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Capitol Federal Financial, Inc.® Reports Second Quarter 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 quarter ended March 31, 2022. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 will be filed with the Securities and Exchange Commission ("SEC") on or about May 9, 2022 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $21.6 million;
  • basic and diluted earnings per share of $0.16;
  • net interest margin of 1.69% (2.01% excluding the effects of the leverage strategy);
  • paid dividends of $11.5 million, or $0.085 per share; and
  • on April 20, 2022, announced a cash dividend of $0.085 per share, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 2022.

Comparison of Operating Results for the Three Months Ended March 31, 2022 and December 31, 2021

For the quarter ended March 31, 2022, the Company recognized net income of $21.6 million, or $0.16 per share, compared to net income of $22.2 million, or $0.16 per share, for the quarter ended December 31, 2021. The decrease in net income was due primarily to higher non-interest expense and income tax expense, partially offset by an increase in net interest income. The net interest margin decreased 30 basis points, from 1.99% for the prior quarter to 1.69% for the current quarter. During the current quarter, the Company's leverage strategy, which had not been in place since 2019, was reimplemented. 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 would have increased two basis points, from 1.99% for the prior quarter to 2.01% for the current quarter. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to a decrease in the cost of retail certificates of deposit.

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.10 billion either on the Bank's line of credit with Federal Home Loan Bank Topeka ("FHLB") or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 5.75% from dividends 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 $545 thousand during the current quarter. 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.

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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

55,412

 

$

55,788

 

$

(376

)

 

(0.7

) %

Mortgage-backed securities ("MBS")

 

4,821

 

 

4,625

 

 

196

 

 

4.2

 

FHLB stock

 

2,240

 

 

1,231

 

 

1,009

 

 

82.0

 

Investment securities

 

800

 

 

808

 

 

(8

)

 

(1.0

)

Cash and cash equivalents

 

949

 

 

14

 

 

935

 

 

6,678.6

 

Total interest and dividend income

$

64,222

 

$

62,466

 

$

1,756

 

 

2.8

 

The increase in interest income on MBS was due to a decrease in premium amortization related to a slowdown in prepayment activity. The increase in dividend income on FHLB stock was due mainly to the leverage strategy being utilized during the current quarter, partially offset by a special 1.00% year-end dividend received in the prior quarter. The increase in interest income on cash and cash equivalents was due mainly to the leverage strategy being utilized during the current quarter.

Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

8,389

 

$

9,267

 

$

(878

)

 

(9.5

) %

Borrowings

 

8,732

 

 

7,585

 

 

1,147

 

 

15.1

 

Total interest expense

$

17,121

 

$

16,852

 

$

269

 

 

1.6

 

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio. The increase in interest expense on borrowings was due to the leverage strategy being utilized during the current quarter.

Provision for Credit Losses

For the quarter ended March 31, 2022, the Bank recorded a negative provision for credit losses of $3.2 million, compared to a negative provision for credit losses of $3.4 million for the prior quarter. The negative provision in the current quarter was comprised of a $2.2 million decrease in the allowance for credit losses ("ACL") for loans and a $952 thousand decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL was due primarily to a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, as well as a decrease in the commercial loan Coronavirus Disease 2019 ("COVID-19") modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures was due primarily to a reduction in the reserve for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

3,300

 

$

3,430

 

$

(130

)

 

(3.8

) %

Insurance commissions

 

543

 

 

711

 

 

(168

)

 

(23.6

)

Other non-interest income

 

1,573

 

 

1,365

 

 

208

 

 

15.2

 

Total non-interest income

$

5,416

 

$

5,506

 

$

(90

)

 

(1.6

)

The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions, which was lower than expected, and the related accrual adjustments. The increase in other non-interest income was due mainly 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 Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

14,023

 

$

13,728

 

$

295

 

 

2.1

%

Information technology and related expense

 

4,493

 

 

4,432

 

 

61

 

 

1.4

 

Occupancy, net

 

3,493

 

 

3,379

 

 

114

 

 

3.4

 

Regulatory and outside services

 

1,272

 

 

1,368

 

 

(96

)

 

(7.0

)

Advertising and promotional

 

1,494

 

 

1,064

 

 

430

 

 

40.4

 

Federal insurance premium

 

777

 

 

639

 

 

138

 

 

21.6

 

Deposit and loan transaction costs

 

689

 

 

697

 

 

(8

)

 

(1.1

)

Office supplies and related expense

 

502

 

 

468

 

 

34

 

 

7.3

 

Other non-interest expense

 

1,217

 

 

919

 

 

298

 

 

32.4

 

Total non-interest expense

$

27,960

 

$

26,694

 

$

1,266

 

 

4.7

 

The increase in advertising and promotional expense was due primarily to the timing of campaigns and sponsorships. 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 quarter. The increase in other non-interest expense was due mainly to an increase in debit card and deposit account fraud losses, along with an increase in dues and subscriptions related to annual payments, and an increase in insurance expense due to a premium refund received in the prior quarter.

The Company's efficiency ratio was 53.24% for the current quarter compared to 52.22% 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.

 

For the Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

 

2021

 

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

27,745

 

 

$

27,865

 

 

$

(120

)

 

(0.4

) %

Income tax expense

 

6,122

 

 

 

5,679

 

 

 

443

 

 

7.8

 

Net income

$

21,623

 

 

$

22,186

 

 

$

(563

)

 

(2.5

)

 

 

 

 

 

 

 

 

Effective Tax Rate

 

22.1

%

 

 

20.4

%

 

 

 

 

The increase in income tax expense was due primarily to a higher effective tax rate in the current quarter. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2021 tax returns. Management anticipates the effective tax rate for fiscal year 2022 will be approximately 21%.

Comparison of Operating Results for the Six Months Ended March 31, 2022 and 2021

The Company recognized net income of $43.8 million, or $0.32 per share, for the current year period compared to net income of $39.3 million, or $0.29 per share, for the prior year period. The increase in net income was due primarily to an increase in net interest income and a higher negative provision for credit losses in the current year period, partially offset by higher income tax expense. The net interest margin decreased seven basis points, from 1.90% for the prior year period to 1.83% for the current year period. Excluding the effects of the leverage strategy, the net interest margin would have increased 10 basis points, from 1.90% for the prior year period to 2.00% for the current year period. The increase in net interest margin excluding the effects of the leverage strategy was due mainly to a reduction in the weighted average cost of retail certificates of deposit and borrowings, which outpaced the decrease in weighted average asset yields.

Interest and Dividend Income

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

 

For the Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

111,200

 

$

117,979

 

$

(6,779

)

 

(5.7

) %

MBS

 

9,446

 

 

11,139

 

 

(1,693

)

 

(15.2

)

FHLB Stock

 

3,471

 

 

2,020

 

 

1,451

 

 

71.8

 

Investment securities

 

1,608

 

 

1,312

 

 

296

 

 

22.6

 

Cash and cash equivalents

 

963

 

 

91

 

 

872

 

 

958.2

 

Total interest and dividend income

$

126,688

 

$

132,541

 

$

(5,853

)

 

(4.4

)

The decrease in interest income on loans receivable was due primarily to a decrease in the weighted average rate on the originated and correspondent one- to four-family loan portfolio, partially offset by the increase in the average balance of the loan portfolio. The decrease in the weighted average rate was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates between periods. Premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year period due to the slow-down in prepayments and endorsements, partially offsetting the decrease in the weighted average rate.

The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of purchases at lower market yields between periods, along with higher premium amortization related to prepayment activity.

The increase in dividend income on FHLB stock and the increase in interest income on cash and cash equivalents were due mainly to the leverage strategy being utilized during the current year period.

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

Interest Expense

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

 

For the Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

17,656

 

$

26,596

 

$

(8,940

)

 

(33.6

) %

Borrowings

 

16,317

 

 

19,059

 

 

(2,742

)

 

(14.4

)

Total interest expense

$

33,973

 

$

45,655

 

$

(11,682

)

 

(25.6

)

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, wholesale certificates of deposit, and money market accounts. Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered between periods.

The decrease in interest expense on borrowings was due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021. Cash flows from the deposit portfolio were used to pay down certain FHLB advances. This was partially offset by the leverage strategy being utilized during the current year period and not being utilized during the prior year period.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $6.6 million, compared to a negative provision for credit losses of $4.5 million during the prior year period. The negative provision in the current year period was comprised of a $4.5 million decrease in the ACL for loans and a $2.1 million decrease in reserves for off-balance sheet credit exposures. The negative provision for credit losses associated with the ACL in the current year period was due to (1) a reduction in model-calculated ACL for commercial loans due to an increase in projected prepayment speeds as a result of recent prepayment activity, (2) a reduction in the large-dollar special mention commercial loan qualitative factor due to two large-dollar special mention commercial loans moving to the pass classification during the December 31, 2021 quarter, (3) a decrease in the commercial loan COVID-19 modification qualitative factor due to loans exiting their deferral time periods and resuming full payments per their original contracts during the current quarter, and (4) a decrease in the economic uncertainty qualitative factor for commercial loans due to continued improvement in economic conditions. The negative provision for credit losses associated with the reserve for off-balance sheet credit exposures in the current year period was due primarily to a reduction in the commercial loan economic uncertainty qualitative factor and to a reduction in the reserves for commercial construction loans due mainly to a reduction in the model-calculated amount as noted for the ACL.

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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

6,730

 

$

5,761

 

$

969

 

 

16.8

%

Insurance commissions

 

1,254

 

 

1,526

 

 

(272

)

 

(17.8

)

Gain on sale of Visa Class B shares

 

 

 

7,386

 

 

(7,386

)

 

(100.0

)

Other non-interest income

 

2,938

 

 

2,874

 

 

64

 

 

2.2

 

Total non-interest income

$

10,922

 

$

17,547

 

$

(6,625

)

 

(37.8

)

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

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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

27,751

 

$

27,535

 

$

216

 

 

0.8

%

Information technology and related expense

 

8,925

 

 

8,832

 

 

93

 

 

1.1

 

Occupancy, net

 

6,872

 

 

6,902

 

 

(30

)

 

(0.4

)

Regulatory and outside services

 

2,640

 

 

2,819

 

 

(179

)

 

(6.3

)

Advertising and promotional

 

2,558

 

 

2,322

 

 

236

 

 

10.2

 

Federal insurance premium

 

1,416

 

 

1,255

 

 

161

 

 

12.8

 

Deposit and loan transaction costs

 

1,386

 

 

1,430

 

 

(44

)

 

(3.1

)

Office supplies and related expense

 

970

 

 

887

 

 

83

 

 

9.4

 

Loss on interest rate swap termination

 

 

 

4,752

 

 

(4,752

)

 

(100.0

)

Other non-interest expense

 

2,136

 

 

2,986

 

 

(850

)

 

(28.5

)

Total non-interest expense

$

54,654

 

$

59,720

 

$

(5,066

)

 

(8.5

)

The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic. During the prior year period, the Bank terminated $200.0 million of interest rate swaps, resulting in a loss of $4.8 million which was reclassified out of accumulated other comprehensive income ("AOCI") to earnings. The decrease in other non-interest expense was due primarily to the write-down during the prior year period of a property that had previously served as one of the Bank's branch locations.

The Company's efficiency ratio was 52.74% for the current year period compared to 57.19% for the prior year period. The improvement in the efficiency ratio was due primarily to lower non-interest expense and higher net interest income, partially offset by lower non-interest income.

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

Income Tax Expense

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

 

For the Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

 

2022

 

 

 

2021

 

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

$

55,610

 

 

$

49,209

 

 

$

6,401

 

13.0

%

Income tax expense

 

11,801

 

 

 

9,867

 

 

 

1,934

 

19.6

 

Net income

$

43,809

 

 

$

39,342

 

 

$

4,467

 

11.4

 

 

 

 

 

 

 

 

 

Effective Tax Rate

 

21.2

%

 

 

20.1

%

 

 

 

 

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

Financial Condition as of March 31, 2022

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

 

 

 

 

 

Annualized

 

 

 

Annualized

 

March 31,

 

December 31,

 

Percent

 

September 30,

 

Percent

 

2022

 

2021

 

Change

 

2021

 

Change

 

(Dollars in thousands)

Total assets

$ 9,531,296

 

$ 9,609,157

 

(3.2) %

 

$ 9,631,246

 

(2.1) %

Available-for-sale ("AFS") securities

1,780,419

 

1,890,653

 

(23.3)

 

2,014,608

 

(23.2)

Loans receivable, net

7,108,810

 

7,095,605

 

0.7

 

7,081,142

 

0.8

Deposits

6,614,844

 

6,648,004

 

(2.0)

 

6,597,396

 

0.5

Borrowings

1,583,747

 

1,583,303

 

0.1

 

1,582,850

 

0.1

Stockholders' equity

1,174,752

 

1,216,660

 

(13.8)

 

1,242,273

 

(10.9)

Equity to total assets at end of period

12.3%

 

12.7%

 

 

 

12.9%

 

 

Average number of basic shares outstanding

135,677

 

135,627

 

0.1

 

135,571

 

0.2

Average number of diluted shares outstanding

135,677

 

135,627

 

0.1

 

135,571

 

0.2

The decrease in total assets from September 30, 2021 and December 31, 2021 to March 31, 2022 was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents. The decrease in stockholders' equity from September 30, 2021 and December 31, 2021 to March 31, 2022 was due mainly to a reduction in AOCI as a result of changes in the fair value of AFS securities.

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 Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations and purchases

 

 

 

 

 

 

 

One- to four-family and consumer:

 

 

 

 

 

 

 

Originated

$

180,117

 

3.08

%

 

$

389,557

 

 

2.97

%

Purchased

 

118,096

 

2.81

 

 

 

248,649

 

 

2.73

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

Originated

 

88,034

 

3.96

 

 

 

137,279

 

 

3.90

 

Purchased

 

37,394

 

3.25

 

 

 

74,057

 

 

3.30

 

 

$

423,641

 

3.20

 

 

$

849,542

 

 

3.08

 

Borrowing activity

 

 

 

 

 

 

 

Maturities and prepayments

$

 

 

 

$

(100,000

)

 

3.14

 

New borrowings

 

 

 

 

 

100,000

 

 

3.44

 

Stockholders' Equity

During the six months ended March 31, 2022, the Company paid cash dividends totaling $52.9 million. These cash dividends totaled $0.39 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 20, 2022 to stockholders of record as of the close of business on May 6, 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 March 31, 2022, this ratio was 11.1%.

At March 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $81.1 million in cash on deposit at the Bank. For fiscal year 2022, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors, including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

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

The following table presents a reconciliation of total to net shares outstanding as of March 31, 2022.

Total shares outstanding

138,846,684

 

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

(3,127,914

)

Net shares outstanding

135,718,770

 

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 March 31, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.7%, which exceeded the minimum requirement of 9%. The CBLR decreased from 11.6% as of December 31, 2021 due to the reimplementation of the leverage strategy during the current quarter, which increased average assets and decreased the CBLR.

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

Except for the historical information contained in this press release, the matters discussed herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions. The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; demand for loans in the Company's and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could affect the ability of the Company to pay dividends in accordance with its dividend policies; competition; and other risks detailed from time to time in documents filed or furnished by the Company with the SEC. Actual results may differ materially from those currently expected. These forward-looking statements represent the Company's judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share amounts)

 

 

March 31,

 

December 31,

 

September 30,

 

 

2022

 

 

 

2021

 

 

 

2021

 

ASSETS:

 

 

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $110,444, $106,225 and $24,289)

$

166,869

 

 

$

135,475

 

 

$

42,262

 

AFS securities, at estimated fair value (amortized cost of $1,875,361, $1,899,027 and $2,008,456)

 

1,780,419

 

 

 

1,890,653

 

 

 

2,014,608

 

Loans receivable, net (ACL of $15,312, $17,535 and $19,823)

 

7,108,810

 

 

 

7,095,605

 

 

 

7,081,142

 

FHLB stock, at cost

 

74,456

 

 

 

75,261

 

 

 

73,421

 

Premises and equipment, net

 

96,952

 

 

 

97,718

 

 

 

99,127

 

Deferred income tax assets, net

 

12,399

 

 

 

 

 

 

 

Other assets

 

291,391

 

 

 

314,445

 

 

 

320,686

 

TOTAL ASSETS

$

9,531,296

 

 

$

9,609,157

 

 

$

9,631,246

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

$

6,614,844

 

 

$

6,648,004

 

 

$

6,597,396

 

Borrowings

 

1,583,747

 

 

 

1,583,303

 

 

 

1,582,850

 

Advance payments by borrowers for taxes and insurance

 

65,901

 

 

 

38,227

 

 

 

72,729

 

Income taxes payable, net

 

1,113

 

 

 

3,733

 

 

 

918

 

Deferred income tax liabilities, net

 

 

 

 

3,981

 

 

 

5,810

 

Other liabilities

 

90,939

 

 

 

115,249

 

 

 

129,270

 

Total liabilities

 

8,356,544

 

 

 

8,392,497

 

 

 

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, 138,846,684, 138,842,784 and 138,832,284 shares issued and outstanding as of March 31, 2022, December 31, 2021, and September 30, 2021, respectively

 

1,388

 

 

 

1,388

 

 

 

1,388

 

Additional paid-in capital

 

1,189,999

 

 

 

1,189,827

 

 

 

1,189,633

 

Unearned compensation, ESOP

 

(30,561

)

 

 

(30,974

)

 

 

(31,387

)

Retained earnings

 

89,833

 

 

 

79,745

 

 

 

98,944

 

Accumulated other comprehensive (loss) income, net of tax

 

(75,907

)

 

 

(23,326

)

 

 

(16,305

)

Total stockholders' equity

 

1,174,752

 

 

 

1,216,660

 

 

 

1,242,273

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,531,296

 

 

$

9,609,157

 

 

$

9,631,246

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

 

For the Three Months Ended

 

For the Six Months Ended

 

March 31,

 

December 31,

 

March 31,

 

 

2022

 

 

 

2021

 

 

 

2022

 

 

 

2021

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

55,412

 

 

$

55,788

 

 

$

111,200

 

 

$

117,979

 

MBS

 

4,821

 

 

 

4,625

 

 

 

9,446

 

 

 

11,139

 

FHLB stock

 

2,240

 

 

 

1,231

 

 

 

3,471

 

 

 

2,020

 

Investment securities

 

800

 

 

 

808

 

 

 

1,608

 

 

 

1,312

 

Cash and cash equivalents

 

949

 

 

 

14

 

 

 

963

 

 

 

91

 

Total interest and dividend income

 

64,222

 

 

 

62,466

 

 

 

126,688

 

 

 

132,541

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

 

8,389

 

 

 

9,267

 

 

 

17,656

 

 

 

26,596

 

Borrowings

 

8,732

 

 

 

7,585

 

 

 

16,317

 

 

 

19,059

 

Total interest expense

 

17,121

 

 

 

16,852

 

 

 

33,973

 

 

 

45,655

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

 

47,101

 

 

 

45,614

 

 

 

92,715

 

 

 

86,886

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

(3,188

)

 

 

(3,439

)

 

 

(6,627

)

 

 

(4,496

)

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

50,289

 

 

 

49,053

 

 

 

99,342

 

 

 

91,382

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

 

3,300

 

 

 

3,430

 

 

 

6,730

 

 

 

5,761

 

Insurance commissions

 

543

 

 

 

711

 

 

 

1,254

 

 

 

1,526

 

Gain on sale of Visa Class B shares

 

 

 

 

 

 

 

 

 

 

7,386

 

Other non-interest income

 

1,573

 

 

 

1,365

 

 

 

2,938

 

 

 

2,874

 

Total non-interest income

 

5,416

 

 

 

5,506

 

 

 

10,922

 

 

 

17,547

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

 

14,023

 

 

 

13,728

 

 

 

27,751

 

 

 

27,535

 

Information technology and related expense

 

4,493

 

 

 

4,432

 

 

 

8,925

 

 

 

8,832

 

Occupancy, net

 

3,493

 

 

 

3,379

 

 

 

6,872

 

 

 

6,902

 

Regulatory and outside services

 

1,272

 

 

 

1,368

 

 

 

2,640

 

 

 

2,819

 

Advertising and promotional

 

1,494

 

 

 

1,064

 

 

 

2,558

 

 

 

2,322

 

Federal insurance premium

 

777

 

 

 

639

 

 

 

1,416

 

 

 

1,255

 

Deposit and loan transaction costs

 

689

 

 

 

697

 

 

 

1,386

 

 

 

1,430

 

Office supplies and related expense

 

502

 

 

 

468

 

 

 

970

 

 

 

887

 

Loss on interest rate swap termination

 

 

 

 

 

 

 

 

 

 

4,752

 

Other non-interest expense

 

1,217

 

 

 

919

 

 

 

2,136

 

 

 

2,986

 

Total non-interest expense

 

27,960

 

 

 

26,694

 

 

 

54,654

 

 

 

59,720

 

INCOME BEFORE INCOME TAX EXPENSE

 

27,745

 

 

 

27,865

 

 

 

55,610

 

 

 

49,209

 

INCOME TAX EXPENSE

 

6,122

 

 

 

5,679

 

 

 

11,801

 

 

 

9,867

 

NET INCOME

$

21,623

 

 

$

22,186

 

 

$

43,809

 

 

$

39,342

 

Average Balance Sheets

The following tables present the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

 

For the Three Months Ended

 

March 31, 2022

 

December 31, 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

$

3,965,844

 

$

31,993

 

3.23

%

 

$

3,971,049

 

$

32,422

 

3.27

%

Correspondent purchased

 

2,026,120

 

 

13,060

 

2.58

 

 

 

2,035,631

 

 

12,746

 

2.50

 

Bulk purchased

 

161,149

 

 

503

 

1.25

 

 

 

170,537

 

 

610

 

1.43

 

Total one- to four-family loans

 

6,153,113

 

 

45,556

 

2.96

 

 

 

6,177,217

 

 

45,778

 

2.96

 

Commercial loans

 

869,205

 

 

8,851

 

4.07

 

 

 

841,217

 

 

8,943

 

4.16

 

Consumer loans

 

90,326

 

 

1,005

 

4.51

 

 

 

92,794

 

 

1,067

 

4.56

 

Total loans receivable(1)

 

7,112,644

 

 

55,412

 

3.12

 

 

 

7,111,228

 

 

55,788

 

3.13

 

MBS(2)

 

1,357,693

 

 

4,821

 

1.42

 

 

 

1,435,562

 

 

4,625

 

1.29

 

Investment securities(2)(3)

 

522,019

 

 

800

 

0.61

 

 

 

523,931

 

 

808

 

0.62

 

FHLB stock(4)

 

158,546

 

 

2,240

 

5.73

 

 

 

73,481

 

 

1,231

 

6.64

 

Cash and cash equivalents(5)

 

1,971,341

 

 

949

 

0.19

 

 

 

37,221

 

 

14

 

0.15

 

Total interest-earning assets

 

11,122,243

 

 

64,222

 

2.31

 

 

 

9,181,423

 

 

62,466

 

2.71

 

Other non-interest-earning assets

 

385,323

 

 

 

 

 

 

412,115

 

 

 

 

Total assets

$

11,507,566

 

 

 

 

 

$

9,593,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,069,282

 

 

176

 

0.07

 

 

$

1,052,413

 

 

179

 

0.07

 

Savings

 

540,348

 

 

71

 

0.05

 

 

 

520,770

 

 

70

 

0.05

 

Money market

 

1,879,799

 

 

876

 

0.19

 

 

 

1,767,134

 

 

825

 

0.19

 

Retail certificates

 

2,241,080

 

 

7,012

 

1.27

 

 

 

2,298,678

 

 

7,835

 

1.35

 

Commercial certificates

 

116,181

 

 

183

 

0.64

 

 

 

169,200

 

 

272

 

0.64

 

Wholesale certificates

 

197,335

 

 

71

 

0.15

 

 

 

199,692

 

 

86

 

0.17

 

Total deposits

 

6,044,025

 

 

8,389

 

0.56

 

 

 

6,007,887

 

 

9,267

 

0.61

 

Borrowings(6)

 

3,499,010

 

 

8,732

 

1.01

 

 

 

1,589,258

 

 

7,585

 

1.88

 

Total interest-bearing liabilities

 

9,543,035

 

 

17,121

 

0.73

 

 

 

7,597,145

 

 

16,852

 

0.88

 

Non-interest-bearing deposits

 

577,989

 

 

 

 

 

 

550,492

 

 

 

 

Other non-interest-bearing liabilities

 

177,995

 

 

 

 

 

 

209,890

 

 

 

 

Stockholders' equity

 

1,208,547

 

 

 

 

 

 

1,236,011

 

 

 

 

Total liabilities and stockholders' equity

$

11,507,566

 

 

 

 

 

$

9,593,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

47,101

 

 

 

 

 

$

45,614

 

 

Net interest-earning assets

$

1,579,208

 

 

 

 

 

$

1,584,278

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.69

 

 

 

 

 

 

1.99

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.17x

 

 

 

 

 

1.21x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.75

%

 

 

 

 

 

0.93

%

Return on average equity (annualized)(9)

 

 

 

7.16

 

 

 

 

 

 

7.18

 

Average equity to average assets

 

 

 

 

10.50

 

 

 

 

 

 

12.88

 

Operating expense ratio (annualized)(10)

 

 

 

 

0.97

 

 

 

 

 

 

1.11

 

Efficiency ratio(9)(11)

 

 

 

53.24

 

 

 

 

 

 

52.22

 

Pre-tax yield on leverage strategy(12)

 

 

 

 

0.14

 

 

 

 

 

 

 

 

For the Six Months Ended

 

March 31, 2022

 

March 31, 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

$ 3,968,475

 

$ 64,415

 

3.25%

 

$ 3,953,137

 

$ 70,755

 

3.58%

Correspondent purchased

2,030,928

 

25,805

 

2.54

 

2,023,781

 

24,757

 

2.45

Bulk purchased

165,895

 

1,114

 

1.34

 

200,918

 

2,045

 

2.04

Total one- to four-family loans

6,165,298

 

91,334

 

2.96

 

6,177,836

 

97,557

 

3.16

Commercial loans

855,057

 

17,794

 

4.12

 

768,552

 

17,963

 

4.62

Consumer loans

91,573

 

2,072

 

4.54

 

106,371

 

2,459

 

4.64

Total loans receivable(1)

7,111,928

 

111,200

 

3.12

 

7,052,759

 

117,979

 

3.34

MBS(2)

1,397,056

 

9,446

 

1.35

 

1,372,531

 

11,139

 

1.62

Investment securities(2)(3)

522,986

 

1,608

 

0.61

 

448,595

 

1,312

 

0.58

FHLB stock(4)

115,546

 

3,471

 

6.02

 

81,332

 

2,020

 

4.98

Cash and cash equivalents(5)

993,653

 

963

 

0.19

 

180,242

 

91

 

0.10

Total interest-earning assets

10,141,169

 

126,688

 

2.49

 

9,135,459

 

132,541

 

2.90

Other non-interest-earning assets

398,355

 

 

 

 

 

449,883

 

 

 

 

Total assets

$ 10,539,524

 

 

 

 

 

$ 9,585,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$ 1,060,755

 

355

 

0.07

 

$ 929,976

 

407

 

0.09

Savings

530,451

 

141

 

0.05

 

460,252

 

136

 

0.06

Money market

1,822,848

 

1,701

 

0.19

 

1,508,935

 

2,222

 

0.30

Retail certificates

2,270,195

 

14,847

 

1.31

 

2,565,182

 

22,293

 

1.74

Commercial certificates

142,982

 

455

 

0.64

 

184,414

 

801

 

0.87

Wholesale certificates

198,527

 

157

 

0.16

 

256,123

 

737

 

0.58

Total deposits

6,025,758

 

17,656

 

0.59

 

5,904,882

 

26,596

 

0.90

Borrowings(6)

2,533,641

 

16,317

 

1.28

 

1,690,363

 

19,059

 

2.25

Total interest-bearing liabilities

8,559,399

 

33,973

 

0.79

 

7,595,245

 

45,655

 

1.20

Non-interest-bearing deposits

564,089

 

 

 

 

 

479,894

 

 

 

 

Other non-interest-bearing liabilities

193,606

 

 

 

 

 

227,189

 

 

 

 

Stockholders' equity

1,222,430

 

 

 

 

 

1,283,014

 

 

 

 

Total liabilities and stockholders' equity

$ 10,539,524

 

 

 

 

 

$ 9,585,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$ 92,715

 

 

 

 

 

$ 86,886

 

 

Net interest-earning assets

$ 1,581,770

 

 

 

 

 

$ 1,540,214

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.83

 

 

 

 

 

1.90

Ratio of interest-earning assets to interest-bearing liabilities

 

1.18x

 

 

 

 

 

1.20x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

0.83%

 

 

 

 

 

0.82%

Return on average equity (annualized)(9)

 

 

 

7.17

 

 

 

 

 

6.13

Average equity to average assets

 

 

 

 

11.60

 

 

 

 

 

13.39

Operating expense ratio (annualized)(10)

 

 

 

 

1.04

 

 

 

 

 

1.25

Efficiency ratio(9)(11)

 

 

 

 

52.74

 

 

 

 

 

57.19

Pre-tax yield on leverage strategy(12)

 

 

 

0.15

 

 

 

 

 

(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 $2.0 million and $4.0 million for the quarters ended March 31, 2022 and December 31, 2021, respectively, and $3.0 million and $8.3 million for the six-month periods ended March 31, 2022 and March 31, 2021, respectively.

(4)

Included in this line, for the quarter and six month period ended March 31, 2022, is FHLB stock related to the leverage strategy with an average outstanding balance of $86.2 million and $42.6 million, respectively, and dividend income of $1.2 million at a weighted average yield of 5.75%, and FHLB stock not related to the leverage strategy with an average outstanding balance of $72.3 million and $72.9 million, respectively, and dividend income of $1.0 million and $2.2 million, respectively, at a weighted average yield of 5.71% and 6.18%, respectively.  There was no FHLB stock related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.

(5)

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.83 billion and $904.6 million during the quarter and six month period ended March 31, 2022, respectively.  There were no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.

(6)

Included in this line, for the quarter and six month period ended March 31, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.92 billion and $947.3 million, respectively, and interest paid of $1.3 million and $1.3 million, respectively, at a weighted average rate of 0.26% and 0.26%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $1.58 billion and $1.59 billion, respectively, and interest paid of $7.5 million and $15.1 million, respectively, at a weighted average rate of 1.90% and 1.89%, respectively.  There were no FHLB borrowings related to the leverage strategy during the quarter ended December 31, 2021 or the six month period ended March 31, 2021.  The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(7)

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

(8)

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

(9)

The tables below provide a reconciliation between certain performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP.  Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy.  The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.

For the Three Months Ended

 

March 31, 2022

 

December 31, 2021

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.31

%

 

(0.39

) %

 

2.70

%

 

2.71

%

 

%

 

2.71

%

Cost of interest-bearing liabilities

0.73

 

 

(0.11

)

 

0.84

 

 

0.88

 

 

 

 

0.88

 

Return on average assets (annualized)

0.75

 

 

(0.13

)

 

0.88

 

 

0.93

 

 

 

 

0.93

 

Return on average equity (annualized)

7.16

 

 

0.18

 

 

6.98

 

 

7.18

 

 

 

 

7.18

 

Net interest margin

1.69

 

 

(0.32

)

 

2.01

 

 

1.99

 

 

 

 

1.99

 

Efficiency Ratio

53.24

 

 

(0.58

)

 

53.82

 

 

52.22

 

 

 

 

52.22

 

 

For the Six Months Ended

 

March 31, 2022

 

March 31, 2021

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

2.49

%

 

(0.22

) %

 

2.71

%

 

2.90

%

 

%

 

2.90

%

Cost of interest-bearing liabilities

0.79

 

 

(0.07

)

 

0.86

 

 

1.20

 

 

 

 

1.20

 

Return on average assets (annualized)

0.83

 

 

(0.07

)

 

0.90

 

 

0.82

 

 

 

 

0.82

 

Return on average equity (annualized)

7.17

 

 

0.09

 

 

7.08

 

 

6.13

 

 

 

 

6.13

 

Net interest margin

1.83

 

 

(0.17

)

 

2.00

 

 

1.90

 

 

 

 

1.90

 

Efficiency Ratio

52.74

 

 

(0.29

)

 

53.03

 

 

57.19

 

 

 

 

57.19

(10)

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

(11)

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

(12)

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

Loan Portfolio

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

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,943,327

 

 

3.14

%

 

55.4

%

 

$

3,941,568

 

 

3.15

%

 

55.5

%

 

$

3,956,064

 

 

3.18

%

 

55.8

%

Correspondent purchased

 

1,995,167

 

 

2.95

 

 

28.0

 

 

 

1,991,944

 

 

2.97

 

 

28.0

 

 

 

2,003,477

 

 

3.02

 

 

28.2

 

Bulk purchased

 

155,657

 

 

1.33

 

 

2.2

 

 

 

165,339

 

 

1.52

 

 

2.3

 

 

 

173,662

 

 

1.65

 

 

2.4

 

Construction

 

50,512

 

 

2.78

 

 

0.7

 

 

 

47,508

 

 

2.76

 

 

0.7

 

 

 

39,142

 

 

2.82

 

 

0.6

 

Total

 

6,144,663

 

 

3.03

 

 

86.3

 

 

 

6,146,359

 

 

3.05

 

 

86.5

 

 

 

6,172,345

 

 

3.09

 

 

87.0

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

671,324

 

 

3.94

 

 

9.4

 

 

 

687,518

 

 

3.98

 

 

9.6

 

 

 

676,908

 

 

4.00

 

 

9.6

 

Commercial and industrial

 

78,363

 

 

3.92

 

 

1.1

 

 

 

76,254

 

 

3.85

 

 

1.1

 

 

 

66,497

 

 

3.83

 

 

0.9

 

Construction

 

133,597

 

 

4.06

 

 

1.9

 

 

 

105,702

 

 

4.04

 

 

1.5

 

 

 

85,963

 

 

4.03

 

 

1.2

 

Total

 

883,284

 

 

3.96

 

 

12.4

 

 

 

869,474

 

 

3.98

 

 

12.2

 

 

 

829,368

 

 

3.99

 

 

11.7

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

 

82,878

 

 

4.57

 

 

1.2

 

 

 

84,400

 

 

4.59

 

 

1.2

 

 

 

86,274

 

 

4.60

 

 

1.2

 

Other

 

7,858

 

 

4.18

 

 

0.1

 

 

 

7,825

 

 

4.13

 

 

0.1

 

 

 

8,086

 

 

4.19

 

 

0.1

 

Total

 

90,736

 

 

4.54

 

 

1.3

 

 

 

92,225

 

 

4.55

 

 

1.3

 

 

 

94,360

 

 

4.57

 

 

1.3

 

Total loans receivable

 

7,118,683

 

 

3.16

 

 

100.0

%

 

 

7,108,058

 

 

3.18

 

 

100.0

%

 

 

7,096,073

 

 

3.21

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

 

15,312

 

 

 

 

 

 

 

17,535

 

 

 

 

 

 

 

19,823

 

 

 

 

 

Deferred loan fees/discounts

 

29,264

 

 

 

 

 

 

 

29,363

 

 

 

 

 

 

 

29,556

 

 

 

 

 

Premiums/deferred costs

 

(34,703

)

 

 

 

 

 

 

(34,445

)

 

 

 

 

 

 

(34,448

)

 

 

 

 

Total loans receivable, net

$

7,108,810

 

 

 

 

 

 

$

7,095,605

 

 

 

 

 

 

$

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 Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,108,058

 

 

3.18

%

 

$

7,096,073

 

 

3.21

%

Originated and refinanced

 

268,151

 

 

3.37

 

 

 

526,836

 

 

3.21

 

Purchased and participations

 

155,490

 

 

2.92

 

 

 

322,706

 

 

2.86

 

Change in undisbursed loan funds

 

(23,311

)

 

 

 

 

(45,237

)

 

 

Repayments

 

(389,719

)

 

 

 

 

(781,498

)

 

 

Principal recoveries/(charge-offs), net

 

14

 

 

 

 

 

45

 

 

 

Other

 

 

 

 

 

 

(242

)

 

 

Ending balance

$

7,118,683

 

 

3.16

 

 

$

7,118,683

 

 

3.16

 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, weighted average rate, percent of total, weighted average credit score, and weighted average loan-to-value ("LTV") ratio as of March 31, 2022. Credit scores were updated in March 2022 from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

 

 

 

 

 

% of

 

Credit

 

 

 

Amount

 

Rate

 

Total

 

Score

 

LTV

 

(Dollars in thousands)

Originated

$

3,943,327

 

3.14

%

 

64.7

%

 

772

 

61

%

Correspondent purchased

 

1,995,167

 

2.95

 

 

32.7

 

 

765

 

64

 

Bulk purchased

 

155,657

 

1.33

 

 

2.6

 

 

773

 

58

 

 

$

6,094,151

 

3.03

 

 

100.0

%

 

770

 

62

 

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 Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

 

 

 

 

 

 

Credit

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

164,477

 

2.96

%

 

70

%

 

767

 

$

358,584

 

2.63

%

 

70

%

 

766

Correspondent purchased

 

118,096

 

2.81

 

 

71

 

 

768

 

 

248,649

 

2.70

 

 

72

 

 

772

 

$

282,573

 

2.90

 

 

70

 

 

768

 

$

607,233

 

2.65

 

 

71

 

 

768

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of March 31, 2022, along with associated weighted average rates.

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

151,633

 

3.30

%

Correspondent

 

53,515

 

3.08

 

 

$

205,148

 

3.24

 

Commercial Loans: During the six months ended March 31, 2022, the Bank originated $137.3 million of commercial loans and entered into commercial loan participations totaling $74.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $174.1 million at a weighted average rate of 3.93%.

As of March 31, 2022, December 31, 2021, and September 30, 2021, the Bank's commercial and industrial gross loan amount (unpaid principal plus undisbursed amounts) totaled $101.3 million, $99.8 million, and $90.7 million, respectively, and commitments totaled $1.4 million at March 31, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of March 31, 2022, the Bank had commercial real estate and commercial construction loan commitments totaling $28.7 million, at a weighted average rate of 4.35%. 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.

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Senior housing

35

 

$

244,786

 

 

$

86,444

 

 

$

331,230

 

 

$

295,929

 

 

$

265,284

 

Retail building

147

 

 

186,325

 

 

 

39,972

 

 

 

226,297

 

 

 

215,593

 

 

 

208,539

 

Hotel

11

 

 

150,735

 

 

 

43,552

 

 

 

194,287

 

 

 

188,472

 

 

 

194,665

 

Office building

87

 

 

50,115

 

 

 

54,672

 

 

 

104,787

 

 

 

109,851

 

 

 

109,987

 

Multi-family

34

 

 

57,764

 

 

 

13,416

 

 

 

71,180

 

 

 

65,839

 

 

 

66,199

 

One- to four-family property

398

 

 

62,626

 

 

 

8,294

 

 

 

70,920

 

 

 

69,292

 

 

 

69,174

 

Single use building

28

 

 

19,410

 

 

 

4,769

 

 

 

24,179

 

 

 

52,471

 

 

 

47,028

 

Other

95

 

 

33,160

 

 

 

2,757

 

 

 

35,917

 

 

 

37,887

 

 

 

36,167

 

 

835

 

$

804,921

 

 

$

253,876

 

 

$

1,058,797

 

 

$

1,035,334

 

 

$

997,043

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

3.96

%

 

 

3.83

%

 

 

3.93

%

 

 

3.97

%

 

 

4.01

%

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

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

630

 

$

313,861

 

$

52,542

 

$

366,403

 

$

386,332

 

$

348,835

Missouri

169

 

 

226,952

 

 

54,278

 

 

281,230

 

 

239,943

 

 

232,041

Texas

11

 

 

162,660

 

 

111,360

 

 

274,020

 

 

269,772

 

 

273,124

Colorado

6

 

 

18,722

 

 

16,730

 

 

35,452

 

 

35,552

 

 

36,099

Arkansas

3

 

 

20,254

 

 

13,335

 

 

33,589

 

 

33,676

 

 

33,763

Nebraska

6

 

 

33,265

 

 

4

 

 

33,269

 

 

33,370

 

 

33,468

Other

10

 

 

29,207

 

 

5,627

 

 

34,834

 

 

36,689

 

 

39,713

 

835

 

$

804,921

 

$

253,876

 

$

1,058,797

 

$

1,035,334

 

$

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 March 31, 2022.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

6

 

$

246,996

>$15 to $30 million

14

 

 

306,167

>$10 to $15 million

7

 

 

84,696

>$5 to $10 million

18

 

 

112,795

$1 to $5 million

111

 

 

249,997

Less than $1 million

1,274

 

 

189,611

 

1,430

 

$

1,190,262

As of March 31, 2022 and December 31, 2021, there were commercial loans with a gross loan amount (unpaid principal plus undisbursed amounts) of $74.3 million and $143.5 million, respectively, with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period.

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. Of the loans 30 to 89 days delinquent at March 31, 2022, approximately 64% 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. Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2022, $2.9 million were 30 to 89 days delinquent and $2.8 million were 90 or more days delinquent as of March 31, 2022 and are included in the tables below.

 

Loans Delinquent for 30 to 89 Days at:

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

June 30, 2021

 

March 31, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

64

 

$

6,931

 

 

74

 

$

7,009

 

 

48

 

$

4,156

 

 

51

 

$

5,141

 

 

45

 

$

4,151

 

Correspondent purchased

10

 

 

2,421

 

 

11

 

 

5,133

 

 

7

 

 

2,590

 

 

9

 

 

3,650

 

 

9

 

 

2,910

 

Bulk purchased

2

 

 

396

 

 

1

 

 

154

 

 

4

 

 

541

 

 

6

 

 

958

 

 

5

 

 

352

 

Commercial

4

 

 

373

 

 

2

 

 

222

 

 

2

 

 

37

 

 

1

 

 

35

 

 

5

 

 

806

 

Consumer

14

 

 

215

 

 

16

 

 

164

 

 

25

 

 

498

 

 

25

 

 

354

 

 

17

 

 

287

 

 

94

 

$

10,336

 

 

104

 

$

12,682

 

 

86

 

$

7,822

 

 

92

 

$

10,138

 

 

81

 

$

8,506

 

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

 

 

 

0.15

%

 

 

 

 

0.18

%

 

 

 

 

0.11

%

 

 

 

 

0.14

%

 

 

 

 

 

0.12

%

 

Non-Performing Loans and OREO at:

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

June 30, 2021

 

March 31, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

44

 

$ 3,999

 

48

 

$ 3,943

 

50

 

$ 3,693

 

53

 

$ 3,696

 

55

 

$ 4,433

Correspondent purchased

11

 

3,967

 

10

 

3,115

 

10

 

3,210

 

12

 

4,230

 

10

 

3,749

Bulk purchased

5

 

1,819

 

6

 

1,945

 

9

 

2,974

 

7

 

2,596

 

10

 

3,172

Commercial

6

 

1,167

 

6

 

1,170

 

6

 

1,214

 

7

 

1,278

 

6

 

1,068

Consumer

19

 

400

 

25

 

477

 

21

 

498

 

23

 

445

 

26

 

531

 

85

 

11,352

 

95

 

10,650

 

96

 

11,589

 

102

 

12,245

 

107

 

12,953

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

0.16%

 

 

 

0.15%

 

 

 

0.16%

 

 

 

0.17%

 

 

 

0.19%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

5

 

$ 505

 

5

 

$ 451

 

7

 

$ 1,288

 

7

 

$ 1,392

 

9

 

$ 1,646

Correspondent purchased

 

 

 

 

 

 

 

 

 

Bulk purchased

 

 

 

 

1

 

131

 

1

 

131

 

 

Commercial

2

 

34

 

3

 

62

 

4

 

419

 

3

 

403

 

4

 

642

Consumer

2

 

27

 

 

 

1

 

9

 

 

 

 

 

9

 

566

 

8

 

513

 

13

 

1,847

 

11

 

1,926

 

13

 

2,288

Total nonaccrual loans

94

 

11,918

 

103

 

11,163

 

109

 

13,436

 

113

 

14,171

 

120

 

15,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

 

0.17%

 

 

 

0.16%

 

 

 

0.19%

 

 

 

0.20%

 

 

 

0.22%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

 

$ —

 

2

 

$ 319

 

3

 

$ 170

 

3

 

$ 177

 

2

 

$ 105

Total non-performing assets

94

 

$ 11,918

 

105

 

$ 11,482

 

112

 

$ 13,606

 

116

 

$ 14,348

 

122

 

$ 15,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

 

0.13%

 

 

 

0.12%

 

 

 

0.14%

 

 

 

0.15%

 

 

 

0.16%

(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 March 31, 2022 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the December 31, 2021 quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.

 

March 31, 2022

 

September 30, 2021

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

13,323

 

$

22,494

 

$

14,332

 

$

23,458

Commercial

 

47,093

 

 

3,493

 

 

99,729

 

 

3,259

Consumer

 

306

 

 

618

 

 

135

 

 

718

 

$

60,722

 

$

26,605

 

$

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 March 31, 2022 to account for economic uncertainty that may not be adequately captured in the third party economic forecast scenarios, along with the balance of large-dollar special mention commercial loans, and commercial loan COVID-19 modifications. The main economic uncertainties associated with the economic uncertainty qualitative factor were related to (1) the unemployment rate, which is a key economic index in the Bank's model, and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships.

The following tables present ACL activity and related ratios at the dates and for the periods indicated. The reserve for off-balance sheet credit exposures totaled $3.7 million at March 31, 2022, $4.6 million at December 31, 2021, and $5.7 million at September 30, 2021.

 

For the Three Months Ended

 

For the Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

(Dollars in thousands)

Balance at beginning of period

$

17,535

 

 

$

19,823

 

Charge-offs:

 

 

 

One- to four-family

 

 

 

 

(4

)

Commercial

 

 

 

 

(10

)

Consumer

 

(5

)

 

 

(6

)

Total charge-offs

 

(5

)

 

 

(20

)

Recoveries:

 

 

 

One- to four-family

 

2

 

 

 

11

 

Commercial

 

13

 

 

 

49

 

Consumer

 

4

 

 

 

5

 

Total recoveries

 

19

 

 

 

65

 

Net recoveries (charge-offs)

 

14

 

 

 

45

 

Provision for credit losses

 

(2,237

)

 

 

(4,556

)

Balance at end of period

$

15,312

 

 

$

15,312

 

 

 

 

 

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

 

(0.12

)

 

 

(0.35

)

ACL to non-performing loans at end of period

 

128.48

 

 

 

128.48

 

ACL to loans receivable at end of period

 

0.22

 

 

 

0.22

 

ACL to net charge-offs (annualized)

 

N/M(1)

 

 

 

N/M(1)

 

(1)

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

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

 

Distribution of ACL

 

Ratio of ACL to Loans Receivable

 

March 31,

 

December 31,

 

March 31,

 

December 31,

 

 

2022

 

 

2021

 

2022

 

 

2021

 

 

(Dollars in thousands)

 

 

 

 

One- to four-family

$

4,079

 

$

3,989

 

0.07

%

 

0.06

%

Commercial:

 

 

 

 

 

 

 

Commercial real estate

 

8,991

 

 

11,257

 

1.34

 

 

1.64

 

Commercial and industrial

 

389

 

 

376

 

0.50

 

 

0.49

 

Construction

 

1,651

 

 

1,720

 

1.24

 

 

1.63

 

Total

 

11,031

 

 

13,353

 

1.25

 

 

1.54

 

Consumer

 

202

 

 

193

 

0.22

 

 

0.21

 

Total

$

15,312

 

$

17,535

 

0.22

 

 

0.25

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at March 31, 2022. Overall, fixed-rate securities comprised 95% of our securities portfolio at March 31, 2022. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

MBS

$

1,354,637

 

1.49

%

 

4.3

U.S. government-sponsored enterprise debentures

 

519,974

 

0.61

 

 

3.4

Municipal bonds

 

750

 

2.24

 

 

0.1

Total securities portfolio

$

1,875,361

 

1.24

 

 

4.1

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

 

For the Three Months Ended

 

For the Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,890,653

 

 

1.16

%

 

3.5

 

$

2,014,608

 

 

1.16

%

 

3.5

Maturities and repayments

 

(80,993

)

 

 

 

 

 

 

(188,658

)

 

 

 

 

Net amortization of (premiums)/discounts

 

(1,219

)

 

 

 

 

 

 

(2,983

)

 

 

 

 

Purchases

 

58,546

 

 

2.26

 

 

4.3

 

 

58,546

 

 

2.26

 

 

4.3

Change in valuation on AFS securities

 

(86,568

)

 

 

 

 

 

 

(101,094

)

 

 

 

 

Ending balance - carrying value

$

1,780,419

 

 

1.25

 

 

4.1

 

$

1,780,419

 

 

1.25

 

 

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.

 

March 31, 2022

 

December 31, 2021

 

September 30, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

600,457

 

%

 

9.1

%

 

$

599,969

 

%

 

9.0

%

 

$

543,849

 

%

 

8.2

%

Interest-bearing checking

 

1,097,287

 

0.07

 

 

16.6

 

 

 

1,092,342

 

0.07

 

 

16.4

 

 

 

1,037,362

 

0.07

 

 

15.7

 

Savings

 

558,337

 

0.05

 

 

8.4

 

 

 

526,714

 

0.05

 

 

7.9

 

 

 

519,069

 

0.05

 

 

7.9

 

Money market

 

1,885,873

 

0.19

 

 

28.5

 

 

 

1,840,049

 

0.19

 

 

27.7

 

 

 

1,753,525

 

0.19

 

 

26.6

 

Retail certificates of deposit

 

2,213,617

 

1.22

 

 

33.5

 

 

 

2,254,560

 

1.31

 

 

33.9

 

 

 

2,341,531

 

1.41

 

 

35.5

 

Commercial certificates of deposit

 

100,739

 

0.61

 

 

1.5

 

 

 

137,419

 

0.64

 

 

2.1

 

 

 

190,215

 

0.66

 

 

2.9

 

Public unit certificates of deposit

 

158,534

 

0.14

 

 

2.4

 

 

 

196,951

 

0.17

 

 

3.0

 

 

 

211,845

 

0.21

 

 

3.2

 

 

$

6,614,844

 

0.49

 

 

100.0

%

 

$

6,648,004

 

0.53

 

 

100.0

%

 

$

6,597,396

 

0.59

 

 

100.0

%

Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of March 31, 2022.

 

 

Term Borrowings Amount

 

 

 

 

Maturity by

 

FHLB

 

Interest rate

 

Contractual

 

Effective

Fiscal Year

 

Advances

 

swaps(1)

 

Rate

 

Rate(2)

 

 

(Dollars in thousands)

 

 

 

2022

 

$

75,000

 

$

 

0.29

%

 

0.29

%

2023

 

 

300,000

 

 

 

1.70

 

 

1.81

 

2024

 

 

150,000

 

 

165,000

 

1.44

 

 

2.46

 

2025

 

 

300,000

 

 

100,000

 

1.38

 

 

2.09

 

2026

 

 

250,000

 

 

 

0.96

 

 

1.27

 

2027

 

 

150,000

 

 

 

0.93

 

 

1.24

 

2028

 

 

 

 

100,000

 

0.78

 

 

3.44

 

 

 

$

1,225,000

 

$

365,000

 

1.25

 

 

1.90

 

(1)

Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 million to hedge the variability in cash flows associated with the advances. Each interest rate swap matures on the same date as the related FHLB advance. The expected WAL of the interest rate swaps and related advances was 3.6 years at March 31, 2022.

(2)

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

The following table presents borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years and includes the impact of interest rate swaps. 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 Six Months Ended

 

March 31, 2022

 

March 31, 2022

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

1,590,000

 

1.90

%

 

3.1

 

$

1,590,000

 

 

1.88

%

 

3.3

Maturities and prepayments

 

 

 

 

 

 

 

(100,000

)

 

3.14

 

 

 

New FHLB borrowings

 

 

 

 

 

 

100,000

 

 

3.44

 

 

6.5

Ending balance

$

1,590,000

 

1.90

 

 

2.8

 

$

1,590,000

 

 

1.90

 

 

2.8

Maturities of Interest-Bearing Liabilities

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/commercial and public unit amounts, and term borrowings for the next four quarters as of March 31, 2022.

 

June 30,

 

September 30,

 

December 31,

 

March 31,

 

 

 

 

2022

 

 

 

2022

 

 

 

2022

 

 

 

2023

 

 

Total

 

(Dollars in thousands)

Retail/Commercial Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

373,869

 

 

$

460,633

 

 

$

315,308

 

 

$

253,771

 

 

$

1,403,581

 

Repricing Rate

 

0.99

%

 

 

1.30

%

 

 

1.22

%

 

 

1.22

%

 

 

1.19

%

Public Unit Certificates:

 

 

 

 

 

 

 

 

 

Amount

$

99,192

 

 

$

29,003

 

 

$

15,000

 

 

$

3,503

 

 

$

146,698

 

Repricing Rate

 

0.10

%

 

 

0.09

%

 

 

0.50

%

 

 

0.10

%

 

 

0.14

%

Term Borrowings:

 

 

 

 

 

 

 

 

 

Amount

$

 

 

$

75,000

 

 

$

 

 

$

100,000

 

 

$

175,000

 

Repricing Rate

 

%

 

 

0.29

%

 

 

%

 

 

1.46

%

 

 

0.95

%

Total

 

 

 

 

 

 

 

 

 

Amount

$

473,061

 

 

$

564,636

 

 

$

330,308

 

 

$

357,274

 

 

$

1,725,279

 

Repricing Rate

 

0.80

%

 

 

1.11

%

 

 

1.19

%

 

 

1.28

%

 

 

1.07

%

The following table sets forth the WAM information for our certificates of deposit, in years, as of March 31, 2022.

Retail certificates of deposit

1.2

Commercial certificates of deposit

0.5

Public unit certificates of deposit

0.3

Total certificates of deposit

1.1

Average Rates and Lives

At March 31, 2022, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(1.46) billion, or (15.3)% of total assets, compared to $(928.0) million, or (9.7)% of total assets, at December 31, 2021. The change in the one-year gap amount was due primarily to a decrease in the amount of asset cash flows projected at March 31, 2022 compared to December 31, 2021. As interest rates rise, borrowers have less economic incentive to refinance their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets.

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 March 31, 2022, the Bank's one-year gap is projected to be $(1.54) billion, or (16.2)% of total assets. The change in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(1.44) billion, or (15.0)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2021.

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 March 31, 2022. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Securities

$

1,780,419

 

1.24

%

 

4.6

 

 

 

19.5

%

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family

 

5,583,265

 

3.08

 

 

7.5

 

78.4

%

 

61.1

 

Fixed-rate commercial

 

462,907

 

4.07

 

 

3.6

 

6.5

 

 

5.0

 

All other fixed-rate loans

 

61,990

 

3.49

 

 

8.0

 

0.9

 

 

0.7

 

Total fixed-rate loans

 

6,108,162

 

3.16

 

 

7.2

 

85.8

 

 

66.8

 

Adjustable-rate one- to four-family

 

510,886

 

2.33

 

 

4.8

 

7.2

 

 

5.6

 

Adjustable-rate commercial

 

420,377

 

4.08

 

 

7.4

 

5.9

 

 

4.6

 

All other adjustable-rate loans

 

79,258

 

4.22

 

 

2.6

 

1.1

 

 

0.9

 

Total adjustable-rate loans

 

1,010,521

 

3.21

 

 

5.7

 

14.2

 

 

11.1

 

Total loans receivable

 

7,118,683

 

3.17

 

 

7.0

 

100.0

%

 

77.9

 

FHLB stock

 

74,456

 

5.71

 

 

2.8

 

 

 

0.8

 

Cash and cash equivalents

 

166,869

 

0.26

 

 

 

 

 

1.8

 

Total interest-earning assets

$

9,140,427

 

2.76

 

 

6.3

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

3,541,497

 

0.13

 

 

5.4

 

58.9

%

 

46.6

%

Retail certificates of deposit

 

2,213,617

 

1.22

 

 

1.2

 

36.8

 

 

29.1

 

Commercial certificates of deposit

 

100,739

 

0.61

 

 

0.5

 

1.7

 

 

1.3

 

Public unit certificates of deposit

 

158,534

 

0.14

 

 

0.3

 

2.6

 

 

2.1

 

Total interest-bearing deposits

 

6,014,387

 

0.54

 

 

3.6

 

100.0

%

 

79.1

 

Term borrowings

 

1,590,000

 

1.90

 

 

2.8

 

 

 

20.9

 

Total interest-bearing liabilities

$

7,604,387

 

0.82

 

 

3.5

 

 

 

100.0

%

 

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