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

TOPEKA, Kan., July 28, 2014 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended June 30, 2014.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, which will be filed with the Securities and Exchange Commission ("SEC") on or about August 1, 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 $20.0 million,
  • basic and diluted earnings per share of $0.14,
  • net interest margin of 2.09%,
  • True Blue® Capitol dividend of $0.25 per share, and
  • repurchased 763,390 shares of common stock at an average price of $11.97 per share.

Comparison of Operating Results for the Three Months Ended June 30, 2014 and March 31, 2014

Net income increased $295 thousand, or 1.5%, from $19.7 million for the quarter ended March 31, 2014 to $20.0 million for the quarter ended June 30, 2014.  The increase in net income was due primarily to a decrease in income tax expense, as well as to a decrease in interest expense on Federal Home Loan Bank ("FHLB") borrowings.  The net interest margin increased two basis points, from 2.07% for the prior quarter, to 2.09% for the current quarter.  The increase in the net interest margin was largely a result of a decrease in interest expense on FHLB borrowings.

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter remained unchanged from the prior quarter at 3.25%, while the average balance of interest-earning assets increased $1.2 million 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.

 














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2014


2014


Dollars


Percent


              (Dollars in thousands)




INTEREST AND DIVIDEND INCOME:












Loans receivable

$

57,474


$

57,117


$

357


0.6%


Mortgage-backed securities ("MBS")


11,206



11,597



(391)


(3.4)


Investment securities


1,739



1,869



(130)


(7.0)


FHLB stock


1,452



1,229



223


18.1


Cash and cash equivalents


50



45



5


11.1


Total interest and dividend income

$

71,921


$

71,857


$

64


0.1


 

The increase in interest income on loans receivable was due to a $50.1 million increase in the average balance of the portfolio, partially offset by a one basis point decrease in the weighted average yield on the portfolio to 3.77% for the current quarter.  Included in interest income on loans receivable for the current quarter was $17 thousand related to the net amortization of premiums/deferred costs and the accretion of discounts/unearned loan fees increasing the average yield on the portfolio by less than one basis point.  During the prior quarter, $67 thousand, net, was accreted and increased the average yield on the portfolio by less than one basis point.   

The decrease in interest income on MBS was due to a nine basis point decrease in the weighted average yield on the portfolio to 2.30% for the current quarter.  Included in interest income on MBS for the current quarter was $1.5 million from the net amortization of premiums and the accretion of discounts decreasing the average yield on the portfolio by 32 basis points.  During the prior quarter, $1.3 million of net premiums were amortized and decreased the average yield on the portfolio by 26 basis points.  The decrease in interest income on investment securities was due to a $52.2 million decrease in the average balance of the portfolio. Cash flows from the MBS and investment securities portfolios not reinvested in the portfolios were used to fund loan growth, pay dividends, and repurchase Company stock. 

The increase in dividends on FHLB stock was due to an increase in the FHLB dividend rate during the current quarter.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased four basis points from the prior quarter to 1.38% for the current quarter, and the average balance of interest-bearing liabilities increased $5.0 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








June 30,


March 31,


Change Expressed in:


2014


2014


Dollars


Percent


             (Dollars in thousands)




INTEREST EXPENSE:












FHLB borrowings

$

14,826


$

15,311


$

(485)


(3.2)%


Deposits


8,124



8,076



48


0.6


Repurchase agreements


2,773



2,743



30


1.1


Total interest expense

$

25,723


$

26,130


$

(407)


(1.6)


 

The decrease in interest expense on FHLB borrowings was due primarily to a decrease in the weighted average rate paid on the portfolio as a result of maturing FHLB advances being renewed at lower market rates and partially to a decrease in the average balance.  The largest contributor to the decrease in interest expense on FHLB borrowings quarter-over-quarter was a $200.0 million advance with an effective rate of 5.01% that matured in early February 2014 being partially replaced with a $150.0 million advance with a fixed-rate of 2.59% and an original term of 84 months.  In mid-May 2014, a $100.0 million advance with an effective rate of 2.80% matured and was replaced with a $100.0 million advance with a term of 84 months and a fixed-rate of 2.45%.  Subsequent to June 30, 2014, a $100.0 million repurchase agreement with a rate of 4.20% matured and was replaced with a $100.0 million FHLB advance with a term of 60 months at a fixed-rate of 1.96%.

Provision for Credit Losses
Capitol Federal Savings Bank (the "Bank") recorded a provision for credit losses during the current quarter of $307 thousand compared to a provision for credit losses during the prior quarter of $160 thousand.  The $307 thousand provision for credit losses in the current quarter takes into account net charge-offs of $192 thousand.

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

 














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2014


2014


Dollars


Percent


                   (Dollars in thousands)




NON-INTEREST INCOME:












Retail fees and charges

$

3,792


$

3,454


$

338


9.8%


Insurance commissions


827



1,204



(377)


(31.3)


Loan fees


367



404



(37)


(9.2)


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


333



330



3


0.9


Other non-interest income


300



335



(35)


(10.4)


Total non-interest income

$

5,619


$

5,727


$

(108)


(1.9)


 

The increase in retail fees and charges was due primarily to an increase in debit card income, due in part to seasonality, and an increase in service charges earned.  The decrease in insurance commissions was due largely to a decrease in the amount of contingent commissions received from certain insurance providers, 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 measured in dollars and percent.

 














For the Three Months Ended








June 30,


March 31,


Change Expressed in:


2014


2014


Dollars


Percent


             (Dollars in thousands)




NON-INTEREST EXPENSE:












Salaries and employee benefits

$

10,929


$

10,724


$

205


1.9%


Occupancy


2,479



2,634



(155)


(5.9)


Information technology and communications


2,373



2,320



53


2.3


Regulatory and outside services


1,437



1,157



280


24.2


Deposit and loan transaction costs


1,326



1,263



63


5.0


Federal insurance premium


1,078



1,103



(25)


(2.3)


Advertising and promotional


942



877



65


7.4


Other non-interest expense


1,816



1,750



66


3.8


Total non-interest expense

$

22,380


$

21,828


$

552


2.5


 

The increase in salaries and employee benefits expense was due primarily to compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the $0.25 per share True Blue Capitol dividend paid in June 2014.  It is anticipated that this dividend will result in an additional $558 thousand of compensation expense in the fourth quarter of fiscal year 2014.  The increase in regulatory and outside services was due primarily to the timing of fees paid for external audit services. 

The Company's efficiency ratio was 43.19% for the current quarter compared to 42.42% for the prior quarter.  The change in the efficiency ratio was due primarily to the increase in total non-interest expense.  The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.  A lower value indicates that the financial institution is generating revenue with a lower level of expense.

Income Tax Expense
Income tax expense was $9.1 million for the current quarter compared to $9.8 million for the prior quarter.  The decrease in expense between periods was due primarily to a decrease in the effective income tax rate from 33.2% for the prior quarter to 31.4% for the current quarter.  The decrease in the effective income tax rate between periods was largely a result of a true-up of income tax expense for fiscal year 2014 to account for a lower effective tax rate for the year, primarily a result of higher deductible expenses associated with dividends paid on ESOP shares due to the True Blue Capitol dividend paid in June 2014.

Comparison of Operating Results for the Nine Months Ended June 30, 2014 and 2013

For the nine month period ended June 30, 2014, the Company recognized net income of $57.5 million, compared to net income of $53.3 million for the nine month period ended June 30, 2013.  The $4.2 million, or 7.9%, increase in net income was due primarily to a $4.1 million decrease in salaries and employee benefits due primarily to a reduction in ESOP related expenses.  The net interest margin increased six basis points, from 1.98% for the prior year nine month period to 2.04% for the current year 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 was enough to overcome the negative impact of decreasing asset yields. 

Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased 10 basis points from 3.34% for the prior year nine month period to 3.24% for the current year nine month period, and the average balance of interest-earning assets decreased $162.0 million from the prior year nine month period.  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 loans receivable was due to a decrease in the weighted average yield on the portfolio, partially offset by an increase in the average balance.  The decrease in interest income on MBS and investment securities was due largely to a decrease in the average balance of each portfolio as cash flows not reinvested in the portfolios were used to fund loan growth, pay dividends, and repurchase Company stock. 

 














For the Nine Months Ended








June 30,


Change Expressed in:


2014


2013


Dollars


Percent


              (Dollars in thousands)




INTEREST AND DIVIDEND INCOME:












Loans receivable

$

171,539


$

172,030


$

(491)


(0.3)%


MBS


34,765



43,048



(8,283)


(19.2)


Investment securities


5,674



7,761



(2,087)


(26.9)


FHLB stock


3,877



3,384



493


14.6


Cash and cash equivalents


157



108



49


45.4


Total interest and dividend income

$

216,012


$

226,331


$

(10,319)


(4.6)


 

The weighted average yield on the loans receivable portfolio decreased 25 basis points, from 4.03% for the prior year nine month period to 3.78% for the current year nine month period.  The downward repricing of the loan portfolio was due largely to adjustable-rate loans repricing to lower rates, to loan purchases at market rates less than the weighted average rate of the existing portfolio, and to the current year nine month period reflecting the full impact of the large volume of refinances and endorsements that occurred during the prior year nine month period.  Also contributing to the decrease in the weighted average yield for the current year nine month period, compared to the prior year nine month period, was the net amount of premiums/deferred costs amortized and discounts/unearned loan fees accreted to interest income on loans receivable.  During the current year nine month period, $131 thousand related to the net amortization of premiums/deferred costs and the accretion of discounts/unearned loan fees was included in interest income, which increased the average yield of the portfolio by less than one basis point.  During the prior year nine month period, $2.1 million, net, was accreted and increased the average yield on the portfolio by five basis points.  The decrease in interest income on loans receivable resulting from the decrease in average yield was partially offset by a $355.4 million increase in the average balance of the portfolio. 

The average balance of the MBS portfolio decreased $340.6 million between the two periods and the average yield on the MBS portfolio decreased 13 basis points, from 2.49% during the prior year nine month period to 2.36% for the current year 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 and the downward repricing of existing adjustable-rate MBS. Included in interest income on MBS for the current year nine month period was $4.2 million from the net amortization of premiums and the accretion of discounts decreasing the average yield on the portfolio by 29 basis points.  During the prior year nine month period, $6.3 million of net premiums were amortized and decreased the average yield on the portfolio by 37 basis points.

The decrease in interest income on investment securities was due primarily to a $193.0 million decrease in the average balance of the portfolio, along with a seven basis point decrease in the yield, from 1.20% during the prior year nine month period, to 1.13% for the current year nine month period. 

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased 21 basis points from 1.64% for the prior year nine month period to 1.43% for the current year nine month period, and the average balance of interest-bearing liabilities decreased $50.4 million from the prior year nine month period.  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, deposits, and repurchase agreements was due primarily to a decrease in the weighted average rate paid on the portfolios between the two periods.

 














For the Nine Months Ended








June 30,


Change Expressed in:


2014


2013


Dollars


Percent


             (Dollars in thousands)




INTEREST EXPENSE:












FHLB borrowings

$

47,000


$

53,914


$

(6,914)


(12.8)%


Deposits


24,523



28,202



(3,679)


(13.0)


Repurchase agreements


8,319



9,861



(1,542)


(15.6)


Total interest expense

$

79,842


$

91,977


$

(12,135)


(13.2)


 

The weighted average rate paid on the FHLB borrowings portfolio decreased 28 basis points, from 2.81% for the prior year nine month period to 2.53% for the current year nine month period.  The decrease in the average rate paid was primarily a result of maturities and renewals to lower market rates that occurred between periods.  Additionally, the average balance of FHLB borrowings decreased $71.1 million between periods, due primarily to some maturing advances not being renewed in their entirety.

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 retail certificate of deposit portfolio.  The weighted average rate paid on the retail certificate of deposit portfolio decreased 19 basis points, from 1.42% for the prior year nine month period to 1.23% for the current year nine month period.

The weighted average rate paid on the repurchase agreements decreased 43 basis points, from 3.86% for the prior year nine month period to 3.43% for the current year nine month period.  The decrease in the average rate paid on repurchase agreements was due to maturities and a new agreement entered into between periods which had a rate less than the existing portfolio.

Provision for Credit Losses
The Bank recorded a provision for credit losses during the current year nine month period of $982 thousand, compared to a $567 thousand negative provision for credit losses for the prior year nine month period.  The $982 thousand provision for credit losses in the current year nine month period takes into account net charge-offs of $722 thousand.

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

 














For the Nine Months Ended








June 30,


Change Expressed in:


2014


2013


Dollars


Percent


             (Dollars in thousands)




NON-INTEREST INCOME:












Retail fees and charges

$

11,056


$

11,369


$

(313)


(2.8)%


Insurance commissions


2,589



2,337



252


10.8


Loan fees


1,221



1,312



(91)


(6.9)


Income from BOLI


1,001



1,120



(119)


(10.6)


Other non-interest income


979



1,395



(416)


(29.8)


Total non-interest income

$

16,846


$

17,533


$

(687)


(3.9)


The decrease in retail fees and charges was due primarily to a decrease in service charges earned.  The increase in insurance commissions was due largely to an increase in contingent commissions received from certain insurance providers as a result of favorable claims experience during the prior year.  The decrease in other non-interest income was due primarily to a decrease in premium income from Capitol Federal Mortgage Reinsurance Company as it is no longer writing new business. 

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 Nine Months Ended








June 30,


Change Expressed in:


2014


2013


Dollars


Percent


                     (Dollars in thousands)




NON-INTEREST EXPENSE:












Salaries and employee benefits

$

32,379


$

36,473


$

(4,094)


(11.2)%


Occupancy


7,662



7,136



526


7.4


Information technology and communications


6,985



6,723



262


3.9


Regulatory and outside services


3,990



4,435



(445)


(10.0)


Deposit and loan transaction costs


3,976



4,207



(231)


(5.5)


Federal insurance premium


3,264



3,337



(73)


(2.2)


Advertising and promotional


2,825



3,222



(397)


(12.3)


Other non-interest expense


5,914



6,027



(113)


(1.9)


Total non-interest expense

$

66,995


$

71,560


$

(4,565)


(6.4)


 

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 increase in occupancy expense was due largely to an increase in depreciation expense, which was primarily associated with the remodeling of our home office.  The decrease in regulatory and outside services was due largely to the timing of fees paid for our external audit.  The decrease in advertising and promotional expense was due primarily to the timing of media campaigns in fiscal year 2013, which included campaigns delayed from fiscal year 2012.

The Company's efficiency ratio was 43.78% for the current year nine month period compared to 47.11% for the prior year nine month period.  The change in the efficiency ratio was due primarily to a decrease in total non-interest expense.

Income Tax Expense
Income tax expense was $27.6 million for both the current and prior year nine month periods.  The effective tax rate for the current year nine month period was 32.4% compared to 34.1% for the prior year nine month period.  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, along with higher tax credits related to our low income housing partnerships.  Additionally, higher pretax income for the current year nine month period, compared to the prior year nine month period, resulted in all of the items that affect the income tax rate having a smaller impact on the overall effective tax rate.  Management anticipates the effective tax rate for fiscal year 2014 will be approximately 32% to 33%, based on fiscal year 2014 estimates as of June 30, 2014.

Financial Condition as of June 30, 2014  

Total assets were $9.03 billion at June 30, 2014 compared to $9.19 billion at September 30, 2013.  The $155.4 million decrease was due primarily to a $293.6 million decrease in the securities portfolio, partially offset by a $173.7 million increase in the loan portfolio.  The cash flows from the securities portfolio were used to fund loan growth, pay dividends, and repurchase stock.  During the current year nine month period, the Bank originated and refinanced $403.5 million of loans with a weighted average rate of 3.95%, purchased $357.8 million of loans from correspondent lenders with a weighted average rate of 3.74%, and participated in $43.8 million of commercial real estate loans with a weighted average rate of 4.16%.  As of June 30, 2014, the Bank had 26 active correspondent lending relationships operating in 26 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 2014, the unemployment rate was 4.9% for Kansas and 6.5% for Missouri, compared to the national average of 6.1% based on information from the Bureau of Labor Statistics.  Our Kansas City market area, which comprises the largest segment of our loan portfolio and deposit base, had 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 was 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 (FHFA) price index for Kansas and Missouri has not experienced significant fluctuations during the past 10 years, unlike other market areas of the United States, indicating stability in property values in our local market areas. 

Total liabilities were $7.53 billion at June 30, 2014 compared to $7.55 billion at September 30, 2013.  The $22.2 million decrease was due primarily to a 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.  FHLB borrowings decreased $45.1 million, which was primarily offset by a $43.4 million increase in deposits.  The increase in deposits was comprised of a $42.6 million increase in the checking portfolio, an $11.9 million increase in the savings portfolio, and a $4.2 million increase in the money market portfolio, partially offset by a $15.3 million decrease in the certificate of deposit portfolio.

Stockholders' equity was $1.50 billion at June 30, 2014 compared to $1.63 billion at September 30, 2013.  The $133.2 million decrease was due primarily to the payment of $127.9 million in dividends and the repurchase of $66.3 million of stock, partially offset by net income of $57.5 million.

The $127.9 million in dividends paid during the current year nine month period consisted of: (1) two $0.25 per share True Blue dividends, totaling $0.50 per share, or $70.4 million; (2) 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 (3) three regular quarterly dividends of $0.075 per share each quarter, totaling $0.225 per share, or $31.7 million.  The $70.4 million in True Blue dividends were funded by $72.0 million in capital distributions from the Bank to the holding company.  On July 18, 2014, the Company declared a regular quarterly cash dividend of $0.075 per share, or approximately $10.3 million, payable on August 15, 2014 to stockholders of record as of the close of business on August 1, 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 June 30, 2014, Capitol Federal Financial, Inc., at the holding company level, had $141.6 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 June 30, 2014, had repurchased 9,360,109 shares at an average price of $11.93 per share, at a total cost of $111.7 million.  Subsequent to June 30, 2014 through the date of this release, the Company repurchased an additional 321,700 shares at an average price of $12.02 per share.  This plan, under which $59.4 million remained available as of the date of this release, has no expiration date.

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

 














June 30, 2014


September 30, 2013


June 30, 2013


(Dollars in thousands)

Stockholders' equity

$

1,498,907



$

1,632,126



$

1,624,502


Equity to total assets at end of period


16.6%




17.8%




17.6%


 

The following table presents a reconciliation of total and net shares outstanding as of June 30, 2014.  

 





 Total shares outstanding

142,359,003

 Less unallocated ESOP shares and unvested restricted stock

(4,617,524)

 Net shares outstanding

137,741,479

 

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, 2014, the Bank exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at June 30, 2014 based upon regulatory guidelines.










Regulatory





Requirement For



Bank


"Well-Capitalized"



Ratios


 Status

Tier 1 leverage ratio


14.4%


5.0%

Tier 1 risk-based capital


33.5


6.0

Total risk-based capital


33.7


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, 2014 is as follows (dollars in thousands):

 




Total Bank equity as reported under GAAP

$

1,305,210

Unrealized gains on available-for-sale ("AFS") securities


(7,100)

Total Tier 1 capital


1,298,110

Allowance for credit losses ("ACL")


9,082

Total risk-based capital

$

1,307,192

Management plans to furnish the Company's September 30, 2014 annual proxy materials to stockholders via the internet.  Stockholders who are eligible to vote at the Fiscal Year 2014 Annual Meeting of Stockholders will receive a notice containing instructions on how to access the proxy materials over the internet and vote online at least 40 days prior to the Annual Meeting.  The notice will explain how a stockholder can arrange to have printed materials sent to them, if so desired.  Proxy materials include the definitive proxy statement for the Fiscal Year 2014 Annual Meeting of Stockholders, and the September 30, 2014 Annual Report to Stockholders.

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


CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands)








June 30,


September 30,


2014


2013

ASSETS:






Cash and cash equivalents (includes interest-earning deposits of $74,760 and $99,735)

$

88,424


$

113,886

Securities:






AFS at estimated fair value (amortized cost of $845,958 and $1,058,283)


857,372



1,069,967

Held-to-maturity at amortized cost (estimated fair value of $1,663,917 and $1,741,846)


1,637,043



1,718,023

Loans receivable, net (ACL of $9,082 and $8,822)


6,132,520



5,958,868

BOLI


60,496



59,495

FHLB stock, at cost


112,876



128,530

Accrued interest receivable


23,235



23,596

Premises and equipment, net


69,794



70,112

Other assets


49,279



43,972

TOTAL ASSETS

$

9,031,039


$

9,186,449







LIABILITIES:






Deposits

$

4,654,862


$

4,611,446

FHLB borrowings


2,468,420



2,513,538

Repurchase agreements


320,000



320,000

Advance payments by borrowers for taxes and insurance


35,436



57,392

Income taxes payable


2,184



108

Deferred income tax liabilities, net


21,905



20,437

Accounts payable and accrued expenses


29,325



31,402

Total liabilities


7,532,132



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; 142,359,003 and 147,840,268






shares issued and outstanding as of June 30, 2014 and September 30, 2013, respectively


1,424



1,478

Additional paid-in capital


1,191,911



1,235,781

Unearned compensation, ESOP


(43,364)



(44,603)

Retained earnings


341,836



432,203

Accumulated other comprehensive income, net of tax


7,100



7,267

Total stockholders' equity


1,498,907



1,632,126

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,031,039


$

9,186,449








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,


2014


2014


2014


2013

INTEREST AND DIVIDEND INCOME:












Loans receivable

$

57,474


$

57,117


$

171,539


$

172,030

MBS


11,206



11,597



34,765



43,048

Investment securities


1,739



1,869



5,674



7,761

FHLB stock


1,452



1,229



3,877



3,384

Cash and cash equivalents


50



45



157



108

Total interest and dividend income


71,921



71,857



216,012



226,331













INTEREST EXPENSE:












FHLB borrowings


14,826



15,311



47,000



53,914

Deposits


8,124



8,076



24,523



28,202

Repurchase agreements


2,773



2,743



8,319



9,861

Total interest expense


25,723



26,130



79,842



91,977













NET INTEREST INCOME


46,198



45,727



136,170



134,354













PROVISION FOR CREDIT LOSSES


307



160



982



(567)

NET INTEREST INCOME AFTER












PROVISION FOR CREDIT LOSSES


45,891



45,567



135,188



134,921













NON-INTEREST INCOME:












Retail fees and charges


3,792



3,454



11,056



11,369

Insurance commissions


827



1,204



2,589



2,337

Loan fees


367



404



1,221



1,312

Income from BOLI


333



330



1,001



1,120

Other non-interest income


300



335



979



1,395

Total non-interest income


5,619



5,727



16,846



17,533













NON-INTEREST EXPENSE:












Salaries and employee benefits


10,929



10,724



32,379



36,473

Occupancy


2,479



2,634



7,662



7,136

Information technology and communications


2,373



2,320



6,985



6,723

Regulatory and outside services


1,437



1,157



3,990



4,435

Deposit and loan transaction costs


1,326



1,263



3,976



4,207

Federal insurance premium


1,078



1,103



3,264



3,337

Advertising and promotional


942



877



2,825



3,222

Other non-interest expense


1,816



1,750



5,914



6,027

Total non-interest expense


22,380



21,828



66,995



71,560

INCOME BEFORE INCOME TAX EXPENSE


29,130



29,466



85,039



80,894

INCOME TAX EXPENSE


9,147



9,778



27,555



27,621

NET INCOME

$

19,983


$

19,688


$

57,484


$

53,273

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
















For the Three Months Ended


For the Nine Months Ended



June 30,


March 31,


June 30,



2014


2014


2014


2013



(Dollars in thousands, except per share data)

Net income


$

19,983


$

19,688


$

57,484


$

53,273

Income allocated to participating securities



(41)



(44)



(135)



(161)

Net income available to common stockholders


$

19,942


$

19,644


$

57,349


$

53,112














Average common shares outstanding



138,248,629



139,447,275



140,205,057



145,379,101

Average committed ESOP shares outstanding



83,052



41,758



41,601



139,009

Total basic average common shares outstanding



138,331,681



139,489,033



140,246,658



145,518,110














Effect of dilutive stock options



2,723



291



1,136



112














Total diluted average common shares outstanding



138,334,404



139,489,324



140,247,794



145,518,222














Net earnings per share:













Basic


$

0.14


$

0.14


$

0.41


$

0.37

Diluted


$

0.14


$

0.14


$

0.41


$

0.37














Antidilutive stock options, excluded













from the diluted average common shares













outstanding calculation



2,052,485



2,060,216



2,064,175



2,465,393


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.

 






























June 30, 2014


March 31, 2014


September 30, 2013






% of






% of






% of


Amount


Rate


Total


Amount


Rate


Total


Amount


Rate


Total


(Dollars in thousands)

Real estate loans:



























One- to four-family

$

5,890,819


3.74%



95.0%



$

5,840,337


3.75%



95.5%



$

5,743,047


3.77%



95.5%


Multi-family and commercial


62,038


4.66



1.0




47,505


4.83



0.8




50,358


5.22



0.9


Construction:



























One- to four-family


73,975


3.70



1.2




71,608


3.66



1.2




63,208


3.51



1.1


Multi-family and commercial


34,677


4.01



0.6




22,678


4.19



0.3




14,535


4.17



0.2


Total real estate loans


6,061,509


3.75



97.8




5,982,128


3.75



97.8




5,871,148


3.78



97.7





























Consumer loans:



























Home equity


130,645


5.18



2.1




130,321


5.22



2.1




135,028


5.26



2.2


Other


4,960


4.21



0.1




4,991


4.29



0.1




5,623


4.41



0.1


Total consumer loans


135,605


5.14



2.2




135,312


5.18



2.2




140,651


5.23



2.3





























Total loans receivable


6,197,114


3.78



100.0%




6,117,440


3.79



100.0%




6,011,799


3.82



100.0%





























Less:



























Undisbursed loan funds


58,067









55,505









42,807







ACL


9,082









8,967









8,822







Discounts/unearned loan fees


23,812









23,653









23,057







Premiums/deferred costs


(26,367)









(24,582)









(21,755)







Total loans receivable, net

$

6,132,520








$

6,053,897








$

5,958,868







 

The following table presents, for our portfolio of one- to four-family loans, the amount, percent 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 March 2014, from a nationally recognized consumer rating agency.  The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available.  In most cases, the most recent appraisal was obtained at the time of origination. 

 












































June 30, 2014


March 31, 2014


September 30, 2013





% 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

$

3,987,912


67.7%



765


64%



$

127


$

4,017,833


68.8%



765


64%



$

127


$

4,054,436


70.6%



763


65%



$

127

Correspondent purchased


1,321,527


22.4



764


67




332



1,217,524


20.8



764


67




334



1,044,127


18.2



761


67




341

Bulk purchased


581,380


9.9



749


67




311



604,980


10.4



748


67




312



644,484


11.2



747


67




316


$

5,890,819


100.0%



763


65




158


$

5,840,337


100.0%



763


65




157


$

5,743,047


100.0%



761


65




155

Loan Commitments

The following table summarizes our one- to four-family loan origination, refinance, and correspondent purchase commitments as of June 30, 2014, 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/refinance

$

12,211


$

36,984


$

20,525


$

69,720


3.72%


Correspondent


15,346



40,863



22,816



79,025


3.76



$

27,557


$

77,847


$

43,341


$

148,745


3.74

















Rate


3.22%



4.20%



3.25%







 

 

Loan Activity

The following tables summarize activity in our 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 lenders.  There were no loan purchases from nationwide lenders during the periods presented.  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 nine months ended June 30, 2014 and 2013, the Bank endorsed $21.7 million and $470.3 million of one- to four-family loans, respectively, reducing the average rate on those loans by 106 basis points and 112 basis points, respectively.


























For the Three Months Ended


June 30, 2014


March 31, 2014


December 31, 2013


September 30, 2013


Amount


Rate


Amount


Rate


Amount


Rate


Amount


Rate


(Dollars in thousands)

Beginning balance

$

6,117,440


3.79%



$

6,095,089


3.80%



$

6,011,799


3.82%



$

5,839,861


3.86%


Originated and refinanced:
























Fixed


98,668


4.11




63,921


4.09




108,829


3.95




217,328


3.70


Adjustable


48,106


3.75




38,790


3.76




45,273


3.76




44,090


3.75


Purchased and participations:
























Fixed


122,407


4.03




65,793


4.00




94,535


4.00




167,490


3.61


Adjustable


40,344


3.12




32,932


3.27




45,541


3.34




41,479


2.75


Repayments


(228,911)






(177,411)






(209,931)






(297,318)




Principal (charge-offs) recoveries, net


(192)






(112)






(418)






83




Other


(748)






(1,562)






(539)






(1,214)




Ending balance

$

6,197,114


3.78



$

6,117,440


3.79



$

6,095,089


3.80



$

6,011,799


3.82
















For the Nine Months Ended


June 30, 2014


June 30, 2013


Amount


Rate


Amount


Rate



(Dollars in thousands)

Beginning balance

$

6,011,799


3.82%



$

5,649,156


4.15%


Originated and refinanced:












Fixed


271,418


4.04




571,878


3.29


Adjustable


132,169


3.76




94,353


3.76


Purchased and participations:












Fixed


282,735


4.01




340,488


3.33


Adjustable


118,817


3.25




64,078


2.71


Repayments


(616,253)






(873,307)




Principal (charge-offs) recoveries, net


(722)






(1,294)




Other


(2,849)






(5,491)




Ending balance

$

6,197,114


3.78



$

5,839,861


3.86


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 Nine Months Ended


June 30, 2014


June 30, 2014


Amount


Rate


% of Total


Amount


Rate


% of Total

Fixed-rate:

(Dollars in thousands)

One- to four-family:


















<= 15 years

$

43,359


3.34%



14.0%



$

130,457


3.35%



16.2%


> 15 years


148,570


4.26



48.0




384,435


4.24



47.8


Multi-family and commercial real estate


27,850


4.09



9.0




36,450


4.08



4.5


Home equity


635


6.36



0.2




1,812


6.19



0.2


Other


661


5.54



0.2




999


7.08



0.1


Total fixed-rate


221,075


4.07



71.4




554,153


4.03



68.8




















Adjustable-rate:


















One- to four-family:


















<= 36 months


2,472


2.76



0.8




5,982


2.76



0.8


> 36 months


66,656


3.15



21.5




177,818


3.15



22.1


Multi-family and commercial real estate


--


--



--




14,358


4.34



1.8


Home equity


19,053


4.66



6.2




51,791


4.65



6.4


Other


269


3.37



0.1




1,037


3.17



0.1


Total adjustable-rate


88,450


3.46



28.6




250,986


3.52



31.2




















Total originated, refinanced and purchased

$

309,525


3.90



100.0%



$

805,139


3.87



100.0%




















Purchased and participation loans included above:


















Fixed-rate:


















Correspondent - one- to four-family

$

98,007


4.02






$

253,335


4.01





Participations - commercial real estate


24,400


4.08







29,400


4.07





Total fixed-rate purchased/participations


122,407


4.03







282,735


4.01























Adjustable-rate:


















Correspondent - one- to four-family


40,344


3.12







104,459


3.10





Participations - commercial real estate


--


--







14,358


4.34





Total adjustable-rate purchased/participations


40,344


3.12







118,817


3.25























Total purchased/participation loans

$

162,751


3.81






$

401,552


3.79





 

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

 


















For the Three Months Ended


For the Nine Months Ended


June 30, 2014


June 30, 2014






Credit






Credit


Amount


LTV


Score


Amount


LTV


Score


(Dollars in thousands)

Originated

$

112,219


79%



768


$

297,850


78%



766

Refinanced by Bank customers


10,487


68



759



43,048


69



760

Correspondent purchased


138,351


76



765



357,794


75



763


$

261,057


77



766


$

698,692


76



764

 

 

The following table presents the amount, percent of total, and weighted average rate, by state, for one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded 1% of the total amount originated and purchased during the nine months ended June 30, 2014.  

 























For the Three Months Ended


For the Nine Months Ended



June 30, 2014


June 30, 2014

State


Amount


% of Total


Rate


Amount


% of Total


Rate



(Dollars in thousands)

Kansas


$

119,650


45.8%



3.86%



$

338,159


48.4%



3.81%


Missouri



71,696


27.5



3.82




203,316


29.1



3.79


Texas



29,498


11.3



3.79




56,991


8.2



3.78


Tennessee



13,901


5.3



3.60




30,014


4.3



3.69


Alabama



4,105


1.6



3.50




19,372


2.8



3.49


Oklahoma



4,734


1.8



3.99




14,233


2.0



4.03


North Carolina



3,871


1.5



3.56




8,963


1.3



3.40


Massachusetts



4,146


1.6



3.55




7,805


1.1



3.51


Other states



9,456


3.6



3.70




19,839


2.8



3.70




$

261,057


100.0%



3.81



$

698,692


100.0%



3.78


The following tables present 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.  During the quarters ended June 30, 2014 and March 31, 2014, the Bank endorsed $8.0 million and $5.9 million of one- to four-family loans, respectively, reducing the average rate on those loans by 98 basis points and 84 basis points, respectively.






















June 30, 2014






Monthly Prepayment


Quarterly Prepayment


Net Premiums/






Speeds (annualized)


Speeds (annualized)


Deferred Costs



Unpaid


Including


Excluding


Including


Excluding


 & (Discounts/

Term


Principal


Endorsements


Endorsements


Endorsements


Endorsements


Unearned Loan Fees)



(Dollars in thousands)

Fixed-rate one- to four-family loans:



















15 years or less


$

1,152,003


12.2%



12.1%



10.4%



9.9%



$

563

More than 15 years



3,630,740


10.2



9.3



8.6



8.1




(3,008)




4,782,743


10.7



10.0



9.0



8.5




(2,445)




















Adjustable-rate one- to four-family loans:



















36 months or less



778,031


28.2



26.0



17.1



16.0




2,533

More than 36 months



407,592


9.4



9.4



12.4



12.4




2,664




1,185,623


22.0



20.5



15.6



14.9




5,197

Total one- to four-family loans


$

5,968,366


12.9



12.1



10.3



9.8



$

2,752






















March 31, 2014






Monthly Prepayment


Quarterly Prepayment


Net Premiums/






Speeds (annualized)


Speeds (annualized)


Deferred Costs



Unpaid


Including


Excluding


Including


Excluding


 & (Discounts/

Term


Principal


Endorsements


Endorsements


Endorsements


Endorsements


Unearned Loan Fees)



(Dollars in thousands)

Fixed-rate one- to four-family loans:



















15 years or less


$

1,164,141


7.8%



7.8%



7.8%



7.8%



$

213

More than 15 years



3,583,818


5.8



5.4



5.4



5.0




(4,014)




4,747,959


6.3



6.0



6.0



5.7




(3,801)




















Adjustable-rate one- to four-family loans:



















36 months or less



795,695


13.2



10.3



11.3



10.3




2,554

More than 36 months



371,996


6.1



6.1



5.7



5.7




2,293




1,167,691


11.1



9.0



9.6



8.9




4,847

Total one- to four-family loans


$

5,915,650


7.2



6.6



6.7



6.3



$

1,046

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") at the dates indicated.  Of the loans 30 to 89 days delinquent at June 30, 2014, approximately 81% were 59 days or less delinquent.  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 Office of the Comptroller of the Currency ("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 three months before they were sold.

 





























Loans Delinquent for 30 to 89 Days at:



June 30, 2014


March 31, 2014


December 31, 2013


September 30, 2013


June 30, 2013



Number


Amount


Number


Amount


Number


Amount


Number


Amount


Number


Amount



(Dollars in thousands)


One- to four-family:


























Originated

130


$

14,435


119


$

13,139


178


$

16,956


164


$

18,225


137


$

12,838


Correspondent purchased

5



1,301


5



998


4



2,243


5



709


4



704


Bulk purchased

36



6,826


33



7,272


37



7,858


37



7,733


28



6,012


Consumer Loans:


























Home equity

33



628


35



665


41



721


45



848


40



869


Other

11



40


14



52


17



100


13



35


13



158



215


$

23,230


206


$

22,126


277


$

27,878


264


$

27,550


222


$

20,581


30 to 89 days delinquent loans


























to total loans receivable, net




0.38%





0.37%





0.46%





0.46%





0.36%


 

 




























Non-Performing Loans and OREO at:



June 30, 2014


March 31, 2014


December 31, 2013


September 30, 2013


June 30, 2013



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

83


$

8,130


95


$

9,508


110


$

9,931


101


$

8,579


91


$

8,017


Correspondent purchased

2



314


2



443


5



635


5



812


4



609


Bulk purchased

29



8,322


33



10,301


33



10,134


34



9,608


37



9,535


Consumer loans:


























Home equity

23



345


23



305


29



477


29



485


21



295


Other

6



24


4



8


8



11


4



5


7



23



143



17,135


157



20,565


185



21,188


173



19,489


160



18,479


Nonaccrual loans less than 90 Days Delinquent:(1)


























One- to four-family:


























Originated

66



8,379


66



7,111


65



6,057


57



5,833


62



7,578


Correspondent purchased

2



134


1



478


--



--


2



740


--



--


Bulk purchased

3



630


4



472


3



392


2



280


2



168


Consumer loans:


























Home equity

3



61


4



74


6



78


6



101


8



174



74



9,204


75



8,135


74



6,527


67



6,954


72



7,920


Total non-performing loans

217



26,339


232



28,700


259



27,715


240



26,443


232



26,399




























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




0.43%





0.47%





0.46%





0.44%





0.46%




























OREO:


























One- to four-family:


























Originated(3)

24


$

1,430


26


$

1,548


22


$

1,531


28


$

2,074


34


$

3,283


Correspondent purchased

1



179


4



403


1



110


2



71


3



269


Bulk purchased

2



369


4



398


6



647


4



380


4



581


Consumer loans:


























Home equity

--



--


1



18


2



57


2



57


3



66


Other(4)

1



1,300


1



1,300


1



1,300


1



1,300


1



1,300



28



3,278


36



3,667


32



3,645


37



3,882


45



5,499


Total non-performing assets

245


$

29,617


268


$

32,367


291


$

31,360


277


$

30,325


277


$

31,898




























Non-performing assets as a percentage of total assets




0.33%





0.36%





0.34%





0.33%





0.35%


 

(1)     Represents loans required to be reported as nonaccrual pursuant to OCC reporting requirements, even if the loans are current. At June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, and June 30, 2013, this amount was comprised of $2.5 million, $881 thousand, $1.1 million, $1.1 million and $1.1 million, respectively, of loans that were 30 to 89 days delinquent and are reported as such, and $6.7 million, $7.3 million, $5.4 million, $5.9 million, and $6.8 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 0.28%, 0.34%, 0.35%, 0.33%, and 0.32%, at June 30, 2014, March 31, 2014, December 31, 2013, September 30, 2013, and June 30, 2013, 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 tables present ACL activity 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 was due to loans that were primarily discharged in a prior fiscal year under Chapter 7 bankruptcy that had to be, pursuant to OCC reporting requirements, evaluated for collateral value loss, even if they were current.  

 



















For the Three Months Ended



June 30,


March 31,


December 31,


September 30,


June 30,



2014


2014


2013


2013


2013



(Dollars in thousands)


Balance at beginning of period

$

8,967


$

8,919


$

8,822


$

9,239


$

10,072


Charge-offs:
















One- to four-family loans - originated


(109)



(31)



(88)



(74)



(60)


One- to four-family loans - correspondent purchased


(35)



(21)



--



--



--


One- to four-family loans - bulk purchased


(149)



(60)



(327)



(76)



--


Multi-family and commercial loans


--



--



--



--



--


Construction


--



--



--



--



--


Home equity


(13)



(6)



(10)



(13)



(111)


Other consumer loans


(2)



(3)



--



--



--


Total charge-offs


(308)



(121)



(425)



(163)



(171)


Recoveries:
















One- to four-family loans - originated


--



--



1



1



13


One- to four-family loans - correspondent purchased


--



--



--



--



--


One- to four-family loans - bulk purchased


64



--



--



238



118


Multi-family and commercial loans


--



--



--



--



--


Construction


--



--



--



--



--


Home equity


51



9



6



7



7


Other consumer loans


1



--



--



--



--


Total recoveries


116



9



7



246



138


Net (charge-offs) recoveries


(192)



(112)



(418)



83



(33)


Provision for credit losses


307



160



515



(500)



(800)


Balance at end of period

$

9,082


$

8,967


$

8,919


$

8,822


$

9,239


















Ratio of net charge-offs during the period
















to average loans outstanding during the period


--%



--%



0.01%



--%



--%


Ratio of net charge-offs (recoveries) during
















the period to average non-performing assets


0.62



0.35



1.35



(0.27)



0.10


ACL to non-performing loans at end of period


34.48



31.24



32.18



33.36



35.00


ACL to loans receivable, net at end of period


0.15



0.15



0.15



0.15



0.16



















 










For the Nine Months Ended



June 30,



2014


2013



(Dollars in thousands)


Balance at beginning of period

$

8,822


$

11,100


Charge-offs:







One- to four-family loans - originated


(228)



(550)


One- to four-family loans - correspondent purchased


(56)



(13)


One- to four-family loans - bulk purchased


(536)



(685)


Multi-family and commercial loans


--



--


Construction


--



--


Home equity


(29)



(239)


Other consumer loans


(5)



(7)


Total charge-offs


(854)



(1,494)


Recoveries:







One- to four-family loans - originated


1



13


One- to four-family loans - correspondent purchased


--



--


One- to four-family loans - bulk purchased


64



160


Multi-family and commercial loans


--



--


Construction


--



--


Home equity


66



26


Other consumer loans


1



1


Total recoveries


132



200


Net (charge-offs)


(722)



(1,294)


Provision for credit losses


982



(567)


Balance at end of period

$

9,082


$

9,239









Ratio of net charge-offs during the period







to average loans outstanding during the period


0.01%



0.02%


Ratio of net charge-offs during the







period to average non-performing assets


2.41



3.61


ACL to non-performing loans at end of period


34.48



35.00


ACL to loans receivable, net at end of period


0.15



0.16


ACL to net charge-offs (annualized)


   9.4x



     5.4x


 

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 our 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 June 30, 2014.  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.  

 




























June 30, 2014


March 31, 2014


September 30, 2013



Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL



(Dollars in thousands)

Fixed-rate securities:

























MBS

$

1,353,424


2.38%



3.9


$

1,423,363


2.41%



4.1


$

1,427,648


2.44%



3.5


GSE debentures


554,821


1.06



3.4



579,853


1.04



3.5



709,118


1.04



2.8


Municipal bonds


37,593


2.38



2.4



36,830


2.55



2.0



35,587


3.02



1.5


Total fixed-rate securities


1,945,838


2.00



3.7



2,040,046


2.02



3.9



2,172,353


1.99



3.3



























Adjustable-rate securities:

























MBS


534,639


2.20



5.8



565,242


2.29



6.3



601,359


2.32



4.9


Trust preferred securities


2,524


1.49



23.0



2,538


1.49



23.2



2,594


1.51



23.7


Total adjustable-rate securities


537,163


2.19



5.9



567,780


2.28



6.4



603,953


2.31



4.9


Total securities portfolio

$

2,483,001


2.04



4.2


$

2,607,826


2.08



4.4


$

2,776,306


2.06



3.7


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.  Fixed-rate MBS purchased during the current year nine month period 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


June 30,  2014


March 31, 2014


December 31, 2013


September 30, 2013


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

2,005,138


2.37%



4.7


$

1,975,164


2.42%



4.7


$

2,047,708


2.40%



3.9


$

2,179,539


2.39%



3.6

Maturities and repayments


(99,000)








(92,609)








(95,864)








(149,555)






Net amortization of (premiums)/discounts


(1,542)








(1,271)








(1,397)








(1,688)






Purchases:
































Fixed


--


--



--



103,730


1.74



3.9



25,272


1.72



3.7



--


--



--

Adjustable


--


--



--



21,737


1.92



5.2



--


--



--



22,246


1.80



5.1

Change in valuation on AFS securities


(586)








(1,613)








(555)








(2,834)






Ending balance - carrying value

$

1,904,010


2.32



4.4


$

2,005,138


2.37



4.7


$

1,975,164


2.42



4.7


$

2,047,708


2.40



3.9

 


















For the Nine Months Ended


June 30,  2014


June 30,  2013


Amount


Yield


WAL


Amount


Yield


WAL



(Dollars in thousands)

Beginning balance - carrying value

$

2,047,708


2.40%



3.9


$

2,332,942


2.78%



4.0

Maturities and repayments


(287,473)








(553,776)






Net amortization of (premiums)/discounts


(4,210)








(6,297)






Purchases:
















Fixed


129,002


1.73



3.8



420,272


1.24



3.9

Adjustable


21,737


1.92



5.2



--


--



--

Change in valuation on AFS securities


(2,754)








(13,602)






Ending balance - carrying value

$

1,904,010


2.32



4.4


$

2,179,539


2.39



3.6

 


The following table presents annualized prepayment speeds of our MBS portfolio for the monthly and quarterly periods ended June 30, 2014, 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.

 

















June 30, 2014





Prepayment


Net



Amortized


Speed (annualized)


Premium/

Term


Cost


Monthly


Quarterly


(Discount)



(Dollars in thousands)

Fixed-rate MBS:













15 years or less


$

1,268,586


10.1%



9.2%



$

16,709

More than 15 years



84,838


8.7



9.6




955




1,353,424


10.0



9.2




17,664

Rate



3.62%










Remaining contractual term



10.2























Adjustable-rate MBS:













36 months or less


$

455,657


14.4



15.7




825

More than 36 months



78,982


21.5



18.3




1,546




534,639


15.4



16.1




2,371

Rate



2.90%










Remaining contractual term



23.5























Total MBS


$

1,888,063


11.5



11.2



$

20,035

Rate



3.41%










Remaining contractual term



13.9










Investment Securities:  The following tables provide a summary of the activity in our 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 $134.2 million of fixed-rate investment securities purchased during the nine months ended June 30, 2014, $123.2 million are callable.

 


































For the Three Months Ended


June 30,  2014


March 31, 2014


December 31, 2013


September 30, 2013


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

610,768


1.13%



3.5


$

686,913


1.11%



3.3


$

740,282


1.14%



2.9


$

807,399


1.14%



3.2

Maturities and calls


(28,610)








(177,805)








(79,860)








(69,838)






Net amortization of (premiums)/discounts


(94)








(84)








(114)








(117)






Purchases:
































Fixed


4,421


1.53



6.3



99,393


0.91



2.0



30,392


1.29



4.4



--


--



--

Change in valuation of AFS securities


3,920








2,351








(3,787)








2,838






Ending balance - carrying value

$

590,405


1.15



3.4


$

610,768


1.13



3.5


$

686,913


1.11



3.3


$

740,282


1.14



2.9


































For the Nine Months Ended


June 30,  2014


June 30,  2013


Amount


Yield


WAL


Amount


Yield


WAL


(Dollars in thousands)

Beginning balance - carrying value

$

740,282


1.14%



2.9


$

961,849


1.23%



1.0

Maturities and calls


(286,275)








(549,196)






Net amortization of (premiums)/discounts


(292)








(343)






Purchases:
















Fixed


134,206


1.01



2.7



408,726


1.00



2.1

Change in valuation of AFS securities


2,484








(13,637)






Ending balance - carrying value

$

590,405


1.15



3.4


$

807,399


1.14



3.2

















Deposit Portfolio

The following table presents the amount, weighted average rate, and percent of total for the components of our deposit portfolio at the dates presented. 

 






























June 30, 2014


March 31, 2014


September 30, 2013







% of






% of






% of



Amount


Rate


 Total


Amount


Rate


 Total


Amount


Rate


 Total



(Dollars in thousands)

Noninterest-bearing checking

$

166,083


--%



3.6%



$

168,276


--%



3.5%



$

150,171


--%



3.2%



Interest-bearing checking


532,459


0.05



11.5




547,872


0.05



11.7




505,762


0.05



11.0



Savings


295,027


0.12



6.3




298,324


0.10



6.4




283,169


0.13



6.1



Money market


1,132,813


0.23



24.3




1,139,836


0.23



24.3




1,128,604


0.23



24.5



Retail certificates of deposit


2,225,132


1.23



47.8




2,240,792


1.23



47.7




2,242,909


1.27



48.7



Public units/brokered deposits


303,348


0.65



6.5




298,662


0.80



6.4




300,831


0.80



6.5




$

4,654,862


0.70



100.0%



$

4,693,762


0.71



100.0%



$

4,611,446


0.74



100.0%



 

The following table presents scheduled maturities of our certificates of deposit, along with associated weighted average rates, as of June 30, 2014: 

 























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%


$

824,011


$

239,153


$

61,430


$

8,600


$

1,133,194


0.47%


1.00 – 1.99%



228,458



247,736



207,348



335,810



1,019,352


1.40


2.00 – 2.99%



243,579



93,898



7,710



1,711



346,898


2.51


3.00 – 3.99%



28,181



115



312



102



28,710


3.06


4.00 – 4.99%



198



128



--



--



326


4.40




$

1,324,427


$

581,030


$

276,800


$

346,223


$

2,528,480


1.16





















Percent of total



52.4%



23.0%



10.9%



13.7%







Weighted average rate



1.01



1.22



1.36



1.42







Weighted average maturity (in years)



0.4



1.5



2.5



3.6



1.3




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




1.4




Borrowings

The following table presents the maturity of FHLB advances, at par, and repurchase agreements, along with associated weighted average contractual and effective rates as of June 30, 2014. 

 
















FHLB


Repurchase





Maturity by


Advances


Agreements


Contractual


Effective

Fiscal Year


Amount


Amount


Rate


Rate(1)



(Dollars in thousands)







2014


$

--


$

100,000


4.20%



4.20%


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


2021



250,000



--


2.53



2.53




$

2,475,000


$

320,000


2.34



2.53


(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, 2014.  Subsequent to June 30, 2014, a $100.0 million repurchase agreement with a rate of 4.20% matured and was replaced with a $100.0 million FHLB advance with a term of 60 months at a fixed-rate of 1.96%.

 







































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)

September 30, 2014


$

100,000


4.20%



$

359,754


1.04%



$

111,619


0.19%



$

571,373


1.43%


December 31, 2014



250,000


0.84




255,774


1.02




39,909


0.26




545,683


0.88


March 31, 2015



250,000


2.47




240,523


1.11




34,331


0.22




524,854


1.70


June 30, 2015



100,000


3.01




226,659


1.21




55,858


2.25




382,517


1.83




$

700,000


2.21



$

1,082,710


1.09



$

241,717


0.68



$

2,024,427


1.43


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


June 30, 2014


March 31, 2014


December 31, 2013


September 30, 2013





Effective







Effective







Effective







Effective




Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


Amount


Rate


WAM


(Dollars in thousands)

Beginning balance

$

2,795,000


2.54%



2.9


$

2,845,000


2.71%



2.7


$

2,845,000


2.75%



2.6


$

2,815,000


2.80%



2.7

Maturities and prepayments:
































FHLB advances


(100,000)


2.80






(200,000)


5.01






(150,000)


3.16






--


--




Repurchase agreements


--


--






--


--






--


--






(70,000)


4.23




New borrowings:
































FHLB advances


100,000


2.45



7.0



150,000


2.59



7.0



150,000


2.32



6.0



--


--



--

Repurchase agreements


--


--



--



--


--



--



--


--



--



100,000


2.53



7.0

Ending balance

$

2,795,000


2.53



2.9


$

2,795,000


2.54



2.9


$

2,845,000


2.71



2.7


$

2,845,000


2.75



2.6

 


















For the Nine Months Ended


June 30, 2014


June 30, 2013





Effective







Effective




Amount


Rate


WAM


Amount


Rate


WAM



(Dollars in thousands)

Beginning balance

$

2,845,000


2.75%



2.6


$

2,915,000


3.13%



2.7

Maturities and prepayments:
















FHLB advances


(450,000)


3.90






(325,000)


4.17




Repurchase agreements


--


--






(75,000)


3.43




New borrowings:
















FHLB advances


400,000


2.45



6.6



300,000


1.23



5.7

Ending balance

$

2,795,000


2.53



2.9


$

2,815,000


2.80



2.7

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 our interest-earning assets and interest-bearing liabilities as of the date presented.  Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts which are considered adjustments to the yield.  The interest rate presented for 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, 2014


Amount


Yield/Rate


WAL


% of Category


% of Total


(Dollars in thousands)

Investment securities

$

590,405


1.15%



3.4


23.6%



6.6%


MBS - fixed


1,361,139


2.38



3.9


54.6



15.3


MBS - adjustable


542,871


2.20



5.8


21.8



6.1


Total investment securities and MBS


2,494,415


2.05



4.2


100.0%



28.0


Loans receivable:














Fixed-rate one- to four-family:














<= 15 years


1,151,997


3.47



4.0


18.6%



13.0


> 15 years


3,578,784


4.15



6.4


57.7



40.2


All other fixed-rate loans


142,926


4.80



4.2


2.3



1.6


Total fixed-rate loans


4,873,707


4.01



5.8


78.6



54.8


Adjustable-rate one- to four-family:














<= 36 months


378,905


2.26



3.9


6.1



4.3


> 36 months


781,133


2.92



3.3


12.6



8.8


All other adjustable-rate loans


163,369


4.35



1.5


2.7



1.8


Total adjustable-rate loans


1,323,407


2.91



3.3


21.4



14.9


Total loans receivable


6,197,114


3.77



5.2


100.0%



69.7


FHLB stock


112,876


4.98



2.8





1.3


Cash and cash equivalents


88,424


0.24



--





1.0


Total interest-earning assets

$

8,892,829


3.27



4.9





100.0%
















Transaction deposits

$

2,126,382


0.15



6.8


45.7%



28.5%


Certificates of deposit


2,528,480


1.16



1.3


54.3



34.0


Total deposits


4,654,862


0.70



3.8


100.0%



62.5


Borrowings


2,795,000


2.53



2.9





37.5


Total interest-bearing liabilities

$

7,449,862


1.38



3.5





100.0%


 

At June 30, 2014, the Bank's one-year gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice was negative $(124.1) million, or (1.4)% of total assets, compared to negative $(39.4) million, or (0.4)% of total assets, at March 31, 2014.  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 June 30, 2014, the Bank's one-year gap is projected to be negative $(512.6) million, or (5.7)% of total assets, meaning more liabilities are anticipated to reprice than assets.  This compares to a negative one-year gap of $(384.5) million, or (4.2)% of total assets, if interest rates were to increase 200 basis points, as of March 31, 2014.  The change in the one-year gap amount in both the base case and +200 basis point scenarios between periods was due primarily to an increase in the amount of certificates of deposit repricing over the 12 month horizon, a decrease in adjustable-rate mortgages repricing, and the transition of assets from cash and investments, which generally creates greater short-term cash flows, to the mortgage portfolio, which has longer cash flow projections.  This was somewhat offset by an anticipated increase in cash flows on fixed-rate mortgage related assets due to lower interest rates at June 30, 2014 compared to interest rates at March 31, 2014.  The gap position of the Bank has been managed over the past several years as increasing interest rates have been anticipated.  Because of the on-balance sheet strategies implemented over the past several years of lengthening FHLB advances, increasing rates offered on longer-term certificate of deposit products, purchasing shorter term maturities of agency debentures, and focusing on the long-term value of the balance sheet through the measurement and management of our market value of portfolio equity, management believes the Bank is well-positioned to move into a market rate environment where interest rates are higher than one year ago.

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 June 30, 2014.  Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown.  Average outstanding balances are derived from average daily balances.  The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates.  Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

 























At



For the Nine Months Ended



June 30, 2014


June 30, 2014


June 30, 2013




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)

3.77%


$

6,047,247


$

171,539


3.78%



$

5,691,814


$

172,030


4.03%


MBS(2)

2.32



1,961,441



34,765


2.36




2,302,058



43,048


2.49


Investment securities(2)(3)

1.15



667,317



5,674


1.13




860,295



7,761


1.20


FHLB stock

4.98



125,821



3,877


4.12




132,111



3,384


3.43


Cash and cash equivalents

0.24



83,988



157


0.25




61,534



108


0.24


Total interest-earning assets(1)(2)

3.27



8,885,814



216,012


3.24




9,047,812



226,331


3.34


Other noninterest-earning assets




220,029









234,427







Total assets



$

9,105,843








$

9,282,239



























Liabilities and stockholders' equity:




















Interest-bearing liabilities:




















Checking

0.04


$

672,218



193


0.04



$

629,436



182


0.04


Savings

0.12



290,569



240


0.11




272,339



196


0.10


Money market

0.23



1,135,195



1,964


0.23




1,135,356



1,815


0.21


Retail certificates

1.23



2,222,808



20,454


1.23




2,263,644



23,970


1.42


Wholesale certificates

0.65



302,711



1,672


0.74




285,114



2,039


0.96


Total deposits

0.70



4,623,501



24,523


0.71




4,585,889



28,202


0.82


FHLB borrowings(4)

2.41



2,489,338



47,000


2.53




2,560,389



53,914


2.81


Repurchase agreements

3.43



320,000



8,319


3.43




336,978



9,861


3.86


Total borrowings

2.53



2,809,338



55,319


2.63




2,897,367



63,775


2.94


Total interest-bearing liabilities

1.38



7,432,839



79,842


1.43




7,483,256



91,977


1.64


Other noninterest-bearing liabilities




103,376









107,218







Stockholders' equity




1,569,628









1,691,765







Total liabilities and stockholders' equity



$

9,105,843








$

9,282,239



























Net interest income(5)






$

136,170








$

134,354




Net interest rate spread(6)

1.89








1.81









1.70


Net interest-earning assets



$

1,452,975








$

1,564,556







Net interest margin(7)









2.04









1.98


Ratio of interest-earning assets




















to interest-bearing liabilities









1.20x









1.21x






















Selected performance ratios:




















Return on average assets (annualized)









0.84%









0.77%


Return on average equity (annualized)









4.88









4.20


Average equity to average assets









17.24









18.23


Operating expense ratio (annualized)(8)









0.98









1.03


Efficiency ratio(9)









43.78









47.11


 





















For the Three Months Ended


June 30, 2014


March 31, 2014


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)

$

6,095,618


$

57,474


3.77%



$

6,045,516


$

57,117


3.78%


MBS(2)


1,946,653



11,206


2.30




1,942,336



11,597


2.39


Investment securities(2)(3)


610,101



1,739


1.14




662,266



1,869


1.13


FHLB stock


118,095



1,452


4.93




128,859



1,229


3.87


Cash and cash equivalents


81,393



50


0.25




71,652



45


0.25


Total interest-earning assets(1)(2)


8,851,860



71,921


3.25




8,850,629



71,857


3.25


Other noninterest-earning assets


216,959









222,552







Total assets

$

9,068,819








$

9,073,181

























Liabilities and stockholders' equity:


















Interest-bearing liabilities:


















Checking

$

691,454



66


0.04



$

674,447



63


0.04


Savings


296,424



92


0.13




291,106



77


0.11


Money market


1,133,901



653


0.23




1,139,010



650


0.23


Retail certificates


2,229,439



6,784


1.22




2,217,967



6,699


1.22


Wholesale certificates


300,557



529


0.71




305,848



587


0.78


Total deposits


4,651,775



8,124


0.70




4,628,378



8,076


0.71


FHLB borrowings(4)


2,466,954



14,826


2.41




2,485,393



15,311


2.50


Repurchase agreements


320,000



2,773


3.43




320,000



2,743


3.43


Total borrowings


2,786,954



17,599


2.53




2,805,393



18,054


2.60


Total interest-bearing liabilities


7,438,729



25,723


1.38




7,433,771



26,130


1.42


Other noninterest-bearing liabilities


93,984









96,460







Stockholders' equity


1,536,106









1,542,950







Total liabilities and stockholders' equity

$

9,068,819








$

9,073,181

























Net interest income(5)




$

46,198








$

45,727




Net interest rate spread(6)







1.87









1.83


Net interest-earning assets

$

1,413,131








$

1,416,858







Net interest margin(7)







2.09









2.07


Ratio of interest-earning assets


















to interest-bearing liabilities







1.19x









1.19x




















Selected performance ratios:


















Return on average assets (annualized)







0.88%









0.87%


Return on average equity (annualized)







5.20









5.10


Average equity to average assets







16.94









17.01


Operating expense ratio (annualized)(8)







0.99









0.96


Efficiency ratio(9)







43.19









42.42


 

(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 $36.6 million and $42.8 million for the nine months ended June 30, 2014 and 2013, respectively, and $37.1 million and $36.4 million for the quarters ended June 30, 2014 and March 31, 2014, 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 repurchase agreements.  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.



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