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

Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the fiscal year ended September 30, 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 $19.5 million;
  • basic and diluted earnings per share of $0.14;
  • net interest margin of 1.71% (2.07% excluding the effects of the leverage strategy);
  • annualized loan growth of 12.6%;
  • paid dividends of $0.085 per share; and
  • on October 25, 2022, announced a cash dividend of $0.085 per share, payable on November 18, 2022 to stockholders of record as of the close of business on November 4, 2022.

Highlights for the fiscal year include:

  • net income of $84.5 million;
  • basic and diluted earnings per share of $0.62;
  • net interest margin of 1.79% (2.04% excluding the effects of the leverage strategy);
  • loan growth of 5.4%;
  • paid dividends of $0.76 per share; and
  • on October 26, 2022, announced a fiscal year 2022 cash true-up dividend of $0.28 per share, payable on December 2, 2022 to stockholders of record as of the close of business on November 18, 2022.

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

For the quarter ended September 30, 2022, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $21.2 million, or $0.16 per share, for the quarter ended June 30, 2022. The decrease in net income was due primarily to higher non-interest expense in the current quarter. The net interest margin decreased eight basis points, from 1.79% for the prior quarter to 1.71% for the current quarter. When the leverage strategy discussed below is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased four basis points, from 2.11% for the prior quarter to 2.07% 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 yield due to higher market interest rates. Management anticipates the cost of borrowings and deposits may continue to increase at a faster pace than increases in asset yields in the near term.

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, compared to $2.10 billion during the prior quarter. The leverage strategy was increased during the current quarter in response to the increase in the dividend rate paid by FHLB. The borrowings were repaid prior to each quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.75% during the current quarter, were deposited at the Federal Reserve Bank of Kansas City ("FRB of Kansas City"). Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $1.3 million during the current quarter and $3.1 million during the current year. 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 operational purposes.

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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

Loans receivable

$

60,445

$

56,886

 

$

3,559

 

 

6.3

%

MBS

 

4,912

 

5,048

 

 

(136

)

 

(2.7

)

Cash and cash equivalents

 

13,373

 

 

3,968

 

 

9,405

 

 

237.0

 

FHLB stock

 

3,865

 

 

2,695

 

 

1,170

 

 

43.4

 

Investment securities

 

845

 

 

815

 

 

30

 

 

3.7

 

Total interest and dividend income

$

83,440

 

$

69,412

 

$

14,028

 

 

20.2

 

The increase in interest income on loans receivable was due to an increase in the weighted average yield on the loan portfolio, along with an increase in the average balance of one- to four-family loans and commercial loans. 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, due to an increase in FRB interest rates. The increase in dividend income on FHLB stock was due to an increase in the dividend rate paid by FHLB, as well as an increase in the average balance of FHLB stock held stemming from an increase in the average balance of FHLB borrowings to support growth in the loan portfolio and replace deposit balances.

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 10 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 33 basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

24,529

 

$

11,644

 

$

12,885

 

110.7

%

Deposits

 

9,013

 

 

7,787

 

 

1,226

 

15.7

 

Total interest expense

$

33,542

 

$

19,431

 

$

14,111

 

72.6

 

The increase in interest expense on borrowings was due primarily to an increase in the rate paid on the short-term borrowings associated with the leverage strategy during the current quarter, due to higher market interest rates, along with an increase in the average balance of borrowings associated with the leverage strategy. Additionally, the average balance and weighted average rate paid on borrowings not associated with the leverage strategy increased compared to the prior quarter due to new borrowings added near the end of the prior quarter and during the current quarter at higher market interest rates. The additional borrowings not associated with the leverage strategy were utilized to fund operational liquidity needs. See additional discussion in the "Financial Condition" section below. The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid on money market accounts and certificates of deposit, partially offset by a decrease in the average balance of the deposit portfolio, largely the certificate of deposit portfolio.

Provision for Credit Losses

For the quarter ended September 30, 2022, the Bank recorded a provision for credit losses of $1.1 million, compared to a provision for credit losses of $937 thousand for the prior quarter. The provision for credit losses in the current quarter was comprised of a $122 thousand increase in the allowance for credit losses ("ACL") for loans and a $938 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was primarily related to the one- to four-family loan portfolio due to a slow-down in prepayment speeds and growth in the correspondent loan portfolio, partially offset by a decrease in commercial loan ACL due primarily to the removal of a large dollar loan from special mention classification during the current quarter. The provision for credit losses associated with reserves for off-balance sheet credit exposures was due primarily to growth in commercial construction exposures. The forecasted economic conditions used in the model were less favorable at September 30, 2022 compared to June 30, 2022, which also contributed to the increase in both ACL and reserves for off-balance sheet credit exposures calculated by the model for all loan categories. Similar to June 30, 2022, a weighted economic forecast was selected at September 30, 2022 which incorporates a recessionary outlook into the model.

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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

3,467

 

$

3,601

 

$

(134

)

 

(3.7

)%

Insurance commissions

 

905

 

 

788

 

 

117

 

 

14.8

 

Other non-interest income

 

1,421

 

 

1,726

 

 

(305

)

 

(17.7

)

Total non-interest income

$

5,793

 

$

6,115

 

$

(322

)

 

(5.3

)

The decrease in other non-interest income was due mainly to a decrease in income on bank-owned life insurance related to the receipt of death benefits during the prior quarter and no such benefits being received 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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

14,268

 

$

14,581

 

$

(313

)

 

(2.1

)%

Information technology and related expense

 

5,043

 

 

4,343

 

 

700

 

 

16.1

 

Occupancy, net

 

3,777

 

 

3,721

 

 

56

 

 

1.5

 

Regulatory and outside services

 

1,980

 

 

1,572

 

 

408

 

 

26.0

 

Advertising and promotional

 

1,552

 

 

1,068

 

 

484

 

 

45.3

 

Federal insurance premium

 

820

 

 

784

 

 

36

 

 

4.6

 

Deposit and loan transaction costs

 

747

 

 

664

 

 

83

 

 

12.5

 

Office supplies and related expense

 

487

 

 

494

 

 

(7

)

 

(1.4

)

Other non-interest expense

 

1,133

 

 

1,163

 

 

(30

)

 

(2.6

)

Total non-interest expense

$

29,807

 

$

28,390

 

$

1,417

 

 

5.0

 

The decrease in salaries and employee benefits was due mainly to a decrease in incentive compensation. The increase in information technology and related expense was due primarily to increases in software maintenance/licensing and professional services. The increase in regulatory and outside services was due primarily to higher consulting expenses related to the Bank's upcoming digital transformation project. The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships.

The Company's efficiency ratio was 53.52% for the current quarter compared to 50.61% for the prior quarter. The change in the efficiency ratio was due primarily to higher 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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

24,824

 

 

$

26,769

 

 

$

(1,945

)

 

(7.3

)%

Income tax expense

 

5,332

 

 

 

5,617

 

 

 

(285

)

 

(5.1

)

Net income

$

19,492

 

 

$

21,152

 

 

$

(1,660

)

 

(7.8

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.5

%

 

 

21.0

%

 

 

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current quarter.

Comparison of Operating Results for the Years Ended September 30, 2022 and 2021

The Company recognized net income of $84.5 million, or $0.62 per share, for the current year compared to net income of $76.1 million, or $0.56 per share, for the prior year. The increase in net income was due to an increase in net interest income, partially offset by higher income tax expense and a lower negative provision for credit losses. The net interest margin decreased 11 basis points, from 1.90% for the prior year to 1.79% for the current year. Excluding the effects of the leverage strategy, the net interest margin would have increased 14 basis points, from 1.90% for the prior year to 2.04% for the current year. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

228,531

 

$

229,897

 

$

(1,366

)

 

(0.6

)%

MBS

 

19,406

 

 

21,399

 

 

(1,993

)

 

(9.3

)

Cash and cash equivalents

 

18,304

 

 

144

 

 

18,160

 

 

12,611.1

 

FHLB stock

 

10,031

 

 

3,916

 

 

6,115

 

 

156.2

 

Investment securities

 

3,268

 

 

2,825

 

 

443

 

 

15.7

 

Total interest and dividend income

$

279,540

 

$

258,181

 

$

21,359

 

 

8.3

 

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

The decrease in interest income on the MBS portfolio was due primarily to a decrease in the average balance of the portfolio as repayments were primarily used to fund loan growth.

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 year and not being utilized during the prior year. Additionally, market interest rates increased during the year resulting in an increase in the yield on cash, and FHLB increased the dividend rate paid during the year.

The increase in interest income on investment securities was due primarily to an increase in the average balance of the portfolio, along with an increase in the yield due to purchases at higher market yields during the current year.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

$

52,490

 

$

34,774

 

$

17,716

 

 

50.9

%

Deposits

 

34,456

 

 

48,406

 

 

(13,950

)

 

(28.8

)

Total interest expense

$

86,946

 

$

83,180

 

$

3,766

 

 

4.5

 

The increase in interest expense on borrowings was due to the leverage strategy being utilized during a portion of the current year and not being utilized during the prior year. Interest expense on borrowings associated with the leverage strategy totaled $18.5 million during the current year. Interest expense on FHLB borrowings not associated with the leverage strategy was lower in the current year due to terminating or not renewing certain interest rate swap agreements, not replacing some maturing FHLB advances and prepaying certain advances during fiscal year 2021, partially offset by an increase in the average balance due to a recent increase in FHLB borrowings to fund operational needs.

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid and the average balance of the retail certificate of deposit portfolio. Retail certificates of deposit repriced downward during the prior year and first half of the current year as they were renewed or were replaced at lower offered rates at the time of the renewal, along with some certificates of deposit not renewing. During the third quarter of fiscal year 2022, management began to increase rates offered on retail certificates of deposit and money market accounts to help reduce the outflow from these portfolios.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year of $4.6 million, compared to a negative provision for credit losses of $8.5 million during the prior year. The negative provision in the current year was comprised of a $3.6 million decrease in the ACL for loans and a $992 thousand decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL in the current year was due primarily to a reduction in commercial loan qualitative factors, partially offset by an increase in ACL related to loan growth during the current year and a less favorable economic forecast compared to the prior year. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year was due primarily to a reduction in commercial loan qualitative factors, partially offset by growth in commercial construction exposures.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

13,798

 

$

12,282

 

$

1,516

 

 

12.3

%

Insurance commissions

 

2,947

 

 

3,030

 

 

(83

)

 

(2.7

)

Gain on sale of Visa Class B shares

 

 

 

7,386

 

 

(7,386

)

 

(100.0

)

Other non-interest income

 

6,085

 

 

5,388

 

 

697

 

 

12.9

 

Total non-interest income

$

22,830

 

$

28,086

 

$

(5,256

)

 

(18.7

)

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

Non-Interest Expense

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

 

For the Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

56,600

 

$

56,002

 

$

598

 

 

1.1

%

Information technology and related expense

 

18,311

 

 

17,922

 

 

389

 

 

2.2

 

Occupancy, net

 

14,370

 

 

14,045

 

 

325

 

 

2.3

 

Regulatory and outside services

 

6,192

 

 

5,764

 

 

428

 

 

7.4

 

Advertising and promotional

 

5,178

 

 

5,133

 

 

45

 

 

0.9

 

Federal insurance premium

 

3,020

 

 

2,545

 

 

475

 

 

18.7

 

Deposit and loan transaction costs

 

2,797

 

 

2,761

 

 

36

 

 

1.3

 

Office supplies and related expense

 

1,951

 

 

1,715

 

 

236

 

 

13.8

 

Loss on interest rate swap termination

 

 

 

4,752

 

 

(4,752

)

 

(100.0

)

Other non-interest expense

 

4,432

 

 

4,930

 

 

(498

)

 

(10.1

)

Total non-interest expense

$

112,851

 

$

115,569

 

$

(2,718

)

 

(2.4

)

The increase in salaries and employee benefits was due primarily to merit increases and higher benefits expense, partially offset by a lower employee count during the current year. The increase in regulatory and outside services was due to higher consulting expenses related to the Bank's upcoming digital transformation project. The increase in federal insurance premium expense was due mainly to an increase in average assets as a result of the leverage strategy being utilized during the current year. During the prior year, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million, with no similar transaction in the current fiscal year. The decrease in other non-interest expense was due primarily to the write-down during the prior year of a property that had previously served as one of the Bank's branch locations, partially offset by higher fraud losses in the current year.

The Company's efficiency ratio was 52.39% for the current year compared to 56.91% for the prior year. The improvement in the efficiency ratio was due primarily to higher net interest income.

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 is still negotiating the related agreements, but anticipates information technology and related expenses will be approximately $6 million higher in fiscal year 2023. 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 information technology and related expenses will be approximately $7 million higher in fiscal year 2023, or approximately $25 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.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

$

107,203

 

 

$

96,028

 

 

$

11,175

 

11.6

%

Income tax expense

 

22,750

 

 

 

19,946

 

 

 

2,804

 

14.1

 

Net income

$

84,453

 

 

$

76,082

 

 

$

8,371

 

11.0

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.2

%

 

 

20.8

%

 

 

 

 

The increase in income tax expense was due primarily to higher pretax income in the current year. Management anticipates the effective tax rate for fiscal year 2023 will be approximately 20% to 21%.

Financial Condition as of September 30, 2022

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

 

 

 

 

 

Annualized

 

 

 

 

 

September 30,

 

June 30,

 

Percent

 

September 30,

 

Percent

 

2022

 

2022

 

Change

 

2021

 

Change

 

(Dollars in thousands)

Total assets

$

9,624,897

 

 

$

9,476,053

 

 

6.3

%

 

$

9,631,246

 

 

(0.1

)%

Available-for-sale ("AFS") securities

 

1,563,307

 

 

 

1,694,160

 

 

(30.9

)

 

 

2,014,608

 

 

(22.4

)

Loans receivable, net

 

7,464,208

 

 

 

7,236,196

 

 

12.6

 

 

 

7,081,142

 

 

5.4

 

Deposits

 

6,194,866

 

 

 

6,329,883

 

 

(8.5

)

 

 

6,597,396

 

 

(6.1

)

Borrowings

 

2,132,154

 

 

 

1,869,897

 

 

56.1

 

 

 

1,582,850

 

 

34.7

 

Stockholders' equity

 

1,096,499

 

 

 

1,131,740

 

 

(12.5

)

 

 

1,242,273

 

 

(11.7

)

Equity to total assets at end of period

 

11.4

%

 

 

11.9

%

 

 

 

 

12.9

%

 

 

Average number of basic shares outstanding

 

135,773

 

 

 

135,725

 

 

0.1

 

 

 

135,571

 

 

0.1

 

Average number of diluted shares outstanding

 

135,773

 

 

 

135,725

 

 

0.1

 

 

 

135,571

 

 

0.1

 

During the current quarter, total assets increased due to growth in the loan portfolio which was largely funded with cash flows from the securities portfolio and additional FHLB borrowings. As a result of loan growth and a slow-down in loan prepayment speeds due to an increase in market interest rates, as well as continued deposit outflows, the Bank increased FHLB borrowings during the quarter to provide sufficient liquidity for operations. The deposit portfolio decreased $135.0 million, or 8.5% annualized, during the quarter. The decrease was primarily in retail certificates of deposit ($56.2 million), money market accounts ($48.2 million), and commercial certificates of deposit ($18.8 million). The Bank continued to increase rates offered on certificates of deposit and money market accounts during the current quarter, which has slowed the runoff in these portfolios. Even with the increase in offered rates, management anticipates continued retail deposit outflows in future periods, primarily in transaction accounts, due to strong customer spending, along with competition from other financial institutions and/or brokerage firms that may offer alternative higher yielding investment options. If deposit outflows continue, the Bank will likely enter into additional FHLB borrowings. If that occurs, the leverage strategy transaction amount may decrease due to borrowing and collateral capacity levels. The decrease in stockholders' equity from September 30, 2021 and June 30, 2022 to September 30, 2022 was due mainly to a reduction in accumulated other comprehensive income (loss) ("AOCI") as a result of changes in the fair value of AFS securities due to an increase in market interest rates. During the current year, unrealized losses on AFS securities increased $211.3 million, resulting in a $159.8 million reduction in AOCI, net of tax.

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

 

For the Three Months Ended

 

For the Year Ended

 

September 30, 2022

 

September 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations, purchases, and participations

 

 

 

 

One- to four-family and consumer:

 

 

 

 

 

 

 

Originated

$

184,879

 

 

4.55

%

 

$

797,589

 

 

3.57

%

Purchased

 

187,298

 

 

4.17

 

 

 

581,309

 

 

3.38

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Originated

 

92,859

 

 

4.67

 

 

 

267,784

 

 

4.22

 

Participations/Purchased

 

38,308

 

 

4.94

 

 

 

120,365

 

 

3.85

 

 

$

503,344

 

 

4.46

 

 

$

1,767,047

 

 

3.63

 

Borrowing activity

 

 

 

 

 

 

 

Maturities and repayments

$

(77,500

)

 

0.39

 

 

$

(177,500

)

 

1.94

 

New borrowings

 

300,000

 

 

3.90

 

 

 

650,000

 

 

3.68

 

Stockholders' Equity

During the year ended September 30, 2022, the Company paid cash dividends totaling $103.1 million. These cash dividends totaled $0.76 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings, a $0.20 per share True Blue Capitol cash dividend, and four regular quarterly cash dividends of $0.085 per share.

On October 25, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.6 million, payable on November 18, 2022 to stockholders of record as of the close of business on November 4, 2022. On October 26, 2022, the Company announced a fiscal year 2022 cash true-up dividend of $0.28 per share, or approximately $38.0 million, related to fiscal year 2022 earnings. The $0.28 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2022 and total regular quarterly cash dividends paid during fiscal year 2022, divided by the number of shares outstanding. The cash true-up dividend is payable on December 2, 2022 to stockholders of record as of the close of business on November 18, 2022, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2022. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At September 30, 2022, this ratio was 9.9%. During the current year, the increase in unrealized losses on AFS securities and the related impact on AOCI reduced the Bank's ratio of equity to total assets by approximately 150 basis points.

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 September 30, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.0%, which met 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 September 30, 2022, Capitol Federal Financial, Inc., at the holding company level, had $104.0 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.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2023.

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

Total shares outstanding

138,858,884

 

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

(3,043,514

)

Net shares outstanding

135,815,370

 

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)

 

 

 

 

 

 

 

September 30,

 

June 30,

 

September 30,

 

2022

 

2022

 

2021

ASSETS:

 

 

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $27,467, $31,589 and $24,289)

$

49,194

 

 

$

54,789

 

 

$

42,262

 

AFS securities, at estimated fair value (amortized cost of $1,768,490, $1,830,262 and $2,008,456)

 

1,563,307

 

 

 

1,694,160

 

 

 

2,014,608

 

Loans receivable, net (ACL of $16,371, $16,283 and $19,823)

 

7,464,208

 

 

 

7,236,196

 

 

 

7,081,142

 

FHLB stock, at cost

 

100,624

 

 

 

87,696

 

 

 

73,421

 

Premises and equipment, net

 

94,820

 

 

 

96,008

 

 

 

99,127

 

Income taxes receivable, net

 

1,266

 

 

 

1,993

 

 

 

 

Deferred income tax assets, net

 

33,884

 

 

 

19,636

 

 

 

 

Other assets

 

317,594

 

 

 

285,575

 

 

 

320,686

 

TOTAL ASSETS

$

9,624,897

 

 

$

9,476,053

 

 

$

9,631,246

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

$

6,194,866

 

 

$

6,329,883

 

 

$

6,597,396

 

Borrowings

 

2,132,154

 

 

 

1,869,897

 

 

 

1,582,850

 

Advances by borrowers

 

80,067

 

 

 

55,955

 

 

 

72,729

 

Income taxes payable, net

 

 

 

 

 

 

 

918

 

Deferred income tax liabilities, net

 

 

 

 

 

 

 

5,810

 

Other liabilities

 

121,311

 

 

 

88,578

 

 

 

129,270

 

Total liabilities

 

8,528,398

 

 

 

8,344,313

 

 

 

8,388,973

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 1,400,000,000 shares authorized, 138,858,884, 138,854,084 and 138,832,284 shares issued and outstanding as of September 30, 2022, June 30, 2022, and September 30, 2021, respectively

 

1,388

 

 

 

1,388

 

 

 

1,388

 

Additional paid-in capital

 

1,190,213

 

 

 

1,190,117

 

 

 

1,189,633

 

Unearned compensation, ESOP

 

(29,735

)

 

 

(30,148

)

 

 

(31,387

)

Retained earnings

 

80,266

 

 

 

72,308

 

 

 

98,944

 

Accumulated other comprehensive (loss) income, net of tax

 

(145,633

)

 

 

(101,925

)

 

 

(16,305

)

Total stockholders' equity

 

1,096,499

 

 

 

1,131,740

 

 

 

1,242,273

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,624,897

$

9,476,053

$

9,631,246

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

 

For the Three Months Ended

 

For the Year Ended

 

September 30,

 

June 30,

 

September 30,

 

2022

 

2022

 

2022

 

2021

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

60,445

 

$

56,886

 

$

228,531

 

 

$

229,897

 

MBS

 

4,912

 

 

5,048

 

 

19,406

 

 

 

21,399

 

Cash and cash equivalents

 

13,373

 

 

3,968

 

 

18,304

 

 

 

144

 

FHLB stock

 

3,865

 

 

2,695

 

 

10,031

 

 

 

3,916

 

Investment securities

 

845

 

 

815

 

 

3,268

 

 

 

2,825

 

Total interest and dividend income

 

83,440

 

 

69,412

 

 

279,540

 

 

 

258,181

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Borrowings

 

24,529

 

 

11,644

 

 

52,490

 

 

 

34,774

 

Deposits

 

9,013

 

 

7,787

 

 

34,456

 

 

 

48,406

 

Total interest expense

 

33,542

 

 

19,431

 

 

86,946

 

 

 

83,180

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

49,898

 

 

49,981

 

 

192,594

 

 

 

175,001

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

1,060

 

 

937

 

 

(4,630

)

 

 

(8,510

)

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES

 

48,838

 

 

49,044

 

 

197,224

 

 

 

183,511

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

 

3,467

 

 

3,601

 

 

13,798

 

 

 

12,282

 

Insurance commissions

 

905

 

 

788

 

 

2,947

 

 

 

3,030

 

Gain on sale of Visa Class B shares

 

 

 

 

 

 

 

 

7,386

 

Other non-interest income

 

1,421

 

 

1,726

 

 

6,085

 

 

 

5,388

 

Total non-interest income

 

5,793

 

 

6,115

 

 

22,830

 

 

 

28,086

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

 

14,268

 

 

14,581

 

 

56,600

 

 

 

56,002

 

Information technology and related expense

 

5,043

 

 

4,343

 

 

18,311

 

 

 

17,922

 

Occupancy, net

 

3,777

 

 

3,721

 

 

14,370

 

 

 

14,045

 

Regulatory and outside services

 

1,980

 

 

1,572

 

 

6,192

 

 

 

5,764

 

Advertising and promotional

 

1,552

 

 

1,068

 

 

5,178

 

 

 

5,133

 

Federal insurance premium

 

820

 

 

784

 

 

3,020

 

 

 

2,545

 

Deposit and loan transaction costs

 

747

 

 

664

 

 

2,797

 

 

 

2,761

 

Office supplies and related expense

 

487

 

 

494

 

 

1,951

 

 

 

1,715

 

Loss on interest rate swap termination

 

 

 

 

 

 

 

 

4,752

 

Other non-interest expense

 

1,133

 

 

1,163

 

 

4,432

 

 

 

4,930

 

Total non-interest expense

 

29,807

 

 

28,390

 

 

112,851

 

 

 

115,569

 

INCOME BEFORE INCOME TAX EXPENSE

 

24,824

 

 

26,769

 

 

107,203

 

 

 

96,028

 

INCOME TAX EXPENSE

 

5,332

 

 

5,617

 

 

22,750

 

 

 

19,946

 

NET INCOME

$

19,492

 

$

21,152

 

$

84,453

 

 

$

76,082

 

Average Balance Sheets

The following tables present the average balances of our assets, liabilities, and stockholders' equity, and the related weighted average yields and rates (annualized for the three-month periods) 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 income (annualized for the three-month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three-month periods) 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

 

September 30, 2022

 

June 30, 2022

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

4,021,121

 

$

32,809

 

3.26

%

 

$

3,982,602

 

$

32,168

 

3.23

%

Correspondent purchased

 

2,166,869

 

 

15,394

 

2.84

 

 

 

2,060,947

 

 

14,027

 

2.72

 

Bulk purchased

 

150,253

 

 

475

 

1.26

 

 

 

154,663

 

 

464

 

1.20

 

Total one- to four-family loans

 

6,338,243

 

 

48,678

 

3.07

 

 

 

6,198,212

 

 

46,659

 

3.01

 

Commercial loans

 

935,374

 

 

10,326

 

4.32

 

 

 

890,455

 

 

9,104

 

4.05

 

Consumer loans

 

98,189

 

 

1,441

 

5.82

 

 

 

92,790

 

 

1,123

 

4.85

 

Total loans receivable(1)

 

7,371,806

 

 

60,445

 

3.27

 

 

 

7,181,457

 

 

56,886

 

3.16

 

MBS(2)

 

1,279,143

 

 

4,912

 

1.54

 

 

 

1,343,891

 

 

5,048

 

1.50

 

Investment securities(2)(3)

 

524,546

 

 

845

 

0.64

 

 

 

522,147

 

 

815

 

0.62

 

FHLB stock(4)

 

198,431

 

 

3,865

 

7.73

 

 

 

166,879

 

 

2,695

 

6.48

 

Cash and cash equivalents(5)

 

2,322,891

 

 

13,373

 

2.25

 

 

 

1,930,539

 

 

3,968

 

0.81

 

Total interest-earning assets

 

11,696,817

 

 

83,440

 

2.83

 

 

 

11,144,913

 

 

69,412

 

2.49

 

Other non-interest-earning assets

 

288,496

 

 

 

 

 

 

293,882

 

 

 

 

Total assets

$

11,985,313

 

 

 

 

 

$

11,438,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,035,600

 

 

217

 

0.08

 

 

$

1,068,329

 

 

180

 

0.07

 

Savings

 

556,836

 

 

84

 

0.06

 

 

 

556,553

 

 

74

 

0.05

 

Money market

 

1,856,424

 

 

1,925

 

0.41

 

 

 

1,861,302

 

 

952

 

0.21

 

Retail certificates

 

2,105,237

 

 

6,434

 

1.21

 

 

 

2,169,262

 

 

6,383

 

1.18

 

Commercial certificates

 

45,901

 

 

82

 

0.71

 

 

 

84,231

 

 

129

 

0.61

 

Wholesale certificates

 

93,232

 

 

271

 

1.15

 

 

 

113,101

 

 

69

 

0.24

 

Total deposits

 

5,693,230

 

 

9,013

 

0.63

 

 

 

5,852,778

 

 

7,787

 

0.53

 

Borrowings(6)

 

4,386,450

 

 

24,529

 

2.20

 

 

 

3,687,592

 

 

11,644

 

1.26

 

Total interest-bearing liabilities

 

10,079,680

 

 

33,542

 

1.31

 

 

 

9,540,370

 

 

19,431

 

0.81

 

Non-interest-bearing deposits

 

580,687

 

 

 

 

 

 

586,876

 

 

 

 

Other non-interest-bearing liabilities

 

184,137

 

 

 

 

 

 

147,938

 

 

 

 

Stockholders' equity

 

1,140,809

 

 

 

 

 

 

1,163,611

 

 

 

 

Total liabilities and stockholders' equity

$

11,985,313

 

 

 

 

 

$

11,438,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

49,898

 

 

 

 

 

$

49,981

 

 

Net interest-earning assets

$

1,617,137

 

 

 

 

 

$

1,604,543

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.71

 

 

 

 

 

 

1.79

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.16

x

 

 

 

 

 

1.17

x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.65

%

 

 

 

 

 

0.74

%

Return on average equity (annualized)(9)

 

 

 

6.83

 

 

 

 

 

 

7.27

 

Average equity to average assets

 

 

 

 

9.52

 

 

 

 

 

 

10.17

 

Operating expense ratio (annualized)(10)

 

 

 

0.99

 

 

 

 

 

 

0.99

 

Efficiency ratio(9)(11)

 

 

 

53.52

 

 

 

 

 

 

50.61

 

Pre-tax yield on leverage strategy(12)

 

 

 

 

0.28

 

 

 

 

 

 

0.31

 

 

For the Year Ended September 30,

 

2022

 

2021

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,985,267

 

$

129,392

 

3.25

%

 

$

3,966,059

 

$

137,461

 

3.47

%

Correspondent purchased

 

2,072,677

 

 

55,227

 

2.66

 

 

 

2,010,823

 

 

48,066

 

2.39

 

Bulk purchased

 

159,152

 

 

2,053

 

1.29

 

 

 

191,029

 

 

3,601

 

1.89

 

Total one- to four-family loans

 

6,217,096

 

 

186,672

 

3.00

 

 

 

6,167,911

 

 

189,128

 

3.07

 

Commercial loans

 

884,126

 

 

37,223

 

4.15

 

 

 

788,702

 

 

36,085

 

4.51

 

Consumer loans

 

93,544

 

 

4,636

 

4.96

 

 

 

101,277

 

 

4,684

 

4.63

 

Total loans receivable(1)

 

7,194,766

 

 

228,531

 

3.17

 

 

 

7,057,890

 

 

229,897

 

3.25

 

MBS(2)

 

1,354,080

 

 

19,406

 

1.43

 

 

 

1,446,466

 

 

21,399

 

1.48

 

Investment securities(2)(3)

 

523,170

 

 

3,268

 

0.62

 

 

 

482,641

 

 

2,825

 

0.59

 

FHLB stock(4)

 

149,236

 

 

10,031

 

6.72

 

 

 

77,250

 

 

3,916

 

5.07

 

Cash and cash equivalents(5)

 

1,562,274

 

 

18,304

 

1.16

 

 

 

131,798

 

 

144

 

0.11

 

Total interest-earning assets

 

10,783,526

 

 

279,540

 

2.59

 

 

 

9,196,045

 

 

258,181

 

2.80

 

Other non-interest-earning assets

 

343,311

 

 

 

 

 

 

443,724

 

 

 

 

Total assets

$

11,126,837

 

 

 

 

 

$

9,639,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,056,303

 

 

752

 

0.07

 

 

$

972,920

 

 

772

 

0.08

 

Savings

 

543,609

 

 

299

 

0.06

 

 

 

487,146

 

 

280

 

0.06

 

Money market

 

1,840,898

 

 

4,578

 

0.25

 

 

 

1,598,838

 

 

4,128

 

0.26

 

Retail certificates

 

2,203,452

 

 

27,664

 

1.26

 

 

 

2,491,427

 

 

40,475

 

1.62

 

Commercial certificates

 

103,865

 

 

666

 

0.64

 

 

 

197,384

 

 

1,559

 

0.79

 

Wholesale certificates

 

150,689

 

 

497

 

0.33

 

 

 

252,623

 

 

1,192

 

0.47

 

Total deposits

 

5,898,816

 

 

34,456

 

0.58

 

 

 

6,000,338

 

 

48,406

 

0.81

 

Borrowings(6)

 

3,288,348

 

 

52,490

 

1.58

 

 

 

1,636,399

 

 

34,774

 

2.11

 

Total interest-bearing liabilities

 

9,187,164

 

 

86,946

 

0.94

 

 

 

7,636,737

 

 

83,180

 

1.09

 

Non-interest-bearing deposits

 

573,954

 

 

 

 

 

 

509,778

 

 

 

 

Other non-interest-bearing liabilities

 

178,526

 

 

 

 

 

 

219,328

 

 

 

 

Stockholders' equity

 

1,187,193

 

 

 

 

 

 

1,273,926

 

 

 

 

Total liabilities and stockholders' equity

$

11,126,837

 

 

 

 

 

$

9,639,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

192,594

 

 

 

 

 

$

175,001

 

 

Net interest-earning assets

$

1,596,362

 

 

 

 

 

$

1,559,308

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.79

 

 

 

 

 

 

1.90

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17

x

 

 

 

 

 

1.20

x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets(9)

 

 

 

0.76

%

 

 

 

 

 

0.79

%

Return on average equity(9)

 

 

 

7.11

 

 

 

 

 

 

5.97

 

Average equity to average assets

 

 

 

 

10.67

 

 

 

 

 

 

13.22

 

Operating expense ratio(10)

 

 

 

1.01

 

 

 

 

 

 

1.20

 

Efficiency ratio(9)(11)

 

 

 

 

52.39

 

 

 

 

 

 

56.91

 

Pre-tax yield on leverage strategy(12)

 

 

 

0.25

 

 

 

 

 

 

 

(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 $569 thousand and $326 thousand for the quarters ended September 30, 2022 and June 30, 2022, respectively, and $1.7 million and $6.6 million for the years ended September 30, 2022 and September 30, 2021, respectively.

(4)

Included in this line, for the quarter and year ended September 30, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $108.8 million and $71.0 million, respectively, and dividend income of $2.1 million and $4.8 million, respectively, at a weighted average yield of 7.75% and 6.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $89.6 million and $78.2 million, respectively, and dividend income of $1.7 million and $5.2 million, respectively, at a weighted average yield of 7.70% and 6.69%, respectively. Included in this line for the quarter ended June 30, 2022 is FHLB stock related to the leverage strategy with an average outstanding balance of $89.4 million and dividend income of $1.4 million, at a weighted average yield of 6.48%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $77.5 million and dividend income of $1.3 million, at a weighted average yield of 6.48%. There was no FHLB stock related to the leverage strategy during the year ended September 30, 2021.

(5)

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $2.31 billion, $1.89 billion, and $1.51 billion during the quarter ended September 30, 2022, the quarter ended June 30, 2022 and year ended September 30, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the year ended September 30, 2021.

(6)

Included in this line, for the quarter and year ended September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $2.42 billion and $1.58 billion, respectively, and interest paid of $13.5 million and $18.5 million, respectively, at a weighted average rate of 2.19% and 1.15%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.97 billion and $1.71 billion, respectively, and interest paid of $11.0 million and $34.0 million, respectively, at a weighted average rate of 2.20% and 1.98%, respectively. Included in this line for the quarter ended June 30, 2022 are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.99 billion and interest paid of $3.7 million at a weighted average rate of 0.73%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.70 billion and interest paid of $8.0 million at a weighted average rate of 1.87%. There were no FHLB borrowings related to the leverage strategy during the year ended September 30, 2021. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(7)

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

(8)

Net interest margin represents net interest income (annualized for the three-month periods) 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

 

September 30, 2022

 

June 30, 2022

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.83

%

 

(0.09

)%

 

2.92

%

 

2.49

%

 

(0.30

)%

 

2.79

%

Cost of interest-bearing liabilities

1.31

 

 

0.28

 

 

1.03

 

 

0.81

 

 

(0.03

)

 

0.84

 

Return on average assets (annualized)

0.65

 

 

(0.11

)

 

0.76

 

 

0.74

 

 

(0.10

)

 

0.84

 

Return on average equity (annualized)

6.83

 

 

0.46

 

 

6.37

 

 

7.27

 

 

0.42

 

 

6.85

 

Net interest margin

1.71

 

 

(0.36

)

 

2.07

 

 

1.79

 

 

(0.32

)

 

2.11

 

Efficiency Ratio

53.52

 

 

(1.53

)

 

55.05

 

 

50.61

 

 

(1.31

)

 

51.92

 

 

 

 

For the Year Ended September 30,

 

2022

 

2021

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.59

%

 

(0.19

)%

 

2.78

%

 

2.80

%

 

%

 

2.80

%

Cost of interest-bearing liabilities

0.94

 

 

0.04

 

 

0.90

 

 

1.09

 

 

 

 

1.09

 

Return on average assets

0.76

 

 

(0.09

)

 

0.85

 

 

0.79

 

 

 

 

0.79

 

Return on average equity

7.11

 

 

0.26

 

 

6.85

 

 

5.97

 

 

 

 

5.97

 

Net interest margin

1.79

 

 

(0.25

)

 

2.04

 

 

1.90

 

 

 

 

1.90

 

Efficiency Ratio

52.39

 

 

(0.87

)

 

53.26

 

 

56.91

 

 

 

 

56.91

 

(10)

The operating expense ratio represents non-interest expense (annualized for the three-month periods) 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 pre-tax income (annualized for the three-month periods) 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.

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,988,469

 

 

3.20

%

 

53.4

%

 

$

3,963,608

 

 

3.16

%

 

54.7

%

 

$

3,956,064

 

 

3.18

%

 

55.8

%

Correspondent purchased

 

2,201,886

 

 

3.10

 

 

29.4

 

 

 

2,070,822

 

 

2.99

 

 

28.6

 

 

 

2,003,477

 

 

3.02

 

 

28.2

 

Bulk purchased

 

147,939

 

 

1.24

 

 

2.0

 

 

 

151,461

 

 

1.27

 

 

2.1

 

 

 

173,662

 

 

1.65

 

 

2.4

 

Construction

 

66,164

 

 

2.90

 

 

0.9

 

 

 

60,426

 

 

2.84

 

 

0.8

 

 

 

39,142

 

 

2.82

 

 

0.6

 

Total

 

6,404,458

 

 

3.12

 

 

85.7

 

 

 

6,246,317

 

 

3.05

 

 

86.2

 

 

 

6,172,345

 

 

3.09

 

 

87.0

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

745,301

 

 

4.30

 

 

10.0

 

 

 

717,947

 

 

4.09

 

 

9.9

 

 

 

676,908

 

 

4.00

 

 

9.6

 

Commercial and industrial

 

79,981

 

 

4.30

 

 

1.1

 

 

 

70,932

 

 

3.98

 

 

1.0

 

 

 

66,497

 

 

3.83

 

 

0.9

 

Construction

 

141,062

 

 

5.34

 

 

1.9

 

 

 

115,031

 

 

4.33

 

 

1.6

 

 

 

85,963

 

 

4.03

 

 

1.2

 

Total

 

966,344

 

 

4.45

 

 

13.0

 

 

 

903,910

 

 

4.11

 

 

12.5

 

 

 

829,368

 

 

3.99

 

 

11.7

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

92,203

 

 

6.28

 

 

1.2

 

 

 

87,235

 

 

5.03

 

 

1.2

 

 

 

86,274

 

 

4.60

 

 

1.2

 

Other

 

8,665

 

 

4.21

 

 

0.1

 

 

 

8,289

 

 

4.14

 

 

0.1

 

 

 

8,086

 

 

4.19

 

 

0.1

 

Total

 

100,868

 

 

6.10

 

 

1.3

 

 

 

95,524

 

 

4.96

 

 

1.3

 

 

 

94,360

 

 

4.57

 

 

1.3

 

Total loans receivable

 

7,471,670

 

 

3.33

 

 

100.0

%

 

 

7,245,751

 

 

3.21

 

 

100.0

%

 

 

7,096,073

 

 

3.21

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

16,371

 

 

 

 

 

 

 

16,283

 

 

 

 

 

 

 

19,823

 

 

 

 

 

Deferred loan fees/discounts

 

29,736

 

 

 

 

 

 

 

29,470

 

 

 

 

 

 

 

29,556

 

 

 

 

 

Premiums/deferred costs

 

(38,645

)

 

 

 

 

 

 

(36,198

)

 

 

 

 

 

 

(34,448

)

 

 

 

 

Total loans receivable, net

$

7,464,208

 

 

 

 

 

 

$

7,236,196

 

 

 

 

 

 

$

7,081,142

 

 

 

 

 

Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, and premiums/deferred costs. Loans that were paid off as a result of refinances are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.

 

For the Three Months Ended

 

For the Year Ended

 

September 30, 2022

 

September 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,245,751

 

 

3.21

%

 

$

7,096,073

 

 

3.21

%

Originated and refinanced

 

277,738

 

 

4.59

 

 

 

1,065,373

 

 

3.74

 

Purchased and participations

 

225,606

 

 

4.30

 

 

 

701,674

 

 

3.46

 

Change in undisbursed loan funds

 

(8,696

)

 

 

 

 

(53,811

)

 

 

Repayments

 

(268,413

)

 

 

 

 

(1,337,034

)

 

 

Principal (charge-offs)/recoveries, net

 

(34

)

 

 

 

 

186

 

 

 

Other

 

(282

)

 

 

 

 

(791

)

 

 

Ending balance

$

7,471,670

 

 

3.33

 

 

$

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 September 30, 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

$

3,988,469

 

62.9

%

 

3.20

%

 

771

 

61

%

 

$

158

Correspondent purchased

 

2,201,886

 

34.8

 

 

3.10

 

 

766

 

64

 

 

 

416

Bulk purchased

 

147,939

 

2.3

 

 

1.24

 

 

770

 

57

 

 

 

287

 

$

6,338,294

 

100.0

 

 

3.12

 

 

770

 

62

 

 

 

205

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

 

For the Three Months Ended

 

For the Year Ended

 

September 30, 2022

 

September 30, 2022

 

 

 

 

 

 

 

Credit

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

163,362

 

4.35

%

 

76

%

 

764

 

$

722,300

 

3.42

%

 

72

%

 

766

Correspondent purchased

 

187,298

 

4.17

 

 

75

 

 

766

 

 

581,309

 

3.38

 

 

74

 

 

769

 

$

350,660

 

4.25

 

 

76

 

 

765

 

$

1,303,609

 

3.40

 

 

73

 

 

767

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

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

135,765

 

4.51

%

Correspondent

 

85,576

 

4.39

 

 

$

221,341

 

4.46

 

Commercial Loans: During the year ended September 30, 2022, the Bank originated $267.8 million of commercial loans and entered into commercial loan participations totaling $120.4 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $342.7 million at a weighted average rate of 4.26%.

As of September 30, 2022, June 30, 2022, and September 30, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $100.4 million, $95.2 million, and $90.7 million, respectively, and commitments totaled $458 thousand at September 30, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of September 30, 2022, the Bank had 25 commercial real estate and commercial construction loan commitments totaling $98.7 million, at a weighted average rate of 4.78%. 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 September 30, 2022, management anticipates approximately $90 million will be funded during the December 2022 quarter, $60 million during the March 2023 quarter, $50 million during the June 2023 quarter, and $46 million during the September 2023 quarter.

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Senior housing

35

 

$

255,075

 

 

$

73,184

 

 

$

328,259

 

 

$

328,121

 

 

$

265,284

 

Retail building

138

 

 

199,223

 

 

 

30,930

 

 

 

230,153

 

 

 

232,454

 

 

 

208,539

 

Hotel

10

 

 

152,332

 

 

 

29,214

 

 

 

181,546

 

 

 

192,901

 

 

 

194,665

 

Multi-family

36

 

 

80,538

 

 

 

42,197

 

 

 

122,735

 

 

 

79,546

 

 

 

66,199

 

Office building

84

 

 

68,114

 

 

 

41,539

 

 

 

109,653

 

 

 

103,043

 

 

 

109,987

 

One- to four-family property

368

 

 

62,072

 

 

 

6,835

 

 

 

68,907

 

 

 

70,426

 

 

 

69,174

 

Single use building

24

 

 

21,272

 

 

 

20,636

 

 

 

41,908

 

 

 

23,792

 

 

 

47,028

 

Other

103

 

 

47,737

 

 

 

5,317

 

 

 

53,054

 

 

 

35,972

 

 

 

36,167

 

 

798

 

$

886,363

 

 

$

249,852

 

 

$

1,136,215

 

 

$

1,066,255

 

 

$

997,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

 

 

4.46

%

 

 

4.90

%

 

 

4.56

%

 

 

4.17

%

 

 

4.01

%

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

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

602

 

$

368,816

 

$

54,981

 

$

423,797

 

$

377,951

 

$

348,835

Missouri

160

 

 

232,655

 

 

63,788

 

 

296,443

 

 

280,370

 

 

232,041

Texas

12

 

 

180,278

 

 

100,562

 

 

280,840

 

 

272,774

 

 

273,124

Colorado

6

 

 

20,867

 

 

13,510

 

 

34,377

 

 

33,971

 

 

36,099

Arkansas

3

 

 

21,796

 

 

11,618

 

 

33,414

 

 

33,502

 

 

33,763

Nebraska

6

 

 

32,988

 

 

4

 

 

32,992

 

 

33,092

 

 

33,468

Other

9

 

 

28,963

 

 

5,389

 

 

34,352

 

 

34,595

 

 

39,713

 

798

 

$

886,363

 

$

249,852

 

$

1,136,215

 

$

1,066,255

 

$

997,043

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

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

6

 

$

245,873

>$15 to $30 million

19

 

 

398,089

>$10 to $15 million

8

 

 

97,141

>$5 to $10 million

21

 

 

146,359

$1 to $5 million

115

 

 

259,906

Less than $1 million

1,241

 

 

188,419

 

1,410

 

$

1,335,787

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 September 30, 2022, approximately 73% 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:

 

September 30, 2022

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

48

 

$

4,134

 

 

64

 

$

6,035

 

 

64

 

$

6,931

 

 

74

 

$

7,009

 

 

48

 

$

4,156

 

Correspondent purchased

7

 

 

1,104

 

 

9

 

 

3,467

 

 

10

 

 

2,421

 

 

11

 

 

5,133

 

 

7

 

 

2,590

 

Bulk purchased

3

 

 

913

 

 

4

 

 

755

 

 

2

 

 

396

 

 

1

 

 

154

 

 

4

 

 

541

 

Commercial

 

 

 

 

6

 

 

706

 

 

4

 

 

373

 

 

2

 

 

222

 

 

2

 

 

37

 

Consumer

24

 

 

345

 

 

16

 

 

256

 

 

14

 

 

215

 

 

16

 

 

164

 

 

25

 

 

498

 

 

82

 

$

6,496

 

 

99

 

$

11,219

 

 

94

 

$

10,336

 

 

104

 

$

12,682

 

 

86

 

$

7,822

 

30 to 89 days delinquent loans

to total loans receivable, net

 

 

 

0.09

%

 

 

 

 

0.16

%

 

 

 

 

0.15

%

 

 

 

 

0.18

%

 

 

 

 

0.11

%

 

Non-Performing Loans and OREO at:

 

September 30, 2022

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

29

 

$

2,919

 

 

36

 

$

2,585

 

 

44

 

$

3,999

 

 

48

 

$

3,943

 

 

50

 

$

3,693

 

Correspondent purchased

12

 

 

3,737

 

 

9

 

 

2,659

 

 

11

 

 

3,967

 

 

10

 

 

3,115

 

 

10

 

 

3,210

 

Bulk purchased

3

 

 

1,148

 

 

5

 

 

1,807

 

 

5

 

 

1,819

 

 

6

 

 

1,945

 

 

9

 

 

2,974

 

Commercial

8

 

 

1,167

 

 

7

 

 

1,184

 

 

6

 

 

1,167

 

 

6

 

 

1,170

 

 

6

 

 

1,214

 

Consumer

9

 

 

154

 

 

9

 

 

174

 

 

19

 

 

400

 

 

25

 

 

477

 

 

21

 

 

498

 

 

61

 

 

9,125

 

 

66

 

 

8,409

 

 

85

 

 

11,352

 

 

95

 

 

10,650

 

 

96

 

 

11,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

as a percentage of total loans

 

 

 

0.12

%

 

 

 

 

0.12

%

 

 

 

 

0.16

%

 

 

 

 

0.15

%

 

 

 

 

0.16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

3

 

$

222

 

 

2

 

$

207

 

 

5

 

$

505

 

 

5

 

$

451

 

 

7

 

$

1,288

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bulk purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

131

 

Commercial

1

 

 

77

 

 

1

 

 

4

 

 

2

 

 

34

 

 

3

 

 

62

 

 

4

 

 

419

 

Consumer

1

 

 

19

 

 

1

 

 

19

 

 

2

 

 

27

 

 

 

 

 

 

1

 

 

9

 

 

5

 

 

318

 

 

4

 

 

230

 

 

9

 

 

566

 

 

8

 

 

513

 

 

13

 

 

1,847

 

Total nonaccrual loans

66

 

 

9,443

 

 

70

 

 

8,639

 

 

94

 

 

11,918

 

 

103

 

 

11,163

 

 

109

 

 

13,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

0.17

%

 

 

 

 

0.16

%

 

 

 

 

0.19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

4

 

$

307

 

 

2

 

$

237

 

 

 

$

 

 

2

 

$

319

 

 

3

 

$

170

 

Consumer

1

 

 

21

 

 

1

 

 

21

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

328

 

 

3

 

 

258

 

 

 

 

 

 

2

 

 

319

 

 

3

 

 

170

 

Total non-performing assets

71

 

$

9,771

 

 

73

 

$

8,897

 

 

94

 

$

11,918

 

 

105

 

$

11,482

 

 

112

 

$

13,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

 

0.10

%

 

 

 

 

0.09

%

 

 

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

0.14

%

(1)

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

(2)

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

The following table presents loans classified as special mention or substandard at the dates presented. The decrease in commercial special mention loans at September 30, 2022 compared to September 30, 2021 was due mainly to three commercial loans moving to the pass classification during the year as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.

 

September 30, 2022

 

September 30, 2021

 

Special

Mention

 

Substandard

 

Special

Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

12,950

 

$

19,953

 

$

14,332

 

$

23,458

Commercial

 

565

 

 

2,733

 

 

99,729

 

 

3,259

Consumer

 

306

 

 

354

 

 

135

 

 

718

 

$

13,821

 

$

23,040

 

$

114,196

 

$

27,435

Allowance for Credit Losses: The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. Management applied qualitative factors at September 30, 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 $4.8 million at September 30, 2022.

 

For the Three

Months Ended

 

For the Year Ended

 

September 30, 2022

 

September 30, 2022

 

(Dollars in thousands)

Balance at beginning of period

$

16,283

 

 

$

19,823

 

Charge-offs:

 

 

 

One- to four-family

 

(5

)

 

 

(9

)

Commercial

 

(30

)

 

 

(40

)

Consumer

 

(5

)

 

 

(21

)

Total charge-offs

 

(40

)

 

 

(70

)

Recoveries:

 

 

 

One- to four-family

 

1

 

 

 

138

 

Commercial

 

 

 

 

101

 

Consumer

 

5

 

 

 

17

 

Total recoveries

 

6

 

 

 

256

 

Net (charge-offs) recoveries

 

(34

)

 

 

186

 

Provision for credit losses

 

122

 

 

 

(3,638

)

Balance at end of period

$

16,371

 

 

$

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

 

0.36

 

 

 

(1.59

)

ACL to non-performing loans at end of period

 

173.37

 

 

 

173.37

 

ACL to loans receivable at end of period

 

0.22

 

 

 

0.22

 

ACL to net charge-offs (annualized)

 

121.2

x

 

 

N/M

(1)

(1)

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

The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The reduction in the ratio of ACL to loans receivable for commercial real estate loans from June 30, 2022 to September 30, 2022 was due mainly to a large dollar loan being removed from special mention classification during the current quarter, which reduced the level of ACL associated with the related qualitative factor.

 

Distribution of ACL

 

Ratio of ACL to Loans Receivable

 

September 30,

 

June 30,

 

September 30,

 

June 30,

 

2022

 

2022

 

2022

 

2022

 

(Dollars in thousands)

 

 

 

 

One- to four-family

$

5,006

 

$

4,565

 

0.08

%

 

0.07

%

Commercial:

 

 

 

 

 

 

 

Commercial real estate

 

8,729

 

 

9,720

 

1.17

 

 

1.35

 

Commercial and industrial

 

490

 

 

408

 

0.61

 

 

0.58

 

Construction

 

1,901

 

 

1,362

 

1.35

 

 

1.18

 

Total

 

11,120

 

 

11,490

 

1.15

 

 

1.27

 

Consumer

 

245

 

 

228

 

0.24

 

 

0.24

 

Total

$

16,371

 

$

16,283

 

0.22

 

 

0.22

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at September 30, 2022. Overall, fixed-rate securities comprised 95% of our securities portfolio at September 30, 2022. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

MBS

$

1,243,270

 

1.57

%

 

4.7

U.S. government-sponsored enterprise debentures

 

519,977

 

0.61

 

 

2.9

Municipal bonds

 

1,243

 

2.63

 

 

6.5

Corporate bonds

 

4,000

 

5.12

 

 

9.6

Total securities portfolio

$

1,768,490

 

1.29

 

 

4.2

The following table summarizes the activity in our securities portfolio for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning and ending balances are as of the first and last days of the 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 Year Ended

 

September 30, 2022

 

September 30, 2022

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,694,160

 

 

1.29

%

 

4.1

 

$

2,014,608

 

 

1.16

%

 

3.5

Maturities and repayments

 

(61,865

)

 

 

 

 

 

 

(323,025

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(940

)

 

 

 

 

 

 

(4,967

)

 

 

 

 

Purchases

 

1,033

 

 

2.55

 

 

5.5

 

 

88,026

 

 

2.56

 

 

4.3

Change in valuation on AFS securities

 

(69,081

)

 

 

 

 

 

 

(211,335

)

 

 

 

 

Ending balance - carrying value

$

1,563,307

 

 

1.29

 

 

4.1

 

$

1,563,307

 

 

1.29

 

 

4.1

Deposit Portfolio

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

 

September 30, 2022

 

June 30, 2022

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

591,387

 

%

 

9.5

%

 

$

580,385

 

%

 

9.2

%

 

$

543,849

 

%

 

8.2

%

Interest-bearing checking

 

1,027,222

 

0.07

 

 

16.6

 

 

 

1,047,336

 

0.08

 

 

16.6

 

 

 

1,037,362

 

0.07

 

 

15.7

 

Savings

 

552,743

 

0.06

 

 

8.9

 

 

 

557,832

 

0.05

 

 

8.8

 

 

 

519,069

 

0.05

 

 

7.9

 

Money market

 

1,819,761

 

0.47

 

 

29.4

 

 

 

1,867,991

 

0.23

 

 

29.5

 

 

 

1,753,525

 

0.19

 

 

26.6

 

Retail certificates of deposit

 

2,073,542

 

1.34

 

 

33.5

 

 

 

2,129,734

 

1.16

 

 

33.6

 

 

 

2,341,531

 

1.41

 

 

35.5

 

Commercial certificates of deposit

 

36,275

 

0.97

 

 

0.6

 

 

 

55,076

 

0.68

 

 

0.9

 

 

 

190,215

 

0.66

 

 

2.9

 

Public unit certificates of deposit

 

93,936

 

1.61

 

 

1.5

 

 

 

91,529

 

0.57

 

 

1.4

 

 

 

211,845

 

0.21

 

 

3.2

 

 

$

6,194,866

 

0.63

 

 

100.0

%

 

$

6,329,883

 

0.49

 

 

100.0

%

 

$

6,597,396

 

0.59

 

 

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 September 30, 2022. In addition to the borrowings in the table below, there were two straight-line amortizing FHLB advances outstanding at September 30, 2022, including a $47.5 million advance at a rate of 3.50% with quarterly payments of $2.5 million through June 2027 and a $100.0 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

 

3.10

 

 

2.85

 

2025

 

 

450,000

 

2.21

 

 

2.24

 

2026

 

 

375,000

 

1.86

 

 

2.07

 

2027

 

 

200,000

 

1.56

 

 

1.80

 

2028

 

 

100,000

 

3.47

 

 

3.42

 

 

 

$

1,915,000

 

2.29

 

 

2.31

 

(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 periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.

 

For the Three Months Ended

 

For the Year Ended

 

September 30, 2022

 

September 30, 2022

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

1,840,000

 

 

2.12

%

 

2.6

 

$

1,590,000

 

 

1.88

%

 

3.3

Maturities and repayments

 

(77,500

)

 

0.39

 

 

 

 

 

(177,500

)

 

1.94

 

 

 

New FHLB borrowings

 

300,000

 

 

3.90

 

 

4.3

 

 

650,000

 

 

3.68

 

 

4.1

Ending balance

$

2,062,500

 

 

2.44

 

 

2.5

 

$

2,062,500

 

 

2.44

 

 

2.5

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 September 30, 2022.

 

December 31,

 

March 31,

 

June 30,

 

September 30,

 

 

 

2022

 

2023

 

2023

 

2023

 

Total

 

(Dollars in thousands)

Retail/Commercial Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

364,431

 

 

$

265,239

 

 

$

196,763

 

 

$

282,207

 

 

$

1,108,640

 

Repricing Rate

 

1.11

%

 

 

1.22

%

 

 

0.82

%

 

 

1.44

%

 

 

1.17

%

Public Unit Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

46,907

 

 

$

17,519

 

 

$

3,674

 

 

$

10,002

 

 

$

78,102

 

Repricing Rate

 

1.82

%

 

 

0.77

%

 

 

0.27

%

 

 

1.04

%

 

 

1.41

%

Term Borrowings:

 

 

 

 

 

 

 

 

 

Amount

$

 

 

$

100,000

 

 

$

100,000

 

 

$

100,000

 

 

$

300,000

 

Repricing Rate

 

%

 

 

1.46

%

 

 

1.82

%

 

 

2.14

%

 

 

1.81

%

Total

 

 

 

 

 

 

 

 

 

Amount

$

411,338

 

 

$

382,758

 

 

$

300,437

 

 

$

392,209

 

 

$

1,486,742

 

Repricing Rate

 

1.19

%

 

 

1.26

%

 

 

1.15

%

 

 

1.61

%

 

 

1.31

%

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

Retail certificates of deposit

1.4

Commercial certificates of deposit

0.9

Public unit certificates of deposit

0.5

Total certificates of deposit

1.4

Average Rates and Lives

At September 30, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.14) billion, or (11.9)% of total assets, compared to $(1.33) billion, or (14.0)% of total assets, at June 30, 2022. The change in the one-year gap amount was due primarily to a decrease in the amount of liability cash flows projected at September 30, 2022 compared to June 30, 2022. This was driven primarily by a decrease in the amount of certificates of deposit that are projected to mature in the next 12 months at September 30, 2022 compared to June 30, 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 September 30, 2022, the Bank's one-year gap is projected to be $(1.17) billion, or (12.1)% of total assets. The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower prepayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(1.36) billion, or (14.4)% of total assets, if interest rates were to have increased 200 basis points as of June 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 September 30, 2022. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Securities

$

1,563,307

 

1.29

%

 

4.3

 

 

 

17.0

%

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family

 

5,675,341

 

3.15

 

 

6.7

 

76.0

%

 

61.8

 

Fixed-rate commercial

 

420,266

 

4.12

 

 

3.8

 

5.6

 

 

4.6

 

All other fixed-rate loans

 

82,027

 

3.56

 

 

7.2

 

1.1

 

 

0.9

 

Total fixed-rate loans

 

6,177,634

 

3.22

 

 

6.5

 

82.7

 

 

67.3

 

Adjustable-rate one- to four-family

 

662,953

 

2.74

 

 

4.2

 

8.9

 

 

7.2

 

Adjustable-rate commercial

 

546,078

 

4.85

 

 

7.7

 

7.3

 

 

5.9

 

All other adjustable-rate loans

 

85,005

 

6.05

 

 

2.9

 

1.1

 

 

0.9

 

Total adjustable-rate loans

 

1,294,036

 

3.85

 

 

5.6

 

17.3

 

 

14.0

 

Total loans receivable

 

7,471,670

 

3.33

 

 

6.4

 

100.0

%

 

81.3

 

FHLB stock

 

100,624

 

7.72

 

 

2.7

 

 

 

1.1

 

Cash and cash equivalents

 

49,194

 

1.75

 

 

 

 

 

0.6

 

Total interest-earning assets

$

9,184,795

 

3.02

 

 

5.9

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

3,399,726

 

0.28

 

 

5.9

 

60.7

%

 

43.9

%

Retail certificates of deposit

 

2,073,542

 

1.34

 

 

1.4

 

37.0

 

 

26.8

 

Commercial certificates of deposit

 

36,275

 

0.97

 

 

0.9

 

0.6

 

 

0.5

 

Public unit certificates of deposit

 

93,936

 

1.61

 

 

0.5

 

1.7

 

 

1.2

 

Total interest-bearing deposits

 

5,603,479

 

0.70

 

 

4.1

 

100.0

%

 

72.4

 

Term borrowings

 

2,062,500

 

2.44

 

 

2.5

 

96.5

%

 

26.6

 

Line of credit borrowings

 

75,000

 

3.15

 

 

 

3.5

 

 

1.0

 

Total borrowings

 

2,137,500

 

2.47

 

 

2.4

 

100.0

%

 

27.6

 

Total interest-bearing liabilities

$

7,740,979

 

1.19

 

 

3.7

 

 

 

100.0

%

 

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