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 December 31, 2022.
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 $16.2 million;
- basic and diluted earnings per share of $0.12;
- net interest margin of 1.61% (1.88% excluding the effects of
the leverage strategy);
- annualized loan growth of 17.1%;
- paid dividends of $0.365 per share; and
- on January 24, 2023, announced a cash dividend of $0.085 per
share, payable on February 17, 2023 to stockholders of record as of
the close of business on February 3, 2023.
Comparison of Operating Results for the Three Months Ended
December 31, 2022 and September 30, 2022
For the quarter ended December 31, 2022, the Company recognized
net income of $16.2 million, or $0.12 per share, compared to net
income of $19.5 million, or $0.14 per share, for the quarter ended
September 30, 2022. The decrease in net income was due primarily to
lower net interest income in the current quarter. The net interest
margin decreased 10 basis points, from 1.71% for the prior quarter
to 1.61% for the current quarter. Excluding the effects of the
leverage strategy discussed below, the net interest margin
decreased 19 basis points, from 2.07% for the prior quarter to
1.88% 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 borrowings and deposits,
partially offset by an increase in loan yields due to higher market
interest rates. Management anticipates the reduction in the net
interest margin may continue in the near term. See additional
discussion in "Fiscal Year 2023 Projections" below.
Leverage Strategy
At times, the Bank has utilized a leverage strategy to increase
earnings. The leverage strategy during the current quarter involved
borrowing up to $2.60 billion by entering into short-term Federal
Home Loan Bank Topeka ("FHLB") advances. During the current
quarter, the average outstanding balance of leverage strategy
borrowings was $1.87 billion. The borrowings were repaid prior to
quarter end. The proceeds from the borrowings, net of the required
FHLB stock holdings, which yielded 8.50% during the current
quarter, were deposited at the Federal Reserve Bank of Kansas City
("FRB of Kansas City"). Net income attributable to the leverage
strategy is largely derived from the dividends received on FHLB
stock holdings, plus the net interest rate spread between the yield
on the cash deposited at the FRB of Kansas City and the rate paid
on the related FHLB borrowings, less applicable federal insurance
premiums and estimated taxes. Net income attributable to the
leverage strategy was $763 thousand during the current quarter,
compared to $1.3 million for the prior quarter. The decrease was
due to a reduction in the size of the leverage strategy transaction
because the borrowing capacity was needed for operational liquidity
purposes. Management continues to monitor the net interest rate
spread and overall profitability of the strategy. It is expected
that the strategy will continue to be utilized as long as it
remains profitable and/or the borrowing capacity does not need to
be used for other purposes. 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.
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 11 basis points and the weighted
average yield on mortgage-backed securities ("MBS") increased four
basis points compared to the prior quarter.
For the Three Months
Ended
December 31,
September 30,
Change Expressed in:
2022
2022
Dollars
Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable
$
64,819
$
60,445
$
4,374
7.2
%
Cash and cash equivalents
16,671
13,373
3,298
24.7
MBS
4,811
4,912
(101
)
(2.1
)
FHLB stock
4,158
3,865
293
7.6
Investment securities
881
845
36
4.3
Total interest and dividend income
$
91,340
$
83,440
$
7,900
9.5
The increase in interest income on loans receivable was due to
growth in the loan portfolio, along with an increase in the
weighted average yield. The loan growth was mainly in the
correspondent one-to four-family and commercial 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 to
an increase in the yield earned on balances held at the FRB of
Kansas City, the majority of which were related to the leverage
strategy. The increase in dividend income on FHLB stock was due to
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 23 basis points and the weighted average rate paid on
borrowings not associated with the leverage strategy increased 50
basis points compared to the prior quarter.
For the Three Months
Ended
December 31,
September 30,
Change Expressed in:
2022
2022
Dollars
Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings
$
33,608
$
24,529
$
9,079
37.0
%
Deposits
11,904
9,013
2,891
32.1
Total interest expense
$
45,512
$
33,542
$
11,970
35.7
The increase in interest expense on borrowings was due primarily
to new borrowings added during the current quarter and near the end
of the prior quarter, at market interest rates higher than the
overall portfolio rate, to fund operational liquidity needs. See
additional discussion in the "Financial Condition" section below.
Additionally, interest expense on borrowings increased due to an
increase in the rate paid on the short-term borrowings associated
with the leverage strategy, due to higher market interest rates.
The increase in interest expense on deposits was due primarily to
an increase in the weighted average rate paid on certificates of
deposit and money market accounts, partially offset by a decrease
in the average balance of those deposit types.
Provision for Credit Losses
For the quarter ended December 31, 2022, the Bank recorded a
provision for credit losses of $3.7 million, compared to a
provision for credit losses of $1.1 million for the prior quarter.
The provision for credit losses in the current quarter was
comprised of a $2.8 million increase in the allowance for credit
losses ("ACL") for loans and an $840 thousand increase in reserves
for off-balance sheet credit exposures. The provision for credit
losses associated with both the ACL and reserves for off-balance
sheet credit exposures was primarily a result of growth in the
commercial loan portfolio and the balance of commercial
construction off-balance sheet credit exposures, along with a
slowdown in portfolio prepayment speeds, which reduced the
projected prepayment speeds used in the model for generally 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 Three Months
Ended
December 31,
September 30,
Change Expressed in:
2022
2022
Dollars
Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees
$
3,461
$
3,467
$
(6
)
(0.2
)%
Insurance commissions
795
905
(110
)
(12.2
)
Other non-interest income
1,096
1,421
(325
)
(22.9
)
Total non-interest income
$
5,352
$
5,793
$
(441
)
(7.6
)
The decrease in other non-interest income was due mainly to the
prior quarter including higher gains on a loan-related financial
derivative agreement, which are generally driven by changes in
market interest rates.
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
December 31,
September 30,
Change Expressed in:
2022
2022
Dollars
Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits
$
13,698
$
14,268
$
(570
)
(4.0
)%
Information technology and related
expense
5,070
5,043
27
0.5
Occupancy, net
3,474
3,777
(303
)
(8.0
)
Regulatory and outside services
1,533
1,980
(447
)
(22.6
)
Advertising and promotional
833
1,552
(719
)
(46.3
)
Federal insurance premium
812
820
(8
)
(1.0
)
Office supplies and related expense
633
487
146
30.0
Deposit and loan transaction costs
611
747
(136
)
(18.2
)
Other non-interest expense
1,109
1,133
(24
)
(2.1
)
Total non-interest expense
$
27,773
$
29,807
$
(2,034
)
(6.8
)
The decrease in salaries and employee benefits was due mainly to
a decrease in loan commissions, as well as one fewer working day in
the current quarter compared to the prior quarter. The decrease in
occupancy, net was due mainly to lower utility expenses and
building maintenance expenses. The decrease in regulatory and
outside services was due primarily to lower consulting expenses
related to the Bank's upcoming digital transformation project as
those third-party services are now directly related to the project
and are included in information technology and related expenses.
The decrease in advertising and promotional expense was due mainly
to the timing of campaigns and sponsorships. 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. The decrease in deposit and
loan transaction costs was mainly due to loan-related
activities.
The Company's efficiency ratio was 54.27% for the current
quarter compared to 53.52% for the prior quarter. The change in the
efficiency ratio was due primarily to lower net interest income,
partially offset by lower non-interest expense. 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
December 31,
September 30,
Change Expressed in:
2022
2022
Dollars
Percent
(Dollars in thousands)
Income before income tax expense
$
19,747
$
24,824
$
(5,077
)
(20.5
)%
Income tax expense
3,507
5,332
(1,825
)
(34.2
)
Net income
$
16,240
$
19,492
$
(3,252
)
(16.7
)
Effective Tax Rate
17.8
%
21.5
%
The decrease in income tax expense was due primarily to lower
pretax income in the current quarter, along with a decrease in the
effective tax rate. 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 to the overall effective rate.
Comparison of Operating Results for the Three Months Ended
December 31, 2022 and 2021
The Company recognized net income of $16.2 million, or $0.12 per
share, for the current quarter compared to net income of $22.2
million, or $0.16 per share, for the prior year quarter. The
decrease in net income was due primarily to recording a provision
for credit losses of $3.7 million for the current quarter compared
to a recovery for credit losses of $3.4 million for the prior year
quarter, partially offset by lower income tax expense. The net
interest margin decreased 38 basis points, from 1.99% for the prior
year quarter to 1.61% for the current quarter. Excluding the
effects of the leverage strategy, the net interest margin decreased
11 basis points, from 1.99% for the prior year quarter to 1.88% 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 borrowings and deposits, partially offset
by an increase in loan yields due to higher market interest rates
and a shift in the mix of interest-earning assets towards
higher-yielding loans.
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 Three Months
Ended
December 31,
Change Expressed in:
2022
2021
Dollars
Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans receivable
$
64,819
$
55,788
$
9,031
16.2
%
Cash and cash equivalents
16,671
14
16,657
N/M
MBS
4,811
4,625
186
4.0
FHLB stock
4,158
1,231
2,927
237.8
Investment securities
881
808
73
9.0
Total interest and dividend income
$
91,340
$
62,466
$
28,874
46.2
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 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 and
the increase in dividend income on FHLB stock were due mainly to
the leverage strategy being utilized during the current quarter and
not being utilized during the prior year quarter. Additionally,
market interest rates increased between periods resulting in an
increase in the yield on cash due to an increase in FRB interest
rates, and FHLB increased the dividend rate paid compared to the
prior year quarter.
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 Three Months
Ended
December 31,
Change Expressed in:
2022
2021
Dollars
Percent
(Dollars in thousands)
INTEREST EXPENSE:
Borrowings
$
33,608
$
7,585
$
26,023
343.1
%
Deposits
11,904
9,267
2,637
28.5
Total interest expense
$
45,512
$
16,852
$
28,660
170.1
The increase in interest expense on borrowings was due primarily
to the leverage strategy being utilized during the current quarter
and not being utilized during the prior year quarter. Interest
expense on borrowings associated with the leverage strategy totaled
$17.3 million during the current quarter. Interest expense on FHLB
borrowings not associated with the leverage strategy also increased
due to new borrowings added between periods, at market interest
rates higher than the overall portfolio rate, to fund operational
liquidity needs. See additional discussion in the "Financial
Condition" section below. The increase in interest expense on
deposits was due to an increase in the weighted average rate paid
on the deposit portfolio, primarily money market accounts and
certificates of deposit, partially offset by a decrease in the
average balance of certificates of deposit.
Provision for Credit Losses
The Bank recorded a provision for credit losses during the
current quarter of $3.7 million, compared to a recovery for credit
losses of $3.4 million during the prior year quarter. See
"Comparison of Operating Results for the Three Months Ended
December 31, 2022 and September 30, 2022" above for additional
information regarding the provision for credit losses for the
current quarter.
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
December 31,
Change Expressed in:
2022
2021
Dollars
Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit service fees
$
3,461
$
3,430
$
31
0.9
%
Insurance commissions
795
711
84
11.8
Other non-interest income
1,096
1,365
(269
)
(19.7
)
Total non-interest income
$
5,352
$
5,506
$
(154
)
(2.8
)
The decrease in other non-interest income was due mainly to the
prior year quarter including higher gains on a loan-related
financial derivative agreement, along with a decrease in income
from bank-owned life insurance.
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
December 31,
Change Expressed in:
2022
2021
Dollars
Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries and employee benefits
$
13,698
$
13,728
$
(30
)
(0.2
)%
Information technology and related
expense
5,070
4,432
638
14.4
Occupancy, net
3,474
3,379
95
2.8
Regulatory and outside services
1,533
1,368
165
12.1
Advertising and promotional
833
1,064
(231
)
(21.7
)
Federal insurance premium
812
639
173
27.1
Office supplies and related expense
633
468
165
35.3
Deposit and loan transaction costs
611
697
(86
)
(12.3
)
Other non-interest expense
1,109
919
190
20.7
Total non-interest expense
$
27,773
$
26,694
$
1,079
4.0
The increase in information technology and related expenses was
due mainly to higher software licensing expenses, as well as
third-party project management expenses associated with the Bank's
ongoing digital transformation project. The increase in regulatory
and outside services was due primarily to outside counsel fees
associated with the Bank's defense against a putative class action
complaint relating to overdraft fees. The decrease in advertising
and promotional expense was due mainly to the timing of campaigns
and sponsorships. The increase in federal insurance premium expense
was due to the leverage strategy being utilized during the current
quarter and not being utilized during the prior year quarter. 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. 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 and higher deposit-related fraud losses in the
current quarter.
The Company's efficiency ratio was 54.27% for the current
quarter compared to 52.22% for the prior year quarter. The change
in the efficiency ratio was due primarily to higher non-interest
expense in the current quarter.
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 Three Months
Ended
December 31,
Change Expressed in:
2022
2021
Dollars
Percent
(Dollars in thousands)
Income before income tax expense
$
19,747
$
27,865
$
(8,118
)
(29.1
)%
Income tax expense
3,507
5,679
(2,172
)
(38.2
)
Net income
$
16,240
$
22,186
$
(5,946
)
(26.8
)
Effective Tax Rate
17.8
%
20.4
%
The decrease in income tax expense was due primarily to lower
pretax income in the current quarter, along with a decrease in the
effective tax rate. 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 to the overall effective rate.
Financial Condition as of December 31, 2022
The following table summarizes the Company's financial condition
at the dates indicated.
Annualized
December 31,
September 30,
Percent
2022
2022
Change
(Dollars and shares in
thousands)
Total assets
$
9,929,760
$
9,624,897
12.7
%
Available-for-sale ("AFS") securities
1,528,686
1,563,307
(8.9
)
Loans receivable, net
7,783,358
7,464,208
17.1
Deposits
6,074,549
6,194,866
(7.8
)
Borrowings
2,645,195
2,132,154
96.2
Stockholders' equity
1,054,795
1,096,499
(15.2
)
Equity to total assets at end of
period
10.6
%
11.4
%
Average number of basic shares
outstanding
134,641
135,773
(3.3
)
Average number of diluted shares
outstanding
134,641
135,773
(3.3
)
During the current quarter, total assets increased by $304.9
million, which was primarily driven by growth of $319.2 million in
loans receivable, mainly in the correspondent one- to four-family
and commercial loan portfolios. Total liabilities increased $346.6
million due to new borrowings of $520.0 million, partially offset
by a decrease in deposits of $120.3 million. The one- to
four-family correspondent loan portfolio increased $151.4 million,
or 6.9%, primarily as a result of purchasing loans that were in the
pipeline as of September 30, 2022, while new applications received
have tapered off. Commercial loans increased $143.9 million, or
14.9%, during the current quarter, as funding for construction
loans continued and new commercial real estate loans were added.
Also, during the current quarter we experienced a reduction in
prepayment speeds on the one- to four-family loan portfolio. The
decrease in deposit balances was due primarily to money market
account balances, which decreased $125.3 million during the current
quarter as depositors likely moved funds to alternative, higher
yielding investment products and/or used balances accumulated over
the past several years to support spending. The increase in loan
balances and the decrease in deposit balances made it necessary to
increase FHLB borrowings by $520.0 million during the current
quarter. The FHLB borrowing increase was composed of $450.0 million
of new advances with a weighted average maturity of 3.3 years and
$70.0 million on the FHLB line of credit. The overall loan growth
during the quarter exceeded management's expectations as of
September 30, 2022. While it is still management's expectation that
we will stay under $10 billion in total assets at September 30,
2023, it is likely that we will exceed that threshold throughout
several quarters this year. We are working to limit the growth in
total assets and to limit additional use of FHLB advances for
operating needs.
The following table summarizes loan originations and purchases
and borrowing activity, along with the related weighted average
rates, during the periods indicated. The borrowings presented in
the table have original contractual terms of one year or
longer.
For the Three Months
Ended
December 31, 2022
September 30, 2022
Amount
Rate
Amount
Rate
(Dollars in thousands)
Loan originations, purchases, and
participations
One- to four-family and consumer:
Originated
$
145,106
5.21
%
$
184,879
4.55
%
Purchased
199,471
4.87
187,298
4.17
Commercial:
Originated
219,281
5.07
92,859
4.67
Participations/Purchased
135,834
5.93
38,308
4.94
$
699,692
5.21
$
503,344
4.46
Borrowing activity
Maturities and repayments
$
(7,418
)
4.13
$
(77,500
)
0.39
New borrowings
450,000
4.45
300,000
3.90
Stockholders' Equity
During the quarter ended December 31, 2022, the Company paid
cash dividends totaling $49.2 million. These cash dividends totaled
$0.365 per share and consisted of a $0.28 per share cash true-up
dividend related to fiscal year 2022 earnings and a regular
quarterly cash dividend of $0.085 per share.
On January 24, 2023, the Company announced a regular quarterly
cash dividend of $0.085 per share, or approximately $11.3 million,
payable on February 17, 2023 to stockholders of record as of the
close of business on February 3, 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 December 31, 2022, this ratio was
9.7%.
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 December 31, 2022, the Bank's community bank
leverage ratio ("CBLR") was 9.2%, which exceeded the minimum
requirement of 9.0%. The CBLR is based on average assets. The
leverage strategy increases average assets which reduces the Bank's
CBLR.
At December 31, 2022, Capitol Federal Financial, Inc., at the
holding company level, had $51.8 million in cash on deposit at the
Bank. For fiscal year 2023, it is the intention of the Board of
Directors to continue the payout of 100% of the Company's earnings
to the Company's stockholders. Dividend payments depend upon a
number of factors, including the Company's financial condition and
results of operations, regulatory capital requirements, regulatory
limitations on the Bank's ability to make capital distributions to
the Company, and the amount of cash at the holding company
level.
During the current quarter, the Company repurchased 2,729,159
shares of common stock at an average price of $8.13 per share.
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 Federal Reserve Bank'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 December 31, 2022.
Total shares outstanding
136,134,225
Less unallocated Employee Stock Ownership
Plan ("ESOP") shares and unvested restricted stock
(2,987,815
)
Net shares outstanding
133,146,410
Fiscal Year 2023 Projections
The rapid increase in short-term rates led by the FRB and the
impact of higher long-term rates compared to September 30, 2022 has
led to 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. The higher loan rates have made homes less
affordable and reduced the turnover of housing inventory, which
lowers the likelihood of existing one- to four-family loans at
lower rates being paid off with the proceeds being used to fund
higher rate loans. These dynamics have caused our balance sheet to
change faster than what would occur in more stable rate
environments. Net interest margin compression is anticipated to
continue, and the margin may compress more in the near term, due to
the shape of the yield curve and the pace at which liabilities are
repricing compared to assets, along with lower costing deposits
being replaced with higher costing borrowings in order to fund loan
growth. Loan growth is occurring at market interest rates that are
higher than the overall loan portfolio rate; however, the shift to
higher-costing borrowings and the pace at which the interest rate
increase is 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 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
$5.5 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 $6.5 million
higher in fiscal year 2023 compared to fiscal year 2022, or
approximately $24.5 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 to a
reduction in professional service costs. Salaries and employee
benefits are expected to be approximately $3.5 million higher in
fiscal year 2023 due primarily to merit increases and salary
adjustments. Federal insurance premium expense is anticipated to be
approximately $2 million higher in fiscal year 2023, due to the
increase in the assessment rate beginning in January 2023.
Management anticipates the effective tax rate for fiscal year
2023 will be approximately 19%. This is lower than the original
projection of 20% to 21% previously provided, due mainly to lower
projected pretax income as the Company's permanent differences,
which generally reduce our tax rate, have a larger impact to the
overall effective rate.
Capitol Federal Financial, Inc. is the holding company for the
Bank. The Bank has 54 branch locations in Kansas and Missouri, and
is one of the largest residential lenders in the State of Kansas.
News and other information about the Company can be found at the
Bank's website, http://www.capfed.com.
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: potential adverse impacts of the ongoing COVID-19
pandemic and any governmental or societal responses thereto on
economic conditions in the Company's local market areas and other
areas where the Bank has lending relationships, on other aspects of
the Company's business operations and on financial markets; changes
in policies or the application or interpretation of laws and
regulations by regulatory agencies and tax authorities; other
governmental initiatives affecting the financial services industry;
changes in accounting principles, policies or guidelines;
fluctuations in interest rates and the effects of inflation or a
potential recession; 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)
December 31,
September 30,
2022
2022
ASSETS:
Cash and cash equivalents (includes
interest-earning deposits of $20,243 and $27,467)
$
49,686
$
49,194
AFS securities, at estimated fair value
(amortized cost of $1,716,608 and $1,768,490)
1,528,686
1,563,307
Loans receivable, net (ACL of $19,189 and
$16,371)
7,783,358
7,464,208
FHLB stock, at cost
124,119
100,624
Premises and equipment, net
93,507
94,820
Income taxes receivable, net
124
1,266
Deferred income tax assets, net
29,924
33,884
Other assets
320,356
317,594
TOTAL ASSETS
$
9,929,760
$
9,624,897
LIABILITIES:
Deposits
$
6,074,549
$
6,194,866
Borrowings
2,645,195
2,132,154
Advances by borrowers
36,207
80,067
Other liabilities
119,014
121,311
Total liabilities
8,874,965
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, 136,134,225 and 138,858,884 shares
issued and outstanding as of December 31, 2022 and September 30,
2022, respectively
1,361
1,388
Additional paid-in capital
1,168,061
1,190,213
Unearned compensation, ESOP
(29,322
)
(29,735
)
Retained earnings
47,297
80,266
Accumulated other comprehensive (loss)
income, net of tax
(132,602
)
(145,633
)
Total stockholders' equity
1,054,795
1,096,499
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $
9,929,760
$
9,624,897
CAPITOL FEDERAL FINANCIAL, INC.
AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
For the Three Months
Ended
December 31,
September 30,
December 31,
2022
2022
2021
INTEREST AND DIVIDEND INCOME:
Loans receivable
$
64,819
$
60,445
$
55,788
Cash and cash equivalents
16,671
13,373
14
MBS
4,811
4,912
4,625
FHLB stock
4,158
3,865
1,231
Investment securities
881
845
808
Total interest and dividend income
91,340
83,440
62,466
INTEREST EXPENSE:
Borrowings
33,608
24,529
7,585
Deposits
11,904
9,013
9,267
Total interest expense
45,512
33,542
16,852
NET INTEREST INCOME
45,828
49,898
45,614
PROVISION FOR CREDIT LOSSES
3,660
1,060
(3,439
)
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES
42,168
48,838
49,053
NON-INTEREST INCOME:
Deposit service fees
3,461
3,467
3,430
Insurance commissions
795
905
711
Other non-interest income
1,096
1,421
1,365
Total non-interest income
5,352
5,793
5,506
NON-INTEREST EXPENSE:
Salaries and employee benefits
13,698
14,268
13,728
Information technology and related
expense
5,070
5,043
4,432
Occupancy, net
3,474
3,777
3,379
Regulatory and outside services
1,533
1,980
1,368
Advertising and promotional
833
1,552
1,064
Federal insurance premium
812
820
639
Office supplies and related expense
633
487
468
Deposit and loan transaction costs
611
747
697
Other non-interest expense
1,109
1,133
919
Total non-interest expense
27,773
29,807
26,694
INCOME BEFORE INCOME TAX EXPENSE
19,747
24,824
27,865
INCOME TAX EXPENSE
3,507
5,332
5,679
NET INCOME
$
16,240
$
19,492
$
22,186
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
December 31, 2022
September 30, 2022
December 31, 2021
Average
Interest
Average
Interest
Average
Interest
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Amount
Paid
Rate
Amount
Paid
Rate
Amount
Paid
Rate
(Dollars in thousands)
Assets:
Interest-earning assets:
One- to four-family loans:
Originated
$
4,049,790
$
33,364
3.29
%
$
4,021,121
$
32,809
3.26
%
$
3,971,049
$
32,422
3.27
%
Correspondent purchased
2,305,362
17,261
2.99
2,166,869
15,394
2.84
2,035,631
12,746
2.50
Bulk purchased
147,091
434
1.18
150,253
475
1.26
170,537
610
1.43
Total one- to four-family loans
6,502,243
51,059
3.14
6,338,243
48,678
3.07
6,177,217
45,778
2.96
Commercial loans
1,025,402
11,993
4.58
935,374
10,326
4.32
841,217
8,943
4.16
Consumer loans
102,760
1,767
6.82
98,189
1,441
5.82
92,794
1,067
4.56
Total loans receivable(1)
7,630,405
64,819
3.38
7,371,806
60,445
3.27
7,111,228
55,788
3.13
MBS(2)
1,221,035
4,811
1.58
1,279,143
4,912
1.54
1,435,562
4,625
1.29
Investment securities(2)(3)
525,081
881
0.67
524,546
845
0.64
523,931
808
0.62
FHLB stock(4)
197,577
4,158
8.35
198,431
3,865
7.73
73,481
1,231
6.64
Cash and cash equivalents(5)
1,801,493
16,671
3.62
2,322,891
13,373
2.25
37,221
14
0.15
Total interest-earning assets
11,375,591
91,340
3.19
11,696,817
83,440
2.83
9,181,423
62,466
2.71
Other non-interest-earning assets
248,022
288,496
412,115
Total assets
$
11,623,613
$
11,985,313
$
9,593,538
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Checking
$
1,007,569
289
0.11
$
1,035,600
217
0.08
$
1,052,413
179
0.07
Savings
545,885
100
0.07
556,836
84
0.06
520,770
70
0.05
Money market
1,759,804
3,035
0.68
1,856,424
1,925
0.41
1,767,134
825
0.19
Retail certificates
2,064,929
7,767
1.49
2,105,237
6,434
1.21
2,298,678
7,835
1.35
Commercial certificates
34,298
104
1.20
45,901
82
0.71
169,200
272
0.64
Wholesale certificates
97,828
609
2.47
93,232
271
1.15
199,692
86
0.17
Total deposits
5,510,313
11,904
0.86
5,693,230
9,013
0.63
6,007,887
9,267
0.61
Borrowings(6)
4,260,685
33,608
3.10
4,386,450
24,529
2.20
1,589,258
7,585
1.88
Total interest-bearing liabilities
9,770,998
45,512
1.84
10,079,680
33,542
1.31
7,597,145
16,852
0.88
Non-interest-bearing deposits
576,519
580,687
550,492
Other non-interest-bearing liabilities
191,474
184,137
209,890
Stockholders' equity
1,084,622
1,140,809
1,236,011
Total liabilities and stockholders'
equity
$
11,623,613
$
11,985,313
$
9,593,538
Net interest income(7)
$
45,828
$
49,898
$
45,614
Net interest-earning assets
$
1,604,593
$
1,617,137
$
1,584,278
Net interest margin(8)(9)
1.61
1.71
1.99
Ratio of interest-earning assets to
interest-bearing liabilities
1.16x
1.16x
1.21x
Selected performance ratios:
Return on average assets
(annualized)(9)
0.56
%
0.65
%
0.93
%
Return on average equity
(annualized)(9)
5.99
6.83
7.18
Average equity to average assets
9.33
9.52
12.88
Operating expense ratio
(annualized)(10)
0.96
0.99
1.11
Efficiency ratio(9)(11)
54.27
53.52
52.22
Pre-tax yield on leverage strategy(12)
0.20
0.28
—
(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
$1.1 million, $569 thousand, and $4.0 million for the quarters
ended December 31, 2022 and September 30, 2022, and December 31,
2021, respectively.
(4)
Included in this line, for the quarters
ended December 31, 2022 and September 30, 2022, respectively, is
FHLB stock related to the leverage strategy with an average
outstanding balance of $84.3 million and $108.8 million,
respectively, and dividend income of $1.8 million and $2.1 million,
respectively, at a weighted average yield of 8.49% and 7.75%,
respectively, and FHLB stock not related to the leverage strategy
with an average outstanding balance of $113.3 million and $89.6
million, respectively, and dividend income of $2.4 million and $1.7
million, respectively, at a weighted average yield of 8.24% and
7.70%, respectively. There was no FHLB stock related to the
leverage strategy during the quarter ended December 31, 2021.
(5)
The average balance of cash and cash
equivalents includes an average balance of cash related to the
leverage strategy of $1.79 billion and $2.31 billion during the
quarters ended December 31, 2022 and September 30, 2022,
respectively. There were no cash and cash equivalents related to
the leverage strategy during the quarter ended December 31,
2021.
(6)
Included in this line, for the quarters
ended December 31, 2022 and September 30, 2022, are FHLB borrowings
related to the leverage strategy with an average outstanding
balance of $1.87 billion and $2.42 billion, respectively, and
interest paid of $17.3 million and $13.5 million, respectively, at
a weighted average rate of 3.61% and 2.19%, respectively, and FHLB
borrowings not related to the leverage strategy with an average
outstanding balance of $2.39 billion and $1.97 billion,
respectively, and interest paid of $16.3 million and $11.0 million,
respectively, at a weighted average rate of 2.70% and 2.20%,
respectively. There were no FHLB borrowings related to the leverage
strategy during the quarter ended December 31, 2021. The FHLB
advance amounts and rates included in this line include the effect
of interest rate swaps and are net of deferred prepayment
penalties.
(7)
Net interest income represents the
difference between interest income earned on interest-earning
assets and interest paid on interest-bearing liabilities. Net
interest income depends on the average balance of interest-earning
assets and interest-bearing liabilities, and the interest rates
earned or paid on them.
(8)
Net interest margin represents annualized
net interest income as a percentage of average interest-earning
assets.
(9)
The tables below provide a reconciliation
between certain performance ratios presented in accordance with
accounting standards generally accepted in the United States of
America ("GAAP") and the performance ratios excluding the effects
of the leverage strategy, which are not presented in accordance
with GAAP. Management believes it is important for comparability
purposes to provide the performance ratios without the leverage
strategy because of the unique nature of the leverage strategy. The
leverage strategy reduces some of our performance ratios due to the
amount of earnings associated with the transaction in comparison to
the size of the transaction, while increasing our net income.
For the Three Months
Ended
December 31, 2022
September 30, 2022
December 31, 2021
Actual
Leverage
Adjusted
Actual
Leverage
Adjusted
Actual
Leverage
Adjusted
(GAAP)
Strategy
(Non-GAAP)
(GAAP)
Strategy
(Non-GAAP)
(GAAP)
Strategy
(Non-GAAP)
Yield on interest-earning assets
3.19
%
0.13
%
3.06
%
2.83
%
(0.09
)%
2.92
%
2.71
%
—
%
2.71
%
Cost of interest-bearing liabilities
1.84
0.42
1.42
1.31
0.28
1.03
0.88
—
0.88
Return on average assets (annualized)
0.56
(0.07
)
0.63
0.65
(0.11
)
0.76
0.93
—
0.93
Return on average equity (annualized)
5.99
0.28
5.71
6.83
0.46
6.37
7.18
—
7.18
Net interest margin
1.61
(0.27
)
1.88
1.71
(0.36
)
2.07
1.99
—
1.99
Efficiency Ratio
54.27
(0.87
)
55.14
53.52
(1.53
)
55.05
52.22
—
52.22
(10)
The operating expense ratio represents
annualized non-interest expense as a percentage of average
assets.
(11)
The efficiency ratio represents
non-interest expense as a percentage of the sum of net interest
income (pre-provision for credit losses) and non-interest
income.
(12)
The pre-tax yield on the leverage strategy
represents annualized pre-tax income resulting from the transaction
as a percentage of the average interest-earning assets associated
with the transaction.
Loan Portfolio
The following table presents information related to the
composition of our loan portfolio in terms of dollar amounts,
weighted average rates, and percentages as of the dates indicated.
The loan portfolio rate increased 14 basis points from September
30, 2022 to December 31, 2022, due primarily to one- to four-family
correspondent and commercial loan growth, 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 5% during the
current quarter compared to 7% during the prior quarter.
December 31, 2022
September 30, 2022
December 31, 2021
% of
% of
% of
Amount
Rate
Total
Amount
Rate
Total
Amount
Rate
Total
(Dollars in thousands)
One- to four-family:
Originated
$
4,007,596
3.25
%
51.5
%
$
3,988,469
3.20
%
53.4
%
$
3,941,568
3.15
%
55.5
%
Correspondent purchased
2,353,335
3.25
30.2
2,201,886
3.10
29.4
1,991,944
2.97
28.0
Bulk purchased
145,209
1.31
1.9
147,939
1.24
2.0
165,339
1.52
2.3
Construction
70,869
3.01
0.9
66,164
2.90
0.9
47,508
2.76
0.7
Total
6,577,009
3.20
84.5
6,404,458
3.12
85.7
6,146,359
3.05
86.5
Commercial:
Commercial real estate
833,444
4.34
10.7
745,301
4.30
10.0
687,518
3.98
9.6
Commercial and industrial
88,327
5.21
1.1
79,981
4.30
1.1
76,254
3.85
1.1
Construction
188,516
5.97
2.4
141,062
5.34
1.9
105,702
4.04
1.5
Total
1,110,287
4.69
14.2
966,344
4.45
13.0
869,474
3.98
12.2
Consumer loans:
Home equity
95,352
7.55
1.2
92,203
6.28
1.2
84,400
4.59
1.2
Other
9,022
4.43
0.1
8,665
4.21
0.1
7,825
4.13
0.1
Total
104,374
7.28
1.3
100,868
6.10
1.3
92,225
4.55
1.3
Total loans receivable
7,791,670
3.47
100.0
%
7,471,670
3.33
100.0
%
7,108,058
3.18
100.0
%
Less:
ACL
19,189
16,371
17,535
Deferred loan fees/discounts
30,513
29,736
29,363
Premiums/deferred costs
(41,390
)
(38,645
)
(34,445
)
Total loans receivable, net
$
7,783,358
$
7,464,208
$
7,095,605
Loan Activity: The following table summarizes activity in the
loan portfolio, along with weighted average rates where applicable,
for the periods indicated, excluding changes in ACL, deferred loan
fees/discounts, and premiums/deferred costs. Loans that were paid
off as a result of refinances are included in repayments. Loan
endorsements are not included in the activity in the following
table because a new loan is not generated at the time of the
endorsement. The endorsed balance and rate are included in the
ending loan portfolio balance and rate. Commercial loan renewals
are not included in the activity in the following table unless new
funds are disbursed at the time of renewal. The renewal balance and
rate are included in the ending loan portfolio balance and
rate.
For the Three Months
Ended
December 31, 2022
September 30, 2022
Amount
Rate
Amount
Rate
(Dollars in thousands)
Beginning balance
$
7,471,670
3.33
%
$
7,245,751
3.21
%
Originated and refinanced
364,387
5.13
277,738
4.59
Purchased and participations
335,305
5.30
225,606
4.30
Change in undisbursed loan funds
(121,235
)
(8,696
)
Repayments
(252,799
)
(268,413
)
Principal (charge-offs)/recoveries,
net
(2
)
(34
)
Other
(5,656
)
(282
)
Ending balance
$
7,791,670
3.47
$
7,471,670
3.33
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 December 31, 2022. 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
$
4,007,596
61.6
%
3.25
%
771
60
%
$
160
Correspondent purchased
2,353,335
36.2
3.25
766
65
416
Bulk purchased
145,209
2.2
1.31
770
57
287
$
6,506,140
100.0
3.20
769
62
209
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. Many of the correspondent loans
purchased during the current quarter were from applications
received during the prior quarter. The Bank is working towards
reducing new correspondent purchases to near zero.
For the Three Months
Ended
December 31, 2022
Credit
Amount
Rate
LTV
Score
(Dollars in thousands)
Originated
$
126,508
4.92
%
76
%
763
Correspondent purchased
199,471
4.87
77
768
$
325,979
4.89
77
766
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 December 31, 2022,
along with associated weighted average rates.
Amount
Rate
(Dollars in thousands)
Originate/refinance
$
84,108
5.12
%
Correspondent
121,250
5.22
$
205,358
5.18
Commercial Loans: During the quarter ended December 31, 2022,
the Bank originated $219.3 million of commercial loans and entered
into commercial loan participations totaling $135.8 million. The
Bank also processed commercial loan disbursements, excluding lines
of credit, of approximately $207.8 million at a weighted average
rate of 5.05%.
As of December 31, 2022, September 30, 2022, and December 31,
2021, the Bank's commercial and industrial gross loan amounts
(unpaid principal plus undisbursed amounts) totaled $113.2 million,
$100.4 million, and $99.8 million, respectively, and commitments
totaled $5.1 million at December 31, 2022.
The following table presents the Bank's commercial real estate
and commercial construction loans by type of primary collateral as
of the dates indicated. As of December 31, 2022, the Bank had 18
commercial real estate and commercial construction loan commitments
totaling $71.5 million, at a weighted average rate of 5.91%.
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 undisbursed amounts and commitments outstanding as
of December 31, 2022, management anticipates approximately $110
million will be funded during the March 2023 quarter, $65 million
during the June 2023 quarter, $82 million during the September 2023
quarter, and $74 million during the December 2023 quarter.
December 31, 2022
September 30, 2022
Unpaid
Undisbursed
Gross Loan
Gross Loan
Count
Principal
Amount
Amount
Amount
(Dollars in thousands)
Senior housing
35
$
270,614
$
56,800
$
327,414
$
328,259
Retail building
144
231,384
93,671
325,055
230,153
Hotel
11
195,590
21,014
216,604
181,546
Multi-family
38
82,138
128,117
210,255
122,735
Office building
87
82,751
32,093
114,844
109,653
One- to four-family property
390
62,182
10,157
72,339
68,907
Single use building
26
22,981
20,471
43,452
41,908
Other
107
74,320
12,256
86,576
53,054
838
$
1,021,960
$
374,579
$
1,396,539
$
1,136,215
Weighted average rate
4.64
%
5.65
%
4.91
%
4.56
%
The following table summarizes the Bank's commercial real estate
and commercial construction loans by state as of the dates
indicated.
December 31, 2022
September 30, 2022
Unpaid
Undisbursed
Gross Loan
Gross Loan
Count
Principal
Amount
Amount
Amount
(Dollars in thousands)
Kansas
616
$
400,508
$
118,911
$
519,419
$
423,797
Texas
15
224,792
111,720
336,512
280,840
Missouri
177
246,132
89,268
335,400
296,443
Colorado
8
40,179
15,526
55,705
34,377
Tennessee
2
20,577
22,681
43,258
—
Nebraska
7
33,760
4,057
37,817
32,992
Other
13
56,012
12,416
68,428
67,766
838
$
1,021,960
$
374,579
$
1,396,539
$
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 December 31, 2022.
Count
Amount
(Dollars in thousands)
Greater than $30 million
8
$
362,853
>$15 to $30 million
20
424,689
>$10 to $15 million
9
108,638
>$5 to $10 million
24
170,993
$1 to $5 million
137
327,871
Less than $1 million
1,255
191,370
1,453
$
1,586,414
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 December 31, 2022,
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:
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Number
Amount
Number
Amount
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
One- to four-family:
Originated
56
$
4,708
48
$
4,134
64
$
6,035
64
$
6,931
74
$
7,009
Correspondent purchased
4
1,216
7
1,104
9
3,467
10
2,421
11
5,133
Bulk purchased
3
865
3
913
4
755
2
396
1
154
Commercial
6
191
—
—
6
706
4
373
2
222
Consumer
24
626
24
345
16
256
14
215
16
164
93
$
7,606
82
$
6,496
99
$
11,219
94
$
10,336
104
$
12,682
30 to 89 days delinquent loans to total
loans receivable, net
0.10
%
0.09
%
0.16
%
0.15
%
0.18
%
Non-Performing Loans and OREO
at:
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
Number
Amount
Number
Amount
Number
Amount
Number
Amount
Number
Amount
(Dollars in thousands)
Loans 90 or More Days Delinquent or in
Foreclosure:
One- to four-family:
Originated
13
$
1,034
29
$
2,919
36
$
2,585
44
$
3,999
48
$
3,943
Correspondent purchased
14
4,126
12
3,737
9
2,659
11
3,967
10
3,115
Bulk purchased
4
1,492
3
1,148
5
1,807
5
1,819
6
1,945
Commercial
7
1,152
8
1,167
7
1,184
6
1,167
6
1,170
Consumer
11
126
9
154
9
174
19
400
25
477
49
7,930
61
9,125
66
8,409
85
11,352
95
10,650
Loans 90 or more days delinquent or in
foreclosure as a percentage of total loans
0.10
%
0.12
%
0.12
%
0.16
%
0.15
%
Nonaccrual loans less than 90 Days
Delinquent:(1)
One- to four-family:
Originated
3
$
219
3
$
222
2
$
207
5
$
505
5
$
451
Correspondent purchased
—
—
—
—
—
—
—
—
—
—
Bulk purchased
—
—
—
—
—
—
—
—
—
—
Commercial
2
84
1
77
1
4
2
34
3
62
Consumer
—
—
1
19
1
19
2
27
—
—
5
303
5
318
4
230
9
566
8
513
Total nonaccrual loans
54
8,233
66
9,443
70
8,639
94
11,918
103
11,163
Nonaccrual loans as a percentage of total
loans
0.11
%
0.13
%
0.12
%
0.17
%
0.16
%
OREO:
One- to four-family:
Originated(2)
2
$
161
4
$
307
2
$
237
—
$
—
2
$
319
Consumer
1
21
1
21
1
21
—
—
—
—
3
182
5
328
3
258
—
—
2
319
Total non-performing assets
57
$
8,415
71
$
9,771
73
$
8,897
94
$
11,918
105
$
11,482
Non-performing assets as a percentage of
total assets
0.08
%
0.10
%
0.09
%
0.13
%
0.12
%
(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 December 31, 2022 compared to September
30, 2022 was due mainly to two loans in a single commercial
relationship moving to special mention during the quarter as
certain underlying economic considerations being monitored by
management showed signs of deterioration.
December 31, 2022
September 30, 2022
Special Mention
Substandard
Special Mention
Substandard
(Dollars in thousands)
One- to four-family
$
16,471
$
18,301
$
12,950
$
19,953
Commercial
28,441
2,413
565
2,733
Consumer
234
318
306
354
$
45,146
$
21,032
$
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 December 31, 2022 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 $5.6 million at December
31, 2022.
For the Three Months
Ended
December 31, 2022
September 30, 2022
(Dollars in thousands)
Balance at beginning of period
$
16,371
$
16,283
Charge-offs:
One- to four-family
—
(5
)
Commercial
—
(30
)
Consumer
(4
)
(5
)
Total charge-offs
(4
)
(40
)
Recoveries:
One- to four-family
1
1
Commercial
—
—
Consumer
1
5
Total recoveries
2
6
Net (charge-offs) recoveries
(2
)
(34
)
Provision for credit losses
2,820
122
Balance at end of period
$
19,189
$
16,371
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
0.02
0.36
ACL to non-performing loans at end of
period
233.07
173.37
ACL to loans receivable at end of
period
0.25
0.22
ACL to net charge-offs (annualized)
3,031.9x
121.2x
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 the commercial real estate ACL to loans
receivable ratio during the current quarter was due mainly to the
slow down of prepayment speeds used in the model and the
classification of two loans as special mention.
Distribution of ACL
Ratio of ACL to Loans
Receivable
December 31,
September 30,
December 31,
September 30,
2022
2022
2022
2022
(Dollars in thousands)
One- to four-family
$
5,362
$
5,006
0.08
%
0.08
%
Commercial:
Commercial real estate
10,799
8,729
1.30
1.17
Commercial and industrial
491
490
0.56
0.61
Construction
2,294
1,901
1.22
1.35
Total
13,584
11,120
1.22
1.15
Consumer
243
245
0.23
0.24
Total
$
19,189
$
16,371
0.25
0.22
Securities Portfolio
The following table presents the distribution of our securities
portfolio, at amortized cost, at December 31, 2022. Overall,
fixed-rate securities comprised 95% of our securities portfolio at
December 31, 2022. The weighted average life ("WAL") is the
estimated remaining maturity (in years) after three-month
historical prepayment speeds and projected call option assumptions
have been applied. Weighted average yields on tax-exempt securities
are not calculated on a fully tax-equivalent basis.
Amount
Yield
WAL
(Dollars in thousands)
MBS
$
1,191,597
1.59
%
5.0
U.S. government-sponsored enterprise
debentures
519,979
0.64
2.6
Corporate bonds
4,000
5.12
9.4
Municipal bonds
1,032
2.55
5.1
$
1,716,608
1.31
4.3
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
December 31, 2022
Amount
Yield
WAL
(Dollars in thousands)
Beginning balance - carrying value
$
1,563,307
1.29
%
4.2
Maturities and repayments
(51,045
)
Net amortization of
(premiums)/discounts
(837
)
Change in valuation on AFS securities
17,261
Ending balance - carrying value
$
1,528,686
1.31
4.3
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.
December 31, 2022
September 30, 2022
December 31, 2021
% of
% of
% of
Amount
Rate
Total
Amount
Rate
Total
Amount
Rate
Total
(Dollars in thousands)
Non-interest-bearing checking
$
597,247
—
%
9.8
%
$
591,387
—
%
9.5
%
$
599,969
—
%
9.0
%
Interest-bearing checking
1,024,806
0.13
16.9
1,027,222
0.07
16.6
1,092,342
0.07
16.4
Savings
543,514
0.08
9.0
552,743
0.06
8.9
526,714
0.05
7.9
Money market
1,694,504
0.80
27.9
1,819,761
0.47
29.4
1,840,049
0.19
27.7
Retail certificates of deposit
2,073,633
1.83
34.1
2,073,542
1.34
33.5
2,254,560
1.31
33.9
Commercial certificates of deposit
33,134
1.55
0.5
36,275
0.97
0.6
137,419
0.64
2.1
Public unit certificates of deposit
107,711
3.17
1.8
93,936
1.61
1.5
196,951
0.17
3.0
$
6,074,549
0.94
100.0
%
$
6,194,866
0.63
100.0
%
$
6,648,004
0.53
100.0
%
Borrowings
The following table presents the maturity of non-amortizing term
borrowings, which consist entirely of FHLB advances, along with
associated weighted average contractual and effective rates as of
December 31, 2022. In addition to the borrowings in the table
below, there were two straight-line amortizing FHLB advances
outstanding at December 31, 2022, including a $45.0 million advance
at a rate of 3.50% with quarterly payments of $2.5 million through
June 2027 and a $95.1 million advance at a rate of 4.45% with
quarterly payments of $4.9 million through October 2027.
Maturity by
Contractual
Effective
Fiscal Year
Amount
Rate
Rate(1)
(Dollars in thousands)
2023
$
300,000
1.70
%
1.81
%
2024
490,000
3.56
2.85
2025
600,000
3.05
2.85
2026
475,000
2.45
2.62
2027
350,000
2.72
2.86
2028
150,000
4.52
3.61
$
2,365,000
2.91
2.72
(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 all borrowing activity for the
period 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 quarter had a weighted average
maturity of 3.3 years, which is generally a shorter term than what
management has selected in prior periods.
For the Three Months
Ended
December 31, 2022
Effective
Amount
Rate
WAM
(Dollars in thousands)
Beginning balance
$
2,062,500
2.44
%
2.5
Maturities and repayments
(7,418
)
4.13
New FHLB borrowings
450,000
4.45
3.3
Ending balance
$
2,505,082
2.80
2.4
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 December 31, 2022.
March 31,
June 30,
September 30,
December 31,
2023
2023
2023
2023
Total
(Dollars in thousands)
Retail/Commercial Certificates:
Amount
$
270,624
$
208,654
$
253,360
$
228,152
$
960,790
Repricing Rate
1.25
%
1.00
%
1.47
%
2.14
%
1.46
%
Public Unit Certificates:
Amount
$
21,682
$
8,734
$
18,008
$
39,717
$
88,141
Repricing Rate
1.37
%
2.80
%
2.59
%
4.27
%
3.07
%
Term Borrowings:
Amount
$
100,000
$
100,000
$
100,000
$
150,000
$
450,000
Repricing Rate
1.46
%
1.82
%
2.14
%
3.42
%
2.34
%
Total
Amount
$
392,306
$
317,388
$
371,368
$
417,869
$
1,498,931
Repricing Rate
1.31
%
1.31
%
1.70
%
2.81
%
1.82
%
The following table sets forth the WAM information for our
certificates of deposit, in years, as of December 31, 2022.
Retail certificates of deposit
1.6
Commercial certificates of deposit
1.1
Public unit certificates of deposit
0.7
Total certificates of deposit
1.6
Average Rates and Lives
At December 31, 2022, the Bank's gap between the amount of
interest-earning assets and interest-bearing liabilities projected
to reprice within one year was $(1.02) billion, or (10.3)% of total
assets, compared to $(1.14) billion, or (11.9)% of total assets, at
September 30, 2022. The change in the one-year gap amount was due
primarily to a decrease in the amount of liability cash flows
coming due in one year at December 31, 2022 compared to September
30, 2022. This was due primarily to a decrease in the amount of
non-maturity deposits and certificates of deposit projected to
mature within one year as of December 31, 2022 compared to
September 30, 2022, partially offset by an increase in borrowings
projected to reprice within one year as of December 31, 2022.
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 December
31, 2022, the Bank's one-year gap is projected to be $(1.05)
billion, or (10.6)% 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 $(1.17) billion, or (12.1)% of total
assets, if interest rates were to have increased 200 basis points
as of September 30, 2022.
The following table presents the weighted average yields/rates
and WALs (in years), after applying prepayment, call assumptions,
and decay rates for our interest-earning assets and
interest-bearing liabilities as of December 31, 2022. Yields
presented for interest-earning assets include the amortization of
fees, costs, premiums and discounts, which are considered
adjustments to the yield. The interest rate presented for term
borrowings is the effective rate, which includes the impact of
interest rate swaps and the amortization of deferred prepayment
penalties resulting from FHLB advances previously prepaid. The WAL
presented for term borrowings includes the effect of interest rate
swaps.
Amount
Yield/Rate
WAL
% of Category
% of Total
(Dollars in thousands)
Securities
$
1,528,686
1.31
%
4.1
16.1
%
Loans receivable:
Fixed-rate one- to four-family
5,727,412
3.20
6.7
73.5
%
60.3
Fixed-rate commercial
439,609
4.13
3.6
5.6
4.6
All other fixed-rate loans
84,537
3.68
7.3
1.1
0.9
Total fixed-rate loans
6,251,558
3.27
6.5
80.2
65.8
Adjustable-rate one- to four-family
778,728
3.11
4.1
10.0
8.2
Adjustable-rate commercial
670,678
5.11
8.1
8.6
7.1
All other adjustable-rate loans
90,706
7.29
3.0
1.2
1.0
Total adjustable-rate loans
1,540,112
4.23
5.8
19.8
16.3
Total loans receivable
7,791,670
3.46
6.4
100.0
%
82.1
FHLB stock
124,119
8.47
2.6
1.3
Cash and cash equivalents
49,686
1.79
—
0.5
Total interest-earning assets
$
9,494,161
3.17
5.9
100.0
%
Non-maturity deposits
$
3,262,824
0.47
5.9
59.6
%
40.2
%
Retail certificates of deposit
2,073,633
1.83
1.6
37.8
25.5
Commercial certificates of deposit
33,134
1.55
1.1
0.6
0.4
Public unit certificates of deposit
107,711
3.17
0.7
2.0
1.3
Total interest-bearing deposits
5,477,302
1.04
4.2
100.0
%
67.4
Term borrowings
2,505,082
2.80
2.4
94.5
%
30.8
Line of credit borrowings
145,000
4.48
—
5.5
1.8
Total borrowings
2,650,082
2.89
2.3
100.0
%
32.6
Total interest-bearing liabilities
$
8,127,384
1.65
3.6
100.0
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230125005133/en/
Kent Townsend Executive Vice President, Chief Financial Officer
and Treasurer (785) 231-6360 ktownsend@capfed.com
Investor Relations (785) 270-6055
investorrelations@capfed.com
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