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Capitol Federal Financial, Inc. Reports First Quarter Fiscal Year 2023 Results

Business Wire 25-Jan-2023 9:00 AM

Capitol Federal Financial, Inc.® (NASDAQ:CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the quarter ended December 31, 2022. For best viewing results, please view this release in Portable Document Format (PDF) on our website, http://ir.capfed.com.

Highlights for the quarter include:

  • net income of $16.2 million;
  • basic and diluted earnings per share of $0.12;
  • net interest margin of 1.61% (1.88% excluding the effects of the leverage strategy);
  • annualized loan growth of 17.1%;
  • paid dividends of $0.365 per share; and
  • on January 24, 2023, announced a cash dividend of $0.085 per share, payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023.

Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022

For the quarter ended December 31, 2022, the Company recognized net income of $16.2 million, or $0.12 per share, compared to net income of $19.5 million, or $0.14 per share, for the quarter ended September 30, 2022. The decrease in net income was due primarily to lower net interest income in the current quarter. The net interest margin decreased 10 basis points, from 1.71% for the prior quarter to 1.61% for the current quarter. Excluding the effects of the leverage strategy discussed below, the net interest margin decreased 19 basis points, from 2.07% for the prior quarter to 1.88% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates. Management anticipates the reduction in the net interest margin may continue in the near term. See additional discussion in "Fiscal Year 2023 Projections" below.

Leverage Strategy

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current quarter involved borrowing up to $2.60 billion by entering into short-term Federal Home Loan Bank Topeka ("FHLB") advances. During the current quarter, the average outstanding balance of leverage strategy borrowings was $1.87 billion. The borrowings were repaid prior to quarter end. The proceeds from the borrowings, net of the required FHLB stock holdings, which yielded 8.50% during the current quarter, were deposited at the Federal Reserve Bank of Kansas City ("FRB of Kansas City"). Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash deposited at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $763 thousand during the current quarter, compared to $1.3 million for the prior quarter. The decrease was due to a reduction in the size of the leverage strategy transaction because the borrowing capacity was needed for operational liquidity purposes. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will continue to be utilized as long as it remains profitable and/or the borrowing capacity does not need to be used for other purposes. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction.

Interest and Dividend Income

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 weighted average yield on loans receivable increased 11 basis points and the weighted average yield on mortgage-backed securities ("MBS") increased four basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

Loans receivable

$

64,819

$

60,445

$

4,374

 

7.2

%

Cash and cash equivalents

 

16,671

 

13,373

 

3,298

 

24.7

 

MBS

 

4,811

 

4,912

 

(101

)

(2.1

)

FHLB stock

 

4,158

 

3,865

 

293

 

7.6

 

Investment securities

 

881

 

845

 

36

 

4.3

 

Total interest and dividend income

$

91,340

$

83,440

$

7,900

 

9.5

 

The increase in interest income on loans receivable was due to growth in the loan portfolio, along with an increase in the weighted average yield. The loan growth was mainly in the correspondent one-to four-family and commercial loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents was due to an increase in the yield earned on balances held at the FRB of Kansas City, the majority of which were related to the leverage strategy. The increase in dividend income on FHLB stock was due to an increase in the dividend rate paid by FHLB.

Interest Expense

The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent. The weighted average rate paid on deposits increased 23 basis points and the weighted average rate paid on borrowings not associated with the leverage strategy increased 50 basis points compared to the prior quarter.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

INTEREST EXPENSE:

 

 

 

 

Borrowings

$

33,608

$

24,529

$

9,079

37.0

%

Deposits

 

11,904

 

9,013

 

2,891

32.1

 

Total interest expense

$

45,512

$

33,542

$

11,970

35.7

 

The increase in interest expense on borrowings was due primarily to new borrowings added during the current quarter and near the end of the prior quarter, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs. See additional discussion in the "Financial Condition" section below. Additionally, interest expense on borrowings increased due to an increase in the rate paid on the short-term borrowings associated with the leverage strategy, due to higher market interest rates. The increase in interest expense on deposits was due primarily to an increase in the weighted average rate paid on certificates of deposit and money market accounts, partially offset by a decrease in the average balance of those deposit types.

Provision for Credit Losses

For the quarter ended December 31, 2022, the Bank recorded a provision for credit losses of $3.7 million, compared to a provision for credit losses of $1.1 million for the prior quarter. The provision for credit losses in the current quarter was comprised of a $2.8 million increase in the allowance for credit losses ("ACL") for loans and an $840 thousand increase in reserves for off-balance sheet credit exposures. The provision for credit losses associated with both the ACL and reserves for off-balance sheet credit exposures was primarily a result of growth in the commercial loan portfolio and the balance of commercial construction off-balance sheet credit exposures, along with a slowdown in portfolio prepayment speeds, which reduced the projected prepayment speeds used in the model for generally all loan categories.

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

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

NON-INTEREST INCOME:

 

 

 

 

Deposit service fees

$

3,461

$

3,467

$

(6

)

(0.2

)%

Insurance commissions

 

795

 

905

 

(110

)

(12.2

)

Other non-interest income

 

1,096

 

1,421

 

(325

)

(22.9

)

Total non-interest income

$

5,352

$

5,793

$

(441

)

(7.6

)

The decrease in other non-interest income was due mainly to the prior quarter including higher gains on a loan-related financial derivative agreement, which are generally driven by changes in market interest rates.

Non-Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

2022

 

2022

 

Dollars

 

Percent

 

(Dollars in thousands)

 

NON-INTEREST EXPENSE:

 

 

 

 

Salaries and employee benefits

$

13,698

$

14,268

$

(570

)

(4.0

)%

Information technology and related expense

 

5,070

 

5,043

 

27

 

0.5

 

Occupancy, net

 

3,474

 

3,777

 

(303

)

(8.0

)

Regulatory and outside services

 

1,533

 

1,980

 

(447

)

(22.6

)

Advertising and promotional

 

833

 

1,552

 

(719

)

(46.3

)

Federal insurance premium

 

812

 

820

 

(8

)

(1.0

)

Office supplies and related expense

 

633

 

487

 

146

 

30.0

 

Deposit and loan transaction costs

 

611

 

747

 

(136

)

(18.2

)

Other non-interest expense

 

1,109

 

1,133

 

(24

)

(2.1

)

Total non-interest expense

$

27,773

$

29,807

$

(2,034

)

(6.8

)

The decrease in salaries and employee benefits was due mainly to a decrease in loan commissions, as well as one fewer working day in the current quarter compared to the prior quarter. The decrease in occupancy, net was due mainly to lower utility expenses and building maintenance expenses. The decrease in regulatory and outside services was due primarily to lower consulting expenses related to the Bank's upcoming digital transformation project as those third-party services are now directly related to the project and are included in information technology and related expenses. The decrease in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete. The decrease in deposit and loan transaction costs was mainly due to loan-related activities.

The Company's efficiency ratio was 54.27% for the current quarter compared to 53.52% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income, partially offset by lower 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 higher value indicates that it is costing the financial institution more money to generate revenue, relative to the net interest margin and non-interest income.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and the effective tax rate.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

September 30,

 

Change Expressed in:

 

 

2022

 

 

 

2022

 

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

19,747

 

$

24,824

 

$

(5,077

)

(20.5

)%

Income tax expense

 

3,507

 

 

5,332

 

 

(1,825

)

(34.2

)

Net income

$

16,240

 

$

19,492

 

$

(3,252

)

(16.7

)

 

 

 

 

 

Effective Tax Rate

 

17.8

%

 

21.5

%

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate. The decrease in the effective tax rate was due primarily to lower projected pretax income in the current year, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact to the overall effective rate.

Comparison of Operating Results for the Three Months Ended December 31, 2022 and 2021

The Company recognized net income of $16.2 million, or $0.12 per share, for the current quarter compared to net income of $22.2 million, or $0.16 per share, for the prior year quarter. The decrease in net income was due primarily to recording a provision for credit losses of $3.7 million for the current quarter compared to a recovery for credit losses of $3.4 million for the prior year quarter, partially offset by lower income tax expense. The net interest margin decreased 38 basis points, from 1.99% for the prior year quarter to 1.61% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin decreased 11 basis points, from 1.99% for the prior year quarter to 1.88% for the current quarter. The decrease in the net interest margin excluding the effects of the leverage strategy was due mainly to an increase in the cost of borrowings and deposits, partially offset by an increase in loan yields due to higher market interest rates and a shift in the mix of interest-earning assets towards higher-yielding loans.

Interest and Dividend Income

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

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

Loans receivable

$

64,819

$

55,788

$

9,031

16.2

%

Cash and cash equivalents

 

16,671

 

14

 

16,657

N/M

 

MBS

 

4,811

 

4,625

 

186

4.0

 

FHLB stock

 

4,158

 

1,231

 

2,927

237.8

 

Investment securities

 

881

 

808

 

73

9.0

 

Total interest and dividend income

$

91,340

$

62,466

$

28,874

46.2

 

The increase in interest income on loans receivable was due to an increase in the average balance and weighted average yield of the loan portfolio. The increase in the average balance was mainly in the correspondent one-to four-family and commercial loan portfolios. The increase in the weighted average yield was due primarily to originations and purchases at higher market yields, as well as disbursements on commercial construction loans at rates higher than the overall portfolio rate and upward repricing of existing adjustable-rate loans due to higher market interest rates. The increase in interest income on cash and cash equivalents and the increase in dividend income on FHLB stock were due mainly to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. Additionally, market interest rates increased between periods resulting in an increase in the yield on cash due to an increase in FRB interest rates, and FHLB increased the dividend rate paid compared to the prior year quarter.

Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

INTEREST EXPENSE:

 

 

 

 

Borrowings

$

33,608

$

7,585

$

26,023

343.1

%

Deposits

 

11,904

 

9,267

 

2,637

28.5

 

Total interest expense

$

45,512

$

16,852

$

28,660

170.1

 

The increase in interest expense on borrowings was due primarily to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. Interest expense on borrowings associated with the leverage strategy totaled $17.3 million during the current quarter. Interest expense on FHLB borrowings not associated with the leverage strategy also increased due to new borrowings added between periods, at market interest rates higher than the overall portfolio rate, to fund operational liquidity needs. See additional discussion in the "Financial Condition" section below. The increase in interest expense on deposits was due to an increase in the weighted average rate paid on the deposit portfolio, primarily money market accounts and certificates of deposit, partially offset by a decrease in the average balance of certificates of deposit.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $3.7 million, compared to a recovery for credit losses of $3.4 million during the prior year quarter. See "Comparison of Operating Results for the Three Months Ended December 31, 2022 and September 30, 2022" above for additional information regarding the provision for credit losses for the current quarter.

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

 

 

 

 

 

December 31,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

NON-INTEREST INCOME:

 

 

 

 

Deposit service fees

$

3,461

$

3,430

$

31

 

0.9

%

Insurance commissions

 

795

 

711

 

84

 

11.8

 

Other non-interest income

 

1,096

 

1,365

 

(269

)

(19.7

)

Total non-interest income

$

5,352

$

5,506

$

(154

)

(2.8

)

The decrease in other non-interest income was due mainly to the prior year quarter including higher gains on a loan-related financial derivative agreement, along with a decrease in income from bank-owned life insurance.

Non-Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

Change Expressed in:

 

2022

 

2021

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

Salaries and employee benefits

$

13,698

$

13,728

$

(30

)

(0.2

)%

Information technology and related expense

 

5,070

 

4,432

 

638

 

14.4

 

Occupancy, net

 

3,474

 

3,379

 

95

 

2.8

 

Regulatory and outside services

 

1,533

 

1,368

 

165

 

12.1

 

Advertising and promotional

 

833

 

1,064

 

(231

)

(21.7

)

Federal insurance premium

 

812

 

639

 

173

 

27.1

 

Office supplies and related expense

 

633

 

468

 

165

 

35.3

 

Deposit and loan transaction costs

 

611

 

697

 

(86

)

(12.3

)

Other non-interest expense

 

1,109

 

919

 

190

 

20.7

 

Total non-interest expense

$

27,773

$

26,694

$

1,079

 

4.0

 

The increase in information technology and related expenses was due mainly to higher software licensing expenses, as well as third-party project management expenses associated with the Bank's ongoing digital transformation project. The increase in regulatory and outside services was due primarily to outside counsel fees associated with the Bank's defense against a putative class action complaint relating to overdraft fees. The decrease in advertising and promotional expense was due mainly to the timing of campaigns and sponsorships. The increase in federal insurance premium expense was due to the leverage strategy being utilized during the current quarter and not being utilized during the prior year quarter. The increase in office supplies and related expense was due primarily to the write-off of the Bank's remaining inventory of unissued non-contactless debit cards, which have now become obsolete. The increase in other non-interest expense was due mainly to expenses associated with the collateral received on the Bank's interest rate swap agreements and higher deposit-related fraud losses in the current quarter.

The Company's efficiency ratio was 54.27% for the current quarter compared to 52.22% for the prior year quarter. The change in the efficiency ratio was due primarily to higher non-interest expense in the current quarter.

Income Tax Expense

The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent and effective tax rate.

 

For the Three Months Ended

 

 

 

 

 

December 31,

 

Change Expressed in:

 

 

2022

 

 

 

2021

 

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

Income before income tax expense

$

19,747

 

$

27,865

 

$

(8,118

)

(29.1

)%

Income tax expense

 

3,507

 

 

5,679

 

 

(2,172

)

(38.2

)

Net income

$

16,240

 

$

22,186

 

$

(5,946

)

(26.8

)

 

 

 

 

 

Effective Tax Rate

 

17.8

%

 

20.4

%

 

 

The decrease in income tax expense was due primarily to lower pretax income in the current quarter, along with a decrease in the effective tax rate. The decrease in the effective tax rate was due primarily to lower projected pretax income in the current year, as the Company's permanent differences, which generally reduce our tax rate, have a larger impact to the overall effective rate.

Financial Condition as of December 31, 2022

The following table summarizes the Company's financial condition at the dates indicated.

 

 

 

 

 

Annualized

 

December 31,

 

September 30,

 

Percent

 

 

2022

 

 

 

2022

 

 

Change

 

(Dollars and shares in thousands)

Total assets

$

9,929,760

 

$

9,624,897

 

12.7

%

Available-for-sale ("AFS") securities

 

1,528,686

 

 

1,563,307

 

(8.9

)

Loans receivable, net

 

7,783,358

 

 

7,464,208

 

17.1

 

Deposits

 

6,074,549

 

 

6,194,866

 

(7.8

)

Borrowings

 

2,645,195

 

 

2,132,154

 

96.2

 

Stockholders' equity

 

1,054,795

 

 

1,096,499

 

(15.2

)

Equity to total assets at end of period

 

10.6

%

 

11.4

%

 

Average number of basic shares outstanding

 

134,641

 

 

135,773

 

(3.3

)

Average number of diluted shares outstanding

 

134,641

 

 

135,773

 

(3.3

)

During the current quarter, total assets increased by $304.9 million, which was primarily driven by growth of $319.2 million in loans receivable, mainly in the correspondent one- to four-family and commercial loan portfolios. Total liabilities increased $346.6 million due to new borrowings of $520.0 million, partially offset by a decrease in deposits of $120.3 million. The one- to four-family correspondent loan portfolio increased $151.4 million, or 6.9%, primarily as a result of purchasing loans that were in the pipeline as of September 30, 2022, while new applications received have tapered off. Commercial loans increased $143.9 million, or 14.9%, during the current quarter, as funding for construction loans continued and new commercial real estate loans were added. Also, during the current quarter we experienced a reduction in prepayment speeds on the one- to four-family loan portfolio. The decrease in deposit balances was due primarily to money market account balances, which decreased $125.3 million during the current quarter as depositors likely moved funds to alternative, higher yielding investment products and/or used balances accumulated over the past several years to support spending. The increase in loan balances and the decrease in deposit balances made it necessary to increase FHLB borrowings by $520.0 million during the current quarter. The FHLB borrowing increase was composed of $450.0 million of new advances with a weighted average maturity of 3.3 years and $70.0 million on the FHLB line of credit. The overall loan growth during the quarter exceeded management's expectations as of September 30, 2022. While it is still management's expectation that we will stay under $10 billion in total assets at September 30, 2023, it is likely that we will exceed that threshold throughout several quarters this year. We are working to limit the growth in total assets and to limit additional use of FHLB advances for operating needs.

The following table summarizes loan originations and purchases and borrowing activity, along with the related weighted average rates, during the periods indicated. The borrowings presented in the table have original contractual terms of one year or longer.

 

For the Three Months Ended

 

December 31, 2022

 

September 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Loan originations, purchases, and participations

 

 

One- to four-family and consumer:

 

 

 

 

Originated

$

145,106

 

5.21

%

$

184,879

 

4.55

%

Purchased

 

199,471

 

4.87

 

 

187,298

 

4.17

 

 

 

 

 

 

Commercial:

 

 

 

 

Originated

 

219,281

 

5.07

 

 

92,859

 

4.67

 

Participations/Purchased

 

135,834

 

5.93

 

 

38,308

 

4.94

 

 

$

699,692

 

5.21

 

$

503,344

 

4.46

 

Borrowing activity

 

 

 

 

Maturities and repayments

$

(7,418

)

4.13

 

$

(77,500

)

0.39

 

New borrowings

 

450,000

 

4.45

 

 

300,000

 

3.90

 

Stockholders' Equity

During the quarter ended December 31, 2022, the Company paid cash dividends totaling $49.2 million. These cash dividends totaled $0.365 per share and consisted of a $0.28 per share cash true-up dividend related to fiscal year 2022 earnings and a regular quarterly cash dividend of $0.085 per share.

On January 24, 2023, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.3 million, payable on February 17, 2023 to stockholders of record as of the close of business on February 3, 2023. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At December 31, 2022, this ratio was 9.7%.

Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank in accordance with regulatory standards. As of December 31, 2022, the Bank's community bank leverage ratio ("CBLR") was 9.2%, which exceeded the minimum requirement of 9.0%. The CBLR is based on average assets. The leverage strategy increases average assets which reduces the Bank's CBLR.

At December 31, 2022, Capitol Federal Financial, Inc., at the holding company level, had $51.8 million in cash on deposit at the Bank. For fiscal year 2023, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's 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 level.

During the current quarter, the Company repurchased 2,729,159 shares of common stock at an average price of $8.13 per share. There remains $22.5 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2023.

The following table presents a reconciliation of total to net shares outstanding as of December 31, 2022.

Total shares outstanding

136,134,225

 

Less unallocated Employee Stock Ownership Plan ("ESOP") shares and unvested restricted stock

(2,987,815

)

Net shares outstanding

133,146,410

 

Fiscal Year 2023 Projections

The rapid increase in short-term rates led by the FRB and the impact of higher long-term rates compared to September 30, 2022 has led to decreases in the Bank's net interest margin. There has been a runoff in deposit balances and management has increased certificate of deposit and money market account rates to help mitigate the outflow. The higher loan rates have made homes less affordable and reduced the turnover of housing inventory, which lowers the likelihood of existing one- to four-family loans at lower rates being paid off with the proceeds being used to fund higher rate loans. These dynamics have caused our balance sheet to change faster than what would occur in more stable rate environments. Net interest margin compression is anticipated to continue, and the margin may compress more in the near term, due to the shape of the yield curve and the pace at which liabilities are repricing compared to assets, along with lower costing deposits being replaced with higher costing borrowings in order to fund loan growth. Loan growth is occurring at market interest rates that are higher than the overall loan portfolio rate; however, the shift to higher-costing borrowings and the pace at which the interest rate increase is occurring for liabilities is more than offsetting the benefit of the higher loan rates. As with managing the size of the balance sheet discussed above, management continues to evaluate funding options and plans to continue using shorter term advances, as necessary, with the anticipation that when rates begin to decrease, those borrowings can be repriced to lower cost alternatives.

Management intends to implement a new core processing system ("digital transformation") for the Bank by September 2023. The digital transformation is expected to better position the Bank for the future and allow for the introduction of new products and services to enhance customer experiences. Management anticipates information technology and related expenses will be approximately $5.5 million higher in fiscal year 2023 compared to fiscal year 2022 due to the digital transformation. In addition, it is expected there will be approximately $1 million more of information technology and related expenses in fiscal year 2023 related to projects outside of the digital transformation and due to general cost increases. Overall, it is anticipated that information technology and related expenses will be approximately $6.5 million higher in fiscal year 2023 compared to fiscal year 2022, or approximately $24.5 million for the year. In fiscal year 2024, information technology and related expense is expected to decrease approximately $3 million from fiscal year 2023 levels due to a reduction in professional service costs. Salaries and employee benefits are expected to be approximately $3.5 million higher in fiscal year 2023 due primarily to merit increases and salary adjustments. Federal insurance premium expense is anticipated to be approximately $2 million higher in fiscal year 2023, due to the increase in the assessment rate beginning in January 2023.

Management anticipates the effective tax rate for fiscal year 2023 will be approximately 19%. This is lower than the original projection of 20% to 21% previously provided, due mainly to lower projected pretax income as the Company's permanent differences, which generally reduce our tax rate, have a larger impact to the overall effective rate.

Capitol Federal Financial, Inc. is the holding company for the Bank. The Bank has 54 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 at the Bank's website, http://www.capfed.com.

Forward-Looking Statements

Except for the historical information contained in this press release, the matters discussed herein 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 involve risks and uncertainties, including: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on economic conditions in the Company's local market areas and other areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates and the effects of inflation or a potential recession; demand for loans in the Company's and its correspondent banks' market areas; the future earnings and capital levels of the Bank, which could 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 Securities and Exchange Commission ("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

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands, except per share amounts)

 

 

December 31,

September 30,

 

 

2022

 

 

2022

 

ASSETS:

 

 

Cash and cash equivalents (includes interest-earning deposits of $20,243 and $27,467)

$

49,686

 

$

49,194

 

AFS securities, at estimated fair value (amortized cost of $1,716,608 and $1,768,490)

 

1,528,686

 

 

1,563,307

 

Loans receivable, net (ACL of $19,189 and $16,371)

 

7,783,358

 

 

7,464,208

 

FHLB stock, at cost

 

124,119

 

 

100,624

 

Premises and equipment, net

 

93,507

 

 

94,820

 

Income taxes receivable, net

 

124

 

 

1,266

 

Deferred income tax assets, net

 

29,924

 

 

33,884

 

Other assets

 

320,356

 

 

317,594

 

TOTAL ASSETS

$

9,929,760

 

$

9,624,897

 

 

 

 

LIABILITIES:

 

 

Deposits

$

6,074,549

 

$

6,194,866

 

Borrowings

 

2,645,195

 

 

2,132,154

 

Advances by borrowers

 

36,207

 

 

80,067

 

Other liabilities

 

119,014

 

 

121,311

 

Total liabilities

 

8,874,965

 

 

8,528,398

 

 

 

 

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, 136,134,225 and 138,858,884 shares issued and outstanding as of December 31, 2022 and September 30, 2022, respectively

 

1,361

 

 

1,388

 

Additional paid-in capital

 

1,168,061

 

 

1,190,213

 

Unearned compensation, ESOP

 

(29,322

)

 

(29,735

)

Retained earnings

 

47,297

 

 

80,266

 

Accumulated other comprehensive (loss) income, net of tax

 

(132,602

)

 

(145,633

)

Total stockholders' equity

1,054,795

1,096,499

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $

9,929,760

$

9,624,897

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands)

 

 

 

 

 

For the Three Months Ended

 

 

December 31,

 

September 30,

 

December 31,

 

 

2022

 

2022

 

2021

INTEREST AND DIVIDEND INCOME:

 

 

 

Loans receivable

$

64,819

$

60,445

$

55,788

 

Cash and cash equivalents

 

16,671

 

13,373

 

14

 

MBS

 

4,811

 

4,912

 

4,625

 

FHLB stock

 

4,158

 

3,865

 

1,231

 

Investment securities

 

881

 

845

 

808

 

Total interest and dividend income

 

91,340

 

83,440

 

62,466

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

Borrowings

 

33,608

 

24,529

 

7,585

 

Deposits

 

11,904

 

9,013

 

9,267

 

Total interest expense

 

45,512

 

33,542

 

16,852

 

 

 

 

 

NET INTEREST INCOME

 

45,828

 

49,898

 

45,614

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

3,660

 

1,060

 

(3,439

)

 

 

 

 

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

 

42,168

 

48,838

 

49,053

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

Deposit service fees

 

3,461

 

3,467

 

3,430

 

Insurance commissions

 

795

 

905

 

711

 

Other non-interest income

 

1,096

 

1,421

 

1,365

 

Total non-interest income

 

5,352

 

5,793

 

5,506

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

Salaries and employee benefits

 

13,698

 

14,268

 

13,728

 

Information technology and related expense

 

5,070

 

5,043

 

4,432

 

Occupancy, net

 

3,474

 

3,777

 

3,379

 

Regulatory and outside services

 

1,533

 

1,980

 

1,368

 

Advertising and promotional

 

833

 

1,552

 

1,064

 

Federal insurance premium

 

812

 

820

 

639

 

Office supplies and related expense

 

633

 

487

 

468

 

Deposit and loan transaction costs

 

611

 

747

 

697

 

Other non-interest expense

 

1,109

 

1,133

 

919

 

Total non-interest expense

 

27,773

 

29,807

 

26,694

 

INCOME BEFORE INCOME TAX EXPENSE

 

19,747

 

24,824

 

27,865

 

INCOME TAX EXPENSE

 

3,507

 

5,332

 

5,679

 

NET INCOME

$

16,240

$

19,492

$

22,186

 

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, as well as selected performance ratios and other information for the periods shown. 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.

 

For the Three Months Ended

 

December 31, 2022

 

 

September 30, 2022

 

 

December 31, 2021

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Average

 

Interest

 

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

 

(Dollars in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

4,049,790

$

33,364

3.29

%

$

4,021,121

$

32,809

3.26

%

$

3,971,049

$

32,422

3.27

%

Correspondent purchased

 

2,305,362

 

17,261

2.99

 

 

2,166,869

 

15,394

2.84

 

 

2,035,631

 

12,746

2.50

 

Bulk purchased

 

147,091

 

434

1.18

 

 

150,253

 

475

1.26

 

 

170,537

 

610

1.43

 

Total one- to four-family loans

 

6,502,243

 

51,059

3.14

 

 

6,338,243

 

48,678

3.07

 

 

6,177,217

 

45,778

2.96

 

Commercial loans

 

1,025,402

 

11,993

4.58

 

 

935,374

 

10,326

4.32

 

 

841,217

 

8,943

4.16

 

Consumer loans

 

102,760

 

1,767

6.82

 

 

98,189

 

1,441

5.82

 

 

92,794

 

1,067

4.56

 

Total loans receivable(1)

 

7,630,405

 

64,819

3.38

 

 

7,371,806

 

60,445

3.27

 

 

7,111,228

 

55,788

3.13

 

MBS(2)

 

1,221,035

 

4,811

1.58

 

 

1,279,143

 

4,912

1.54

 

 

1,435,562

 

4,625

1.29

 

Investment securities(2)(3)

 

525,081

 

881

0.67

 

 

524,546

 

845

0.64

 

 

523,931

 

808

0.62

 

FHLB stock(4)

 

197,577

 

4,158

8.35

 

 

198,431

 

3,865

7.73

 

 

73,481

 

1,231

6.64

 

Cash and cash equivalents(5)

 

1,801,493

 

16,671

3.62

 

 

2,322,891

 

13,373

2.25

 

 

37,221

 

14

0.15

 

Total interest-earning assets

 

11,375,591

 

91,340

3.19

 

 

11,696,817

 

83,440

2.83

 

 

9,181,423

 

62,466

2.71

 

Other non-interest-earning assets

 

248,022

 

 

 

 

 

288,496

 

 

 

 

 

412,115

 

 

 

 

Total assets

$

11,623,613

 

 

 

 

$

11,985,313

 

 

 

 

$

9,593,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,007,569

 

289

0.11

 

$

1,035,600

 

217

0.08

 

$

1,052,413

 

179

0.07

 

Savings

 

545,885

 

100

0.07

 

 

556,836

 

84

0.06

 

 

520,770

 

70

0.05

 

Money market

 

1,759,804

 

3,035

0.68

 

 

1,856,424

 

1,925

0.41

 

 

1,767,134

 

825

0.19

 

Retail certificates

 

2,064,929

 

7,767

1.49

 

 

2,105,237

 

6,434

1.21

 

 

2,298,678

 

7,835

1.35

 

Commercial certificates

 

34,298

 

104

1.20

 

 

45,901

 

82

0.71

 

 

169,200

 

272

0.64

 

Wholesale certificates

 

97,828

 

609

2.47

 

 

93,232

 

271

1.15

 

 

199,692

 

86

0.17

 

Total deposits

 

5,510,313

 

11,904

0.86

 

 

5,693,230

 

9,013

0.63

 

 

6,007,887

 

9,267

0.61

 

Borrowings(6)

 

4,260,685

 

33,608

3.10

 

 

4,386,450

 

24,529

2.20

 

 

1,589,258

 

7,585

1.88

 

Total interest-bearing liabilities

 

9,770,998

 

45,512

1.84

 

 

10,079,680

 

33,542

1.31

 

 

7,597,145

 

16,852

0.88

 

Non-interest-bearing deposits

 

576,519

 

 

 

 

 

580,687

 

 

 

 

 

550,492

 

 

 

 

Other non-interest-bearing liabilities

 

191,474

 

 

 

 

 

184,137

 

 

 

 

 

209,890

 

 

 

 

Stockholders' equity

 

1,084,622

 

 

 

 

 

1,140,809

 

 

 

 

 

1,236,011

 

 

 

 

Total liabilities and stockholders' equity

$

11,623,613

 

 

 

 

$

11,985,313

 

 

 

 

$

9,593,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(7)

 

 

$

45,828

 

 

 

 

$

49,898

 

 

 

 

$

45,614

 

 

Net interest-earning assets

$

1,604,593

 

 

 

 

$

1,617,137

 

 

 

 

$

1,584,278

 

 

 

 

Net interest margin(8)(9)

 

 

 

 

1.61

 

 

 

 

 

1.71

 

 

 

 

 

1.99

 

Ratio of interest-earning assets to interest-bearing liabilities

 

 

 

 

 

 

1.16x

 

 

 

 

 

1.16x

 

 

 

 

 

1.21x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)(9)

 

 

 

 

 

0.56

%

 

 

 

 

0.65

%

 

 

 

 

0.93

%

Return on average equity (annualized)(9)

 

 

 

 

 

5.99

 

 

 

 

 

6.83

 

 

 

 

 

7.18

 

Average equity to average assets

 

 

 

 

9.33

 

 

 

 

 

9.52

 

 

 

 

 

12.88

 

Operating expense ratio (annualized)(10)

 

 

 

 

 

0.96

 

 

 

 

 

0.99

 

 

 

 

 

1.11

 

Efficiency ratio(9)(11)

 

 

 

 

54.27

 

 

 

 

 

53.52

 

 

 

 

 

52.22

 

Pre-tax yield on leverage strategy(12)

 

 

 

 

 

0.20

 

 

 

 

 

0.28

 

 

 

 

 

 

(1)

Balances are adjusted for unearned loan fees and deferred costs. Loans that are 90 or more days delinquent are included in the loans receivable average balance with a yield of zero percent.

(2)

AFS securities are adjusted for unamortized purchase premiums or discounts.

(3)

The average balance of investment securities includes an average balance of nontaxable securities of $1.1 million, $569 thousand, and $4.0 million for the quarters ended December 31, 2022 and September 30, 2022, and December 31, 2021, respectively.

(4)

Included in this line, for the quarters ended December 31, 2022 and September 30, 2022, respectively, is FHLB stock related to the leverage strategy with an average outstanding balance of $84.3 million and $108.8 million, respectively, and dividend income of $1.8 million and $2.1 million, respectively, at a weighted average yield of 8.49% and 7.75%, respectively, and FHLB stock not related to the leverage strategy with an average outstanding balance of $113.3 million and $89.6 million, respectively, and dividend income of $2.4 million and $1.7 million, respectively, at a weighted average yield of 8.24% and 7.70%, respectively. There was no FHLB stock related to the leverage strategy during the quarter ended December 31, 2021.

(5)

 

The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $1.79 billion and $2.31 billion during the quarters ended December 31, 2022 and September 30, 2022, respectively. There were no cash and cash equivalents related to the leverage strategy during the quarter ended December 31, 2021.

(6)

Included in this line, for the quarters ended December 31, 2022 and September 30, 2022, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $1.87 billion and $2.42 billion, respectively, and interest paid of $17.3 million and $13.5 million, respectively, at a weighted average rate of 3.61% and 2.19%, respectively, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.39 billion and $1.97 billion, respectively, and interest paid of $16.3 million and $11.0 million, respectively, at a weighted average rate of 2.70% and 2.20%, respectively. There were no FHLB borrowings related to the leverage strategy during the quarter ended December 31, 2021. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

(7)

Net interest income represents the difference between interest income earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income depends on the average balance of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them.

(8)

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

(9)

The tables below provide a reconciliation between certain performance ratios presented in accordance with accounting standards generally accepted in the United States of America ("GAAP") and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income.

 

For the Three Months Ended

 

December 31, 2022

 

September 30, 2022

 

December 31, 2021

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

Actual

 

Leverage

 

Adjusted

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

 

(GAAP)

 

Strategy

 

(Non-GAAP)

Yield on interest-earning assets

3.19

%

0.13

%

3.06

%

2.83

%

(0.09

)%

2.92

%

2.71

%

%

2.71

%

Cost of interest-bearing liabilities

1.84

 

0.42

 

1.42

 

1.31

 

0.28

 

1.03

 

0.88

 

 

0.88

 

Return on average assets (annualized)

0.56

 

(0.07

)

0.63

 

0.65

 

(0.11

)

0.76

 

0.93

 

 

0.93

 

Return on average equity (annualized)

5.99

 

0.28

 

5.71

 

6.83

 

0.46

 

6.37

 

7.18

 

 

7.18

 

Net interest margin

1.61

 

(0.27

)

1.88

 

1.71

 

(0.36

)

2.07

 

1.99

 

 

1.99

 

Efficiency Ratio

54.27

 

(0.87

)

55.14

 

53.52

 

(1.53

)

55.05

 

52.22

 

 

52.22

 

(10)

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

(11)

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.

(12)

The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction.

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. The loan portfolio rate increased 14 basis points from September 30, 2022 to December 31, 2022, due primarily to one- to four-family correspondent and commercial loan growth, disbursements on higher rate commercial construction loans, and repricing of existing commercial loans to higher market interest rates. The average prepayment speed on one- to four-family loans was 5% during the current quarter compared to 7% during the prior quarter.

 

December 31, 2022

 

September 30, 2022

 

December 31, 2021

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

Originated

$

4,007,596

 

3.25

%

51.5

%

$

3,988,469

 

3.20

%

53.4

%

$

3,941,568

 

3.15

%

55.5

%

Correspondent purchased

 

2,353,335

 

3.25

 

30.2

 

 

2,201,886

 

3.10

 

29.4

 

 

1,991,944

 

2.97

 

28.0

 

Bulk purchased

 

145,209

 

1.31

 

1.9

 

 

147,939

 

1.24

 

2.0

 

 

165,339

 

1.52

 

2.3

 

Construction

 

70,869

 

3.01

 

0.9

 

 

66,164

 

2.90

 

0.9

 

 

47,508

 

2.76

 

0.7

 

Total

 

6,577,009

 

3.20

 

84.5

 

 

6,404,458

 

3.12

 

85.7

 

 

6,146,359

 

3.05

 

86.5

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate

 

833,444

 

4.34

 

10.7

 

 

745,301

 

4.30

 

10.0

 

 

687,518

 

3.98

 

9.6

 

Commercial and industrial

 

88,327

 

5.21

 

1.1

 

 

79,981

 

4.30

 

1.1

 

 

76,254

 

3.85

 

1.1

 

Construction

 

188,516

 

5.97

 

2.4

 

 

141,062

 

5.34

 

1.9

 

 

105,702

 

4.04

 

1.5

 

Total

 

1,110,287

 

4.69

 

14.2

 

 

966,344

 

4.45

 

13.0

 

 

869,474

 

3.98

 

12.2

 

Consumer loans:

 

 

 

 

 

 

 

 

 

Home equity

 

95,352

 

7.55

 

1.2

 

 

92,203

 

6.28

 

1.2

 

 

84,400

 

4.59

 

1.2

 

Other

 

9,022

 

4.43

 

0.1

 

 

8,665

 

4.21

 

0.1

 

 

7,825

 

4.13

 

0.1

 

Total

 

104,374

 

7.28

 

1.3

 

 

100,868

 

6.10

 

1.3

 

 

92,225

 

4.55

 

1.3

 

Total loans receivable

 

7,791,670

 

3.47

 

100.0

%

 

7,471,670

 

3.33

 

100.0

%

 

7,108,058

 

3.18

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

ACL

 

19,189

 

 

 

 

16,371

 

 

 

 

17,535

 

 

 

Deferred loan fees/discounts

 

30,513

 

 

 

 

29,736

 

 

 

 

29,363

 

 

 

Premiums/deferred costs

 

(41,390

)

 

 

 

(38,645

)

 

 

 

(34,445

)

 

 

Total loans receivable, net

$

7,783,358

 

 

 

$

7,464,208

 

 

 

$

7,095,605

 

 

 

Loan Activity: The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, deferred loan fees/discounts, 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 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. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.

 

For the Three Months Ended

 

December 31, 2022

 

September 30, 2022

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,471,670

 

3.33

%

$

7,245,751

 

3.21

%

Originated and refinanced

 

364,387

 

5.13

 

 

277,738

 

4.59

 

Purchased and participations

 

335,305

 

5.30

 

 

225,606

 

4.30

 

Change in undisbursed loan funds

 

(121,235

)

 

 

(8,696

)

 

Repayments

 

(252,799

)

 

 

(268,413

)

 

Principal (charge-offs)/recoveries, net

 

(2

)

 

 

(34

)

 

Other

 

(5,656

)

 

 

(282

)

 

Ending balance

$

7,791,670

 

3.47

 

$

7,471,670

 

3.33

 

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 rate, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of December 31, 2022. Credit scores were updated in September 2022 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.

 

 

 

% of

 

 

 

Credit

 

 

 

Average

 

Amount

 

Total

 

Rate

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

 

 

Originated

$

4,007,596

61.6

%

3.25

%

771

60

%

$

160

Correspondent purchased

 

2,353,335

36.2

 

3.25

 

766

65

 

 

416

Bulk purchased

 

145,209

2.2

 

1.31

 

770

57

 

 

287

 

$

6,506,140

100.0

 

3.20

 

769

62

 

 

209

The following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs and weighted average credit scores for the periods indicated. Many of the correspondent loans purchased during the current quarter were from applications received during the prior quarter. The Bank is working towards reducing new correspondent purchases to near zero.

 

For the Three Months Ended

 

December 31, 2022

 

 

 

 

 

 

 

Credit

 

Amount

 

Rate

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

126,508

4.92

%

76

%

763

Correspondent purchased

 

199,471

4.87

 

77

 

768

 

$

325,979

4.89

 

77

 

766

The following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 2022, along with associated weighted average rates.

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

84,108

5.12

%

Correspondent

 

121,250

5.22

 

 

$

205,358

5.18

 

Commercial Loans: During the quarter ended December 31, 2022, the Bank originated $219.3 million of commercial loans and entered into commercial loan participations totaling $135.8 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $207.8 million at a weighted average rate of 5.05%.

As of December 31, 2022, September 30, 2022, and December 31, 2021, the Bank's commercial and industrial gross loan amounts (unpaid principal plus undisbursed amounts) totaled $113.2 million, $100.4 million, and $99.8 million, respectively, and commitments totaled $5.1 million at December 31, 2022.

The following table presents the Bank's commercial real estate and commercial construction loans by type of primary collateral as of the dates indicated. As of December 31, 2022, the Bank had 18 commercial real estate and commercial construction loan commitments totaling $71.5 million, at a weighted average rate of 5.91%. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects. Of the total commercial undisbursed amounts and commitments outstanding as of December 31, 2022, management anticipates approximately $110 million will be funded during the March 2023 quarter, $65 million during the June 2023 quarter, $82 million during the September 2023 quarter, and $74 million during the December 2023 quarter.

 

December 31, 2022

 

September 30, 2022

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Senior housing

35

$

270,614

 

$

56,800

 

$

327,414

 

$

328,259

 

Retail building

144

 

231,384

 

 

93,671

 

 

325,055

 

 

230,153

 

Hotel

11

 

195,590

 

 

21,014

 

 

216,604

 

 

181,546

 

Multi-family

38

 

82,138

 

 

128,117

 

 

210,255

 

 

122,735

 

Office building

87

 

82,751

 

 

32,093

 

 

114,844

 

 

109,653

 

One- to four-family property

390

 

62,182

 

 

10,157

 

 

72,339

 

 

68,907

 

Single use building

26

 

22,981

 

 

20,471

 

 

43,452

 

 

41,908

 

Other

107

 

74,320

 

 

12,256

 

 

86,576

 

 

53,054

 

 

838

$

1,021,960

 

$

374,579

 

$

1,396,539

 

$

1,136,215

 

 

 

 

 

 

 

Weighted average rate

 

 

4.64

%

 

5.65

%

 

4.91

%

 

4.56

%

The following table summarizes the Bank's commercial real estate and commercial construction loans by state as of the dates indicated.

 

December 31, 2022

 

September 30, 2022

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Gross Loan

 

Count

 

Principal

 

Amount

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

Kansas

616

$

400,508

$

118,911

$

519,419

$

423,797

Texas

15

 

224,792

 

111,720

 

336,512

 

280,840

Missouri

177

 

246,132

 

89,268

 

335,400

 

296,443

Colorado

8

 

40,179

 

15,526

 

55,705

 

34,377

Tennessee

2

 

20,577

 

22,681

 

43,258

 

Nebraska

7

 

33,760

 

4,057

 

37,817

 

32,992

Other

13

 

56,012

 

12,416

 

68,428

 

67,766

 

838

$

1,021,960

$

374,579

$

1,396,539

$

1,136,215

The following table presents the Bank's commercial loan portfolio and outstanding loan commitments, categorized by gross loan amount (unpaid principal plus undisbursed amounts) or outstanding loan commitment amount, as of December 31, 2022.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

8

$

362,853

>$15 to $30 million

20

 

424,689

>$10 to $15 million

9

 

108,638

>$5 to $10 million

24

 

170,993

$1 to $5 million

137

 

327,871

Less than $1 million

1,255

 

191,370

 

1,453

$

1,586,414

Asset Quality

The following tables present loans 30 to 89 days delinquent, non-performing loans, and other real estate owned ("OREO") as of the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at December 31, 2022, approximately 76% were 59 days or less delinquent. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. Non-performing assets include nonaccrual loans and OREO.

 

Loans Delinquent for 30 to 89 Days at:

 

December 31, 2022

 

September 30, 2022

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

Originated

56

$

4,708

 

48

$

4,134

 

64

$

6,035

 

64

$

6,931

 

74

$

7,009

 

Correspondent purchased

4

 

1,216

 

7

 

1,104

 

9

 

3,467

 

10

 

2,421

 

11

 

5,133

 

Bulk purchased

3

 

865

 

3

 

913

 

4

 

755

 

2

 

396

 

1

 

154

 

Commercial

6

 

191

 

 

 

6

 

706

 

4

 

373

 

2

 

222

 

Consumer

24

 

626

 

24

 

345

 

16

 

256

 

14

 

215

 

16

 

164

 

 

93

$

7,606

 

82

$

6,496

 

99

$

11,219

 

94

$

10,336

 

104

$

12,682

 

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

0.10

%

 

 

0.09

%

 

 

0.16

%

 

 

0.15

%

 

 

 

0.18

%

 

Non-Performing Loans and OREO at:

 

December 31, 2022

 

September 30, 2022

 

June 30, 2022

 

March 31, 2022

 

December 31, 2021

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

Loans 90 or More Days Delinquent or in Foreclosure:

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

Originated

13

$

1,034

 

29

$

2,919

 

36

$

2,585

 

44

$

3,999

 

48

$

3,943

 

Correspondent purchased

14

 

4,126

 

12

 

3,737

 

9

 

2,659

 

11

 

3,967

 

10

 

3,115

 

Bulk purchased

4

 

1,492

 

3

 

1,148

 

5

 

1,807

 

5

 

1,819

 

6

 

1,945

 

Commercial

7

 

1,152

 

8

 

1,167

 

7

 

1,184

 

6

 

1,167

 

6

 

1,170

 

Consumer

11

 

126

 

9

 

154

 

9

 

174

 

19

 

400

 

25

 

477

 

 

49

 

7,930

 

61

 

9,125

 

66

 

8,409

 

85

 

11,352

 

95

 

10,650

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure as a percentage of total loans

 

 

0.10

%

 

 

0.12

%

 

 

0.12

%

 

 

0.16

%

 

 

0.15

%

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

Originated

3

$

219

 

3

$

222

 

2

$

207

 

5

$

505

 

5

$

451

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

Bulk purchased

 

 

 

 

 

 

 

 

 

 

Commercial

2

 

84

 

1

 

77

 

1

 

4

 

2

 

34

 

3

 

62

 

Consumer

 

 

1

 

19

 

1

 

19

 

2

 

27

 

 

 

 

5

 

303

 

5

 

318

 

4

 

230

 

9

 

566

 

8

 

513

 

Total nonaccrual loans

54

 

8,233

 

66

 

9,443

 

70

 

8,639

 

94

 

11,918

 

103

 

11,163

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans as a percentage of total loans

 

0.11

%

 

 

0.13

%

 

 

0.12

%

 

 

0.17

%

 

 

0.16

%

 

 

 

 

 

 

 

 

 

 

 

OREO: