Capitol Federal Financial, Inc. Reports First Quarter 2013 Results

29 Jan, 2013, 08:30 ET from Capitol Federal Financial, Inc.

TOPEKA, Kan., Jan. 29, 2013 /PRNewswire/ -- Capitol Federal Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended December 31, 2012.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2012, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 4, 2013 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 $17.6 million,
  • basic and diluted earnings per average share outstanding of $0.12,
  • net interest margin of 2.01%,
  • repurchased 3,263,882 shares of common stock at an average price of $11.84 per share, and
  • paid a special True Blue® dividend of $0.52 per share.

Comparison of Operating Results for the Quarters Ended December 31, 2012 and September 30, 2012

Net income decreased $173 thousand, or 1.0%, from $17.7 million for the quarter ended September 30, 2012 to $17.6 million for the quarter ended December 31, 2012.  The net interest margin remained unchanged at 2.01% for both the current and prior quarters as the decrease in asset yields continued to be substantially offset by a decrease in the cost of liabilities.  Additionally, the current quarter includes the full impact of the $342.5 million bulk loan purchase that occurred during the quarter ended September 30, 2012.  The weighted average rate of the loan portfolio purchased was 2.48% at the time of purchase, which was higher than the yield available on similar duration securities.  The loan purchase was primarily funded with cash flows from the securities portfolio.

Interest and Dividend Income

The decrease in interest and dividend income was primarily a result of decreases in interest income on mortgage-backed securities ("MBS") and investment securities, partially offset by an increase in interest income on loans receivable.  The weighted average yield on total interest-earning assets decreased five basis points between quarters, from 3.47% for the prior quarter to 3.42% for the current quarter.  The following table presents the components of interest and dividend income for the time periods presented, along with the change in dollars and percent.

 

For the Three Months Ended

December 31,

September 30,

Change Expressed in:

2012

2012

Dollars

Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable

$

58,467

$

58,218

$

249

0.4%

MBS

15,183

16,470

(1,287)

(7.8)

Investment securities

2,865

3,409

(544)

(16.0)

Capital stock of Federal Home Loan Bank ("FHLB")

1,128

1,133

(5)

(0.4)

Cash and cash equivalents

33

75

(42)

(56.0)

Total interest and dividend income

$

77,676

$

79,305

$

(1,629)

(2.1)%

The increase in interest income on loans receivable was due to a $235.1 million increase in the average balance of the portfolio which was primarily a result of the $342.5 million bulk loan purchase discussed above, partially offset by a 16 basis point decrease in the average yield of the portfolio to 4.16% for the current quarter.  The decrease in interest income on MBS was due primarily to a 14 basis point decrease in the average yield of the portfolio, from 2.74% for the prior quarter to 2.60% for the current quarter, and partially due to a $64.6 million decrease in the average balance of the portfolio.  The decrease in the average yield of the portfolio was due primarily to purchases of MBS during the quarter with yields less than the average yield on the existing portfolio.  The decrease in interest income on investment securities was due primarily to a $164.4 million decrease in the average balance of the portfolio.

Interest Expense

The decrease in interest expense between periods was due to decreases in interest expense on FHLB advances and deposits.  The weighted average rate on total interest-bearing liabilities decreased eight basis points between quarters, from 1.79% for the prior quarter to 1.71% for the current quarter.  The following table presents the components of interest expense for the time periods presented, along with the change in dollars and percent.

For the Three Months Ended

December 31,

September 30,

Change Expressed in:

2012

2012

Dollars

Percent

(Dollars in thousands)

INTEREST EXPENSE:

FHLB advances

$

18,628

$

19,403

$

(775)

(4.0)%

Deposits

9,849

10,480

(631)

(6.0)

Repurchase agreements

3,569

3,569

--

--

Total interest expense

$

32,046

$

33,452

$

(1,406)

(4.2)%

The decrease in interest expense on FHLB advances and deposits was due primarily to a decrease in the weighted average rate paid on the portfolios.  The weighted average rate paid on FHLB advances decreased 13 basis points, from 3.05% for the prior quarter to 2.92% for the current quarter.  During the current quarter, a $100 million advance with an effective rate of 4.85% matured and was renewed for a term of four years at a contractual rate of 0.78%.  The weighted average rate paid on deposits decreased six basis points, from 0.92% for the prior quarter to 0.86% for the current quarter, as the portfolio continued to reprice to lower market rates.

Provision for Credit Losses

The provision for credit losses for the current quarter was $233 thousand, compared to no provision during the prior quarter.  The current quarter amount represents the amount necessary to maintain the allowance for credit losses ("ACL") at a level considered appropriate by management.  Net charge-offs during the current quarter were $856 thousand compared to $677 thousand in the prior quarter.  Of the $856 thousand of net charge-offs during the current quarter, $369 thousand related to loans that were previously discharged under Chapter 7 bankruptcy that must be, in accordance with Office of Comptroller of Currency ("OCC") regulations, evaluated for collateral value loss, even if they are current.  The overall performance of our loan portfolio continued to improve during the current quarter as evidenced by the decline in our loans 90 or more days delinquent or in foreclosure.  Loans 90 or more days delinquent or in foreclosure decreased $429 thousand, or 2.2%, from $19.5 million at September 30, 2012 to $19.0 million at December 31, 2012.

Other Expense

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

For the Three Months Ended

December 31,

September 30,

Change Expressed in:

2012

2012

Dollars

Percent

(Dollars in thousands)

OTHER EXPENSES:

Salaries and employee benefits

$

12,181

$

11,545

$

636

5.5%

Occupancy expense

2,318

2,359

(41)

(1.7)

Information technology and communications

2,198

2,048

150

7.3

Regulatory and outside services

1,765

1,595

170

10.7

Deposit and loan transaction costs

1,526

1,519

7

0.5

Federal insurance premium

1,114

1,135

(21)

(1.9)

Advertising and promotional

1,032

1,257

(225)

(17.9)

Other expenses, net

2,607

2,676

(69)

(2.6)

Total other expenses

$

24,741

$

24,134

$

607

2.5%

The increase in salaries and employee benefits expense was due primarily to compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the $0.52 True Blue® dividend paid in December 2012.  Other real estate owned ("OREO") operations expense, which is a component of other expenses, net, was $670 thousand for the current quarter, compared to $826 thousand for the prior quarter.  Over the past 12 months, OREO properties were owned by Capitol Federal Savings Bank (the "Bank"), on average, for approximately five months before they were sold. 

We currently anticipate the following increases in other expenses during fiscal year 2013, as compared to fiscal year 2012:  (1) a $4.4 million increase in salaries and employee benefits due to an estimated $2.7 million increase in additional compensation expense on unallocated ESOP shares as a result of the True Blue® and special year-end dividends paid and a full year's impact of equity plan awards made in May 2012 and September 2012; (2) a $1.8 million increase in information technology and communications expense and occupancy expense as a result of an increase in licensing and maintenance expenses related to upgrades to our information technology infrastructure and an increase in depreciation expense associated with the remodel of our Home Office; and (3) a $600 thousand increase in advertising expense, which is due primarily to media campaigns that were delayed until fiscal year 2013.

Income Tax Expense

Income tax expense was $8.9 million for the current quarter compared to $9.8 million for the prior quarter.  The effective income tax rate for the current quarter was 33.5% compared to 35.6% for the prior quarter.  Management anticipates the effective tax rate for fiscal year 2013 will be approximately 34%, based on fiscal year 2013 estimates as of December 31, 2012.  This rate is lower than the prior year rate of 35.8% due primarily to (1) higher deductible expenses associated with the ESOP, and (2) anticipated higher tax credits related to our low income housing partnerships.  Additionally, pre-tax income is anticipated to be lower than the prior year, due primarily to the items outlined above in other expenses, which results in all items impacting the income tax rate to have a larger impact on the overall effective tax rate than in fiscal year 2012.

Comparison of Operating Results for the Quarters Ended December 31, 2012 and 2011

For the quarter ended December 31, 2012, the Company recognized net income of $17.6 million, compared to net income of $18.8 million for the quarter ended December 31, 2011.  The $1.2 million, or 6.5%, decrease in net income was due primarily to an increase in other expenses, partially offset by a decrease in income tax expense.

The net interest margin increased three basis points, from 1.98% for the prior year quarter to 2.01% for the current quarter, primarily as a result of a decrease in the cost of funds between the two periods.  The weighted average yield on total interest-earning assets decreased 28 basis points from the prior year quarter to 3.42% for the current quarter.  The weighted average rate paid on total interest-bearing liabilities decreased 42 basis points from the prior year quarter to 1.71% for the current quarter.

Interest and Dividend Income

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

For the Three Months Ended

December 31,

Change Expressed in:

2012

2011

Dollars

Percent

(Dollars in thousands)

INTEREST AND DIVIDEND INCOME:

Loans receivable

$

58,467

$

60,675

$

(2,208)

(3.6)%

MBS

15,183

18,373

(3,190)

(17.4)

Investment securities

2,865

4,637

(1,772)

(38.2)

Capital stock of FHLB

1,128

1,091

37

3.4

Cash and cash equivalents

33

51

(18)

(35.3)%

Total interest and dividend income

$

77,676

$

84,827

$

(7,151)

(8.4)

The decrease in interest income on loans receivable and MBS was due primarily to a decrease in the weighted average yield of each respective portfolio.  The average yield on the loans receivable portfolio decreased 51 basis points, from 4.67% for the prior year quarter to 4.16% for the current quarter, primarily a result of loan endorsements and refinances, along with originations and purchases between periods at rates less than the average rate of the existing loan portfolio.  The decrease in interest income on loans receivable resulting from the decrease in the average yield was partially offset by a $432.8 million increase in the average balance of the portfolio, which was primarily a result of a $342.5 million bulk loan purchase during the quarter ended September 30, 2012.  The average yield on the MBS portfolio decreased 49 basis points, from 3.09% during the prior year quarter to 2.60% for the current quarter.  The decrease in the average yield was due primarily to purchases of MBS between periods with yields less than the average yield on the existing portfolio.  The decrease in interest income on investment securities was due primarily to a $458.0 million decrease in the average balance of the portfolio as a result of cash flows from calls and maturities not being replaced in their entirety; rather, the proceeds were used primarily to fund loan activity, repurchase stock, and pay dividends to stockholders.

Interest Expense

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

For the Three Months Ended

December 31,

Change Expressed in:

2012

2011

Dollars

Percent

(Dollars in thousands)

INTEREST EXPENSE:

FHLB advances

$

18,628

$

22,339

$

(3,711)

(16.6)%

Deposits

9,849

12,787

(2,938)

(23.0)

Repurchase agreements

3,569

4,327

(758)

(17.5)

Total interest expense

$

32,046

$

39,453

$

(7,407)

(18.8)%

The decrease in interest expense on FHLB advances was due to a 70 basis point decrease in the weighted average rate of the portfolio, from 3.62% for the prior year quarter to 2.92% for the current quarter.  The decrease in the average rate paid was due to the renewal and prepayment of advances between periods to lower rates.  The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate of the portfolio, most notably on the certificate of deposit portfolio, which decreased 36 basis points, from 1.77% for the prior year quarter to 1.41% for the current quarter, as the portfolio repriced to lower market rates between periods.  The weighted average rate paid on total deposits decreased 28 basis points, from 1.14% for the prior year quarter to 0.86% for the current quarter.  The decrease in interest expense on repurchase agreements was due to a $69.0 million decrease in the average balance between periods as a result of maturing agreements not being renewed; rather, they were replaced with FHLB advances.

Provision for Credit Losses

The provision for credit losses for the current quarter was $233 thousand, compared to $540 thousand for the prior year quarter.  The current quarter amount represents the amount necessary to maintain the ACL at a level considered appropriate by management.  Net charge-offs during the current quarter were $856 thousand, of which $369 thousand related to loans that were previously discharged under Chapter 7 bankruptcy that must be, in accordance with OCC regulations, evaluated for collateral value loss, even if they are current.  The overall performance of our loan portfolio continued to improve between periods as evidenced by the decline in our loans 90 or more days delinquent or in foreclosure.  Loans 90 or more days delinquent or in foreclosure decreased $9.4 million, or 33.1%, from $28.4 million at December 31, 2011 to $19.0 million at December 31, 2012. 

Other Expense

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

For the Three Months Ended

December 31,

Change Expressed in:

2012

2011

Dollars

Percent

(Dollars in thousands)

OTHER EXPENSES:

Salaries and employee benefits

$

12,181

$

10,587

$

1,594

15.1%

Occupancy expense

2,318

2,079

239

11.5

Information technology and communications

2,198

1,830

368

20.1

Regulatory and outside services

1,765

1,435

330

23.0

Deposit and loan transaction costs

1,526

1,230

296

24.1

Federal insurance premium

1,114

1,092

22

2.0

Advertising and promotional

1,032

910

122

13.4

Other expenses, net

2,607

2,904

(297)

(10.2)

Total other expenses

$

24,741

$

22,067

$

2,674

12.1%

The increase in salaries and employee benefits expense was due primarily to compensation expense on unallocated ESOP shares related to the $0.52 True Blue® dividend paid in December 2012 and compensation expense associated with stock options and restricted stock grants in May 2012 and September 2012. 

Income Tax Expense

Income tax expense was $8.9 million for the current quarter compared to $10.1 million for the prior year quarter.  The decrease in expense between periods was due primarily to a decrease in pretax income.  The effective tax rate for the current quarter was 33.5% compared to 35.0% for the prior year quarter.  See discussion above regarding management's expectations of the effective tax rate for fiscal year 2013.

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands)

 

For the Three Months Ended

December 31,

September 30,

December 31,

2012

2012

2011

INTEREST AND DIVIDEND INCOME:

Loans receivable

$

58,467

$

58,218

$

60,675

MBS

15,183

16,470

18,373

Investment securities

2,865

3,409

4,637

Capital stock of FHLB

1,128

1,133

1,091

Cash and cash equivalents

33

75

51

Total interest and dividend income

77,676

79,305

84,827

INTEREST EXPENSE:

FHLB advances

18,628

19,403

22,339

Deposits

9,849

10,480

12,787

Repurchase agreements

3,569

3,569

4,327

Total interest expense

32,046

33,452

39,453

NET INTEREST INCOME

45,630

45,853

45,374

PROVISION FOR CREDIT LOSSES

233

--

540

NET INTEREST INCOME AFTER

PROVISION FOR CREDIT LOSSES

45,397

45,853

44,834

OTHER INCOME:

Retail fees and charges

3,992

3,957

4,164

Insurance commissions

571

559

569

Loan fees

467

479

575

Income from bank-owned life insurance ("BOLI")

382

345

412

Other income, net

356

489

432

Total other income

5,768

5,829

6,152

OTHER EXPENSES:

Salaries and employee benefits

12,181

11,545

10,587

Occupancy

2,318

2,359

2,079

Information technology and communications

2,198

2,048

1,830

Regulatory and outside services

1,765

1,595

1,435

Deposit and loan transaction costs

1,526

1,519

1,230

Federal insurance premium

1,114

1,135

1,092

Advertising and promotional

1,032

1,257

910

Other expenses, net

2,607

2,676

2,904

Total other expenses

24,741

24,134

22,067

INCOME BEFORE INCOME TAX EXPENSE

26,424

27,548

28,919

INCOME TAX EXPENSE

8,861

9,812

10,130

NET INCOME

$

17,563

$

17,736

$

18,789

The following is a reconciliation of the basic and diluted earnings per share calculations for the periods noted.

For the Three Months Ended

December 31,

September 30,

December 31,

2012

2012

2011

(Dollars in thousands, except per share data)

Net income

$

17,563

$

17,736

$

18,789

Income allocated to participating securities (unvested restricted stock)

(60)

(43)

--

Net income available to common stockholders

17,503

17,693

18,789

Average common shares outstanding

147,881,207

150,661,205

161,921,133

Average committed ESOP shares outstanding

1,500

415,494

1,500

Total basic average common shares outstanding

147,882,707

151,076,699

161,922,633

Effect of dilutive restricted stock

--

--

4,351

Effect of dilutive stock options

102

1,895

3,743

Total diluted average common shares outstanding

147,882,809

151,078,594

161,930,727

Net earnings per share:

Basic

$

0.12

$

0.11

$

0.12

Diluted

$

0.12

$

0.11

$

0.12

Antidilutive stock options and restricted stock, excluded from the diluted average common shares outstanding calculation

2,471,473

2,006,979

897,136

Financial Condition as of December 31, 2012

Total assets decreased $139.5 million, from $9.38 billion at September 30, 2012 to $9.24 billion at December 31, 2012, due primarily to a $133.2 million decrease in the securities portfolio.  The decrease in the securities portfolio was due primarily to called and matured investment securities not being fully replaced.  Cash flows from the securities portfolio not reinvested during the quarter were used, in part, to pay dividends to stockholders, repurchase stock, and fund loan activity.  At December 31, 2012, Capitol Federal Financial, Inc., at the holding company level, had $233.8 million on deposit at the Bank.

The net loans receivable portfolio increased $32.0 million, or 0.6%, to $5.64 billion at December 31, 2012, from $5.61 billion at September 30, 2012.  The increase in the portfolio was due primarily to an increase in one- to four-family loans resulting largely from correspondent loan purchases outpacing principal repayments during the current quarter.  As of December 31, 2012, the Bank had 27 correspondent lending relationships located in 20 states.

Economic conditions in the Bank's local market areas have a significant impact on the ability of borrowers to repay loans and the value of the collateral securing these loans.  As of December 2012, the unemployment rate was 5.4% for Kansas and 6.7% for Missouri, compared to the national average of 7.8% based on information from the Bureau of Economic Analysis.  The unemployment rate remains low in our market areas, relative to the national average, due to diversified industries within our market areas, primarily in the Kansas City metropolitan statistical area.  Our Kansas City market area, which comprises the largest segment of our loan portfolio and deposit base, has an average household income of approximately $79 thousand per annum, based on 2012 estimates from the American Community Survey, which is a statistical survey by the U.S. Census Bureau.  The average household income in our combined market areas is approximately $68 thousand per annum, with 92% of the population at or above the poverty level, also based on the 2012 estimates from the American Community Survey. The Federal Housing Finance Agency price index for Kansas and Missouri has not experienced significant fluctuations during the past 10 years, unlike other market areas of the United States, which indicates relative stability historically in property values in our local market areas. 

As a portfolio lender focused on delivering outstanding customer service while acquiring quality assets, the ability of our borrowers to repay has always been paramount in our business model.  While we continue to evaluate the recently issued "qualified mortgage" rules by the Consumer Financial Protection Bureau, we currently anticipate that the impact to our overall book of business will generally be minimal.  

The following table presents delinquent and non-performing loans, OREO and related ratios as of the dates shown.  In accordance with the OCC Call Report requirements, troubled debt restructurings ("TDRs") that were either nonaccrual at the time of restructuring or did not receive a credit evaluation prior to the restructuring and have not made six consecutive monthly payments per the restructured loan terms are reported as nonaccrual loans at December 31, 2012.  This reporting change occurred during the second quarter of fiscal year 2012, as it was the first quarter the Bank was required to file a Call Report.  During July 2012, the OCC provided guidance to the industry regarding loans that had been discharged under Chapter 7 bankruptcy proceedings where the borrower has not reaffirmed the debt owed to the lender.  The OCC requires that these loans be reported as TDRs and nonaccrual, even if they are current.  Our balance of loans 90 or more days delinquent or in foreclosure continues to improve; however, implementation of the above noted OCC guidance has kept our balance of non-performing loans at a level similar to the prior year.  The principal balance of loans required by the OCC to be reported as nonaccrual, even if they are current, was $9.7 million and $12.4 million at December 31, 2012 and September 30, 2012, respectively. 

December 31, 2012

September 30, 2012

December 31, 2011

(Dollars in thousands)

Loans 30 to 89 days delinquent

$

23,201

$

23,270

$

25,707

Loans 90 or more days delinquent or in foreclosure

19,021

19,450

28,448

Nonaccrual loans less than 90 days delinquent(1)

9,706

12,374

--

Total non-performing loans

28,727

31,824

28,448

OREO

6,259

8,047

11,189

Total non-performing assets

34,986

39,871

39,637

ACL balance(2)

10,477

11,100

15,605

Non-performing loans to total loans

0.51%

0.57%

0.54%

Non-performing assets to total assets

0.38%

0.43%

0.42%

ACL as a percentage of total loans

0.19%

0.20%

0.30%

ACL as a percentage of total non-performing loans

36.47%

34.88%

54.86%

(1)

  Represents loans required to be reported as nonaccrual by the OCC regardless of delinquency status.  At December 31, 2012 this amount was comprised of $1.8 million of loans that were 30 to 89 days delinquent and $7.9 million of loans that were current.  At September 30, 2012, this amount was comprised of $1.2 million of loans that were 30 to 89 days delinquent and $11.2 million of loans that were current.

(2)

   In January 2012, management implemented a loan charge-off policy as OCC Call Report requirements do not permit the use of specific valuation allowances ("SVAs"), which the Bank was previously utilizing for potential loan losses, as permitted by the Bank's previous regulator.  As a result of the implementation of the charge-off policy, $3.5 million of SVAs were charged-off during the March 31, 2012 quarter, which accounts for the majority of the $5.1 million decrease in ACL between December 31, 2011 and December 31, 2012.

Total liabilities remained relatively unchanged, decreasing $3.0 million from September 30, 2012 to $7.57 billion at December 31, 2012.  A $31.8 million decrease in advance payments by borrowers for taxes and insurance resulting from the payment of real estate taxes and insurance on behalf of our borrowers was almost entirely offset by a $31.5 million increase in deposits.  The increase in the deposit portfolio was due primarily to a $49.7 million increase in the checking portfolio and a $32.0 million increase in the money market portfolio, partially offset by a $54.5 million decrease in the certificate of deposit portfolio.

Stockholders' equity decreased $136.5 million, from $1.81 billion at September 30, 2012 to $1.67 billion at December 31, 2012.  The decrease was due primarily to the payment of $114.3 million of dividends and the repurchase of $38.7 million of stock, partially offset by net income of $17.6 million.

The $114.3 million of dividends paid during the current quarter consisted of a $0.52 per share, or $76.5 million, True Blue® dividend, a $0.18 per share, or $26.6 million, special year-end dividend related to fiscal year 2012 earnings, per the Company's dividend policy, and a regular quarterly dividend of $0.075 per share, or $11.2 million.  The True Blue® dividend amount represented a portion of retained earnings from prior years.  On January 22, 2013, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $11.0 million, payable on February 15, 2013 to stockholders of record as of the close of business on February 1, 2013.  Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, the Bank's 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.

In December 2011, the Company announced that its Board of Directors approved the repurchase of up to $193.0 million of the Company's common stock.  The Company began repurchasing common stock during the second quarter of fiscal year 2012 and, as of December 31, 2012, had repurchased 15,906,384 shares at an average price of $11.80, or $187.6 million.  In November 2012, the Company announced its Board of Directors approved a new $175.0 million stock repurchase program to commence once the previous repurchase plan, under which $5.4 million remains available as of December 31, 2012, is completed.

The following table presents the balance of stockholders' equity and related information as of the dates presented.

December 31, 2012

September 30, 2012

December 31, 2011

(Dollars in thousands)

Stockholders' equity

$

1,669,951

$

1,806,458

$

1,931,309

Equity to total assets at end of period

18.1%

19.3%

20.5%

The following table presents a reconciliation of total and net shares outstanding as of December 31, 2012. 

 Total shares outstanding

152,115,857

 Less unallocated ESOP shares and unvested restricted stock

(5,385,199)

 Net shares outstanding

146,730,658

 

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)

 

December 31,

September 30,

2012

2012

ASSETS:

Cash and cash equivalents (includes interest-earning deposits of $69,236 and $127,544)

$

105,157

$

141,705

Securities:

Available-for-sale ("AFS") at estimated fair value (amortized cost of $1,226,591 and $1,367,925)

1,259,392

1,406,844

Held-to-maturity at amortized cost (estimated fair value of $1,974,115 and $1,969,899)

1,902,228

1,887,947

Loans receivable, net (of ACL of $10,477 and $11,100)

5,640,077

5,608,083

BOLI

58,394

58,012

Capital stock of FHLB, at cost

130,784

132,971

Accrued interest receivable

24,319

26,092

Premises and equipment, net

59,587

57,766

OREO

6,259

8,047

Other assets

52,589

50,837

TOTAL ASSETS

$

9,238,786

$

9,378,304

LIABILITIES:

Deposits

$

4,582,163

$

4,550,643

Advances from FHLB, net

2,532,493

2,530,322

Repurchase agreements

365,000

365,000

Advance payments by borrowers for taxes and insurance

23,818

55,642

Income taxes payable

9,079

918

Deferred income tax liabilities, net

23,267

25,042

Accounts payable and accrued expenses

33,015

44,279

Total liabilities

7,568,835

7,571,846

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;

   152,115,857 and 155,379,739 shares issued and outstanding

    as of December 31, 2012 and September 30, 2012, respectively

 

1,521

 

1,554

Additional paid-in capital

1,266,918

1,292,122

Unearned compensation, ESOP

(46,832)

(47,575)

Retained earnings

427,942

536,150

Accumulated other comprehensive income, net of tax

20,402

24,207

Total stockholders' equity

1,669,951

1,806,458

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,238,786

$

9,378,304

Consistent with our goal to operate a sound and profitable financial institution, we actively seek to maintain a "well-capitalized" status for the Bank in accordance with regulatory standards.  As of December 31, 2012, the Bank exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at December 31, 2012 based upon regulatory guidelines.

Regulatory

Requirement For

Bank

"Well-Capitalized"

Ratios

 Status

Tier 1 leverage ratio

14.7%

5.0%

Tier 1 risk-based capital

36.3%

6.0%

Total risk-based capital

36.6%

10.0%

A reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory capital amounts as of December 31, 2012 is as follows (dollars in thousands):

Total Bank equity as reported under GAAP

$

1,378,261

Unrealized gains on AFS securities

(20,402)

Total Tier 1 capital

1,357,859

ACL

10,477

Total risk-based capital

$

1,368,336

Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 46 branch locations in Kansas and Missouri.  The Bank is one of the largest residential lenders in the State of Kansas.  News and other information about the Company can be found on the Internet at the Bank's website, http://www.capfed.com.

Except for the historical information contained in this press release, the matters discussed may be deemed to be forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies and other governmental initiatives affecting the financial services industry, fluctuations in interest rates, demand for loans in the Company's market area, the future earnings and capital levels of Capitol Federal Savings Bank, which would affect the ability of the Capitol Federal Financial, Inc. to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by Capitol Federal Financial, Inc. with the SEC.  Actual results may differ materially from those currently expected.  These forward-looking statements represent Capitol Federal Financial, Inc.'s judgment as of the date of this release.  Capitol Federal Financial, Inc. disclaims, however, any intent or obligation to update these forward-looking statements.

Supplemental Financial Information

Loan Portfolio

The following table presents information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for undisbursed loan funds, unearned loan fees and deferred costs, and the ACL) as of the dates indicated.  The average rate of the portfolio decreased 11 basis points from September 30, 2012 and 49 basis points from December 31, 2011, to 4.04% at December 31, 2012.  The decrease in the average rates from September 30, 2012 and December 31, 2011 was due primarily to the endorsement of loans at current market rates, as well as to the purchase and origination of loans between periods with rates less than the average rate of the existing portfolio.

December 31, 2012

September 30, 2012

December 31, 2011

Average

% of

Average

% of

Average

% of

Amount

Rate

Total

Amount

Rate

Total

Amount

Rate

Total

(Dollars in thousands)

Real Estate Loans:

One- to four-family

$

5,429,556

3.99%

95.5%

$

5,392,429

4.10%

95.5%

$

5,003,708

4.49%

94.7%

Multi-family and commercial

46,815

5.62

0.8

48,623

5.64

0.9

52,524

6.15

1.0

Construction

60,975

3.92

1.1

52,254

4.08

0.9

58,869

4.35

1.1

Total real estate loans

5,537,346

4.00

97.4

5,493,306

4.11

97.3

5,115,101

4.51

96.8

Consumer Loans:

Home equity

144,121

5.39

2.5

149,321

5.42

2.6

160,029

5.46

3.0

Other

6,426

4.62

0.1

6,529

4.77

0.1

7,355

4.89

0.2

Total consumer loans

150,547

5.36

2.6

155,850

5.39

2.7

167,384

5.44

3.2

Total loans receivable

5,687,893

4.04%

100.0%

5,649,156

4.15%

100.0%

5,282,485

4.53%

100.0%

Less:

Undisbursed loan funds

30,843

22,874

33,239

ACL

10,477

11,100

15,605

Discounts/unearned loan fees

21,864

21,468

20,315

Premiums/deferred costs

(15,368)

(14,369)

(11,616)

Total loans receivable, net

$

5,640,077

$

5,608,083

$

5,224,942

The following table presents the principal balance, weighted average credit score, loan-to-value ("LTV") ratio, and the average balance per loan for our one- to four-family loans at the dates presented.  Credit scores are typically updated during the last month of the quarter and are obtained 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 or broker price opinion.  In most cases, the most recent appraisal was obtained at the time of origination.

December 31, 2012

September 30, 2012

December 31, 2011

Credit

Average

Credit

Average

Credit

Average

Balance

Score

LTV

Balance

Balance

Score

LTV

Balance

Balance

Score

LTV

Balance

(Dollars in thousands)

Originated

$

4,024,920

763

65%

$

124

$

4,032,581

763

65%

$

124

$

4,030,538

763

65%

$

124

Correspondent purchases

650,115

764

65

336

575,502

761

65

326

440,721

760

64

301

Bulk purchases

754,521

748

67

317

784,346

749

67

316

532,449

740

60

254

$

5,429,556

761

65%

$

148

$

5,392,429

761

65%

$

147

$

5,003,708

761

65%

$

138

The following table summarizes the activity in the loan portfolio for the periods indicated, excluding changes in loans in process, deferred fees, and ACL.  Loans that were paid-off as a result of refinances are included in repayments.  Purchased loans include purchases from correspondent and nationwide lenders.  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.  During the current quarter, the Bank endorsed $253.3 million of one- to four-family loans, reducing the average rate on those loans by 107 basis points.  The endorsed balance and rate are, however, included in the ending loan portfolio balance and rate.

For the Three Months Ended

December 31, 2012

September 30, 2012

June 30, 2012

March 31, 2012

Amount

Rate

Amount

Rate

Amount

Rate

Amount

Rate

(Dollars in thousands)

Beginning balance

$

5,649,156

4.15%

$

5,256,803

4.37%

$

5,275,296

4.45%

$

5,282,485

4.53%

Originations and refinances:

Fixed

209,873

3.26

220,934

3.51

151,724

3.78

139,295

3.79

Adjustable

39,964

3.58

50,533

3.50

42,802

3.74

41,139

3.67

Purchases and Participations:

Fixed

88,763

3.45

90,939

3.62

34,567

3.94

31,165

4.29

Adjustable

21,434

2.70

360,463

2.49

12,722

3.00

16,426

3.07

Repayments

(318,332)

(327,972)

(256,221)

(228,203)

Principal charge-offs, net(1)

(856)

(677)

(782)

(4,546)

Other(2)

(2,109)

(1,867)

(3,305)

(2,465)

Ending balance

$

5,687,893

4.04%

$

5,649,156

4.15%

$

5,256,803

4.37%

$

5,275,296

4.45%

(1)

Principal charge-offs, net represent potential loss amounts that reduce the unpaid principal balance of a loan.

(2)

Other consists of transfers to OREO, endorsement fees advanced and reductions in commitments.

Loan Originations

The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity.  Loan originations, purchases and refinances are reported together.  The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.  The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.  

For the Three Months Ended

For the Three Months Ended

December 31, 2012

December 31, 2011

Amount

Rate

% of Total

Amount

Rate

% of Total

Fixed-Rate:

(Dollars in thousands)

One- to four-family:

<= 15 years

$

112,339

2.84%

31.2%

$

113,116

3.44%

33.7%

> 15 years

181,741

3.56

50.5

110,831

4.18

33.0

Multi-family and commercial real estate

3,850

5.00

1.1

--

--

--

Home equity

456

5.97

0.1

607

7.01

0.2

Other

250

8.01

0.1

444

6.87

0.1

Total fixed-rate

298,636

3.32

83.0

224,998

3.82

67.0

Adjustable-Rate:

One- to four-family:

<= 36 months

2,069

2.25

0.6

2,759

2.57

0.8

> 36 months

42,139

2.70

11.7

75,617

3.17

22.5

Multi-family and commercial real estate

--

--

--

13,975

5.00

4.2

Home equity

16,766

4.83

4.6

17,336

4.83

5.2

Other

424

2.88

0.1

840

3.28

0.3

Total adjustable-rate

61,398

3.27

17.0

110,527

3.65

33.0

Total originations, refinances and purchases

$

360,034

3.31%

100.0%

$

335,525

3.77%

100.0%

Purchased and participation loans included above:

Fixed-Rate:

Correspondent - one- to four-family

$

84,913

3.38%

$

44,275

4.04%

Bulk - one- to four-family

--

--

392

3.25

Participations - commercial real estate

3,850

5.00

--

--

Participations - other

--

--

133

2.57

Total fixed-rate purchases/participations

88,763

3.45

44,800

4.03

Adjustable-Rate:

Correspondent - one- to four-family

21,434

2.70

19,363

3.16

Bulk - one- to four-family

--

--

19,868

3.55

Participations - commercial real estate

--

--

13,975

5.00

Total adjustable-rate purchases/participations

21,434

2.70

53,206

3.79

Total purchased/participation loans

$

110,197

3.30%

$

98,006

3.90%

 

The following table presents the origination, refinance and purchase activity in our one- to four-family loan portfolio, excluding endorsement activity, for the quarters ended December 31, 2012 and 2011.  Refinances by Bank customers accounted for 47% of the one- to four-family loans originated during the current quarter.

For the Three Months Ended

For the Three Months Ended

December 31, 2012

December 31, 2011

Credit

Credit

Amount

LTV

Score

Amount

LTV

Score

(Dollars in thousands)

Originations

$

122,516

75%

768

$

125,192

73%

764

Refinances by Bank customers

109,425

67

771

93,233

67

774

Correspondent purchases

106,347

69

768

63,638

66

771

Bulk purchases

--

--

--

20,260

60

763

$

338,288

70%

769

$

302,323

69%

769

The following tables present the annualized prepayment speeds of our one- to four-family loan portfolio, including construction and non-performing loans, for the quarters ended December 31, 2012 and September 30, 2012.  The terms presented in the tables below represent the original terms for our fixed-rate loans, and current terms to repricing for our adjustable-rate loans.  Loan refinances are considered a prepayment and are included in the prepayment speeds presented below.  The annualized prepayment speeds are presented with and without endorsements.  

December 31, 2012

Prepayment Speed (annualized)

Principal

Including

Excluding

Term

Balance

Endorsements

Endorsements

(Dollars in thousands)

Fixed-rate one-to four-family loans:

15 years or less

$

1,087,793

34.9%

20.3%

More than 15 years