Capitol Federal Financial, Inc.® Reports Third Quarter Fiscal Year 2020 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 quarter ended June 30, 2020. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which will be filed with the Securities and Exchange Commission ("SEC") on or about August 7, 2020 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 $19.5 million;
  • basic and diluted earnings per share of $0.14;
  • net interest margin of 2.07%;
  • annualized deposit growth of 20.4%;
  • paid dividends of $11.7 million, or $0.085 per share; and
  • on July 23, 2020, announced a cash dividend of $0.085 per share, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020.

Impact of the Coronavirus Disease 2019 ("COVID-19") Pandemic During the Current Quarter

During the current quarter, the COVID-19 pandemic continued to have an impact on our customers, employees, and business operations. Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business are summarized below.

Bank operations - In mid-March 2020, preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in Bank offices, and preventative cleaning at offices and branches. Lobby services were limited to appointment only while drive-through, mobile, and online banking became the Bank's primary channels of serving customers. Retail loan closings have been conducted with customers coming to our drive-through facilities and commercial loans have been closed in person only when necessary. All employees continue to be paid their regular salary and receive full benefits. In mid-May 2020, lobbies reopened with limitations on the number of customers in a branch at one time. We also implemented operational measures to promote social distancing when customers visit branches and installed sneeze guards. There are several other precautions being taken at our locations such as extra cleaning in high traffic/touch areas and providing locations with additional cleaning supplies, hand sanitizer and masks. In early June 2020, back-office employees started to return to the office in phases. Due to the increase in COVID-19 cases in late June into July 2020, management rolled back the changes to the lobbies that occurred mid-May and adjusted the return to office phases, where necessary, for back-office employees. Our lobby services are now again by appointment only. Management continues to monitor COVID-19 cases and will reopen lobbies when we believe it is appropriate to do so.

Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest and, in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. The Bank's COVID-19 loan modifications have not been deemed troubled debt restructurings per current accounting principles generally accepted in the United States of America ("GAAP").

As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million, for which the borrowers had a weighted average credit score of 733, and 94 consumer loans totaling $2.6 million. Included in these one- to four-family and consumer loan totals are 135 loans with a combined balance of $32.2 million for which the borrowers have requested additional assistance, generally another three-month payment forbearance, and the Bank either completed or was in the process of completing a second modification as of July 20, 2020. During the month of July 2020, the Bank completed or was in the process of completing a first modification for an additional $4.8 million of one- to four-family and consumer loans.

As of June 30, 2020, the Bank had processed COVID-19 loan modifications for 229 commercial loans with a combined gross loan amount of $392.8 million, which includes undisbursed amounts. Included in these totals are six loans with a combined gross loan amount, including undisbursed funds, of $30.6 million for which the borrowers have requested an additional three months of payment deferrals and the Bank was in the process of completing the second modification as of July 20, 2020. The Bank is currently in the process of completing a first modification for one additional commercial loan for $19.2 million.

Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - As of June 30, 2020, the Bank had originated and funded 700 PPP loans totaling $42.6 million, with a median loan amount of $21 thousand, and received origination fees totaling $1.8 million associated with these loans. These loans are fully guaranteed by the SBA. The program ended June 30, 2020, but was extended on July 6, 2020 through August 8, 2020. Through July 20, 2020, the Bank had originated an additional $520 thousand in PPP loans. The Bank continues to accept applications for PPP loans.

Correspondent loan activity - In an effort to manage the influx of refinance requests from current customers in our local markets during the initial days of the COVID-19 pandemic, the Bank suspended accepting new applications for correspondent one- to four-family loans in mid-March 2020. Correspondent applications and commitments in the pipeline at the time of the suspension continued to progress through the approval and funding process. In mid-June 2020, the Bank resumed accepting new applications for correspondent one- to four-family loans.

Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020. Based on the Company's existing capital levels, deposit inflows, loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests. Management anticipates being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized with sufficient liquidity to serve our customers.

Deposit balances have increased due primarily to the economic stimulus payments and PPP loans. As a result, management is currently faced with the challenge of excess liquidity. Due to the nature of deposit cash flows, management does not know how long the excess liquidity will be retained. As such, management has elected, for the time being, to reduce the Bank's level of borrowings using the excess liquidity from the deposit portfolio.

With earnings of $0.34 per share, year-to-date, and a cash balance at the holding company level of $89.0 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future. Given the state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.

Comparison of Operating Results for the Three Months Ended June 30, 2020 and March 31, 2020

For the quarter ended June 30, 2020, the Company recognized net income of $19.5 million, or $0.14 per share, compared to net income of $4.3 million, or $0.03 per share, for the quarter ended March 31, 2020. The increase was due primarily to recording a $22.1 million provision for credit losses during the prior quarter, and no provision for credit losses in the current quarter. This was partially offset by an increase in income tax expense and a decrease in net interest income compared to the prior quarter. The net interest margin decreased 12 basis points, from 2.19% for the prior quarter to 2.07% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio due to an increase in premium amortization as result of an increase in payoff activity.

Markets responded to the COVID-19 pandemic in many ways, with a dramatic lowering of interest rates in a short period of time having the most impact on the operations and performance of the Bank. With the pandemic impacting the United States later in the March 2020 quarter, the opportunity to fully respond in that quarter was somewhat limited. Since the onset of the pandemic, the Bank lowered its offered rates on deposits and restructured its borrowings. We have lowered offered rates on all retail deposit products except checking and savings accounts. Changes in the rates paid on money market accounts have an immediate impact on the cost of our deposits, while the impact of reducing rates offered on our certificate of deposit products lower the cost of deposits only as higher-costing certificates of deposit reprice lower when they mature. During the prior quarter, the Bank was able to restructure the cost of $350.0 million of its Federal Home Loan Bank Topeka ("FHLB") advances by lowering their cost 72 basis points. During the current quarter, we realized the full benefit of that restructuring. As the Bank further monitors rates offered and the cost of borrowings, we anticipate that the average cost of our interest-bearing liabilities will continue to decrease.

During late February and through much of March, rates offered on our one- to four-family loan products increased in order to control the volume of loans the Bank could process. During the current quarter, the offered rates on our one- to four-family loans decreased along with local market rates, but our ability to process the loan volumes was maintained. Given current rates offered on new loans and the recent volume of one- to four-family refinances and endorsements of terms to lower current market rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally, with significant cash inflows realized due to securities being called and prepayments on mortgage-backed securities ("MBS") increasing, the yields on reinvested funds into new securities are lower than the portfolio yield.

Considering the drastic changes in market rates and the ongoing economic uncertainty, even with the changes the Bank has made to its cost of funding, with the lower rates on new mortgage loans, refinances, endorsements and new securities also at lower rates, our net interest margin could continue to decrease with further downside risk as a result of high levels of prepayments and premium amortization on correspondent loans, as was experienced during the current quarter.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 23 basis points, from 3.55% for the prior quarter to 3.32% for the current quarter, while the average balance of interest-earning assets increased $78.0 million between the two periods. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2020

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

66,652

 

 

$

69,613

 

 

$

(2,961

)

 

 

(4.3

)

%

MBS

5,616

 

 

5,866

 

 

(250

)

 

 

(4.3

)

 

FHLB stock

1,207

 

 

1,714

 

 

(507

)

 

 

(29.6

)

 

Investment securities

847

 

 

1,382

 

 

(535

)

 

 

(38.7

)

 

Cash and cash equivalents

59

 

 

380

 

 

(321

)

 

 

(84.5

)

 

Total interest and dividend income

$

74,381

 

 

$

78,955

 

 

$

(4,574

)

 

 

(5.8

)

 

The weighted average yield on the loans receivable portfolio decreased 17 basis points, from 3.72% for the prior quarter to 3.55% for the current quarter, due mainly to a $2.1 million increase in premium amortization related to correspondent loans as a result of an increase in payoff activity. The decrease in interest income on the MBS portfolio and the investment securities portfolio was due primarily to the purchase of securities at market rates lower than the existing portfolios. The decrease in dividend income on FHLB stock was due mainly to a reduction in the dividend rate paid by FHLB compared to the prior quarter. The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield earned on cash held at the Federal Reserve Bank of Kansas City ("FRB of Kansas City").

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased 14 basis points, from 1.55% for the prior quarter to 1.41% for the current quarter, while the average balance of interest-bearing liabilities increased $121.2 million between the two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2020

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

16,533

 

 

$

17,804

 

 

$

(1,271

)

 

 

(7.1

)

%

Borrowings

11,561

 

 

12,483

 

 

(922

)

 

 

(7.4

)

 

Total interest expense

$

28,094

 

 

$

30,287

 

 

$

(2,193

)

 

 

(7.2

)

 

The decrease in interest expense on deposits was due to a decrease in the weighted average rate paid on money market accounts, wholesale certificates of deposit, and retail/business certificates of deposit, partially offset by an increase in the average balance of deposits. Management generally reduced deposit offer rates throughout the quarter as discussed above.

The decrease in interest expense on borrowings was due primarily to a full quarter impact of the replacement of certain FHLB advances at lower market rates. During the prior quarter, the Bank prepaid fixed-rate FHLB advances totaling $350.0 million with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted average effective rate of 1.70%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances. Additionally, the Bank reduced the usage of its FHLB line of credit compared to the prior quarter, and did not replace a $100 million FHLB advance, at a rate of 1.61%, that matured during the current quarter.

Provision for Credit Losses

The Bank did not record a provision for credit losses during the current quarter, compared to a provision for credit losses during the prior quarter of $22.1 million. The $22.1 million provision for credit losses in the prior quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic. There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried into the June 30, 2020 quarter. There was no deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current quarter. Loans 30 to 89 days delinquent were 0.20% of total loans at June 30, 2020 and 0.24% of total loans at March 31, 2020. Loans 90 days or more delinquent or in foreclosure were 0.12% of total loans at June 30, 2020 and 0.10% of total loans at March 31, 2020. The allowance for credit losses ("ACL") to loans receivable ratio was 0.42% at both June 30, 2020 and March 31, 2020. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the Financial Condition section below.

Non-Interest Income

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

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2020

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

2,539

 

 

$

2,783

 

 

$

(244

)

 

 

(8.8

)

%

Insurance commissions

671

 

 

400

 

 

271

 

 

 

67.8

 

 

Other non-interest income

1,229

 

 

1,488

 

 

(259

)

 

 

(17.4

)

 

Total non-interest income

$

4,439

 

 

$

4,671

 

 

$

(232

)

 

 

(5.0

)

 

The decrease in deposit service fees was due mainly to a decrease in service charge income as a result of a decrease in consumer activity stemming primarily from the COVID-19 pandemic. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and adjustments to the related accruals during the prior quarter, and no such adjustments during the current quarter. Contingent insurance commissions are performance-based incentives based on certain criteria established by the insurance carriers. These commissions are accrued based on management's expectations and are adjusted when the funds are received. The decrease in other non-interest income was due primarily to a decrease in income associated with interest rate swap collateral, a decrease in commercial loan late fees, and a decrease in income from bank-owned life insurance ("BOLI") resulting from a decrease in yield on the Bank's BOLI policies.

Non-Interest Expense

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

 

For the Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Change Expressed in:

 

2020

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

13,059

 

 

$

13,235

 

 

$

(176

)

 

 

(1.3

)%

Information technology and related expense

4,285

 

 

4,268

 

 

17

 

 

 

0.4

 

Occupancy, net

3,556

 

 

3,449

 

 

107

 

 

 

3.1

 

Regulatory and outside services

1,548

 

 

1,297

 

 

251

 

 

 

19.4

 

Advertising and promotional

1,004

 

 

1,359

 

 

(355

)

 

 

(26.1

)

Deposit and loan transaction costs

697

 

 

678

 

 

19

 

 

 

2.8

 

Office supplies and related expense

475

 

 

592

 

 

(117

)

 

 

(19.8

)

Federal insurance premium

287

 

 

 

 

287

 

 

 

N/A

 

Other non-interest expense

1,253

 

 

1,286

 

 

(33

)

 

 

(2.6

)

Total non-interest expense

$

26,164

 

 

$

26,164

 

 

$

 

 

 

 

The increase in regulatory and outside services was due primarily to the timing of external audit services. The decrease in advertising and promotional expenses was due mainly to adjustments in advertising schedules and postponements of campaigns that were currently in-progress as a result of the COVID-19 pandemic. The increase in the federal insurance premium was due mainly to the Bank recognizing a federal insurance premium accrual as the remaining assessment credit from the Federal Deposit Insurance Corporation ("FDIC") was utilized during the current quarter. We anticipate the federal insurance premium for the fourth quarter of fiscal year 2020 will be approximately $620 thousand, or $333 thousand higher than the current quarter.

The Company's efficiency ratio was 51.58% for the current quarter compared to 49.05% for the prior quarter. The change in the efficiency ratio was due primarily to lower net interest income in the current quarter compared to the prior quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense.

Income Tax Expense

Income tax expense was $5.1 million for the current quarter, compared to $824 thousand for the prior quarter. The effective tax rate was 20.7% for the current quarter compared to 16.2% for the prior quarter. The effective tax rate was higher in the current quarter due primarily to the Company's permanent differences, which generally lower our income tax expense, having a proportionately smaller impact given the higher pretax income in the current quarter compared to the prior quarter. Management anticipates the effective income tax rate for the fourth quarter of fiscal year 2020 will be approximately 21%, resulting in an effective tax rate of approximately 20% for fiscal year 2020.

Comparison of Operating Results for the Nine Months Ended June 30, 2020 and 2019

The Company recognized net income of $46.3 million, or $0.34 per share, for the nine-month period ended June 30, 2020 compared to net income of $71.8 million, or $0.52 per share, for the nine-month period ended June 30, 2019. The decrease in net income was due primarily to a $21.9 million increase in provision for credit losses and a decrease in net interest income, partially offset by a decrease in income tax expense.

Net interest income decreased $12.9 million, or 8.3%, from the prior year period to $143.7 million for the current year period. The net interest margin decreased 15 basis points, from 2.30% for the prior year period to 2.15% for the current year period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. When the leverage strategy is in place, it increases our net interest income but reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 17 basis points, from 2.32% for the prior year period to 2.15% for the current year period. 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, as well as a decrease in the loan portfolio yield, specifically the yield on the correspondent one- to four-family loan portfolio.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 13 basis points, from 3.61% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets decreased $165.9 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased 14 basis points, from 3.62% for the prior year period to 3.48% for the current year period, and the average balance of interest-earning assets would have decreased $89.0 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield. 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2020

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

206,179

 

 

$

213,863

 

 

$

(7,684

)

 

 

(3.6

)

%

MBS

17,584

 

 

19,437

 

 

(1,853

)

 

 

(9.5

)

 

FHLB stock

4,747

 

 

5,667

 

 

(920

)

 

 

(16.2

)

 

Investment securities

3,736

 

 

4,781

 

 

(1,045

)

 

 

(21.9

)

 

Cash and cash equivalents

1,126

 

 

2,921

 

 

(1,795

)

 

 

(61.5

)

 

Total interest and dividend income

$

233,372

 

 

$

246,669

 

 

$

(13,297

)

 

 

(5.4

)

 

The decrease in interest income on loans receivable was due mainly to a decrease in yield resulting from a $4.3 million increase in the amortization of premiums on correspondent loans related to increases in payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $155.4 million, or 2.3%, partially offset by a $91.2 million, or 13.3%, increase in the average balance of higher-yielding commercial loans. The weighted average yield on the loans receivable portfolio decreased 11 basis points, from 3.78% for the prior year period to 3.67% for the current year period.

The decrease in interest income on the MBS portfolio was due primarily to a $60.4 million, or 6.1%, decrease in the average balance of the portfolio due to not reinvesting all the cash flows from the portfolio, along with a 10 basis point decrease in the weighted average yield to 2.52% in the current year period. The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB. The decrease in interest income on cash and cash equivalents was due primarily to the leverage strategy being in place for a portion of the prior year period and not being in place during the current period, along with a decrease in the yield earned on cash held at the FRB of Kansas City. See additional discussion regarding the leverage strategy in the Financial Condition section below. The decrease in interest income on investment securities was due mainly to calls and maturities either being replaced at lower market rates or not being replaced.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities increased one basis point, from 1.51% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities decreased $85.5 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased two basis points, from 1.50% for the prior year period to 1.52% for the current year period, while the average balance of interest-bearing liabilities would have decreased $8.6 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 Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2020

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

52,299

 

 

$

48,730

 

 

$

3,569

 

 

 

7.3

%

Borrowings

37,421

 

 

41,360

 

 

(3,939

)

 

 

(9.5

)

Total interest expense

$

89,720

 

 

$

90,090

 

 

$

(370

)

 

 

(0.4

)

The increase in interest expense on deposits was due to an increase in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased 20 basis points, to 2.08% for the current year period, and the average balance increased $194.7 million, or approximately 8%. 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. During the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit.

The borrowings line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $2.6 million from the prior year period due primarily to a decrease in the average balance of such borrowings, as certain maturing FHLB advances were not renewed and the Bank paid down its FHLB line of credit. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior year period due to the leverage strategy being in place for a portion of the prior year period and not being in place at all during the current year period.

Provision for Credit Losses

The Bank recorded a provision for credit losses during the current period of $22.3 million, compared to $450 thousand during the prior year period. The $22.3 million provision for credit losses in the current period was primarily related to the deterioration of economic conditions as a result of COVID-19. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL at June 30, 2020 in the Financial Condition section below.

Non-Interest Income

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

 

For the Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2020

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

$

8,384

 

 

$

9,581

 

 

$

(1,197

)

 

 

(12.5

)%

Insurance commissions

1,762

 

 

2,072

 

 

(310

)

 

 

(15.0

)

Other non-interest income

4,468

 

 

4,446

 

 

22

 

 

 

0.5

 

Total non-interest income

$

14,614

 

 

$

16,099

 

 

$

(1,485

)

 

 

(9.2

)

The decrease in deposit service fees was due mainly to the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019, along with a decrease in service charge income due primarily to a decrease in consumer activity as a result of the COVID-19 pandemic. The decrease in insurance commissions was due primarily to a decrease in the amount of annual contingent insurance commissions.

Non-Interest Expense

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

 

For the Nine Months Ended

 

 

 

 

 

June 30,

 

Change Expressed in:

 

2020

 

2019

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

39,765

 

 

$

39,205

 

 

$

560

 

 

 

1.4

%

Information technology and related expense

12,694

 

 

13,535

 

 

(841

)

 

 

(6.2

)

Occupancy, net

10,212

 

 

9,768

 

 

444

 

 

 

4.5

 

Regulatory and outside services

4,188

 

 

4,247

 

 

(59

)

 

 

(1.4

)

Advertising and promotional

3,773

 

 

3,597

 

 

176

 

 

 

4.9

 

Deposit and loan transaction costs

2,086

 

 

1,882

 

 

204

 

 

 

10.8

 

Office supplies and related expense

1,586

 

 

1,884

 

 

(298

)

 

 

(15.8

)

Federal insurance premium

287

 

 

1,787

 

 

(1,500

)

 

 

(83.9

)

Other non-interest expense

4,237

 

 

4,709

 

 

(472

)

 

 

(10.0

)

Total non-interest expense

$

78,828

 

 

$

80,614

 

 

$

(1,786

)

 

 

(2.2

)

The decrease in information technology and related expense was due mainly to the prior year period including costs related to the integration of the operations of Capital City Bancshares, Inc. ("CCB"), which the Company acquired in August 2018. The decrease in the federal insurance premium was due mainly to the Bank using an assessment credit from the FDIC during the majority of the current period. The decrease in other non-interest expense was due primarily to a decrease in debit card fraud losses, as well as a decrease in amortization of deposit intangibles.

The Company's efficiency ratio was 49.81% for the current period compared to 46.68% for the prior year period. The change in the efficiency ratio was due to lower net interest income in the current period compared to the prior year period.

Income Tax Expense

Income tax expense was $10.9 million for the current period compared to $19.8 million for the prior year period. The decrease in income tax expense was due primarily to lower pretax income in the current period. The effective tax rate was 19.0% for the current period compared to 21.6% for the prior year period. The lower effective tax rate in the current period compared to the prior year period was due mainly to the Company's permanent differences, which generally lower our tax expense, having a proportionately larger impact given the lower pretax income in the current year period. Additionally, a discrete benefit was recognized during the current period as a result of favorable federal tax guidance issued during the current period related to certain BOLI policies added in the CCB acquisition.

Financial Condition as of June 30, 2020

The Federal Reserve, in response to economic risks resulting from the COVID-19 pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. Deteriorating economic conditions included more than 20 million people becoming unemployed in the United States in one month's time, with more than 45 million in total filing for unemployment benefits, along with immediate reductions in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others, and had a devastating impact on the economy. Since that time, many areas of consumer spending rebounded during May and June, generally locally and not related to travel and entertainment. In the Bank's local markets, governments put stay-at-home orders into effect which only allow for essential businesses to remain open. Many of these stay-at-home orders have been lifted or greatly reduced. As previously described, we adjusted our operations in response to the orders and have worked with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty as our regulators or the Coronavirus Aid, Relief, and Economic Security ("CARES") Act have allowed. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially during the remainder of fiscal year 2020. We have been responding and expect to continue to respond to local market conditions regarding the loan and deposit rates we offer. There is increasing concern about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.

Total assets were $9.56 billion at June 30, 2020, an increase of $187.6 million, or 2.0%, from March 31, 2020, due to an increase in cash and cash equivalents, partially offset by a decrease in loans receivable. The increase in cash and cash equivalents was due mainly to deposit growth as discussed below. Management elected to keep a higher balance of cash on hand due to the uncertainty surrounding the current economic environment, and in anticipation of paying off certain fixed-rate borrowings scheduled to mature during the fourth quarter of fiscal year 2020, depending on deposit cash flows. Total loans were $7.39 billion at June 30, 2020, a decrease of $88.7 million, or 1.2%, from March 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio, partially offset by an increase in commercial and industrial loans due primarily to the origination of PPP loans. As noted above, we suspended accepting new applications for correspondent one- to four-family loans during the majority of the current quarter. During the current quarter, the Bank originated and refinanced $270.0 million of one- to four-family and consumer loans with a weighted average rate of 3.19% and purchased $129.0 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.18%. The Bank also originated $68.5 million of commercial loans with a weighted average rate of 2.23%, which included $42.6 million in PPP loans at a rate of 1.00%, and entered into commercial real estate loan participations of $65.2 million at a weighted average rate of 3.95%.

Total deposits were $6.07 billion at June 30, 2020, an increase of $295.1 million, or 5.1%, from March 31, 2020. The increase was primarily in non-maturity deposits, including a $148.5 million increase in checking accounts and a $112.0 million increase in money market accounts. The increase in deposits was due in part to Economic Impact Payments from the U.S. government to individuals as authorized by the CARES Act, and deposits from PPP loans, along with commercial deposit growth and a delay in federal income tax payment due dates from April 15 to July 15.

Total assets increased $218.8 million, or 2.3% from September 30, 2019 to June 30, 2020, due mainly to an increase in cash and cash equivalents due to deposit growth. Total loans decreased $28.7 million from September 30, 2019 to June 30, 2020. The decrease was primarily in the one- to four-family correspondent and bulk loans, partially offset by an increase in commercial real estate and commercial and industrial loans. During the current year period, the Bank originated and refinanced $720.0 million of one- to four-family and consumer loans with a weighted average rate of 3.37% and purchased $382.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.34%. The Bank also originated $136.1 million of commercial loans with a weighted average rate of 3.43% and entered into commercial real estate loan participations of $93.6 million at a weighted average rate of 4.16%. The commercial loan portfolio totaled $812.3 million at June 30, 2020 and was composed of 77% commercial real estate, 12% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $154.5 million, was $867.1 million at June 30, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.4 million, was $122.2 million at June 30, 2020.

Total deposits increased $487.8 million, or 8.7%, from September 30, 2019 to June 30, 2020. Non-maturity deposits increased $442.3 million, including a $220.8 million increase in checking accounts, a $122.0 million increase in money market accounts, and a $99.4 million increase in savings accounts. See the deposit growth discussion above for more details. Retail/business certificates of deposit increased $51.9 million due primarily to the President's Day certificate of deposit campaign in February 2020.

Total borrowings at June 30, 2020 were $1.99 billion, a decrease of $250.9 million, or 11.2%, from September 30, 2019. The decrease was due to not renewing a portion of the FHLB advances that matured during the current year period and repaying the FHLB line of credit balance.

Stockholders' equity was $1.30 billion at June 30, 2020 compared to $1.34 billion at September 30, 2019. The $35.8 million decrease was due primarily to the payment of $82.1 million in cash dividends, partially offset by net income of $46.3 million during the current year period. In the long run, management considers a Bank stockholders' equity to total assets ratio of at least 10% an appropriate level of capital. At June 30, 2020, this ratio was 12.2%. The cash dividends paid during the current period totaled $0.595 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings, paid in December 2019, per the Company's dividend policy, and three regular quarterly cash dividends totaling $0.255 per share. On July 23, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on August 21, 2020 to stockholders of record as of the close of business on August 7, 2020.

At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves 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 are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings, are 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 $14 thousand during the prior year nine-month period. The leverage strategy was not in place during the current nine-month period, 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.

At June 30, 2020, Capitol Federal Financial, Inc., at the holding company level, had $89.0 million on deposit at the Bank. For fiscal year 2020, it is currently 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, available liquidity and other factors. 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.

 

June 30,

 

September 30,

 

June 30,

 

2020

 

2019

 

2019

 

(Dollars in thousands)

Stockholders' equity

$

1,300,520

 

 

$

1,336,326

 

 

$

1,327,099

 

Equity to total assets at end of period

13.6

%

 

14.3

%

 

14.3

%

The following table presents a reconciliation of total to net shares outstanding as of June 30, 2020.

Total shares outstanding

141,511,716

 

 

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

(3,450,111

)

 

Net shares outstanding

138,061,605

 

 

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. In September 2019, the regulatory agencies, including the Office of the Comptroller of the Currency and Board of Governors of the Federal Reserve System, adopted a final rule, effective January 1, 2020, creating a community bank leverage ratio ("CBLR") for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifying institutions that elect to use the CBLR framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules and to have met the well-capitalized ratio requirements. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is a minimum of 8% for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank elected the CBLR framework beginning with the quarter ended March 31,2020. As of June 30, 2020, the Bank's CBLR was 12.4%, which exceeded the minimum requirement.

The following table presents a reconciliation of the Bank's equity under GAAP to regulatory tier 1 capital as of June 30, 2020 (dollars in thousands):

Total Bank equity as reported under GAAP

$

1,169,620

 

 

Accumulated Other Comprehensive Income ("AOCI")

17,591

 

 

Goodwill and other intangibles, net of associated deferred taxes

(13,981

)

 

Total tier 1 capital

$

1,173,230

 

 

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: potential adverse impacts of the ongoing COVID-19 pandemic and any governmental or societal responses thereto on the economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets; changes in policies or the application or interpretation of laws and regulations by regulatory agencies and tax authorities; other governmental initiatives affecting the financial services industry; changes in accounting principles, policies or guidelines; fluctuations in interest rates; 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)

 

June 30,

 

September 30,

 

2020

 

 

2019

 

ASSETS:

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $381,946 and $198,809)

$

396,219

 

 

 

$

220,370

 

 

Available-for-sale ("AFS") securities, at estimated fair value

1,220,054

 

 

 

1,204,863

 

 

Loans receivable, net (ACL of $31,215 and $9,226)

7,388,090

 

 

 

7,416,747

 

 

FHLB stock, at cost

102,782

 

 

 

98,456

 

 

Premises and equipment, net

98,953

 

 

 

96,784

 

 

Income taxes receivable, net

1,655

 

 

 

2

 

 

Other assets

351,061

 

 

 

302,796

 

 

TOTAL ASSETS

$

9,558,814

 

 

 

$

9,340,018

 

 

 

 

 

 

LIABILITIES:

 

 

 

Deposits

$

6,069,684

 

 

 

$

5,581,867

 

 

Borrowings

1,989,089

 

 

 

2,239,989

 

 

Advance payments by borrowers for taxes and insurance

39,125

 

 

 

65,686

 

 

Deferred income tax liabilities, net

10,942

 

 

 

14,282

 

 

Accounts payable and accrued expenses

149,454

 

 

 

101,868

 

 

Total liabilities

8,258,294

 

 

 

8,003,692

 

 

 

 

 

 

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, 141,511,716 and 141,440,030

 

 

shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively

1,415

 

 

 

1,414

 

 

Additional paid-in capital

1,211,653

 

 

 

1,210,226

 

 

Unearned compensation, ESOP

(33,453

)

 

 

(34,692

)

 

Retained earnings

138,496

 

 

 

174,277

 

 

AOCI, net of tax

(17,591

)

 

 

(14,899

)

 

Total stockholders' equity

1,300,520

 

 

 

1,336,326

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,558,814

 

 

 

$

9,340,018

 

 

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30,

 

March 31,

 

June 30,

 

2020

 

2020

 

2020

 

2019

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

66,652

 

 

$

69,613

 

 

$

206,179

 

 

$

213,863

 

MBS

5,616

 

 

5,866

 

 

17,584

 

 

19,437

 

FHLB stock

1,207

 

 

1,714

 

 

4,747

 

 

5,667

 

Investment securities

847

 

 

1,382

 

 

3,736

 

 

4,781

 

Cash and cash equivalents

59

 

 

380

 

 

1,126

 

 

2,921

 

Total interest and dividend income

74,381

 

 

78,955

 

 

233,372

 

 

246,669

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

16,533

 

 

17,804

 

 

52,299

 

 

48,730

 

Borrowings

11,561

 

 

12,483

 

 

37,421

 

 

41,360

 

Total interest expense

28,094

 

 

30,287

 

 

89,720

 

 

90,090

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

46,287

 

 

48,668

 

 

143,652

 

 

156,579

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

 

 

22,075

 

 

22,300

 

 

450

 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

46,287

 

 

26,593

 

 

121,352

 

 

156,129

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Deposit service fees

2,539

 

 

2,783

 

 

8,384

 

 

9,581

 

Insurance commissions

671

 

 

400

 

 

1,762

 

 

2,072

 

Other non-interest income

1,229

 

 

1,488

 

 

4,468

 

 

4,446

 

Total non-interest income

4,439

 

 

4,671

 

 

14,614

 

 

16,099

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

13,059

 

 

13,235

 

 

39,765

 

 

39,205

 

Information technology and related expense

4,285

 

 

4,268

 

 

12,694

 

 

13,535

 

Occupancy, net

3,556

 

 

3,449

 

 

10,212

 

 

9,768

 

Regulatory and outside services

1,548

 

 

1,297

 

 

4,188

 

 

4,247

 

Advertising and promotional

1,004

 

 

1,359

 

 

3,773

 

 

3,597

 

Deposit and loan transaction costs

697

 

 

678

 

 

2,086

 

 

1,882

 

Office supplies and related expense

475

 

 

592

 

 

1,586

 

 

1,884

 

Federal insurance premium

287

 

 

 

 

287

 

 

1,787

 

Other non-interest expense

1,253

 

 

1,286

 

 

4,237

 

 

4,709

 

Total non-interest expense

26,164

 

 

26,164

 

 

78,828

 

 

80,614

 

INCOME BEFORE INCOME TAX EXPENSE

24,562

 

 

5,100

 

 

57,138

 

 

91,614

 

INCOME TAX EXPENSE

5,088

 

 

824

 

 

10,877

 

 

19,780

 

NET INCOME

$

19,474

 

 

$

4,276

 

 

$

46,261

 

 

$

71,834

 

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

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30,

 

March 31,

 

June 30,

 

2020

 

 

2020

 

 

2020

 

 

2019

 

 

(Dollars in thousands, except per share amounts)

Net income

$

19,474

 

 

 

$

4,276

 

 

 

$

46,261

 

 

 

$

71,834

 

 

Income allocated to participating securities

(16

)

 

 

(3

)

 

 

(38

)

 

 

(35

)

 

Net income available to common stockholders

$

19,458

 

 

 

$

4,273

 

 

 

$

46,223

 

 

 

$

71,799

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

137,935,000

 

 

 

137,926,574

 

 

 

137,919,631

 

 

 

137,593,497

 

 

Average committed ESOP shares outstanding

83,052

 

 

 

41,753

 

 

 

41,600

 

 

 

41,602

 

 

Total basic average common shares outstanding

138,018,052

 

 

 

137,968,327

 

 

 

137,961,231

 

 

 

137,635,099

 

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

 

 

 

32,007

 

 

 

31,747

 

 

 

55,335

 

 

 

 

 

 

 

 

 

 

Total diluted average common shares outstanding

138,018,052

 

 

 

138,000,334

 

 

 

137,992,978

 

 

 

137,690,434

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

Basic

$

0.14

 

 

 

$

0.03

 

 

 

$

0.34

 

 

 

$

0.52

 

 

Diluted

$

0.14

 

 

 

$

0.03

 

 

 

$

0.34

 

 

 

$

0.52

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options, excluded from the diluted

 

 

 

 

 

 

average common shares outstanding calculation

813,645

 

 

 

382,894

 

 

 

405,522

 

 

 

491,669

 

 

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.

 

June 30, 2020

 

March 31, 2020

 

September 30, 2019

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,955,668

 

 

 

3.61

%

 

53.4

%

 

$

3,944,782

 

 

 

3.68

%

 

52.6

%

 

$

3,873,851

 

 

 

3.74

%

 

52.2

%

Correspondent purchased

2,268,031

 

 

 

3.54

 

 

30.6

 

 

2,385,907

 

 

 

3.60

 

 

31.8

 

 

2,349,877

 

 

 

3.64

 

 

31.7

 

Bulk purchased

217,652

 

 

 

2.73

 

 

3.0

 

 

228,730

 

 

 

2.88

 

 

3.1

 

 

252,347

 

 

 

2.94

 

 

3.4

 

Construction

36,595

 

 

 

3.46

 

 

0.5

 

 

35,798

 

 

 

3.61

 

 

0.5

 

 

36,758

 

 

 

4.00

 

 

0.5

 

Total

6,477,946

 

 

 

3.56

 

 

87.5

 

 

6,595,217

 

 

 

3.62

 

 

88.0

 

 

6,512,833

 

 

 

3.68

 

 

87.8

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

625,106

 

 

 

4.32

 

 

8.4

 

 

584,236

 

 

 

4.45

 

 

7.8

 

 

583,617

 

 

 

4.48

 

 

7.9

 

Commercial and industrial

99,735

 

 

 

2.92

 

 

1.4

 

 

62,153

 

 

 

4.62

 

 

0.8

 

 

61,094

 

 

 

5.14

 

 

0.8

 

Construction

87,448

 

 

 

3.98

 

 

1.2

 

 

126,266

 

 

 

4.40

 

 

1.7

 

 

123,159

 

 

 

4.81

 

 

1.7

 

Total

812,289

 

 

 

4.11

 

 

11.0

 

 

772,655

 

 

 

4.45

 

 

10.3

 

 

767,870

 

 

 

4.58

 

 

10.4

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

107,174

 

 

 

4.68

 

 

1.4

 

 

114,571

 

 

 

5.67

 

 

1.5

 

 

120,587

 

 

 

6.15

 

 

1.6

 

Other

10,033

 

 

 

4.46

 

 

0.1

 

 

10,837

 

 

 

4.56

 

 

0.2

 

 

11,183

 

 

 

4.57

 

 

0.2

 

Total

117,207

 

 

 

4.66

 

 

1.5

 

 

125,408

 

 

 

5.58

 

 

1.7

 

 

131,770

 

 

 

6.02

 

 

1.8

 

Total loans receivable

7,407,442

 

 

 

3.64

 

 

100.0

%

 

7,493,280

 

 

 

3.74

 

 

100.0

%

 

7,412,473

 

 

 

3.81

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

31,215

 

 

 

 

 

 

 

31,196

 

 

 

 

 

 

 

9,226

 

 

 

 

 

 

Discounts/unearned loan fees

30,312

 

 

 

 

 

 

 

29,645

 

 

 

 

 

 

 

31,058

 

 

 

 

 

 

Premiums/deferred costs

(42,175

)

 

 

 

 

 

 

(44,366

)

 

 

 

 

 

 

(44,558

)

 

 

 

 

 

Total loans receivable, net

$

7,388,090

 

 

 

 

 

 

 

$

7,476,805

 

 

 

 

 

 

 

$

7,416,747

 

 

 

 

 

 

Loan Activity: The following tables summarize 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 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 current year period, the Bank endorsed $355.1 million of one- to four-family loans, reducing the average rate on those loans by 81 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. As noted earlier, during the initial days of the COVID-19 pandemic, correspondent one- to four-family loan application acceptance was suspended by the Bank but existing correspondent applications and commitments continued to progress through the approval and funding process. One- to four-family correspondent new loan application acceptance was resumed in mid-June 2020.

 

For the Three Months Ended

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,493,280

 

 

 

3.74

%

 

$

7,424,834

 

 

 

3.77

%

 

$

7,412,473

 

 

 

3.81

%

 

$

7,501,741

 

 

 

3.83

%

Originated and refinanced:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

277,904

 

 

 

2.83

 

 

172,891

 

 

 

3.44

 

 

233,693

 

 

 

3.52

 

 

188,753

 

 

 

3.60

 

Adjustable

60,626

 

 

 

3.75

 

 

55,946

 

 

 

4.11

 

 

55,126

 

 

 

4.30

 

 

59,550

 

 

 

4.37

 

Purchased and participations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

131,739

 

 

 

3.28

 

 

125,612

 

 

 

3.46

 

 

123,118

 

 

 

3.77

 

 

49,161

 

 

 

4.12

 

Adjustable

62,510

 

 

 

3.76

 

 

18,985

 

 

 

2.96

 

 

13,801

 

 

 

3.06

 

 

12,305

 

 

 

3.55

 

Change in undisbursed loan funds

(32,202

)

 

 

 

 

24,049

 

 

 

 

 

(9,743

)

 

 

 

 

12,293

 

 

 

 

Repayments

(586,434

)

 

 

 

 

(328,644

)

 

 

 

 

(403,361

)

 

 

 

 

(410,624

)

 

 

 

Principal recoveries/(charge-offs), net

19

 

 

 

 

 

(314

)

 

 

 

 

(16

)

 

 

 

 

(110

)

 

 

 

Other

 

 

 

 

 

(79

)

 

 

 

 

(257

)

 

 

 

 

(596

)

 

 

 

Ending balance

$

7,407,442

 

 

 

3.64

 

 

$

7,493,280

 

 

 

3.74

 

 

$

7,424,834

 

 

 

3.77

 

 

$

7,412,473

 

 

 

3.81

 

 

For the Nine Months Ended

 

June 30, 2020

 

June 30, 2019

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,412,473

 

 

 

3.81

%

 

$

7,507,645

 

 

 

3.74

%

Originated and refinanced:

 

 

 

 

 

 

 

Fixed

684,488

 

 

 

3.22

 

 

316,581

 

 

 

4.39

 

Adjustable

171,698

 

 

 

4.04

 

 

260,058

 

 

 

4.87

 

Purchased and participations:

 

 

 

 

 

 

 

Fixed

380,469

 

 

 

3.50

 

 

136,974

 

 

 

4.83

 

Adjustable

95,296

 

 

 

3.50

 

 

64,000

 

 

 

4.57

 

Change in undisbursed loan funds

(17,896

)

 

 

 

 

39,927

 

 

 

 

Repayments

(1,318,439

)

 

 

 

 

(822,533

)

 

 

 

Principal (charge-offs)/recoveries, net

(311

)

 

 

 

 

123

 

 

 

 

Other

(336

)

 

 

 

 

(1,034

)

 

 

 

Ending balance

$

7,407,442

 

 

 

3.64

 

 

$

7,501,741

 

 

 

3.83

 

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 annually, with the latest update in June 2020, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.

 

June 30, 2020

 

September 30, 2019

 

 

 

% of

 

Credit

 

 

 

Average

 

 

 

% of

 

Credit

 

 

 

Average

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

Originated

$

3,955,668

 

 

61.4

%

 

770

 

 

62

%

 

$

144

 

 

$

3,873,851

 

 

59.8

%

 

768

 

 

62

%

 

$

140

 

Correspondent purchased

2,268,031

 

 

35.2

 

 

765

 

 

64

 

 

376

 

 

2,349,877

 

 

36.3

 

 

765

 

 

65

 

 

371

 

Bulk purchased

217,652

 

 

3.4

 

 

768

 

 

60

 

 

301

 

 

252,347

 

 

3.9

 

 

762

 

 

61

 

 

304

 

 

$

6,441,351

 

 

100.0

%

 

768

 

 

63

 

 

188

 

 

$

6,476,075

 

 

100.0

%

 

767

 

 

63

 

 

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 year period, $223.9 million were refinanced from other lenders.

 

For the Three Months Ended

 

For the Nine Months Ended

 

June 30, 2020

 

June 30, 2020

 

 

 

 

 

Credit

 

 

 

 

 

Credit

 

Amount

 

LTV

 

Score

 

Amount

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

173,851

 

 

73

%

 

763

 

 

$

479,751

 

 

74

%

 

765

 

Refinanced by Bank customers

82,171

 

 

67

 

 

767

 

 

190,163

 

 

68

 

 

763

 

Correspondent purchased

129,049

 

 

70

 

 

771

 

 

382,139

 

 

71

 

 

768

 

 

$

385,071

 

 

71

 

 

766

 

 

$

1,052,053

 

 

72

 

 

766

 

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 current year period.

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

June 30, 2020

 

June 30, 2020

State

 

Amount

 

% of Total

 

Rate

 

Amount

 

% of Total

 

Rate

 

 

(Dollars in thousands)

Kansas

 

$

223,073

 

 

57.9

%

 

3.12

%

 

$

584,621

 

 

55.6

%

 

3.25

%

Missouri

 

63,889

 

 

16.6

 

 

3.13

 

 

183,403

 

 

17.4

 

 

3.29

 

Texas

 

45,333

 

 

11.8

 

 

3.15

 

 

148,772

 

 

14.1

 

 

3.27

 

Other states

 

52,776

 

 

13.7

 

 

3.18

 

 

135,257

 

 

12.9

 

 

3.37

 

 

 

$

385,071

 

 

100.0

%

 

3.13

 

 

$

1,052,053

 

 

100.0

%

 

3.27

 

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 June 30, 2020, 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 our future cash needs.

 

Fixed-Rate

 

 

 

 

 

 

 

15 years

 

More than

 

Adjustable-

 

Total

 

or less

 

15 years

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Originate/refinance

$

31,346

 

 

$

54,513

 

 

$

10,563

 

 

$

96,422

 

 

3.17

%

Correspondent

14,428

 

 

34,092

 

 

5,683

 

 

54,203

 

 

3.09

 

 

$

45,774

 

 

$

88,605

 

 

$

16,246

 

 

$

150,625

 

 

3.14

 

 

 

 

 

 

 

 

 

 

 

Rate

2.78

%

 

3.37

%

 

2.91

%

 

 

 

 

Through June 30, 2020, the Bank had processed COVID-19 loan modifications for 896 one- to four-family loans totaling $233.4 million. These modifications are summarized in the table below, along with the weighted average credit score and weighted average LTV as of June 30, 2020. Credit scores are updated at least annually, with the latest update in June 2020, 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.

 

 

 

 

 

Credit

 

 

 

Count

 

Amount

 

Score

 

LTV

 

(Dollars in thousands)

Originated

630

 

 

$

116,254

 

 

727

 

 

67

%

Correspondent purchased

262

 

 

115,877

 

 

739

 

 

68

 

Bulk purchased

4

 

 

1,240

 

 

727

 

 

71

 

 

896

 

 

$

233,371

 

 

733

 

 

68

 

Commercial Loans: During the current year-to-date period, the Bank originated $136.1 million of commercial loans, of which $42.6 million were PPP loans, entered into commercial real estate loan participations totaling $93.6 million, and processed commercial loan disbursements, excluding lines of credit, of approximately $188.1 million at a weighted average rate of 3.72%.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of June 30, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $528.9 million at a weighted average rate of 4.16% and adjustable-rate loans totaling $329.9 million at a weighted average rate of 4.43%. 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 June 30, 2020 having shorter terms to maturity. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Senior housing

$

218,068

 

 

$

39,234

 

 

$

257,302

 

 

$

 

 

$

257,302

 

 

29.7

%

Hotel

125,597

 

 

54,660

 

 

180,257

 

 

 

 

180,257

 

 

20.8

 

Retail building

124,206

 

 

17,697

 

 

141,903

 

 

4,183

 

 

146,086

 

 

16.8

 

Multi-family

60,301

 

 

21,827

 

 

82,128

 

 

 

 

82,128

 

 

9.5

 

One- to four-family property

56,634

 

 

5,251

 

 

61,885

 

 

444

 

 

62,329

 

 

7.2

 

Office building

53,720

 

 

2,580

 

 

56,300

 

 

2,454

 

 

58,754

 

 

6.8

 

Single use building

43,705

 

 

4,372

 

 

48,077

 

 

807

 

 

48,884

 

 

5.6

 

Other

30,323

 

 

652

 

 

30,975

 

 

352

 

 

31,327

 

 

3.6

 

 

$

712,554

 

 

$

146,273

 

 

$

858,827

 

 

$

8,240

 

 

$

867,067

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

4.28

%

 

4.23

%

 

4.27

%

 

4.44

%

 

4.27

%

 

 

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of June 30, 2020.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Kansas

$

284,453

 

 

$

10,651

 

 

$

295,104

 

 

$

3,509

 

 

$

298,613

 

 

34.4

%

Missouri

218,019

 

 

68,416

 

 

286,435

 

 

548

 

 

286,983

 

 

33.1

 

Texas

110,531

 

 

60,389

 

 

170,920

 

 

 

 

170,920

 

 

19.7

 

Nebraska

33,174

 

 

665

 

 

33,839

 

 

 

 

33,839

 

 

3.9

 

Kentucky

25,230

 

 

329

 

 

25,559

 

 

 

 

25,559

 

 

3.0

 

California

5,892

 

 

4,300

 

 

10,192

 

 

 

 

10,192

 

 

1.2

 

Other

35,255

 

 

1,523

 

 

36,778

 

 

4,183

 

 

40,961

 

 

4.7

 

 

$

712,554

 

 

$

146,273

 

 

$

858,827

 

 

$

8,240

 

 

$

867,067

 

 

100.0

%

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of June 30, 2020. Including in the working capital loan category are $42.6 million of PPP loans.

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

(Dollars in thousands)

Working capital

$

56,777

 

 

$

15,845

 

 

$

72,622

 

 

$

3,415

 

 

$

76,037

 

 

62.2

%

Equipment

15,370

 

 

336

 

 

15,706

 

 

106

 

 

15,812

 

 

13.0

 

Business investment

11,477

 

 

80

 

 

11,557

 

 

76

 

 

11,633

 

 

9.5

 

Purchase/lease autos

10,894

 

 

77

 

 

10,971

 

 

 

 

10,971

 

 

9.0

 

Other

5,217

 

 

2,494

 

 

7,711

 

 

 

 

7,711

 

 

6.3

 

 

$

99,735

 

 

$

18,832

 

 

$

118,567

 

 

$

3,597

 

 

$

122,164

 

 

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 June 30, 2020.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

3

 

 

$

121,677

 

>$15 to $30 million

13

 

 

313,741

 

>$10 to $15 million

3

 

 

35,699

 

>$5 to $10 million

13

 

 

81,454

 

$1 to $5 million

97

 

 

210,962

 

Less than $1 million

1,947

 

 

225,698

 

 

2,076

 

 

$

989,231

 

The Bank's commercial lending team is working proactively with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed above, through June 30, 2020, we have modified $392.8 million of commercial loans under our COVID-19 loan modification program. We have also processed 700 PPP loans for $42.6 million, for which we received approximately $1.8 million in fees. Approximately 60% of PPP loans processed were in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade.

The following table presents the gross loan amount, including undisbursed balances, of the Bank's commercial real estate loans by type of primary collateral, and commercial and industrial loans by business purpose, that have been modified, per the Bank's COVID-19 loan modification program, as of June 30, 2020. The information is split by type of modification and presented as a percentage of total modifications, as well as by a percentage of the total gross loan amount and undisbursed balances of the related property type or business purpose category. Included in the payment deferral category in the table below are six loans with a combined gross loan amount, including undisbursed balances, of $30.6 million that have requested additional assistance. We are in the process of completing a second modification for these loans for another three-month payment deferral time period.

 

Modification Type

 

 

 

% of

 

Interest

 

Payment

 

 

 

% of

 

Property Type/

 

Only

 

Deferral

 

Total

 

Total

 

Business Purpose

 

(Dollars in thousands)

 

 

Commercial real estate

 

 

 

 

 

 

 

 

 

Senior housing

$

115,082

 

 

$

57,042

 

 

$

172,124

 

 

43.8

%

 

66.9

%

Hotel

76,249

 

 

21,679

 

 

97,928

 

 

24.9

 

 

54.3

 

Retail building

31,174

 

 

5,815

 

 

36,989

 

 

9.4

 

 

26.1

 

Multi-family

7,398

 

 

 

 

7,398

 

 

1.9

 

 

9.0

 

One- to four-family property

7,721

 

 

335

 

 

8,056

 

 

2.1

 

 

13.0

 

Office building

16,500

 

 

7,012

 

 

23,512

 

 

6.0

 

 

41.8

 

Single use building

30,472

 

 

5,331

 

 

35,803

 

 

9.1

 

 

74.5

 

Other

2,503

 

 

 

 

2,503

 

 

0.6

 

 

8.1

 

 

287,099

 

 

97,214

 

 

384,313

 

 

97.8

 

 

44.7

 

Commercial and industrial

 

 

 

 

 

 

 

 

 

Working capital

889

 

 

 

 

889

 

 

0.2

 

 

1.2

 

Equipment

4,366

 

 

 

 

4,366

 

 

1.1

 

 

30.8

 

Business investment

1,752

 

 

 

 

1,752

 

 

0.5

 

 

13.4

 

Purchase/lease autos

666

 

 

 

 

666

 

 

0.2

 

 

6.1

 

Other

804

 

 

 

 

804

 

 

0.2

 

 

31.4

 

 

8,477

 

 

 

 

8,477

 

 

2.2

 

 

7.1

 

Total

$

295,576

 

 

$

97,214

 

 

$

392,790

 

 

100.0

%

 

40.2

 

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. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. Of the loans 30 to 89 days delinquent at June 30, 2020, approximately 59% were 59 days or less delinquent. Non-performing loans are loans that are 90 or more days delinquent or in foreclosure, and other loans that are less than 90 days delinquent but are required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies even if the loans are current. Non-performing assets include 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 three months before they were sold.

 

Loans Delinquent for 30 to 89 Days at:

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

June 30, 2019

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

57

 

 

$

5,085

 

 

92

 

 

$

8,360

 

 

96

 

 

$

9,004

 

 

90

 

 

$

7,223

 

 

94

 

 

$

7,749

 

Correspondent purchased

10

 

 

2,919

 

 

13

 

 

4,531

 

 

13

 

 

4,117

 

 

9

 

 

2,721

 

 

14

 

 

3,727

 

Bulk purchased

19

 

 

4,536

 

 

12

 

 

2,914

 

 

14

 

 

3,307

 

 

16

 

 

3,581

 

 

13

 

 

2,249

 

Commercial

9

 

 

1,543

 

 

7

 

 

1,555

 

 

7

 

 

1,192

 

 

8

 

 

826

 

 

12

 

 

1,699

 

Consumer

21

 

 

431

 

 

43

 

 

628

 

 

40

 

 

488

 

 

42

 

 

525

 

 

43

 

 

630

 

 

116

 

 

$

14,514

 

 

167

 

 

$

17,988

 

 

170

 

 

$

18,108

 

 

165

 

 

$

14,876

 

 

176

 

 

$

16,054

 

30 to 89 days delinquent loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to total loans receivable, net

 

 

0.20

%

 

 

 

0.24

%

 

 

 

0.24

%

 

 

 

0.20

%

 

 

 

0.21

%

 

Non-Performing Loans and OREO at:

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

June 30, 2019

 

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

47

 

 

$

4,026

 

 

53

 

 

$

4,517

 

 

44

 

 

$

3,552

 

 

44

 

 

$

3,268

 

 

58

 

 

$

5,069

 

Correspondent purchased

7

 

 

2,740

 

 

4

 

 

1,342

 

 

4

 

 

1,376

 

 

4

 

 

1,008

 

 

2

 

 

871

 

Bulk purchased

3

 

 

1,291

 

 

1

 

 

630

 

 

2

 

 

689

 

 

6

 

 

1,465

 

 

7

 

 

2,194

 

Commercial

4

 

 

709

 

 

4

 

 

716

 

 

 

 

 

 

4

 

 

170

 

 

 

 

 

Consumer

23

 

 

278

 

 

17

 

 

326

 

 

20

 

 

340

 

 

25

 

 

362

 

 

25

 

 

437

 

 

84

 

 

9,044

 

 

79

 

 

7,531

 

 

70

 

 

5,957

 

 

83

 

 

6,273

 

 

92

 

 

8,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of total loans

 

 

0.12

%

 

 

 

0.10

%

 

 

 

0.08

%

 

 

 

0.08

%

 

 

 

0.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

14

 

 

$

1,132

 

 

13

 

 

$

811

 

 

11

 

 

$

634

 

 

16

 

 

$

1,183

 

 

15

 

 

$

1,057

 

Correspondent purchased

 

 

 

 

1

 

 

189

 

 

 

 

 

 

 

 

 

 

 

 

 

Bulk purchased

 

 

 

 

1

 

 

134

 

 

1

 

 

134

 

 

1

 

 

65

 

 

2

 

 

374

 

Commercial

1

 

 

6

 

 

2

 

 

129

 

 

6

 

 

363

 

 

1

 

 

7

 

 

1

 

 

7

 

Consumer

1

 

 

33

 

 

2

 

 

43

 

 

 

 

 

 

2

 

 

35

 

 

2

 

 

4

 

 

16

 

 

1,171

 

 

19

 

 

1,306

 

 

18

 

 

1,131

 

 

20

 

 

1,290

 

 

20

 

 

1,442

 

Total non-performing loans

100

 

 

10,215

 

 

98

 

 

8,837

 

 

88

 

 

7,088

 

 

103

 

 

7,563

 

 

112

 

 

10,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans as a percentage of total loans

 

0.14

%

 

 

 

0.12

%

 

 

 

0.10

%

 

 

 

0.10

%

 

 

 

0.13

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

4

 

 

$

183

 

 

5

 

 

$

187

 

 

8

 

 

$

414

 

 

8

 

 

$

745

 

 

8

 

 

$

546

 

Bulk purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

600

 

 

1

 

 

600

 

Consumer

 

 

 

 

 

 

 

 

1

 

 

98

 

 

 

 

 

 

 

 

 

 

4

 

 

183

 

 

5

 

 

187

 

 

9

 

 

512

 

 

9

 

 

1,345

 

 

9

 

 

1,146

 

Total non-performing assets

104

 

 

$

10,398

 

 

103

 

 

$

9,024

 

 

97

 

 

$

7,600

 

 

112

 

 

$

8,908

 

 

121

 

 

$

11,159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

0.11

%

 

 

 

0.10

%

 

 

 

0.08

%

 

 

 

0.10

%

 

 

 

0.12

%

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

 

June 30, 2020

 

March 31, 2020

 

June 30, 2019

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

12,309

 

 

$

26,788

 

 

$

13,678

 

 

$

26,077

 

 

$

12,528

 

 

$

25,657

 

Commercial

52,054

 

 

5,128

 

 

52,515

 

 

4,538

 

 

55,021

 

 

5,999

 

Consumer

320

 

 

564

 

 

479

 

 

659

 

 

172

 

 

696

 

 

$

64,683

 

 

$

32,480

 

 

$

66,672

 

 

$

31,274

 

 

$

67,721

 

 

$

32,352

 

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

 

For the Three Months Ended

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2020

 

2020

 

2019

 

2019

 

2019

 

(Dollars in thousands)

Balance at beginning of period

$

31,196

 

 

$

9,435

 

 

$

9,226

 

 

$

9,036

 

 

$

8,619

 

Charge-offs:

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

(46

)

 

(18

)

 

 

 

(45

)

Commercial

 

 

(325

)

 

(24

)

 

(124

)

 

 

Consumer

(5

)

 

(4

)

 

(6

)

 

(9

)

 

(16

)

Total charge-offs

(5

)

 

(375

)

 

(48

)

 

(133

)

 

(61

)

Recoveries:

 

 

 

 

 

 

 

 

 

One- to four-family

 

 

3

 

 

 

 

14

 

 

3

 

Commercial

17

 

 

54

 

 

27

 

 

5

 

 

17

 

Consumer

7

 

 

4

 

 

5

 

 

4

 

 

8

 

Total recoveries

24

 

 

61

 

 

32

 

 

23

 

 

28

 

Net recoveries (charge-offs)

19

 

 

(314

)

 

(16

)

 

(110

)

 

(33

)

Provision for credit losses

 

 

22,075

 

 

225

 

 

300

 

 

450

 

Balance at end of period

$

31,215

 

 

$

31,196

 

 

$

9,435

 

 

$

9,226

 

 

$

9,036

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

 

 

 

 

 

 

to average loans outstanding during the period

%

 

%

 

%

 

%

 

%

Ratio of net charge-offs (recoveries) during the

 

 

 

 

 

 

 

 

period to average non-performing assets

(0.20

)

 

3.78

 

 

0.19

 

 

1.09

 

 

0.26

 

ACL to non-performing loans at end of period

305.58

 

 

353.02

 

 

133.11

 

 

121.99

 

 

90.24

 

ACL to loans receivable at end of period

0.42

 

 

0.42

 

 

0.13

 

 

0.12

 

 

0.12

 

ACL to net charge-offs (annualized)

N/M(1)

 

24.9x

 

144.5x

 

21.1x

 

68.1x

 

For the Nine Months Ended

 

 

June 30,

 

 

2020

 

2019

 

 

(Dollars in thousands)

 

Balance at beginning of period

$

9,226

 

 

$

8,463

 

 

Charge-offs:

 

 

 

 

One- to four-family

(64

)

 

(101

)

 

Commercial

(349

)

 

 

 

Consumer

(15

)

 

(28

)

 

Total charge-offs

(428

)

 

(129

)

 

Recoveries:

 

 

 

 

One- to four-family

3

 

 

114

 

 

Commercial

98

 

 

44

 

 

Consumer

16

 

 

94

 

 

Total recoveries

117

 

 

252

 

 

Net (charge-offs) recoveries

(311

)

 

123

 

 

Provision for credit losses

22,300

 

 

450

 

 

Balance at end of period

$

31,215

 

 

$

9,036

 

 

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

 

to average loans outstanding during the period

%

 

%

 

Ratio of net charge-offs (recoveries) during the

 

 

 

 

period to average non-performing assets

3.22

 

 

(1.02

)

 

ACL to net charge-offs (annualized)

75.3x

 

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.

Management considered several factors when evaluating the adequacy of the ACL at June 30, 2020, such as: economic conditions including the impact of unemployment benefits created through the CARES Act, our commercial lending team's ongoing evaluation of commercial loans, the Bank's COVID-19 loan modification programs, and certain loan credit quality indicators.

There was significant deterioration of economic conditions at March 31, 2020 due to the COVID-19 pandemic which carried into the June 30, 2020 quarter. Many of the stay-at-home orders issued in March and April have been lifted or significantly reduced which resulted in some people returning to work, while not necessarily at the same level as prior to March 2020, and it benefited consumer spending, which rebounded during May and June, generally locally and not related to travel and entertainment. Unemployment benefit claims continue to be at historical levels, but the level at which individuals are filing initial unemployment benefit claims has decreased significantly from the late March/early April timeframe and is starting to level-off. Individuals that are unemployed have benefited from the Federal Pandemic Unemployment Compensation Program ("FPUC") which the CARES Act created. FPUC provides an additional $600 per week to individuals collecting regular unemployment compensation. The FPUC is scheduled to expire in late July 2020 which could result in financial strain for some households. There were other unemployment compensation benefits created under the CARES Act which have benefited individuals that have exhausted their regular unemployment insurance benefits and that are generally not eligible for regular unemployment compensation, like self-employed individuals.

In late March 2020, the commercial lending team closely analyzed the Bank's largest commercial relationships. Approximately 85% of all commercial loans have been evaluated through June 30, 2020. The commercial lending team primarily focused on the lending relationships considered most at risk of short-term operational cash flow issues and/or collateral concerns, which was $183.4 million at June, 30, 2020, and was primarily in the following categories: senior housing facilities, hotels, retail buildings, office buildings and single use buildings. These loan categories were among the categories with the highest usage of the Bank's COVID-19 loan modification program. The weighted average LTV ratios based on the unpaid principal balance of senior housing, retail building, hotel, office building, and single use building loans were 68%, 69%, 57%, 77%, and 69%, respectively, at June 30, 2020. We also considered the largest credits in these loan categories. The evaluation of most of our commercial and industrial loans concluded that many of these loans are to businesses that are deemed essential, which we believe reduces the risk of loss on these loans at this time. Management was not aware of any construction delays or other issues that would significantly delay or impact funding of the commercial construction loans at June 30, 2020.

In late March 2020, the Bank began offering COVID-19 loan modifications for one- to four-family loans and consumer loans consistent with the CARES Act or interagency guidance. This provides for a three-month payment deferral of principal, interest, and, in some cases, escrow payments. Through June 30, 2020, the Bank processed COVID-19 loan modifications for $233.4 million of one- to four-family loans, or 4% of the one- to four-family loan portfolio. As of the end of June 2020, some borrowers asked for and received a second deferral of an additional three months of payments and we are anticipating there will be more requests. While the intent of the CARES Act was to keep customers current on their payments and therefore in their homes during the worst of the economic downturn, it may be masking our actual credit exposure on these loans. Because of this, it is possible that when the deferral time periods end, the Bank's credit quality indicators may worsen, which may increase the need for additional provisions for credit losses and decrease earnings.

Through June 30, 2020, the Bank processed COVID-19 loan modifications of $392.8 million for commercial loans, or 40% of the commercial loan portfolio, including undisbursed amounts. The COVID-19 loan modifications for commercial loans mainly consist of a six-month interest-only payment periods, but a three-month deferral of principal and interest was also offered to our borrowers. Some of the borrowers who requested and received a three-month deferral of principal and interest have requested an additional three-month deferral. We are in the process of completing those second payment deferral requests. We believe the Bank's COVID-19 loan modification program has been very beneficial to the majority of our borrowers; however, as is the case with one- to four-family loans, the modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends.

There was no deterioration in credit quality indicators, such as loan delinquencies, asset classification and credit scores, during the current quarter; however, as noted above, the COVID-19 loan modifications may be masking our actual credit exposure which could result in worsening credit quality indicators once the payment relief time period ends. Loans 30 to 89 days delinquent were 0.20% of total loans at June 30, 2020 and 0.24% of total loans at March 31, 2020. Loans 90 days or more delinquent or in foreclosure were 0.12% of total loans at June 30, 2020 and 0.10% of total loans at March 31, 2020. Loans classified as special mention decreased $2.0 million during the current quarter to $64.7 million at June 30, 2020. Loans classified as substandard increased $1.2 million during the current quarter to $32.5 million at June 30, 2020. The weighted average credit score for our one- to four-family loan portfolio was 766 at March 31, 2020 and increased to 768 at June 30, 2020. We completed a credit score update from a nationally recognized consumer rating agency during the current quarter.

Management believes the ACL at June 30, 2020 was adequate to absorb inherent losses in the loan portfolio at that point in time based on the known facts and circumstances of the economic environment at June 30, 2020. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, and if future government programs, if any, do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.

The distribution of our ACL at the dates indicated is summarized below.

 

At

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2020

 

2020

 

2019

 

2019

 

2019

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

Originated

$

6,298

 

 

$

6,420

 

 

$

2,027

 

 

$

1,982

 

 

$

2,019

 

Correspondent purchased

3,189

 

 

3,355

 

 

1,200

 

 

1,203

 

 

1,275

 

Bulk purchased

506

 

 

557

 

 

612

 

 

687

 

 

742

 

Construction

48

 

 

47

 

 

20

 

 

18

 

 

17

 

Total

10,041

 

 

10,379

 

 

3,859

 

 

3,890

 

 

4,053

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate

16,353

 

 

14,672

 

 

3,608

 

 

3,448

 

 

3,394

 

Commercial and industrial

1,465

 

 

1,489

 

 

710

 

 

472

 

 

256

 

Construction

2,886

 

 

4,167

 

 

1,100

 

 

1,251

 

 

1,182

 

Total

20,704

 

 

20,328

 

 

5,418

 

 

5,171

 

 

4,832

 

Consumer

470

 

 

489

 

 

158

 

 

165

 

 

151

 

Total

$

31,215

 

 

$

31,196

 

 

$

9,435

 

 

$

9,226

 

 

$

9,036

 

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. The reduction in the ACL to loans ratio at June 30, 2020 compared to March 31, 2020 for commercial and industrial loans was due primarily to PPP loans. PPP loans are 100% guaranteed by the SBA so the Bank did not record ACL on those loans at June 30, 2020.

 

At

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

2020

 

2020

 

2019

 

2019

 

2019

One- to four-family:

 

 

 

 

 

 

 

 

 

Originated

0.16

%

 

0.16

%

 

0.05

%

 

0.05

%

 

0.05

%

Correspondent purchased

0.14

 

 

0.14

 

 

0.05

 

 

0.05

 

 

0.05

 

Bulk purchased

0.23

 

 

0.24

 

 

0.26

 

 

0.27

 

 

0.28

 

Construction

0.13

 

 

0.13

 

 

0.05

 

 

0.05

 

 

0.05

 

Total

0.16

 

 

0.16

 

 

0.06

 

 

0.06

 

 

0.06

 

Commercial:

 

 

 

 

 

 

 

 

 

Commercial real estate

2.62

 

 

2.51

 

 

0.62

 

 

0.59

 

 

0.55

 

Commercial and industrial

1.47

 

 

2.40

 

 

1.25

 

 

0.77

 

 

0.38

 

Construction

3.30

 

 

3.30

 

 

1.02

 

 

1.02

 

 

1.00

 

Total

2.55

 

 

2.63

 

 

0.72

 

 

0.67

 

 

0.61

 

Consumer

0.40

 

 

0.39

 

 

0.12

 

 

0.13

 

 

0.11

 

Total

0.42

 

 

0.42

 

 

0.13

 

 

0.12

 

 

0.12

 

Accounting Standards Update ("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 80% of our securities portfolio at June 30, 2020. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

 

June 30, 2020

 

March 31, 2020

 

September 30, 2019

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Fixed-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

$

714,730

 

 

2.22

%

 

3.2

 

 

$

690,220

 

 

2.33

%

 

3.1

 

 

$

625,840

 

 

2.46

%

 

2.9

 

U.S. government-sponsored enterprise debentures

225,020

 

 

1.15

 

 

0.4

 

 

250,080

 

 

1.88

 

 

0.3

 

 

249,828

 

 

2.15

 

 

0.7

 

Municipal bonds

11,857

 

 

1.68

 

 

0.7

 

 

11,887

 

 

1.66

 

 

0.9

 

 

18,371

 

 

1.63

 

 

1.0

 

Total fixed-rate securities

951,607

 

 

1.96

 

 

2.5

 

 

952,187

 

 

2.20

 

 

2.3

 

 

894,039

 

 

2.35

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

234,618

 

 

2.73

 

 

3.9

 

 

257,329

 

 

2.97

 

 

4.9

 

 

297,416

 

 

3.10

 

 

4.7

 

Total securities portfolio

$

1,186,225

 

 

2.11

 

 

2.8

 

 

$

1,209,516

 

 

2.36

 

 

2.9

 

 

$

1,191,455

 

 

2.54

 

 

2.9

 

MBS: The following tables summarize 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 are the estimated remaining principal repayment term (in years) after three-month historical prepayment speeds have been applied.

 

For the Three Months Ended

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

973,318

 

 

 

2.50

%

 

3.6

 

 

$

937,317

 

 

 

2.61

%

 

3.3

 

 

$

936,487

 

 

 

2.67

%

 

3.5

 

 

$

979,256

 

 

 

2.68

%

 

3.4

 

Maturities and repayments

(75,293

)

 

 

 

 

 

 

(65,767

)

 

 

 

 

 

 

(72,635

)

 

 

 

 

 

 

(70,865

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(363

)

 

 

 

 

 

 

(279

)

 

 

 

 

 

 

(248

)

 

 

 

 

 

 

(270

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

77,455

 

 

 

1.29

 

 

5.0

 

 

88,863

 

 

 

1.80

 

 

4.5

 

 

74,359

 

 

 

2.05

 

 

3.8

 

 

25,214

 

 

 

1.93

 

 

3.2

 

Valuation transferred from held-to-maturity ("HTM") to AFS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,039

 

 

 

 

 

 

Change in valuation on AFS securities

7,470

 

 

 

 

 

 

 

13,184

 

 

 

 

 

 

 

(646

)

 

 

 

 

 

 

113

 

 

 

 

 

 

Ending balance - carrying value

$

982,587

 

 

 

2.35

 

 

3.3

 

 

$

973,318

 

 

 

2.50

 

 

3.6

 

 

$

937,317

 

 

 

2.61

 

 

3.3

 

 

$

936,487

 

 

 

2.67

 

 

3.5

 

 

For the Nine Months Ended

 

June 30, 2020

 

June 30, 2019

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

936,487

 

 

 

2.67

%

 

3.5

 

 

$

1,036,990

 

 

 

2.57

%

 

3.4

 

Maturities and repayments

(213,695

)

 

 

 

 

 

 

(204,251

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(890

)

 

 

 

 

 

 

(1,034

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

240,677

 

 

 

1.71

 

 

4.4

 

 

52,541

 

 

 

2.82

 

 

4.5

 

Adjustable

 

 

 

 

 

 

 

84,138

 

 

 

2.74

 

 

4.4

 

Change in valuation on AFS securities

20,008

 

 

 

 

 

 

 

10,872

 

 

 

 

 

 

Ending balance - carrying value

$

982,587

 

 

 

2.35

 

 

3.3

 

 

$

979,256

 

 

 

2.68

 

 

3.4

 

Investment Securities: The following tables summarize 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

 

June 30, 2020

 

March 31, 2020

 

December 31, 2019

 

September 30, 2019

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

262,719

 

 

 

1.87

%

 

0.3

 

 

$

292,270

 

 

 

2.00

%

 

0.8

 

 

$

268,376

 

 

 

2.11

%

 

0.8

 

 

$

273,995

 

 

 

2.30

%

 

1.0

 

Maturities, calls and sales

(125,000

)

 

 

 

 

 

 

(80,125

)

 

 

 

 

 

 

(51,175

)

 

 

 

 

 

 

(80,690

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(80

)

 

 

 

 

 

 

(49

)

 

 

 

 

 

 

20

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

99,990

 

 

 

0.58

 

 

1.2

 

 

50,097

 

 

 

1.42

 

 

0.4

 

 

75,000

 

 

 

1.90

 

 

1.7

 

 

75,000

 

 

 

2.02

 

 

1.1

 

Valuation transferred from HTM to AFS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

47

 

 

 

 

 

 

Change in valuation on AFS securities

(162

)

 

 

 

 

 

 

526

 

 

 

 

 

 

 

49

 

 

 

 

 

 

 

37

 

 

 

 

 

 

Ending balance - carrying value

$

237,467

 

 

 

1.23

 

 

0.5

 

 

$

262,719

 

 

 

1.87

 

 

0.3

 

 

$

292,270

 

 

 

2.00

 

 

0.8

 

 

$

268,376

 

 

 

2.11

 

 

0.8

 

 

For the Nine Months Ended

 

June 30, 2020

 

June 30, 2019

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

268,376

 

 

 

2.11

%

 

0.8

 

 

$

289,942

 

 

 

2.05

%

 

2.2

 

Maturities, calls and sales

(256,300

)

 

 

 

 

 

 

(169,081

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(109

)

 

 

 

 

 

 

75

 

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed

225,087

 

 

 

1.20

 

 

1.2

 

 

149,809

 

 

 

2.65

 

 

0.8

 

Change in valuation on AFS securities

413

 

 

 

 

 

 

 

3,250

 

 

 

 

 

 

Ending balance - carrying value

$

237,467

 

 

 

1.23

 

 

0.5

 

 

$

273,995

 

 

 

2.30

 

 

1.0

 

Deposit Portfolio

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

 

June 30, 2020

 

March 31, 2020

 

September 30, 2019

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

457,917

 

 

%

 

7.5

%

 

$

385,092

 

 

%

 

6.7

%

 

$

357,284

 

 

%

 

6.4

%

Interest-bearing checking

837,304

 

 

0.10

 

 

13.8

 

 

761,589

 

 

0.10

 

 

13.2

 

 

717,121

 

 

0.09

 

 

12.8

 

Savings

420,924

 

 

0.07

 

 

6.9

 

 

377,212

 

 

0.08

 

 

6.5

 

 

321,494

 

 

0.05

 

 

5.8

 

Money market

1,320,379

 

 

0.39

 

 

21.8

 

 

1,208,370

 

 

0.62

 

 

20.9

 

 

1,198,343

 

 

0.70

 

 

21.5

 

Retail/business certificates of deposit

2,744,661

 

 

1.97

 

 

45.2

 

 

2,765,142

 

 

2.11

 

 

47.9

 

 

2,692,770

 

 

2.08

 

 

48.2

 

Public unit certificates of deposit

288,499

 

 

1.09

 

 

4.8

 

 

277,214

 

 

1.87

 

 

4.8

 

 

294,855

 

 

2.29

 

 

5.3

 

 

$

6,069,684

 

 

1.05

 

 

100.0

%

 

$

5,774,619

 

 

1.25

 

 

100.0

%

 

$

5,581,867

 

 

1.29

 

 

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 June 30, 2020.

 

 

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%

 

$

251,416

 

 

$

9,922

 

 

$

6

 

 

$

 

 

$

261,344

 

 

0.48

%

1.00 – 1.99%

 

771,935

 

 

393,807

 

 

158,766

 

 

140,747

 

 

1,465,255

 

 

1.69

 

2.00 – 2.99%

 

438,482

 

 

265,597

 

 

403,035

 

 

199,198

 

 

1,306,312

 

 

2.38

 

3.00 – 3.99%

 

 

 

 

 

249

 

 

 

 

249

 

 

3.00

 

 

 

$

1,461,833

 

 

$

669,326

 

 

$

562,056

 

 

$

339,945

 

 

$

3,033,160

 

 

1.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of total

 

48.2

%

 

22.1

%

 

18.5

%

 

11.2

%

 

 

 

 

Weighted average rate

 

1.65

 

 

1.99

 

 

2.22

 

 

2.12

 

 

 

 

 

Weighted average maturity (in years)

 

0.5

 

 

1.5

 

 

2.4

 

 

3.7

 

 

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 which includes FHLB advances, at par, and repurchase agreements, along with associated weighted average contractual and effective rates as of June 30, 2020.

 

 

Term Borrowings Amount

 

 

 

 

Maturity by

 

 

 

Interest rate

 

Contractual

 

Effective

Fiscal Year

 

Fixed-rate

 

swaps(1)

 

Rate

 

Rate(2)

 

 

(Dollars in thousands)

 

 

 

 

2020

 

$

200,000

 

 

$

340,000

 

 

1.32

%

 

2.50

%

2021

 

203,000

 

 

300,000

 

 

1.28

 

 

2.45

 

2022

 

200,000

 

 

 

 

2.23

 

 

2.23

 

2023

 

300,000

 

 

 

 

1.70

 

 

1.81

 

2024

 

100,000

 

 

 

 

3.39

 

 

3.39

 

2025

 

250,000

 

 

 

 

1.82

 

 

1.94

 

2026

 

100,000

 

 

 

 

1.28

 

 

1.60

 

 

 

$

1,353,000

 

 

$

640,000

 

 

1.62

 

 

2.29

 

(1) Represents 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 periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 3.7 years at June 30, 2020.
(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 June 30, 2020 and throughout the current quarter, the Bank did not have a balance outstanding on its FHLB line of credit. The average outstanding balance of FHLB line of credit borrowings during the current year period was $61.3 million at an average rate of 1.85%. During the prior quarter, the Bank began utilizing its FRB of Kansas City line of credit rather than the FHLB line of credit, as the rate at the FRB of Kansas City was lower. At June 30, 2020, the Bank did not have an outstanding balance on its FRB of Kansas City line of credit. The average outstanding balance of the FRB of Kansas City line of credit borrowing during the current quarter was $396 thousand at an average rate of 0.45%, and during the current year period was $2.0 million at an average rate of 0.25%.

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 June 30, 2020.

 

 

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)

September 30, 2020

 

$

291,036

 

 

1.95

%

 

$

134,727

 

 

0.90

%

 

$

540,000

 

 

2.50

%

 

$

965,763

 

 

2.11

%

December 31, 2020

 

300,867

 

 

1.83

 

 

58,261

 

 

0.98

 

 

253,000

 

 

2.44

 

 

612,128

 

 

2.00

 

March 31, 2021

 

275,383

 

 

1.94

 

 

30,810

 

 

1.48

 

 

150,000

 

 

1.97

 

 

456,193

 

 

1.92

 

June 30, 2021

 

340,068

 

 

1.53

 

 

30,681

 

 

0.67

 

 

100,000

 

 

3.20

 

 

470,749

 

 

1.83

 

 

 

$

1,207,354

 

 

1.80

 

 

$