 

 

 

94,360

 

 

4.57

 

 

1.3

 

Total loans receivable

 

7,245,751

 

 

3.21

 

 

100.0

%

 

 

7,118,683

 

 

3.16

 

 

100.0

%

 

 

7,096,073

 

 

3.21

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

16,283

 

 

 

 

 

 

 

15,312

 

 

 

 

 

 

 

19,823

 

 

 

 

 

Deferred loan fees/discounts

 

29,470

 

 

 

 

 

 

 

29,264

 

 

 

 

 

 

 

29,556

 

 

 

 

 

Premiums/deferred costs

 

(36,198

)

 

 

 

 

 

 

(34,703

)

 

 

 

 

 

 

(34,448

)

 

 

 

 

Total loans receivable, net

$

7,236,196

 

 

 

 

 

 

$

7,108,810

 

 

 

 

 

 

$

7,081,142

 

 

 

 

 

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, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,118,683

 

 

3.16

%

 

$

7,096,073

 

 

3.21

%

Originated and refinanced

 

260,799

 

 

3.88

 

 

 

787,635

 

 

3.44

 

Purchased and participations

 

153,362

 

 

3.50

 

 

 

476,068

 

 

3.06

 

Change in undisbursed loan funds

 

122

 

 

 

 

 

(45,115

)

 

 

Repayments

 

(287,123

)

 

 

 

 

(1,068,621

)

 

 

Principal recoveries/(charge-offs), net

 

175

 

 

 

 

 

220

 

 

 

Other

 

(267

)

 

 

 

 

(509

)

 

 

Ending balance

$

7,245,751

 

 

3.21

 

 

$

7,245,751

 

 

3.21

 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, weighted average rate, percent of total, weighted average credit score, and weighted average loan-to-value ("LTV") ratio, and average balance per loan as of June 30, 2022. Credit scores were updated in March 2022 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

 

 

 

 

 

% of

 

Credit

 

 

 

Average

 

Amount

 

Rate

 

Total

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

 

 

Originated

$

3,963,608

 

3.16

%

 

64.1

%

 

772

 

61

%

 

$

157

Correspondent purchased

 

2,070,822

 

2.99

 

 

33.5

 

 

765

 

64

 

 

 

412

Bulk purchased

 

151,461

 

1.27

 

 

2.4

 

 

773

 

57

 

 

 

285

 

$

6,185,891

 

3.06

 

 

100.0

%

 

770

 

62

 

 

 

200

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

 

 

 

 

 

 

Credit

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

200,354

 

3.70

%

 

74

%

 

766

 

$

558,938

 

3.15

%

 

71

%

 

766

Correspondent purchased

 

145,362

 

3.48

 

 

75

 

 

767

 

 

394,011

 

3.01

 

 

73

 

 

770

 

$

345,716

 

3.61

 

 

74

 

 

767

 

$

952,949

 

3.09

 

 

72

 

 

768

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 June 30, 2022, along with associated weighted average rates.

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

182,662

 

4.16

%

Correspondent

 

77,156

 

3.82

 

 

$

259,818

 

4.06

 

Commercial Loans: During the nine months ended June 30, 2022, the Bank originated $174.9 million of commercial loans and entered into commercial loan participations totaling $82.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $232.0 million at a weighted average rate of 4.04%.

As of June 30, 2022, March 31, 2022, and September 30, 2021, the Bank's commercial and industrial gross loan amount (unpaid principal plus undisbursed amounts) totaled $95.2 million, $101.3 million, and $90.7 million, respectively, and commitments totaled $440 thousand at June 30, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of June 30, 2022, the Bank had 26 commercial real estate and commercial construction loan commitments totaling $65.5 million, at a weighted average rate of 4.17%. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.

 

June 30, 2022

 

March 31, 2022

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Senior housing

34

 

$

248,787

 

 

$

79,334

 

 

$

328,121

 

 

$

331,230

 

 

$

265,284

 

Retail building

138

 

 

196,903

 

 

 

35,551

 

 

 

232,454

 

 

 

226,297

 

 

 

208,539

 

Hotel

11

 

 

160,521

 

 

 

32,380

 

 

 

192,901

 

 

 

194,287

 

 

 

194,665

 

Office building

85

 

 

52,738

 

 

 

50,305

 

 

 

103,043

 

 

 

104,787

 

 

 

109,987

 

Multi-family

34

 

 

59,840

 

 

 

19,706

 

 

 

79,546

 

 

 

71,180

 

 

 

66,199

 

One- to four-family property

372

 

 

62,191

 

 

 

8,235

 

 

 

70,426

 

 

 

70,920

 

 

 

69,174

 

Single use building

23

 

 

19,019

 

 

 

4,773

 

 

 

23,792

 

 

 

24,179

 

 

 

47,028

 

Other

94

 

 

32,979

 

 

 

2,993

 

 

 

35,972

 

 

 

35,917

 

 

 

36,167

 

 

791

 

$

832,978

 

 

$

233,277

 

 

$

1,066,255

 

 

$

1,058,797

 

 

$

997,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

 

 

4.13

%

 

 

4.32

%

 

 

4.17

%

 

 

3.93

%

 

 

4.01

%

The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.

 

June 30, 2022

 

March 31, 2022

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

600

 

$

320,063

 

$

57,888

 

$

377,951

 

$

366,403

 

$

348,835

Missouri

157

 

 

227,027

 

 

53,343

 

 

280,370

 

 

281,230

 

 

232,041

Texas

11

 

 

182,086

 

 

90,688

 

 

272,774

 

 

274,020

 

 

273,124

Colorado

5

 

 

19,832

 

 

14,139

 

 

33,971

 

 

35,452

 

 

36,099

Arkansas

3

 

 

21,884

 

 

11,618

 

 

33,502

 

 

33,589

 

 

33,763

Nebraska

6

 

 

33,088

 

 

4

 

 

33,092

 

 

33,269

 

 

33,468

Other

9

 

 

28,998

 

 

5,597

 

 

34,595

 

 

34,834

 

 

39,713

 

791

 

$

832,978

 

$

233,277

 

$

1,066,255

 

$

1,058,797

 

$

997,043

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of June 30, 2022.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

6

 

$

246,066

>$15 to $30 million

16

 

 

335,698

>$10 to $15 million

6

 

 

71,174

>$5 to $10 million

20

 

 

131,051

$1 to $5 million

112

 

 

254,323

Less than $1 million

1,262

 

 

189,051

 

1,422

 

$

1,227,363

As of June 30, 2022 and March 31, 2022, there were commercial loans with a gross loan amount (unpaid principal plus undisbursed amounts) of $73.6 million and $74.3 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the Coronavirus Disease 2019 ("COVID-19") pandemic ("COVID-19 loan modifications") that were still in their deferral period.

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. Of the loans 30 to 89 days delinquent at June 30, 2022, approximately 61% were 59 days or less delinquent. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. Non-performing assets include nonaccrual loans and OREO.

 

Loans Delinquent for 30 to 89 Days at:

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

June 30, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

64

 

$

6,035

 

 

64

 

$

6,931

 

 

74

 

$

7,009

 

 

48

 

$

4,156

 

 

51

 

$

5,141

 

Correspondent purchased

9

 

 

3,467

 

 

10

 

 

2,421

 

 

11

 

 

5,133

 

 

7

 

 

2,590

 

 

9

 

 

3,650

 

Bulk purchased

4

 

 

755

 

 

2

 

 

396

 

 

1

 

 

154

 

 

4

 

 

541

 

 

6

 

 

958

 

Commercial

6

 

 

706

 

 

4

 

 

373

 

 

2

 

 

222

 

 

2

 

 

37

 

 

1

 

 

35

 

Consumer

16

 

 

256

 

 

14

 

 

215

 

 

16

 

 

164

 

 

25

 

 

498

 

 

25

 

 

354

 

 

99

 

$

11,219

 

 

94

 

$

10,336

 

 

104

 

$

12,682

 

 

86

 

$

7,822

 

 

92

 

$

10,138

 

30 to 89 days delinquent loans to total loans receivable, net

 

 

0.16

%

 

 

0.15

%

 

 

0.18

%

 

 

0.11

%

 

 

0.14

%

 

Non-Performing Loans and OREO at:

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

June 30, 2021

 

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

36

 

$

2,585

 

 

44

 

$

3,999

 

 

48

 

$

3,943

 

 

50

 

$

3,693

 

 

53

 

$

3,696

 

Correspondent purchased

9

 

 

2,659

 

 

11

 

 

3,967

 

 

10

 

 

3,115

 

 

10

 

 

3,210

 

 

12

 

 

4,230

 

Bulk purchased

5

 

 

1,807

 

 

5

 

 

1,819

 

 

6

 

 

1,945

 

 

9

 

 

2,974

 

 

7

 

 

2,596

 

Commercial

7

 

 

1,184

 

 

6

 

 

1,167

 

 

6

 

 

1,170

 

 

6

 

 

1,214

 

 

7

 

 

1,278

 

Consumer

9

 

 

174

 

 

19

 

 

400

 

 

25

 

 

477

 

 

21

 

 

498

 

 

23

 

 

445

 

 

66

 

 

8,409

 

 

85

 

 

11,352

 

 

95

 

 

10,650

 

 

96

 

 

11,589

 

 

102

 

 

12,245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of total loans

 

 

 

0.12

%

 

 

 

 

0.16

%

 

 

 

 

0.15

%

 

 

 

 

0.16

%

 

 

 

 

0.17

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

2

 

$

207

 

 

5

 

$

505

 

 

5

 

$

451

 

 

7

 

$

1,288

 

 

7

 

$

1,392

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bulk purchased

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

131

 

 

1

 

 

131

 

Commercial

1

 

 

4

 

 

2

 

 

34

 

 

3

 

 

62

 

 

4

 

 

419

 

 

3

 

 

403

 

Consumer

1

 

 

19

 

 

2

 

 

27

 

 

 

 

 

 

1

 

 

9

 

 

 

 

 

 

4

 

 

230

 

 

9

 

 

566

 

 

8

 

 

513

 

 

13

 

 

1,847

 

 

11

 

 

1,926

 

Total nonaccrual loans

70

 

 

8,639

 

 

94

 

 

11,918

 

 

103

 

 

11,163

 

 

109

 

 

13,436

 

 

113

 

 

14,171

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

 

0.12

%

 

 

 

 

0.17

%

 

 

 

 

0.16

%

 

 

 

 

0.19

%

 

 

 

 

0.20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

2

 

$

237

 

 

 

$

 

 

2

 

$

319

 

 

3

 

$

170

 

 

3

 

$

177

 

Consumer

1

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

258

 

 

 

 

 

 

2

 

 

319

 

 

3

 

 

170

 

 

3

 

 

177

 

Total non-performing assets

73

 

$

8,897

 

 

94

 

$

11,918

 

 

105

 

$

11,482

 

 

112

 

$

13,606

 

 

116

 

$

14,348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

0.09

%

 

 

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

0.14

%

 

 

 

 

0.15

%

(1)

Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current.

(2)

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

The following table presents loans classified as special mention or substandard at the dates presented. The decrease in commercial special mention loans at June 30, 2022 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the December 31, 2021 quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company. The commercial special mention loan balance at June 30, 2022 was comprised of a single loan which continues to show improvement in its cash flow from operations and other operating metrics.

 

June 30, 2022

 

September 30, 2021

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

14,172

 

$

19,319

 

$

14,332

 

$

23,458

Commercial

 

46,366

 

 

3,078

 

 

99,729

 

 

3,259

Consumer

 

288

 

 

383

 

 

135

 

 

718

 

$

60,826

 

$

22,780

 

$

114,196

 

$

27,435

Allowance for Credit Losses: The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. Management applied qualitative factors at June 30, 2022 to account for economic uncertainty that may not be adequately captured in the third party economic forecast scenarios, along with the balance of large-dollar special mention commercial loans, and commercial loan COVID-19 modifications.

The following tables present ACL activity and related ratios at the dates and for the periods indicated. The reserve for off-balance sheet credit exposures totaled $3.8 million at June 30, 2022, $3.7 million at March 31, 2022, and $4.6 million at December 31, 2021.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

(Dollars in thousands)

Balance at beginning of period

$

15,312

 

 

$

19,823

 

Charge-offs:

 

 

 

One- to four-family

 

 

 

 

(4

)

Commercial

 

 

 

 

(10

)

Consumer

 

(10

)

 

 

(16

)

Total charge-offs

 

(10

)

 

 

(30

)

Recoveries:

 

 

 

One- to four-family

 

126

 

 

 

137

 

Commercial

 

52

 

 

 

101

 

Consumer

 

7

 

 

 

12

 

Total recoveries

 

185

 

 

 

250

 

Net recoveries (charge-offs)

 

175

 

 

 

220

 

Provision for credit losses

 

796

 

 

 

(3,760

)

Balance at end of period

$

16,283

 

 

$

16,283

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

to average loans outstanding during the period

 

%

 

 

%

Ratio of net charge-offs (recoveries) during the

 

 

 

period to average non-performing assets

 

(1.68

)

 

 

(1.96

)

ACL to non-performing loans at end of period

 

188.48

 

 

 

188.48

 

ACL to loans receivable at end of period

 

0.22

 

 

 

0.22

 

ACL to net charge-offs (annualized)

N/M(1)

 

N/M(1)

(1)

This ratio is not presented due to loan recoveries exceeding loan charge-offs during the period.

The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.

 

Distribution of ACL

 

Ratio of ACL to Loans Receivable

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

2022

 

2022

 

2022

 

2022

 

(Dollars in thousands)

 

 

 

 

One- to four-family

$

4,565

 

$

4,079

 

0.07

%

 

0.07

%

Commercial:

 

 

 

 

 

 

 

Commercial real estate

 

9,720

 

 

8,991

 

1.35

 

 

1.34

 

Commercial and industrial

 

408

 

 

389

 

0.58

 

 

0.50

 

Construction

 

1,362

 

 

1,651

 

1.18

 

 

1.24

 

Total

 

11,490

 

 

11,031

 

1.27

 

 

1.25

 

Consumer

 

228

 

 

202

 

0.24

 

 

0.22

 

Total

$

16,283

 

$

15,312

 

0.22

 

 

0.22

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at June 30, 2022. Overall, fixed-rate securities comprised 95% of our securities portfolio at June 30, 2022. 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 tax-equivalent basis.

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

MBS

$

1,306,076

 

1.55

%

 

4.5

U.S. government-sponsored enterprise debentures

 

519,976

 

0.61

 

 

3.1

Municipal bonds

 

210

 

3.00

 

 

0.1

Corporate bonds

 

4,000

 

5.12

 

 

7.4

Total securities portfolio

$

1,830,262

 

1.29

 

 

4.1

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning and ending balances are as of the first and last days of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,780,419

 

 

1.25

%

 

4.1

 

$

2,014,608

 

 

1.16

%

 

3.5

Maturities and repayments

 

(72,502

)

 

 

 

 

 

 

(261,160

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(1,044

)

 

 

 

 

 

 

(4,027

)

 

 

 

 

Purchases

 

28,447

 

 

3.17

 

 

4.3

 

 

86,993

 

 

2.56

 

 

4.3

Change in valuation on AFS securities

 

(41,160

)

 

 

 

 

 

 

(142,254

)

 

 

 

 

Ending balance - carrying value

$

1,694,160

 

 

1.29

 

 

4.1

 

$

1,694,160

 

 

1.29

 

 

4.1

Deposit Portfolio

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

 

June 30, 2022

 

March 31, 2022

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

580,385

 

%

 

9.2

%

 

$

600,457

 

%

 

9.1

%

 

$

543,849

 

%

 

8.2

%

Interest-bearing checking

 

1,047,336

 

0.08

 

 

16.6

 

 

 

1,097,287

 

0.07

 

 

16.6

 

 

 

1,037,362

 

0.07

 

 

15.7

 

Savings

 

557,832

 

0.05

 

 

8.8

 

 

 

558,337

 

0.05

 

 

8.4

 

 

 

519,069

 

0.05

 

 

7.9

 

Money market

 

1,867,991

 

0.23

 

 

29.5

 

 

 

1,885,873

 

0.19

 

 

28.5

 

 

 

1,753,525

 

0.19

 

 

26.6

 

Retail certificates of deposit

 

2,129,734

 

1.16

 

 

33.6

 

 

 

2,213,617

 

1.22

 

 

33.5

 

 

 

2,341,531

 

1.41

 

 

35.5

 

Commercial certificates of deposit

 

55,076

 

0.68

 

 

0.9

 

 

 

100,739

 

0.61

 

 

1.5

 

 

 

190,215

 

0.66

 

 

2.9

 

Public unit certificates of deposit

 

91,529

 

0.57

 

 

1.4

 

 

 

158,534

 

0.14

 

 

2.4

 

 

 

211,845

 

0.21

 

 

3.2

 

 

$

6,329,883

 

0.49

 

 

100.0

%

 

$

6,614,844

 

0.49

 

 

100.0

%

 

$

6,597,396

 

0.59

 

 

100.0

%

Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of June 30, 2022.

 

 

Term Borrowings Amount

 

 

 

 

Maturity by

 

FHLB

 

Interest rate

 

Contractual

 

Effective

Fiscal Year

 

Advances

 

swaps(1)

 

Rate

 

Rate(2)

 

 

(Dollars in thousands)

 

 

 

2022

 

$

75,000

 

$

 

0.29

%

 

0.29

%

2023

 

 

300,000

 

 

 

1.70

 

 

1.81

 

2024

 

 

300,000

 

 

165,000

 

2.55

 

 

2.80

 

2025

 

 

350,000

 

 

100,000

 

1.89

 

 

2.25

 

2026

 

 

250,000

 

 

 

0.96

 

 

1.27

 

2027

 

 

200,000

 

 

 

1.57

 

 

1.81

 

2028

 

 

 

 

100,000

 

2.02

 

 

3.45

 

 

 

$

1,475,000

 

$

365,000

 

1.81

 

 

2.12

 

(1)

Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 million to hedge the variability in cash flows associated with the advances. Each interest rate swap matures on the same date as the related FHLB advance. The expected WAL of the interest rate swaps and related advances was 3.3 years at June 30, 2022.

(2)

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. 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. For new borrowings, the WAMs presented are as of the date of issue. The increase in the balance of FHLB advances during the current quarter was due to funding needs primarily in response to loan growth and deposit runoffs.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2022

 

June 30, 2022

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

1,590,000

 

1.90

%

 

2.8

 

$

1,590,000

 

 

1.88

%

 

3.3

Maturities and prepayments

 

 

 

 

 

 

 

(100,000

)

 

3.14

 

 

 

New FHLB borrowings

 

250,000

 

3.51

 

 

2.7

 

 

350,000

 

 

3.49

 

 

3.8

Ending balance

$

1,840,000

 

2.12

 

 

2.6

 

$

1,840,000

 

 

2.12

 

 

2.6

Maturities of Interest-Bearing Liabilities

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and term borrowings for the next four quarters as of June 30, 2022.

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

 

 

2022

 

 

 

2022

 

 

 

2023

 

 

 

2023

 

 

Total

 

(Dollars in thousands)

Retail/Commercial Certificates:

 

 

 

 

 

 

 

 

Amount

$

481,348

 

 

$

344,684

 

 

$

251,665

 

 

$

205,645

 

 

$

1,283,342

 

Repricing Rate

 

1.25

%

 

 

1.14

%

 

 

1.22

%

 

 

0.81

%

 

 

1.14

%

Public Unit Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

36,503

 

 

$

25,500

 

 

$

13,516

 

 

$

3,674

 

 

$

79,193

 

Repricing Rate

 

0.23

%

 

 

1.28

%

 

 

0.11

%

 

 

0.27

%

 

 

0.55

%

Term Borrowings:

 

 

 

 

 

 

 

 

 

Amount

$

75,000

 

 

$

 

 

$

100,000

 

 

$

100,000

 

 

$

275,000

 

Repricing Rate

 

0.29

%

 

 

%

 

 

1.46

%

 

 

1.82

%

 

 

1.27

%

Total

 

 

 

 

 

 

 

 

 

Amount

$

592,851

 

 

$

370,184

 

 

$

365,181

 

 

$

309,319

 

 

$

1,637,535

 

Repricing Rate

 

1.07

%

 

 

1.15

%

 

 

1.24

%

 

 

1.13

%

 

 

1.14

%

The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2022.

Retail certificates of deposit

1.1

Commercial certificates of deposit

0.6

Public unit certificates of deposit

0.5

Total certificates of deposit

1.1

Average Rates and Lives

At June 30, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.33) billion, or (14.0)% of total assets, compared to $(1.46) billion, or (15.3)% of total assets, at March 31, 2022. The change in the one-year gap amount was due primarily to a decrease in the amount of liability cash flows projected at June 30, 2022 compared to March 31, 2022. This was driven by the decrease in deposits compared to the prior quarter. In addition, the Bank projected higher cash flows on mortgage-related assets at June 30, 2022 compared to March 31, 2022, despite 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, which would typically result in lower projected cash flows on these assets. However, during the current quarter, the Bank upgraded its interest rate risk model, which resulted in the third-party mortgage prepayment model projecting faster prepayment speeds for mortgage-related assets, despite the higher interest rates at June 30, 2022. The prepayment speeds in the upgraded interest rate risk model are more reflective of the Bank's actual experience at current market interest rates.

The amount of interest-bearing liabilities expected to reprice in a given period is not typically significantly impacted 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 June 30, 2022, the Bank's one-year gap is projected to be $(1.36) billion, or (14.4)% of total assets. The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(1.54) billion, or (16.2)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2022.

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 June 30, 2022. 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.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Securities

$

1,694,160

 

1.29

%

 

4.2

 

 

 

18.6

%

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family

 

5,620,639

 

3.10

 

 

6.7

 

77.6

%

 

61.9

 

Fixed-rate commercial

 

435,041

 

4.07

 

 

3.9

 

6.0

 

 

4.8

 

All other fixed-rate loans

 

74,188

 

3.50

 

 

7.2

 

1.0

 

 

0.8

 

Total fixed-rate loans

 

6,129,868

 

3.18

 

 

6.5

 

84.6

 

 

67.5

 

Adjustable-rate one- to four-family

 

565,252

 

2.46

 

 

3.6

 

7.8

 

 

6.2

 

Adjustable-rate commercial

 

468,869

 

4.39

 

 

7.6

 

6.5

 

 

5.2

 

All other adjustable-rate loans

 

81,762

 

4.70

 

 

2.7

 

1.1

 

 

0.9

 

Total adjustable-rate loans

 

1,115,883

 

3.44

 

 

5.2

 

15.4

 

 

12.3

 

Total loans receivable

 

7,245,751

 

3.22

 

 

6.3

 

100.0

%

 

79.8

 

FHLB stock

 

87,696

 

6.47

 

 

2.6

 

 

 

1.0

 

Cash and cash equivalents

 

54,789

 

0.94

 

 

 

 

 

0.6

 

Total interest-earning assets

$

9,082,396

 

2.88

 

 

5.8

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

3,473,159

 

0.16

 

 

5.5

 

60.4

%

 

45.6

%

Retail certificates of deposit

 

2,129,734

 

1.16

 

 

1.1

 

37.0

 

 

27.9

 

Commercial certificates of deposit

 

55,076

 

0.68

 

 

0.6

 

1.0

 

 

0.7

 

Public unit certificates of deposit

 

91,529

 

0.57

 

 

0.5

 

1.6

 

 

1.2

 

Total interest-bearing deposits

 

5,749,498

 

0.54

 

 

3.8

 

100.0

%

 

75.4

 

Term borrowings

 

1,840,000

 

2.12

 

 

2.6

 

98.1

%

 

24.1

 

Line of credit borrowings

 

35,700

 

1.63

 

 

 

1.9

 

 

0.5

 

Total borrowings

 

1,875,700

 

2.11

 

 

2.5

 

100.0

%

 

24.6

 

Total interest-bearing liabilities

$

7,625,198

 

0.92

 

 

3.5

 

 

 

100.0

%

 

Related Links

SHARE

You must be logged in to post a comment.

Recent Publications

You must be logged in to post a comment.

Email newsletter

Receive the latest stock news and signals