Capitol Federal Financial, Inc. Reports Second Quarter Fiscal Year 2016 Results

TOPEKA, Kan., April 28, 2016 /PRNewswire/ -- Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended March 31, 2016.  Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 10, 2016 and posted on our website, http://ir.capfed.com.  For best viewing results, please view this release in Portable Document Format (PDF) on our website.

Highlights for the quarter include:

• net income of $21.5 million, including $561 thousand from the daily leverage strategy;
• basic and diluted earnings per share of $0.16;
• annualized loan portfolio growth of 6%;
• annualized deposit portfolio growth of 12%;
• net interest margin of 1.78% (2.13% excluding the effects of the daily leverage strategy); and
• paid dividends of $11.3 million, or $0.085 per share.

Comparison of Operating Results for the Three Months Ended March 31, 2016 and December 31, 2015

Net income increased $809 thousand, or 3.9%, from the quarter ended December 31, 2015 to $21.5 million, or $0.16 per share, for the quarter ended March 31, 2016, due primarily to an increase in non-interest income.  Net income attributable to the daily leverage strategy was $561 thousand during the current quarter compared to $583 thousand in the prior quarter.

Net interest income increased $556 thousand, or 1.2%, from the prior quarter to $48.5 million for the current quarter.  The increase was due primarily to a decrease in interest expense on Federal Home Loan Bank Topeka ("FHLB") advances.  The net interest margin increased three basis points from 1.75% for the prior quarter to 1.78% for the current quarter.  Excluding the effects of the daily leverage strategy, the net interest margin would have been 2.13% for the current quarter compared to 2.11% for the prior quarter.  The two basis point increase was due mainly to a decrease in interest expense on FHLB advances.

Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter increased six basis points from the prior quarter, to 2.77%, while the average balance of interest-earning assets decreased $52.1 million between the two periods.  Absent the impact of the daily leverage strategy, the weighted average yield on total interest-earning assets would have increased one basis point from the prior quarter, to 3.22%, while the average balance would have increased $17.4 million.  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 increase in interest income on loans receivable was due to a $65.6 million increase in the average balance of the portfolio.  The loan growth was largely funded with deposit growth during the current quarter.  The weighted average yield on the portfolio was 3.62% for the current quarter, unchanged from the prior quarter.

The decrease in interest income on MBS was due to a $37.8 million decrease in the average balance of the portfolio, partially offset by a two basis point increase in the weighted average yield on the portfolio.  During the current quarter, $1.1 million of net premiums on MBS were amortized, which decreased the weighted average yield on the portfolio by 32 basis points.  During the prior quarter, $1.2 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 33 basis points.

The increase in interest income on cash and cash equivalents was due primarily to a 21 basis point increase in the weighted average yield resulting from a full quarter impact, in the current quarter, of the increase in yield earned on balances held at the Federal Reserve Bank.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased four basis point from the prior quarter, to 1.12%, while the average balance of interest-bearing liabilities decreased $9.2 million between the two periods.  Absent the impact of the daily leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased one basis point from the prior quarter, to 1.27%, and the average balance would have increased $60.2 million.  The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

The increase in interest expense on FHLB borrowings was due largely to a 20 basis point increase in the average rate paid on FHLB line of credit borrowings during the current quarter, to 0.53%, partially offset by a $66.8 million decrease in the average balance of FHLB advances.  Late in the prior quarter, a $200.0 million advance with an effective rate of 1.94% matured and was partially replaced with a $100.0 million advance with a contractual rate of 1.45%.

The increase in interest expense on deposits was due primarily to a three basis point increase in the average rate paid on the deposit portfolio, to 0.74% for the current quarter, as well as to deposit growth.  The average balance of the deposit portfolio increased by $127.1 million, which was largely in the certificates of deposit and checking portfolios.

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.

The decrease in retail fees and charges was due primarily to a decrease in service fees earned and debit card income, due in part to seasonality.  The increase in income from BOLI was due primarily to the receipt of death benefits during the current quarter.  The increase in insurance commissions was due largely to the receipt of annual contingent commissions from certain insurance providers during the current 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.

The decrease in regulatory and outside services was due primarily to a decrease in external audit fees.  The decrease in advertising and promotional expense was due primarily to the timing of media campaigns and sponsorships.  The decrease in office supplies and related expense was due primarily to the purchase of cards enabled with chip card technology during the prior quarter.  The increase in low income housing partnerships expense was due primarily to an increase in amortization expense.

The Company's efficiency ratio was 42.46% for the current quarter compared to 44.05% for the prior quarter.  The change in the efficiency ratio was due primarily to an increase in non-interest income, as well as to an increase in net interest income.  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 $10.2 million for the current quarter compared to $9.2 million for the prior quarter.  The increase between periods was due primarily to an increase in pre-tax income, as well as to an increase in the effective income tax rate, from 30.8% for the prior quarter, to 32.2% for the current quarter.  The increase in the effective income tax rate between quarters was due primarily to the prior quarter including favorable discrete items related to state income tax liabilities.  Management anticipates the effective tax rate for fiscal year 2016 will be approximately 32%, based on fiscal year 2016 estimates as of March 31, 2016.

Comparison of Operating Results for the Six Months Ended March 31, 2016 and 2015

For the six month period ended March 31, 2016, the Company recognized net income of $42.2 million, or $0.32 per share, compared to net income of $39.7 million, or $0.29 per share, for the six month period ended March 31, 2015.  The $2.5 million, or 6.4%, increase in net income was due primarily to a $1.7 million increase in net interest income and a $1.7 million increase in non-interest income, partially offset by a $1.0 million increase in non-interest expense.  The $1.7 million, or 1.8%, increase in net interest income from the prior year six month period was due primarily to a $3.5 million decrease in interest expense on term borrowings, partially offset by a $1.7 million increase in interest expense on deposits.

Net income attributable to the daily leverage strategy was $1.1 million during the current year six month period, compared to $1.5 million for the prior year six month period.  The decrease in net income attributable to the daily leverage strategy was due to an increase in the average FHLB line of credit borrowings rate, which was larger than the increase in the average yield earned on the cash at the Federal Reserve Bank.  The Company's efficiency ratio was 43.25% for the current year six month period compared to 43.66% for the prior year six month period.

The net interest margin increased three basis points, from 1.73% for the prior year six month period to 1.76% for the current year six month period.  Excluding the effects of the daily leverage strategy, the net interest margin would have increased four basis points, from 2.08% for the prior year six month period, to 2.12% for the current year six month period.  The increase in the net interest margin was due mainly to a decrease in interest expense on term borrowings.

Interest and Dividend Income
The weighted average yield on total interest-earning assets increased two basis points, from 2.72% for the prior year six month period to 2.74% for the current year six month period, while the average balance of interest-earning assets increased $10.9 million from the prior year six month period.  Absent the impact of the daily leverage strategy, the weighted average yield on total interest-earning assets would have decreased one basis point, from 3.23% for the prior year six month period to 3.22% for the current year six month period, while the average balance would have increased $38.1 million.  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 increase in interest income on loans receivable was due to a $399.6 million increase in the average balance of the portfolio, partially offset by a 10 basis point decrease in the weighted average yield on the portfolio, to 3.62% for the current six month period.  Loan growth was funded through cash flows from the securities portfolio along with deposit growth.  The decrease in the weighted average yield was due primarily to endorsements and refinances repricing loans to lower market rates, along with the origination and purchase of loans between periods at rates less than the existing portfolio rate.

The decrease in interest income on the MBS portfolio was due primarily to a $316.4 million decrease in the average balance of the portfolio as cash flows not reinvested were used to fund loan growth.  Additionally, the weighted average yield on the MBS portfolio decreased five basis points, from 2.28% during the prior year six month period to 2.23% for the current year six month period.  Net premium amortization of $2.3 million during the current year six month period decreased the weighted average yield on the portfolio by 33 basis points.  During the prior year six month period, $2.6 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 31 basis points.  As of March 31, 2016, the remaining net balance of premiums on our portfolio of MBS was $15.8 million.

The increase in interest income on cash and cash equivalents was due primarily to a 13 basis point increase in the weighted average yield resulting from an increase in the yield earned on balances held at the Federal Reserve Bank.

The decrease in interest income on investment securities was due primarily to a $75.9 million decrease in the average balance, partially offset by a five basis point increase in the weighted average yield on the portfolio.  Cash flows not reinvested in the portfolio were used to fund loan growth.

Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased three basis points, from 1.13% for the prior year six month period to 1.10% for the current year six month period, while the average balance of interest-bearing liabilities increased $140.1 million from the prior year six month period.  Absent the impact of the daily leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased nine basis points from the prior year six month period, to 1.28% for the current year six month period, due primarily to a decrease in the cost of term borrowings, while the average balance of interest-bearing liabilities would have increased $167.2 million due to deposit growth.  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 was due primarily to a 22 basis point decrease in the weighted average rate paid on FHLB advances, to 2.24% for the current year six month period, partially offset by an 18 basis point increase in the weighted average rate paid on FHLB line of credit borrowings.  The decrease in the weighted average rate paid on FHLB advances was due primarily to the prepayment of a $175.0 million advance between periods with an effective rate of 5.08%, which was replaced with a $175.0 million advance with an effective rate of 2.18%.

The increase in interest expense on deposits was primarily a result of deposit growth, along with a three basis point increase in the weighted average rate, to 0.73% for the current year six month period.  The average balance of the deposit portfolio increased $253.2 million for the current year six month period, with the majority of the increase in the retail deposit portfolio, specifically the certificates of deposit and checking portfolios.

The decrease in interest expense on repurchase agreements was due to the maturity between periods of a $20.0 million repurchase agreement at a rate of 4.45%, which was not replaced.

Provision for Credit Losses
Capitol Federal Savings Bank (the "Bank") did not record a provision for credit losses during the current year six month period, compared to a provision for credit losses during the prior year six month period of $448 thousand.  No provision for credit losses was recorded during the current year six month period due to the continued low level of net loan charge-offs and stabilization of delinquent loan balances.  Net loan charge-offs were $250 thousand for the current year six month period and the allowance for credit losses ("ACL") to net charge-offs (annualized) was 18.3 times at March 31, 2016.  The improvement in collateral values has assisted in lowering our net charge-off amounts compared to prior years.  At March 31, 2016, loans 90 or more days delinquent or in foreclosure were 0.25% of total loans, down slightly from 0.27% at March 31, 2015.

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.

The increase in income from BOLI was due mainly to the purchase of a new BOLI investment between periods, as well as to the receipt of death benefits in the current year.

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.

The increase in occupancy, net expense was due mainly to non-capitalizable costs associated with the remodel of the Bank's Kansas City market area operations center.  The increase in advertising and promotional expense was due primarily to the timing of media campaigns and sponsorships.  The decrease in low income housing partnerships expense was due primarily to impairments in the prior year.  The increase in office supplies and related expense was due primarily to the purchase of cards enabled with chip card technology.  The increase in other non-interest expense was due largely to higher deposit account charge-offs related to debit card fraud in the current year, along with an increase in expenses related to other real estate owned ("OREO") operations due to a recent increase in properties with deferred maintenance and damage issues.

Management anticipates that salaries and employee benefits will increase $500 thousand from fiscal year 2015, a decrease from our original estimate of a $1.4 million increase, due mainly to lower than anticipated employee benefit expenses.  Additionally, management anticipates information technology and communications expense will increase $700 thousand from fiscal year 2015, a decrease from our original estimate of a $1.5 million increase.

Income Tax Expense
Income tax expense was $19.5 million for the current year six month period compared to $19.2 million for the prior year six month period.  The effective tax rate for the current year six month period was 31.5% compared to 32.6% for the prior year six month period.  The decrease in the effective tax rate was due primarily to an increase in nontaxable income related to BOLI and higher low income housing tax credits in the current fiscal year.

Financial Condition as of March 31, 2016 

Total assets were $9.32 billion at March 31, 2016 compared to $9.84 billion at September 30, 2015.  The $527.5 million decrease was due primarily to a $568.8 million decrease in cash and cash equivalents and a $36.2 million decrease in FHLB stock, both due to the removal of the entire daily leverage strategy at March 31, 2016 compared to $700.0 million of the daily leverage strategy being in place at September 30, 2015.

The loans receivable portfolio, net, increased $144.2 million, to $6.77 billion at March 31, 2016, from $6.63 billion at September 30, 2015.  This growth was primarily funded with cash flows from the securities portfolio and growth in the deposits portfolio.  During the current year six month period, the Bank originated and refinanced $348.3 million of loans with a weighted average rate of 3.68%, purchased $291.9 million of loans from correspondent lenders with a weighted average rate of 3.52%, and purchased participations of $112.0 million of multi-family and commercial real estate and construction-to-permanent loans with a weighted average rate of 3.80%.

Total liabilities were $7.91 billion at March 31, 2016 compared to $8.43 billion at September 30, 2015.  The $514.7 million decrease was due primarily to a $798.9 million decrease in FHLB borrowings, largely as a result of the removal of the entire daily leverage strategy at March 31, 2016, along with a $100.0 million decrease in term advances, partially offset by a $287.3 million increase in the deposits portfolio.  The growth in deposits was primarily in the retail certificates of deposit, checking, and wholesale certificates of deposit portfolios, which increased $100.8 million, $77.1 million, and $73.9 million, respectively.

Stockholders' equity was $1.40 billion at March 31, 2016 compared to $1.42 billion at September 30, 2015.  The $12.8 million decrease between periods was due primarily to the payment of $55.9 million in cash dividends, partially offset by net income of $42.2 million.  The cash dividends paid during the current year six month period consisted of a $0.25 per share cash true-up dividend related to fiscal year 2015 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17 per share.  On April 20, 2016, the Company declared a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on May 20, 2016 to stockholders of record as of the close of business on May 6, 2016.

At March 31, 2016, Capitol Federal Financial, Inc., at the holding company level, had $80.1 million on deposit at the Bank.  For fiscal year 2016, it is the intent of the Board of Directors and management to continue with the payout of 100% of the Company's earnings to its stockholders.  Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.

In October 2015, the Company announced a stock repurchase plan for up to $70.0 million of common stock.  The repurchase plan does not have an expiration date.  The Company has not repurchased any shares under the repurchase plan through the date of this release.

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

The following table presents a reconciliation of total to net shares outstanding as of March 31, 2016. 

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a "well-capitalized" status for the Bank and the Company in accordance with regulatory standards.  As of March 31, 2016, the Bank and Company exceeded all regulatory capital requirements.  The following table presents the Bank's regulatory capital ratios at March 31, 2016.

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 March 31, 2016 is as follows (dollars in thousands):

Capitol Federal Financial, Inc. is the holding company for the Bank.  The Bank has 47 branch locations in Kansas and Missouri, and is one of the largest residential lenders in the State of Kansas.  News and other information about the Company can be found 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.  These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions.  The words "may," "could," "should," "would," "will," "believe," "anticipate," "estimate," "expect," "intend," "plan," and similar expressions are intended to identify forward-looking statements.  Forward-looking statements 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 the Bank, which would affect the ability of the Company to pay dividends in accordance with its dividend policies, competition, and other risks detailed from time to time in documents filed or furnished by the Company with the SEC.  Actual results may differ materially from those currently expected.  These forward-looking statements represent the Company's judgment as of the date of this release.  The Company disclaims, however, any intent or obligation to update these forward-looking statements.

SUPPLEMENTAL FINANCIAL INFORMATION

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

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

Loan Activity:  The following table summarizes 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.  Loan endorsements are not included in the activity in the following tables 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 three and six months ended March 31, 2016, the Bank endorsed $20.6 million and $44.1 million of one- to four-family loans, respectively, reducing the average rate on those loans by 77 and 84 basis points, respectively.

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.  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.

One- to Four-Family Loans:  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 average balance per loan at the dates presented.  Credit scores are updated at least semiannually, with the last update in March 2016, 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.

The following table summarizes our one- to four-family loan origination, refinance, and correspondent purchase commitments as of March 31, 2016, 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.

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.

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 five percent of the total amount originated and purchased during the six month period ended March 31, 2016.

Multi-Family and Commercial Real Estate Loans:  During the current quarter, the Bank continued to grow the commercial construction-to-permanent and permanent loan portfolio through the correspondent lending channel by purchasing participations of $103.1 million, including $94.8 million of commercial construction-to-permanent loans with gross loan amounts ranging from $14.8 million to $50.0 million and funding periods of up to three years.  At March 31, 2016, the Bank had $68.5 million of outstanding commercial construction-to-permanent loan commitments.  The Bank intends to continue to grow its commercial construction-to-permanent and permanent loan portfolio, largely through participations with correspondent lenders and other lead banks with which the Bank already has commercial construction-to-permanent and permanent loan relationships.

The following table presents the Bank's multi-family and commercial real estate permanent and construction loans and commitments by industry classification, as defined by the North American Industry Classification System, as of March 31, 2016.

The following table summarizes the Bank's multi-family and commercial real estate permanent and construction loans by state as of March 31, 2016. 

The following table presents the Bank's multi-family and commercial real estate permanent and construction loan portfolio and outstanding commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding commitment amount, as of March 31, 2016.

Asset Quality

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 March 2016, the unemployment rate was 3.9% for Kansas and 4.2% for Missouri, compared to the national average of 5.0%, based on information from the Bureau of Labor Statistics.

The following tables present loans 30 to 89 days delinquent, non-performing loans, and OREO as of the dates indicated.  Of the loans 30 to 89 days delinquent at March 31, 2016, approximately 69% were 59 days or less delinquent.  Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and nonaccrual loans that are 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 four months before they were sold.

The following tables present ACL activity and related ratios at the dates and for the periods indicated.

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 76% of these portfolios at March 31, 2016.  The weighted average life ("WAL") is the estimated remaining principal repayment term (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. 

MBS:  The following table summarizes 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 principal repayment term (in years) after three-month historical prepayment speeds have been applied.

Investment Securities:  The following table summarizes 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 principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.

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.  The $116.8 million increase in the retail certificates of deposit portfolio from December 31, 2015 to March 31, 2016 was due mainly to a promotion deposit campaign on President's Day.

The following table presents scheduled maturities of our certificates of deposit, along with associated weighted average rates, as of March 31, 2016: 

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 March 31, 2016.

The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail and public unit deposit amounts, and term borrowings for the next four quarters as of March 31, 2016.

The following table presents term borrowing activity for the periods shown, which includes FHLB advances, at par, and repurchase agreements.  Line of credit activity is excluded from the following tables.  The weighted average effective rate includes the impact of the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.  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.

Average Rates and Lives

At March 31, 2016, the Bank's one-year gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice was $1.05 billion, or 11.3% of total assets, compared to $531.2 million, or 5.8% of total assets, at December 31, 2015.  The increase in the one-year gap amount was due primarily to lower interest rates at March 31, 2016 than at December 31, 2015, which increased prepayment projections on the Bank's mortgage loan and MBS portfolios, as well as increased the amount of securities projected to be called, which resulted in an increase in the amount of assets expected to reprice over the 12-month horizon.  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.  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.  As interest rates rise, the amount of interest-earning assets expected to reprice will likely decrease from estimated levels as borrowers would have less economic incentive to modify their cost of borrowings.  If interest rates were to increase 200 basis points, as of March 31, 2016, the Bank's one-year gap is projected to be $225.1 million, or 2.4% of total assets.  This compares to a one-year gap of $131.9 million, or 1.4% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2015.

The gap position of the Bank has been managed over the past several years in anticipation of higher interest rates.  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 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.

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 term borrowings is the effective rate, which includes the impact of the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.  The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.