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2014

Capitol Federal Financial, Inc. Reports Third Quarter Fiscal Year 2013 Results

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TOPEKA, Kan., July 29, 2013 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended June 30, 2013.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, which will be filed with the Securities and Exchange Commission ("SEC") on or about August 5, 2013 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 $18.0 million,
  • basic and diluted earnings per average share outstanding of $0.13,
  • net interest margin of 1.96%,
  • repurchased 1,467,214 shares of common stock at an average price of $11.84 per share, and
  • paid dividends of $10.8 million.

Comparison of Operating Results for the Quarters Ended June 30, 2013 and March 31, 2013

Net income increased $280 thousand, or 1.6%, from $17.7 million for the quarter ended March 31, 2013 to $18.0 million for the quarter ended June 30, 2013.  The net interest margin decreased one basis point, from 1.97% for the prior quarter, to 1.96% for the current quarter.  Loan and security yields decreased as continued downward pressure persisted, while decreases in the rates on the certificate of deposit portfolio and Federal Home Loan Bank ("FHLB") borrowings eased funding costs. 

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased seven basis points from the prior quarter to 3.26% for the current quarter and the average balance of interest-earning assets increased $46.5 million between the two periods.  The increase in the weighted average balance between the two periods was primarily in the loan portfolio.

The following table presents the components of interest and dividend income for the time periods presented, along with the change in dollars and percent.  The decrease in interest income on mortgage-backed securities ("MBS") and loans receivable was due primarily to a decrease in the weighted average yield of each portfolio.














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:











Loans receivable

$

56,627


$

56,936


$

(309)


(0.5)%

MBS


13,419



14,446



(1,027)


(7.1)

Investment securities


2,439



2,457



(18)


(0.7)

Capital stock of FHLB


1,151



1,105



46


4.2

Cash and cash equivalents


39



36



3


8.3

Total interest and dividend income

$

73,675


$

74,980


$

(1,305)


(1.7)%

 

The decrease in interest income on loans receivable was due to an eight basis point decrease in the weighted average yield of the portfolio to 3.93% for the current quarter, partially offset by an $83.7 million increase in the average balance of the portfolio.  The decrease in the weighted average yield was due to the continued downward repricing of the existing portfolio resulting primarily from endorsements and refinances, as well as to the origination and purchase of loans at rates less than the weighted average rate of the existing portfolio.  

The decrease in interest income on MBS was due primarily to a 12 basis point decrease in the average yield of the portfolio, from 2.50% for the prior quarter to 2.38% for the current quarter, as well as to a $54.8 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 prior quarter with yields less than the average yield on the existing portfolio, as well as to adjustable-rate MBS repricing to lower market rates.  The decrease in the average balance was due primarily to principal repayments being invested into the higher yielding loan portfolio.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 11 basis points from the prior quarter to 1.55% for the current quarter and the average balance of interest-bearing liabilities increased $60.1 million between the two periods.  The increase in the average balance of interest-bearing liabilities between the two periods was primarily in the deposit portfolio.

The following table presents the components of interest expense for the time periods presented, along with the change 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 a decrease in the average balance of the portfolio. 














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:











FHLB borrowings

$

17,377


$

17,909


$

(532)


(3.0)%

Deposits


9,009



9,344



(335)


(3.6)

Repurchase agreements


2,885



3,407



(522)


(15.3)

Total interest expense

$

29,271


$

30,660


$

(1,389)


(4.5)%

 

The weighted average rate paid on the FHLB borrowings portfolio decreased 21 basis points, from 2.87% for the prior quarter to 2.66% for the current quarter.  The decrease in the weighted average rate paid on FHLB borrowings was due primarily to the maturity of $225.0 million of advances during the quarter which were replaced with lower rate borrowings.  Of the $225.0 million of advance maturities during the current quarter, $125.0 million was funded with new FHLB advances and $100.0 million was funded with the FHLB line of credit as management evaluated borrowing options and related strategies.  In late July 2013, the $100.0 million FHLB line of credit was replaced with a $100.0 million repurchase agreement with a term of 84 months at a rate of 2.53%.

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.  The weighted average rate paid on the certificate of deposit portfolio decreased six basis points, from 1.37% for the prior quarter to 1.31% for the current quarter. 

The decrease in the average balance of the repurchase agreements portfolio was due to the maturity of $50.0 million of agreements late in the prior quarter, as well as to the maturity of $25.0 million of agreements during the current quarter.  These matured agreements were replaced with FHLB borrowings.

Provision for Credit Losses
Capitol Federal Savings Bank (the "Bank") recorded a negative provision for credit losses during the current quarter of $800 thousand compared to no provision for credit losses recorded during the prior quarter.  The overall performance of our loan portfolio continued to improve during the current quarter, as evidenced by the decline in net charge-offs and delinquencies.  Net charge-offs during the current quarter were $33 thousand compared to $405 thousand in the prior quarter.  Loans 30 to 89 days delinquent decreased $4.2 million, or 17.0%, from $24.8 million at March 31, 2013 to $20.6 million at June 30, 2013.  Non-performing loans remained relatively unchanged quarter-over-quarter.

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














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



NON-INTEREST INCOME:











Retail fees and charges

$

3,856


$

3,521


$

335


9.5%

Insurance commissions


787



979



(192)


(19.6)

Loan fees


427



418



9


2.2

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


377



361



16


4.4

Other non-interest income


374



665



(291)


(43.8)

Total non-interest income

$

5,821


$

5,944


$

(123)


(2.1)%

 

The increase in retail fees and charges was due primarily to an increase in debit card income, due in part to seasonality.  The decrease in insurance commissions was due largely to a decrease in the amount of annual commissions received from certain insurance providers, as compared to the prior quarter. 

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














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2013


2013


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:











Salaries and employee benefits

$

12,137


$

12,155


$

(18)


(0.1)%

Occupancy


2,427



2,391



36


1.5

Information technology and communications


2,293



2,232



61


2.7

Regulatory and outside services


1,391



1,290



101


7.8

Deposit and loan transaction costs


1,286



1,384



(98)


(7.1)

Federal insurance premium


1,107



1,116



(9)


(0.8)

Advertising and promotional


1,186



1,004



182


18.1

Other non-interest expense


1,775



1,645



130


7.9

Total non-interest expense

$

23,602


$

23,217


$

385


1.7%

 

The increase in advertising and promotional expense was due primarily to the timing of media campaigns.  The increase in other non-interest expense was due primarily to a $272 thousand increase in other real estate owned ("OREO") operations expense, from $32 thousand for the prior quarter, partially offset by a higher recovery of valuation allowance expense on the mortgage-servicing rights asset, primarily as a result of a decrease in prepayment speeds as market interest rates increased.  Over the past 12 months, OREO properties were owned by the Bank, on average, for approximately five months before they were sold. 

Income Tax Expense
Income tax expense was $9.4 million for the current quarter compared to $9.3 million for the prior quarter.  The effective income tax rate for the current quarter was 34.4% compared to 34.5% for the prior quarter. 

Comparison of Operating Results for the Nine Months Ended June 30, 2013 and 2012

For the nine month period ended June 30, 2013, the Company recognized net income of $53.3 million, compared to net income of $56.8 million for the nine month period ended June 30, 2012.  The $3.5 million, or 6.2%, decrease in net income was due primarily to a decrease in net interest income and an increase in non-interest expense, partially offset by a decrease in income tax expense and provision for credit losses.  The net interest margin decreased three basis points, from 2.01% for the prior year nine month period to 1.98% for the current nine month period.  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 26 basis points from the prior year nine month period to 3.34% for the current nine month period and the average balance of interest-earning assets decreased $160.2 million from the prior year nine month period.  The decrease in the weighted average balance between the two periods was primarily in the lower yielding 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 in dollars and percent.  The decrease in interest income on MBS and loans receivable was due primarily to a decrease in the weighted average yield of each portfolio, while the decrease in interest income on investment securities was due primarily to a decrease in the average balance of the portfolio.














For the Nine Months Ended








June 30,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



INTEREST AND DIVIDEND INCOME:











Loans receivable

$

172,030


$

178,007


$

(5,977)


(3.4)%

MBS


43,048



54,686



(11,638)


(21.3)

Investment securities


7,761



12,535



(4,774)


(38.1)

Capital stock of FHLB


3,384



3,313



71


2.1

Cash and cash equivalents


108



205



(97)


(47.3)

Total interest and dividend income

$

226,331


$

248,746


$

(22,415)


(9.0)%

 

The average yield on the loans receivable portfolio decreased 52 basis points, from 4.55% for the prior year nine month period to 4.03% for the current nine month period.  The decrease in the weighted average yield was due to the continued downward repricing of the existing portfolio resulting primarily from endorsements and refinances, as well as to the origination and purchase of loans at rates less than the weighted average rate of the existing portfolio.  The decrease in interest income on loans receivable resulting from the decrease in the average yield was partially offset by a $476.6 million increase in the average balance of the portfolio, which was primarily a result of loan purchases between periods.

The average yield on the MBS portfolio decreased 47 basis points, from 2.96% during the prior year nine month period to 2.49% for the current nine month period.  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.  Additionally, the average balance of the MBS portfolio decreased $158.9 million between the two periods due to maturities that were invested into higher yielding loans.

The decrease in interest income on investment securities was due primarily to a $432.3 million decrease in the average balance of the portfolio, of which $220.2 million related to securities held at the holding company level.  The cash flows from calls and maturities of investment securities that were not reinvested into the portfolio were used largely to fund loan growth, pay dividends to stockholders, and repurchase stock.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 33 basis points from the prior year nine month period to 1.64% for the current nine month period and the average balance of interest-bearing liabilities increased $68.2 million from the prior year nine month period.  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 decreased between the two periods.

The following table presents the components of interest expense for the time periods presented, along with the change 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 primarily to a decrease in the average balance between the two periods.














For the Nine Months Ended








June 30,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



INTEREST EXPENSE:











FHLB borrowings

$

53,914


$

62,641


$

(8,727)


(13.9)%

Deposits


28,202



35,690



(7,488)


(21.0)

Repurchase agreements


9,861



11,387



(1,526)


(13.4)

Total interest expense

$

91,977


$

109,718


$

(17,741)


(16.2)%

 

The weighted average rate paid on the FHLB borrowings portfolio decreased 54 basis points, from 3.35% for the prior year nine month period to 2.81% for the current nine month period.  The decrease in the average rate paid was due primarily to the renewal of maturing advances between periods to lower rates.  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 and money market portfolios as the portfolios continued to reprice to lower rates.  The weighted average rate paid on the certificate of deposit portfolio decreased 29 basis points, from 1.65% for the prior year nine month period to 1.36% for the current nine month period.  The weighted average rate paid on the money market portfolio decreased 12 basis points, from 0.33% for the prior year nine month period to 0.21% for the current nine month period.  The decrease in interest expense on repurchase agreements was due primarily to a $51.2 million decrease in the average balance between periods as a result of maturing agreements not being renewed; rather, the agreements were replaced with FHLB borrowings.

Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current nine month period of $567 thousand, compared to a $2.0 million provision for credit losses for the prior year nine month period.  The change between periods was a result of the improvement in the performance of our loan portfolio, as evidenced by the decline in net charge-offs, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure.  Net charge-offs during the current nine month period were $1.3 million, of which $378 thousand related to loans that were discharged in a prior fiscal year 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.  Net charge-offs during the prior year nine month period were $5.7 million, of which $3.5 million was related to the implementation of a loan charge-off policy during January 2012.  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.  Loans 30 to 89 days delinquent decreased $3.2 million, or 13.4%, from $23.8 million at June 30, 2012 to $20.6 million at June 30, 2013.  Loans 90 or more days delinquent or in foreclosure decreased $3.1 million, or 14.6%, from $21.6 million at June 30, 2012 to $18.5 million at June 30, 2013. 

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














For the Nine Months Ended








June 30,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



NON-INTEREST INCOME:











Retail fees and charges

$

11,369


$

11,958


$

(589)


(4.9)%

Insurance commissions


2,337



2,213



124


5.6

Loan fees


1,312



1,634



(322)


(19.7)

BOLI


1,120



1,133



(13)


(1.1)

Other non-interest income


1,395



1,466



(71)


(4.8)

Total non-interest income

$

17,533


$

18,404


$

(871)


(4.7)%

 

The decrease in retail fees and charges was primarily a result of changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act that reduced debit card interchange fees and established limits to fees for overdrafts of debit card transactions.  The decrease in loan fees was due primarily to a decrease in servicing fees received from sold loans as a result of a decrease in our sold loan portfolio. 

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














For the Nine Months Ended








June 30,


Change Expressed in:


2013


2012


Dollars


Percent


(Dollars in thousands)



NON-INTEREST EXPENSE:











Salaries and employee benefits

$

36,473


$

32,690


$

3,783


11.6%

Occupancy


7,136



6,339



797


12.6

Information technology and communications


6,723



5,588



1,135


20.3

Regulatory and outside services


4,435



3,696



739


20.0

Deposit and loan transaction costs


4,207



3,862



345


8.9

Federal insurance premium


3,337



3,309



28


0.8

Advertising and promotional


3,222



2,674



548


20.5

Other non-interest expense


6,027



8,783



(2,756)


(31.4)

Total non-interest expense

$

71,560


$

66,941


$

4,619


6.9%

 

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, along with stock option and restricted stock grants in May 2012 and September 2012.  The increase in information technology and communications expense was primarily related to maintenance and licensing expenses.  The increase in occupancy expense was due largely to an increase in depreciation expense associated with the remodel of our home office.  The increase in regulatory and outside services was due largely to the timing of fees paid for our external audit and an increase in fees associated with tax preparation services and professional services.  The increase in advertising and promotional expense was due primarily to an increase in media campaigns that were delayed until the current fiscal year.  The decrease in other non-interest expenses was due primarily to a decrease in OREO operations expense, a recovery of valuation allowance expense on the mortgage-servicing rights asset compared to an impairment expense in the prior year, and a decrease in office supplies and related expenses. 

We currently anticipate the following increases in non-interest expenses during the full fiscal year 2013, as compared to the full fiscal year 2012:  (1) a $4.8 million increase in salaries and employee benefits due primarily to an estimated $2.7 million in compensation expense on unallocated ESOP shares as a result of the True Blue® and special year-end dividends paid and $1.4 million resulting from a full year's impact of equity plan awards made in May 2012 and September 2012; (2) a $2.6 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 $1.1 million increase in advertising expense, which is due primarily to media campaigns that were delayed until fiscal year 2013.  We currently anticipate that the preceding increases in non-interest expenses will be partially offset by an estimated $2.5 million decrease in other non-interest expenses due primarily to a decrease in OREO operations expense and recoveries of valuation allowance expense on the mortgage-servicing rights asset.

The final ESOP loan payment associated with the shares acquired in our initial public offering in March 1999 will be made on September 30, 2013.  As a result, salaries and employee benefits expense is currently anticipated to decrease approximately $4.5 million in fiscal year 2014, as compared to fiscal year 2013.  Additionally, we do not currently anticipate additional compensation expense on unallocated ESOP shares in fiscal year 2014, which would result in an additional decrease in salaries and employee benefit expense of $3.0 million, when compared to fiscal year 2013.

Income Tax Expense
Income tax expense was $27.6 million for the current nine month period compared to $31.7 million for the prior year nine month period.  The decrease in expense between periods was due primarily to a decrease in pretax income.  The effective tax rate for the current nine month period was 34.1% compared to 35.8% for the prior year nine month period.  The current year rate is lower than the prior year rate due primarily to higher deductible expenses associated with the ESOP in the current year, along with higher tax credits related to our low income housing partnerships.  Additionally, pre-tax income is lower than the prior year, due primarily to the items outlined in non-interest expenses in the "Comparison of Operating Results for the Nine Months Ended June 30, 2013 and 2012" discussion above, which results in all items impacting the income tax rate having a larger impact on the overall effective tax rate than in fiscal year 2012.


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)














For the Three Months Ended


For the Nine Months Ended


June 30,


March 31,


June 30,


2013


2013


2013


2012

INTEREST AND DIVIDEND INCOME:












Loans receivable

$

56,627


$

56,936


$

172,030


$

178,007

MBS


13,419



14,446



43,048



54,686

Investment securities


2,439



2,457



7,761



12,535

Capital stock of FHLB


1,151



1,105



3,384



3,313

Cash and cash equivalents


39



36



108



205

Total interest and dividend income


73,675



74,980



226,331



248,746













INTEREST EXPENSE:












FHLB borrowings


17,377



17,909



53,914



62,641

Deposits


9,009



9,344



28,202



35,690

Repurchase agreements


2,885



3,407



9,861



11,387

Total interest expense


29,271



30,660



91,977



109,718













NET INTEREST INCOME


44,404



44,320



134,354



139,028













PROVISION FOR CREDIT LOSSES


(800)



--



(567)



2,040

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES


45,204



44,320



134,921



136,988













NON-INTEREST INCOME:












Retail fees and charges


3,856



3,521



11,369



11,958

Insurance commissions


787



979



2,337



2,213

Loan fees


427



418



1,312



1,634

BOLI


377



361



1,120



1,133

Other non-interest income


374



665



1,395



1,466

Total non-interest income


5,821



5,944



17,533



18,404













NON-INTEREST EXPENSE:












Salaries and employee benefits


12,137



12,155



36,473



32,690

Occupancy


2,427



2,391



7,136



6,339

Information technology and communications


2,293



2,232



6,723



5,588

Regulatory and outside services


1,391



1,290



4,435



3,696

Deposit and loan transaction costs


1,286



1,384



4,207



3,862

Federal insurance premium


1,107



1,116



3,337



3,309

Advertising and promotional


1,186



1,004



3,222



2,674

Other non-interest expense


1,775



1,645



6,027



8,783

Total non-interest expense


23,602



23,217



71,560



66,941

INCOME BEFORE INCOME TAX EXPENSE


27,423



27,047



80,894



88,451

INCOME TAX EXPENSE


9,428



9,332



27,621



31,674

NET INCOME

$

17,995


$

17,715


$

53,273


$

56,777

 

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














For the Three Months Ended


For the Nine Months Ended


June 30,


March 31,


June 30,


2013


2013


2013


2012


(Dollars in thousands, except per share data)

Net income

$

17,995


$

17,715


$

53,273


$

56,777

Income allocated to participating securities


(50)



(51)



(161)



(25)

Net income available to common stockholders

$

17,945


$

17,664


$

53,112


$

56,752













Average common shares outstanding


142,985,022



145,242,074



145,379,101



160,069,365

Average committed ESOP shares outstanding


277,512



139,531



139,009



139,005

Total basic average common shares outstanding


143,262,534



145,381,605



145,518,110



160,208,370













Effect of dilutive stock options


790



113



112



3,906













Total diluted average common shares outstanding


143,263,324



145,381,718



145,518,222



160,212,276













Net earnings per share:












Basic

$

0.13


$

0.12


$

0.37


$

0.35

Diluted

$

0.13


$

0.12


$

0.37


$

0.35













Antidilutive stock options, excluded from the diluted average common shares

outstanding calculation

2,444,932



2,463,165



2,465,393



1,074,543

 

Financial Condition as of June 30, 2013

Total assets decreased $138.5 million, from $9.38 billion at September 30, 2012 to $9.24 billion at June 30, 2013, due primarily to a $307.9 million decrease in the securities portfolio, partially offset by a $184.5 million increase in the loan portfolio.  Of the $307.9 million decrease in the securities portfolio, $60.0 million related to securities at the holding company level, the proceeds from which were used to pay dividends to stockholders and repurchase stock.  The remaining cash flows from the securities portfolio which were not reinvested were used, in part, to fund loan growth.  At June 30, 2013, Capitol Federal Financial, Inc., at the holding company level, had $195.6 million on deposit at the Bank.  The net increase in the loan portfolio was due primarily to correspondent one- to four-family loan purchases outpacing principal repayments between periods.  As of June 30, 2013, the Bank had 26 active correspondent lending relationships operating in 23 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 June 2013, the unemployment rate was 5.8% for Kansas and 6.9% for Missouri, compared to the national average of 7.6% 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.  Although we continue to evaluate the "qualified mortgage" rules issued 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, allowance for credit losses ("ACL") 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.  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 elevated.  The principal balance of loans required by the OCC to be reported as nonaccrual, even if they are current, was $7.9 million, $12.4 million, and $4.2 million at June 30, 2013, September 30, 2012, and June 30, 2012, respectively.














June 30, 2013


September 30, 2012


June 30, 2012


(Dollars in thousands)

Loans 30 to 89 days delinquent

$

20,581



$

23,270



$

23,775














Loans 90 or more days delinquent or in foreclosure


18,479




19,450




21,643


Nonaccrual loans less than 90 days delinquent(1)


7,920




12,374




4,201


Total non-performing loans


26,399




31,824




25,844


OREO


5,499




8,047




9,913


Total non-performing assets


31,898




39,871




35,757














ACL balance


9,239




11,100




11,777














Non-performing loans to total loans


0.46%




0.57%




0.50%


Non-performing assets to total assets


0.35%




0.43%




0.38%


ACL as a percentage of total loans


0.16%




0.20%




0.23%


ACL as a percentage of total non-performing loans


35.00%




34.88%




45.57%














(1)

Represents loans required to be reported as nonaccrual by the OCC regardless of delinquency status.  At June 30, 2013, September 30, 2012, and June 30, 2012, this amount was comprised of $1.1 million, $1.2 million, and $604 thousand, respectively, of loans that were 30 to 89 days delinquent and are reported as such, and $6.8 million, $11.2 million, and $3.6 million, respectively, of loans that were current.

 

Total liabilities increased $43.4 million, from $7.57 billion at September 30, 2012, to $7.62 billion at June 30, 2013 due primarily to an $81.2 million increase in FHLB borrowings and a $77.8 million increase in deposits, partially offset by the maturity of $75.0 million of repurchase agreements between period ends.  The matured repurchase agreements were replaced by FHLB borrowings.  The increase in the deposit portfolio was due primarily to a $58.0 million increase in the checking portfolio, a $28.7 million increase in the money market portfolio, and a $21.2 million increase in the savings portfolio, partially offset by a $30.1 million decrease in the certificate of deposit portfolio.  The decrease in the certificate of deposit portfolio was due to retail deposits, partially offset by an increase in wholesale deposits, specifically public unit deposits.  The decrease in the retail certificate of deposit portfolio was due primarily to certificates with terms of 30 months or less, while the balance of certificates with terms 36 to 60 months increased.

Stockholders' equity decreased $182.0 million, from $1.81 billion at September 30, 2012 to $1.62 billion at June 30, 2013.  The decrease was due primarily to the payment of $136.1 million of dividends and the repurchase of $89.4 million of stock, partially offset by net income of $53.3 million.  Additionally, accumulated other comprehensive income ("AOCI") decreased $16.9 million from September 30, 2012 to June 30, 2013 due to a decrease in unrealized gains on available-for-sale ("AFS") securities as a result of the recent increase in market yields.  The $136.1 million of dividends paid during the current nine month period consisted of a $0.52 per share, or $76.5 million, True Blue® dividend, an $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 three regular quarterly dividends of $0.075 per share each quarter, totaling $0.225 per share, or $33.0 million.  On July 17, 2013, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $10.7 million, payable on August 16, 2013 to stockholders of record as of the close of business on August 2, 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.  At June 30, 2013, Capitol Federal Financial, Inc., at the holding company level, had $195.6 million on deposit at the Bank.

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 completed the plan during the second quarter of fiscal year 2013, having repurchased 16,360,654 shares at an average price of $11.80 per share.  In November 2012, the Company announced its Board of Directors approved a new $175.0 million stock repurchase program, which has no expiration date, to commence upon the completion of the aforementioned $193.0 million repurchase plan.  As of June 30, 2013, 3,826,644 shares had been repurchased under the new plan at an average price of $11.85 per share, at a total cost of $45.4 million.  There were no shares repurchased subsequent to June 30, 2013 through the date of this release.

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














June 30, 2013


September 30, 2012


June 30, 2012


(Dollars in thousands)

Stockholders' equity

$

1,624,502



$

1,806,458



$

1,832,858


Equity to total assets at end of period


17.6%




19.3%




19.5%


 

The following table presents a reconciliation of total and net shares outstanding as of June 30, 2013. 



Total shares outstanding

147,841,368

Less unallocated ESOP shares and unvested restricted stock

(4,988,855)

Net shares outstanding

142,852,513

 


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)








June 30,


September 30,


2013


2012

ASSETS:






Cash and cash equivalents (includes interest-earning deposits of $117,411 and $127,544)

$

131,287


$

141,705

Securities:






AFS at estimated fair value (amortized cost of $1,155,363 and $1,367,925)


1,167,043



1,406,844

Held-to-maturity at amortized cost (estimated fair value of $1,841,851 and $1,969,899)


1,819,895



1,887,947

Loans receivable, net (of ACL of $9,239 and $11,100)


5,792,620



5,608,083

BOLI


59,133



58,012

Capital stock of FHLB, at cost


134,222



132,971

Accrued interest receivable


24,426



26,092

Premises and equipment, net


64,946



57,766

OREO


5,499



8,047

Other assets


40,693



50,837

TOTAL ASSETS

$

9,239,764


$

9,378,304







LIABILITIES:






Deposits

$

4,628,436


$

4,550,643

Borrowings from FHLB, net


2,611,480



2,530,322

Repurchase agreements


290,000



365,000

Advance payments by borrowers for taxes and insurance


34,332



55,642

Income taxes payable


347



918

Deferred income tax liabilities, net


19,053



25,042

Accounts payable and accrued expenses


31,614



44,279

Total liabilities


7,615,262



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; 147,841,368 and 155,379,739 shares issued and outstanding as of June 30, 2013 and September 30, 2012, respectively


1,478



1,554

Additional paid-in capital


1,234,265



1,292,122

Unearned compensation, ESOP


(45,346)



(47,575)

Retained earnings


426,840



536,150

AOCI, net of tax


7,265



24,207

Total stockholders' equity


1,624,502



1,806,458

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,239,764


$

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 June 30, 2013, the Bank exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at June 30, 2013 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


36.0%


6.0%

Total risk-based capital


36.3%


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 June 30, 2013 is as follows (dollars in thousands):




Total Bank equity as reported under GAAP

$

1,370,125

Unrealized gains on AFS securities


(7,265)

Other


(51)

Total Tier 1 capital


1,362,809

ACL


9,239

Total risk-based capital

$

1,372,048

 

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 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.  The average rate of the portfolio decreased 29 basis points from September 30, 2012 and 51 basis points from June 30, 2012, to 3.86% at June 30, 2013.  The decrease in the average rates from September 30, 2012 and June 30, 2012 was due primarily to the endorsement and refinance of loans at current market rates, as well as to the origination and purchase of loans between periods with rates less than the average rate of the existing portfolio.





























June 30, 2013


September 30, 2012


June 30, 2012




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

$

5,587,622


3.82%


95.7%


$

5,392,429


4.10%


95.5%


$

4,995,840


4.32%


95.0%

Multi-family and commercial


37,834


5.71


0.6



48,623


5.64


0.9



49,755


6.11


1.0

Construction


73,746


3.81


1.3



52,254


4.08


0.9



52,163


4.14


1.0

Total real estate loans


5,699,202


3.83


97.6



5,493,306


4.11


97.3



5,097,758


4.34


97.0




























Consumer Loans:



























Home equity


134,919


5.31


2.3



149,321


5.42


2.6



152,301


5.43


2.9

Other


5,740


4.50


0.1



6,529


4.77


0.1



6,744


4.76


0.1

Total consumer loans


140,659


5.28


2.4



155,850


5.39


2.7



159,045


5.40


3.0




























Total loans receivable


5,839,861


3.86%


100.0%



5,649,156


4.15%


100.0%



5,256,803


4.37%


100.0%




























Less:



























Undisbursed loan funds


34,675









22,874









25,451







ACL


9,239









11,100









11,777







Discounts/unearned loan fees


22,282









21,468









21,246







Premiums/deferred costs


(18,955)









(14,369)









(11,661)







Total loans receivable, net

$

5,792,620








$

5,608,083








$

5,209,990







 

The following table presents the balance, percentage of total one- to four-family loans, weighted average credit score, loan-to-value ("LTV") ratio, and the average balance per loan for our portfolio of one- to four-family loans at the dates presented.  Credit scores are updated at least semiannually, with the last update in March 2013, and 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.












































June 30, 2013


September 30, 2012


June 30, 2012





% of


Credit





Average





% of


Credit





Average





% of


Credit





Average


Balance


Total


Score


LTV


Balance


Balance


Total


Score


LTV


Balance


Balance


Total


Score


LTV


Balance


(Dollars in thousands)

Originated

$

4,014,857


71.8%


763


65%


$

126


$

4,032,581


74.8%



763


65%


$

124


$

4,027,991


80.6%


764


65%


$

124

Correspondent purchased


887,462


15.9


762


66



345



575,502


10.7



761


65



326



492,401


9.9


761


64



317

Bulk purchased


685,303


12.3


748


67



317



784,346


14.5



749


67



316



475,448


9.5


739


58



245


$

5,587,622


100.0%


761


65%


$

152


$

5,392,429


100.0%



761


65%


$

147


$

4,995,840


100.0%


761


64%


$

139

 

The following tables summarize 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.  The endorsed balance and rate are, however, included in the ending loan portfolio balance and rate.  During the current quarter, the Bank endorsed $95.0 million of one- to four-family loans, reducing the average rate on those loans by 116 basis points.  


























For the Three Months Ended


June 30, 2013


March 31, 2013


December 31, 2012


September 30, 2012


Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate


(Dollars in thousands)

Beginning balance

$

5,763,055


3.94%


$

5,687,893


4.04%


$

5,649,156


4.15%


$

5,256,803


4.37%

Originated and refinanced:
























Fixed


182,177


3.35



179,828


3.26



209,873


3.26



220,934


3.51

Adjustable


31,713


3.87



22,676


3.94



39,964


3.58



50,533


3.50

Purchased and participations:
























Fixed


132,391


3.36



119,334


3.22



88,763


3.45



90,939


3.62

Adjustable


23,499


2.77



19,145


2.64



21,434


2.70



360,463


2.49

Repayments


(292,110)






(262,865)






(318,332)






(327,972)




Principal charge-offs, net


(33)






(405)






(856)






(677)




Other(1)


(831)






(2,551)






(2,109)






(1,867)




Ending balance

$

5,839,861


3.86%


$

5,763,055


3.94%


$

5,687,893


4.04%


$

5,649,156


4.15%

 














For the Nine Months Ended


June 30, 2013


June 30, 2012


Amount


Rate


Amount


Rate



(Dollars in thousands)

Beginning balance

$

5,649,156


4.15%


$

5,195,876


4.69%

Originated and refinanced:












Fixed


571,878


3.29



471,217


3.78

Adjustable


94,353


3.76



141,262


3.63

Purchased and participations:












Fixed


340,488


3.33



110,532


4.07

Adjustable


64,078


2.71



82,354


3.52

Repayments


(873,307)






(732,352)




Principal charge-offs, net


(1,294)






(5,335)




Other(1)


(5,491)






(6,751)




Ending balance

$

5,839,861


3.86%


$

5,256,803


4.37%


(1)

"Other" consists of transfers to OREO, endorsement fees advanced and changes 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 Nine Months Ended


June 30, 2013


June 30, 2013


Amount


Rate


% of Total


Amount


Rate


% of Total

Fixed-Rate:

(Dollars in thousands)

One- to four-family:


















<= 15 years

$

85,584


2.84%


23.2%


$

303,647


2.81%


28.4%

> 15 years


227,875


3.53


61.6



601,785


3.53


56.2

Multi-family and commercial real estate


--


--


--



4,347


5.09


0.4

Home equity


823


6.01


0.2



1,821


6.04


0.2

Other


286


9.26


0.1



766


8.83


0.1

Total fixed-rate


314,568


3.36


85.1



912,366


3.31


85.3



















Adjustable-Rate:


















One- to four-family:


















<= 36 months


1,874


2.14


0.5



4,612


2.20


0.4

> 36 months


29,995


2.70


8.1



98,450


2.69


9.2

Multi-family and commercial real estate


4,770


3.40


1.3



4,770


3.40


0.4

Home equity


18,211


4.71


4.9



49,486


4.74


4.6

Other


362


3.02


0.1



1,113


3.06


0.1

Total adjustable-rate


55,212


3.41


14.9



158,431


3.34


14.7



















Total originated, refinanced and purchased

$

369,780


3.36%


100.0%


$

1,070,797


3.31%


100.0%



















Purchased and participation loans included above:


















Fixed-Rate:


















Correspondent - one- to four-family

$

132,391


3.36%





$

336,638


3.32%




Participations - commercial real estate


--


--






3,850


5.00




Total fixed-rate purchased/participations


132,391


3.36






340,488


3.33






















Adjustable-Rate:


















Correspondent - one- to four-family


18,729


2.62






59,308


2.65




Participations - commercial real estate


4,770


3.40






4,770


3.40




Total adjustable-rate purchased/participations


23,499


2.77






64,078


2.71






















Total purchased/participation loans

$

155,890


3.27%





$

404,566


3.24%




 

The following table presents originated, refinanced, and correspondent activity in our one- to four-family loan portfolio, excluding endorsement activity, for the periods indicated.


















For the Three Months Ended


For the Nine Months Ended


June 30, 2013


June 30, 2013






Credit






Credit


Amount


LTV


Score


Amount


LTV


Score


(Dollars in thousands)

Originated

$

137,297


78%


764


$

361,389


76%


764

Refinanced by Bank customers


56,911


67


767



251,159


67


767

Correspondent purchased


151,120


71


764



395,946


70


766


$

345,328


73%


765


$

1,008,494


72%


765

 

The following table presents one- to four-family loan originations, which includes correspondent purchases, for the top 12 states based on year-to-date volume, excluding endorsement activity, for the periods indicated.  






















For the Three Months Ended


For the Nine Months Ended



June 30, 2013


June 30, 2013

State


Amount


% of Total


Rate


Amount


% of Total


Rate



(Dollars in thousands)

Kansas


$

182,255


52.8%


3.28%


$

576,766


57.2%


3.23%

Missouri



75,559


21.9


3.24



238,656


23.7


3.18

Texas



34,048


9.9


3.31



78,105


7.8


3.28

Tennessee



20,507


5.9


3.32



36,272


3.6


3.28

Oklahoma



9,548


2.8


3.39



28,133


2.8


3.29

Alabama



11,129


3.2


3.26



21,616


2.1


3.14

North Carolina



3,326


1.0


3.49



7,060


0.7


3.36

Nebraska



1,510


0.4


3.63



4,491


0.4


3.57

Colorado



1,488


0.4


3.41



3,874


0.4


3.23

Arkansas



759


0.2


3.75



3,097


0.3


3.65

Massachusetts



1,530


0.4


2.78



2,603


0.3


2.90

Maine



544


0.2


3.82



2,320


0.2


3.22

Other states



3,125


0.9


3.04



5,501


0.5


3.11



$

345,328


100.0%


3.28%


$

1,008,494


100.0%


3.22%

 

The following tables present the annualized prepayment speeds of our one- to four-family loan portfolio, including construction and non-performing loans, for the periods indicated.  For additional discussion regarding prepayment information, see "Average Rates and Lives".  The terms presented in the tables below 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.  













June 30, 2013





Prepayment Speed (annualized)



Principal


Including


Excluding

Term


Balance


Endorsements


Endorsements



(Dollars in thousands)







Fixed-rate one-to four-family loans:










15 years or less


$

1,140,826


19.9%



15.6%


More than 15 years



3,374,276


23.3



14.1





4,515,102


22.5



14.5












Adjustable-rate one-to four-family loans:










36 months or less



832,300


20.5



18.5


More than 36 months



295,013


17.9



15.0





1,127,313


19.8



17.6


Total one-to four-family loans


$

5,642,415


21.9%



15.1%


 













March 31, 2013





Prepayment Speed (annualized)



Principal


Including


Excluding

Term


Balance


Endorsements


Endorsements



(Dollars in thousands)







Fixed-rate one-to four-family loans:










15 years or less


$

1,125,362


21.3%



14.9%


More than 15 years



3,280,487


24.8



12.7





4,405,849


23.9



13.3












Adjustable-rate one-to four-family loans:










36 months or less



860,268


14.5



12.4


More than 36 months



293,121


20.2



17.4





1,153,389


16.0



13.7


Total one-to four-family loans


$

5,559,238


22.2%



13.3%


 

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO at the dates indicated.  Non-performing loans are loans that are 90 or more days delinquent or in foreclosure or nonaccrual loans less than 90 days delinquent, but are required to be reported as nonaccrual pursuant to OCC Call Report requirements.  























Loans Delinquent for 30 to 89 Days at:



June 30, 2013


March 31, 2013


September 30,  2012


June 30, 2012



Number


Amount


Number


Amount


Number


Amount


Number


Amount



(Dollars in thousands)


One- to four-family:





















Originated

137


$

12,838


124


$

13,718


142


$

14,178


131


$

13,060


Correspondent purchased

4



704


5



1,054


3



770


7



1,598


Bulk purchased

28



6,012


42



9,190


39



7,695


37



8,463


Consumer Loans:





















Home equity

40



869


40



719


28



521


31



526


Other

13



158


14



104


16



106


13



128



222


$

20,581


225


$

24,785


228


$

23,270


219


$

23,775


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




0.36%





0.43%





0.41%





0.46%


 























Non-Performing Loans and OREO at:



June 30, 2013


March 31, 2013


September 30, 2012


June 30, 2012



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

91


$

8,017


85


$

7,687


86


$

7,885


92


$

8,998


Correspondent purchased

4



609


4



642


5



722


2



328


Bulk purchased

37



9,535


40



9,408


43



10,447


47



11,792


Consumer Loans:





















Home equity

21



295


22



393


19



369


21



505


Other

7



23


5



26


4



27


5



20



160



18,479


156



18,156


157



19,450


167



21,643


Nonaccrual loans less than 90 Days Delinquent:(1)





















One- to four-family:





















Originated

62



7,578


61



6,893


77



8,815


26



3,744


Correspondent purchased

--



--


1



433


4



686


2



457


Bulk purchased

2



168


4



711


10



2,405


--



--


Consumer Loans:





















Home equity

8



174


7



150


22



456


--



--


Other

--



--


--



--


1



12


--



--



72



7,920


73



8,187


114



12,374


28



4,201


Total non-performing loans

232



26,399


229



26,343


271



31,824


195



25,844























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




0.46%





0.46%





0.57%





0.50%























OREO:





















One- to four-family:





















Originated(3)

34



3,283


51



4,219


59



5,374


69



6,452


Correspondent purchased

3



269


2



173


1



92


5



1,045


Bulk purchased

4



581


5



830


6



1,172


5



1,007


Consumer Loans:





















Home equity

3



66


4



60


1



9


1



9


Other(4)

1



1,300


1



1,400


1



1,400


1



1,400



45



5,499


63



6,682


68



8,047


81



9,913


Total non-performing assets

277


$

31,898


292


$

33,025


339


$

39,871


276


$

35,757























Non-performing assets as a percentage of total assets




0.35%





0.35%





0.43%





0.38%























(1)

Represents loans required to be reported as nonaccrual by the OCC regardless of delinquency status. At June 30, 2013, March 31, 2013, September 30, 2012, and June 30, 2012, this amount was comprised of $1.1 million, $975 thousand, $1.2 million, and $604 thousand, respectively, of loans that were 30 to 89 days delinquent and are reported as such, and $6.8 million, $7.2 million, $11.2 million, and $3.6 million, respectively, of loans that were current.

(2)

Excluding loans required to be reported as nonaccrual by the OCC regardless of delinquency status, non-performing loans as a percentage of total loans were 0.32%, 0.32%, 0.35%, and 0.42% at June 30, 2013, March 31, 2013, September 30, 2012, and June 30, 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 activity for the ACL and related ratios at the dates and for the periods indicated.  Of the $1.3 million of net charge-offs during the nine months ended June 30, 2013, $378 thousand were due to loans that were discharged in a prior fiscal year under Chapter 7 bankruptcy that must be, in accordance with OCC regulations, evaluated for collateral value loss, even if they are current.  In January 2012, management implemented a loan charge-off policy as OCC Call Report requirements do not permit the use of 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 and are reflected in the nine months ended June 30, 2012 activity below.  These charge-offs did not impact the provision for credit losses, and therefore had no additional income statement impact as the amounts were expensed in previous periods.















For the Three Months Ended


For the Nine Months Ended



June 30,


June 30,



2013


2012


2013


2012



(Dollars in thousands)


Balance at beginning of period

$

10,072


$

12,559


$

11,100


$

15,465


Charge-offs:













One- to four-family loans - originated


60



219



550



725


One- to four-family loans - correspondent purchased


--



8



13



89


One- to four-family loans - bulk purchased


--



498



685



4,652


Multi-family and commercial loans


--



--



--



--


Construction


--



--



--



--


Home equity


111



60



239



246


Other consumer loans


--



5



7



24


Total charge-offs


171



790



1,494



5,736


Recoveries:













One- to four-family loans - originated


13



--



13



--


One- to four-family loans - correspondent purchased


--



--



--



--


One- to four-family loans - bulk purchased


118



6



160



6


Multi-family and commercial loans


--



--



--



--


Construction


--



--



--



--


Home equity


7



2



26



2


Other consumer loans


--



--



1



--


Recoveries


138



8



200



8


Net charge-offs


33



782



1,294



5,728


Provision for credit losses


(800)



--



(567)



2,040


Balance at end of period

$

9,239


$

11,777


$

9,239


$

11,777















Ratio of net charge-offs during the period to average loans outstanding during the period


--%



0.01%



0.02%



0.11%


Ratio of net charge-offs during the period to average non-performing assets


0.10



2.01



3.61



15.57


ACL to non-performing loans at end of period


35.00



45.57








ACL to loans receivable, net at end of period


0.16



0.23








ACL to net charge-offs (annualized)








5.4x



1.5x

(1)














(1)

Excluding the $3.5 million of SVAs that were charged off during the March 31, 2012 quarter as a result of the implementation of the charge-off policy, ACL to net charge-offs (annualized) would have been 4.0x for the nine month period ended June 30, 2012.

 

Securities Portfolio

The following table presents the distribution of our MBS and investment securities portfolios, at amortized cost, at the dates indicated.  The majority of the MBS and investment portfolios are composed of securities issued by U.S. government sponsored enterprises ("GSEs").  Included in the $907.4 million of fixed-rate GSE debentures at September 30, 2012 was $60.0 million of securities held at the holding company level.  The holding company's securities matured during the December 31, 2012 quarter.  Overall, fixed-rate securities comprised 79% of these portfolios at June 30, 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.  Yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.  



























June 30, 2013


March 31, 2013


September 30, 2012



Balance


Yield


WAL


Balance


Yield


WAL


Balance


Yield


WAL



(Dollars in thousands)

Fixed-rate securities:

























MBS

$

1,527,402


2.40%


3.2


$

1,650,657


2.41%


3.1


$

1,505,480


2.85%


3.1


GSE debentures


774,171


1.05


3.2



794,920


1.05


2.3



907,386


1.14


0.8


Municipal bonds


40,476


2.92


1.6



41,134


2.90


1.8



47,769


2.94


2.0


Total fixed-rate securities


2,342,049


1.96


3.2



2,486,711


1.98


2.8



2,460,635


2.22


2.2



























Adjustable-rate securities:

























MBS


630,602


2.37


4.5



681,095


2.55


4.9



792,325


2.65


5.8


Trust preferred securities


2,607


1.53


24.0



2,830


1.54


24.2



2,912


1.65


24.7


Total adjustable-rate securities


633,209


2.37


4.6



683,925


2.55


5.0



795,237


2.64


5.9


  Total securities portfolio

$

2,975,258


2.05%


3.5


$

3,170,636


2.11%


3.3


$

3,255,872


2.33%


3.1


 

MBS:  The following tables provide a summary of the activity in our portfolio of MBS for the periods presented.  The 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 nine months ended June 30, 2013 were generally comprised of loans with contractual terms-to-maturity of 15 years or less to help mitigate exposure to rising interest rates.  The net balance of premiums/(discounts) on our portfolio of MBS was $21.5 million at June 30, 2013.


































For the Three Months Ended


June 30, 2013


March 31, 2013


December 31, 2012


September 30, 2012


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

2,358,095


2.45%


3.6


$

2,324,187


2.61%


3.7


$

2,332,942


2.78%


4.0


$

2,510,659


2.86%


4.6

Maturities and repayments


(171,699)








(187,308)








(194,769)








(175,776)






Net amortization of premiums/(discounts)


(2,049)








(2,124)








(2,124)








(1,875)






Purchases:
































Fixed


--


--


--



227,310


1.24


4.0



192,962


1.23


3.9



--


--


--

Change in valuation on AFS securities


(4,808)








(3,970)








(4,824)








(66)






Ending balance - carrying value

$

2,179,539


2.39%


3.6


$

2,358,095


2.45%


3.6


$

2,324,187


2.61%


3.7


$

2,332,942


2.78%


4.0

 


















For the Nine Months Ended


June 30,  2013


June 30,  2012


Amount


Yield


WAL


Amount


Yield


WAL



(Dollars in thousands)

Beginning balance - carrying value

$

2,332,942


2.78%


4.0


$

2,412,076


3.26%


5.3

Maturities and repayments


(553,776)








(447,421)






Net amortization of premiums/(discounts)


(6,297)








(4,682)






Purchases:
















Fixed


420,272


1.24


3.9



481,489


1.93


4.4

Adjustable


--


--


--



75,754


1.84


5.7

Change in valuation on AFS securities


(13,602)








(6,557)






Ending balance - carrying value

$

2,179,539


2.39%


3.6


$

2,510,659


2.86%


4.6

 

Investment Securities:  The following tables provide a summary of the activity of investment securities for the periods presented.  The 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 $408.7 million of fixed-rate investment securities purchased during the nine months ended June 30, 2013, $408.5 million are callable.


































For the Three Months Ended


June 30, 2013


March 31, 2013


December 31, 2012


September 30, 2012


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

841,127


1.14%


2.3


$

837,433


1.20%


1.7


$

961,849


1.23%


1.0


$

1,195,589


1.23%


0.9

Maturities and calls


(50,864)








(171,009)








(327,323)








(309,012)






Net amortization of premiums/(discounts)


(76)








(97)








(170)








(331)






Purchases:
































Fixed


29,310


1.48


4.8



175,045


0.91


2.5



204,371


1.01


1.4



75,190


0.80


2.2

Change in valuation of AFS securities


(12,098)








(245)








(1,294)








413






Ending balance - carrying value

$

807,399


1.14%


3.2


$

841,127


1.14%


2.3


$

837,433


1.20%


1.7


$

961,849


1.23%


1.0

 


















For the Nine Months Ended


June 30,  2013


June 30,  2012


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

961,849


1.23%


1.0


$

1,444,480


1.17%


1.0

Maturities and calls


(549,196)








(865,447)






Net amortization of premiums/(discounts)


(343)








(1,774)






Purchases:
















Fixed


408,726


1.00


2.1



616,111


1.13


2.8

Change in valuation of AFS securities


(13,637)








2,219






Ending balance - carrying value

$

807,399


1.14%


3.2


$

1,195,589


1.23%


0.9

















 

Deposit Portfolio

The following table presents the amount, 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. 






























June 30, 2013


March 31, 2013


September 30, 2012





Average


% of




Average


% of




Average


% of



Amount


Rate


 Total


Amount


Rate


 Total


Amount


Rate


 Total



(Dollars in thousands)

Checking

$

664,455


0.04%


14.4%


$

688,354


0.04%


14.7%


$

606,504


0.04%


13.3%


Savings


282,168


0.10


6.1



281,219


0.10


6.0



260,933


0.11


5.8


Money market


1,139,687


0.19


24.6



1,156,404


0.19


24.6



1,110,962


0.25


24.4


Retail certificates of deposit


2,241,774


1.34


48.4



2,287,360


1.40


48.7



2,295,941


1.49


50.4


Public units/brokered deposits


300,352


0.79


6.5



280,236


0.96


6.0



276,303


0.98


6.1



$

4,628,436


0.76%


100.0%


$

4,693,573


0.80%


100.0%


$

4,550,643


0.89%


100.0%


 

As of June 30, 2013, certificates of deposit were scheduled to mature as follows: 























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%


$

843,409


$

217,069


$

44,838


$

25,623


$

1,130,939


0.49%

1.00 – 1.99%



93,303



239,316



220,060



258,114



810,793


1.41

2.00 – 2.99%



203,827



259,529



95,764



9,372



568,492


2.53

3.00 – 3.99%



11,804



18,738



121



402



31,065


3.13

4.00 – 4.99%



464



207



166



--



837


4.40



$

1,152,807


$

734,859


$

360,949


$

293,511


$

2,542,126


1.27%




















Percent of total



45.3%



28.9%



14.2%



11.6%







Weighted average rate



0.93



1.57



1.60



1.48







Weighted average maturity (in years)



0.4



1.5



2.5



3.8



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 as of June 30, 2013. 






















Weighted


Weighted



FHLB


Repurchase


Average


Average

Maturity by


Advances


Agreements


Contractual


Effective

Fiscal year


Amount


Amount


Rate


Rate(1)



(Dollars in thousands)







2013


$

--


$

70,000


4.23%


4.23%

2014



450,000



100,000


3.33


3.95

2015



600,000



20,000


1.73


1.95

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



100,000



--


1.61


1.61



$

2,525,000


$

290,000


2.50%


2.80%


(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 June 30, 2013.  Not included in the table below is $100.0 million of borrowings outstanding on the FHLB line of credit at June 30, 2013, as management evaluated borrowing options and related strategies.  The rate on the FHLB line of credit was 0.18% at June 30, 2013.  In late July 2013, the $100.0 million FHLB line of credit was replaced with a $100.0 million repurchase agreement with a term of 84 months at a rate of 2.53%.































Weighted





Weighted


Public Unit/


Weighted





Weighted






Average


Retail


Average


Brokered


Average





Average

Maturity by


Borrowings


Repricing


Certificate


Repricing


Deposit


Repricing





Repricing

Quarter End


Amount


Rate


Amount


Rate


Amount


Rate


Total


Rate



(Dollars in thousands)

September 30, 2013


$

70,000


4.23%


$

325,695


1.17%


$

102,661


0.13%


$

498,356


1.39%

December 31, 2013



150,000


3.16



217,823


0.86



33,174


0.30



400,997


1.67

March 31, 2014



200,000


5.01



212,028


1.07



11,510


0.25



423,538


2.91

June 30, 2014



100,000


2.80



218,102


0.92



31,814


1.69



349,916


1.53



$

520,000


3.94%


$

973,648


1.02%


$

179,159


0.45%


$

1,672,807


1.87%

 

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 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.  In late July 2013, the $100.0 million FHLB line of credit was replaced with a $100.0 million repurchase agreement with a term of 84 months at a rate of 2.53%, and $45.0 million of repurchase agreements, at rate of 4.31%, matured and were not replaced.  Following the preceding activity, the effective rate on our FHLB advances was 2.67% and the effective rate on our repurchase agreements was 3.47%, for a blended effective rate of 2.76%.


































For the Three Months Ended


June 30, 2013


March 31, 2013


December 31, 2012


September 30, 2012





Effective







Effective







Effective







Effective




Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


(Dollars in thousands)

Beginning balance

$

2,965,000


2.92%


2.5


$

2,915,000


2.99%


2.6


$

2,915,000


3.13%


2.7


$

2,915,000


3.25%


2.8

Maturities and prepayments:
































FHLB advances


(225,000)


3.86





--


--





(100,000)


4.85





(100,000)


4.27



Repurchase agreements


(25,000)


3.33





(50,000)


3.48





--


--





--


--



New borrowings:
































FHLB advances


100,000


1.61


7.0



100,000


1.29


6.0



100,000


0.78


4.0



100,000


0.83


4.0

Ending balance

$

2,815,000


2.80%


2.7


$

2,965,000


2.92%


2.5


$

2,915,000


2.99%


2.6


$

2,915,000


3.13%


2.7

 


















For the Nine Months Ended


June 30, 2013


June 30, 2012





Effective







Effective




Amount


Rate


WAM


Amount


Rate


WAM



(Dollars in thousands)

Beginning principal balance

$

2,915,000


3.13%


2.7


$

2,915,000


3.76%


3.0

Maturities and prepayments:
















FHLB advances


(325,000)


4.17





(450,000)


3.38



Repurchase agreements


(75,000)


3.43





(150,000)


4.41



New borrowings:
















FHLB advances


300,000


1.23


5.7



600,000


1.15


3.2

Ending principal balance

$

2,815,000


2.80%


2.7


$

2,915,000


3.25%


2.8

 

Average Rates and Lives

The following table presents the weighted average yields/rates and WALs (in years) for major categories of our assets and liabilities as of the dates 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 shown, 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. 


















June 30, 2013


March 31, 2013


Amount


Yield/Rate


WAL


Amount


Yield/Rate


WAL


(Dollars in thousands)

Investment securities(1)

$

807,399


1.14%


3.2


$

841,127


1.14%


2.3

MBS(1)


2,179,539


2.39


3.6



2,358,095


2.45


3.6

Loans receivable:(2)
















Fixed-rate one- to four-family:
















<= 15 years


1,140,820


3.59


4.3



1,125,356


3.70


3.5

> 15 years


3,328,375


4.20


7.4



3,237,793


4.29


5.4

All other fixed-rate loans


111,481


5.28


3.8



118,288


5.37


3.3

Total fixed-rate loans


4,580,676


4.07


6.6



4,481,437


4.17


4.8

















Adjustable-rate one- to four-family:
















<= 36 months


428,973


2.63


3.9



443,269


2.68


3.7

> 36 months


689,454


3.09


4.0



702,034


3.15


3.2

All other adjustable-rate loans


140,758


4.61


0.4



136,315


4.69


0.3

Total adjustable-rate loans


1,259,185


3.10


3.6



1,281,618


3.15


3.0

Total loans receivable


5,839,861


3.86


5.9



5,763,055


3.94


4.4

Transaction deposits(3)


2,086,310


0.13


6.8



2,125,977


0.13


6.8

Certificates of deposit


2,542,126


1.27


1.4



2,567,596


1.35


1.4

Borrowings(4)


2,815,000


2.80


2.7



2,965,000


2.92


2.5

















(1)

The WAL of investment securities and MBS is the estimated remaining maturity after projected call option assumptions and three-month historical prepayment speeds have been applied.

(2)

The WAL of the loans receivable portfolio is derived from a proprietary interest rate risk model, which takes into account prepayment speeds.

(3)

The WAL of transaction (checking, savings, and money market) deposits is derived from a proprietary interest rate risk model and based upon historical analysis of decay rates on deposit accounts.

(4)

Amount includes FHLB advances at par value.  The $100.0 million of borrowings on the line of credit at June 30, 2013 is excluded from the amount, rate, and WAL figures presented.

 

At June 30, 2013, the Bank's one-year gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice was $126.8 million, or 1.4% of total assets, compared to $739.4 million, or 7.9% of total assets, at March 31, 2013 including the $100.0 million FHLB line of credit.  In late July 2013, the $100.0 million FHLB line of credit was replaced with a $100.0 million repurchase agreement with a term of 84 months at a rate of 2.53%.  If we experience the magnitude of asset repricing as indicated by the one-year gap and interest rates decrease, downward pressure may be placed on our net interest margin.  As interest rates rise, the amount of interest-earning assets expected to reprice will likely continue to 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 June 30, 2013, the Bank's one-year gap is projected to be negative $(185.1) million, or (2.0)% of total assets, meaning more liabilities are anticipated to reprice than assets.  This compares to a negative one-year gap of $(167.1) million, or (1.8)% of total assets, if interest rates were to increase 200 basis points, as of March 31, 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.  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 decrease, borrowers have an economic incentive to refinance or endorse their loans to the lower market interest rates.  This was evident by the volume of mortgages that were endorsed or refinanced during fiscal years 2011, 2012, and fiscal year 2013, due to low market interest rates.  Any decrease in our net interest margin due to interest-earning assets repricing downward will likely be partially offset by a further decrease in our cost of liabilities.  While the ability to lower the Bank's cost of deposits is somewhat limited by the already low cost of this portfolio, the Bank has $520.0 million of borrowings scheduled to mature in the next 12 months with a weighted average effective rate of 3.94%.

Average Balance Sheets 

The following tables present the average balances of our assets, liabilities and stockholders' equity and the related annualized 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 June 30, 2013.  Average yields are derived by dividing annualized income by the average balance of the related assets and 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 yields and rates include amortization of fees, costs, premiums and discounts which are considered adjustments to yields/rates.  Yields on tax-exempt securities were not calculated on a fully taxable equivalent basis.






















At



For the Nine Months Ended



June 30, 2013


June 30, 2013



June 30, 2012




Average


Interest 





Average


Interest 





Yield/


Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Rate


Balance


Paid


Rate


Balance


Paid


Rate

Assets:




(Dollars in thousands)


Interest-earning assets:




















Loans receivable(1)

3.87%


$

5,691,814


$

172,030


4.03%


$

5,215,165


$

178,007


4.55%

MBS(2)

2.39



2,302,058



43,048


2.49



2,460,912



54,686


2.96

Investment securities(2)(3)

1.14



860,295



7,761


1.20



1,292,582



12,535


1.29

Capital stock of FHLB

3.46



132,111



3,384


3.43



128,859



3,313


3.43

Cash and cash equivalents

0.25



61,534



108


0.24



110,519



205


0.25

Total interest-earning assets(1)(2)

3.22



9,047,812



226,331


3.34



9,208,037



248,746


3.60

Other noninterest-earning assets




234,427









234,735







Total assets



$

9,282,239








$

9,442,772



























Liabilities and stockholders' equity:




















Interest-bearing liabilities:




















Checking

0.04%


$

629,436


$

182


0.04%


$

562,619


$

331


0.08%

Savings

0.10



272,339



196


0.10



257,462



331


0.17

Money market

0.19



1,135,356



1,815


0.21



1,091,602



2,675


0.33

Certificates

1.28



2,548,758



26,009


1.36



2,615,323



32,353


1.65

  Total deposits

0.76



4,585,889



28,202


0.82



4,527,006



35,690


1.05

FHLB borrowings(4)

2.57



2,560,389



53,914


2.81



2,499,915



62,641


3.35

Repurchase agreements

3.93



336,978



9,861


3.86



388,175



11,387


3.85

  Total borrowings

2.71



2,897,367



63,775


2.94



2,888,090



74,028


3.42

Total interest-bearing liabilities

1.51



7,483,256



91,977


1.64



7,415,096



109,718


1.97

Other noninterest-bearing liabilities




107,218









107,572







Stockholders' equity




1,691,765









1,920,104







Total liabilities and stockholders' equity



$

9,282,239








$

9,442,772
























Net interest income(5)






$

134,354








$

139,028




Net interest rate spread(6)

1.71%








1.70%








1.63%

Net interest-earning assets



$

1,564,556








$

1,792,941







Net interest margin(7)









1.98








2.01

Ratio of interest-earning assets to interest-bearing liabilities









1.21








1.24





















Selected performance ratios:




















Return on average assets (annualized)









0.77%








0.80%

Return on average equity (annualized)









4.20








3.94

Average equity to average assets









18.23








20.33

Operating expense ratio (annualized)(8)









1.03








0.95

Efficiency ratio(9)









47.11








42.52

 




















For the Three Months Ended


June 30, 2013


March 31, 2013


Average


Interest





Average


Interest





Outstanding


Earned/


Yield/


Outstanding


Earned/


Yield/


Balance


Paid


Rate


Balance


Paid


Rate

Assets:


(Dollars in thousands)

Interest-earning assets:


















Loans receivable(1)

$

5,767,597


$

56,627


3.93%


$

5,683,867


$

56,936


4.01%

MBS(2)


2,257,180



13,419


2.38



2,311,938



14,446


2.50

Investment securities(2)(3)


830,242



2,439


1.17



818,147



2,457


1.20

Capital stock of FHLB


133,011



1,151


3.47



130,716



1,105


3.43

Cash and cash equivalents


65,588



39


0.24



62,420



36


0.23

Total interest-earning assets(1)(2)


9,053,618



73,675


3.26



9,007,088



74,980


3.33

Other noninterest-earning assets


228,475









238,232







Total assets

$

9,282,093








$

9,245,320

























Liabilities and stockholders' equity:


















Interest-bearing liabilities:


















Checking

$

652,936


$

63


0.04%


$

637,161


$

61


0.04%

Savings


282,214



63


0.09



272,418



62


0.09

Money market


1,143,043



549


0.19



1,146,185



609


0.22

Certificates


2,559,171



8,334


1.31



2,541,835



8,612


1.37

  Total deposits


4,637,364



9,009


0.78



4,597,599



9,344


0.82

FHLB borrowings(4)


2,618,978



17,377


2.66



2,533,961



17,909


2.87

Repurchase agreements


290,549



2,885


3.93



355,278



3,407


3.84

  Total borrowings


2,909,527



20,262


2.79



2,889,239



21,316


2.99

Total interest-bearing liabilities


7,546,891



29,271


1.55



7,486,838



30,660


1.66

Other noninterest-bearing liabilities


97,413









99,798







Stockholders' equity


1,637,789









1,658,684







Total liabilities and stockholders' equity

$

9,282,093








$

9,245,320

























Net interest income(5)




$

44,404








$

44,320




Net interest rate spread(6)







1.71%








1.67%

Net interest-earning assets

$

1,506,727








$

1,520,250







Net interest margin(7)







1.96








1.97

Ratio of interest-earning assets to interest-bearing liabilities







1.20








1.20



















Selected performance ratios:


















Return on average assets (annualized)







0.78%








0.77%

Return on average equity (annualized)







4.39








4.27

Average equity to average assets







17.64








17.94

Operating expense ratio (annualized)(8)







1.02








1.00

Efficiency ratio(9)







46.99








46.19



















(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 $42.8 million and $55.8 million for the nine months ended June 30, 2013 and 2012, respectively, and $40.5 million and $42.9 million for the quarters ended June 30, 2013 and March 31, 2013, 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 assets such as loans, investment securities, and MBS, and interest paid on 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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