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Capitol Federal Financial, Inc.® Reports Third Quarter Fiscal Year 2023 Results

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, 2023. For best viewing results, please view this release in Portable Document Format (PDF) on our website, http://ir.capfed.com.

Highlights for the quarter include:

  • net income of $8.3 million;
  • basic and diluted earnings per share of $0.06;
  • net interest margin of 1.32% (1.39% excluding the effects of the leverage strategy);
  • paid dividends of $0.085 per share; and
  • on July 25, 2023, announced a cash dividend of $0.085 per share, payable on August 18, 2023 to stockholders of record as of the close of business on August 4, 2023.

Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023

For the quarter ended June 30, 2023, the Company recognized net income of $8.3 million, or $0.06 per share, compared to net income of $14.2 million, or $0.11 per share, for the quarter ended March 31, 2023. The decrease in net income was due primarily to higher deposit interest expense in the current quarter, partially offset by lower income tax expense. The net interest margin decreased 24 basis points, from 1.56% for the prior quarter to 1.32% for the current quarter. Excluding the effects of the leverage strategy discussed in the "Leverage Strategy" section below, the net interest margin decreased 32 basis points, from 1.71% for the prior quarter to 1.39% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of deposits. Management anticipates the reduction in the net interest margin will continue in the near term. See additional discussion in "Fiscal Year 2023 Outlook" below.

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 nine basis points and the weighted average yield on cash and cash equivalents increased 61 basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

71,918

 

$

69,319

 

$

2,599

 

 

3.7

%

Cash and cash equivalents

 

10,009

 

 

10,977

 

 

(968

)

 

(8.8

)

Mortgage-backed securities ("MBS")

 

4,562

 

 

4,748

 

 

(186

)

 

(3.9

)

Federal Home Loan Bank Topeka ("FHLB") stock

 

3,260

 

 

3,607

 

 

(347

)

 

(9.6

)

Investment securities

 

895

 

 

895

 

 

 

 

 

Total interest and dividend income

$

90,644

 

$

89,546

 

$

1,098

 

 

1.2

 

The increase in interest income on loans receivable was due to an increase in the weighted average yield, along with an increase in the average balance of commercial loans and correspondent one-to four-family loans. The increase in the weighted average yield was due primarily to originations and purchases/participations at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the average balance of cash associated with the leverage strategy compared to the prior quarter due to a reduction in the leverage strategy usage in the current quarter, partially offset by an increase in the average balance of operating cash, as proceeds from the Federal Reserve's Bank Term Funding Program ("BTFP") have been held in cash as management evaluates funding and balance sheet management options, and an increase in the yield earned on balances held at the Federal Reserve Bank of Kansas City ("FRB of Kansas City") due to higher market interest rates. The decrease in dividend income on FHLB stock was due mainly to a decrease in the average balance of FHLB stock associated with the leverage strategy, partially offset by an increase in the dividend rate paid by FHLB.

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 increased 59 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 23 basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

31,449

 

$

31,447

 

$

2

 

%

Deposits

 

24,445

 

 

16,140

 

 

8,305

 

51.5

 

Total interest expense

$

55,894

 

$

47,587

 

$

8,307

 

17.5

 

During the current quarter, interest expense on borrowings associated with the leverage strategy decreased $3.3 million due to a reduction in usage of the leverage strategy. This was almost entirely offset by an increase in interest expense on borrowings not associated with the leverage strategy, due primarily to BTFP borrowings which have been held in cash as management evaluates funding and balance sheet management options. The increase in interest expense on deposits was due primarily to increases in the weighted average rate paid and average balance of the certificate of deposit portfolio and an increase in the weighted average rate paid on money market accounts. Early in the current quarter, management increased the rates offered on the Bank's money market accounts in an effort to slow the outflow of deposit balances.

Provision for Credit Losses

For the quarter ended June 30, 2023, the Bank recorded a provision for credit losses of $1.3 million, compared to a provision for credit losses of $891 thousand for the prior quarter. The provision for credit losses in the current quarter was comprised of a $2.5 million increase in the allowance for credit losses ("ACL") for loans, partially offset by a $1.2 million decrease in the reserve for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to worsening economic forecast conditions compared to the prior quarter, commercial loan growth, and a reduction in prepayment speeds related to the commercial loan portfolio. The release of provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to refining our methodology to account for the estimated credit losses on unfunded commercial construction-to-permanent loans and commitments for the time period after construction is expected to be completed.

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:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

3,404

 

$

3,122

 

$

282

 

9.0

%

Insurance commissions

 

888

 

 

877

 

 

11

 

1.3

 

Other non-interest income

 

1,522

 

 

1,084

 

 

438

 

40.4

 

Total non-interest income

$

5,814

 

$

5,083

 

$

731

 

14.4

 

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 during the current quarter.

Non-Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

13,200

 

$

12,789

 

$

411

 

 

3.2

%

Information technology and related expense

 

6,118

 

 

5,789

 

 

329

 

 

5.7

 

Occupancy, net

 

3,556

 

 

3,568

 

 

(12

)

 

(0.3

)

Regulatory and outside services

 

1,436

 

 

1,305

 

 

131

 

 

10.0

 

Advertising and promotional

 

1,447

 

 

1,333

 

 

114

 

 

8.6

 

Federal insurance premium

 

1,231

 

 

1,246

 

 

(15

)

 

(1.2

)

Deposit and loan transaction costs

 

615

 

 

690

 

 

(75

)

 

(10.9

)

Office supplies and related expense

 

546

 

 

631

 

 

(85

)

 

(13.5

)

Other non-interest expense

 

1,187

 

 

1,280

 

 

(93

)

 

(7.3

)

Total non-interest expense

$

29,336

 

$

28,631

 

$

705

 

 

2.5

 

The increase in salaries and employee benefits was mainly related to merit increases during the current quarter. The increase in information technology and related expense was due primarily to an increase in professional services related to the Company's digital transformation, discussed below, and other technology-related projects.

The Company's efficiency ratio was 72.32% for the current quarter compared to 60.86% for the prior quarter. The change in the efficiency ratio was due primarily to lower 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 higher value indicates that it is costing the financial institution more 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:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

9,904

 

 

$

17,520

 

 

$

(7,616

)

 

(43.5

)%

Income tax expense

 

1,602

 

 

 

3,331

 

 

 

(1,729

)

 

(51.9

)

Net income

$

8,302

 

 

$

14,189

 

 

$

(5,887

)

 

(41.5

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

16.2

%

 

 

19.0

%

 

 

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current quarter and partially to a lower effective tax rate. The decrease in effective tax rate was due primarily to lower projected pretax income, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

Comparison of Operating Results for the Nine Months Ended June 30, 2023 and 2022

The Company recognized net income of $38.7 million, or $0.29 per share, for the current year period compared to net income of $65.0 million, or $0.48 per share, for the prior year period. The decrease in net income was due primarily to lower net interest income, along with recording a provision for credit losses of $5.9 million for the current year period compared to a release of provision of $5.7 million for the prior year period, partially offset by lower income tax expense. The net interest margin decreased 32 basis points, from 1.82% for the prior year period to 1.50% for the current year period. Excluding the effects of the leverage strategy, the net interest margin decreased 38 basis points, from 2.04% for the prior year period to 1.66% for the current year period. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, which exceeded the increase in loan 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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

206,056

 

$

168,086

 

$

37,970

 

 

22.6

%

Cash and cash equivalents

 

37,657

 

 

4,931

 

 

32,726

 

 

663.7

 

MBS

 

14,121

 

 

14,494

 

 

(373

)

 

(2.6

)

FHLB stock

 

11,025

 

 

6,166

 

 

4,859

 

 

78.8

 

Investment securities

 

2,671

 

 

2,423

 

 

248

 

 

10.2

 

Total interest and dividend income

$

271,530

 

$

196,100

 

$

75,430

 

 

38.5

 

The increase in interest income on loans receivable was due to an increase in the average balance and weighted average yield of the loan portfolio. The increase in the average balance was mainly in the correspondent one-to four-family and commercial real estate loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents was due mainly to a higher yield on cash related to an increase in FRB interest rates. The increase in dividend income on FHLB stock was due mainly to a higher FHLB dividend rate compared to the prior year period, along with an increase in the average balance of FHLB stock due to an increase in FHLB borrowings.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

96,504

 

$

27,961

 

$

68,543

 

245.1

%

Deposits

 

52,489

 

 

25,443

 

 

27,046

 

106.3

 

Total interest expense

$

148,993

 

$

53,404

 

$

95,589

 

179.0

 

The increase in interest expense on borrowings was due primarily to an increase in the average balance and weighted average rate on borrowings not associated with the leverage strategy, along with an increase in the weighted average rate on the borrowings associated with the leverage strategy compared to the prior year period. Interest expense on borrowings not associated with the leverage strategy increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational needs. Interest expense on borrowings associated with the leverage strategy increased $31.6 million compared to the prior year period. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily certificates of deposit and money market accounts, partially offset by a decrease in the average balance of these portfolios.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current year period of $5.9 million, compared to a release of provision of $5.7 million during the prior year period. The provision for credit losses in the current year period was comprised of a $6.1 million increase in the ACL for loans and a $179 thousand decrease in reserves for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to worsening economic forecast conditions, along with a reduction in the projected prepayment speeds used in the model for all loan categories.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

9,987

 

$

10,331

 

$

(344

)

 

(3.3

)%

Insurance commissions

 

2,560

 

 

2,042

 

 

518

 

 

25.4

 

Other non-interest income

 

3,702

 

 

4,664

 

 

(962

)

 

(20.6

)

Total non-interest income

$

16,249

 

$

17,037

 

$

(788

)

 

(4.6

)

The increase in insurance commissions was due primarily to annual contingent insurance commissions received being higher than anticipated and the related accrual adjustments, along with overall commissions being higher in the current year. The decrease in other non-interest income was due mainly to the prior year period including gains on a loan-related financial derivative agreement, with no such gains in the current year period, along with a decrease in income on bank-owned life insurance compared to the prior year period due to a reduction in the yield and death benefits received between the two periods.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

39,687

 

$

42,332

 

$

(2,645

)

 

(6.2

)%

Information technology and related expense

 

16,977

 

 

13,268

 

 

3,709

 

 

28.0

 

Occupancy, net

 

10,598

 

 

10,593

 

 

5

 

 

 

Regulatory and outside services

 

4,274

 

 

4,212

 

 

62

 

 

1.5

 

Advertising and promotional

 

3,613

 

 

3,626

 

 

(13

)

 

(0.4

)

Federal insurance premium

 

3,289

 

 

2,200

 

 

1,089

 

 

49.5

 

Deposit and loan transaction costs

 

1,916

 

 

2,050

 

 

(134

)

 

(6.5

)

Office supplies and related expense

 

1,810

 

 

1,464

 

 

346

 

 

23.6

 

Other non-interest expense

 

3,576

 

 

3,299

 

 

277

 

 

8.4

 

Total non-interest expense

$

85,740

 

$

83,044

 

$

2,696

 

 

3.2

 

The decrease in salaries and employee benefits was attributable mainly to a decrease in incentive compensation, along with a reduction in loan commissions due to a reduction in loan origination activity, and an increase in capitalized payroll costs related to the digital transformation project. The increase in information technology and related expenses was due mainly to third-party project management expenses associated with the Bank's ongoing digital transformation project, along with higher software licensing expenses due to agreement renewals at higher costs. The increase in federal insurance premium expense was due mainly to an increase in the Federal Deposit Insurance Corporation ("FDIC") assessment rate. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete, as well as to an increase in supplies and postage expense. The increase in other non-interest expense was due mainly to expenses associated with the collateral received on the Bank's interest rate swap agreements.

The Company's efficiency ratio was 61.78% for the current year period compared to 51.99% for the prior year period. The change in the efficiency ratio was due primarily to lower net interest income in the current year period.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

$

47,171

 

 

$

82,379

 

 

$

(35,208

)

 

(42.7

)%

Income tax expense

 

8,440

 

 

 

17,418

 

 

 

(8,978

)

 

(51.5

)

Net income

$

38,731

 

 

$

64,961

 

 

$

(26,230

)

 

(40.4

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

17.9

%

 

 

21.1

%

 

 

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current year period and partially to a decrease in the effective tax rate. The decrease in the effective tax rate was due primarily to lower projected pretax income in the current year, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

Financial Condition as of June 30, 2023

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

 

 

 

 

 

Annualized

 

 

 

Annualized

 

June 30,

 

March 31,

 

Percent

 

September 30,

 

Percent

 

2023

 

2023

 

Change

 

2022

 

Change

 

(Dollars and shares in thousands)

Total assets

$

10,294,127

 

 

$

10,085,770

 

 

8.3

%

 

$

9,624,897

 

 

9.3

%

Available-for-sale ("AFS") securities

 

1,444,867

 

 

 

1,505,808

 

 

(16.2

)

 

 

1,563,307

 

 

(10.1

)

Loans receivable, net

 

7,963,360

 

 

 

7,958,567

 

 

0.2

 

 

 

7,464,208

 

 

8.9

 

Deposits

 

6,092,840

 

 

 

6,144,435

 

 

(3.4

)

 

 

6,194,866

 

 

(2.2

)

Borrowings

 

2,986,162

 

 

 

2,696,604

 

 

43.0

 

 

 

2,132,154

 

 

53.4

 

Stockholders' equity

 

1,061,285

 

 

 

1,072,034

 

 

(4.0

)

 

 

1,096,499

 

 

(4.3

)

Equity to total assets at end of period

 

10.3

%

 

 

10.6

%

 

 

 

 

11.4

%

 

 

Average number of basic shares outstanding

 

133,199

 

 

 

133,150

 

 

0.1

 

 

 

135,773

 

 

(2.5

)

Average number of diluted shares outstanding

 

133,199

 

 

 

133,150

 

 

0.1

 

 

 

135,773

 

 

(2.5

)

During the current quarter, total assets increased by $208.4 million largely due to an increase in operating cash related to proceeds from BTFP borrowings being held in cash as management evaluates funding and balance sheet management options. While the total loan portfolio balance remained relatively unchanged, there was a shift in the mix as commercial loans increased $42.5 million, partially offset by a $36.1 million decrease in one- to four-family loans, including a $26.9 million decrease in one- to four-family correspondent loans. The Bank continues to reduce purchases of correspondent loans with the intention of correspondent purchases near zero, which will result in a continued decrease in the balance of that portfolio. The securities portfolio decreased $60.9 million during the current quarter as cash flows from securities were used for other operational needs.

Total liabilities increased $219.1 million during the current quarter due to an increase in borrowings of $289.6 million, partially offset by a decrease in deposits of $51.6 million. The increase in borrowings was due primarily to proceeds from new BTFP borrowings totaling $500.0 million, partially offset by a reduction in FHLB borrowings as the FHLB line of credit balance was paid off and a maturing $100.0 million FHLB advance was not renewed. Management continues to evaluate funding and balance sheet management options and may pay down additional maturing FHLB advances using proceeds from BTFP borrowings. The decrease in deposits was due primarily to non-maturity deposits, which decreased $217.6 million, partially offset by a $123.8 million increase in retail certificates of deposit and a $41.9 million increase in public unit certificates of deposit.

Total assets increased $669.2 million from September 30, 2022 to June 30, 2023. The increase was mainly composed of a $499.2 million increase in the loan portfolio and a $280.2 million increase in operating cash, partially offset by a $118.4 million decrease in securities. Deposits decreased $102.0 million during that same time period, so the balance sheet growth was funded with additional borrowings. The decrease in deposits during the current year period was mainly in non-maturity deposits which decreased $538.2 million, largely money market accounts, partially offset by a $350.1 million increase in retail certificates of deposit and $78.5 million increase in public unit certificates of deposit. During the March 2023 quarter, the Bank held a certificate of deposit promotional campaign which resulted in $177.3 million in new retail certificates of deposit with the majority of the funds coming from customer transfers from existing deposits within the Bank. The additional decrease in non-maturity deposit balances above the certificate of deposit promotional campaign was likely due to depositors moving funds to alternative, higher yielding investment products and/or withdrawing funds for customer spending. The increase in borrowings was composed of $500.0 million in BTFP borrowings with a term of one year and a rate of 4.70%, and a net increase of $354.0 million in FHLB borrowings. While it is still management's expectation that we will stay under $10 billion in total assets at September 30, 2023, that threshold was exceeded at March 31, 2023 and June 30, 2023.

We are working to limit the growth in total assets and are evaluating funding options as FHLB borrowings mature and other balance sheet management opportunities. We are expecting to reduce the size of the one- to four-family correspondent loan portfolio over the coming months and use that cash to pay down borrowings. Slower growth or no growth in our one- to four-family originated loan portfolio will help to conserve cash as well. There were $75.4 million and $86.2 million in one-to four-family originated commitments at June 30, 2023 and March 31, 2023 respectively, and $3.2 million and $14.9 million of one-to four-family correspondent commitments at June 30, 2023 and March 31, 2023 respectively. The Bank continues to receive good commercial loan opportunities from strong borrowers and as these opportunities present themselves, we may sell select securities at a loss to help stay under $10 billion in assets for the foreseeable future and provide capacity in the balance sheet to fund these loan opportunities. At June 30, 2023, there was $418.2 million of undisbursed funds related to commercial real estate and construction loans and $17.8 million of commercial real estate and construction commitments. Funding deposit run-off continues to be a challenge and could require the use of longer-term funding.

The following table summarizes loan originations and purchases, deposit activity, and borrowing activity, along with certain 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, 2023

 

June 30, 2023

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations, purchases, and participations

 

 

 

 

 

 

 

One- to four-family and consumer:

 

 

 

 

 

 

 

Originated

$

117,373

 

 

6.27

%

 

$

363,556

 

 

5.70

%

Purchased

 

35,508

 

 

4.61

 

 

 

402,199

 

 

4.99

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Originated

 

117,687

 

 

6.96

 

 

 

416,902

 

 

5.83

 

Participations/Purchased

 

26,861

 

 

9.45

 

 

 

211,075

 

 

6.60

 

 

$

297,429

 

 

6.63

 

 

$

1,393,732

 

 

5.67

 

 

 

 

 

 

 

 

 

Deposit Activity

 

 

 

 

 

 

 

Non-maturity deposits

$

(217,596

)

 

 

 

$

(538,223

)

 

 

Retail/Commercial certificates of deposit

 

124,086

 

 

 

 

 

357,688

 

 

 

 

 

 

 

 

 

 

 

Borrowing activity

 

 

 

 

 

 

 

Maturities and repayments

 

(107,418

)

 

1.98

 

 

 

(222,254

)

 

1.89

 

New borrowings

 

100,000

 

 

4.17

 

 

 

650,000

 

 

4.47

 

BTFP, net

 

500,000

 

 

4.70

 

 

 

500,000

 

 

4.70

 

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from the borrowings, net of the required FHLB stock holdings, at the FRB of Kansas City. The borrowings were repaid prior to quarter end. The average balance of leverage strategy borrowings was $604.4 million and $979.2 million during the quarters ended June 30, 2023 and March 31, 2023, respectively, and $1.16 billion for the nine months ended June 30, 2023. At times during the current quarter, the leverage strategy was not profitable and therefore was not utilized, resulting in a decrease in the average outstanding balance of leverage strategy borrowings compared to the prior quarter. Net income attributable to the leverage strategy was $86 thousand and $959 thousand for the quarter and nine months ended June 30, 2023, respectively. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the strategy.

Stockholders' Equity

Stockholders' equity totaled $1.06 billion at June 30, 2023. During the nine months ended June 30, 2023, the Company paid cash dividends totaling $71.8 million. These cash dividends totaled $0.535 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and three regular quarterly cash dividends of $0.085 per share.

Accumulated other comprehensive loss was $126.7 million at June 30, 2023 of which $136.1 million was attributable to unrealized losses on AFS securities, partially offset by $9.4 million of unrealized gains on derivatives. The unrealized loss on AFS securities increased at June 30, 2023 from $125.3 million at March 31, 2023, due mainly to changes in market interest rates.

On July 25, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on August 18, 2023 to stockholders of record as of the close of business on August 4, 2023. 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, 2023, this ratio was 9.1%.

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, 2023, the Bank's community bank leverage ratio ("CBLR") was 9.6%, which exceeded the minimum requirement of 9.0%. The CBLR is based on average assets. The leverage strategy increases average assets which in turn reduces the Bank's CBLR. As of June 30, 2023 the Bank exceeded all internal policy thresholds for sensitivity to changes in interest rates, and the Bank's risk-based tier 1 capital ratio was 18.6%.

At June 30, 2023, Capitol Federal Financial, Inc., at the holding company level, had $87.3 million in cash on deposit at the Bank. For fiscal year 2023, it is the intention of the Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, as well as all of the Company's earnings in excess of that amount. 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 $22.5 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 FRB of Kansas City's existing approval for the Company to repurchase shares expires in August 2023.

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2023.

Total shares outstanding

136,158,569

 

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock

(2,916,461

)

Net shares outstanding

133,242,108

 

Fiscal Year 2023 Outlook

The rapid increase in short-term rates led by the Federal Reserve and the resulting inverted yield curve has caused decreases in the Bank's net interest margin. There has been a runoff in deposit balances and management has increased certificate of deposit and money market account rates to help mitigate the outflow. Higher mortgage loan rates have made the purchase of homes less affordable, which lowers the likelihood of existing one- to four-family loans at lower rates being paid off as a result of housing turnover. These dynamics have caused our balance sheet to change faster than what would typically occur in more stable rate environments. Net interest margin compression is anticipated to continue, and the margin is expected to compress more in the near term, possibly up to 10 basis points during the September 30, 2023 quarter. The continued net interest margin compression is due to the Federal Reserve continuing to increase short-term interest rates which is impacting the shape of the yield curve, the pace at which liabilities are repricing compared to assets, and deposit funds moving from lower costing deposit accounts to certificates of deposit. Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate; however, the pace at which the interest rate increases are occurring for liabilities is more than offsetting the benefit of the higher loan rates. As with managing the size of the balance sheet discussed above, management continues to evaluate funding options and plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repaid or repriced to lower cost alternatives.

Management intends to implement a new core processing system ("digital transformation") for the Bank by September 2023. The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. Management anticipates information technology and related expenses will be approximately $5 million higher in fiscal year 2023 compared to fiscal year 2022 due to the digital transformation. In addition, it is expected there will be approximately $1 million more of information technology and related expenses in fiscal year 2023 related to projects outside of the digital transformation and due to general cost increases. Overall, it is anticipated that information technology and related expenses will be approximately $6 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24 million for the year. In fiscal year 2024, information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due primarily to a reduction in professional service costs. Salaries and employee benefits are expected to be approximately $1 million lower in fiscal year 2023 compared to fiscal year 2022. Federal insurance premium expense is anticipated to be approximately $1.3 million higher in fiscal year 2023 compared to fiscal year 2022, due to the increase in the assessment rate that began in January 2023. Management anticipates the effective tax rate for fiscal year 2023 will be approximately 18%. This is lower than the previously provided projection of 19%, due mainly to lower projected pretax income as the Company's permanent differences, which generally reduce our tax rate, have a larger impact on the overall effective rate.

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 51 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.

Forward-Looking Statements

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: 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 and the effects of inflation or a potential recession, whether caused by Federal Reserve action or otherwise; 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; 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 Securities and Exchange Commission (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,

 

2023

 

2023

 

2022

ASSETS:

 

 

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $308,127, $21,830 and $27,467)

$

329,409

 

 

$

60,207

 

 

$

49,194

 

AFS securities, at estimated fair value (amortized cost of $1,624,837, $1,671,538 and $1,768,490)

 

1,444,867

 

 

 

1,505,808

 

 

 

1,563,307

 

Loans receivable, net (ACL of $22,399, $19,889 and $16,371)

 

7,963,360

 

 

 

7,958,567

 

 

 

7,464,208

 

FHLB stock, at cost

 

116,012

 

 

 

128,096

 

 

 

100,624

 

Premises and equipment, net

 

91,713

 

 

 

92,415

 

 

 

94,820

 

Income taxes receivable, net

 

5,894

 

 

 

3,890

 

 

 

1,266

 

Deferred income tax assets, net

 

26,889

 

 

 

24,383

 

 

 

33,884

 

Other assets

 

315,983

 

 

 

312,404

 

 

 

317,594

 

TOTAL ASSETS

$

10,294,127

 

 

$

10,085,770

 

 

$

9,624,897

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

$

6,092,840

 

 

$

6,144,435

 

 

$

6,194,866

 

Borrowings

 

2,986,162

 

 

 

2,696,604

 

 

 

2,132,154

 

Advances by borrowers

 

40,982

 

 

 

60,195

 

 

 

80,067

 

Other liabilities

 

112,858

 

 

 

112,502

 

 

 

121,311

 

Total liabilities

 

9,232,842

 

 

 

9,013,736

 

 

 

8,528,398

 

 

 

 

 

 

 

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, 136,158,569, 136,144,725 and 138,858,884 shares issued and outstanding as of June 30, 2023, March 31, 2023, and September 30, 2022, respectively

 

1,361

 

 

 

1,361

 

 

 

1,388

 

Additional paid-in capital

 

1,167,979

 

 

 

1,168,059

 

 

 

1,190,213

 

Unearned compensation, ESOP

 

(28,497

)

 

 

(28,910

)

 

 

(29,735

)

Retained earnings

 

47,148

 

 

 

50,167

 

 

 

80,266

 

Accumulated other comprehensive (loss) income, net of tax

 

(126,706

)

 

 

(118,643

)

 

 

(145,633

)

Total stockholders' equity

 

1,061,285

 

 

 

1,072,034

 

 

 

1,096,499

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

10,294,127

 

 

$

10,085,770

 

 

$

9,624,897

 

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,

 

2023

 

2023

 

2023

 

2022

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

71,918

 

$

69,319

 

$

206,056

 

$

168,086

 

Cash and cash equivalents

 

10,009

 

 

10,977

 

 

37,657

 

 

4,931

 

MBS

 

4,562

 

 

4,748

 

 

14,121

 

 

14,494

 

FHLB stock

 

3,260

 

 

3,607

 

 

11,025

 

 

6,166

 

Investment securities

 

895

 

 

895

 

 

2,671

 

 

2,423

 

Total interest and dividend income

 

90,644

 

 

89,546

 

 

271,530

 

 

196,100

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

 

31,449

 

 

31,447

 

 

96,504

 

 

27,961

 

Deposits

 

24,445

 

 

16,140

 

 

52,489

 

 

25,443

 

Total interest expense

 

55,894

 

 

47,587

 

 

148,993

 

 

53,404

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

34,750

 

 

41,959

 

 

122,537

 

 

142,696

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

1,324

 

 

891

 

 

5,875

 

 

(5,690

)

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

33,426

 

 

41,068

 

 

116,662

 

 

148,386

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

 

3,404

 

 

3,122

 

 

9,987

 

 

10,331

 

Insurance commissions

 

888

 

 

877

 

 

2,560

 

 

2,042

 

Other non-interest income

 

1,522

 

 

1,084

 

 

3,702

 

 

4,664

 

Total non-interest income

 

5,814

 

 

5,083

 

 

16,249

 

 

17,037

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

 

13,200

 

 

12,789

 

 

39,687

 

 

42,332

 

Information technology and related expense

 

6,118

 

 

5,789

 

 

16,977

 

 

13,268

 

Occupancy, net

 

3,556

 

 

3,568

 

 

10,598

 

 

10,593

 

Regulatory and outside services

 

1,436

 

 

1,305

 

 

4,274

 

 

4,212

 

Advertising and promotional

 

1,447

 

 

1,333

 

 

3,613

 

 

3,626

 

Federal insurance premium

 

1,231

 

 

1,246

 

 

3,289

 

 

2,200

 

Deposit and loan transaction costs

 

615

 

 

690

 

 

1,916

 

 

2,050

 

Office supplies and related expense

 

546

 

 

631

 

 

1,810

 

 

1,464

 

Other non-interest expense

 

1,187

 

 

1,280

 

 

3,576

 

 

3,299

 

Total non-interest expense

 

29,336

 

 

28,631

 

 

85,740

 

 

83,044

 

INCOME BEFORE INCOME TAX EXPENSE

 

9,904

 

 

17,520

 

 

47,171

 

 

82,379

 

INCOME TAX EXPENSE

 

1,602

 

 

3,331

 

 

8,440

 

 

17,418

 

NET INCOME

$

8,302

 

$

14,189

 

$

38,731

 

$

64,961

 

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, 2023

 

March 31, 2023

 

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

$

4,052,906

 

$

34,224

 

3.38

%

 

$

4,050,515

 

$

33,660

 

3.32

%

Correspondent purchased

 

2,491,016

 

 

19,937

 

3.20

 

 

 

2,462,960

 

 

19,380

 

3.15

 

Bulk purchased

 

141,985

 

 

527

 

1.49

 

 

 

144,438

 

 

413

 

1.14

 

Total one- to four-family loans

 

6,685,907

 

 

54,688

 

3.27

 

 

 

6,657,913

 

 

53,453

 

3.21

 

Commercial loans

 

1,180,906

 

 

15,172

 

5.08

 

 

 

1,147,681

 

 

13,924

 

4.85

 

Consumer loans

 

102,390

 

 

2,058

 

8.06

 

 

 

102,649

 

 

1,942

 

7.67

 

Total loans receivable(1)

 

7,969,203

 

 

71,918

 

3.60

 

 

 

7,908,243

 

 

69,319

 

3.51

 

MBS(2)

 

1,126,953

 

 

4,562

 

1.62

 

 

 

1,173,366

 

 

4,748

 

1.62

 

Investment securities(2)(3)

 

525,012

 

 

895

 

0.68

 

 

 

525,012

 

 

895

 

0.68

 

FHLB stock(4)

 

146,482

 

 

3,260

 

8.93

 

 

 

167,567

 

 

3,607

 

8.73

 

Cash and cash equivalents(5)

 

769,434

 

 

10,009

 

5.15

 

 

 

967,586

 

 

10,977

 

4.54

 

Total interest-earning assets

 

10,537,084

 

 

90,644

 

3.43

 

 

 

10,741,774

 

 

89,546

 

3.34

 

Other non-interest-earning assets

 

271,898

 

 

 

 

 

 

263,916

 

 

 

 

Total assets

$

10,808,982

 

 

 

 

 

$

11,005,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

949,909

 

 

398

 

0.17

 

 

$

989,440

 

 

368

 

0.15

 

Savings

 

521,831

 

 

143

 

0.11

 

 

 

541,324

 

 

101

 

0.08

 

Money market

 

1,485,672

 

 

6,295

 

1.70

 

 

 

1,620,451

 

 

3,184

 

0.80

 

Retail certificates

 

2,339,477

 

 

15,685

 

2.69

 

 

 

2,176,103

 

 

11,115

 

2.07

 

Commercial certificates

 

44,083

 

 

307

 

2.80

 

 

 

38,575

 

 

197

 

2.07

 

Wholesale certificates

 

155,157

 

 

1,617

 

4.18

 

 

 

127,037

 

 

1,175

 

3.75

 

Total deposits

 

5,496,129

 

 

24,445

 

1.78

 

 

 

5,492,930

 

 

16,140

 

1.19

 

Borrowings(6)

 

3,520,594

 

 

31,449

 

3.57

 

 

 

3,700,022

 

 

31,447

 

3.42

 

Total interest-bearing liabilities

 

9,016,723

 

 

55,894

 

2.48

 

 

 

9,192,952

 

 

47,587

 

2.09

 

Non-interest-bearing deposits

 

556,682

 

 

 

 

 

 

574,495

 

 

 

 

Other non-interest-bearing liabilities

 

161,360

 

 

 

 

 

 

172,481

 

 

 

 

Stockholders' equity

 

1,074,217

 

 

 

 

 

 

1,065,762

 

 

 

 

Total liabilities and stockholders' equity

$

10,808,982

 

 

 

 

 

$

11,005,690

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

34,750

 

 

 

 

 

$

41,959

 

 

Net interest-earning assets

$

1,520,361

 

 

 

 

 

$

1,548,822

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.32

 

 

 

 

 

 

1.56

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17x

 

 

 

 

 

1.17x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.31

%

 

 

 

 

 

0.52

%

Return on average equity (annualized)(9)

 

 

 

3.09

 

 

 

 

 

 

5.33

 

Average equity to average assets

 

 

 

 

9.94

 

 

 

 

 

 

9.68

 

Operating expense ratio (annualized)(10)

 

 

 

1.09

 

 

 

 

 

 

1.04

 

Efficiency ratio(9)(11)

 

 

 

72.32

 

 

 

 

 

 

60.86

 

Pre-tax yield on leverage strategy(12)

 

 

 

 

0.07

 

 

 

 

 

 

0.06

 

 

For the Nine Months Ended

 

June 30, 2023

 

June 30, 2022

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

 

(Dollars in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

4,051,068

 

$

101,249

 

3.33

%

 

$

3,973,184

 

$

96,583

 

3.24

%

Correspondent purchased

 

2,419,202

 

 

56,578

 

3.12

 

 

 

2,040,934

 

 

39,832

 

2.60

 

Bulk purchased

 

144,514

 

 

1,374

 

1.27

 

 

 

162,151

 

 

1,578

 

1.30

 

Total one- to four-family loans

 

6,614,784

 

 

159,201

 

3.21

 

 

 

6,176,269

 

 

137,993

 

2.98

 

Commercial loans

 

1,117,549

 

 

41,089

 

4.85

 

 

 

866,856

 

 

26,898

 

4.09

 

Consumer loans

 

102,600

 

 

5,766

 

7.51

 

 

 

91,979

 

 

3,195

 

4.64

 

Total loans receivable(1)

 

7,834,933

 

 

206,056

 

3.50

 

 

 

7,135,104

 

 

168,086

 

3.14

 

MBS(2)

 

1,173,959

 

 

14,121

 

1.60

 

 

 

1,379,334

 

 

14,494

 

1.40

 

Investment securities(2)(3)

 

525,035

 

 

2,671

 

0.68

 

 

 

522,706

 

 

2,423

 

0.62

 

FHLB stock(4)

 

170,652

 

 

11,025

 

8.64

 

 

 

132,657

 

 

6,166

 

6.21

 

Cash and cash equivalents(5)

 

1,182,559

 

 

37,657

 

4.20

 

 

 

1,305,949

 

 

4,931

 

0.50

 

Total interest-earning assets

 

10,887,138

 

 

271,530

 

3.32

 

 

 

10,475,750

 

 

196,100

 

2.49

 

Other non-interest-earning assets

 

261,221

 

 

 

 

 

 

362,229

 

 

 

 

Total assets

$

11,148,359

 

 

 

 

 

$

10,837,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

982,372

 

 

1,056

 

0.14

 

 

$

1,063,280

 

 

535

 

0.07

 

Savings

 

536,363

 

 

343

 

0.09

 

 

 

539,152

 

 

215

 

0.05

 

Money market

 

1,622,486

 

 

12,513

 

1.03

 

 

 

1,835,666

 

 

2,653

 

0.19

 

Retail certificates

 

2,193,096

 

 

34,567

 

2.11

 

 

 

2,236,551

 

 

21,230

 

1.27

 

Commercial certificates

 

38,970

 

 

608

 

2.09

 

 

 

123,398

 

 

584

 

0.63

 

Wholesale certificates

 

126,567

 

 

3,402

 

3.59

 

 

 

170,051

 

 

226

 

0.18

 

Total deposits

 

5,499,854

 

 

52,489

 

1.28

 

 

 

5,968,098

 

 

25,443

 

0.57

 

Borrowings(6)

 

3,829,154

 

 

96,504

 

3.35

 

 

 

2,918,291

 

 

27,961

 

1.27

 

Total interest-bearing liabilities

 

9,329,008

 

 

148,993

 

2.13

 

 

 

8,886,389

 

 

53,404

 

0.80

 

Non-interest-bearing deposits

 

569,239

 

 

 

 

 

 

571,685

 

 

 

 

Other non-interest-bearing liabilities

 

175,176

 

 

 

 

 

 

177,081

 

 

 

 

Stockholders' equity

 

1,074,936

 

 

 

 

 

 

1,202,824

 

 

 

 

Total liabilities and stockholders' equity

$

11,148,359

 

 

 

 

 

$

10,837,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

122,537

 

 

 

 

 

$

142,696

 

 

Net interest-earning assets

$

1,558,130

 

 

 

 

 

$

1,589,361

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.50

 

 

 

 

 

 

1.82

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17x

 

 

 

 

 

1.18x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.46

%

 

 

 

 

 

0.80

%

Return on average equity (annualized)(9)

 

 

 

4.80

 

 

 

 

 

 

7.20

 

Average equity to average assets

 

 

 

 

9.64

 

 

 

 

 

 

11.10

 

Operating expense ratio (annualized)(10)

 

 

 

1.03

 

 

 

 

 

 

1.02

 

Efficiency ratio(9)(11)

 

 

 

 

61.78

 

 

 

 

 

 

51.99

 

Pre-tax yield on leverage strategy(12)

 

 

 

0.13

 

 

 

 

 

 

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 $1.0 million for each of the quarters ended June 30, 2023 and March 31, 2023, and $1.1 million and $2.1 million for the nine-month periods ended June 30, 2023 and June 30, 2022, respectively.

(4)

Included in this line, for the quarters ended June 30, 2023 and March 31, 2023, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $27.2 million and $44.1 million, respectively, and dividend income of $610 thousand and $1.0 million, respectively, at a weighted average yield of 9.00% and 8.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $119.3 million and $123.5 million, respectively, and dividend income of $2.7 million and $2.7 million, respectively, at a weighted average yield of 8.91% and 8.72%, respectively. Included in this line, for the nine-month periods ended June 30, 2023 and June 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $52.0 million and $58.2 million, respectively, and dividend income of $3.4 million and $2.7 million, respectively, at a weighted average yield of 8.65% and 6.12%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $118.7 million and $74.5 million, respectively, and dividend income of $7.7 million and $3.5 million, respectively, at a weighted average yield of 8.63% and 6.29%, respectively.

(5)

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $577.2 million and $935.1 million during the quarters ended June 30, 2023 and March 31, 2023, respectively, and an average balance of cash related to the leverage strategy of $1.10 billion and $1.23 billion during the nine-month periods ended June 30, 2023 and June 30, 2022, respectively.

(6)

Included in this line, for the quarters ended June 30, 2023 and March 31, 2023, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $604.4 million and $979.2 million, respectively, and interest paid of $7.9 million and $11.3 million, respectively, at a weighted average rate of 5.20% and 4.60%, respectively, and borrowings not related to the leverage strategy with an average outstanding balance of $2.92 billion and $2.72 billion, respectively, and interest paid of $23.5 million and $20.2 million, respectively, at a weighted average rate of 3.23% and 3.00%, respectively. Included in this line, for the nine-month periods ended June 30, 2023 and June 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.16 billion and $1.30 billion, respectively, and interest paid of $36.5 million and $4.9 million, respectively, at a weighted average rate of 4.17% and 0.50%, respectively, and borrowings not related to the leverage strategy with an average outstanding balance of $2.67 billion and $1.62 billion, respectively, and interest paid of $60.0 million and $23.0 million, respectively, at a weighted average rate of 2.99% and 1.89%, respectively. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(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 performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the same 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, 2023

 

March 31, 2023

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

3.43

%

 

0.11

%

 

3.32

%

 

3.34

%

 

0.14

%

 

3.20

%

Cost of interest-bearing liabilities

2.48

 

 

0.20

 

 

2.28

 

 

2.09

 

 

0.30

 

 

1.79

 

Return on average assets (annualized)

0.31

 

 

(0.01

)

 

0.32

 

 

0.52

 

 

(0.04

)

 

0.56

 

Return on average equity (annualized)

3.09

 

 

0.03

 

 

3.06

 

 

5.33

 

 

0.05

 

 

5.28

 

Net interest margin

1.32

 

 

(0.07

)

 

1.39

 

 

1.56

 

 

(0.15

)

 

1.71

 

Efficiency Ratio

72.32

 

 

(0.12

)

 

72.44

 

 

60.86

 

 

(0.07

)

 

60.93

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

June 30, 2023

 

June 30, 2022

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

3.32

%

 

0.13

%

 

3.19

%

 

2.49

%

 

(0.25

)%

 

2.74

%

Cost of interest-bearing liabilities

2.13

 

 

0.29

 

 

1.84

 

 

0.80

 

 

(0.05

)

 

0.85

 

Return on average assets (annualized)

0.46

 

 

(0.04

)

 

0.50

 

 

0.80

 

 

(0.08

)

 

0.88

 

Return on average equity (annualized)

4.80

 

 

0.11

 

 

4.69

 

 

7.20

 

 

0.20

 

 

7.00

 

Net interest margin

1.50

 

 

(0.16

)

 

1.66

 

 

1.82

 

 

(0.22

)

 

2.04

 

Efficiency Ratio

61.78

 

 

(0.42

)

 

62.20

 

 

51.99

 

 

(0.65

)

 

52.64

 

(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 percentage of total as of the dates indicated. The loan portfolio rate increased 10 basis points and 34 basis points during the current quarter and current year period, respectively, due primarily to one- to four-family correspondent and commercial loan growth at interest rates higher than the existing portfolios, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates. The average prepayment speed on one- to four-family loans was 6% during the current quarter, 5% during the prior quarter, and 7% during the quarter ended September 30, 2022.

 

June 30, 2023

 

March 31, 2023

 

September 30, 2022

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,992,730

 

 

3.33

%

 

50.1

%

 

$

4,003,823

 

 

3.28

%

 

50.3

%

 

$

3,988,469

 

 

3.20

%

 

53.4

%

Correspondent purchased

 

2,441,772

 

 

3.41

 

 

30.6

 

 

 

2,468,647

 

 

3.39

 

 

31.0

 

 

 

2,201,886

 

 

3.10

 

 

29.4

 

Bulk purchased

 

139,571

 

 

1.60

 

 

1.8

 

 

 

142,527

 

 

1.36

 

 

1.8

 

 

 

147,939

 

 

1.24

 

 

2.0

 

Construction

 

73,166

 

 

3.42

 

 

0.9

 

 

 

68,355

 

 

3.21

 

 

0.8

 

 

 

66,164

 

 

2.90

 

 

0.9

 

Total

 

6,647,239

 

 

3.33

 

 

83.4

 

 

 

6,683,352

 

 

3.28

 

 

83.9

 

 

 

6,404,458

 

 

3.12

 

 

85.7

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

924,142

 

 

5.00

 

 

11.6

 

 

 

874,718

 

 

4.48

 

 

11.0

 

 

 

745,301

 

 

4.30

 

 

10.0

 

Commercial and industrial

 

106,609

 

 

6.07

 

 

1.3

 

 

 

90,200

 

 

5.40

 

 

1.1

 

 

 

79,981

 

 

4.30

 

 

1.1

 

Construction

 

193,308

 

 

5.54

 

 

2.4

 

 

 

216,685

 

 

6.30

 

 

2.7

 

 

 

141,062

 

 

5.34

 

 

1.9

 

Total

 

1,224,059

 

 

5.18

 

 

15.3

 

 

 

1,181,603

 

 

4.89

 

 

14.8

 

 

 

966,344

 

 

4.45

 

 

13.0

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

94,810

 

 

8.60

 

 

1.2

 

 

 

92,506

 

 

8.17

 

 

1.2

 

 

 

92,203

 

 

6.28

 

 

1.2

 

Other

 

8,632

 

 

4.96

 

 

0.1

 

 

 

8,664

 

 

4.66

 

 

0.1

 

 

 

8,665

 

 

4.21

 

 

0.1

 

Total

 

103,442

 

 

8.30

 

 

1.3

 

 

 

101,170

 

 

7.87

 

 

1.3

 

 

 

100,868

 

 

6.10

 

 

1.3

 

Total loans receivable

 

7,974,740

 

 

3.67

 

 

100.0

%

 

 

7,966,125

 

 

3.57

 

 

100.0

%

 

 

7,471,670

 

 

3.33

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

22,399

 

 

 

 

 

 

 

19,889

 

 

 

 

 

 

 

16,371

 

 

 

 

 

Deferred loan fees/discounts

 

31,557

 

 

 

 

 

 

 

30,830

 

 

 

 

 

 

 

29,736

 

 

 

 

 

Premiums/deferred costs

 

(42,576

)

 

 

 

 

 

 

(43,161

)

 

 

 

 

 

 

(38,645

)

 

 

 

 

Total loans receivable, net

$

7,963,360

 

 

 

 

 

 

$

7,958,567

 

 

 

 

 

 

$

7,464,208

 

 

 

 

 

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 presented 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, 2023

 

June 30, 2023

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,966,125

 

 

3.57

%

 

$

7,471,670

 

 

3.33

%

Originated and refinanced

 

235,060

 

 

6.61

 

 

 

780,458

 

 

5.77

 

Purchased and participations

 

62,369

 

 

6.69

 

 

 

613,274

 

 

5.54

 

Change in undisbursed loan funds

 

396

 

 

 

 

 

(145,788

)

 

 

Repayments

 

(289,200

)

 

 

 

 

(739,192

)

 

 

Principal (charge-offs)/recoveries, net

 

(10

)

 

 

 

 

(26

)

 

 

Other

 

 

 

 

 

 

(5,656

)

 

 

Ending balance

$

7,974,740

 

 

3.67

 

 

$

7,974,740

 

 

3.67

 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of June 30, 2023. Credit scores were updated in September 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

 

Total

 

Rate

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

 

 

Originated

$

3,992,730

 

60.7

%

 

3.33

%

 

771

 

60

%

 

$

163

Correspondent purchased

 

2,441,772

 

37.1

 

 

3.41

 

 

766

 

65

 

 

 

417

Bulk purchased

 

139,571

 

2.2

 

 

1.60

 

 

771

 

56

 

 

 

287

 

$

6,574,073

 

100.0

 

 

3.32

 

 

769

 

62

 

 

 

213

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. The majority of the correspondent loans purchased during the current quarter were from applications in the pipeline at March 31, 2023 as the Bank continues to reduce correspondent purchases to near zero.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2023

 

June 30, 2023

 

 

 

 

 

 

 

Credit

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

98,257

 

5.78

%

 

77

%

 

767

 

$

309,474

 

5.28

%

 

76

%

 

766

Correspondent purchased

 

35,508

 

4.61

 

 

71

 

 

772

 

 

402,199

 

4.99

 

 

76

 

 

769

 

$

133,765

 

5.47

 

 

76

 

 

768

 

$

711,673

 

5.12

 

 

76

 

 

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, 2023, along with associated weighted average rates.

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

75,445

 

5.98

%

Correspondent

 

3,156

 

5.77

 

 

$

78,601

 

5.97

 

Commercial Loans: During the nine months ended June 30, 2023, the Bank originated $416.9 million of commercial loans and entered into commercial loan participations totaling $211.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $402.3 million at a weighted average rate of 5.90%.

As of June 30, 2023, March 31, 2023, and September 30, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $144.8 million, $130.3 million, and $100.4 million, respectively, and commitments totaled $230 thousand at June 30, 2023.

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, 2023, the Bank had four commercial real estate and commercial construction loan commitments totaling $17.8 million, at a weighted average rate of 6.83%. 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. Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of June 30, 2023, management anticipates funding approximately $89 million during the September 2023 quarter, $97 million during the December 2023 quarter, $64 million during the March 2024 quarter, and $167 million during the June 2024 quarter or later.

 

June 30, 2023

 

March 31, 2023

 

September 30, 2022

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Retail building

143

 

$

257,763

 

 

$

85,466

 

 

$

343,229

 

 

$

343,725

 

 

$

230,153

 

Senior housing

35

 

 

280,453

 

 

 

30,139

 

 

 

310,592

 

 

 

325,475

 

 

 

328,259

 

Multi-family

41

 

 

75,242

 

 

 

234,381

 

 

 

309,623

 

 

 

233,498

 

 

 

122,735

 

Hotel

13

 

 

213,444

 

 

 

21,419

 

 

 

234,863

 

 

 

235,714

 

 

 

181,546

 

Office building

85

 

 

116,251

 

 

 

18,066

 

 

 

134,317

 

 

 

131,698

 

 

 

109,653

 

One- to four-family property

384

 

 

63,697

 

 

 

7,289

 

 

 

70,986

 

 

 

71,704

 

 

 

68,907

 

Single use building

29

 

 

30,043

 

 

 

16,434

 

 

 

46,477

 

 

 

43,171

 

 

 

41,908

 

Other

116

 

 

80,557

 

 

 

4,978

 

 

 

85,535

 

 

 

103,201

 

 

 

53,054

 

 

846

 

$

1,117,450

 

 

$

418,172

 

 

$

1,535,622

 

 

$

1,488,186

 

 

$

1,136,215

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

 

 

5.09

%

 

 

6.04

%

 

 

5.35

%

 

 

5.14

%

 

 

4.56

%

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

 

June 30, 2023

 

March 31, 2023

 

September 30, 2022

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

621

 

$

443,903

 

$

201,532

 

$

645,435

 

$

573,346

 

$

423,797

Missouri

177

 

 

249,706

 

 

88,662

 

 

338,368

 

 

363,432

 

 

296,443

Texas

15

 

 

258,774

 

 

75,290

 

 

334,064

 

 

335,724

 

 

280,840

Colorado

8

 

 

40,929

 

 

14,184

 

 

55,113

 

 

55,194

 

 

34,377

Tennessee

2

 

 

24,038

 

 

18,501

 

 

42,539

 

 

42,568

 

 

Nebraska

8

 

 

34,710

 

 

3,039

 

 

37,749

 

 

37,867

 

 

32,992

Other

15

 

 

65,390

 

 

16,964

 

 

82,354

 

 

80,055

 

 

67,766

 

846

 

$

1,117,450

 

$

418,172

 

$

1,535,622

 

$

1,488,186

 

$

1,136,215

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, 2023.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

9

 

$

437,982

>$15 to $30 million

19

 

 

399,391

>$10 to $15 million

10

 

 

120,173

>$5 to $10 million

30

 

 

217,742

$1 to $5 million

138

 

 

331,248

Less than $1 million

1,261

 

 

191,887

 

1,467

 

$

1,698,423

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. Of the loans 30 to 89 days delinquent at June 30, 2023, approximately 76% 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, 2023

 

March 31, 2023

 

December 31, 2022

 

September 30, 2022

 

June 30, 2022

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

67

 

$

6,377

 

 

45

 

$

4,116

 

 

56

 

$

4,708

 

 

48

 

$

4,134

 

 

64

 

$

6,035

 

Correspondent purchased

20

 

 

6,704

 

 

10

 

 

3,436

 

 

4

 

 

1,216

 

 

7

 

 

1,104

 

 

9

 

 

3,467

 

Bulk purchased

 

 

 

 

3

 

 

287

 

 

3

 

 

865

 

 

3

 

 

913

 

 

4

 

 

755

 

Commercial

6

 

 

573

 

 

5

 

 

389

 

 

6

 

 

191

 

 

 

 

 

 

6

 

 

706

 

Consumer

22

 

 

469

 

 

22

 

 

352

 

 

24

 

 

626

 

 

24

 

 

345

 

 

16

 

 

256

 

 

115

 

$

14,123

 

 

85

 

$

8,580

 

 

93

 

$

7,606

 

 

82

 

$

6,496

 

 

99

 

$

11,219

 

30 to 89 days delinquent loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to total loans receivable, net

 

 

0.18

%

 

 

 

 

0.11

%

 

 

 

 

0.10

%

 

 

 

 

0.09

%

 

 

 

 

0.16

%

 

Non-Performing Loans and OREO at:

 

June 30, 2023

 

March 31, 2023

 

December 31, 2022

 

September 30, 2022

 

June 30, 2022

 

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

16

 

$

1,582

 

 

15

 

$

1,084

 

 

13

 

$

1,034

 

 

29

 

$

2,919

 

 

36

 

$

2,585

 

Correspondent purchased

8

 

 

1,854

 

 

7

 

 

1,803

 

 

14

 

 

4,126

 

 

12

 

 

3,737

 

 

9

 

 

2,659

 

Bulk purchased

3

 

 

1,149

 

 

3

 

 

1,212

 

 

4

 

 

1,492

 

 

3

 

 

1,148

 

 

5

 

 

1,807

 

Commercial

8

 

 

1,225

 

 

7

 

 

1,152

 

 

7

 

 

1,152

 

 

8

 

 

1,167

 

 

7

 

 

1,184

 

Consumer

3

 

 

51

 

 

7

 

 

51

 

 

11

 

 

126

 

 

9

 

 

154

 

 

9

 

 

174

 

 

38

 

 

5,861

 

 

39

 

 

5,302

 

 

49

 

 

7,930

 

 

61

 

 

9,125

 

 

66

 

 

8,409

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of total loans

 

 

 

0.07

%

 

 

 

 

0.07

%

 

 

 

 

0.10

%

 

 

 

 

0.12

%

 

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

3

 

$

295

 

 

2

 

$

187

 

 

3

 

$

219

 

 

3

 

$

222

 

 

2

 

$

207

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bulk purchased

1

 

 

257

 

 

1

 

 

257

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

2

 

 

29

 

 

3

 

 

104

 

 

2

 

 

84

 

 

1

 

 

77

 

 

1

 

 

4

 

Consumer

1

 

 

37

 

 

 

 

 

 

 

 

 

 

1

 

 

19

 

 

1

 

 

19

 

 

7

 

 

618

 

 

6

 

 

548

 

 

5

 

 

303

 

 

5

 

 

318

 

 

4

 

 

230

 

Total nonaccrual loans

45

 

 

6,479

 

 

45

 

 

5,850

 

 

54

 

 

8,233

 

 

66

 

 

9,443

 

 

70

 

 

8,639

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

 

0.08

%

 

 

 

 

0.07

%

 

 

 

 

0.11

%

 

 

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

 

$

 

 

2

 

$

160

 

 

2

 

$

161

 

 

4

 

$

307

 

 

2

 

$

237

 

Consumer

 

 

 

 

 

 

 

 

1

 

 

21

 

 

1

 

 

21

 

 

1

 

 

21

 

 

 

 

 

 

2

 

 

160

 

 

3

 

 

182

 

 

5

 

 

328

 

 

3

 

 

258

 

Total non-performing assets

45

 

$

6,479

 

 

47

 

$

6,010

 

 

57

 

$

8,415

 

 

71

 

$

9,771

 

 

73

 

$

8,897

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

0.06

%

 

 

 

 

0.06

%

 

 

 

 

0.08

%

 

 

 

 

0.10

%

 

 

 

 

0.09

%

(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 increase in commercial special mention loans at June 30, 2023 compared to March 31, 2023 was due mainly to three loans in a single commercial relationship where the borrower has experienced some performance issues, but is beginning to trend in a positive direction. Management will continue to closely monitor the borrower's performance.

 

June 30, 2023

 

March 31, 2023

 

September 30, 2022

 

Special

Mention

 

Substandard

 

Special

Mention

 

Substandard

 

Special

Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

17,935

 

$

15,747

 

$

17,368

 

$

15,636

 

$

12,950

 

$

19,953

Commercial

 

45,377

 

 

1,265

 

 

28,441

 

 

1,881

 

 

565

 

 

2,733

Consumer

 

358

 

 

269

 

 

296

 

 

237

 

 

306

 

 

354

 

$

63,670

 

$

17,281

 

$

46,105

 

$

17,754

 

$

13,821

 

$

23,040

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, 2023 to account for economic uncertainty that may not be adequately captured in the third party economic forecast scenarios and other management considerations related to commercial loans to account for credit risks not fully reflected in the discounted cash flow model.

The following table presents ACL activity and related ratios at the dates and for the periods indicated. The reserve for off-balance sheet credit exposures totaled $4.6 million at June 30, 2023.

 

For the Three

Months Ended

 

For the Nine

Months Ended

 

June 30, 2023

 

June 30, 2023

 

(Dollars in thousands)

Balance at beginning of period

$

19,889

 

 

$

16,371

 

Charge-offs:

 

 

 

One- to four-family

 

 

 

 

 

Commercial

 

 

 

 

 

Consumer

 

(11

)

 

 

(31

)

Total charge-offs

 

(11

)

 

 

(31

)

Recoveries:

 

 

 

One- to four-family

 

1

 

 

 

2

 

Commercial

 

 

 

 

1

 

Consumer

 

 

 

 

2

 

Total recoveries

 

1

 

 

 

5

 

Net (charge-offs) recoveries

 

(10

)

 

 

(26

)

Provision for credit losses

 

2,520

 

 

 

6,054

 

Balance at end of period

$

22,399

 

 

$

22,399

 

 

 

 

 

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

 

0.14

 

 

 

0.31

 

ACL to non-performing loans at end of period

 

345.72

 

 

 

345.72

 

ACL to loans receivable at end of period

 

0.28

 

 

 

0.28

 

ACL to net charge-offs (annualized)

611x

 

667x

The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The increase in commercial ACL to loans receivable ratio during the current quarter was due primarily to a worse economic forecast utilized in the model compared to the prior quarter and a slow down in prepayment speeds which lengthen the remaining term of the portfolio.

 

Distribution of ACL

 

Ratio of ACL to Loans

Receivable

 

June 30,

 

March 31,

 

June 30,

 

March 31,

 

2023

 

2023

 

2023

 

2023

 

(Dollars in thousands)

 

 

 

 

One- to four-family

$

5,474

 

$

5,434

 

0.08

%

 

0.08

%

Commercial:

 

 

 

 

 

 

 

Commercial real estate

 

13,436

 

 

11,219

 

1.45

 

 

1.28

 

Commercial and industrial

 

929

 

 

520

 

0.87

 

 

0.58

 

Construction

 

2,321

 

 

2,483

 

1.20

 

 

1.15

 

Total

 

16,686

 

 

14,222

 

1.36

 

 

1.20

 

Consumer

 

239

 

 

233

 

0.23

 

 

0.23

 

Total

$

22,399

 

$

19,889

 

0.28

 

 

0.25

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at June 30, 2023. Overall, fixed-rate securities comprised 96% of our securities portfolio at June 30, 2023. 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

$

1,099,824

 

1.65

%

 

4.9

U.S. government-sponsored enterprise debentures

 

519,983

 

0.64

 

 

2.1

Corporate bonds

 

4,000

 

5.12

 

 

8.9

Municipal bonds

 

1,030

 

2.55

 

 

4.6

 

$

1,624,837

 

1.33

 

 

4.0

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields for the beginning and ending balances are as of the first and last days of the periods 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 and projected call option assumptions have been applied.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2023

 

June 30, 2023

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,505,808

 

 

1.33

%

 

4.3

 

$

1,563,307

 

 

1.29

%

 

4.2

Maturities and repayments

 

(45,964

)

 

 

 

 

 

 

(141,357

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(737

)

 

 

 

 

 

 

(2,296

)

 

 

 

 

Change in valuation on AFS securities

 

(14,240

)

 

 

 

 

 

 

25,213

 

 

 

 

 

Ending balance - carrying value

$

1,444,867

 

 

1.33

 

 

4.0

 

$

1,444,867

 

 

1.33

 

 

4.0

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. The increase in the deposit portfolio rate during the current quarter and current year period was due mainly to higher rates on money market accounts and retail certificates of deposit.

 

June 30, 2023

 

March 31, 2023

 

September 30, 2022

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

567,764

 

%

 

9.3

%

 

$

594,265

 

%

 

9.7

%

 

$

591,387

 

%

 

9.5

%

Interest-bearing checking

 

938,722

 

0.19

 

 

15.4

 

 

 

1,001,559

 

0.16

 

 

16.3

 

 

 

1,027,222

 

0.07

 

 

16.6

 

Savings

 

509,975

 

0.12

 

 

8.4

 

 

 

539,428

 

0.07

 

 

8.8

 

 

 

552,743

 

0.06

 

 

8.9

 

Money market

 

1,436,429

 

1.94

 

 

23.6

 

 

 

1,535,234

 

0.80

 

 

25.0

 

 

 

1,819,761

 

0.47

 

 

29.4

 

Retail certificates of deposit

 

2,423,665

 

3.00

 

 

39.8

 

 

 

2,299,829

 

2.54

 

 

37.4

 

 

 

2,073,542

 

1.34

 

 

33.5

 

Commercial certificates of deposit

 

43,840

 

3.25

 

 

0.7

 

 

 

43,590

 

2.71

 

 

0.7

 

 

 

36,275

 

0.97

 

 

0.6

 

Public unit certificates of deposit

 

172,445

 

4.26

 

 

2.8

 

 

 

130,530

 

4.01

 

 

2.1

 

 

 

93,936

 

1.61

 

 

1.5

 

 

$

6,092,840

 

1.83

 

 

100.0

%

 

$

6,144,435

 

1.29

 

 

100.0

%

 

$

6,194,866

 

0.63

 

 

100.0

%

Borrowings

The following table presents the maturity of term borrowings, which consist of FHLB advances and BTFP borrowings, along with associated weighted average contractual and effective rates as of June 30, 2023. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.

Maturity by

 

 

 

Contractual

 

Effective

Fiscal Year

 

Amount

 

Rate

 

Rate(1)

 

 

(Dollars in thousands)

2023

 

$

100,000

 

2.14

%

 

2.14

%

2024

 

 

990,000

 

4.26

 

 

3.78

 

2025

 

 

650,000

 

3.26

 

 

2.95

 

2026

 

 

575,000

 

2.81

 

 

2.95

 

2027

 

 

440,000

 

3.02

 

 

3.13

 

2028

 

 

235,246

 

4.82

 

 

3.90

 

 

 

$

2,990,246

 

3.55

 

 

3.30

 

(1)

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

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer, and line of credit borrowings are excluded. 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 new FHLB borrowings added during the current year period had a WAM of 3.2 years, which is generally a shorter term than what management has selected in prior periods. During the current quarter, management periodically paid off BTFP borrowings and borrowed new BTFP funds to take advantage of lower rates. Because of these transactions, BTFP activity is presented on a net basis in the table below.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2023

 

June 30, 2023

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

2,497,664

 

 

2.93

%

 

2.3

 

$

2,062,500

 

 

2.44

%

 

2.5

Maturities and repayments

 

(107,418

)

 

1.98

 

 

 

 

 

(222,254

)

 

1.89

 

 

 

New FHLB borrowings

 

100,000

 

 

4.17

 

 

2.5

 

 

650,000

 

 

4.47

 

 

3.2

BTFP, net

 

500,000

 

 

4.70

 

 

1.0

 

 

500,000

 

 

4.70

 

 

1.0

Ending balance

$

2,990,246

 

 

3.30

 

 

2.0

 

$

2,990,246

 

 

3.30

 

 

2.0

Maturities of Interest-Bearing Liabilities

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing term borrowings for the next four quarters as of June 30, 2023.

 

September 30,

 

December 31,

 

March 31,

 

June 30,

 

 

 

2023

 

2023

 

2024

 

2024

 

Total

 

(Dollars in thousands)

Retail/Commercial Certificates:

 

 

 

 

 

 

 

 

Amount

$

253,836

 

 

$

266,356

 

 

$

263,365

 

 

$

369,749

 

 

$

1,153,306

 

Repricing Rate

 

1.76

%

 

 

2.58

%

 

 

2.84

%

 

 

3.64

%

 

 

2.80

%

Public Unit Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

28,758

 

 

$

42,717

 

 

$

15,250

 

 

$

30,420

 

 

$

117,145

 

Repricing Rate

 

3.44

%

 

 

4.30

%

 

 

4.22

%

 

 

4.42

%

 

 

4.11

%

Term Borrowings:

 

 

 

 

 

 

 

 

 

Amount

$

100,000

 

 

$

150,000

 

 

$

65,000

 

 

$

600,000

 

 

$

915,000

 

Repricing Rate

 

2.14

%

 

 

3.42

%

 

 

2.67

%

 

 

4.25

%

 

 

3.77

%

Total

 

 

 

 

 

 

 

 

 

Amount

$

382,594

 

 

$

459,073

 

 

$

343,615

 

 

$

1,000,169

 

 

$

2,185,451

 

Repricing Rate

 

1.98

%

 

 

3.01

%

 

 

2.87

%

 

 

4.03

%

 

 

3.27

%

The following table sets forth the WAM information for our certificates of deposit, in years, as of June 30, 2023.

Retail certificates of deposit

1.5

Commercial certificates of deposit

1.1

Public unit certificates of deposit

0.7

Total certificates of deposit

1.4

Average Rates and Lives

At June 30, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.00) billion, or (9.7)% of total assets, compared to $(803.5) million, or (8.0)% of total assets, at March 31, 2023. The change in the one-year gap amount was due primarily to an increase in the amount of liability cash flows coming due in one year at June 30, 2023 compared to March 31, 2023, partially offset by an increase in the amount of asset cash flows coming due for the same time period. This was due primarily to an increase in the amount of certificates of deposit and borrowings scheduled to mature within one year as of June 30, 2023 compared to March 31, 2023.

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, 2023, the Bank's one-year gap is projected to be $(1.19) billion, or (11.6)% 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 as a result of lower prepayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(862.4) million, or (8.6)% of total assets, if interest rates were to have increased 200 basis points as of March 31, 2023.

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, 2023. 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

$

1,444,867

 

1.33

%

 

4.2

 

 

 

14.7

%

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family

 

5,666,144

 

3.26

 

 

6.9

 

71.1

%

 

57.4

 

Fixed-rate commercial

 

422,245

 

4.42

 

 

3.3

 

5.3

 

 

4.3

 

All other fixed-rate loans

 

81,175

 

4.14

 

 

7.5

 

1.0

 

 

0.8

 

Total fixed-rate loans

 

6,169,564

 

3.35

 

 

6.7

 

77.4

 

 

62.5

 

Adjustable-rate one- to four-family

 

907,929

 

3.58

 

 

4.0

 

11.4

 

 

9.2

 

Adjustable-rate commercial

 

801,814

 

5.69

 

 

7.7

 

10.0

 

 

8.1

 

All other adjustable-rate loans

 

95,433

 

8.08

 

 

3.0

 

1.2

 

 

1.0

 

Total adjustable-rate loans

 

1,805,176

 

4.76

 

 

5.6

 

22.6

 

 

18.3

 

Total loans receivable

 

7,974,740

 

3.67

 

 

6.4

 

100.0

%

 

80.8

 

FHLB stock

 

116,012

 

8.97

 

 

2.3

 

 

 

1.2

 

Cash and cash equivalents

 

329,409

 

4.82

 

 

 

 

 

3.3

 

Total interest-earning assets

$

9,865,028

 

3.43

 

 

5.8

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

2,885,126

 

1.05

 

 

6.6

 

52.2

%

 

33.9

%

Retail certificates of deposit

 

2,423,665

 

3.00

 

 

1.5

 

43.9

 

 

28.5

 

Commercial certificates of deposit

 

43,840

 

3.25

 

 

1.1

 

0.8

 

 

0.5

 

Public unit certificates of deposit

 

172,445

 

4.26

 

 

0.7

 

3.1

 

 

2.0

 

Total interest-bearing deposits

 

5,525,076

 

2.02

 

 

4.1

 

100.0

%

 

64.9

 

Term borrowings

 

2,990,246

 

3.30

 

 

2.0

 

 

 

35.1

 

Total interest-bearing liabilities

$

8,515,322

 

2.47

 

 

3.4

 

 

 

100.0

%

 

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