CFFN Capitol Federal Financial Inc

Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company," "we" or "our"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2023. For best viewing results, please view this release in Portable Document Format (PDF) on our website, https://ir.capfed.com.

The highlights for the quarter include:

• Completed a strategic securities transaction ("securities strategy") to improve earnings;
• net interest margin of 1.71%, an improvement of 50 basis points from the prior quarter;
• earnings per share of $0.02; excluding the losses from the securities strategy, earnings per share would have been $0.10;
• paid dividends of $0.085 per share;
• on January 23, 2024, announced a cash dividend of $0.085 per share, payable on February 16, 2024 to stockholders of record as of the close of business on February 2, 2024.

Securities Strategy to Improve Earnings

During the current quarter, the Company completed a securities strategy by selling $1.30 billion of securities with a weighted average yield of 1.22% and an average duration of 3.6 years and purchased $632.0 million of securities yielding 5.75% and paid down $500.0 million of borrowings with a cost of 4.70%. The Company plans to hold the remaining cash associated with the securities strategy at the Federal Reserve Bank ("FRB") earning interest at the reserve balances rate, until such time as it can be used to fund commercial loan activity or other Bank operations. The Company recognized net interest margin benefits in the current quarter associated with the securities strategy and total assets were reduced below $10.0 billion at December 31, 2023 to $9.58 billion.

Since the Company did not have the intent to hold the $1.30 billion of securities to maturity at September 30, 2023, the Company recognized an impairment loss on those securities, $192.6 million of which was reflected in the Company's financial statements for the quarter ended September 30, 2023. During the current quarter, $13.3 million, or $0.08 per share, of additional loss related to the sale of the securities was recorded, which reflected the market value loss on these securities generated from October 1, 2023 until the sale of such securities.

Comparison of Operating Results for the Three Months Ended December 31, 2023 and September 30, 2023

For the quarter ended December 31, 2023, the Company recognized net income of $2.5 million, or $0.02 per share, compared to a net loss of $140.4 million, or $(1.05) per share, for the quarter ended September 30, 2023. The net loss for prior quarter was due to the securities strategy discussed above. Excluding the securities strategy, earnings per share would have been $0.10 for the current quarter and $0.04 for the prior quarter. The increase in earnings per share, excluding the net losses related to the securities strategy, was due primarily to an increase in the net interest margin due to securities and borrowings activity related to the securities strategy. The net interest margin increased 50 basis points, from 1.21% for the prior quarter to 1.71% for the current quarter. Excluding the effects of the leverage strategy during the prior quarter, the net interest margin increased 47 basis points, from 1.24% for the prior quarter to 1.71% for the current quarter. The leverage strategy was in place during a portion of the prior quarter and was not in place during the current quarter. The leverage strategy was suspended at times during the prior quarter and during all of the current quarter when the strategy was not profitable. See additional discussion in the "Leverage Strategy" section below.

Interest and Dividend Income

The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent. The weighted average yield on mortgage-backed securities ("MBS") increased 282 basis points and the weighted average yield on investment securities increased 311 basis points compared to the prior quarter as a result of the securities strategy.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

75,941

 

$

74,031

 

$

1,910

 

 

2.6

%

MBS

 

5,859

 

 

4,399

 

 

1,460

 

 

33.2

 

Cash and cash equivalents

 

4,778

 

 

6,139

 

 

(1,361

)

 

(22.2

)

Federal Home Loan Bank Topeka ("FHLB") stock

 

2,586

 

 

2,796

 

 

(210

)

 

(7.5

)

Investment securities

 

2,528

 

 

894

 

 

1,634

 

 

182.8

 

Total interest and dividend income

$

91,692

 

$

88,259

 

$

3,433

 

 

3.9

 

The increase in interest income on loans receivable was due to an increase in the weighted average yield of the portfolio, along with an increase in the average balance of commercial loans, which also contributed to the increase in the overall portfolio yield. The increase in the weighted average yield was due primarily to originations at higher market rates and one- to four-family adjustable-rate loans repricing to higher market interest rates, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate. The increase in interest income on MBS and investment securities was due to an increase in the weighted average yield of the portfolios due the securities strategy, partially offset by a decrease in the average balance as not all of the proceeds from the securities sales were reinvested into the securities portfolios. The decrease in interest income on cash and cash equivalents and FHLB stock was due mainly to the leverage strategy being in place for a portion of the prior quarter, and not being in place during the current quarter. Excluding the leverage strategy, the average balance of cash and cash equivalents increased during the current quarter as a result of the securities strategy.

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 21 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy decreased 18 basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

32,443

 

$

29,778

 

$

2,665

 

 

8.9

%

Borrowings

 

19,656

 

 

27,746

 

 

(8,090

)

 

(29.2

)

Total interest expense

$

52,099

 

$

57,524

 

$

(5,425

)

 

(9.4

)

The increase in interest expense on deposits was due almost entirely to increases in the weighted average rate paid and average balance of the retail certificate of deposit portfolio. The growth in the retail certificate of deposit portfolio was in terms less than 17 months. Management continues to competitively price certain short-term retail certificate of deposit products so that if rates were to decrease in the near future, the Bank would be able to more quickly reprice those balances to lower market rates at maturity. During the current quarter, interest expense on borrowings not associated with the leverage strategy decreased $4.9 million, due primarily to the pay down of $500.0 million of borrowings under the Federal Reserve's Bank Term Funding Program ("BTFP"), as part of the securities strategy. Interest expense on borrowings associated with the leverage strategy decreased $3.2 million due to the leverage strategy being in place during a portion of the prior quarter and not being in place during the current quarter.

Provision for Credit Losses

For the quarter ended December 31, 2023, the Bank recorded a provision for credit losses of $123 thousand, compared to a provision for credit losses of $963 thousand for the prior quarter. The provision for credit losses in the current quarter was comprised of a $400 thousand increase in the allowance for credit losses ("ACL") for loans, partially offset by a $277 thousand decrease in the reserve for off-balance sheet credit exposures. The provision for credit losses associated with the ACL was due primarily to commercial loan growth. The release of provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to commercial construction loans converting to permanent loans.

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:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

2,575

 

 

$

2,758

 

 

$

(183

)

 

(6.6

)%

Insurance commissions

 

863

 

 

 

927

 

 

 

(64

)

 

(6.9

)

Net loss from securities transactions

 

(13,345

)

 

 

(192,622

)

 

 

179,277

 

 

93.1

 

Other non-interest income

 

1,013

 

 

 

1,233

 

 

 

(220

)

 

(17.8

)

Total non-interest income

$

(8,894

)

 

$

(187,704

)

 

$

178,810

 

 

95.3

 

The net loss from securities transactions in the current quarter and prior quarter relate to the securities strategy. The decrease in other non-interest income was due mainly to a decrease in loan fees during the current quarter, along with several other miscellaneous non-interest income items.

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:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

12,992

 

$

11,804

 

$

1,188

 

 

10.1

%

Information technology and related expense

 

5,369

 

 

6,448

 

 

(1,079

)

 

(16.7

)

Occupancy, net

 

3,372

 

 

3,638

 

 

(266

)

 

(7.3

)

Federal insurance premium

 

1,860

 

 

1,167

 

 

693

 

 

59.4

 

Regulatory and outside services

 

1,643

 

 

1,765

 

 

(122

)

 

(6.9

)

Advertising and promotional

 

988

 

 

692

 

 

296

 

 

42.8

 

Deposit and loan transaction costs

 

542

 

 

778

 

 

(236

)

 

(30.3

)

Office supplies and related expense

 

361

 

 

689

 

 

(328

)

 

(47.6

)

Other non-interest expense

 

1,381

 

 

1,213

 

 

168

 

 

13.8

 

Total non-interest expense

$

28,508

 

$

28,194

 

$

314

 

 

1.1

 

The increase in salaries and employee benefits was mainly related to accruals associated with the Bank's short-term performance plan for fiscal year 2024 as the prior quarter included a reversal of the entire fiscal year 2023 accrual because the plan does not allow for the payment of incentive compensation if, as was the case for fiscal year 2023, the Company has a net loss for the fiscal year. The decrease in information technology and related expense was due primarily to a reduction in IT professional services and software maintenance expenses due mainly to costs associated with the Company's digital transformation during the prior quarter. The increase in the federal insurance premium was due mainly to an increase in the Federal Deposit Insurance Corporation ("FDIC") assessment rate as a result of the way the rate is adjusted for the occurrence of a net loss. The increase in advertising and promotional expense was due mainly to the timing of campaigns. The decrease in deposit and loan transaction costs was due primarily to lower electronic banking expenses due mainly to non-recurring fees paid during the prior quarter associated with the digital transformation. The decrease in office supplies and related expense was due mainly to postage expense associated with the digital transformation mailings in the prior quarter.

The Company's efficiency ratio was 92.86% for the current quarter compared to (17.96)% for the prior quarter. Excluding the net losses from the securities strategy, the efficiency ratio would have been 64.73% for the current quarter and 79.08% for the prior quarter. The improvement in the efficiency ratio, excluding the securities strategy, was due primarily to higher net interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value generally indicates that it is costing the financial institution more money to generate revenue, relative to its net interest income 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:

 

2023

 

2023

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income (loss) before income tax (benefit)

$

2,068

 

 

$

(186,126

)

 

$

188,194

 

(101.1

)%

Income tax (benefit)

 

(475

)

 

 

(45,736

)

 

 

45,261

 

(99.0

)

Net income (loss)

$

2,543

 

 

$

(140,390

)

 

$

142,933

 

(101.8

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

(23.0

%)

 

 

24.6

%

 

 

 

 

The income tax benefit in the current quarter was a result of treating the $13.3 million net loss associated with the securities strategy as a discrete tax benefit in the current quarter. The tax benefit related to the net loss was $3.3 million. Excluding the $3.3 million benefit, income tax expense would have been $2.8 million and the effective tax rate, excluding the $13.3 million net loss, would have been 18.0% for the current quarter. The income tax benefit in the prior quarter was a result of the pretax loss. The pretax loss, combined with the Company's permanent differences, contributed to the increase in the effective tax rate. Generally, the Company's permanent differences lower the effective tax rate when the Company has pretax income and tax expense, but as a result of the prior quarter pretax loss, the Company's permanent differences have the impact of raising the effective tax rate.

Comparison of Operating Results for the Three Months Ended December 31, 2023 and 2022

The Company recognized net income of $2.5 million, or $0.02 per share, for the current quarter, compared to net income of $16.2 million, or $0.12 per share, for the prior year quarter. The lower net income for the current quarter was primarily a result of the $13.3 million net loss associated with securities strategy, along with higher interest expense, partially offset by lower provision for credit losses and the income tax benefit in the current quarter. Excluding the effects of the securities strategy, earnings per share would have been $0.10 for the current quarter. The net interest margin increased ten basis points, from 1.61% for the prior year quarter to 1.71% for the current quarter. The leverage strategy was in place during the prior year quarter and not in place during the current quarter. 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. Excluding the effects of the leverage strategy, the net interest margin decreased 17 basis points, from 1.88% for the prior year quarter to 1.71% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of deposits and borrowings, which exceeded the increase in yields on securities and 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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

75,941

 

$

64,819

 

$

11,122

 

 

17.2

%

MBS

 

5,859

 

 

4,811

 

 

1,048

 

 

21.8

 

Cash and cash equivalents

 

4,778

 

 

16,671

 

 

(11,893

)

 

(71.3

)

FHLB stock

 

2,586

 

 

4,158

 

 

(1,572

)

 

(37.8

)

Investment securities

 

2,528

 

 

881

 

 

1,647

 

 

186.9

 

Total interest and dividend income

$

91,692

 

$

91,340

 

$

352

 

 

0.4

 

The increase in interest income on loans receivable was due to an increase in the weighted average yield and the average balance of the loan portfolio. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields between periods, 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 the average balance was mainly in the commercial real estate and correspondent one-to four-family loan portfolios. The increase in interest income on MBS and investment securities was due mainly to an increase in the weighted average yield, partially offset by a decrease in the average balance, both a result of the securities strategy. The decrease in interest income on cash and cash equivalents and the decrease in dividend income on FHLB stock was due mainly to the leverage strategy being utilized during the prior year quarter and not being utilized during the current quarter. Excluding the leverage strategy, the average balance of cash and cash equivalents increased during the current quarter as a result of the securities strategy.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

32,443

 

$

11,904

 

$

20,539

 

 

172.5

%

Borrowings

 

19,656

 

 

33,608

 

 

(13,952

)

 

(41.5

)

Total interest expense

$

52,099

 

$

45,512

 

$

6,587

 

 

14.5

 

The increase in interest expense on deposits was due almost entirely to an increase in the weighted average rate paid on the deposit portfolio, specifically retail certificates of deposit and money market accounts. Interest expense on borrowings associated with the leverage strategy decreased $17.3 million compared to the prior year quarter due to the leverage strategy being in place during the prior year quarter and not being in place during the current quarter. Interest expense on borrowings not associated with the leverage strategy increased $3.3 million due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to replace maturing advances and to fund operational needs.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $123 thousand, compared to a provision for credit losses of $3.7 million during the prior year quarter. See "Comparison of Operating Results for the Three Months Ended December 31, 2023 and September 30, 2023" 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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

2,575

 

 

$

3,461

 

$

(886

)

 

(25.6

)%

Insurance commissions

 

863

 

 

 

795

 

 

68

 

 

8.6

 

Net loss from securities transactions

 

(13,345

)

 

 

—

 

 

(13,345

)

 

N/A

 

Other non-interest income

 

1,013

 

 

 

1,096

 

 

(83

)

 

(7.6

)

Total non-interest income

$

(8,894

)

 

$

5,352

 

$

(14,246

)

 

(266.2

)

The decrease in deposit service fees was due primarily to a change in the fee structure of certain deposit products after the digital transformation. The net loss from securities transactions relates to the securities strategy.

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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

12,992

 

$

13,698

 

$

(706

)

 

(5.2

)%

Information technology and related expense

 

5,369

 

 

5,070

 

 

299

 

 

5.9

 

Occupancy, net

 

3,372

 

 

3,474

 

 

(102

)

 

(2.9

)

Federal insurance premium

 

1,860

 

 

812

 

 

1,048

 

 

129.1

 

Regulatory and outside services

 

1,643

 

 

1,533

 

 

110

 

 

7.2

 

Advertising and promotional

 

988

 

 

833

 

 

155

 

 

18.6

 

Deposit and loan transaction costs

 

542

 

 

611

 

 

(69

)

 

(11.3

)

Office supplies and related expense

 

361

 

 

633

 

 

(272

)

 

(43.0

)

Other non-interest expense

 

1,381

 

 

1,109

 

 

272

 

 

24.5

 

Total non-interest expense

$

28,508

 

$

27,773

 

$

735

 

 

2.6

 

The decrease in salaries and employee benefits was a result of a decrease in full-time equivalent employees between the two quarter ends as a result of management's decision to not backfill non-critical employees through natural attrition. During fiscal year 2023, the Bank moved to a new branch staffing model comprised of decision makers and well-rounded employees that is intended to add an elevated experience for customers who choose in-person banking activities. The increase in information technology and related expenses was due mainly to higher software licensing expenses resulting from new agreements associated with the digital transformation, partially offset by lower software maintenance and third-party project management expenses provided in association with the Bank's digital transformation project during the prior year quarter. The increase in the federal insurance premium was due to an increase in the FDIC assessment rate as a result of the way the rate is adjusted for the occurrence of a net loss. The increase in advertising and promotional expense was due to the timing of campaigns. The decrease 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 during the prior year quarter, which had become obsolete, along with lower postage expense. The increase in other non-interest expense was due mainly to an increase in fraud losses and other miscellaneous expenses.

The Company's efficiency ratio was 92.86% for the current quarter compared 54.27% the prior year quarter. Excluding the net losses from the securities strategy, the efficiency ratio would have been 64.73% for the current quarter. The change in the efficiency ratio, excluding the securities strategy, was due primarily to lower net interest income in the current quarter compared to the prior year 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:

 

2023

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax (benefit) expense

$

2,068

 

 

$

19,747

 

 

$

(17,679

)

 

(89.5

)%

Income tax (benefit) expense

 

(475

)

 

 

3,507

 

 

 

(3,982

)

 

(113.5

)

Net income

$

2,543

 

 

$

16,240

 

 

$

(13,697

)

 

(84.3

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

(23.0

%)

 

 

17.8

%

 

 

 

 

The income tax benefit in the current quarter was a result of treating the $13.3 million net loss associated with the securities strategy as a discrete tax benefit in the current quarter. The tax benefit related to the net loss was $3.3 million. Excluding the $3.3 million benefit, income tax expense would have been $2.8 million and the effective tax rate, excluding the $13.3 million net loss, would have been 18.0% for the current quarter.

Fiscal Year 2024 Outlook

The federal insurance premium is anticipated to be approximately $1.5 million higher in fiscal year 2024 compared to fiscal year 2023 due to the increase in the FDIC assessment rate as discussed above. Management anticipates the effective tax rate for fiscal year 2024 will be approximately 18%.

Financial Condition as of December 31, 2023

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

 

 

 

 

 

Annualized

 

December 31,

 

September 30,

 

Percent

 

2023

 

2023

 

Change

 

(Dollars and shares in thousands)

Total assets

$

9,576,064

 

 

$

10,177,461

 

 

(23.6

)%

Available-for-sale ("AFS") securities

 

740,462

 

 

 

1,384,482

 

 

(186.1

)

Loans receivable, net

 

7,947,510

 

 

 

7,970,949

 

 

(1.2

)

Deposits

 

6,021,595

 

 

 

6,051,220

 

 

(2.0

)

Borrowings

 

2,373,064

 

 

 

2,879,125

 

 

(70.3

)

Stockholders' equity

 

1,034,121

 

 

 

1,044,054

 

 

(3.8

)

Equity to total assets at end of period

 

10.8

%

 

 

10.3

%

 

 

Average number of basic shares outstanding

 

132,353

 

 

 

133,225

 

 

(2.6

)

Average number of diluted shares outstanding

 

132,353

 

 

 

133,225

 

 

(2.6

)

During the current quarter, total assets decreased $601.4 million, to $9.58 billion at December 31, 2023, due primarily to the securities strategy. The loan portfolio decreased $23.4 million, or 1.2% annualized, during the current quarter. The loan portfolio mix continued to shift from one- to four-family loans to commercial loans during the current quarter with a $66.4 million decrease in one- to four-family loans, including a $45.1 million decrease in one- to four-family correspondent loans, partially offset by a $42.1 million increase in commercial loans. The Bank continues to reduce purchases of correspondent loans with the intention of minimizing correspondent purchases, which will continue to decrease the balance of that portfolio.

Total liabilities decreased $591.5 million during the current quarter as $500.0 million of BTFP borrowings were paid off as part of the securities strategy, along with a $38.1 million decrease in advances by borrowers due to the payment of property taxes during the current quarter and a $29.6 million decrease in deposits. The decrease in deposits was primarily in non-maturity deposits and public unit certificates of deposit, partially offset by an increase in retail certificates of deposit. The increase in retail certificates of deposit was in terms less than 17 months. Management estimates that the Bank had $2.70 billion in additional liquidity available at December 31, 2023 based on the Bank's blanket collateral agreement with FHLB and unencumbered securities.

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

 

For the Three Months Ended

 

December 31, 2023

 

September 30, 2023

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations, purchases, and participations

 

 

 

 

One- to four-family and consumer:

 

 

 

 

 

 

 

Originated

$

81,066

 

 

7.11

%

 

$

103,713

 

 

6.64

%

Purchased

 

3,497

 

 

5.91

 

 

 

13,598

 

 

5.97

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Originated

 

20,336

 

 

6.56

 

 

 

46,191

 

 

7.57

 

Participations/Purchased

 

—

 

 

—

 

 

 

17,200

 

 

6.80

 

 

$

104,899

 

 

6.96

 

 

$

180,702

 

 

6.84

 

 

 

 

 

 

 

 

 

Deposit Activity

 

 

 

 

 

 

 

Non-maturity deposits

$

(38,260

)

 

 

 

$

(131,862

)

 

 

Retail/Commercial certificates of deposit

 

35,838

 

 

 

 

 

115,200

 

 

 

 

 

 

 

 

 

 

 

Borrowing activity

 

 

 

 

 

 

 

Maturities and repayments

 

(157,418

)

 

3.46

 

 

$

(107,418

)

 

2.28

 

New borrowings

 

150,000

 

 

4.66

 

 

 

—

 

 

—

 

BTFP, net

 

(500,000

)

 

4.70

 

 

 

—

 

 

—

 

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings which entails entering into short-term FHLB advances and depositing the proceeds from the borrowings, net of the required FHLB stock holdings, at the Federal Reserve Bank of Kansas City ("FRB of Kansas City"). The borrowings are repaid prior to quarter end, or earlier if the strategy is suspended. The leverage strategy was not in place during the current quarter due to the strategy being unprofitable, but it was in place at points during the September 30, 2023 quarter. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Management continues to monitor the net interest rate spread and overall profitability of the leverage strategy.

Stockholders' Equity

Stockholders' equity totaled $1.03 billion at December 31, 2023, a decrease of $9.9 million from September 30, 2023. The decrease in stockholders' equity during the current quarter was due to a $12.0 million decrease in additional paid-in capital, due mainly to share repurchases, and a $8.8 million decrease in retained earnings, due primarily to dividend payments, partially offset by a $10.5 million increase in accumulated other comprehensive income due to an increase in unrealized gains on AFS securities, partially offset by a reduction in unrealized gains on derivatives. During the quarter ended December 31, 2023, the Company paid a regular quarterly cash dividend totaling $11.3 million, or $0.085 per share. On January 23, 2024, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.1 million, payable on February 16, 2024 to stockholders of record as of the close of business on February 2, 2024.

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, 2023, the Bank's capital ratios exceeded the well-capitalized requirements and the Bank also exceeded all internal policy thresholds for sensitivity to changes in interest rates. As of December 31, 2023, the Bank's tier 1 leverage ratio was 8.9%, which exceeded the minimum requirement.

At December 31, 2023, Capitol Federal Financial, Inc., at the holding company level, had $63.2 million in cash on deposit at the Bank. For fiscal year 2024, it is the intention of the Board of Directors to pay out the regular quarterly cash dividend of $0.085 per share, totaling $0.34 per share for the year. To the extent that earnings in fiscal year 2024 exceed $0.34 per share, the Board of Directors will consider the payment of additional dividends. 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 2,034,000 shares of common stock at an average price of $5.79 per share. There remains $9.4 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the FRB of Kansas City's existing approval for the Company to repurchase shares expires in August 2024.

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2023.

Total shares outstanding

133,908,375

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

(2,854,175)

Net shares outstanding

131,054,200

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 49 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas. News and other information about the Company can be found at the Bank's website, http://www.capfed.com.

Forward-Looking Statements

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates and the effects of inflation or a potential recession, whether caused by Federal Reserve action or otherwise; the impact of bank failures or adverse developments at other banks and related negative press about the banking industry in general on investor or depositor sentiment; demand for loans in the Company's and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the Securities and Exchange Commission (SEC). Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

December 31,

 

September 30,

 

2023

 

2023

ASSETS:

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $287,748 and $213,830)

$

320,357

 

 

$

245,605

 

AFS securities, at estimated fair value (amortized cost of $721,612 and $1,385,992)

 

740,462

 

 

 

1,384,482

 

Loans receivable, net (ACL of $24,178 and $23,759)

 

7,947,510

 

 

 

7,970,949

 

FHLB stock, at cost

 

110,166

 

 

 

110,714

 

Premises and equipment, net

 

91,475

 

 

 

91,531

 

Income taxes receivable, net

 

3,939

 

 

 

8,531

 

Deferred income tax assets, net

 

34,076

 

 

 

29,605

 

Other assets

 

328,079

 

 

 

336,044

 

TOTAL ASSETS

$

9,576,064

 

 

$

10,177,461

 

 

 

 

 

LIABILITIES:

 

 

 

Deposits

$

6,021,595

 

 

$

6,051,220

 

Borrowings

 

2,373,064

 

 

 

2,879,125

 

Advances by borrowers

 

24,839

 

 

 

62,993

 

Other liabilities

 

122,445

 

 

 

140,069

 

Total liabilities

 

8,541,943

 

 

 

9,133,407

 

 

 

 

 

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, 133,908,375 and 135,936,375 shares issued and outstanding as of December 31, 2023 and September 30, 2023, respectively

 

1,339

 

 

 

1,359

 

Additional paid-in capital

 

1,154,655

 

 

 

1,166,643

 

Unearned compensation, ESOP

 

(27,671

)

 

 

(28,083

)

Retained earnings

 

(113,357

)

 

 

(104,565

)

Accumulated other comprehensive income, net of tax

 

19,155

 

 

 

8,700

 

Total stockholders' equity

 

1,034,121

 

 

 

1,044,054

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,576,064

 

 

$

10,177,461

 

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,

 

2023

 

2023

 

2022

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

Loans receivable

$

75,941

 

 

$

74,031

 

 

$

64,819

MBS

 

5,859

 

 

 

4,399

 

 

 

4,811

Cash and cash equivalents

 

4,778

 

 

 

6,139

 

 

 

16,671

FHLB stock

 

2,586

 

 

 

2,796

 

 

 

4,158

Investment securities

 

2,528

 

 

 

894

 

 

 

881

Total interest and dividend income

 

91,692

 

 

 

88,259

 

 

 

91,340

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

Deposits

 

32,443

 

 

 

29,778

 

 

 

11,904

Borrowings

 

19,656

 

 

 

27,746

 

 

 

33,608

Total interest expense

 

52,099

 

 

 

57,524

 

 

 

45,512

 

 

 

 

 

 

NET INTEREST INCOME

 

39,593

 

 

 

30,735

 

 

 

45,828

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

123

 

 

 

963

 

 

 

3,660

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

39,470

 

 

 

29,772

 

 

 

42,168

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

Deposit service fees

 

2,575

 

 

 

2,758

 

 

 

3,461

Insurance commissions

 

863

 

 

 

927

 

 

 

795

Net loss from securities transactions

 

(13,345

)

 

 

(192,622

)

 

 

—

Other non-interest income

 

1,013

 

 

 

1,233

 

 

 

1,096

Total non-interest income

 

(8,894

)

 

 

(187,704

)

 

 

5,352

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

Salaries and employee benefits

 

12,992

 

 

 

11,804

 

 

 

13,698

Information technology and related expense

 

5,369

 

 

 

6,448

 

 

 

5,070

Occupancy, net

 

3,372

 

 

 

3,638

 

 

 

3,474

Federal insurance premium

 

1,860

 

 

 

1,167

 

 

 

812

Regulatory and outside services

 

1,643

 

 

 

1,765

 

 

 

1,533

Advertising and promotional

 

988

 

 

 

692

 

 

 

833

Deposit and loan transaction costs

 

542

 

 

 

778

 

 

 

611

Office supplies and related expense

 

361

 

 

 

689

 

 

 

633

Other non-interest expense

 

1,381

 

 

 

1,213

 

 

 

1,109

Total non-interest expense

 

28,508

 

 

 

28,194

 

 

 

27,773

INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)

 

2,068

 

 

 

(186,126

)

 

 

19,747

INCOME TAX (BENEFIT) EXPENSE

 

(475

)

 

 

(45,736

)

 

 

3,507

NET INCOME (LOSS)

$

2,543

 

 

$

(140,390

)

 

$

16,240

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 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

 

December 31, 2023

 

September 30, 2023

 

December 31, 2022

 

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

$

4,025,539

 

$

35,060

 

3.48

%

 

$

4,036,609

 

$

34,584

 

3.43

%

 

$

4,049,790

 

$

33,364

 

3.29

%

Correspondent purchased

 

2,413,900

 

 

19,660

 

3.26

 

 

 

2,454,407

 

 

19,794

 

3.23

 

 

 

2,305,362

 

 

17,261

 

2.99

 

Bulk purchased

 

136,609

 

 

694

 

2.03

 

 

 

138,922

 

 

524

 

1.51

 

 

 

147,091

 

 

434

 

1.18

 

Total one- to four-family loans

 

6,576,048

 

 

55,414

 

3.37

 

 

 

6,629,938

 

 

54,902

 

3.31

 

 

 

6,502,243

 

 

51,059

 

3.14

 

Commercial loans

 

1,306,917

 

 

18,267

 

5.47

 

 

 

1,249,498

 

 

16,930

 

5.30

 

 

 

1,025,402

 

 

11,993

 

4.58

 

Consumer loans

 

105,958

 

 

2,260

 

8.46

 

 

 

104,252

 

 

2,199

 

8.37

 

 

 

102,760

 

 

1,767

 

6.82

 

Total loans receivable(1)

 

7,988,923

 

 

75,941

 

3.78

 

 

 

7,983,688

 

 

74,031

 

3.69

 

 

 

7,630,405

 

 

64,819

 

3.38

 

MBS(2)

 

526,733

 

 

5,859

 

4.45

 

 

 

1,078,957

 

 

4,399

 

1.63

 

 

 

1,221,035

 

 

4,811

 

1.58

 

Investment securities(2)(3)

 

266,873

 

 

2,528

 

3.79

 

 

 

524,574

 

 

894

 

0.68

 

 

 

525,081

 

 

881

 

0.67

 

FHLB stock(4)

 

108,648

 

 

2,586

 

9.44

 

 

 

120,159

 

 

2,796

 

9.23

 

 

 

197,577

 

 

4,158

 

8.35

 

Cash and cash equivalents(5)

 

346,220

 

 

4,778

 

5.40

 

 

 

453,486

 

 

6,139

 

5.30

 

 

 

1,801,493

 

 

16,671

 

3.62

 

Total interest-earning assets

 

9,237,397

 

 

91,692

 

3.95

 

 

 

10,160,864

 

 

88,259

 

3.45

 

 

 

11,375,591

 

 

91,340

 

3.19

 

Other non-interest-earning assets

 

466,084

 

 

 

 

 

 

271,074

 

 

 

 

 

 

248,022

 

 

 

 

Total assets

$

9,703,481

 

 

 

 

 

$

10,431,938

 

 

 

 

 

$

11,623,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

$

886,530

 

 

445

 

0.20

 

 

$

900,526

 

 

449

 

0.20

 

 

$

1,007,569

 

 

289

 

0.11

 

Savings

 

472,819

 

 

138

 

0.12

 

 

 

492,737

 

 

145

 

0.12

 

 

 

545,885

 

 

100

 

0.07

 

Money market

 

1,364,565

 

 

6,737

 

1.96

 

 

 

1,404,496

 

 

6,913

 

1.95

 

 

 

1,759,804

 

 

3,035

 

0.68

 

Retail certificates

 

2,555,375

 

 

23,199

 

3.60

 

 

 

2,498,839

 

 

20,268

 

3.22

 

 

 

2,064,929

 

 

7,767

 

1.49

 

Commercial certificates

 

49,558

 

 

463

 

3.70

 

 

 

30,735

 

 

273

 

3.53

 

 

 

34,298

 

 

104

 

1.20

 

Wholesale certificates

 

130,857

 

 

1,461

 

4.43

 

 

 

158,598

 

 

1,730

 

4.33

 

 

 

97,828

 

 

609

 

2.47

 

Total deposits

 

5,459,704

 

 

32,443

 

2.36

 

 

 

5,485,931

 

 

29,778

 

2.15

 

 

 

5,510,313

 

 

11,904

 

0.86

 

Borrowings(6)

 

2,467,410

 

 

19,656

 

3.15

 

 

 

3,150,179

 

 

27,746

 

3.48

 

 

 

4,260,685

 

 

33,608

 

3.10

 

Total interest-bearing liabilities

 

7,927,114

 

 

52,099

 

2.61

 

 

 

8,636,110

 

 

57,524

 

2.64

 

 

 

9,770,998

 

 

45,512

 

1.84

 

Non-interest-bearing deposits

 

537,144

 

 

 

 

 

 

540,607

 

 

 

 

 

 

576,519

 

 

 

 

Other non-interest-bearing liabilities

 

202,743

 

 

 

 

 

 

191,978

 

 

 

 

 

 

191,474

 

 

 

 

Stockholders' equity

 

1,036,480

 

 

 

 

 

 

1,063,243

 

 

 

 

 

 

1,084,622

 

 

 

 

Total liabilities and stockholders' equity

$

9,703,481

 

 

 

 

 

$

10,431,938

 

 

 

 

 

$

11,623,613

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

39,593

 

 

 

 

 

$

30,735

 

 

 

 

 

$

45,828

 

 

Net interest-earning assets

$

1,310,283

 

 

 

 

 

$

1,524,754

 

 

 

 

 

$

1,604,593

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.71

 

 

 

 

 

 

1.21

 

 

 

 

 

 

1.61

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17

x

 

 

 

 

 

1.18

x

 

 

 

 

 

1.16

x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.10

%

 

 

 

 

 

(5.38

%)

 

 

 

 

 

0.56

%

Return on average equity (annualized)(9)

 

 

 

0.98

 

 

 

 

 

 

(52.82

)

 

 

 

 

 

5.99

 

Average equity to average assets

 

 

 

 

10.68

 

 

 

 

 

 

10.19

 

 

 

 

 

 

9.33

 

Operating expense ratio (annualized)(10)

 

 

 

1.18

 

 

 

 

 

 

1.08

 

 

 

 

 

 

0.96

 

Efficiency ratio(9)(11)

 

 

 

 

92.86

 

 

 

 

 

 

(17.96

)

 

 

 

 

 

54.27

 

Pre-tax yield on leverage strategy(12)

 

 

 

—

 

 

 

 

 

 

0.07

 

 

 

 

 

 

0.20

 

(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 $201 thousand, $1.0 million and $1.1 million for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022, respectively.

(4)

There was no FHLB stock related to the leverage strategy for the quarter ended December 31, 2023. Included in this line, for the quarters ended September 30, 2023 and December 31, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $10.8 million and $84.3 million, respectively, and dividend income of $251 thousand and $1.8 million, respectively, at a weighted average yield of 9.25% and 8.49%, respectively. Included in this line for the quarters ended December 31, 2023, September 30, 2023 and December 31, 2022, respectively, is FHLB stock not related to the leverage strategy with an average outstanding balance of $108.6 million, $109.4 million and $113.3 million, respectively, and dividend income of $2.6 million, $2.5 million, and $2.4 million respectively, at a weighted average yield of 9.44%, 9.23%, and 8.24%, respectively.

(5)

There was no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2023. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $228.4 million and $1.79 billion during the quarters ended September 30, 2023 and December 31, 2022, respectively.

(6)

There were no borrowings related to the leverage strategy during the quarter ended December 31, 2023. Included in this line, for the quarters ended September 30, 2023 and December 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $239.1 million and $1.87 billion, respectively, and interest paid of $3.3 million and $17.3 million, respectively, at a weighted average rate of 5.33% and 3.61% respectively. Included in this line for the quarters ended December 31, 2023, September 30, 2023, and December 31, 2022 were borrowings not related to the leverage strategy with an average outstanding balance of $2.47 billion, $2.91 billion, and $2.39 billion respectively, and interest paid of $19.7 million, $24.5 million, and $16.3 million respectively, at a weighted average rate of 3.15%, 3.33%, and 2.70% respectively. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(7)

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

(8)

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

(9)

The table below provides a reconciliation between performance measures presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the same performance measures excluding the effects of the leverage strategy and the net loss on securities transactions associated with the securities strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance measures without the leverage strategy because of the unique nature of the leverage strategy and the net loss on securities transactions due to the non-recurring nature of the securities strategy. The leverage strategy was not in place for the quarter ended December 31, 2023. For the quarters ended September 30, 2023 and December 31, 2022, the Excluding Leverage Strategy (Non-GAAP) columns and the Excluding Securities Strategy (Non-GAAP) columns each begin with Actual (GAAP) before applying the respective strategy adjustments. The leverage strategy reduces some of our performance measures 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, 2023

 

September 30, 2023

 

December 31, 2022

 

Actual (GAAP)

 

Securities Strategy

 

Excluding Securities Strategy (Non-GAAP)

 

Actual (GAAP)

 

Leverage Strategy

 

Excluding Leverage Strategy (Non-GAAP)

 

Securities Strategy

 

Excluding Securities Strategy (Non-GAAP)

 

Actual (GAAP)

 

Leverage Strategy

 

Excluding Leverage Strategy (Non-GAAP)

Yield on interest-earning assets

 

3.95

%

 

 

 

 

 

3.45

%

 

0.05

%

 

3.40

%

 

 

 

 

 

3.19

%

 

0.13

%

 

3.06

%

Cost of interest-bearing liabilities

 

2.61

 

 

 

 

 

 

2.64

 

 

0.08

 

 

2.56

 

 

 

 

 

 

1.84

 

 

0.42

 

 

1.42

 

Return on average assets (annualized)

 

0.10

 

 

 

(0.42

)%

 

 

0.52

%

 

(5.38

)

 

0.13

 

 

(5.51

)

 

 

(5.58

)%

 

 

0.20

%

 

0.56

 

 

(0.07

)

 

0.63

 

Return on average equity (annualized)

 

0.98

 

 

 

(3.89

)

 

 

4.87

 

 

(52.82

)

 

0.01

 

 

(52.83

)

 

 

(54.79

)

 

 

1.97

 

 

5.99

 

 

0.28

 

 

5.71

 

Net interest margin

 

1.71

 

 

 

 

 

 

1.21

 

 

(0.03

)

 

1.24

 

 

 

 

 

 

1.61

 

 

(0.27

)

 

1.88

 

Efficiency Ratio

 

92.86

 

 

 

28.13

 

 

 

64.73

 

 

(17.96

)

 

(0.03

)

 

(17.93

)

 

 

(97.04

)

 

 

79.08

 

 

54.27

 

 

(0.87

)

 

55.14

 

Earnings per share

$

0.02

 

 

$

(0.08

)

 

$

0.10

 

 

 

 

 

 

 

 

$

(1.09

)

 

$

0.04

 

 

 

 

 

 

 

(10)

The operating expense ratio represents annualized non-interest expense as a percentage of average assets.

(11)

The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

(12)

The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

Loan Portfolio

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

 

December 31, 2023

 

September 30, 2023

 

December 31, 2022

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,986,479

 

 

3.44

%

 

50.1

%

 

$

3,978,837

 

 

3.39

%

 

49.9

%

 

$

4,007,596

 

 

3.25

%

 

51.5

%

Correspondent purchased

 

2,360,843

 

 

3.45

 

 

29.7

 

 

 

2,405,911

 

 

3.44

 

 

30.1

 

 

 

2,353,335

 

 

3.25

 

 

30.2

 

Bulk purchased

 

134,504

 

 

2.10

 

 

1.7

 

 

 

137,193

 

 

1.85

 

 

1.7

 

 

 

145,209

 

 

1.31

 

 

1.9

 

Construction

 

43,631

 

 

4.47

 

 

0.5

 

 

 

69,974

 

 

3.68

 

 

0.9

 

 

 

70,869

 

 

3.01

 

 

0.9

 

Total

 

6,525,457

 

 

3.42

 

 

82.0

 

 

 

6,591,915

 

 

3.38

 

 

82.6

 

 

 

6,577,009

 

 

3.20

 

 

84.5

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

1,019,431

 

 

5.27

 

 

12.8

 

 

 

995,788

 

 

5.29

 

 

12.5

 

 

 

833,444

 

 

4.34

 

 

10.7

 

Commercial and industrial

 

113,686

 

 

6.46

 

 

1.4

 

 

 

112,953

 

 

6.36

 

 

1.4

 

 

 

88,327

 

 

5.21

 

 

1.1

 

Construction

 

196,493

 

 

5.41

 

 

2.5

 

 

 

178,746

 

 

5.01

 

 

2.2

 

 

 

188,516

 

 

5.97

 

 

2.4

 

Total

 

1,329,610

 

 

5.39

 

 

16.7

 

 

 

1,287,487

 

 

5.35

 

 

16.1

 

 

 

1,110,287

 

 

4.69

 

 

14.2

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

96,952

 

 

8.84

 

 

1.2

 

 

 

95,723

 

 

8.83

 

 

1.2

 

 

 

95,352

 

 

7.55

 

 

1.2

 

Other

 

9,670

 

 

5.32

 

 

0.1

 

 

 

9,256

 

 

5.20

 

 

0.1

 

 

 

9,022

 

 

4.43

 

 

0.1

 

Total

 

106,622

 

 

8.52

 

 

1.3

 

 

 

104,979

 

 

8.51

 

 

1.3

 

 

 

104,374

 

 

7.28

 

 

1.3

 

Total loans receivable

 

7,961,689

 

 

3.82

 

 

100.0

%

 

 

7,984,381

 

 

3.76

 

 

100.0

%

 

 

7,791,670

 

 

3.47

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

24,178

 

 

 

 

 

 

 

23,759

 

 

 

 

 

 

 

19,189

 

 

 

 

 

Deferred loan fees/discounts

 

30,653

 

 

 

 

 

 

 

31,335

 

 

 

 

 

 

 

30,513

 

 

 

 

 

Premiums/deferred costs

 

(40,652

)

 

 

 

 

 

 

(41,662

)

 

 

 

 

 

 

(41,390

)

 

 

 

 

Total loans receivable, net

$

7,947,510

 

 

 

 

 

 

$

7,970,949

 

 

 

 

 

 

$

7,783,358

 

 

 

 

 

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

 

For the Three Months Ended

 

December 31, 2023

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,984,381

 

 

3.76

%

Originated and refinanced

 

101,402

 

 

7.00

 

Purchased and participations

 

3,497

 

 

5.91

 

Change in undisbursed loan funds

 

83,246

 

 

 

Repayments

 

(210,611

)

 

 

Principal (charge-offs)/recoveries, net

 

(1

)

 

 

Other

 

(225

)

 

 

Ending balance

$

7,961,689

 

 

3.82

 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, excluding construction 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, 2023. Credit scores were updated in September 2023 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

$

3,986,479

 

61.5

%

 

3.44

%

 

771

 

60

%

 

$

165

Correspondent purchased

 

2,360,843

 

36.4

 

 

3.45

 

 

767

 

64

 

 

 

412

Bulk purchased

 

134,504

 

2.1

 

 

2.10

 

 

771

 

55

 

 

 

287

 

$

6,481,826

 

100.0

 

 

3.42

 

 

770

 

61

 

 

 

214

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated. The majority of the correspondent loans purchased during the current quarter were from applications in the pipeline at September 30, 2023 as the Bank continues to reduce correspondent purchases to near zero.

 

For the Three Months Ended

 

December 31, 2023

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

69,504

 

6.83

%

 

75

%

 

765

Correspondent purchased

 

3,497

 

5.91

 

 

70

 

 

765

 

$

73,001

 

6.79

 

 

74

 

 

765

As of December 31, 2023 the Bank had one- to four-family loan origination and refinance commitments of $20.7 million at a weighted average rate of 6.75%. There were no one- to four-family correspondent loan purchase commitments at December 31, 2023.

Commercial Loans: During the three months ended December 31, 2023, the Bank originated $20.3 million of commercial loans. The Bank did not enter into any commercial loan participations during the current quarter. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $64.6 million at a weighted average rate of 6.27%.

As of December 31, 2023, September 30, 2023, and December 31, 2022, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $157.2 million, $158.5 million, and $113.2 million, respectively, and commitments totaled $2.4 million at December 31, 2023.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of December 31, 2023, the Bank had seven commercial real estate and commercial construction loan commitments totaling $100.4 million, at a weighted average rate of 7.52%. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects. Of the total commercial real estate and commercial construction undisbursed amounts and commitments outstanding as of December 31, 2023, management anticipates funding approximately $94 million during the March 2024 quarter, $84 million during the June 2024 quarter, $77 million during the September 2024 quarter, and $137 million during the December 2024 quarter or later.

 

December 31, 2023

 

September 30, 2023

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Retail building

139

 

$

269,399

 

 

$

79,629

 

 

$

349,028

 

 

$

352,499

 

Senior housing

36

 

 

317,630

 

 

 

12,447

 

 

 

330,077

 

 

 

331,207

 

Multi-family

42

 

 

105,657

 

 

 

197,251

 

 

 

302,908

 

 

 

308,846

 

Hotel

13

 

 

214,082

 

 

 

17,905

 

 

 

231,987

 

 

 

233,012

 

Office building

79

 

 

127,741

 

 

 

1,607

 

 

 

129,348

 

 

 

130,921

 

One- to four-family property

360

 

 

60,016

 

 

 

5,567

 

 

 

65,583

 

 

 

70,265

 

Single use building

30

 

 

36,260

 

 

 

7,555

 

 

 

43,815

 

 

 

47,193

 

Other

111

 

 

85,139

 

 

 

3,110

 

 

 

88,249

 

 

 

88,995

 

 

810

 

$

1,215,924

 

 

$

325,071

 

 

$

1,540,995

 

 

$

1,562,938

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

 

 

5.29

%

 

 

6.01

%

 

 

5.44

%

 

 

5.47

%

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

 

December 31, 2023

 

September 30, 2023

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

602

 

$

486,440

 

$

176,316

 

$

662,756

 

$

670,498

Texas

17

 

 

280,034

 

 

67,791

 

 

347,825

 

 

348,707

Missouri

159

 

 

275,153

 

 

51,440

 

 

326,593

 

 

332,610

Colorado

8

 

 

43,223

 

 

6,205

 

 

49,428

 

 

49,385

Tennessee

2

 

 

26,132

 

 

13,437

 

 

39,569

 

 

42,136

Nebraska

8

 

 

36,678

 

 

1,121

 

 

37,799

 

 

37,609

Other

14

 

 

68,264

 

 

8,761

 

 

77,025

 

 

81,993

 

810

 

$

1,215,924

 

$

325,071

 

$

1,540,995

 

$

1,562,938

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, 2023.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

10

 

$

493,952

>$15 to $30 million

20

 

 

417,774

>$10 to $15 million

12

 

 

142,942

>$5 to $10 million

30

 

 

222,228

$1 to $5 million

142

 

 

340,059

Less than $1 million

1,201

 

 

184,112

 

1,415

 

$

1,801,067

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, 2023, approximately 82% 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. The increase in one- to four-family loans 30 to 89 days delinquent and in nonaccrual loans was due mainly to delinquencies returning to more historical levels as government payment assistance programs expire. The increase in commercial loans 30 to 89 days delinquent was a mix of several different borrowers and property types. There was not one underlying reason for the increase in delinquencies. Management is working closely with the borrowers to address payment issues.

 

Loans Delinquent for 30 to 89 Days at:

 

December 31, 2023

 

September 30, 2023

 

June 30, 2023

 

March 31, 2023

 

December 31, 2022

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

77

 

$

7,746

 

 

88

 

$

9,078

 

 

67

 

$

6,377

 

 

45

 

$

4,116

 

 

56

 

$

4,708

 

Correspondent purchased

16

 

 

6,049

 

 

17

 

 

5,192

 

 

20

 

 

6,704

 

 

10

 

 

3,436

 

 

4

 

 

1,216

 

Bulk purchased

4

 

 

583

 

 

1

 

 

149

 

 

—

 

 

—

 

 

3

 

 

287

 

 

3

 

 

865

 

Construction

—

 

 

—

 

 

4

 

 

1,123

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Commercial

14

 

 

3,809

 

 

5

 

 

94

 

 

6

 

 

573

 

 

5

 

 

389

 

 

6

 

 

191

 

Consumer

40

 

 

766

 

 

30

 

 

730

 

 

22

 

 

469

 

 

22

 

 

352

 

 

24

 

 

626

 

 

151

 

$

18,953

 

 

145

 

$

16,366

 

 

115

 

$

14,123

 

 

85

 

$

8,580

 

 

93

 

$

7,606

 

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

 

0.24

%

 

 

 

0.21

%

 

 

 

0.18

%

 

 

 

0.11

%

 

 

 

0.10

%

 

Non-Performing Loans and OREO at:

 

December 31, 2023

 

September 30, 2023

 

June 30, 2023

 

March 31, 2023

 

December 31, 2022

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

29

 

$

3,749

 

 

24

 

$

2,246

 

 

16

 

$

1,582

 

 

15

 

$

1,084

 

 

13

 

$

1,034

 

Correspondent purchased

10

 

 

4,164

 

 

9

 

 

3,410

 

 

8

 

 

1,854

 

 

7

 

 

1,803

 

 

14

 

 

4,126

 

Bulk purchased

2

 

 

942

 

 

2

 

 

942

 

 

3

 

 

1,149

 

 

3

 

 

1,212

 

 

4

 

 

1,492

 

Commercial

8

 

 

1,198

 

 

12

 

 

2,183

 

 

8

 

 

1,225

 

 

7

 

 

1,152

 

 

7

 

 

1,152

 

Consumer

5

 

 

116

 

 

9

 

 

113

 

 

3

 

 

51

 

 

7

 

 

51

 

 

11

 

 

126

 

 

54

 

 

10,169

 

 

56

 

 

8,894

 

 

38

 

 

5,861

 

 

39

 

 

5,302

 

 

49

 

 

7,930

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure as a percentage of total loans

 

 

 

0.13

%

 

 

 

 

0.11

%

 

 

 

 

0.07

%

 

 

 

 

0.07

%

 

 

 

 

0.10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

—

 

$

—

 

 

2

 

$

215

 

 

3

 

$

295

 

 

2

 

$

187

 

 

3

 

$

219

 

Correspondent purchased

—

 

 

—

 

 

1

 

 

282

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Bulk purchased

—

 

 

—

 

 

—

 

 

—

 

 

1

 

 

257

 

 

1

 

 

257

 

 

—

 

 

—

 

Commercial

1

 

 

18

 

 

1

 

 

18

 

 

2

 

 

29

 

 

3

 

 

104

 

 

2

 

 

84

 

Consumer

—

 

 

—

 

 

—

 

 

—

 

 

1

 

 

37

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1

 

 

18

 

 

4

 

 

515

 

 

7

 

 

618

 

 

6

 

 

548

 

 

5

 

 

303

 

Total nonaccrual loans

55

 

 

10,187

 

 

60

 

 

9,409

 

 

45

 

 

6,479

 

 

45

 

 

5,850

 

 

54

 

 

8,233

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

 

0.13

%

 

 

 

 

0.12

%

 

 

 

 

0.08

%

 

 

 

 

0.07

%

 

 

 

 

0.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

2

 

$

225

 

 

—

 

$

—

 

 

—

 

$

—

 

 

2

 

$

160

 

 

2

 

$

161

 

Correspondent purchased

1

 

 

219

 

 

1

 

 

219

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

Consumer

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

—

 

 

1

 

 

21

 

 

3

 

 

444

 

 

1

 

 

219

 

 

—

 

 

—

 

 

2

 

 

160

 

 

3

 

 

182

 

Total non-performing assets

58

 

$

10,631

 

 

61

 

$

9,628

 

 

45

 

$

6,479

 

 

47

 

$

6,010

 

 

57

 

$

8,415

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

0.11

%

 

 

 

 

0.09

%

 

 

 

 

0.06

%

 

 

 

 

0.06

%

 

 

 

 

0.08

%

(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.

 

December 31, 2023

 

September 30, 2023

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

19,601

 

$

22,659

 

$

18,603

 

$

19,314

Commercial

 

15,097

 

 

1,221

 

 

16,407

 

 

1,293

Consumer

 

335

 

 

175

 

 

327

 

 

190

 

$

35,033

 

$

24,055

 

$

35,337

 

$

20,797

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

The following table presents ACL activity and related ratios at the dates and for the periods indicated. On October 1, 2023, the Bank adopted Accounting Standards Update ("ASU") 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02"), which eliminates the accounting guidance for troubled debt restructurings by creditors. The Company applied a modified retrospective approach when adopting ASU 2022-02, resulting in a cumulative-effect adjustment which is reflected in the table below ("ASU 2022-02 Adoption"). The reserve for off-balance sheet credit exposures totaled $3.8 million at December 31, 2023.

 

For the Three Months Ended

 

December 31, 2023

 

September 30, 2023

 

(Dollars in thousands)

Balance at beginning of period

$

23,759

 

 

$

22,399

 

ASU 2022-02 Adoption

 

20

 

 

 

—

 

Charge-offs:

 

 

 

One- to four-family

 

—

 

 

 

—

 

Commercial

 

—

 

 

 

(75

)

Consumer

 

(7

)

 

 

(9

)

Total charge-offs

 

(7

)

 

 

(84

)

Recoveries:

 

 

 

One- to four-family

 

5

 

 

 

4

 

Commercial

 

1

 

 

 

—

 

Consumer

 

—

 

 

 

—

 

Total recoveries

 

6

 

 

 

4

 

Net (charge-offs) recoveries

 

(1

)

 

 

(80

)

Provision for credit losses

 

400

 

 

 

1,440

 

Balance at end of period

$

24,178

 

 

$

23,759

 

 

 

 

 

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

 

0.01

 

 

 

1.01

 

ACL to non-performing loans at end of period

 

237.34

 

 

 

252.51

 

ACL to loans receivable at end of period

 

0.30

 

 

 

0.30

 

ACL to net charge-offs (annualized)

6,474

x

 

73

x

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

 

Distribution of ACL

 

Ratio of ACL to Loans Receivable

 

December 31,

 

September 30,

 

December 31,

 

September 30,

 

2023

 

2023

 

2023

 

2023

 

(Dollars in thousands)

 

 

 

 

One- to four-family

$

5,248

 

$

5,328

 

0.08

%

 

0.08

%

Commercial:

 

 

 

 

 

 

 

Commercial real estate

 

16,152

 

 

15,589

 

1.58

 

 

1.57

 

Commercial and industrial

 

973

 

 

1,104

 

0.86

 

 

0.98

 

Construction

 

1,553

 

 

1,487

 

0.79

 

 

0.83

 

Total

 

18,678

 

 

18,180

 

1.40

 

 

1.41

 

Consumer

 

252

 

 

251

 

0.24

 

 

0.24

 

Total

$

24,178

 

$

23,759

 

0.30

 

 

0.30

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at December 31, 2023. Overall, fixed-rate securities comprised 93% of our securities portfolio at December 31, 2023. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

MBS

$

503,912

 

5.76

%

 

5.4

U.S. Treasury bills

 

213,700

 

5.48

 

 

0.1

Corporate bonds

 

4,000

 

5.12

 

 

8.4

 

$

721,612

 

5.67

 

 

3.9

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

 

For the Three Months Ended

 

December 31, 2023

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,384,482

 

 

1.35

%

 

3.8

Maturities and repayments

 

(49,604

)

 

 

 

 

Proceeds from sale

 

(1,272,512

)

 

 

 

 

Net amortization of (premiums)/discounts

 

2,771

 

 

 

 

 

Purchases

 

668,310

 

 

5.72

 

 

3.8

Change in valuation on AFS securities

 

7,015

 

 

 

 

 

Ending balance - carrying value

$

740,462

 

 

5.67

 

 

3.9

Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented. The increase in the deposit portfolio rate compared to the prior quarter was due mainly to higher rates on retail certificates of deposit.

 

December 31, 2023

 

September 30, 2023

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

555,382

 

—

%

 

9.2

%

 

$

558,326

 

—

%

 

9.2

%

Interest-bearing checking

 

895,665

 

0.17

 

 

14.9

 

 

 

901,994

 

0.19

 

 

14.9

 

Savings

 

471,372

 

0.12

 

 

7.8

 

 

 

480,091

 

0.12

 

 

7.9

 

Money market

 

1,360,349

 

1.96

 

 

22.6

 

 

 

1,380,617

 

1.96

 

 

22.8

 

Retail certificates of deposit

 

2,569,391

 

3.75

 

 

42.7

 

 

 

2,533,954

 

3.47

 

 

41.9

 

Commercial certificates of deposit

 

49,152

 

3.80

 

 

0.8

 

 

 

48,751

 

3.56

 

 

0.8

 

Public unit certificates of deposit

 

120,284

 

4.54

 

 

2.0

 

 

 

147,487

 

4.44

 

 

2.5

 

 

$

6,021,595

 

2.20

 

 

100.0

%

 

$

6,051,220

 

2.07

 

 

100.0

%

Borrowings

The following table presents the maturity of term borrowings, which consist of FHLB advances and BTFP borrowings, along with associated weighted average contractual and effective rates as of December 31, 2023. Amortizing FHLB advances are presented based on their maturity dates versus their quarterly scheduled repayment dates.

Maturity by

 

 

 

Contractual

 

Effective

Fiscal Year

 

Amount

 

Rate

 

Rate(1)

 

 

(Dollars in thousands)

2024

 

 

340,000

 

4.15

 

2.61

2025

 

 

650,000

 

3.31

 

2.96

2026

 

 

575,000

 

2.81

 

2.95

2027

 

 

485,000

 

3.15

 

3.25

2028

 

 

325,410

 

4.94

 

4.19

 

 

$

2,375,410

 

3.50

 

3.13

(1)

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

The following table presents borrowing activity for the 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. Line of credit borrowings and finance leases are excluded from the table. 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. During the current quarter, management paid down BTFP borrowings with the proceeds received from the securities strategy.

 

For the Three Months Ended

 

December 31, 2023

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

2,882,828

 

 

3.34

%

 

1.8

Maturities and repayments

 

(157,418

)

 

3.46

 

 

 

New FHLB borrowings

 

150,000

 

 

4.66

 

 

3.7

BTFP, net

 

(500,000

)

 

4.70

 

 

—

Ending balance

$

2,375,410

 

 

3.13

 

 

2.0

Maturities of Interest-Bearing Liabilities

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and non-amortizing FHLB advances for the next four quarters as of December 31, 2023.

 

March 31,

 

June 30,

 

September 30,

 

December 31,

 

 

 

2024

 

2024

 

2024

 

2024

 

Total

 

(Dollars in thousands)

Retail/Commercial Certificates:

 

 

 

 

 

 

 

 

Amount

$

270,858

 

 

$

423,200

 

 

$

424,691

 

 

$

480,918

 

 

$

1,599,667

 

Repricing Rate

 

2.90

%

 

 

3.86

%

 

 

4.37

%

 

 

4.24

%

 

 

3.95

%

Public Unit Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

17,174

 

 

$

31,563

 

 

$

34,985

 

 

$

29,025

 

 

$

112,747

 

Repricing Rate

 

4.30

%

 

 

4.42

%

 

 

4.63

%

 

 

4.67

%

 

 

4.53

%

Non-Amortizing FHLB Advances:

 

 

 

 

 

 

 

 

 

Amount

$

65,000

 

 

$

100,000

 

 

$

175,000

 

 

$

200,000

 

 

$

540,000

 

Repricing Rate

 

2.72

%

 

 

1.98

%

 

 

2.93

%

 

 

3.35

%

 

 

2.88

%

Total

 

 

 

 

 

 

 

 

 

Amount

$

353,032

 

 

$

554,763

 

 

$

634,676

 

 

$

709,943

 

 

$

2,252,414

 

Repricing Rate

 

2.94

%

 

 

3.55

%

 

 

3.99

%

 

 

4.01

%

 

 

3.72

%

The following table sets forth the WAM information for our certificates of deposit, in years, as of December 31, 2023.

Retail certificates of deposit

1.1

Commercial certificates of deposit

0.8

Public unit certificates of deposit

0.6

Total certificates of deposit

1.1

Average Rates and Lives

At December 31, 2023, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(679.7) million, or (7.1)% of total assets, compared to $(1.19) billion, or (11.7)% of total assets, at September 30, 2023. The change in the one-year gap amount was due to both an increase in the amount of interest-earning asset cash flows coming due in one year at December 31, 2023 and a decrease in the amount of liability cash flows coming due in one year, compared to September 30, 2023. These changes were due, in part, to the securities strategy, which resulted in a decrease in borrowings that were coming due in one year, an increase in the balance of cash, and an increase in the amount of securities projected to reprice within one year. These results were partially offset by an increase in certificates of deposit scheduled to mature within one year as of December 31, 2023, compared to September 30, 2023, as the Bank continues to offer its highest rate on shorter-term certificates of deposit.

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, 2023, the Bank's one-year gap is projected to be $(789.7) million, or (8.2)% of total assets. This compares to a one-year gap of $(1.21) billion, or (11.9)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2023.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of December 31, 2023. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Securities

$

740,462

 

5.67

%

 

2.7

 

 

 

8.1

%

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family

 

5,556,238

 

3.32

 

 

6.7

 

69.8

%

 

60.9

 

Fixed-rate commercial

 

469,873

 

4.50

 

 

3.0

 

5.9

 

 

5.1

 

All other fixed-rate loans

 

54,351

 

5.43

 

 

6.9

 

0.7

 

 

0.6

 

Total fixed-rate loans

 

6,080,462

 

3.43

 

 

6.5

 

76.4

 

 

66.6

 

Adjustable-rate one- to four-family

 

925,588

 

3.86

 

 

3.9

 

11.6

 

 

10.1

 

Adjustable-rate commercial

 

859,737

 

5.96

 

 

7.5

 

10.8

 

 

9.4

 

All other adjustable-rate loans

 

95,902

 

8.41

 

 

2.9

 

1.2

 

 

1.1

 

Total adjustable-rate loans

 

1,881,227

 

5.05

 

 

5.5

 

23.6

 

 

20.6

 

Total loans receivable

 

7,961,689

 

3.81

 

 

6.2

 

100.0

%

 

87.2

 

FHLB stock

 

110,166

 

9.47

 

 

2.1

 

 

 

1.2

 

Cash and cash equivalents

 

320,357

 

4.85

 

 

—

 

 

 

3.5

 

Total interest-earning assets

$

9,132,674

 

4.07

 

 

5.7

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

2,727,386

 

1.05

 

 

6.7

 

49.9

%

 

34.8

%

Retail certificates of deposit

 

2,569,391

 

3.75

 

 

1.1

 

47.0

 

 

32.8

 

Commercial certificates of deposit

 

49,152

 

3.80

 

 

0.8

 

0.9

 

 

0.6

 

Public unit certificates of deposit

 

120,284

 

4.54

 

 

0.6

 

2.2

 

 

1.5

 

Total interest-bearing deposits

 

5,466,213

 

2.42

 

 

3.9

 

100.0

%

 

69.7

 

Term borrowings

 

2,376,384

 

3.14

 

 

2.0

 

 

 

30.3

 

Total interest-bearing liabilities

$

7,842,597

 

2.64

 

 

3.3

 

 

 

100.0

%

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240124700275/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