Capitol Federal Financial, Inc. Reports First Quarter Fiscal Year 2014 Results

TOPEKA, Kan., Jan. 29, 2014 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended December 31, 2013.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2013, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 4, 2014 and posted on our website, http://ir.capfed.comFor best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

  • net income of $17.8 million,
  • basic and diluted earnings per share of $0.12,
  • net interest margin of 1.98%,
  • growth in loans receivable, net of $65.7 million, or 4.4% annualized,
  • repurchased 578,880 shares of common stock at an average price of $12.14 per share, and
  • paid the True Blue® Too dividend of $0.25 per share.

Comparison of Operating Results for the Three Months Ended December 31, 2013 and September 30, 2013

Net income increased $1.7 million, or 10.9%, from $16.1 million for the quarter ended September 30, 2013 to $17.8 million for the quarter ended December 31, 2013.  The increase in net income was due primarily to a decrease in salaries and employee benefits due largely to a decrease in Employee Stock Ownership Plan ("ESOP") related expenses.  The net interest margin increased two basis points, from 1.96% for the prior quarter, to 1.98% for the current quarter.  The continued shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans was the primary driver of the increase in the net interest margin, along with a decrease in the rates on the certificate of deposit and repurchase agreement portfolios. 

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased one basis point from the prior quarter to 3.23% for the current quarter while the average balance of interest-earning assets decreased $3.9 million between the two periods.  The average balance of the securities portfolio decreased $152.7 million, while the average balance of the loans receivable portfolio increased $116.4 million between the two periods.  This is a result of management's continued strategy of adjusting the mix of interest-earning assets in order to obtain a higher yield on those assets.  The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.  


For the Three Months Ended




December 31,


September 30,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:











Loans receivable

$

56,948


$

56,425


$

523


0.9%

MBS


11,962



12,376



(414)


(3.3)

Investment securities


2,066



2,251



(185)


(8.2)

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


1,196



1,131



65


5.7

Cash and cash equivalents


62



40



22


55.0

Total interest and dividend income

$

72,234


$

72,223


$

11


0.0

The increase in interest income on loans receivable was due to a $116.4 million increase in the average balance of the portfolio, partially offset by a four basis point decrease in the weighted average yield of the portfolio to 3.79% for the current quarter.  Cash flows from the securities portfolio were used to fund loan growth during the current quarter.  The decrease in the weighted average yield was due largely to downward repricing of adjustable-rate loans, as well as to repayments of higher-yielding loans.

The decrease in interest income on MBS was due primarily to a $92.5 million decrease in the average balance of the portfolio, partially offset by a three basis point increase in the average yield of the portfolio, from 2.37% for the prior quarter to 2.40% for the current quarter.  The decrease in the average balance was largely a result of principal repayments being invested into the higher yielding loan portfolio.  The increase in the average yield of the portfolio was due primarily to a decrease in premium amortization, which is considered an adjustment to the yield, resulting largely from an increase in market interest rates. 

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased three basis points from the prior quarter to 1.49% for the current quarter, and the average balance of interest-bearing liabilities decreased $14.3 million between the two periods.  The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.  


For the Three Months Ended




December 31,


September 30,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:











FHLB borrowings

$

16,863


$

16,902


$

(39)


(0.2)%

Deposits


8,323



8,614



(291)


(3.4)

Repurchase agreements


2,803



2,901



(98)


(3.4)

Total interest expense

$

27,989


$

28,417


$

(428)


(1.5)

The decrease in interest expense on deposits was due to a decrease in the weighted average rate paid on the portfolio, specifically a decrease in the weighted average rate paid on the certificate of deposit portfolio.  The weighted average rate paid on the certificate of deposit portfolio decreased six basis points, from 1.24% for the prior quarter to 1.18% for the current quarter. 

Provision for Credit Losses
Capitol Federal Savings Bank (the "Bank") recorded a provision for credit losses during the current quarter of $515 thousand compared to a negative provision for credit losses during the prior quarter of $500 thousand.  The $515 thousand provision for credit losses in the current quarter takes into account net charge-offs of $418 thousand during the quarter, compared to a net recovery of $83 thousand in the prior quarter, along with loan growth during the quarter and a small increase in the balance of delinquent and non-performing loans between periods.  Loans 30 to 89 days delinquent increased $328 thousand, or 1.2%, from $27.6 million at September 30, 2013 to $27.9 million at December 31, 2013.  The ratio of loans 30 to 89 days delinquent to total loans receivable, net was 0.46% at both September 30, 2013 and December 31, 2013.  Non-performing loans increased $1.3 million, or 4.8%, from $26.4 million at September 30, 2013 to $27.7 million at December 31, 2013.  The ratio of non-performing loans to total loans receivable, net increased from 0.44% at September 30, 2013 to 0.46% at December 31, 2013.

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


For the Three Months Ended




December 31,


September 30,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:











Salaries and employee benefits

$

10,726


$

12,679


$

(1,953)


(15.4)%

Occupancy


2,549



2,735



(186)


(6.8)

Information technology and communications


2,292



2,132



160


7.5

Regulatory and outside services


1,396



1,439



(43)


(3.0)

Deposit and loan transaction costs


1,387



1,340



47


3.5

Federal insurance premium


1,083



1,125



(42)


(3.7)

Advertising and promotional


1,006



1,805



(799)


(44.3)

Other non-interest expense


2,348



2,132



216


10.1

Total non-interest expense

$

22,787


$

25,387


$

(2,600)


(10.2)

The decrease in salaries and employee benefits was due primarily to a decrease in ESOP related expenses resulting largely from the final allocation of ESOP shares acquired in our initial public offering (March 1999) being made on September 30, 2013.  In fiscal year 2014, the only ESOP shares to be allocated will be the shares acquired by the ESOP in the Company's corporate reorganization in December 2010.  The decrease in advertising and promotional expense was due primarily to the timing of media campaigns in the prior fiscal year. 

Income Tax Expense
Income tax expense was $8.6 million for the current quarter compared to $8.6 million for the prior quarter.  The effective income tax rate for the current quarter was 32.6% compared to 34.9% for the prior quarter.  The quarter-over-quarter decrease in the effective tax rate was due largely to a lower amount of nondeductible ESOP related expenses due to the final ESOP allocation on September 30, 2013, as discussed in the non-interest expense section above.  Management anticipates the effective tax rate for fiscal year 2014 will be approximately 33% to 34%, based on fiscal year 2014 estimates as of December 31, 2013.

Comparison of Operating Results for the Three Months Ended December 31, 2013 and 2012

For the quarter ended December 31, 2013, the Company recognized net income of $17.8 million, compared to net income of $17.6 million for the quarter ended December 31, 2012.  The net interest margin decreased three basis points, from 2.01% for the prior year quarter to 1.98% for the current quarter.  Decreases in the cost of funds and a shift in the mix of interest-earning assets from relatively lower yielding securities to higher yielding loans tempered the decrease in the net interest margin, but were not enough to fully offset the impact of decreasing asset yields. 

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 19 basis points from 3.42% for the prior year quarter to 3.23% for the current quarter and the average balance of interest-earning assets decreased $126.6 million from the prior year quarter.  The decrease in the weighted average balance between the two periods was primarily in the lower yielding MBS and investment securities portfolio, while the average balance of the loan portfolio increased between the two periods.

The following table presents the components of interest and dividend income for the time periods presented along with the change measured in dollars and percent.  The decrease in interest income on MBS and investment securities was due largely to a decrease in the average balance of each portfolio, while the decrease in interest income on loans receivable was due to a decrease in the weighted average yield on the portfolio.


For the Three Months Ended




December 31,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:











Loans receivable

$

56,948


$

58,467


$

(1,519)


(2.6)%

MBS


11,962



15,183



(3,221)


(21.2)

Investment securities


2,066



2,865



(799)


(27.9)

Capital stock of FHLB


1,196



1,128



68


6.0

Cash and cash equivalents


62



33



29


87.9

Total interest and dividend income

$

72,234


$

77,676


$

(5,442)


(7.0)

The weighted average yield on the loans receivable portfolio decreased 37 basis points, from 4.16% for the prior year quarter to 3.79% for the current quarter.  The decrease in the average yield was due to the downward repricing of the portfolio between periods resulting primarily from endorsements, refinances, and adjustable-rate loans, as well as to the origination and purchase of loans at rates less than the weighted average rate of the existing portfolio.  Endorsement and refinancing activity have significantly decreased in the current quarter compared to the prior year quarter due to an increase in market interest rates.  Additionally, loans originated, purchased and refinanced in the current quarter were at a weighted average rate of 3.84% compared to 3.31% in the prior year quarter.  The decrease in interest income on loans receivable resulting from the decrease in average yield was partially offset by a $376.5 million increase in the average balance of the portfolio.

The average balance of the MBS portfolio decreased $342.0 million between the two periods due to repayments that were invested, in part, into higher yielding loans.  The average yield on the MBS portfolio decreased 20 basis points, from 2.60% during the prior year quarter to 2.40% 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, as well as to the downward repricing of existing adjustable-rate MBS. 

The decrease in interest income on investment securities was due primarily to a $202.4 million decrease in the average balance of the portfolio.  The cash flows from calls and maturities of investment securities that were not reinvested into the portfolio were used, in part, to fund loan growth.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 22 basis points from 1.71% for the prior year quarter to 1.49% for the current quarter, while the average balance of interest-bearing liabilities increased $9.3 million from the prior year quarter.  The increase in the average balance of interest-bearing liabilities was largely in lower rate deposit products while the average balance of certificates of deposit and borrowings decreased between the two periods.

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.  The decrease in interest expense on FHLB borrowings and deposits was due primarily to a decrease in the weighted average rate paid on the portfolios, while the decrease in interest expense on repurchase agreements was due to both a decrease in the average balance and a decrease in the weighted average rate between the two periods.


For the Three Months Ended







December 31,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:











FHLB borrowings

$

16,863


$

18,628


$

(1,765)


(9.5)%

Deposits


8,323



9,849



(1,526)


(15.5)

Repurchase agreements


2,803



3,569



(766)


(21.5)

Total interest expense

$

27,989


$

32,046


$

(4,057)


(12.7)

The weighted average rate paid on the FHLB borrowings portfolio decreased 26 basis points, from 2.92% for the prior year quarter to 2.66% for the current quarter.  The decrease in the average rate paid was primarily a result of maturities and renewals that occurred between periods. 

The decrease in the weighted average rate paid on the deposit portfolio was due primarily to a decrease in the weighted average rate paid on the certificate of deposit portfolio as it continued to reprice to lower rates.  The weighted average rate paid on the certificate of deposit portfolio decreased 23 basis points, from 1.41% for the prior year quarter to 1.18% for the current quarter. 

The decrease in interest expense on repurchase agreements was due primarily to a $45.0 million decrease in the average balance between periods, as well as a 40 basis point decrease in the weighted average rate paid between periods, from 3.83% for the prior year quarter to 3.43% for the current quarter.  The decrease in the average balance was due to the maturity of agreements between the two periods, some of which were replaced with FHLB borrowings.  The decrease in the average rate paid on repurchase agreements was due primarily to the $100.0 million agreement entered into during the September 30, 2013 quarter, which had a rate less than the existing portfolio.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current quarter of $515 thousand, compared to a $233 thousand provision for credit losses for the prior year quarter.  The $515 thousand provision for credit losses in the current quarter takes into account net charge-offs of $418 thousand during the current quarter, along with loan growth and a small increase in the balance of delinquent and non-performing loans between September 30, 2013 and December 31, 2013.

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


For the Three Months Ended




December 31,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:











Salaries and employee benefits

$

10,726


$

12,181


$

(1,455)


(11.9)%

Occupancy


2,549



2,318



231


10.0

Information technology and communications


2,292



2,198



94


4.3

Regulatory and outside services


1,396



1,765



(369)


(20.9)

Deposit and loan transaction costs


1,387



1,526



(139)


(9.1)

Federal insurance premium


1,083



1,114



(31)


(2.8)

Advertising and promotional


1,006



1,032



(26)


(2.5)

Other non-interest expense


2,348



2,607



(259)


(9.9)

Total non-interest expense

$

22,787


$

24,741


$

(1,954)


(7.9)

The decrease in salaries and employee benefits was due primarily to a decrease in ESOP related expenses resulting largely from the final allocation of ESOP shares acquired in our initial public offering (March 1999) being made at September 30, 2013.  In fiscal year 2014, the only ESOP shares to be allocated will be the shares acquired in the Company's corporate reorganization in December 2010.  The decrease in regulatory and outside services was due largely to the timing of fees paid for our external audit.  The decrease in other non-interest expenses was due largely to a decrease in OREO operations expense, partially offset by an increase in amortization expense related to our low income housing partnerships.  The increase in occupancy expense was due largely to an increase in depreciation expense associated with the remodeling of our home office.

Income Tax Expense
Income tax expense was $8.6 million for the current quarter compared to $8.9 million for the prior year quarter.  The effective tax rate for the current quarter was 32.6% compared to 33.5% for the prior year quarter.  The decrease in the effective tax rate between periods was due largely to a lower amount of nondeductible ESOP related expenses due to the final ESOP allocation on September 30, 2013, as discussed in the non-interest expense section above.

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)



For the Three Months Ended


December 31,


September 30,


December 31,


2013


2013


2012

INTEREST AND DIVIDEND INCOME:









Loans receivable

$

56,948


$

56,425


$

58,467

MBS


11,962



12,376



15,183

Investment securities


2,066



2,251



2,865

Capital stock of FHLB


1,196



1,131



1,128

Cash and cash equivalents


62



40



33

Total interest and dividend income


72,234



72,223



77,676










INTEREST EXPENSE:









FHLB borrowings


16,863



16,902



18,628

Deposits


8,323



8,614



9,849

Repurchase agreements


2,803



2,901



3,569

Total interest expense


27,989



28,417



32,046










NET INTEREST INCOME


44,245



43,806



45,630










PROVISION FOR CREDIT LOSSES


515



(500)



233

NET INTEREST INCOME AFTER









PROVISION FOR CREDIT LOSSES


43,730



44,306



45,397










NON-INTEREST INCOME:









Retail fees and charges


3,810



3,973



3,992

Insurance commissions


558



588



571

Loan fees


450



415



467

Income from BOLI


338



363



382

Other non-interest income


344



417



356

Total non-interest income


5,500



5,756



5,768










NON-INTEREST EXPENSE:









Salaries and employee benefits


10,726



12,679



12,181

Occupancy


2,549



2,735



2,318

Information technology and communications


2,292



2,132



2,198

Regulatory and outside services


1,396



1,439



1,765

Deposit and loan transaction costs


1,387



1,340



1,526

Federal insurance premium


1,083



1,125



1,114

Advertising and promotional


1,006



1,805



1,032

Other non-interest expense


2,348



2,132



2,607

Total non-interest expense


22,787



25,387



24,741

INCOME BEFORE INCOME TAX EXPENSE


26,443



24,675



26,424

INCOME TAX EXPENSE


8,630



8,608



8,861

NET INCOME

$

17,813


$

16,067


$

17,563

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,



2013


2013


2012



(Dollars in thousands, except per share data)

Net income


$

17,813


$

16,067


$

17,563

Income allocated to participating securities



(50)



(44)



(60)

Net income available to common stockholders


$

17,763


$

16,023


$

17,503











Average common shares outstanding



142,881,528



142,440,679



147,881,207

Average committed ESOP shares outstanding



449



415,494



1,500

Total basic average common shares outstanding



142,881,977



142,856,173



147,882,707











Effect of dilutive stock options



1,064



2,079



102











Total diluted average common shares outstanding



142,883,041



142,858,252



147,882,809











Net earnings per share:










Basic


$

0.12


$

0.11


$

0.12

Diluted


$

0.12


$

0.11


$

0.12











Antidilutive stock options, excluded
  
from the diluted average common shares



















outstanding calculation



2,403,917



2,417,129



2,471,473

Financial Condition as of December 31, 2013

Total assets were $9.11 billion at December 31, 2013 compared to $9.19 billion at September 30, 2013.  The $75.4 million decrease was due primarily to a $125.9 million decrease in the securities portfolio, partially offset by a $65.7 million increase in the loan portfolio.  Loan growth during the current quarter was funded with cash flows from the securities portfolio as management continued the strategy of moving cash flows from the lower yielding securities portfolio to the higher yielding loan portfolio.  During the current quarter, the Bank originated and refinanced $154.1 million of loans with a weighted average rate of 3.90%, purchased $123.3 million of loans from correspondent lenders with a weighted average rate of 3.73%, and participated in $16.8 million of commercial real estate loans with a weighted average rate of 4.18%.  As of December 31, 2013, the Bank had 27 active correspondent lending relationships operating in 24 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 November 2013, the unemployment rate was 5.1% for Kansas and 6.1% for Missouri, compared to the national average of 7.0% based on information from the Bureau of Economic Analysis.  The unemployment rate remains lower 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 $80 thousand per annum, based on 2013 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 $69 thousand per annum, with 91% of the population at or above the poverty level, also based on the 2013 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 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.  Our implementation of the "ability to repay" and "qualified mortgage" rules on January 10, 2014, as issued by the Consumer Financial Protection Bureau, is not anticipated to have a significant impact to our overall book of business.  

The following table presents delinquent and non-performing loans, OREO, allowance for credit losses ("ACL"), and related ratios as of the dates shown.


December 31, 2013


September 30, 2013


December 31, 2012


(Dollars in thousands)

Loans 30 to 89 days delinquent

$

27,878


$

27,550


$

23,201










Loans 90 or more days delinquent or in foreclosure

$

21,188


$

19,489


$

19,021

Nonaccrual loans less than 90 days delinquent(1)


6,527



6,954



9,706

Total non-performing loans


27,715



26,443



28,727

OREO


3,645



3,882



6,259

Total non-performing assets

$

31,360


$

30,325


$

34,986










ACL balance

$

8,919


$

8,822


$

10,477










30 to 89 days delinquent loans to total loans, net


0.46%



0.46%



0.41%

Non-performing loans to total loans, net


0.46



0.44



0.51

Non-performing assets to total assets


0.34



0.33



0.38

ACL as a percentage of total loans, net


0.15



0.15



0.19

ACL as a percentage of total non-performing loans


32.18



33.36



36.47



(1)

Represents loans required to be reported as nonaccrual pursuant to the Office of the Comptroller of the Currency (the "OCC") reporting requirements, even if the loans are current.  At December 31, 2013, September 30, 2013, and December 31, 2012, this amount was comprised of $1.1 million, $1.1 million, and $1.8 million, respectively, of loans that were 30 to 89 days delinquent and are reported as such, and $5.4 million, $5.9 million, and $7.9 million, respectively, of loans that were current.

Total liabilities were $7.54 billion at December 31, 2013 compared to $7.55 billion at September 30, 2013.  The $12.7 million decrease was due primarily to a $33.5 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, partially offset by a $9.5 million increase in the deposit portfolio.  The increase in the deposit portfolio was due primarily to a $24.9 million increase in the checking portfolio and a $20.6 million increase in the money market portfolio, partially offset by a $38.8 million decrease in the certificate of deposit portfolio.  The decrease in the certificate of deposit portfolio was due primarily to a reduction in retail certificates with terms of 48 months or less.

Stockholders' equity was $1.57 billion at December 31, 2013 compared to $1.63 billion at September 30, 2013.  The $62.7 million decrease was due primarily to the payment of $72.3 million of dividends and the repurchase of $7.0 million of stock, partially offset by net income of $17.8 million.  Additionally, accumulated other comprehensive income ("AOCI") decreased $2.7 million from September 30, 2013 to December 31, 2013 due to a decrease in unrealized gains on available-for-sale ("AFS") securities as a result of an increase in market yields.

The $72.3 million of dividends paid during the current quarter consisted of a $0.25 per share, or $35.7 million, True Blue® Too dividend, an $0.18 per share, or $25.8 million, true-up dividend related to fiscal year 2013 earnings per the Company's dividend policy, and a regular quarterly dividend of $0.075 per share each quarter, or $10.8 million.  The $35.7 million True Blue® Too dividend was funded by a $36.0 million capital distribution from the Bank to the holding company in December 2013.  On January 21, 2014, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $10.6 million, payable on February 21, 2014 to stockholders of record as of the close of business on February 7, 2014.  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.  At December 31, 2013, Capitol Federal Financial, Inc., at the holding company level, had $183.2 million on deposit at the Bank.

In November 2012, the Company announced that its Board of Directors approved the repurchase of up to $175.0 million of the Company's common stock.  The Company began repurchasing common stock under this plan during the second quarter of fiscal year 2013 and, as of December 31, 2013, had repurchased 4,405,524 shares at an average price of $11.89 per share, at a total cost of $52.4 million.  Subsequent to December 31, 2013 through January 17, 2014, the Company repurchased 2,143,600 shares at an average price of $11.99 per share.  This plan, under which $96.9 million remained available as of January 17, 2014, has no expiration date.

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


December 31, 2013


September 30, 2013


December 31, 2012


(Dollars in thousands)

Stockholders' equity

$

1,569,463


$

1,632,126


$

1,669,951

Equity to total assets at end of period


17.2%



17.8%



18.1%

The following table presents a reconciliation of total and net shares outstanding as of December 31, 2013.  

 Total shares outstanding

147,313,188

 Less unallocated ESOP shares and unvested restricted stock

(4,821,885)

 Net shares outstanding

142,491,303

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, 2013, the Bank exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at December 31, 2013 based upon regulatory guidelines.





Regulatory





Requirement For



Bank


"Well-Capitalized"



Ratios


 Status

Tier 1 leverage ratio


14.6%


5.0%

Tier 1 risk-based capital


34.5


6.0

Total risk-based capital


34.8


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, 2013 is as follows (dollars in thousands):




Total Bank equity as reported under GAAP

$

1,334,405

Unrealized gains on AFS securities


(4,567)

Other


(15)

Total Tier 1 capital


1,329,823

ACL


8,919

Total risk-based capital

$

1,338,742

 


 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)


December 31,


September 30,


2013


2013

ASSETS:






Cash and cash equivalents (includes interest-earning deposits of $63,466 and $99,735)

$

88,665


$

113,886

Securities:






AFS at estimated fair value (amortized cost of $986,251 and $1,058,283)


993,593



1,069,967

Held-to-maturity at amortized cost (estimated fair value of $1,670,097 and $1,741,846)


1,668,484



1,718,023

Loans receivable, net (of ACL of $8,919 and $8,822)


6,024,589



5,958,868

BOLI


59,832



59,495

Capital stock of FHLB, at cost


129,095



128,530

Accrued interest receivable


22,823



23,596

Premises and equipment, net


71,477



70,112

OREO


3,645



3,882

Other assets


48,851



40,090

TOTAL ASSETS

$

9,111,054


$

9,186,449







LIABILITIES:






Deposits

$

4,620,908


$

4,611,446

FHLB borrowings


2,515,618



2,513,538

Repurchase agreements


320,000



320,000

Advance payments by borrowers for taxes and insurance


23,930



57,392

Income taxes payable


7,577



108

Deferred income tax liabilities, net


19,586



20,437

Accounts payable and accrued expenses


33,972



31,402

Total liabilities


7,541,591



7,554,323







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; 147,313,188 and 147,840,268 shares issued and outstanding as of December 31, 2013 and September 30, 2013, respectively







1,473



1,478

Additional paid-in capital


1,232,059



1,235,781

Unearned compensation, ESOP


(44,190)



(44,603)

Retained earnings


375,554



432,203

AOCI, net of tax


4,567



7,267

Total stockholders' equity


1,569,463



1,632,126

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,111,054


$

9,186,449







Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 47 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 related to the composition of our loan portfolio in terms of dollar amounts and percentages (before deductions for undisbursed loan funds, unearned loan fees and deferred costs, and ACL) as of the dates indicated.  



December 31, 2013


September 30, 2013


December 31, 2012






% of






% of






% of


Amount


Rate


Total


Amount


Rate


Total


Amount


Rate


Total


(Dollars in thousands)

Real Estate Loans:





















One- to four-family

$

5,811,216


3.76%


95.3%


$

5,743,047


3.77%


95.5%


$

5,429,556


3.99%


95.5%

Multi-family and commercial


41,745


5.00


0.7



50,358


5.22


0.9



46,815


5.62


0.8

Construction


101,638


3.71


1.7



77,743


3.63


1.3



60,975


3.92


1.1

Total real estate loans


5,954,599


3.77


97.7



5,871,148


3.78


97.7



5,537,346


4.00


97.4






















Consumer Loans:





















Home equity


135,023


5.22


2.2



135,028


5.26


2.2



144,121


5.39


2.5

Other


5,467


4.31


0.1



5,623


4.41


0.1



6,426


4.62


0.1

Total consumer loans


140,490


5.19


2.3



140,651


5.23


2.3



150,547


5.36


2.6






















Total loans receivable


6,095,089


3.80


100.0%



6,011,799


3.82


100.0%



5,687,893


4.04


100.0%






















Less:





















Undisbursed loan funds


61,480







42,807







30,843





ACL


8,919







8,822







10,477





Discounts/unearned loan fees


23,540







23,057







21,864





Premiums/deferred costs


(23,439)







(21,755)







(15,368)





Total loans receivable, net

$

6,024,589






$

5,958,868






$

5,640,077





 

The following table presents, for our portfolio of one- to four-family loans, the amount, percentage of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and the average balance per loan at the dates presented.  Credit scores are updated at least semiannually, with the last update in September 2013, 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.  In most cases, the most recent appraisal was obtained at the time of origination.



December 31, 2013


September 30, 2013


December 31, 2012




% of


Credit




Average





% of


Credit




Average




% of


Credit




Average


Amount


Total


Score


LTV


Balance



Amount


Total


Score


LTV


Balance


Amount


Total


Score


LTV


Balance


(Dollars in thousands)

Originated

$

4,046,815


69.6%


763


64%


$

127


$

4,054,436


70.6%


763


65%


$

127


$

4,024,920


74.1%


763


65%


$

124

Correspondent purchased


1,144,112


19.7


761


67



336



1,044,127


18.2


761


67



341



650,115


12.0


764


65



336

Bulk purchased


620,289


10.7


748


67



313



644,484


11.2


747


67



316



754,521


13.9


748


67



317


$

5,811,216


100.0%


761


65



156


$

5,743,047


100.0%


761


65



155


$

5,429,556


100.0%


761


65



148

Our portfolio of correspondent purchased loans increased $100.0 million, or 9.6%, from September 30, 2013 to $1.14 billion at December 31, 2013, of which $830.5 million are serviced by the Bank and $313.6 million are serviced by our mortgage sub-servicer.  The mortgage sub-servicer has experience servicing loans in the market areas in which we purchase loans and services the loans according to the Bank's servicing standards, which is intended to allow the Bank greater control over servicing and help maintain a standard of loan performance.

Loan Commitments

The following table summarizes our one- to four-family loan origination, refinance, and correspondent purchase commitments as of December 31, 2013, along with associated weighted average rates.  Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee.  A percentage of the commitments are expected to expire unfunded, so the amounts reflected in the table below are not necessarily indicative of future cash requirements.




Fixed-Rate




15 years


More than


Adjustable-


Total


or less


15 years


Rate


Amount


Rate


(Dollars in thousands)

Originate:














< 4.00%

$

12,234


$

7,628


$

21,012


$

40,874


3.35%

>= 4.00%


245



29,647



--



29,892


4.35



12,479



37,275



21,012



70,766


3.77















Correspondent:














< 4.00%


14,613



5,441



46,447



66,501


3.30

>= 4.00%


--



56,422



--



56,422


4.39



14,613



61,863



46,447



122,923


3.80















Total:














< 4.00%


26,847



13,069



67,459



107,375


3.32

>= 4.00%


245



86,069



--



86,314


4.38


$

27,092


$

99,138


$

67,459


$

193,689


3.79

Rate


3.40%



4.28%



3.23%






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 undisbursed loan funds, ACL, discounts/unearned loan fees, and premiums/deferred costs.  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.  The endorsed balance and rate are included in the ending loan portfolio balance and rate.  During the current quarter, the Bank endorsed $7.9 million of one- to four-family loans, reducing the average rate on those loans by 131 basis points.


For the Three Months Ended


December 31, 2013


September 30, 2013


June 30, 2013


March 31, 2013




Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate


(Dollars in thousands)

Beginning balance

$

6,011,799


3.82%


$

5,839,861


3.86%


$

5,763,055


3.94%


$

5,687,893


4.04%

Originated and refinanced:




















Fixed


108,829


3.95



217,328


3.70



182,177


3.35



179,828


3.26

Adjustable


45,273


3.76



44,090


3.75



31,713


3.87



22,676


3.94

Purchased and participations:




















Fixed


94,535


4.00



167,490


3.61



132,391


3.36



119,334


3.22

Adjustable


45,541


3.34



41,479


2.75



23,499


2.77



19,145


2.64

Repayments


(209,931)





(297,318)





(292,110)





(262,865)



Principal (charge-offs) recoveries, net


(418)





83





(33)





(405)



Transfers


(539)





(1,214)





(831)





(2,551)



Ending balance

$

6,095,089


3.80


$

6,011,799


3.82


$

5,839,861


3.86


$

5,763,055


3.94


The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total.  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, 2013


December 31, 2012


Amount


Rate


% of Total


Amount


Rate


% of Total

Fixed-Rate:

(Dollars in thousands)

One- to four-family:














<= 15 years

$

51,403


3.32%


17.5%


$

112,339


2.84%


31.2%

> 15 years


146,059


4.18


49.6



181,741


3.56


50.5

Multi-family and commercial real estate


5,000


4.00


1.7



3,850


5.00


1.1

Home equity


733


6.05


0.2



456


5.97


0.1

Other


169


11.08


0.1



250


8.01


0.1

Total fixed-rate


203,364


3.97


69.1



298,636


3.32


83.0















Adjustable-Rate:














One- to four-family:














<= 36 months


2,030


2.76


0.7



2,069


2.25


0.6

> 36 months


57,972


3.09


19.7



42,139


2.70


11.7

Multi-family and commercial real estate


11,763


4.25


4.0



--


--


--

Home equity


18,739


4.64


6.4



16,766


4.83


4.6

Other


310


2.88


0.1



424


2.88


0.1

Total adjustable-rate


90,814


3.55


30.9



61,398


3.27


17.0















Total originated, refinanced and purchased

$

294,178


3.84


100.0%


$

360,034


3.31


100.0%















Purchased and participation loans included above:














Fixed-Rate:














Correspondent - one- to four-family

$

89,535


4.00




$

84,913


3.38



Participations - commercial real estate


5,000


4.00





3,850


5.00



Total fixed-rate purchased/participations


94,535


4.00





88,763


3.45

















Adjustable-Rate:














Correspondent - one- to four-family


33,778


3.03





21,434


2.70



Participations - commercial real estate


11,763


4.25





--


--



Total adjustable-rate purchased/participations


45,541


3.34





21,434


2.70

















Total purchased/participation loans

$

140,076


3.78




$

110,197


3.30



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



For the Three Months Ended


For the Three Months Ended


December 31, 2013


December 31, 2012






Credit






Credit


Amount


LTV


Score


Amount


LTV


Score


(Dollars in thousands)

Originated

$

115,506


77%


768


$

122,516


75%


768

Refinanced by Bank customers


18,645


70


759



109,425


67


771

Correspondent purchased


123,313


74


760



106,347


69


768


$

257,464


75


763


$

338,288


70


769

The following table presents the amount, percentage of total, and weighted average rate, by state, for one- to four-family loan originations and correspondent purchases where originations and purchases were in excess of $1.5 million in a state during the current quarter.  




For the Three Months Ended



December 31, 2013

State


Amount


% of Total


Rate



(Dollars in thousands)

Kansas


$

132,913


51.6%


3.77%

Missouri



75,358


29.3


3.75

Texas



14,339


5.6


3.84

Tennessee



10,752


4.2


3.70

Alabama



8,062


3.1


3.27

Oklahoma



5,998


2.3


4.11

North Carolina



3,345


1.3


3.47

Other states



6,697


2.6


3.86



$

257,464


100.0%


3.75

The following tables present the annualized prepayment speeds of our one- to four-family loan portfolio for the monthly and quarterly periods indicated.  The balances represent the unpaid principal balance of one- to four-family loans, and the terms represent the contractual 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, 2013





Monthly Prepayment


Quarterly Prepayment





Speeds (annualized)


Speeds (annualized)



Unpaid


Including


Excluding


Including


Excluding

Term


Principal


Endorsements


Endorsements


Endorsements


Endorsements



(Dollars in thousands)

Fixed-rate one- to four-family loans:












15 years or less


$

1,177,946


7.2%


6.8%


7.2%


7.0%

More than 15 years



3,567,066


6.5


6.0


7.3


6.6




4,745,012


6.7


6.2


7.3


6.7













Adjustable-rate one- to four-family loans:












36 months or less



792,578


17.2


16.9


15.1


14.4

More than 36 months



353,085


12.2


12.2


9.1


9.1




1,145,663


15.7


15.5


13.3


12.8

Total one- to four-family loans


$

5,890,675


8.4


8.0


8.4


7.9





September 30, 2013





Monthly Prepayment


Quarterly Prepayment





Speeds (annualized)


Speeds (annualized)



Unpaid


Including


Excluding


Including


Excluding

Term


Principal


Endorsements


Endorsements


Endorsements


Endorsements



(Dollars in thousands)

Fixed-rate one- to four-family loans:












15 years or less


$

1,177,340


10.6%


10.3%


13.1%


12.7%

More than 15 years



3,504,297


9.6


8.9


13.6


12.0




4,681,637


9.8


9.2


13.5


12.2













Adjustable-rate one- to four-family loans:












36 months or less



795,690


22.5


21.4


23.7


22.5

More than 36 months



332,330


12.9


12.9


16.2


16.2




1,128,020


19.8


19.0


21.6


20.8

Total one- to four-family loans


$

5,809,657


11.8


11.1


15.1


13.9

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO at the dates indicated.  Of the loans 30 to 89 days delinquent at December 31, 2013, approximately 70% were 59 days delinquent or less.  Non-performing loans are loans that are 90 or more days delinquent or in foreclosure and nonaccrual loans less than 90 days delinquent but are required to be reported as nonaccrual pursuant to OCC reporting requirements, even if the loans are current.  Non-performing assets include non-performing loans and OREO.  Over the past 12 months, OREO properties were owned by the Bank, on average, for approximately four months before they were sold.




Loans Delinquent for 30 to 89 Days at:


December 31, 2013


September 30, 2013


June 30, 2013


March 31, 2013


December 31, 2012


Number


Amount


Number


Amount


Number


Amount


Number


Amount


Number


Amount


(Dollars in thousands)

One- to four-family:

























Originated

178


$

16,956


164


$

18,225


137


$

12,838


124


$

13,718


156


$

15,182

Correspondent purchased

4



2,243


5



709


4



704


5



1,054


2



243

Bulk purchased

37



7,858


37



7,733


28



6,012


42



9,190


35



6,622

Consumer Loans:

























Home equity

41



721


45



848


40



869


40



719


42



966

Other

17



100


13



35


13



158


14



104


10



188


277


$

27,878


264


$

27,550


222


$

20,581


225


$

24,785


245


$

23,201

30 to 89 days delinquent loans

























to total loans receivable, net




0.46%





0.46%





0.36%





0.43%





0.41%

 


Non-Performing Loans and OREO at:


December 31, 2013


September 30, 2013


June 30, 2013


March 31, 2013


December 31, 2012


Number


Amount


Number


Amount


Number


Amount


Number


Amount


Number


Amount

Loans 90 or More Days Delinquent or in Foreclosure:

(Dollars in thousands)

One- to four-family:

























Originated

110


$

9,931


101


$

8,579


91


$

8,017


85


$

7,687


83


$

7,395

Correspondent purchased

5



635


5



812


4



609


4



642


6



815

Bulk purchased

33



10,134


34



9,608


37



9,535


40



9,408


43



10,378

Consumer Loans:

























Home equity

29



477


29



485


21



295


22



393


21



357

Other

8



11


4



5


7



23


5



26


14



76


185



21,188


173



19,489


160



18,479


156



18,156


167



19,021

Nonaccrual loans less than 90 Days Delinquent:(1)

























One- to four-family:

























Originated

65



6,057


57



5,833


62



7,578


61



6,893


66



7,246

Correspondent purchased

--



--


2



740


--



--


1



433


3



657

Bulk purchased

3



392


2



280


2



168


4



711


7



1,450

Consumer Loans:

























Home equity

6



78


6



101


8



174


7



150


17



342

Other

--



--


--



--


--



--


--



--


1



11


74



6,527


67



6,954


72



7,920


73



8,187


94



9,706

Total non-performing loans

259



27,715


240



26,443


232



26,399


229



26,343


261



28,727


























Non-performing loans as a percentage of total loans(2)




0.46%





0.44%





0.46%





0.46%





0.51%


























OREO:

























One- to four-family:

























Originated(3)

22


$

1,531


28


$

2,074


34


$

3,283


51


$

4,219


51


$

3,639

Correspondent purchased

1



110


2



71


3



269


2



173


--



--

Bulk purchased

6



647


4



380


4



581


5



830


7



1,188

Consumer Loans:

























Home equity

2



57


2



57


3



66


4



60


2



32

Other(4)

1



1,300


1



1,300


1



1,300


1



1,400


1



1,400


32



3,645


37



3,882


45



5,499


63



6,682


61



6,259

Total non-performing assets

291


$

31,360


277


$

30,325


277


$

31,898


292


$

33,025


322


$

34,986


























Non-performing assets as a percentage of total assets




0.34%





0.33%





0.35%





0.35%





0.38%



(1)

Represents loans required to be reported as nonaccrual pursuant to OCC reporting requirements, even if the loans are current.  At December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013, and December 31, 2012, this amount was comprised of $1.1 million, $1.1 million, $1.1 million, $975 thousand, and $1.8 million, respectively, of loans that were 30 to 89 days delinquent and are reported as such, and $5.4 million, $5.9 million, $6.8 million, $7.2 million, and $7.9 million, respectively, of loans that were current.

(2)

Excluding loans required to be reported as nonaccrual pursuant to OCC reporting requirements, even if the loans are current, non-performing loans as a percentage of total loans were 0.35%, 0.33%, 0.32%, 0.32%, and 0.34% at December 31, 2013, September 30, 2013, June 30, 2013, March 31, 2013, and December 31, 2012, respectively.

(3)

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.

(4)

Other represents a single property the Bank purchased for a potential branch site but now intends to sell.

 

The following table presents the ACL activity and related ratios at the dates and for the periods indicated.  Of the $856 thousand of net charge-offs during the quarter ended December 31, 2012, $369 thousand was due to loans that were primarily discharged in a prior fiscal year under Chapter 7 bankruptcy that must be, pursuant to OCC regulatory guidance issued in 2012, evaluated for collateral value loss, even if they are current.


For the Three Months Ended


December 31,


September 30,


June 30,


March 31,


December 31,


2013


2013


2013


2013


2012


(Dollars in thousands)

Balance at beginning of period

$

8,822


$

9,239


$

10,072


$

10,477


$

11,100

Charge-offs:















One- to four-family loans - originated


(88)



(74)



(60)



(282)



(208)

One- to four-family loans - correspondent purchased


--



--



--



(2)



(11)

One- to four-family loans - bulk purchased


(327)



(76)



--



(153)



(532)

Multi-family and commercial loans


--



--



--



--



--

Construction


--



--



--



--



--

Home equity


(10)



(13)



(111)



(19)



(109)

Other consumer loans


--



--



--



(1)



(6)

Total charge-offs


(425)



(163)



(171)



(457)



(866)

Recoveries:















One- to four-family loans - originated


1



1



13



--



--

One- to four-family loans - correspondent purchased


--



--



--



--



--

One- to four-family loans - bulk purchased


--



238



118



42



--

Multi-family and commercial loans


--



--



--



--



--

Construction


--



--



--



--



--

Home equity


6



7



7



9



10

Other consumer loans


--



--



--



1



--

Recoveries


7



246



138



52



10

Net (charge-offs) recoveries


(418)



83



(33)



(405)



(856)

Provision for credit losses


515



(500)



(800)



--



233

Balance at end of period

$

8,919


$

8,822


$

9,239


$

10,072


$

10,477
















Ratio of net charge-offs (recoveries) during the















period to average loans outstanding during the period


0.01%



--%



--%



0.01%



0.02%

Ratio of net charge-offs (recoveries) during the















period to average non-performing assets


1.35



(0.27)



0.10



1.19



2.29

ACL to non-performing loans at end of period


32.18



33.36



35.00



38.23



36.47

ACL to loans receivable, net at end of period


0.15



0.15



0.16



0.18



0.19

ACL to net charge-offs (annualized)


5.3x




























Securities Portfolio

The following table presents the distribution of our MBS and investment securities portfolio, at amortized cost, at the dates indicated.  The majority of the MBS and investment securities portfolio are composed of securities issued by U.S. government-sponsored enterprises ("GSEs").  Overall, fixed-rate securities comprised 78% of these portfolios at December 31, 2013.  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 taxable equivalent basis.  



December 31, 2013


September 30, 2013


December 31, 2012


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Fixed-rate securities:





















MBS

$

1,384,297


2.46%


4.1


$

1,427,648


2.44%


3.5


$

1,559,219


2.60%


3.0

GSE debentures


658,834


1.03


3.3



709,118


1.04


2.8



787,666


1.10


1.6

Municipal bonds


36,304


2.68


1.9



35,587


3.02


1.5



44,379


2.89


1.9

Total fixed-rate securities


2,079,435


2.01


3.8



2,172,353


1.99


3.3



2,391,264


2.11


2.5






















Adjustable-rate securities:





















MBS


572,721


2.31


6.0



601,359


2.32


4.9



734,655


2.63


5.1

Trust preferred securities


2,579


1.50


23.5



2,594


1.51


23.7



2,900


1.56


24.5

Total adjustable-rate securities


575,300


2.31


6.1



603,953


2.31


4.9



737,555


2.62


5.2

Total securities portfolio

$

2,654,735


2.07


4.3


$

2,776,306


2.06


3.7


$

3,128,819


2.23


3.1

MBS:  The following tables provide a summary of the activity in our MBS portfolio for the periods presented.  The weighted average yields and WALs for purchases are presented as recorded at the time of purchase.  The yields for the beginning balances are as of the last day of the period previous to the period presented and the yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented.  The beginning and ending WAL is the estimated remaining maturity (in years) after three-month historical prepayment speeds have been applied.  MBS purchased during the current quarter were generally comprised of loans with contractual terms-to-maturity of 15 years or less to help mitigate exposure to rising interest rates.




For the Three Months Ended


December 31,  2013


September 30, 2013


June 30, 2013


March 31, 2013


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

2,047,708


2.40%


3.9


$

2,179,539


2.39%


3.6


$

2,358,095


2.45%


3.6


$

2,324,187


2.61%


3.7

Maturities and repayments


(95,864)







(149,555)







(171,699)







(187,308)





Net amortization of premiums/(discounts)


(1,397)







(1,688)







(2,049)







(2,124)





Purchases:




























Fixed


25,272


1.72


3.7



--


--


--



--


--


--



227,310


1.24


4.0

Adjustable


--


--


--



22,246


1.80


5.1



--


--


--



--


--


--

Change in valuation on AFS securities


(555)







(2,834)







(4,808)







(3,970)





Ending balance - carrying value

$

1,975,164


2.42


4.7


$

2,047,708


2.40


3.9


$

2,179,539


2.39


3.6


$

2,358,095


2.45


3.6

The following table presents the annualized prepayment speeds of our MBS portfolio for the monthly and quarterly periods ended December 31, 2013, along with associated net premium/(discount) information, weighted average rates for the portfolio, and weighted average remaining contractual terms (in years) for the portfolio.  The annualized prepayment speeds are based on actual prepayment activity.  Prepayments impact the amortization/accretion of premiums/discounts on our MBS portfolio.  As prepayments increase, the related premiums/discounts are amortized/accreted at a faster rate.  The amortization of premiums decreases interest income while the accretion of discounts increases interest income.  The balances in the following table represent the amortized cost of MBS, and the terms represent the contractual terms for our fixed-rate MBS and current terms to repricing for our adjustable-rate MBS.





December 31, 2013





Prepayment


Net



Amortized


Speed (annualized)


Premium/

Term


Cost


Monthly


Quarterly


(Discount)



(Dollars in thousands)

Fixed-rate MBS:











15 years or less


$

1,295,866


7.9%


8.8%


$

16,319

More than 15 years



88,431


11.9


13.5



792




1,384,297


8.2


9.1



17,111

Rate



3.68%








Remaining contractual term (years)



10.6



















Adjustable-rate MBS:











36 months or less


$

507,633


14.8


14.7



1,010

More than 36 months



65,088


9.2


10.6



1,154




572,721


14.2


14.2



2,164

Rate



2.99%








Remaining contractual term (years)



23.8



















Total MBS


$

1,957,018


9.9


10.6


$

19,275

Rate



3.48%








Remaining contractual term (years)



14.5








Investment Securities:  The following tables provide a summary of the activity in investment securities portfolio for the periods presented.  The weighted average yields and WALs for purchases are presented as recorded at the time of purchase.  The yields for the beginning balances are as of the last day of the period previous to the period presented and the yields for the ending balances are as of the last day of the period presented.  The beginning and ending WALs represent the estimated remaining maturity (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.  Of the $30.4 million of fixed-rate investment securities purchased during the current quarter, $24.8 million are callable.



For the Three Months Ended


December 31,  2013


September 30, 2013


June 30, 2013


March 31, 2013


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

740,282


1.14%


2.9


$

807,399


1.14%


3.2


$

841,127


1.14%


2.3


$

837,433


1.20%


1.7

Maturities and calls


(79,860)







(69,838)







(50,864)







(171,009)





Net amortization of premiums/(discounts)


(114)







(117)







(76)







(97)





Purchases:




























Fixed


30,392


1.29


4.4



--


--


--



29,310


1.48


4.8



175,045


0.91


2.5

Change in valuation of AFS securities


(3,787)







2,838







(12,098)







(245)





Ending balance - carrying value

$

686,913


1.11


3.3


$

740,282


1.14


2.9


$

807,399


1.14


3.2


$

841,127


1.14


2.3


Deposit Portfolio

The following table presents the amount, weighted average rate and percentage of total deposits for checking, savings, money market, retail certificates of deposit, and public units/brokered deposits at the dates presented. 



December 31, 2013


September 30, 2013


December 31, 2012






% of






% of






% of


Amount


Rate


 Total


Amount


Rate


 Total


Amount


Rate


 Total


(Dollars in thousands)

Noninterest-bearing checking

$

155,446


--%


3.3%


$

150,171


--%


3.2%


$

142,820


--%


3.1%

Interest-bearing checking


525,363


0.05


11.4



505,762


0.05


11.0



513,419


0.05


11.2

Savings


285,906


0.10


6.2



283,169


0.13


6.1



265,195


0.11


5.8

Money market


1,149,229


0.23


24.9



1,128,604


0.23


24.5



1,142,990


0.22


25.0

Retail certificates of deposit


2,203,775


1.24


47.7



2,242,909


1.27


48.7



2,246,908


1.46


49.0

Public units/brokered deposits


301,189


0.79


6.5



300,831


0.80


6.5



270,831


1.00


5.9


$

4,620,908


0.71


100.0%


$

4,611,446


0.74


100.0%


$

4,582,163


0.84


100.0%

The following table presents scheduled maturities of our certificates of deposit, along with associated weighted average rates, as of December 31, 2013: 




Amount Due









More than


More than









1 year


1 year to


2 years to


More than


Total

Rate range


or less


2 years


3 years


3 years


Amount


Rate



(Dollars in thousands)






0.00 – 0.99%


$

861,884


$

190,679


$

82,003


$

28,443


$

1,163,009


0.46%

1.00 – 1.99%



198,885



157,067



239,269



268,492



863,713


1.39

2.00 – 2.99%



187,124



227,494



28,586



1,732



444,936


2.55

3.00 – 3.99%



14,982



17,286



202



322



32,792


3.07

4.00 – 4.99%



254



188



72



--



514


4.39



$

1,263,129


$

592,714


$

350,132


$

298,989


$

2,504,964


1.19%



















Percent of total



50.4%



23.7%



14.0%



11.9%






Weighted average rate



0.92



1.58



1.39



1.30






Weighted average maturity (in years)



0.5



1.4



2.4



3.7



1.4



Weighted average maturity for the retail certificate of deposit portfolio (in years)




1.5




Borrowings

The following table presents the maturity of FHLB advances, at par, and repurchase agreements, along with associated weighted average contractual and weighted average effective rates as of December 31, 2013. 



FHLB


Repurchase





Maturity by


Advances


Agreements


Contractual


Effective

Fiscal year


Amount


Amount


Rate


Rate(1)



(Dollars in thousands)





2014


$

300,000


$

100,000


3.39%


4.25%

2015



600,000



20,000


1.73


1.96

2016



575,000



--


2.29


2.91

2017



500,000



--


2.69


2.72

2018



200,000



100,000


2.90


2.90

2019



100,000



--


1.29


1.29

2020



250,000



100,000


2.18


2.18



$

2,525,000


$

320,000


2.41


2.71



(1)

The effective rate includes the net impact of the amortization of deferred prepayment penalties resulting from the prepayment of certain FHLB advances and deferred gains related to terminated interest rate swaps.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of borrowings and certificates of deposit, split between retail and public unit/brokered deposit amounts, for the next four quarters as of December 31, 2013.














Public Unit/















Retail




Brokered








Maturity by


Borrowings


Repricing


Certificate


Repricing


Deposit


Repricing





Repricing

Quarter End


Amount


Rate


Amount


Rate


Amount


Rate


Total


Rate



(Dollars in thousands)

March 31, 2014


$

200,000


5.01%



$

233,551


0.98%



$

95,372


0.13%



$

528,923


2.35%

June 30, 2014



100,000


2.80




234,093


0.84




49,816


1.18




383,909


1.39

September 30, 2014



100,000


4.20




344,353


1.09




41,119


0.34




485,472


1.67

December 31, 2014



250,000


0.84




240,762


1.09




24,063


0.33




514,825


0.93



$

650,000


2.94



$

1,052,759


1.01



$

210,370


0.44



$

1,913,129


1.60

The following tables present FHLB advance activity, at par, and repurchase agreement activity for the periods shown.  Line of credit activity is excluded from the following table due to the short-term nature of the borrowings.  The weighted average effective rate includes the net impact of the amortization of deferred prepayment penalties resulting from the prepayment of certain FHLB advances and deferred gains related to interest rate swaps previously terminated.  Rates on new borrowings are fixed-rate.  The weighted average maturity ("WAM") is the remaining weighted average contractual term in years.  The beginning and ending WAMs represent the remaining maturity at each date presented.  For new borrowings, the WAMs presented are as of the date of issue. 




For the Three Months Ended


December 31, 2013


September 30, 2013


June 30, 2013


March 31, 2013




Effective







Effective







Effective







Effective




Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


(Dollars in thousands)

Beginning balance

$

2,845,000


2.75%


2.6


$

2,815,000


2.80%


2.7


$

2,965,000


2.92%


2.5


$

2,915,000


2.99%


2.6

Maturities and prepayments:




























FHLB advances


(150,000)


3.16





--


--





(225,000)


3.86





--


--



Repurchase agreements


--


--





(70,000)


4.23





(25,000)


3.33





(50,000)


3.48



New borrowings:




























FHLB advances


150,000


2.32


6.0



--


--


--



100,000


1.61


7.0



100,000


1.29


6.0

Repurchase agreements


--


--


--



100,000


2.53


7.0



--


--


--



--


--


--

Ending balance

$

2,845,000


2.71


2.7


$

2,845,000


2.75


2.6


$

2,815,000


2.80


2.7


$

2,965,000


2.92


2.5

Average Rates and Lives

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for major categories of our assets and liabilities as of the date presented.  Yields presented for investment securities and MBS include the amortization of fees, costs, premiums and discounts which are considered adjustments to the yield.  For loans receivable, the stated interest rate is presented, which does not include any adjustments to the yield.  The interest rate presented for borrowings is the effective rate, which includes the net impact of the amortization of deferred prepayment penalties resulting from the prepayment of certain FHLB advances and deferred gains related to interest rate swaps previously terminated.


December 31, 2013


Amount


Yield/Rate


WAL


(Dollars in thousands)

Investment securities

$

686,913


1.11%


3.3

MBS


1,975,164


2.42


4.7

Loans receivable:







Fixed-rate one- to four-family:







<= 15 years


1,177,939


3.50


4.3

> 15 years


3,503,661


4.15


7.2

All other fixed-rate loans


137,923


4.79


5.2

Total fixed-rate loans


4,819,523


4.01


6.4








Adjustable-rate one- to four-family:







<= 36 months


401,387


2.49


4.4

> 36 months


728,229


3.00


3.5

All other adjustable-rate loans


145,950


4.48


1.4

Total adjustable-rate loans


1,275,566


3.01


3.6

Total loans receivable


6,095,089


3.80


5.8








Transaction deposits


2,115,944


0.15


6.8

Certificates of deposit


2,504,964


1.19


1.4

Borrowings


2,845,000


2.71


2.7

At December 31, 2013, the Bank's one-year gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice was $65.5 million, or 0.7% of total assets, compared to $371.3 million, or 4.0% of total assets, at September 30, 2013.  The amount of interest-bearing liabilities expected to reprice in a given period is not typically 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.  The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on mortgage loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder.  As interest rates rise, the amount of interest-earning assets expected to reprice will likely decrease from estimated levels as borrowers and agency debt issuers will have less economic incentive to modify their cost of borrowings.  If interest rates were to increase 200 basis points, as of December 31, 2013, the Bank's one-year gap is projected to be negative $(355.5) million, or (3.9)% of total assets, meaning more liabilities are anticipated to reprice than assets.  This compares to a negative one-year gap of $(162.5) million, or (1.8)% of total assets, if interest rates were to increase 200 basis points, as of September 30, 2013.  The change in the one-year gap amount in the +200 basis point scenario between periods is due to a decrease in the amount of assets expected to reprice if rates were to increase 200 basis points.  As interest rates increase, borrowers have less economic incentive to refinance or endorse their loans to higher market interest rates.  Any decrease in our net interest margin due to liabilities repricing to higher market interest rates will likely be partially offset by an increase in income on interest-earning assets as cash flows are invested at higher market interest rates.

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 and the weighted average yield/rate on our interest-earning assets and interest-bearing liabilities at December 31, 2013.  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 were not calculated on a fully taxable equivalent basis.



At


For the Three Months Ended


December 31, 2013


December 31, 2013


September 30, 2013


December 31, 2012




Average


Interest 




Average


Interest 




Average


Interest




Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Rate


Balance


Paid


Rate


Balance


Paid


Rate


Balance


Paid


Rate

Assets:



(Dollars in thousands)

Interest-earning assets:


























Loans receivable(1)

3.80%


$

6,001,095


$

56,948


3.79%


$

5,884,713


$

56,425


3.83%


$

5,624,629


$

58,467


4.16%

MBS(2)

2.42



1,994,759



11,962


2.40



2,087,298



12,376


2.37



2,336,783



15,183


2.60

Investment securities(2)(3)

1.11



728,853



2,066


1.13



789,041



2,251


1.14



931,252



2,865


1.23

Capital stock of FHLB

3.69



130,492



1,196


3.63



133,716



1,131


3.35



132,587



1,128


3.38

Cash and cash equivalents

0.25



98,624



62


0.25



62,984



40


0.25



55,178



33


0.24

Total interest-earning assets(1)(2)

3.26



8,953,823



72,234


3.23



8,957,752



72,223


3.22



9,080,429



77,676


3.42

Other noninterest-earning assets




220,628








204,368








238,069






Total assets



$

9,174,451







$

9,162,120







$

9,318,498
































Liabilities and stockholders' equity:


























Interest-bearing liabilities:


























Checking

0.04


$

651,011



63


0.04


$

644,297



62


0.04


$

598,634



58


0.04

Savings

0.10



284,252



72


0.10



283,478



88


0.12



262,492



71


0.11

Money market

0.23



1,132,744



660


0.23



1,146,065



631


0.22



1,117,159



657


0.23

Certificates

1.19



2,522,759



7,528


1.18



2,508,689



7,833


1.24



2,545,232



9,063


1.41

Total deposits

0.71



4,590,766



8,323


0.72



4,582,529



8,614


0.75



4,523,517



9,849


0.86

FHLB borrowings(4)

2.62



2,515,339



16,863


2.66



2,539,036



16,902


2.64



2,528,290



18,628


2.92

Repurchase agreements

3.43



320,000



2,803


3.43



318,859



2,901


3.56



365,000



3,569


3.83

Total borrowings

2.71



2,835,339



19,666


2.75



2,857,895



19,803


2.74



2,893,290



22,197


3.04

Total interest-bearing liabilities

1.48



7,426,105



27,989


1.49



7,440,424



28,417


1.52



7,416,807



32,046


1.71

Other noninterest-bearing liabilities




119,463








91,116








124,176






Stockholders' equity




1,628,883








1,630,580








1,777,515






Total liabilities and stockholders' equity



$

9,174,451







$

9,162,120







$

9,318,498





























(Continued)

 

 


At


For the Three Months Ended


December 31, 2013


December 31, 2013


September 30, 2013


December 31, 2012




Average


Interest




Average


Interest




Average


Interest




Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Rate


Balance


Paid


Rate


Balance


Paid


Rate


Balance


Paid


Rate




(Dollars in thousands)



























Net interest income(5)






$

44,245







$

43,806







$

45,630



Net interest rate spread(6)

1.78%








1.74%








1.70%








1.71%

Net interest-earning assets



$

1,527,718







$

1,517,328







$

1,663,622






Net interest margin(7)









1.98








1.96








2.01

Ratio of interest-earning assets


























to interest-bearing liabilities









1.21x








1.20x








1.22x



























Selected performance ratios:


























Return on average assets (annualized)









0.78%








0.70%








0.75%

Return on average equity (annualized)









4.37








3.94








3.95

Average equity to average assets









17.75








17.80








19.08

Operating expense ratio (annualized)(8)









0.99








1.11








1.06

Efficiency ratio(9)









45.81








51.22








48.14
























(Concluded)



(1)

Calculated net of unearned loan fees, deferred costs, and undisbursed loan funds.  Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.  Balance includes mortgage loans receivable held-for-sale.

(2)

MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts.

(3)

The average balance of investment securities includes an average balance of nontaxable securities of $36.5 million, $37.7 million, and $45.0 million for the quarters ended December 31, 2013, September 30, 2013, and December 31, 2012, respectively.

(4)

The balance and rate of FHLB borrowings are stated net of deferred gains and deferred prepayment penalties.

(5)

Net interest income represents the difference between interest income earned on interest-earning assets such as mortgage loans, investment securities, and MBS, and interest paid on interest-bearing liabilities such as deposits, FHLB borrowings, and other borrowings.  Net interest income depends on the balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

(6)

Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(7)

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

(8)

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

(9)

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.

 

SOURCE Capitol Federal Financial, Inc.



RELATED LINKS
http://www.capfed.com

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