Capitol Federal Financial, Inc.® Reports Fiscal Year 2019 Results

TOPEKA, Kan.--()--Capitol Federal Financial, Inc.® (NASDAQ: CFFN) (the "Company"), the parent company of Capitol Federal Savings Bank (the "Bank"), announced results today for the fiscal year ended September 30, 2019. Detailed results will be available in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019, which will be filed with the Securities and Exchange Commission ("SEC") on or about November 27, 2019 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 $22.4 million;
  • basic and diluted earnings per share of $0.16;
  • net interest margin of 2.15% (2.24% excluding the effects of the leverage strategy); and
  • paid dividends of $11.7 million, or $0.085 per share.

Highlights for the fiscal year include:

  • net income of $94.2 million;
  • basic and diluted earnings per share of $0.68;
  • net interest margin of 2.26% (2.30% excluding the effects of the leverage strategy);
  • total commercial loans and commitments outstanding of $1.00 billion at September 30, 2019;
  • paid dividends of $134.9 million, or $0.98 per share; and
  • declared a fiscal year 2019 cash true-up dividend of $0.34 per share, payable on December 6, 2019.

Comparison of Operating Results for the Fiscal Years Ended September 30, 2019 and 2018

The Company recognized net income of $94.2 million, or $0.68 per share, for the fiscal year ended September 30, 2019 compared to net income of $98.9 million, or $0.73 per share, for the fiscal year ended September 30, 2018. The decrease in net income was due primarily to a $10.0 million increase in non-interest expense during the current year, partially offset by a $7.6 million increase in net interest income due primarily to higher yielding loans added in the acquisition of Capital City Bancshares, Inc. ("CCB"). Additionally, income tax expense was $1.4 million higher in the current fiscal year due primarily to income tax adjustments required in the prior fiscal year with the enactment of The Tax Cuts and Jobs Act (the "Tax Act") in December 2017.

The net interest margin increased 31 basis points, from 1.95% for the prior fiscal year to 2.26% for the current fiscal year. 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. The leverage strategy was suspended at certain times during the current year due to the negative interest rate spreads between the related Federal Home Loan Bank Topeka ("FHLB") borrowings and cash held at the Federal Reserve Bank of Kansas City (the "FRB of Kansas City") making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. Excluding the effects of the leverage strategy, the net interest margin would have increased six basis points, from 2.24% for the prior fiscal year to 2.30% for the current fiscal year. The increase in the net interest margin excluding the effects of the leverage strategy was due mainly to the addition of higher yielding commercial loans in the CCB acquisition, partially offset by an increase in the cost of deposits.

To the extent market rates of interest remain at current levels or go lower during fiscal year 2020, the Company expects a decrease in our net interest margin, compared to fiscal year 2019, due primarily to lower yields on our loans and securities. If realized, the decrease in the yields on our loans and securities is expected to be from loans originated at lower rates, adjustable-rate loans repricing lower and increased prepayment speeds on our correspondent loans and mortgage-backed securities ("MBS") portfolios, which would accelerate the amortization of the premiums we have paid to acquire these assets. The rates on our certificate of deposit portfolio and borrowings may also decrease if market rates decrease, but will likely do so at a slower pace than interest-earning assets because the majority of those liabilities have stated maturities.

Interest and Dividend Income

The weighted average yield on total interest-earning assets increased 45 basis points, from 3.16% for the prior fiscal year to 3.61% for the current fiscal year, while the average balance of interest-earning assets decreased $1.03 billion from the prior fiscal year. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have increased 23 basis points, from 3.39% for the prior fiscal year to 3.62% for the current fiscal year, and the average balance of interest-earning assets would have increased $202.1 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.

 

For the Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

284,229

 

 

$

260,198

 

 

$

24,031

 

 

9.2

%

MBS

25,730

 

 

22,619

 

 

3,111

 

 

13.8

 

FHLB stock

7,823

 

 

10,962

 

 

(3,139

)

 

(28.6

)

Investment securities

6,366

 

 

4,670

 

 

1,696

 

 

36.3

 

Cash and cash equivalents

5,806

 

 

23,443

 

 

(17,637

)

 

(75.2

)

Total interest and dividend income

$

329,954

 

 

$

321,892

 

 

$

8,062

 

 

2.5

 

The increase in interest income on loans receivable was due to a $282.0 million increase in the average balance of the portfolio, as well as a 17 basis point increase in the weighted average yield on the portfolio to 3.77% for the current fiscal year. The increase in the average balance was due mainly to the acquisition of CCB. The increase in the weighted average yield was also due mainly to the addition of higher yielding loans associated with the CCB acquisition, legacy adjustable-rate loans repricing to higher market rates, and the origination and purchase of new loans at higher market rates.

The increase in interest income on the MBS portfolio was due to a 28 basis point increase in the weighted average yield on the portfolio to 2.63% for the current fiscal year, along with a $16.7 million increase in the average balance of the portfolio. The increase in the weighted average yield was due primarily to a decrease in the impact of net premium amortization, as well as adjustable-rate MBS repricing to higher market rates. Net premium amortization of $1.3 million during the current fiscal year decreased the weighted average yield on the portfolio by 13 basis points. During the prior fiscal year, $3.0 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 31 basis points. As of September 30, 2019, the remaining net balance of premiums on our portfolio of MBS was $2.3 million.

The decrease in dividend income on FHLB stock was due to a decrease in the average balance of FHLB stock as a result of the leverage strategy being in place for a shorter period of time during the current fiscal year as compared to the prior fiscal year. This was partially offset by a higher dividend rate on FHLB stock during the current fiscal year. See additional discussion regarding the leverage strategy in the Financial Condition section below.

The increase in interest income on the investment securities portfolio was due to a 66 basis point increase in the weighted average yield on the portfolio to 2.26%. The increase in the weighted average yield was primarily a result of replacing maturing securities at higher market rates.

The cash and cash equivalents line item in the table above includes interest income associated and not associated with the leverage strategy. Interest income on cash and cash equivalents not related to the leverage strategy decreased $705 thousand from the prior fiscal year due to an $86.8 million decrease in the average balance, partially offset by a 68 basis point increase in the weighted average yield which was related to cash balances held at the FRB of Kansas City. Interest income on cash associated with the leverage strategy decreased $16.9 million from the prior fiscal year due to a $1.18 billion decrease in the average balance, as the leverage strategy was in place for a shorter period of time during the current fiscal year.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities increased 18 basis points, from 1.36% for the prior fiscal year to 1.54% for the current fiscal year, while the average balance of interest-bearing liabilities decreased $973.3 million from the prior fiscal year. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased 19 basis points, from 1.33% for the prior fiscal year to 1.52% for the current fiscal year, and the average balance of interest-bearing liabilities would have increased $263.2 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

 

For the Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

66,201

 

 

$

52,625

 

 

$

13,576

 

 

25.8

%

FHLB borrowings

54,391

 

 

67,120

 

 

(12,729

)

 

(19.0

)

Other borrowings

2,972

 

 

3,374

 

 

(402

)

 

(11.9

)

Total interest expense

$

123,564

 

 

$

123,119

 

 

$

445

 

 

0.4

 

The increase in interest expense on deposits was due primarily to a 20 basis point increase in the weighted average rate, to 1.19% for the current fiscal year. The deposit accounts assumed in the CCB acquisition were at a lower average rate than our legacy deposit portfolio rate and our overall deposit portfolio rate, which partially offset the increase in the deposit portfolio rate in the current fiscal year. The increase in the weighted average rate was due primarily to increases in the average retail/business certificate of deposit portfolio rate and money market portfolio rate, which increased 29 basis points and 33 basis points, respectively, as market interest rates increased throughout both years. Additionally, late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019 the Bank held a special certificate of deposit campaign ("unTraditional campaign") resulting in growth in the short-term and certain intermediate-term certificates of deposit. See the Financial Condition section below for more information.

The FHLB borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy increased $5.5 million from the prior fiscal year due to a 23 basis point increase in the weighted average rate paid, to 2.30% for the current fiscal year, and a $14.0 million increase in the average balance of the portfolio. The increase in the weighted average rate paid was due primarily to certain maturing advances being replaced at higher effective market interest rates. Interest expense on FHLB borrowings associated with the leverage strategy decreased $18.2 million from the prior fiscal year due to the leverage strategy being in place for a shorter period of time during the current fiscal year.

The decrease in interest expense on other borrowings was due mainly to the maturity of a $100.0 million repurchase agreement during the prior fiscal year, which was not replaced with a new repurchase agreement.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current fiscal year of $750 thousand, compared to no provision for credit losses during the prior fiscal year. The $750 thousand provision for credit losses in the current fiscal year is due primarily to commercial loan activities during the current fiscal year, specifically the classification of a large commercial loan as special mention, commercial loan growth and funding, certain commercial loans that renewed since being obtained in the CCB acquisition and are now in the Bank's allowance for credit losses ("ACL") model, and commercial loan charge-offs.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

12,740

 

 

$

15,636

 

 

$

(2,896

)

 

(18.5

)%

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

2,432

 

 

1,875

 

 

557

 

 

29.7

 

Other non-interest income

6,786

 

 

4,524

 

 

2,262

 

 

50.0

 

Total non-interest income

$

21,958

 

 

$

22,035

 

 

$

(77

)

 

(0.3

)

The decrease in deposit service fees was due mainly to a change in the presentation of interchange network charges related to the adoption of a new revenue recognition accounting standard during the current fiscal year. Previously, interchange network charges were reported in deposit and loan expense. As a result of the adoption of the new revenue recognition accounting standard on October 1, 2018, interchange transaction fee income is now reported net of interchange network charges, which totaled $3.4 million during the current fiscal year and $3.0 million during the prior fiscal year.

The increase in income from BOLI was due primarily to a one-time adjustment during the prior fiscal year to the benchmark rate associated with one of the policies which reduced income from BOLI during that period, as well as to an increase in income related to policies acquired in the CCB acquisition.

The increase in other non-interest income was due mainly to revenues from the trust asset management operations obtained in the CCB acquisition, commercial loan fee related income, insurance commission income, and income related to the collateral pledged by the Bank on its interest rate swap agreements.

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 Year Ended

 

 

 

 

 

September 30,

 

Change Expressed in:

 

2019

 

2018

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

53,145

 

 

$

46,563

 

 

$

6,582

 

 

14.1

%

Information technology and related expense

17,615

 

 

13,999

 

 

3,616

 

 

25.8

 

Occupancy, net

13,032

 

 

11,455

 

 

1,577

 

 

13.8

 

Regulatory and outside services

5,813

 

 

5,709

 

 

104

 

 

1.8

 

Advertising and promotional

5,244

 

 

5,034

 

 

210

 

 

4.2

 

Deposit and loan transaction costs

2,478

 

 

5,621

 

 

(3,143

)

 

(55.9

)

Office supplies and related expense

2,439

 

 

1,888

 

 

551

 

 

29.2

 

Federal insurance premium

1,172

 

 

3,277

 

 

(2,105

)

 

(64.2

)

Other non-interest expense

6,006

 

 

3,356

 

 

2,650

 

 

79.0

 

Total non-interest expense

$

106,944

 

 

$

96,902

 

 

$

10,042

 

 

10.4

 

The increase in salaries and employee benefits was due primarily to expense related to retained CCB employees. Management anticipates salaries and employee benefits will be approximately $4.0 million higher in fiscal year 2020 due primarily to an increase in staffing for commercial banking activities and related back office functions, along with an increase in information technology staff. The $4.0 million increase is expected to be approximately $1.2 million in each of the second and third quarters and $1.6 million in the fourth quarter. The increase in information technology and related expense was due mainly to an increase in software licensing and costs related to the integration of CCB operations. The increase in occupancy, net was due primarily to expenses related to properties acquired in the CCB acquisition. The decrease in deposit and loan transaction costs was due mainly to the adoption of the new revenue recognition standard discussed above. The increase in office supplies and related expense was due primarily to costs related to the integration of CCB customers and operations. The decrease in the federal insurance premium was due mainly to the Bank receiving a credit from the Federal Deposit Insurance Corporation ("FDIC") as a result of the FDIC deposit insurance fund ratio reaching 1.40%. Pursuant to regulatory guidance, once the insurance fund exceeds 1.38% of insured deposits, deposit insurance assessment credits are allocated to banks with less than $10 billion in assets, to compensate for premiums previously paid that contributed to growth of the fund past 1.15%. These credits will continue to offset the Bank's premium assessments as long as the insurance fund ratio remains above 1.38% of insured deposits and the Bank still has a remaining credit balance. As of September 30, 2019, the Bank had a remaining credit of $1.6 million. The increase in other non-interest expense was due primarily to amortization of deposit intangibles associated with the acquisition of CCB. Management anticipates other non-interest expense may increase in the first quarter of fiscal year 2020 due primarily to a potential $400 thousand write-down of an OREO property that was added in the CCB acquisition, related to an offer received on this property subsequent to September 30, 2019.

The Company's efficiency ratio was 46.83% for the current fiscal year compared to 43.89% for the prior fiscal year. The change in the efficiency ratio was due to higher non-interest expense in the current fiscal year compared to the prior fiscal year. 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 proportionally lower level of expense.

Income Tax Expense

Income tax expense was $26.4 million for the current fiscal year compared to $25.0 million for the prior fiscal year. The effective tax rate was 21.9% for the current fiscal year compared to 20.2% for the prior fiscal year. The increase in the effective tax rate compared to the prior year was due mainly to the enactment of the Tax Act in the prior fiscal year. In accordance with accounting principles generally accepted in the United States of America ("GAAP"), the Company revalued its deferred tax assets and liabilities in December 2017 to account for the lower corporate tax rate which reduced income tax expense by $7.5 million. This benefit was partially offset, when comparing the two fiscal years, as the Company was required to apply a blended statutory federal tax rate, because we have a fiscal year end of September 30, of 24.5% in the prior fiscal year compared to 21% in the current fiscal year. Additionally, the tax credit benefits associated with the Company's low income housing partnership investments were higher in the current fiscal year compared to the prior fiscal year, which contributed to a reduction in the current year effective income tax compared to the prior fiscal year. Management anticipates the effective income tax rate for fiscal year 2020 will be approximately 21% to 22%.

Comparison of Operating Results for the Three Months Ended September 30, 2019 and June 30, 2019

For the quarter ended September 30, 2019, the Company recognized net income of $22.4 million, or $0.16 per share, compared to net income of $22.9 million, or $0.17 per share, for the quarter ended June 30, 2019. The decrease in net income was due primarily to a decrease in net interest income, partially offset by a decrease in non-interest expense.

Net interest income decreased $1.9 million, or 3.6%, from the prior quarter to $49.8 million for the current quarter. The net interest margin decreased 14 basis points from 2.29% for the prior quarter to 2.15% for the current quarter. Excluding the effects of the leverage strategy, the net interest margin would have decreased five basis points, from 2.29% for the prior quarter to 2.24% for the current quarter. The leverage strategy was in place during a portion of the current quarter, and was not in place during the prior quarter. 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. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit and a decrease in interest income on loans receivable, partially offset by a decrease in the cost of public unit certificates of deposit.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased six basis points, from 3.64% for the prior quarter to 3.58% for the current quarter, while the average balance of interest-earning assets increased $253.1 million between the two periods. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased two basis points, from 3.64% for the prior quarter to 3.62% for the current quarter, and the average balance of interest-earning assets would have decreased $144.8 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.

 

For the Three Months Ended

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

70,366

 

 

$

71,434

 

 

$

(1,068

)

 

(1.5

)%

MBS

6,293

 

 

6,613

 

 

(320

)

 

(4.8

)

FHLB stock

2,156

 

 

1,865

 

 

291

 

 

15.6

 

Investment securities

1,585

 

 

1,835

 

 

(250

)

 

(13.6

)

Cash and cash equivalents

2,885

 

 

464

 

 

2,421

 

 

521.8

 

Total interest and dividend income

$

83,285

 

 

$

82,211

 

 

$

1,074

 

 

1.3

 

The decrease in interest income on loans receivable was due primarily to an increase in premium amortization on one- to four-family correspondent loans as a result of payoff activity. The decrease in interest income on the MBS portfolio was due to a $59.2 million decrease in the average balance of the portfolio. The increase in interest income on FHLB stock and cash and cash equivalents was due mainly to the leverage strategy being in place during a portion of current quarter. The decrease in interest income on investment securities was due mainly to a 26 basis point decrease in the average yield on the portfolio resulting primarily from discount accretion on securities called during the prior quarter.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities for the current quarter increased eight basis points, from 1.54% for the prior quarter to 1.62% for the current quarter, and the average balance of interest-bearing liabilities increased $266.0 million between the two periods. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased three basis points, from 1.54% for the prior quarter to 1.57% for the current quarter, while the average balance of interest-bearing liabilities would have decreased $131.8 million. 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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

17,471

 

 

$

16,909

 

 

$

562

 

 

3.3

%

FHLB borrowings

15,355

 

 

12,981

 

 

2,374

 

 

18.3

 

Other borrowings

648

 

 

640

 

 

8

 

 

1.3

 

Total interest expense

$

33,474

 

 

$

30,530

 

 

$

2,944

 

 

9.6

 

The increase in interest expense on deposits was due primarily to a four basis point increase in the weighted average rate paid, to 1.25% for the current quarter. The increase in the weighted average rate paid was due primarily to a seven basis point increase in the average retail/business certificate of deposit portfolio rate, to 2.02% in the current quarter. As discussed above, late in the prior quarter the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit and, during the current quarter, ran the unTraditional certificate of deposit campaign, which added 2.6 basis points to the average cost of certificates of deposit. The remainder of the increase in the weighted average rate paid was due primarily to lower rate longer-term certificates of deposit which matured and repriced to higher rates.

The FHLB borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on FHLB borrowings not related to the leverage strategy decreased $186 thousand from the prior quarter due primarily to a decrease in the usage of the FHLB line of credit during the current quarter. Interest expense on FHLB borrowings associated with the leverage strategy increased $2.6 million from the prior quarter due to the leverage strategy being in place during a portion of the current quarter.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current quarter of $300 thousand, compared to a provision for credit losses during the prior quarter of $450 thousand. The $300 thousand provision for credit losses in the current quarter was primarily a result of commercial loan activities, specifically related to certain commercial loans that renewed since the CCB acquisition and are now included in the Bank's ACL model and due to commercial loan charge-offs during 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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

3,159

 

 

$

3,131

 

 

$

28

 

 

0.9

%

Income from BOLI

620

 

 

590

 

 

30

 

 

5.1

 

Other non-interest income

2,080

 

 

1,953

 

 

127

 

 

6.5

 

Total non-interest income

$

5,859

 

 

$

5,674

 

 

$

185

 

 

3.3

 

The increase in other non-interest income was due mainly to an increase in commercial loan fee-related income.

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

 

 

 

 

 

September 30,

 

June 30,

 

Change Expressed in:

 

2019

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

13,940

 

 

$

13,454

 

 

$

486

 

 

3.6

%

Information technology and related expense

4,080

 

 

4,652

 

 

(572

)

 

(12.3

)

Occupancy, net

3,264

 

 

3,224

 

 

40

 

 

1.2

 

Regulatory and outside services

1,566

 

 

1,425

 

 

141

 

 

9.9

 

Advertising and promotional

1,647

 

 

1,447

 

 

200

 

 

13.8

 

Deposit and loan transaction costs

596

 

 

681

 

 

(85

)

 

(12.5

)

Office supplies and related expense

555

 

 

689

 

 

(134

)

 

(19.4

)

Federal insurance premium

(615

)

 

600

 

 

(1,215

)

 

(202.5

)

Other non-interest expense

1,297

 

 

1,519

 

 

(222

)

 

(14.6

)

Total non-interest expense

$

26,330

 

 

$

27,691

 

 

$

(1,361

)

 

(4.9

)

The increase in salaries and employee benefits expense was due mainly to annual merit increases, an increase in commission compensation, and one additional working day during the current quarter. The decrease in information technology and related expense was due primarily to a decrease in costs related to the integration of CCB operations. The decrease in federal insurance premiums was due to the Bank receiving a credit from the FDIC as discussed above.

The Company's efficiency ratio was 47.30% for the current quarter compared to 48.28% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense in the current quarter compared to the prior quarter.

Income Tax Expense

Income tax expense was $6.6 million for the current quarter, compared to $6.3 million for the prior quarter. The effective tax rate was 22.8% for the current quarter compared to 21.6% for the prior quarter.

Financial Condition as of September 30, 2019

Management continues to manage the size and mix of the loan portfolio, over the long-term, by utilizing cash flows from the one- to four-family loan portfolio to fund commercial loan growth. Given the current level of total assets and the interest rate environment, it is unlikely that the loan portfolio will increase in the next year. Over the past few years, cash flows from the securities portfolio have been used primarily to purchase loans and in part to pay down FHLB advances. By moving cash from lower yielding assets to higher yielding assets and repaying higher costing liabilities, we have been able to maintain our net interest margin. Additionally, the Bank began reducing its balance of public unit certificates of deposit late in the third quarter of the current fiscal year in order to reduce its use of expensive wholesale funds and release securities pledged as collateral, which assists with liquidity levels. The balance of public unit certificates of deposit was $294.9 million at September 30, 2019. Management intends to maintain the balance of public unit certificates of deposit at approximately the current level for the time being. Management continues to evaluate liquidity levels, as measured by the ratio of securities and cash to total assets, and may consider reducing its target ratio below the current target level of 15%.

Total assets were $9.34 billion at September 30, 2019, an increase of $53.7 million, or 0.6%, from June 30, 2019. During the current quarter, some of the cash flows from the securities and loan portfolios were not reinvested into the respective portfolios; rather, the cash was placed at the FRB of Kansas City due to the current interest rate environment and to securities being called late in the current quarter. Cash and cash equivalents increased $177.3 million while the securities and loan portfolios decreased $139.1 million during the current quarter. Effective September 30, 2019, the Company adopted Accounting Standards Update ("ASU") 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities and certain components of ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments that are applicable to ASU 2017-12. As part of the adoption, the Company reclassified $444.7 million of held-to-maturity ("HTM") securities to available-for-sale ("AFS") securities. The adoption of ASU 2017-12 and the related components of ASU 2019-04 did not have any other impact on the Company's consolidated financial condition or results of operations at the time of adoption.

Total loans were $7.42 billion at September 30, 2019, a decrease of $90.7 million, or 1.2%, from June 30, 2019. The decrease was primarily in the one- to four-family correspondent loan portfolio and commercial real estate loan portfolio, partially offset by an increase in originated one- to four-family loans. The decrease in the commercial real estate portfolio during the current quarter was due largely to the payoff of a $45 million participation loan. During the current quarter, the Bank originated and refinanced $231.1 million of one- to four-family and consumer loans with a weighted average rate of 3.66% and purchased $44.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.81%. The Bank also originated $17.2 million of commercial loans with a weighted average rate of 5.52% and entered into commercial real estate loan participations of $17.5 million at a weighted average rate of 4.50%.

Total deposits were $5.58 billion at September 30, 2019, unchanged from June 30, 2019; however, the composition of the deposit portfolio changed during the current quarter. Retail/business certificates of deposit increased $132.3 million, funded primarily by cash flows from new deposit accounts, money market accounts, and checking accounts. Short-term and intermediate-term certificates of deposit increased $207.8 million while longer-term and variable rate certificates of deposit decreased $75.5 million. The change in the deposit portfolio mix was intentional, as the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit late in the prior quarter and ran the unTraditional campaign during the current quarter. The intention of the unTraditional campaign was to attract deposits with generally shorter terms to maturity, to allow the Bank to more quickly reprice certificate of deposit funds lower if market interest rates decrease.

Total assets decreased $109.5 million, or 1.2%, from September 30, 2018 to September 30, 2019. The decrease was largely in the securities portfolio and the loan portfolio, partially offset by an increase in operating cash. The one- to four-family loan portfolio decreased $285.6 million, partially offset by a $198.3 million increase in the commercial loan portfolio as cash flows from the one- to four-family loan portfolio were used to fund commercial loan growth. During the current fiscal year, the Bank originated and refinanced $660.8 million of one- to four-family and consumer loans with a weighted average rate of 4.18% and purchased $166.4 million of one- to four-family loans from correspondent lenders with a weighted average rate of 4.17%. The Bank also originated $164.1 million of commercial loans with a weighted average rate of 5.10% and entered into commercial real estate loan participations totaling $96.0 million at a weighted average rate of 5.27%. The commercial loan portfolio totaled $767.9 million at September 30, 2019, compared to $569.6 million at September 30, 2018. At September 30, 2019, the commercial loan portfolio was composed of 76% commercial real estate, 16% commercial construction, and 8% commercial and industrial. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $214.3 million, was $921.1 million at September 30, 2019. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $16.8 million, was $77.9 million at September 30, 2019.

Total deposits decreased $21.5 million, or 0.4%, from September 30, 2018 to September 30, 2019. The public unit certificate of deposit portfolio decreased $112.8 million, money market accounts decreased $54.5 million and savings accounts decreased $31.4 million. The retail/business certificate of deposit portfolio increased $163.4 million during the current fiscal year. Excluding the impact of the planned decrease in the balance of public unit certificates of deposit, total deposits would have increased $91.3 million over the same period.

Total FHLB borrowings at September 30, 2019 were $2.14 billion, a decrease of $35.0 million, or 1.6%, from September 30, 2018. The decrease was due to not renewing a portion of the FHLB advances that matured during the current fiscal year.

Stockholders' equity was $1.34 billion at September 30, 2019 compared to $1.39 billion at September 30, 2018. The $55.3 million decrease was due primarily to the payment of $134.9 million in cash dividends, partially offset by net income of $94.2 million during the current fiscal year. In the long run, management considers a ratio of stockholders' equity to total assets at the Bank of at least 10% an appropriate level of capital. At September 30, 2019, this ratio was 12.5%. The cash dividends paid during the current fiscal year totaled $0.98 per share and consisted of a $0.39 per share cash true-up dividend related to fiscal year 2018 earnings per the Company's dividend policy, a $0.25 per share True Blue Capitol dividend, and four regular quarterly cash dividends totaling $0.34 per share.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy during the current fiscal year involved borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings were repaid prior to quarter end, or earlier if the strategy was suspended. The proceeds from the borrowings, net of the required FHLB stock holdings which yielded 7.4% from dividends during the current fiscal year, were deposited at the 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 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 $36 thousand during the current fiscal year, compared to $1.7 million during the prior fiscal year. The decrease was due mainly to the strategy being suspended for the majority of the current year due to the large negative interest rate spread, making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.

On October 16, 2019, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on November 15, 2019 to stockholders of record as of the close of business on November 1, 2019. On October 30, 2019, the Company announced a fiscal year 2019 cash true-up dividend of $0.34 per share, or approximately $46.9 million, related to fiscal year 2019 earnings. The $0.34 per share cash true-up dividend was determined by taking the difference between total earnings for fiscal year 2019 and total regular quarterly cash dividends paid during fiscal year 2019, divided by the number of shares outstanding as of October 18, 2019. The cash true-up dividend is payable on December 6, 2019 to stockholders of record as of the close of business on November 22, 2019, and is the result of the Board of Directors' commitment to distribute to stockholders 100% of the annual earnings of the Company for fiscal year 2019.

At September 30, 2019, Capitol Federal Financial, Inc., at the holding company level, had $126.3 million on deposit at the Bank. For fiscal year 2020, it is the intent 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.

The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions and available liquidity. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.

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

 

September 30,

 

June 30,

 

September 30,

 

2019

 

2019

 

2018

 

(Dollars in thousands)

Stockholders' equity

$

1,336,326

 

 

$

1,327,099

 

 

$

1,391,622

 

Equity to total assets at end of period

14.3

%

 

14.3

%

 

14.7

%

The following table presents a reconciliation of total to net shares outstanding as of September 30, 2019.

Total shares outstanding

141,440,030

 

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

(3,590,958

)

Net shares outstanding

137,849,072

 

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 September 30, 2019, the Bank and Company exceeded all regulatory capital requirements. The following table presents the Bank's regulatory capital ratios at September 30, 2019.

 

 

 

Regulatory

 

 

 

Requirement For

 

Bank

 

Well-Capitalized

 

Ratios

 

Status

Tier 1 leverage ratio

12.1

%

 

5.0

%

Common equity tier 1 capital ratio

24.1

 

 

6.5

 

Tier 1 capital ratio

24.1

 

 

8.0

 

Total capital ratio

24.3

 

 

10.0

 

The following table presents a reconciliation of the Bank's equity under GAAP to regulatory capital amounts as of September 30, 2019 (dollars in thousands):

Total Bank equity as reported under GAAP

$

1,168,986

 

Accumulated Other Comprehensive Income ("AOCI")

14,899

 

Goodwill and other intangibles, net of deferred tax liabilities

(14,848

)

Total tier 1 capital

1,169,037

 

ACL

9,226

 

Total capital

$

1,178,263

 

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.

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 the possibility that expected cost savings, synergies and other benefits from the acquisition of CCB might not be realized within the anticipated time frames or at all, changes in economic conditions in the Company's market area, 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, 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

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except per share amounts)

 

September 30,

 

September 30,

 

2019

 

2018

ASSETS:

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $198,809 and $122,733)

$

220,370

 

 

$

139,055

 

Securities:

 

 

 

AFS, at estimated fair value (amortized cost of $1,191,455 and $718,564)

1,204,863

 

 

714,614

 

HTM, at amortized cost (estimated fair value of $0 and $601,071)

 

 

612,318

 

Loans receivable, net (ACL of $9,226 and $8,463)

7,416,747

 

 

7,514,485

 

FHLB stock, at cost

98,456

 

 

99,726

 

Premises and equipment, net

96,784

 

 

96,005

 

Income taxes receivable, net

2

 

 

2,177

 

Other assets

302,796

 

 

271,167

 

TOTAL ASSETS

$

9,340,018

 

 

$

9,449,547

 

 

 

 

 

LIABILITIES:

 

 

 

Deposits

$

5,581,867

 

 

$

5,603,354

 

FHLB borrowings

2,139,989

 

 

2,174,981

 

Other borrowings

100,000

 

 

110,052

 

Advance payments by borrowers for taxes and insurance

65,686

 

 

65,264

 

Deferred income tax liabilities, net

14,282

 

 

21,253

 

Accounts payable and accrued expenses

101,868

 

 

83,021

 

Total liabilities

8,003,692

 

 

8,057,925

 

 

 

 

 

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, 141,440,030 and 141,225,516

 

 

shares issued and outstanding as of September 30, 2019 and 2018, respectively

1,414

 

 

1,412

 

Additional paid-in capital

1,210,226

 

 

1,207,644

 

Unearned compensation, ESOP

(34,692

)

 

(36,343

)

Retained earnings

174,277

 

 

214,569

 

AOCI, net of tax

(14,899

)

 

4,340

 

Total stockholders' equity

1,336,326

 

 

1,391,622

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,340,018

 

 

$

9,449,547

 

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

For the Three Months Ended

 

For the Year Ended

 

September 30,

 

June 30,

 

September 30,

 

2019

 

2019

 

2019

 

2018

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

70,366

 

 

$

71,434

 

 

$

284,229

 

 

$

260,198

 

MBS

6,293

 

 

6,613

 

 

25,730

 

 

22,619

 

FHLB stock

2,156

 

 

1,865

 

 

7,823

 

 

10,962

 

Investment securities

1,585

 

 

1,835

 

 

6,366

 

 

4,670

 

Cash and cash equivalents

2,885

 

 

464

 

 

5,806

 

 

23,443

 

Total interest and dividend income

83,285

 

 

82,211

 

 

329,954

 

 

321,892

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

17,471

 

 

16,909

 

 

66,201

 

 

52,625

 

FHLB borrowings

15,355

 

 

12,981

 

 

54,391

 

 

67,120

 

Other borrowings

648

 

 

640

 

 

2,972

 

 

3,374

 

Total interest expense

33,474

 

 

30,530

 

 

123,564

 

 

123,119

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

49,811

 

 

51,681

 

 

206,390

 

 

198,773

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

300

 

 

450

 

 

750

 

 

 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

49,511

 

 

51,231

 

 

205,640

 

 

198,773

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

3,159

 

 

3,131

 

 

12,740

 

 

15,636

 

Income from BOLI

620

 

 

590

 

 

2,432

 

 

1,875

 

Other non-interest income

2,080

 

 

1,953

 

 

6,786

 

 

4,524

 

Total non-interest income

5,859

 

 

5,674

 

 

21,958

 

 

22,035

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

13,940

 

 

13,454

 

 

53,145

 

 

46,563

 

Information technology and related expense

4,080

 

 

4,652

 

 

17,615

 

 

13,999

 

Occupancy, net

3,264

 

 

3,224

 

 

13,032

 

 

11,455

 

Regulatory and outside services

1,566

 

 

1,425

 

 

5,813

 

 

5,709

 

Advertising and promotional

1,647

 

 

1,447

 

 

5,244

 

 

5,034

 

Deposit and loan transaction costs

596

 

 

681

 

 

2,478

 

 

5,621

 

Office supplies and related expense

555

 

 

689

 

 

2,439

 

 

1,888

 

Federal insurance premium

(615

)

 

600

 

 

1,172

 

 

3,277

 

Other non-interest expense

1,297

 

 

1,519

 

 

6,006

 

 

3,356

 

Total non-interest expense

26,330

 

 

27,691

 

 

106,944

 

 

96,902

 

INCOME BEFORE INCOME TAX EXPENSE

29,040

 

 

29,214

 

 

120,654

 

 

123,906

 

INCOME TAX EXPENSE

6,631

 

 

6,317

 

 

26,411

 

 

24,979

 

NET INCOME

$

22,409

 

 

$

22,897

 

 

$

94,243

 

 

$

98,927

 

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

 

For the Three Months Ended

 

For the Year Ended

 

September 30,

 

June 30,

 

September 30,

 

2019

 

2019

 

2019

 

2018

 

(Dollars in thousands, except per share amounts)

Net income

$

22,409

 

 

$

22,897

 

 

$

94,243

 

 

$

98,927

 

Income allocated to participating securities

(20

)

 

(16

)

 

(55

)

 

(40

)

Net income available to common stockholders

$

22,389

 

 

$

22,881

 

 

$

94,188

 

 

$

98,887

 

 

 

 

 

 

 

 

 

Average common shares outstanding

137,676,683

 

 

137,637,428

 

 

137,614,465

 

 

134,635,886

 

Average committed ESOP shares outstanding

124,346

 

 

83,052

 

 

62,458

 

 

62,458

 

Total basic average common shares outstanding

137,801,029

 

 

137,720,480

 

 

137,676,923

 

 

134,698,344

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

65,960

 

 

67,048

 

 

58,478

 

 

60,647

 

 

 

 

 

 

 

 

 

Total diluted average common shares outstanding

137,866,989

 

 

137,787,528

 

 

137,735,401

 

 

134,758,991

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

Basic

$

0.16

 

 

$

0.17

 

 

$

0.68

 

 

$

0.73

 

Diluted

$

0.16

 

 

$

0.17

 

 

$

0.68

 

 

$

0.73

 

 

 

 

 

 

 

 

 

Antidilutive stock options, excluded from the diluted

 

 

 

 

 

 

average common shares outstanding calculation

439,750

 

 

457,486

 

 

470,938

 

 

541,418

 

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.

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,873,851

 

 

3.74

%

 

52.2

%

 

$

3,853,289

 

 

3.77

%

 

51.4

%

 

$

3,965,692

 

 

3.74

%

 

52.8

%

Correspondent purchased

2,349,877

 

 

3.64

 

 

31.7

 

 

2,417,307

 

 

3.64

 

 

32.2

 

 

2,505,987

 

 

3.59

 

 

33.4

 

Bulk purchased

252,347

 

 

2.94

 

 

3.4

 

 

264,256

 

 

2.85

 

 

3.5

 

 

293,607

 

 

2.60

 

 

3.9

 

Construction

36,758

 

 

4.00

 

 

0.5

 

 

34,481

 

 

4.16

 

 

0.5

 

 

33,149

 

 

4.03

 

 

0.4

 

Total

6,512,833

 

 

3.68

 

 

87.8

 

 

6,569,333

 

 

3.69

 

 

87.6

 

 

6,798,435

 

 

3.64

 

 

90.5

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

583,617

 

 

4.48

 

 

7.9

 

 

612,287

 

 

4.53

 

 

8.2

 

 

426,243

 

 

4.33

 

 

5.7

 

Commercial and industrial

61,094

 

 

5.14

 

 

0.8

 

 

68,243

 

 

5.20

 

 

0.9

 

 

62,869

 

 

5.00

 

 

0.9

 

Construction

123,159

 

 

4.81

 

 

1.7

 

 

118,218

 

 

4.94

 

 

1.6

 

 

80,498

 

 

4.59

 

 

1.1

 

Total

767,870

 

 

4.58

 

 

10.4

 

 

798,748

 

 

4.65

 

 

10.7

 

 

569,610

 

 

4.44

 

 

7.7

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

120,587

 

 

6.15

 

 

1.6

 

 

122,696

 

 

6.38

 

 

1.6

 

 

129,588

 

 

5.97

 

 

1.7

 

Other

11,183

 

 

4.57

 

 

0.2

 

 

10,964

 

 

4.51

 

 

0.1

 

 

10,012

 

 

4.59

 

 

0.1

 

Total

131,770

 

 

6.02

 

 

1.8

 

 

133,660

 

 

6.22

 

 

1.7

 

 

139,600

 

 

5.87

 

 

1.8

 

Total loans receivable

7,412,473

 

 

3.81

 

 

100.0

%

 

7,501,741

 

 

3.83

 

 

100.0

%

 

7,507,645

 

 

3.74

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

9,226

 

 

 

 

 

 

9,036

 

 

 

 

 

 

8,463

 

 

 

 

 

Discounts/unearned loan fees

31,058

 

 

 

 

 

 

31,748

 

 

 

 

 

 

33,933

 

 

 

 

 

Premiums/deferred costs

(44,558

)

 

 

 

 

 

(46,511

)

 

 

 

 

 

(49,236

)

 

 

 

 

Total loans receivable, net

$

7,416,747

 

 

 

 

 

 

$

7,507,468

 

 

 

 

 

 

$

7,514,485

 

 

 

 

 

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, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-off as a result of refinances and loans that were sold 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. During the quarter ended September 30, 2019, the Bank endorsed $99.9 million of one- to four-family loans, reducing the average rate on those loans by 80 basis points. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal.

 

For the Three Months Ended

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,501,741

 

 

3.83

%

 

$

7,564,076

 

 

3.82

%

 

$

7,518,887

 

 

3.78

%

 

$

7,507,645

 

 

3.74

%

Originated and refinanced:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

188,753

 

 

3.60

 

 

121,871

 

 

4.09

 

 

78,678

 

 

4.58

 

 

116,032

 

 

4.59

 

Adjustable

59,550

 

 

4.37

 

 

63,341

 

 

4.87

 

 

123,006

 

 

4.80

 

 

73,711

 

 

4.98

 

Purchased and participations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

49,161

 

 

4.12

 

 

29,447

 

 

4.65

 

 

35,387

 

 

5.46

 

 

72,140

 

 

4.60

 

Adjustable

12,305

 

 

3.55

 

 

10,018

 

 

3.85

 

 

11,331

 

 

4.01

 

 

42,651

 

 

4.88

 

Change in undisbursed loan funds

12,293

 

 

 

 

34,742

 

 

 

 

30,500

 

 

 

 

(25,315

)

 

 

Repayments

(410,624

)

 

 

 

(321,439

)

 

 

 

(233,625

)

 

 

 

(267,469

)

 

 

Principal (charge-offs)/recoveries, net

(110

)

 

 

 

(33

)

 

 

 

61

 

 

 

 

95

 

 

 

Other

(596

)

 

 

 

(282

)

 

 

 

(149

)

 

 

 

(603

)

 

 

Ending balance

$

7,412,473

 

 

3.81

 

 

$

7,501,741

 

 

3.83

 

 

$

7,564,076

 

 

3.82

 

 

$

7,518,887

 

 

3.78

 

 

For the Year Ended

 

September 30, 2019

 

September 30, 2018

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,507,645

 

 

3.74

%

 

$

7,182,751

 

 

3.61

%

Originated and refinanced:

 

 

 

 

 

 

 

Fixed

505,334

 

 

4.10

 

 

447,890

 

 

4.07

 

Adjustable

319,608

 

 

4.77

 

 

185,495

 

 

4.40

 

Purchased and participations:

 

 

 

 

 

 

 

Fixed

186,135

 

 

4.64

 

 

364,508

 

 

3.98

 

Adjustable

76,305

 

 

4.40

 

 

162,873

 

 

3.73

 

Loans added in CCB acquisition, net

 

 

 

 

299,659

 

 

4.77

 

Change in undisbursed loan funds

52,220

 

 

 

 

(31,004

)

 

 

Repayments

(1,233,157

)

 

 

 

(1,102,624

)

 

 

Principal recoveries, net

13

 

 

 

 

65

 

 

 

Other

(1,630

)

 

 

 

(1,968

)

 

 

Ending balance

$

7,412,473

 

 

3.81

 

 

$

7,507,645

 

 

3.74

 

 

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 as of the dates presented. Credit scores are updated at least semiannually, with the latest update in September 2019, 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.

 

September 30, 2019

 

September 30, 2018

 

 

 

% of

 

Credit

 

 

 

Average

 

 

 

% of

 

Credit

 

 

 

Average

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

Originated

$

3,873,851

 

 

59.8

%

 

768

 

 

62

%

 

$

140

 

 

$

3,965,692

 

 

58.6

%

 

767

 

 

62

%

 

$

138

 

Correspondent purchased

2,349,877

 

 

36.3

 

 

765

 

 

65

 

 

371

 

 

2,505,987

 

 

37.1

 

 

764

 

 

67

 

 

378

 

Bulk purchased

252,347

 

 

3.9

 

 

762

 

 

61

 

 

304

 

 

293,607

 

 

4.3

 

 

758

 

 

62

 

 

304

 

 

$

6,476,075

 

 

100.0

%

 

767

 

 

63

 

 

186

 

 

$

6,765,286

 

 

100.0

%

 

765

 

 

64

 

 

186

 

The following table presents originated, refinanced, and correspondent purchased 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. Of the loans originated during the current quarter and current fiscal year, $46.2 million and $85.1 million, respectively, were refinanced from other lenders.

 

For the Three Months Ended

 

For the Year Ended

 

September 30, 2019

 

September 30, 2019

 

 

 

 

 

Credit

 

 

 

 

 

Credit

 

Amount

 

LTV

 

Score

 

Amount

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

165,713

 

 

77

%

 

766

 

 

$

494,739

 

 

78

%

 

760

 

Refinanced by Bank customers

43,666

 

 

69

 

 

757

 

 

86,381

 

 

68

 

 

752

 

Correspondent purchased

43,966

 

 

72

 

 

762

 

 

166,413

 

 

73

 

 

762

 

 

$

253,345

 

 

75

 

 

764

 

 

$

747,533

 

 

76

 

 

760

 

The following table presents the amount, percent of total, and weighted average rate, by state, of 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 fiscal year ended September 30, 2019.

 

 

For the Three Months Ended

 

For the Year Ended

 

 

September 30, 2019

 

September 30, 2019

State

 

Amount

 

% of Total

 

Rate

 

Amount

 

% of Total

 

Rate

 

 

(Dollars in thousands)

Kansas

 

$

178,558

 

 

70.5

%

 

3.42

%

 

$

507,341

 

 

67.9

%

 

3.92

%

Missouri

 

51,024

 

 

20.1

 

 

3.47

 

 

128,751

 

 

17.2

 

 

3.95

 

Texas

 

12,732

 

 

5.0

 

 

3.87

 

 

64,098

 

 

8.6

 

 

4.12

 

Other states

 

11,031

 

 

4.4

 

 

3.79

 

 

47,343

 

 

6.3

 

 

4.23

 

 

 

$

253,345

 

 

100.0

%

 

3.47

 

 

$

747,533

 

 

100.0

%

 

3.96

 

 

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 September 30, 2019, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of future cash needs. As of June 30, 2019, one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments totaled $115.6 million.

 

Fixed-Rate

 

 

 

 

 

 

 

15 years

 

More than

 

Adjustable-

 

Total

 

or less

 

15 years

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

16,826

 

 

$

44,828

 

 

$

14,679

 

 

$

76,333

 

 

3.40

%

Correspondent

5,862

 

 

60,136

 

 

9,621

 

 

75,619

 

 

3.65

 

 

$

22,688

 

 

$

104,964

 

 

$

24,300

 

 

$

151,952

 

 

3.53

 

 

 

 

 

 

 

 

 

 

 

Rate

2.95

%

 

3.73

%

 

3.18

%

 

 

 

 

Commercial Loans: During the current fiscal year, the Bank originated $164.1 million of commercial loans and entered into commercial real estate loan participations totaling $96.0 million. During the quarter ended September 30, 2019, the Bank processed commercial loan disbursements, excluding lines of credit, of approximately $40 million at a weighted average rate of 4.93%. Additionally, a single $45 million commercial real estate participation loan was repaid in full during the current quarter.

The following table presents the Bank's commercial real estate loans and loan commitments by industry classification, as defined by the North American Industry Classification System, as of September 30, 2019. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $487.1 million at a weighted average rate of 4.33% and adjustable-rate loans totaling $342.8 million at a weighted average rate of 4.99%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at September 30, 2019 having shorter terms to maturity.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Real estate rental and leasing

$

262,652

 

 

$

44,558

 

 

$

307,210

 

 

$

3,123

 

 

$

310,333

 

 

33.7

%

Health care and social assistance

219,715

 

 

38,981

 

 

258,696

 

 

28,426

 

 

287,122

 

 

31.2

 

Accommodation and food services

116,313

 

 

29,984

 

 

146,297

 

 

48,100

 

 

194,397

 

 

21.1

 

Arts, entertainment, and recreation

35,009

 

 

 

 

35,009

 

 

 

 

35,009

 

 

3.8

 

Retail trade

27,628

 

 

2,794

 

 

30,422

 

 

 

 

30,422

 

 

3.3

 

Construction

14,446

 

 

1,962

 

 

16,408

 

 

404

 

 

16,812

 

 

1.8

 

Other

31,013

 

 

4,774

 

 

35,787

 

 

11,225

 

 

47,012

 

 

5.1

 

 

$

706,776

 

 

$

123,053

 

 

$

829,829

 

 

$

91,278

 

 

$

921,107

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

4.53

%

 

4.99

%

 

4.60

%

 

5.28

%

 

4.67

%

 

 

The following table summarizes the Bank's commercial real estate loans and loan commitments by state as of September 30, 2019.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Kansas

$

284,113

 

 

$

14,211

 

 

$

298,324

 

 

$

14,547

 

 

$

312,871

 

 

34.0

%

Missouri

208,888

 

 

53,337

 

 

262,225

 

 

30,931

 

 

293,156

 

 

31.8

 

Texas

118,911

 

 

46,721

 

 

165,632

 

 

40,000

 

 

205,632

 

 

22.3

 

Nebraska

29,752

 

 

4,010

 

 

33,762

 

 

 

 

33,762

 

 

3.7

 

Kentucky

22,285

 

 

3,274

 

 

25,559

 

 

 

 

25,559

 

 

2.8

 

California

6,107

 

 

 

 

6,107

 

 

5,800

 

 

11,907

 

 

1.3

 

Other

36,720

 

 

1,500

 

 

38,220

 

 

 

 

38,220

 

 

4.1

 

 

$

706,776

 

 

$

123,053

 

 

$

829,829

 

 

$

91,278

 

 

$

921,107

 

 

100.0

%

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 September 30, 2019.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

5

 

 

$

190,672

 

>$15 to $30 million

11

 

 

271,702

 

>$10 to $15 million

5

 

 

60,614

 

>$5 to $10 million

15

 

 

94,058

 

$1 to $5 million

88

 

 

194,876

 

Less than $1 million

1,181

 

 

187,054

 

 

1,305

 

 

$

998,976

 

 

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. Of the loans 30 to 89 days delinquent at September 30, 2019, approximately 67% 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 accounting and/or regulatory reporting requirements even if the loans are current. Non-performing assets include non-performing loans and OREO. Over the past 12 months, OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately four months before they were sold.

 

Loans Delinquent for 30 to 89 Days at:

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

90

 

 

$

7,223

 

 

94

 

 

$

7,749

 

 

79

 

 

$

8,694

 

 

118

 

 

$

9,765

 

 

129

 

 

$

10,647

 

Correspondent purchased

9

 

 

2,721

 

 

14

 

 

3,727

 

 

13

 

 

4,133

 

 

10

 

 

1,969

 

 

18

 

 

3,803

 

Bulk purchased

16

 

 

3,581

 

 

13

 

 

2,249

 

 

13

 

 

2,722

 

 

15

 

 

2,780

 

 

15

 

 

3,502

 

Commercial

8

 

 

826

 

 

12

 

 

1,699

 

 

13

 

 

1,361

 

 

2

 

 

64

 

 

6

 

 

322

 

Consumer

42

 

 

525

 

 

43

 

 

630

 

 

37

 

 

481

 

 

42

 

 

744

 

 

38

 

 

533

 

 

165

 

 

$

14,876

 

 

176

 

 

$

16,054

 

 

155

 

 

$

17,391

 

 

187

 

 

$

15,322

 

 

206

 

 

$

18,807

 

30 to 89 days delinquent loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to total loans receivable, net

 

 

0.20

%

 

 

 

0.21

%

 

 

 

0.23

%

 

 

 

0.20

%

 

 

 

0.25

%

 

Non-Performing Loans and OREO at:

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

September 30, 2018

 

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

44

 

 

$

3,268

 

 

58

 

 

$

5,069

 

 

67

 

 

$

5,172

 

 

69

 

 

$

5,301

 

 

67

 

 

$

5,040

 

Correspondent purchased

4

 

 

1,008

 

 

2

 

 

871

 

 

3

 

 

918

 

 

5

 

 

1,093

 

 

1

 

 

449

 

Bulk purchased

6

 

 

1,465

 

 

7

 

 

2,194

 

 

10

 

 

2,782

 

 

10

 

 

3,137

 

 

11

 

 

3,045

 

Commercial

4

 

 

170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

25

 

 

362

 

 

25

 

 

437

 

 

27

 

 

567

 

 

28

 

 

513

 

 

30

 

 

569

 

 

83

 

 

6,273

 

 

92

 

 

8,571

 

 

107

 

 

9,439

 

 

112

 

 

10,044

 

 

109

 

 

9,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of total loans

 

 

0.08

%

 

 

 

0.11

%

 

 

 

0.12

%

 

 

 

0.13

%

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

16

 

 

$

1,183

 

 

15

 

 

$

1,057

 

 

18

 

 

$

1,761

 

 

17

 

 

$

1,584

 

 

19

 

 

$

1,482

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

298

 

 

2

 

 

396

 

Bulk purchased

1

 

 

65

 

 

2

 

 

374

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

1

 

 

7

 

 

1

 

 

7

 

 

2

 

 

1,712

 

 

2

 

 

1,776

 

 

 

 

 

Consumer

2

 

 

35

 

 

2

 

 

4

 

 

3

 

 

14

 

 

3

 

 

13

 

 

2

 

 

9

 

 

20

 

 

1,290

 

 

20

 

 

1,442

 

 

23

 

 

3,487

 

 

23

 

 

3,671

 

 

23

 

 

1,887

 

Total non-performing loans

103

 

 

7,563

 

 

112

 

 

10,013

 

 

130

 

 

12,926

 

 

135

 

 

13,715

 

 

132

 

 

10,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans as a percentage of total loans

 

0.10

%

 

 

 

0.13

%

 

 

 

0.17

%

 

 

 

0.18

%

 

 

 

0.15

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

8

 

 

$

745

 

 

8

 

 

$

546

 

 

5

 

 

$

549

 

 

4

 

 

$

588

 

 

8

 

 

$

843

 

Bulk purchased

 

 

 

 

 

 

 

 

1

 

 

322

 

 

1

 

 

322

 

 

1

 

 

454

 

Commercial

1

 

 

600

 

 

1

 

 

600

 

 

1

 

 

600

 

 

1

 

 

600

 

 

1

 

 

600

 

Consumer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

1,345

 

 

9

 

 

1,146

 

 

7

 

 

1,471

 

 

6

 

 

1,510

 

 

10

 

 

1,897

 

Total non-performing assets

112

 

 

$

8,908

 

 

121

 

 

$

11,159

 

 

137

 

 

$

14,397

 

 

141

 

 

$

15,225

 

 

142

 

 

$

12,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

0.10

%

 

 

 

0.12

%

 

 

 

0.15

%

 

 

 

0.16

%

 

 

 

0.14

%

(1)

Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements even if the loans are current.

(2)

Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.

The following table presents loans classified as special mention or substandard at the dates presented. The increase in special mention loans during the current year was due primarily to one $50.0 million commercial participation real estate loan being classified as special mention during the quarter ended June 30, 2019. The loan relates to a recently opened large hotel and convention center in a high growth area in the central-southern United States. Management has identified credit weaknesses associated with this loan, including a debt service coverage ratio below policy, the development surrounding the hotel and convention center has been slower than initially anticipated, and construction delays have occurred. The Bank has personal guarantees from members of a financially strong borrowing group. Due to the identified credit weaknesses, management made the decision to classify the loan as special mention. Management continues to closely monitor the hotel and convention center and surrounding activities. Included in substandard commercial loans at September 30, 2019 were $1.3 million of loans added in the CCB acquisition which have since been renewed and on which the related purchase acquisition adjustments have been accreted; as such, these loans are now included in the Bank's ACL formula analysis model. There were no such loans at June 30, 2019 or September 30, 2018.

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

15,428

 

 

$

23,783

 

 

$

12,528

 

 

$

25,657

 

 

$

9,705

 

 

$

32,866

 

Commercial

54,134

 

 

5,543

 

 

55,021

 

 

5,999

 

 

2,456

 

 

1,793

 

Consumer

283

 

 

758

 

 

172

 

 

696

 

 

298

 

 

911

 

 

$

69,845

 

 

$

30,084

 

 

$

67,721

 

 

$

32,352

 

 

$

12,459

 

 

$

35,570

 

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

 

For the Three Months Ended

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

2019

 

2019

 

2019

 

2018

 

2018

 

(Dollars in thousands)

Balance at beginning of period

$

9,036

 

 

$

8,619

 

 

$

8,558

 

 

$

8,463

 

 

$

8,344

 

Charge-offs:

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

(45

)

 

(10

)

 

(46

)

 

(14

)

Commercial

(124

)

 

 

 

 

 

 

 

 

Consumer

(9

)

 

(16

)

 

(2

)

 

(10

)

 

 

Total charge-offs

(133

)

 

(61

)

 

(12

)

 

(56

)

 

(14

)

Recoveries:

 

 

 

 

 

 

 

 

 

One- to four-family

14

 

 

3

 

 

19

 

 

92

 

 

123

 

Commercial

5

 

 

17

 

 

25

 

 

2

 

 

 

Consumer

4

 

 

8

 

 

29

 

 

57

 

 

10

 

Total recoveries

23

 

 

28

 

 

73

 

 

151

 

 

133

 

Net (charge-offs) recoveries

(110

)

 

(33

)

 

61

 

 

95

 

 

119

 

Provision for credit losses

300

 

 

450

 

 

 

 

 

 

 

Balance at end of period

$

9,226

 

 

$

9,036

 

 

$

8,619

 

 

$

8,558

 

 

$

8,463

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

 

 

 

 

 

 

to average loans outstanding during the period

%

 

%

 

%

 

%

 

%

Ratio of net (recoveries) charge-offs during the

 

 

 

 

 

 

 

 

period to average non-performing assets

1.09

 

 

0.26

 

 

(0.41

)

 

(0.68

)

 

(0.93

)

ACL to non-performing loans at end of period

121.99

 

 

90.24

 

 

66.68

 

 

62.40

 

 

77.01

 

ACL to loans receivable, net at end of period

0.12

 

 

0.12

 

 

0.11

 

 

0.11

 

 

0.11

 

ACL to net charge-offs (annualized)

21.1x

 

68.1x

 

N/M(1)

 

N/M(1)

 

N/M(1)

 

For the Year Ended

 

September 30,

 

2019

 

2018

 

(Dollars in thousands)

Balance at beginning of period

$

8,463

 

 

$

8,398

 

Charge-offs:

 

 

 

One- to four-family

(101

)

 

(264

)

Commercial

(124

)

 

 

Consumer

(37

)

 

(38

)

Total charge-offs

(262

)

 

(302

)

Recoveries:

 

 

 

One- to four-family

128

 

 

340

 

Commercial

49

 

 

 

Consumer

98

 

 

27

 

Total recoveries

275

 

 

367

 

Net recoveries (charge-offs)

13

 

 

65

 

Provision for credit losses

750

 

 

 

Balance at end of period

$

9,226

 

 

$

8,463

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

to average loans outstanding during the period

%

 

%

Ratio of net (recoveries) charge-offs during the

 

 

 

period to average non-performing assets

(0.12

)

 

(0.42

)

ACL to net charge-offs

N/M(1)

 

N/M(1)

(1)

This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.

The distribution of our ACL at the dates indicated is summarized below. Each quarter, we prepare a formula analysis model which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. The historical loss factors and qualitative factors continue to improve for our one- to four-family portfolio. To the extent the commercial loan portfolio continues to grow and the inherent loss factors remain relatively constant and/or the asset quality declines, the related ACL amounts will likely increase. In addition to the formula analysis model, management considers several other internal and external data elements when evaluating the overall adequacy of the ACL. Management considers the overall ACL to be adequate for the loan portfolio at September 30, 2019.

 

At

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

2019

 

2019

 

2019

 

2018

 

2018

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

Originated

$

1,982

 

 

$

2,019

 

 

$

2,157

 

 

$

2,740

 

 

$

2,933

 

Correspondent purchased

1,203

 

 

1,275

 

 

1,392

 

 

1,748

 

 

1,861

 

Bulk purchased

687

 

 

742

 

 

802

 

 

836

 

 

925

 

Construction

18

 

 

17

 

 

16

 

 

21

 

 

20

 

Total

3,890

 

 

4,053

 

 

4,367

 

 

5,345

 

 

5,739

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate

3,448

 

 

3,394

 

 

2,783

 

 

2,056

 

 

1,801

 

Commercial and industrial

472

 

 

256

 

 

224

 

 

55

 

 

21

 

Construction

1,251

 

 

1,182

 

 

1,081

 

 

923

 

 

734

 

Total

5,171

 

 

4,832

 

 

4,088

 

 

3,034

 

 

2,556

 

Consumer

165

 

 

151

 

 

164

 

 

179

 

 

168

 

Total

$

9,226

 

 

$

9,036

 

 

$

8,619

 

 

$

8,558

 

 

$

8,463

 

ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, replaces the current incurred loss impairment methodology in GAAP. The new impairment methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and loan commitments, over their contractual lives. This ASU is effective for the Company on October 1, 2020. The Company is working with a third-party vendor solution to implement the new impairment methodology. While we are currently unable to reasonably estimate the impact of adopting this ASU, we expect the impact of adoption will be influenced by the composition of our loan and securities portfolios as well as the economic conditions and forecasts at the time of adoption.

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 75% of our securities portfolio at September 30, 2019. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Fixed-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

$

625,840

 

 

2.46

%

 

2.9

 

 

$

647,484

 

 

2.47

%

 

3.0

 

 

$

732,095

 

 

2.43

%

 

3.0

 

U.S. government-sponsored enterprise debentures

249,828

 

 

2.15

 

 

0.7

 

 

252,795

 

 

2.35

 

 

1.0

 

 

268,525

 

 

2.09

 

 

2.3

 

Municipal bonds

18,371

 

 

1.63

 

 

1.0

 

 

21,107

 

 

1.63

 

 

1.0

 

 

24,574

 

 

1.56

 

 

1.8

 

Total fixed-rate securities

894,039

 

 

2.35

 

 

2.3

 

 

921,386

 

 

2.42

 

 

2.4

 

 

1,025,194

 

 

2.32

 

 

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

297,416

 

 

3.10

 

 

4.7

 

 

321,693

 

 

3.11

 

 

4.3

 

 

305,688

 

 

2.89

 

 

4.5

 

Total securities portfolio

$

1,191,455

 

 

2.54

 

 

2.9

 

 

$

1,243,079

 

 

2.60

 

 

2.9

 

 

$

1,330,882

 

 

2.45

 

 

3.2

 

MBS: The following table summarizes the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average 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.

 

For the Three Months Ended

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

979,256

 

 

2.68

%

 

3.4

 

 

$

985,294

 

 

2.67

%

 

3.7

 

 

$

972,543

 

 

2.62

%

 

3.6

 

 

$

1,036,990

 

 

2.57

%

 

3.4

 

Maturities and repayments

(70,865

)

 

 

 

 

 

(74,335

)

 

 

 

 

 

(62,702

)

 

 

 

 

 

(67,214

)

 

 

 

 

Net amortization of (premiums)/discounts

(270

)

 

 

 

 

 

(375

)

 

 

 

 

 

(310

)

 

 

 

 

 

(349

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

25,214

 

 

1.93

 

 

3.2

 

 

23,620

 

 

2.74

 

 

3.8

 

 

28,921

 

 

2.89

 

 

5.1

 

 

 

 

 

 

 

Adjustable

 

 

 

 

 

 

40,362

 

 

2.79

 

 

4.5

 

 

43,776

 

 

2.69

 

 

4.3

 

 

 

 

 

 

 

Change in valuation on AFS securities

3,152

 

 

 

 

 

 

4,690

 

 

 

 

 

 

3,066

 

 

 

 

 

 

3,116

 

 

 

 

 

Ending balance - carrying value

$

936,487

 

 

2.67

 

 

3.5

 

 

$

979,256

 

 

2.68

 

 

3.4

 

 

$

985,294

 

 

2.67

 

 

3.7

 

 

$

972,543

 

 

2.62

 

 

3.6

 

 

For the Year Ended

 

September 30, 2019

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,036,990

 

 

2.57

%

 

3.4

 

 

$

942,447

 

 

2.28

%

 

3.5

 

Maturities and repayments

(275,116

)

 

 

 

 

 

(277,464

)

 

 

 

 

Net amortization of (premiums)/discounts

(1,304

)

 

 

 

 

 

(2,968

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

77,755

 

 

2.53

 

 

4.1

 

 

201,871

 

 

2.93

 

 

4.1

 

Adjustable

84,138

 

 

2.74

 

 

4.4

 

 

94,028

 

 

2.42

 

 

4.2

 

Securities added in CCB acquisition, net

 

 

 

 

 

 

85,741

 

 

3.13

 

 

2.5

 

Change in valuation on AFS securities

14,024

 

 

 

 

 

 

(6,665

)

 

 

 

 

Ending balance - carrying value

$

936,487

 

 

2.67

 

 

3.5

 

 

$

1,036,990

 

 

2.57

 

 

3.4

 

Investment Securities: The following table summarizes the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average 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.

 

For the Three Months Ended

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

273,995

 

 

2.30

%

 

1.0

 

 

$

288,894

 

 

2.38

%

 

1.0

 

 

$

264,782

 

 

2.14

%

 

1.8

 

 

$

289,942

 

 

2.05

%

 

2.2

 

Maturities, calls and sales

(80,690

)

 

 

 

 

 

(65,781

)

 

 

 

 

 

(76,635

)

 

 

 

 

 

(26,665

)

 

 

 

 

Net amortization of (premiums)/discounts

(13

)

 

 

 

 

 

153

 

 

 

 

 

 

(39

)

 

 

 

 

 

(39

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

75,000

 

 

2.02

 

 

1.1

 

 

50,000

 

 

2.60

 

 

1.0

 

 

99,809

 

 

2.67

 

 

0.7

 

 

 

 

 

 

 

Change in valuation on AFS securities

84

 

 

 

 

 

 

729

 

 

 

 

 

 

977

 

 

 

 

 

 

1,544

 

 

 

 

 

Ending balance - carrying value

$

268,376

 

 

2.11

 

 

0.8

 

 

$

273,995

 

 

2.30

 

 

1.0

 

 

$

288,894

 

 

2.38

 

 

1.0

 

 

$

264,782

 

 

2.14

 

 

1.8

 

 

For the Year Ended

 

September 30, 2019

 

September 30, 2018

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

289,942

 

 

2.05

%

 

2.2

 

 

$

301,122

 

 

1.33

%

 

1.5

 

Maturities, calls and sales

(249,771

)

 

 

 

 

 

(129,838

)

 

 

 

 

Net amortization of (premiums)/discounts

62

 

 

 

 

 

 

(182

)

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

224,809

 

 

2.44

 

 

0.9

 

 

115,560

 

 

2.85

 

 

1.8

 

Securities added in CCB acquisition, net

 

 

 

 

 

 

5,855

 

 

2.12

 

 

1.0

 

Change in valuation on AFS securities

3,334

 

 

 

 

 

 

(2,575

)

 

 

 

 

Ending balance - carrying value

$

268,376

 

 

2.11

 

 

0.8

 

 

$

289,942

 

 

2.05

 

 

2.2

 

 

Deposit Portfolio

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

 

September 30, 2019

 

June 30, 2019

 

September 30, 2018

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

357,284

 

 

%

 

6.4

%

 

$

362,216

 

 

%

 

6.5

%

 

$

336,454

 

 

%

 

6.0

%

Interest-bearing checking

717,121

 

 

0.09

 

 

12.8

 

 

744,183

 

 

0.09

 

 

13.3

 

 

724,066

 

 

0.08

 

 

12.9

 

Savings

321,494

 

 

0.05

 

 

5.8

 

 

327,077

 

 

0.05

 

 

5.9

 

 

352,896

 

 

0.07

 

 

6.3

 

Money market

1,198,343

 

 

0.70

 

 

21.5

 

 

1,244,039

 

 

0.71

 

 

22.3

 

 

1,252,881

 

 

0.47

 

 

22.4

 

Retail/business certificates of deposit

2,692,770

 

 

2.08

 

 

48.2

 

 

2,560,469

 

 

2.01

 

 

45.9

 

 

2,529,368

 

 

1.79

 

 

45.1

 

Public unit certificates of deposit

294,855

 

 

2.29

 

 

5.3

 

 

342,887

 

 

2.32

 

 

6.1

 

 

407,689

 

 

1.89

 

 

7.3

 

 

$

5,581,867

 

 

1.29

 

 

100.0

%

 

$

5,580,871

 

 

1.24

 

 

100.0

%

 

$

5,603,354

 

 

1.06

 

 

100.0

%

The following table presents scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of September 30, 2019.

 

 

Amount Due

 

 

 

 

 

 

 

 

More than

 

More than

 

 

 

 

 

 

 

 

1 year

 

1 year to

 

2 years to 3

 

More than

 

Total

Rate range

 

or less

 

2 years

 

years

 

3 years

 

Amount

 

Rate

 

 

(Dollars in thousands)

 

 

0.00 – 0.99%

 

$

17,483

 

 

$

2,537

 

 

$

29

 

 

$

 

 

$

20,049

 

 

0.67

%

1.00 – 1.99%

 

873,887

 

 

326,852

 

 

203,765

 

 

7,482

 

 

1,411,986

 

 

1.78

 

2.00 – 2.99%

 

614,467

 

 

296,601

 

 

294,558

 

 

349,721

 

 

1,555,347

 

 

2.40

 

3.00 – 3.99%

 

 

 

 

 

 

 

243

 

 

243

 

 

3.00

 

 

 

$

1,505,837

 

 

$

625,990

 

 

$

498,352

 

 

$

357,446

 

 

$

2,987,625

 

 

2.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of total

 

50.4

%

 

20.9

%

 

16.7

%

 

12.0

%

 

 

 

 

Weighted average rate

 

1.98

 

 

2.09

 

 

2.22

 

 

2.46

 

 

 

 

 

Weighted average maturity (in years)

 

0.5

 

 

1.4

 

 

2.6

 

 

3.6

 

 

1.4

 

 

 

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

 

1.5

 

 

 

 

Borrowings

The following table presents the maturity of term borrowings (including FHLB advances, at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of September 30, 2019.

 

 

FHLB Advances Amount

 

Repurchase

 

 

 

 

Maturity by

 

 

 

Interest rate

 

Agreements

 

Contractual

 

Effective

Fiscal Year

 

Fixed-rate

 

swaps(1)

 

Amount

 

Rate

 

Rate(2)

 

 

(Dollars in thousands)

 

 

 

 

2020

 

$

350,000

 

 

$

640,000

 

 

$

100,000

 

 

2.18

 

 

2.44

 

2021

 

550,000

 

 

 

 

 

 

2.27

 

 

2.27

 

2022

 

200,000

 

 

 

 

 

 

2.23

 

 

2.23

 

2023

 

200,000

 

 

 

 

 

 

1.98

 

 

1.98

 

2024

 

100,000

 

 

 

 

 

 

3.39

 

 

3.39

 

 

 

$

1,400,000

 

 

$

640,000

 

 

$

100,000

 

 

2.25

 

 

2.38

 

(1)

Represents 12-month adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed each year until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 4.5 years at September 30, 2019.

(2)

The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid.

As of September 30, 2019, the Bank had $100.0 million outstanding on its FHLB line of credit which was not related to the leverage strategy. The average rate paid on FHLB line of credit borrowings during the current year was 2.54%.

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/business and public unit amounts, and term borrowings for the next four quarters as of September 30, 2019.

 

 

Retail/Business

 

 

 

Public Unit

 

 

 

Term

 

 

 

 

 

 

Maturity by

 

Certificate

 

Repricing

 

Certificate

 

Repricing

 

Borrowings

 

Repricing

 

 

 

Repricing

Quarter End

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Total

 

Rate

 

 

(Dollars in thousands)

December 31, 2019

 

$

336,610

 

 

1.65

%

 

$

112,275

 

 

2.18

%

 

$

350,000

 

 

2.40

%

 

$

798,885

 

 

2.05

%

March 31, 2020

 

249,725

 

 

1.78

 

 

56,767

 

 

2.37

 

 

65,000

 

 

2.57

 

 

371,492

 

 

2.01

 

June 30, 2020

 

403,455

 

 

2.11

 

 

54,246

 

 

2.40

 

 

200,000

 

 

2.35

 

 

657,701

 

 

2.21

 

September 30, 2020

 

256,086

 

 

2.09

 

 

36,673

 

 

2.24

 

 

475,000

 

 

2.48

 

 

767,759

 

 

2.34

 

 

 

$

1,245,876

 

 

1.91

 

 

$

259,961

 

 

2.27

 

 

$

1,090,000

 

 

2.44

 

 

$

2,595,837

 

 

2.17

 

The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue.

 

For the Three Months Ended

 

September 30, 2019

 

June 30, 2019

 

March 31, 2019

 

December 31, 2018

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

2,140,000

 

 

2.35

%

 

2.6

 

 

$

2,240,000

 

 

2.29

%

 

2.8

 

 

$

2,181,186

 

 

2.31

%

 

3.0

 

 

$

2,185,052

 

 

2.17

%

 

2.9

 

Maturities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

(375,000

)

 

2.38

 

 

 

 

(200,000

)

 

2.11

 

 

 

 

 

 

 

 

 

 

(300,000

)

 

1.73

 

 

 

CCB acquisition - junior subordinated debentures assumed (redeemed)

 

 

 

 

 

 

 

 

 

 

 

 

(6,186

)

 

10.60

 

 

11.5

 

 

(3,866

)

 

5.82

 

 

13.5

 

New FHLB borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

100,000

 

 

2.14

 

 

4.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,000

 

 

3.39

 

 

5.0

 

Interest rate swaps(1)

275,000

 

 

2.70

 

 

4.5

 

 

100,000

 

 

3.09

 

 

9.0

 

 

65,000

 

 

2.57

 

 

5.0

 

 

200,000

 

 

2.46

 

 

3.5

 

Ending balance

$

2,140,000

 

 

2.38

 

 

2.6

 

 

$

2,140,000

 

 

2.35

 

 

2.6

 

 

$

2,240,000

 

 

2.29

 

 

2.8

 

 

$

2,181,186

 

 

2.31

 

 

3.0

 

 

For the Year Ended

 

September 30, 2019

 

September 30, 2018

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

2,185,052

 

 

2.17

%

 

2.9

 

 

$

2,375,000

 

 

2.16

%

 

2.7

 

Maturities:

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

(875,000

)

 

2.10

 

 

 

 

(475,000

)

 

2.38

 

 

 

Repurchase agreements

 

 

 

 

 

 

(100,000

)

 

3.35

 

 

 

CCB acquisition - junior subordinated debentures assumed (redeemed)

(10,052

)

 

8.76

 

 

12.3

 

 

10,052

 

 

8.75

 

 

12.7

 

New FHLB borrowings:

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

200,000

 

 

2.77

 

 

4.5

 

 

 

 

 

 

 

Interest rate swaps(1)

640,000

 

 

2.67

 

 

5.0

 

 

375,000

 

 

2.64

 

 

6.8

 

Ending balance

$

2,140,000

 

 

2.38

 

 

2.6

 

 

$

2,185,052

 

 

2.17

 

 

2.9

 

(1)

Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.

Average Rates and Lives

At September 30, 2019, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $487.4 million, or 5.22% of total assets, compared to $363.5 million, or 3.92% of total assets, at June 30, 2019. The increase in the one-year gap amount was due primarily to an increase in the amount of cash held at September 30, 2019 compared to June 30, 2019, as well as lower interest rates as of September 30, 2019 compared to June 30, 2019. As interest rates fall, borrowers have more economic incentive to refinance their mortgages and agency debt issuers have more economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in higher projected cash flows on these assets.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family 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 significantly 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. If interest rates were to increase 200 basis points, as of September 30, 2019, the Bank's one-year gap is projected to be $(361.8) million, or (3.87)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated cash flows in the higher rate environment. This compares to a one-year gap of $(477.0) million, or (5.14)% of total assets, if interest rates were to have increased 200 basis points as of June 30, 2019.

During the current quarter, loan repayments totaled $410.6 million and cash flows from the securities portfolio totaled $151.6 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from term liabilities that matured and repriced into current market interest rates during the current quarter were $767.0 million, including $375.0 million in FHLB borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of September 30, 2019 was 1.4 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of September 30, 2019 was 2.6 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested as interest rates rise into higher-yielding assets.

In addition to the wholesale strategies, the Bank has sought to increase non-maturity deposits. Non-maturity deposits are expected to reduce the risk of higher interest rates because their interest rates are not expected to increase significantly as market interest rates rise. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historical interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances.

Over the last few years, the Bank has priced long-term certificates of deposit more aggressively than short-term certificates of deposit with the goal of giving customers incentive to move funds into longer-term certificates of deposit when interest rates were lower. Like non-maturity deposits, longer-term certificates of deposit are expected to reduce the risk of higher interest rates when market interest rates rise. More recently, the Bank began pricing short-term certificates of deposit more aggressively as the Bank reduces its usage of public unit certificates of deposit, which are generally large dollar, short-term funds. This strategy is intended to allow the Bank to more quickly reprice certificate of deposit funds lower, as it is management's expectation that short-term interest rates will decrease in the near term.

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 September 30, 2019. 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 interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Investment securities

$

268,376

 

 

2.11

%

 

0.7

 

 

22.3

%

 

3.0

%

MBS - fixed

632,787

 

 

2.46

 

 

3.0

 

 

52.5

 

 

7.1

 

MBS - adjustable

303,700

 

 

3.10

 

 

2.4

 

 

25.2

 

 

3.4

 

Total securities

1,204,863

 

 

2.54

 

 

2.3

 

 

100.0

%

 

13.5

 

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family:

 

 

 

 

 

 

 

 

 

<= 15 years

1,024,314

 

 

3.13

 

 

3.6

 

 

13.8

%

 

11.5

 

> 15 years

4,423,504

 

 

3.88

 

 

5.2

 

 

59.7

 

 

49.5

 

Fixed-rate commercial

450,577

 

 

4.52

 

 

3.1

 

 

6.1

 

 

5.0

 

All other fixed-rate loans

53,241

 

 

5.08

 

 

3.3

 

 

0.7

 

 

0.6

 

Total fixed-rate loans

5,951,636

 

 

3.81

 

 

4.8

 

 

80.3

 

 

66.6

 

Adjustable-rate one- to four-family:

 

 

 

 

 

 

 

 

 

<= 36 months

215,764

 

 

2.49

 

 

2.7

 

 

2.9

 

 

2.4

 

> 36 months

812,493

 

 

3.36

 

 

2.2

 

 

11.0

 

 

9.1

 

Adjustable-rate commercial

317,293

 

 

5.13

 

 

6.8

 

 

4.3

 

 

3.5

 

All other adjustable-rate loans

115,287

 

 

5.84

 

 

1.6

 

 

1.5

 

 

1.3

 

Total adjustable-rate loans

1,460,837

 

 

3.81

 

 

3.2

 

 

19.7

 

 

16.3

 

Total loans receivable

7,412,473

 

 

3.81

 

 

4.4

 

 

100.0

%

 

82.9

 

FHLB stock

98,456

 

 

7.47

 

 

1.4

 

 

 

 

1.1

 

Cash and cash equivalents

220,370

 

 

1.80

 

 

 

 

 

 

2.5

 

Total interest-earning assets

$

8,936,162

 

 

3.64

 

 

4.0

 

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

2,594,242

 

 

0.35

 

 

14.2

 

 

46.5

%

 

33.2

%

Retail/business certificates of deposit

2,692,770

 

 

2.08

 

 

1.5

 

 

48.2

 

 

34.4

 

Public unit certificates of deposit

294,855

 

 

2.29

 

 

0.5

 

 

5.3

 

 

3.8

 

Total deposits

5,581,867

 

 

1.29

 

 

7.3

 

 

100.0

%

 

71.4

 

Term borrowings

2,140,000

 

 

2.38

 

 

2.6

 

 

95.5

%

 

27.3

 

FHLB line of credit

100,000

 

 

2.20

 

 

 

 

4.5

 

 

1.3

 

Total borrowings

2,240,000

 

 

2.37

 

 

2.5

 

 

100.0

%

 

28.6

 

Total interest-bearing liabilities

$

7,821,867

 

 

1.60

 

 

5.9

 

 

 

 

100.0

%

Average Balance Sheets

The following table presents 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 as of the dates and for the periods shown. Weighted average yields are derived by dividing income (annualized for the three month periods) by the average balance of the related assets, and weighted average rates are derived by dividing expense (annualized for the three month periods) 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 Year Ended September 30,

 

2019

 

2018

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans

$

6,681,441

 

 

$

240,919

 

 

3.61

%

 

$

6,792,670

 

 

$

239,274

 

 

3.52

%

Commercial loans

701,771

 

 

34,810

 

 

4.90

 

 

318,915

 

 

13,852

 

 

4.29

 

Consumer loans

135,683

 

 

8,500

 

 

6.26

 

 

125,330

 

 

7,072

 

 

5.64

 

Total loans receivable(1)

7,518,895

 

 

284,229

 

 

3.77

 

 

7,236,915

 

 

260,198

 

 

3.60

 

MBS(2)

977,925

 

 

25,730

 

 

2.63