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Capitol Federal Financial, Inc.® Reports Second Quarter Fiscal Year 2021 Results

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 March 31, 2021. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which will be filed with the Securities and Exchange Commission ("SEC") on or about May 10, 2021 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 $20.4 million;
  • basic and diluted earnings per share of $0.15;
  • net interest margin of 1.88%;
  • annualized deposit growth of approximately 15%;
  • paid dividends of $11.5 million, or $0.085 per share; and
  • on April 20, 2021, announced a cash dividend of $0.085 per share, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021.

During the current quarter, the Bank completed three unique transactions that impacted operating results:

  • Sold Visa Class B shares for a gain of $7.4 million.
  • Terminated $200.0 million of fixed-pay swaps with an average cost at the time of termination of 2.62% and realized a loss of $4.8 million. The estimated earn-back period of the loss is approximately 15 months.
  • Wrote down the value of a branch we intend to sell by $1.2 million.

For the quarter ended March 31, 2021, the Bank also recorded a negative provision for credit losses of $3.0 million.

Since the onset of the Coronavirus Disease 2019 ("COVID-19") pandemic, the Bank has lowered its rates offered on all deposit products except retail checking and savings accounts. The impact of reducing rates offered on our certificate of deposit products has been to lower the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. Additionally, certain borrowings were repaid or restructured over the past year using funds obtained through deposit growth, which reduced interest expense on borrowings. Over this time, we lowered rates for our loan products. In late February 2021, as market interest rates began to increase, we began to increase our offered loan rates in our market areas. Despite this recent increase, the yield on the loan portfolio will likely continue to decrease in the near term due to the high levels of prepayments, refinances and endorsements, but not at the same magnitude as the past year. With significant cash inflows realized due to investment securities being called and prepayments on loans and mortgage-backed securities ("MBS") over the past year and the current yields on reinvested funds into new securities being lower than existing portfolio yields, the yield on our investments has been reduced significantly.

Comparison of Operating Results for the Three Months Ended March 31, 2021 and December 31, 2020

For the quarter ended March 31, 2021, the Company recognized net income of $20.4 million, or $0.15 per share, compared to net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020. The increase was due primarily to an increase in non-interest income resulting mainly from the sale of VISA Class B shares, partially offset by an increase in non-interest expense due to the termination of $200.0 million of interest rate swaps. The net interest margin decreased four basis points, from 1.92% for the prior quarter to 1.88% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio average yields, along with a change in asset mix as cash flows from the loan portfolio have been invested into lower yielding securities, partially offset by a decrease in the average cost of borrowings and deposits. Our net interest margin could continue to decrease if our interest-earning assets continue to reprice to lower market rates at a faster pace than our deposits and borrowings, and if we continue investing in lower yielding securities rather than reinvesting cash flows into the loan portfolio.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 17 basis points, from 2.98% for the prior quarter to 2.81% for the current quarter, while the average balance of interest-earning assets increased $30.1 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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

57,285

 

 

$

60,694

 

 

$

(3,409

)

 

 

(5.6

)

%

MBS

5,429

 

 

5,710

 

 

(281

)

 

 

(4.9

)

 

Federal Home Loan Bank Topeka ("FHLB") stock

951

 

 

1,069

 

 

(118

)

 

 

(11.0

)

 

Investment securities

629

 

 

683

 

 

(54

)

 

 

(7.9

)

 

Cash and cash equivalents

40

 

 

51

 

 

(11

)

 

 

(21.6

)

 

Total interest and dividend income

$

64,334

 

 

$

68,207

 

 

$

(3,873

)

 

 

(5.7

)

 

The decrease in interest income on loans receivable was due to a 14 basis point decrease in the weighted average portfolio yield and a $96.2 million decrease in the average balance. The weighted average yield on the loans receivable portfolio decreased from 3.41% for the prior quarter to 3.27% for the current quarter, due mainly to loans repricing to lower current market rates as a result of endorsements, refinances and adjustable-rate loan rate changes, along with a decrease in commercial loan deferred fee and discount recognition related to Paycheck Protection Program ("PPP") loans and other commercial loan activity. One- to four-family correspondent loan payoff activity decreased during the current quarter compared to the prior quarter; thereby reducing the amount of premium amortization and reduction in the loan portfolio yield. Correspondent loan payoff activity remains at elevated levels compared to historical norms which was the primary reason for the decrease in the average balance of the loan portfolio during the current quarter.

The decrease in interest income on the MBS portfolio was due to a 25 basis point decrease in the weighted average yield, to 1.50% for the current quarter, due primarily to an increase in the impact of net premium amortization, along with purchases at lower market yields. This was partially offset by a $142.5 million increase in the average balance as a result of purchases, primarily utilizing excess cash flows from the loan portfolio and operating cash, along with funds from growth in the deposit portfolio that were not used to pay down borrowings.

Interest Expense

The weighted average rate paid on interest-bearing liabilities decreased 14 basis points, from 1.20% for the prior quarter to 1.06% for the current quarter, while the average balance of interest-bearing liabilities increased $48.1 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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

12,529

 

 

$

14,067

 

 

$

(1,538

)

 

 

(10.9

)

%

Borrowings

8,732

 

 

10,327

 

 

(1,595

)

 

 

(15.4

)

 

Total interest expense

$

21,261

 

 

$

24,394

 

 

$

(3,133

)

 

 

(12.8

)

 

The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the retail/business certificate of deposit portfolio. The weighted average rate on the retail/business certificate of deposit portfolio decreased 15 basis points, to 1.61% for the current quarter. Management has generally reduced deposit offer rates as discussed above. See the Financial Condition section below for additional information on deposits.

The decrease in interest expense on borrowings was due primarily to not replacing term borrowings that matured during the current quarter and prior quarter, along with prepaying certain advances and replacing them at lower rates. Cash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current and prior quarters. The average balance of borrowings decreased $171.9 million compared to the prior quarter.

Provision for Credit Losses

For the quarter ended March 31, 2021, the Bank recorded a negative provision for credit losses of $3.0 million, compared to a negative provision for credit losses of $1.5 million for the prior quarter. The negative provision in the current quarter was composed of a $2.7 million decrease in the allowance for credit losses ("ACL") for loans and a $305 thousand decrease in reserves for off-balance sheet credit exposures. The $3.0 million negative provision for credit losses was due primarily to continued improvements in the economic forecast used in the model. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserves for off-balance sheet credit exposures at March 31, 2021 in the Asset Quality 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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

��

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Gain on sale of Visa Class B shares

$

7,386

 

 

$

 

 

$

7,386

 

 

 

N/A

 

Deposit service fees

2,814

 

 

2,947

 

 

(133

)

 

 

(4.5

)

%

Insurance commissions

888

 

 

638

 

 

250

 

 

 

39.2

 

 

Other non-interest income

1,389

 

 

1,485

 

 

(96

)

 

 

(6.5

)

 

Total non-interest income

$

12,477

 

 

$

5,070

 

 

$

7,407

 

 

 

146.1

 

 

During the current quarter, the Bank sold all of its Visa Class B shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to the receipt of annual contingent insurance commissions which were higher than what was anticipated and accrued.

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

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

13,397

 

 

$

14,138

 

 

$

(741

)

 

 

(5.2

)

%

Information technology and related expense

4,599

 

 

4,233

 

 

366

 

 

 

8.6

 

 

Occupancy, net

3,523

 

 

3,379

 

 

144

 

 

 

4.3

 

 

Loss on interest rate swap termination

4,752

 

 

 

 

4,752

 

 

 

N/A

 

Regulatory and outside services

1,234

 

 

1,585

 

 

(351

)

 

 

(22.1

)

 

Advertising and promotional

1,484

 

 

838

 

 

646

 

 

 

77.1

 

 

Deposit and loan transaction costs

664

 

 

766

 

 

(102

)

 

 

(13.3

)

 

Federal insurance premium

634

 

 

621

 

 

13

 

 

 

2.1

 

 

Office supplies and related expense

463

 

 

424

 

 

39

 

 

 

9.2

 

 

Other non-interest expense

1,903

 

 

1,083

 

 

820

 

 

 

75.7

 

 

Total non-interest expense

$

32,653

 

 

$

27,067

 

 

$

5,586

 

 

 

20.6

 

 

The decrease in salaries and employee benefits was due primarily to non-officer employee bonuses of $313 thousand paid during the prior quarter in appreciation of the hard work and dedication by our non-officer employees during these challenging times, along with a decrease in the number of working days compared to the prior quarter. The increase in information technology and related expense was due primarily to an increase in information technology professional services expense. During the current quarter, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. Since it was management's intention to prepay the related FHLB advances, the previously-forecasted transactions subject to the cash flow hedges are no longer expected to occur. Therefore, the termination of the interest rate swaps resulted in the reclassification of unrealized losses totaling $4.8 million from accumulated other comprehensive income ("AOCI") into earnings. The decrease in regulatory and outside services was due mainly to the timing of external audit expenses. The increase in advertising and promotional expenses was due to the timing of campaigns. The increase in other non-interest expense was due primarily to the write-down of a property that previously served as one of the Bank's branch locations, as management intends to sell the property.

The Company's efficiency ratio was 58.78% for the current quarter compared to 55.37% for the prior quarter. The change in the efficiency ratio was due primarily to higher non-interest expense, partially offset by an increase in non-interest income. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.

Income Tax Expense

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

 

For the Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

Income before income tax expense

$

25,861

 

 

$

23,348

 

 

$

2,513

 

 

10.8

%

Income tax expense

5,417

 

 

4,450

 

 

967

 

 

21.7

 

Net income

$

20,444

 

 

$

18,898

 

 

$

1,546

 

 

8.2

 

 

 

 

 

 

 

 

 

Effective Tax Rate

20.9

%

 

19.1

%

 

 

 

 

The increase in income tax expense was due mainly to a higher effective tax rate compared to the prior quarter, as well as an increase in pretax income. The lower effective tax rate in the prior quarter was due primarily to true-ups related to the preparation of the September 30, 2020 federal and state tax returns. Management anticipates the effective income tax rate for fiscal year 2021 will be approximately 21%.

Comparison of Operating Results for the Six Months Ended March 31, 2021 and 2020

The Company recognized net income of $39.3 million, or $0.29 per share, for the six month period ended March 31, 2021 compared to net income of $26.8 million, or $0.19 per share, for the six month period ended March 31, 2020. The increase in net income was due primarily to recording a $22.3 million provision for credit losses during the prior year period compared to recording a negative provision for credit losses of $4.5 million in the current year period, partially offset by a decrease in net interest income and an increase in income tax expense. Net interest income decreased $10.5 million, or 10.8%, from the prior year period to $86.9 million for the current year period. The net interest margin decreased 29 basis points, from 2.19% for the prior year period to 1.90% for the current year period. The decrease in net interest income and net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.

Interest and Dividend Income

The weighted average yield on total interest-earning assets decreased 66 basis points, from 3.56% for the prior year period to 2.90% for the current year period, while the average balance of interest-earning assets increased $232.9 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield and partially the securities portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. 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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

117,979

 

 

$

139,527

 

 

$

(21,548

)

 

 

(15.4

)

%

MBS

11,139

 

 

11,968

 

 

(829

)

 

 

(6.9

)

 

FHLB stock

2,020

 

 

3,540

 

 

(1,520

)

 

 

(42.9

)

 

Investment securities

1,312

 

 

2,889

 

 

(1,577

)

 

 

(54.6

)

 

Cash and cash equivalents

91

 

 

1,067

 

 

(976

)

 

 

(91.5

)

 

Total interest and dividend income

$

132,541

 

 

$

158,991

 

 

$

(26,450

)

 

 

(16.6

)

 

The decrease in interest income on loans receivable was due mainly to a 39 basis point decrease in the weighted average yield on the portfolio, from 3.73% for the prior year period to 3.34% for the current year period, primarily on correspondent one- to four-family loans related to higher premium amortization due to increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $407.1 million compared to the prior year period. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio. We suspended accepting new applications for these loans from mid-March 2020 to mid-June 2020, in part, to manage the influx of refinance requests from existing customers in our local market areas during that time period while also managing underwriting concerns on correspondent loans early in the COVID-19 pandemic. Additionally, after lifting the suspension, there were, and continues to be, historically high levels of prepayments due to refinance activity.

The decrease in interest income on the MBS portfolio was due to a 96 basis point decrease in the weighted average yield to 1.62% for the current year period as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $445.6 million increase in the average balance of the portfolio.

The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.

The decrease in interest income on investment securities was due to a 146 basis point decrease in the weighted average yield to 0.58% for the current year period as a result of new purchases at lower market yields, partially offset by a $165.8 million increase in the average balance of the portfolio.

The decrease in interest income on cash and cash equivalents was due to a decrease in the yield earned on cash held at the Federal Reserve Bank of Kansas City, partially offset by a $46.3 million increase in the average balance.

Interest Expense

The weighted average rate paid on total interest-bearing liabilities decreased 44 basis points, from 1.57% for the prior year period to 1.13% for the current period, while the average balance of interest-bearing liabilities increased $248.9 million. The increase in the average balance was primarily in money market and checking accounts, partially offset by a decrease in borrowings. 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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

$

26,596

 

 

$

35,766

 

 

$

(9,170

)

 

 

(25.6

)

%

Borrowings

19,059

 

 

25,860

 

 

(6,801

)

 

 

(26.3

)

 

Total interest expense

$

45,655

 

 

$

61,626

 

 

$

(15,971

)

 

 

(25.9

)

 

The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail/business certificates of deposit, money market accounts, and wholesale certificates of deposit, which decreased by 42 basis points, 38 basis points, and 152 basis points, respectively. Since the onset of the COVID-19 pandemic, retail/business certificates of deposit have been gradually repricing downward as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.

The decrease in interest expense on borrowings was due primarily to a $514.5 million decrease in the average balance, as certain maturing FHLB advances and repurchase agreements were not replaced and the Bank paid down its FHLB line of credit with funds generated from the deposit portfolio. Additionally, the decrease in interest expense on borrowings was due to the impact of prepaying certain FHLB advances during the current and prior periods.

Provision for Credit Losses

The Bank recorded a negative provision for credit losses during the current year period of $4.5 million, compared to a $22.3 million provision for credit losses during the prior year period. See additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit exposures at March 31, 2021 in the Asset Quality 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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Gain on sale of Visa Class B shares

$

7,386

 

 

$

 

 

$

7,386

 

 

 

N/A

 

Deposit service fees

5,761

 

 

5,845

 

 

(84

)

 

 

(1.4

)

%

Insurance commissions

1,526

 

 

1,091

 

 

435

 

 

 

39.9

 

 

Other non-interest income

2,874

 

 

3,239

 

 

(365

)

 

 

(11.3

)

 

Total non-interest income

$

17,547

 

 

$

10,175

 

 

$

7,372

 

 

 

72.5

 

 

During the current year period, the Bank sold its Visa Class B Shares, resulting in a $7.4 million gain. The increase in insurance commissions was due primarily to an increase in annual contingent insurance commissions received compared to the prior year period. The decrease in other non-interest income was mainly the result of a decrease in income from bank-owned life insurance ("BOLI") compared to the prior year period due to a reduction in the yield and lower death benefit receipts between the two periods.

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 Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

$

27,535

 

 

$

26,706

 

 

$

829

 

 

 

3.1

 

%

Information technology and related expense

8,832

 

 

8,409

 

 

423

 

 

 

5.0

 

 

Occupancy, net

6,902

 

 

6,656

 

 

246

 

 

 

3.7

 

 

Loss on interest rate swap termination

4,752

 

 

 

 

4,752

 

 

 

N/A

 

Regulatory and outside services

2,819

 

 

2,640

 

 

179

 

 

 

6.8

 

 

Advertising and promotional

2,322

 

 

2,769

 

 

(447

)

 

 

(16.1

)

 

Deposit and loan transaction costs

1,430

 

 

1,389

 

 

41

 

 

 

3.0

 

 

Federal insurance premium

1,255

 

 

 

 

1,255

 

 

 

N/A

 

Office supplies and related expense

887

 

 

1,111

 

 

(224

)

 

 

(20.2

)

 

Other non-interest expense

2,986

 

 

2,984

 

 

2

 

 

 

0.1

 

 

Total non-interest expense

$

59,720

 

 

$

52,664

 

 

$

7,056

 

 

 

13.4

 

 

The increase in salaries and employee benefits was due primarily to an increase in loan commissions, an increase in full-time equivalent employees, and higher non-officer related bonuses paid in the current year period. The increase in information technology and related expense was due mainly to an increase in information technology professional services expense and software licensing expense. As discussed previously, during the current year period, the Bank terminated interest rate swaps designated as cash flow hedges with a notional amount of $200.0 million which were tied to FHLB advances totaling $200.0 million. The termination of the interest rate swaps resulted in the reclassification of unrealized losses totaling $4.8 million from AOCI into earnings. The decrease in advertising and promotional expenses was due mainly to the timing of campaigns. The increase in the federal insurance premium was due mainly to the Bank utilizing an assessment credit from the Federal Deposit Insurance Corporation ("FDIC") during the prior year period.

The Company's efficiency ratio was 57.19% for the current period compared to 48.97% for the prior year period. The change in the efficiency ratio was due to higher non-interest expense, partially offset by an increase in non-interest income in the current year period compared to the prior year period. Management continues to strive to control operating costs. The increase in the efficiency ratio in the current period was due primarily to the loss on the termination of interest rate swaps, which was a unique transaction during the current period, along with higher federal insurance premium expense as the Bank utilized an assessment credit from the FDIC during the prior year period.

Income Tax Expense

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

 

For the Six Months Ended

 

 

 

 

 

March 31,

 

Change Expressed in:

 

2021

 

2020

 

Dollars

 

Percent

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

Income before income tax expense

$

49,209

 

 

$

32,576

 

 

$

16,633

 

 

51.1

%

Income tax expense

9,867

 

 

5,789

 

 

4,078

 

 

70.4

 

Net income

$

39,342

 

 

$

26,787

 

 

$

12,555

 

 

46.9

 

 

 

 

 

 

 

 

 

Effective Tax Rate

20.1

%

 

17.8

%

 

 

 

 

The increase in income tax expense was due primarily to higher pretax income in the current year period, as well as a higher effective tax rate compared to the prior year period. The effective tax rate was lower in the prior year period due primarily to a discrete benefit recognized in the prior year period related to certain BOLI policies that were acquired in fiscal year 2018.

Financial Condition as of March 31, 2021

Many areas of consumer spending have rebounded in recent months, but some segments, such as travel and entertainment, are lagging. We continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty 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 some 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 $9.70 billion at March 31, 2021, an increase of $91.1 million, or 0.9%, from December 31, 2020, due to an increase in securities, partially offset by a decrease in loans receivable and cash and cash equivalents. Excess operating cash and cash flows from the loan portfolio and funds from deposit growth were generally used to purchase securities during the current quarter. Total loans were $6.97 billion at March 31, 2021, a decrease of $30.6 million, or 0.4%, from December 31, 2020. The decrease was mainly in the one- to four-family correspondent loan portfolio as payoffs exceeded purchases during the current quarter. During the current quarter, the Bank originated and refinanced $319.8 million of one- to four-family and consumer loans with a weighted average rate of 2.66% and purchased $163.3 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.61%. The Bank also originated $119.2 million of commercial loans with a weighted average rate of 3.07% and entered into commercial loan participations of $38.1 million at a weighted rate of 3.62%.

Total deposits were $6.65 billion at March 31, 2021, an increase of $240.0 million, or 3.7%, from December 31, 2020. The increase was primarily in non-maturity deposits, including a $113.8 million increase in money market accounts and a $110.0 million increase in checking accounts. Between mid-March 2021 and March 31, 2021, the Bank processed approximately $113 million of Economic Impact Payments, the majority of which were retained by the Bank as of March 31, 2021. Retail/business certificates of deposit decreased $47.6 million from December 31, 2020. Customers are moving some of the funds from maturing certificates to more liquid investment options such as the Bank's retail money market accounts.

Total borrowings decreased $152.3 million, or 8.8%, from December 31, 2020 to March 31, 2021. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings.

Total assets increased $210.8 million, or 2.2% from September 30, 2020 to March 31, 2021, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio that was not used to pay down maturing borrowings. Total securities increased $535.0 million, or 34.3%, from September 30, 2020 to March 31, 2021, including a $369.1 million increase in MBS and a $165.9 million increase in investment securities.

Total loans decreased $229.3 million from September 30, 2020 to March 31, 2021. The decrease was primarily in the one- to four-family correspondent loan portfolio. During the current year six month period, the Bank originated and refinanced $649.4 million of one- to four-family and consumer loans with a weighted average rate of 2.71% and purchased $269.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.70%. The Bank also originated $157.3 million of commercial loans with a weighted average rate of 3.24% and entered into commercial loan participations of $98.1 million at a weighted average rate of 3.85%. The commercial loan portfolio totaled $795.0 million at March 31, 2021 and was composed of 83% commercial real estate loans, 10% commercial and industrial loans, and 7% commercial construction loans. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $258.2 million, was $976.0 million at March 31, 2021. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $23.1 million, was $100.3 million at March 31, 2021, of which $25.3 million related to PPP loans.

Total deposits increased $459.5 million, or 7.4%, from September 30, 2020 to March 31, 2021. The increase was in non-maturity deposits, which increased $501.7 million, including a $241.1 million increase in checking accounts, a $183.4 million increase in money market accounts, and a $77.2 million increase in savings accounts. Retail/business certificates of deposit and public unit certificates of deposit decreased $36.1 million and $6.1 million, respectively, during the current year period.

Total borrowings at March 31, 2021 were $1.58 billion, a decrease of $207.4 million, or 11.6%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current year period. Subsequent to March 31, 2021, the Bank prepaid $100.0 million of adjustable-rate FHLB advances and replaced them with $100.0 million of fixed-rate FHLB advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Management may prepay the remaining $100.0 million of adjustable-rate FHLB advances during the June 30, 2021 quarter. Cash flows from the increase in the deposit portfolio were used to pay off maturing borrowings.

Stockholders' equity was $1.28 billion at both March 31, 2021 and September 30, 2020. During the current year six month period, the Company paid cash dividends totaling $40.6 million and repurchased common stock totaling $1.5 million, partially offset by net income of $39.3 million. The cash dividends paid during the current year six month period totaled $0.30 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and two regular quarterly cash dividends of $0.085 per share. On April 20, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on May 21, 2021 to stockholders of record as of the close of business on May 7, 2021. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate level of capital. At March 31, 2021, this ratio was 12.0%.

At March 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $73.9 million in cash on deposit at the Bank. For fiscal year 2021, it is the intention of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company level.

There remains $44.7 million authorized under the existing stock repurchase plan for additional purchases of the Company's common stock. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. This plan has no expiration date; however, the Federal Reserve Bank's existing approval for the Company to repurchase shares expires in August 2021.

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

 

March 31,

 

September 30,

 

March 31,

 

2021

 

2020

 

2020

 

(Dollars in thousands)

Stockholders' equity

$

1,278,595

 

 

$

1,284,859

 

 

$

1,287,793

 

Equity to total assets at end of period

13.2

%

 

13.5

%

 

13.7

%

The following table presents a reconciliation of total to net shares outstanding as of March 31, 2021.

Total shares outstanding

138,809,796

 

 

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

(3,315,312

)

 

Net shares outstanding

135,494,484

 

 

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 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 community bank leverage ratio ("CBLR") requirement is a minimum of 8% at December 31, 2020, 8.5% for calendar year 2021, and 9% thereafter. As of March 31, 2021, the Bank's CBLR was 12.2%, which exceeded the minimum requirement.

The following table presents a reconciliation of the Bank's equity under accounting principles generally accepted in the United States of America ("GAAP") to regulatory tier 1 capital as of March 31, 2021 (dollars in thousands):

Total Bank equity as reported under GAAP

$

1,164,295

 

 

AOCI

18,953

 

 

Goodwill and other intangibles, net of associated deferred taxes

(13,072

)

 

Total tier 1 capital

$

1,170,176

 

 

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 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)

 

 

March 31,

 

December 31,

 

September 30,

 

2021

 

 

2020

 

 

2020

 

ASSETS:

 

 

 

 

 

Cash and cash equivalents (includes interest-earning deposits of $121,430, $139,031 and $172,430)

$

139,472

 

 

 

$

168,032

 

 

 

$

185,148

 

 

Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $2,090,720, $1,880,972 and $1,529,605)

2,095,924

 

 

 

1,913,866

 

 

 

1,560,950

 

 

Loans receivable, net (ACL of $23,397, $26,125 and $31,527)

6,973,536

 

 

 

7,004,094

 

 

 

7,202,851

 

 

FHLB stock, at cost

74,464

 

 

 

84,693

 

 

 

93,862

 

 

Premises and equipment, net

99,088

 

 

 

101,238

 

 

 

101,875

 

 

Other assets

315,535

 

 

 

335,041

 

 

 

342,532

 

 

TOTAL ASSETS

$

9,698,019

 

 

 

$

9,606,964

 

 

 

$

9,487,218

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Deposits

$

6,650,865

 

 

 

$

6,410,842

 

 

 

$

6,191,408

 

 

Borrowings

1,581,955

 

 

 

1,734,275

 

 

 

1,789,313

 

 

Advance payments by borrowers for taxes and insurance

61,624

 

 

 

33,216

 

 

 

65,721

 

 

Income taxes payable, net

67

 

 

 

3,180

 

 

 

795

 

 

Deferred income tax liabilities, net

6,530

 

 

 

9,318

 

 

 

8,180

 

 

Other liabilities

118,383

 

 

 

139,585

 

 

 

146,942

 

 

Total liabilities

8,419,424

 

 

 

8,330,416

 

 

 

8,202,359

 

 

 

 

 

 

 

 

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, 138,809,796, 138,792,496 and 138,956,296 shares issued and outstanding as of March 31, 2021, December 31, 2020, and September 30, 2020, respectively

1,388

 

 

 

1,388

 

 

 

1,389

 

 

Additional paid-in capital

1,188,926

 

 

 

1,188,636

 

 

 

1,189,853

 

 

Unearned compensation, ESOP

(32,214

)

 

 

(32,627

)

 

 

(33,040

)

 

Retained earnings

139,448

 

 

 

130,522

 

 

 

143,162

 

 

AOCI, net of tax

(18,953

)

 

 

(11,371

)

 

 

(16,505

)

 

Total stockholders' equity

1,278,595

 

 

 

1,276,548

 

 

 

1,284,859

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

9,698,019

 

 

 

$

9,606,964

 

 

 

$

9,487,218

 

 

CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands)

 

 

For the Three Months Ended

 

For the Six Months Ended

 

March 31,

 

December 31,

 

March 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

INTEREST AND DIVIDEND INCOME:

 

 

 

 

 

 

 

Loans receivable

$

57,285

 

 

 

$

60,694

 

 

 

$

117,979

 

 

 

$

139,527

 

MBS

5,429

 

 

 

5,710

 

 

 

11,139

 

 

 

11,968

 

FHLB stock

951

 

 

 

1,069

 

 

 

2,020

 

 

 

3,540

 

Investment securities

629

 

 

 

683

 

 

 

1,312

 

 

 

2,889

 

Cash and cash equivalents

40

 

 

 

51

 

 

 

91

 

 

 

1,067

 

Total interest and dividend income

64,334

 

 

 

68,207

 

 

 

132,541

 

 

 

158,991

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE:

 

 

 

 

 

 

 

Deposits

12,529

 

 

 

14,067

 

 

 

26,596

 

 

 

35,766

 

Borrowings

8,732

 

 

 

10,327

 

 

 

19,059

 

 

 

25,860

 

Total interest expense

21,261

 

 

 

24,394

 

 

 

45,655

 

 

 

61,626

 

 

 

 

 

 

 

 

 

NET INTEREST INCOME

43,073

 

 

 

43,813

 

 

 

86,886

 

 

 

97,365

 

 

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

(2,964

)

 

 

(1,532

)

 

 

(4,496

)

 

 

22,300

 

NET INTEREST INCOME AFTER

 

 

 

 

 

 

 

PROVISION FOR CREDIT LOSSES

46,037

 

 

 

45,345

 

 

 

91,382

 

 

 

75,065

 

 

 

 

 

 

 

 

 

NON-INTEREST INCOME:

 

 

 

 

 

 

 

Gain on sale of Visa Class B shares

7,386

 

 

 

 

 

 

7,386

 

 

 

 

Deposit service fees

2,814

 

 

 

2,947

 

 

 

5,761

 

 

 

5,845

 

Insurance commissions

888

 

 

 

638

 

 

 

1,526

 

 

 

1,091

 

Other non-interest income

1,389

 

 

 

1,485

 

 

 

2,874

 

 

 

3,239

 

Total non-interest income

12,477

 

 

 

5,070

 

 

 

17,547

 

 

 

10,175

 

 

 

 

 

 

 

 

 

NON-INTEREST EXPENSE:

 

 

 

 

 

 

 

Salaries and employee benefits

13,397

 

 

 

14,138

 

 

 

27,535

 

 

 

26,706

 

Information technology and related expense

4,599

 

 

 

4,233

 

 

 

8,832

 

 

 

8,409

 

Occupancy, net

3,523

 

 

 

3,379

 

 

 

6,902

 

 

 

6,656

 

Loss on interest rate swap termination

4,752

 

 

 

 

 

 

4,752

 

 

 

 

Regulatory and outside services

1,234

 

 

 

1,585

 

 

 

2,819

 

 

 

2,640

 

Advertising and promotional

1,484

 

 

 

838

 

 

 

2,322

 

 

 

2,769

 

Deposit and loan transaction costs

664

 

 

 

766

 

 

 

1,430

 

 

 

1,389

 

Federal insurance premium

634

 

 

 

621

 

 

 

1,255

 

 

 

 

Office supplies and related expense

463

 

 

 

424

 

 

 

887

 

 

 

1,111

 

Other non-interest expense

1,903

 

 

 

1,083

 

 

 

2,986

 

 

 

2,984

 

Total non-interest expense

32,653

 

 

 

27,067

 

 

 

59,720

 

 

 

52,664

 

INCOME BEFORE INCOME TAX EXPENSE

25,861

 

 

 

23,348

 

 

 

49,209

 

 

 

32,576

 

INCOME TAX EXPENSE

5,417

 

 

 

4,450

 

 

 

9,867

 

 

 

5,789

 

NET INCOME

$

20,444

 

 

 

$

18,898

 

 

 

$

39,342

 

 

 

$

26,787

 

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 Six Months Ended

 

March 31,

 

December 31,

 

March 31,

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

(Dollars in thousands, except per share amounts)

Net income

$

20,444

 

 

 

$

18,898

 

 

 

$

39,342

 

 

 

$

26,787

 

 

Income allocated to participating securities

(14

)

 

 

(13

)

 

 

(27

)

 

 

(22

)

 

Net income available to common stockholders

$

20,430

 

 

 

$

18,885

 

 

 

$

39,315

 

 

 

$

26,765

 

 

 

 

 

 

 

 

 

 

Average common shares outstanding

135,409,120

 

 

 

135,397,242

 

 

 

135,403,116

 

 

 

137,911,988

 

 

Average committed ESOP shares outstanding

41,758

 

 

 

449

 

 

 

20,876

 

 

 

20,988

 

 

Total basic average common shares outstanding

135,450,878

 

 

 

135,397,691

 

 

 

135,423,992

 

 

 

137,932,976

 

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

47,292

 

 

 

1,193

 

 

 

23,709

 

 

 

55,673

 

 

 

 

 

 

 

 

 

 

Total diluted average common shares outstanding

135,498,170

 

 

 

135,398,884

 

 

 

135,447,701

 

 

 

137,988,649

 

 

 

 

 

 

 

 

 

 

Net earnings per share:

 

 

 

 

 

 

 

Basic

$

0.15

 

 

 

$

0.14

 

 

 

$

0.29

 

 

 

$

0.19

 

 

Diluted

$

0.15

 

 

 

$

0.14

 

 

 

$

0.29

 

 

 

$

0.19

 

 

 

 

 

 

 

 

 

 

Antidilutive stock options, excluded from the diluted

 

 

 

 

 

 

average common shares outstanding calculation

125,930

 

 

 

431,212

 

 

 

268,622

 

 

 

387,979

 

 

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.

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

$

3,967,008

 

 

 

3.29

%

 

56.7

%

 

$

3,946,073

 

 

 

3.39

%

 

56.2

%

 

$

3,937,310

 

 

 

3.50

%

 

54.5

%

Correspondent purchased

1,915,027

 

 

 

3.27

 

 

27.4

 

 

1,974,086

 

 

 

3.40

 

 

28.1

 

 

2,101,082

 

 

 

3.49

 

 

29.1

 

Bulk purchased

188,733

 

 

 

2.09

 

 

2.7

 

 

199,673

 

 

 

2.24

 

 

2.8

 

 

208,427

 

 

 

2.41

 

 

2.9

 

Construction

28,582

 

 

 

3.11

 

 

0.4

 

 

32,871

 

 

 

3.22

 

 

0.5

 

 

34,593

 

 

 

3.30

 

 

0.5

 

Total

6,099,350

 

 

 

3.24

 

 

87.2

 

 

6,152,703

 

 

 

3.36

 

 

87.6

 

 

6,281,412

 

 

 

3.46

 

 

87.0

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

664,533

 

 

 

4.04

 

 

9.5

 

 

609,936

 

 

 

4.23

 

 

8.7

 

 

626,588

 

 

 

4.29

 

 

8.7

 

Commercial and industrial

77,210

 

 

 

3.08

 

 

1.1

 

 

69,378

 

 

 

3.41

 

 

1.0

 

 

97,614

 

 

 

2.79

 

 

1.4

 

Construction

53,271

 

 

 

4.25

 

 

0.8

 

 

84,564

 

 

 

3.89

 

 

1.2

 

 

105,458

 

 

 

4.04

 

 

1.4

 

Total

795,014

 

 

 

3.96

 

 

11.4

 

 

763,878

 

 

 

4.12

 

 

10.9

 

 

829,660

 

 

 

4.08

 

 

11.5

 

Consumer loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Home equity

90,052

 

 

 

4.64

 

 

1.3

 

 

97,717

 

 

 

4.64

 

 

1.4

 

 

103,838

 

 

 

4.66

 

 

1.4

 

Other

8,743

 

 

 

4.36

 

 

0.1

 

 

9,328

 

 

 

4.40

 

 

0.1

 

 

10,086

 

 

 

4.40

 

 

0.1

 

Total

98,795

 

 

 

4.61

 

 

1.4

 

 

107,045

 

 

 

4.62

 

 

1.5

 

 

113,924

 

 

 

4.64

 

 

1.5

 

Total loans receivable

6,993,159

 

 

 

3.34

 

 

100.0

%

 

7,023,626

 

 

 

3.46

 

 

100.0

%

 

7,224,996

 

 

 

3.55

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ACL

23,397

 

 

 

 

 

 

 

26,125

 

 

 

 

 

 

 

31,527

 

 

 

 

 

 

Discounts/unearned loan fees

30,295

 

 

 

 

 

 

 

28,825

 

 

 

 

 

 

 

29,190

 

 

 

 

 

 

Premiums/deferred costs

(34,069

)

 

 

 

 

 

 

(35,418

)

 

 

 

 

 

 

(38,572

)

 

 

 

 

 

Total loans receivable, net

$

6,973,536

 

 

 

 

 

 

 

$

7,004,094

 

 

 

 

 

 

 

$

7,202,851

 

 

 

 

 

 

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 six-month period, the Bank endorsed $527.5 million of one- to four-family loans, reducing the average rate on those loans by 91 basis points ($285.2 million were endorsed during the December 31, 2020 quarter, reducing the average rate on those loans by 87 basis points, and $242.3 million were endorsed during the March 31, 2021 quarter, reducing the average rate on those loans by 96 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. The renewal balance and rate are included in the ending loan portfolio balance and rate.

 

For the Three Months Ended

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,023,626

 

 

 

3.46

%

 

$

7,224,996

 

 

 

3.55

%

 

$

7,407,442

 

 

 

3.64

%

 

$

7,493,280

 

 

 

3.74

%

Originated and refinanced:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

326,570

 

 

 

2.54

 

 

318,690

 

 

 

2.75

 

 

265,424

 

 

 

2.98

 

 

277,904

 

 

 

2.83

 

Adjustable

112,483

 

 

 

3.43

 

 

48,946

 

 

 

3.60

 

 

44,625

 

 

 

3.68

 

 

60,626

 

 

 

3.75

 

Purchased and participations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed

192,262

 

 

 

2.82

 

 

100,518

 

 

 

2.86

 

 

61,435

 

 

 

3.07

 

 

131,739

 

 

 

3.28

 

Adjustable

9,150

 

 

 

2.42

 

 

65,315

 

 

 

3.89

 

 

4,396

 

 

 

2.76

 

 

62,510

 

 

 

3.76

 

Change in undisbursed loan funds

(63,925

)

 

 

 

 

(70,323

)

 

 

 

 

13,898

 

 

 

 

 

(32,202

)

 

 

 

Repayments

(606,937

)

 

 

 

 

(664,052

)

 

 

 

 

(572,536

)

 

 

 

 

(586,434

)

 

 

 

Principal (charge-offs)/recoveries, net

(70

)

 

 

 

 

(464

)

 

 

 

 

312

 

 

 

 

 

19

 

 

 

 

Ending balance

$

6,993,159

 

 

 

3.34

 

 

$

7,023,626

 

 

 

3.46

 

 

$

7,224,996

 

 

 

3.55

 

 

$

7,407,442

 

 

 

3.64

 

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2020

 

Amount

 

Rate

 

Amount

 

Rate

 

(Dollars in thousands)

Beginning balance

$

7,224,996

 

 

 

3.55

%

 

$

7,412,473

 

 

 

3.81

%

Originated and refinanced:

 

 

 

 

 

 

 

Fixed

645,260

 

 

 

2.64

 

 

406,584

 

 

 

3.48

 

Adjustable

161,429

 

 

 

3.48

 

 

111,072

 

 

 

4.20

 

Purchased and participations:

 

 

 

 

 

 

 

Fixed

292,780

 

 

 

2.83

 

 

248,730

 

 

 

3.61

 

Adjustable

74,465

 

 

 

3.71

 

 

32,786

 

 

 

3.00

 

Change in undisbursed loan funds

(134,248

)

 

 

 

 

14,306

 

 

 

 

Repayments

(1,270,989

)

 

 

 

 

(732,005

)

 

 

 

Principal charge-offs, net

(534

)

 

 

 

 

(330

)

 

 

 

Other

 

 

 

 

 

(336

)

 

 

 

Ending balance

$

6,993,159

 

 

 

3.34

 

 

$

7,493,280

 

 

 

3.74

 

One- to Four-Family Loans: The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average loan-to-value ("LTV") ratio, and average balance per loan as of the dates presented. Credit scores were updated in March 2021 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.

 

March 31, 2021

 

September 30, 2020

 

 

 

% of

 

Credit

 

 

 

Average

 

 

 

% of

 

Credit

 

 

 

Average

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

Amount

 

Total

 

Score

 

LTV

 

Balance

 

(Dollars in thousands)

Originated

$

3,967,008

 

 

65.4

%

 

772

 

 

61

%

 

$

148

 

 

$

3,937,310

 

 

63.0

%

 

771

 

 

62

%

 

$

145

 

Correspondent purchased

1,915,027

 

 

31.5

 

 

765

 

 

63

 

 

386

 

 

2,101,082

 

 

33.6

 

 

765

 

 

64

 

 

379

 

Bulk purchased

188,733

 

 

3.1

 

 

772

 

 

59

 

 

297

 

 

208,427

 

 

3.4

 

 

767

 

 

60

 

 

300

 

 

$

6,070,768

 

 

100.0

%

 

770

 

 

62

 

 

188

 

 

$

6,246,819

 

 

100.0

%

 

768

 

 

63

 

 

187

 

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. Included in the originated line item for the current year period are $209.3 million of loans that were refinanced from other lenders.

 

For the Three Months Ended

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2021

 

 

 

 

 

Credit

 

 

 

 

 

Credit

 

Amount

 

LTV

 

Score

 

Amount

 

LTV

 

Score

 

(Dollars in thousands)

Originated

$

184,166

 

 

69

%

 

770

 

 

$

405,362

 

 

70

%

 

769

 

Refinanced by Bank customers

122,105

 

 

66

 

 

769

 

 

214,955

 

 

65

 

 

769

 

Correspondent purchased

163,298

 

 

69

 

 

774

 

 

269,131

 

 

69

 

 

775

 

 

$

469,569

 

 

69

 

 

771

 

 

$

889,448

 

 

69

 

 

771

 

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 Six Months Ended

 

 

March 31, 2021

 

March 31, 2021

State

 

Amount

 

% of Total

 

Rate

 

Amount

 

% of Total

 

Rate

 

 

(Dollars in thousands)

Kansas

 

$

264,895

 

 

56.4

%

 

2.58

%

 

$

529,575

 

 

59.5

%

 

2.64

%

Missouri

 

79,316

 

 

16.9

 

 

2.62

 

 

157,466

 

 

17.7

 

 

2.65

 

Texas

 

26,302

 

 

5.6

 

 

2.59

 

 

50,604

 

 

5.7

 

 

2.72

 

Tennessee

 

32,066

 

 

6.8

 

 

2.64

 

 

48,929

 

 

5.5

 

 

2.73

 

Pennsylvania

 

33,989

 

 

7.3

 

 

2.55

 

 

44,461

 

 

5.0

 

 

2.59

 

Other states

 

33,001

 

 

7.0

 

 

2.61

 

 

58,413

 

 

6.6

 

 

2.72

 

 

 

$

469,569

 

 

100.0

%

 

2.59

 

 

$

889,448

 

 

100.0

%

 

2.65

 

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 March 31, 2021, 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

$

27,948

 

 

$

80,156

 

 

$

8,107

 

 

$

116,211

 

 

2.76

%

Correspondent

38,456

 

 

134,881

 

 

4,189

 

 

177,526

 

 

2.48

 

 

$

66,404

 

 

$

215,037

 

 

$

12,296

 

 

$

293,737

 

 

2.59

 

 

 

 

 

 

 

 

 

 

 

Rate

2.16

%

 

2.73

%

 

2.47

%

 

 

 

 

As of March 31, 2021, there were $7.8 million of one- to-four family loans with modifications under the Bank's program to support and provide relief to borrowers during the COVID-19 pandemic ("COVID-19 loan modifications") that were still in their deferral period. There were $208.9 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

Commercial Loans: During the current year period, the Bank originated $157.3 million of commercial loans, including $19.5 million of PPP loans, and entered into commercial loan participations totaling $98.1 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $152.3 million at a weighted average rate of 3.42%. Additionally, during the current year, $39.0 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.

The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of March 31, 2021. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we generally anticipate fully funding the related projects.

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Count

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

 

 

(Dollars in thousands)

Senior housing

33

 

 

$

215,364

 

 

$

50,255

 

 

$

265,619

 

 

$

 

 

$

265,619

 

 

27.2

%

Retail building

133

 

 

133,738

 

 

44,808

 

 

178,546

 

 

18,868

 

 

197,414

 

 

20.2

 

Hotel

9

 

 

133,818

 

 

44,705

 

 

178,523

 

 

 

 

178,523

 

 

18.3

 

Office building

98

 

 

55,029

 

 

61,874

 

 

116,903

 

 

 

 

116,903

 

 

12.0

 

One- to four-family property

367

 

 

58,613

 

 

5,170

 

 

63,783

 

 

250

 

 

64,033

 

 

6.6

 

Multi-family

39

 

 

48,184

 

 

14,524

 

 

62,708

 

 

272

 

 

62,980

 

 

6.4

 

Single use building

20

 

 

42,612

 

 

4,644

 

 

47,256

 

 

7,000

 

 

54,256

 

 

5.6

 

Other

97

 

 

30,446

 

 

3,193

 

 

33,639

 

 

2,597

 

 

36,236

 

 

3.7

 

 

796

 

 

$

717,804

 

 

$

229,173

 

 

$

946,977

 

 

$

28,987

 

 

$

975,964

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average rate

 

 

4.05

%

 

3.88

%

 

4.01

%

 

3.63

%

 

4.00

%

 

 

The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of March 31, 2021.

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Count

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

 

 

(Dollars in thousands)

Kansas

628

 

 

$

325,789

 

 

$

19,017

 

 

$

344,806

 

 

$

9,487

 

 

$

354,293

 

 

36.3

%

Texas

10

 

 

124,498

 

 

116,576

 

 

241,074

 

 

 

 

241,074

 

 

24.7

 

Missouri

132

 

 

180,446

 

 

36,701

 

 

217,147

 

 

18,000

 

 

235,147

 

 

24.1

 

Colorado

6

 

 

13,451

 

 

22,755

 

 

36,206

 

 

 

 

36,206

 

 

3.7

 

Arkansas

3

 

 

7,461

 

 

26,395

 

 

33,856

 

 

 

 

33,856

 

 

3.5

 

Nebraska

6

 

 

33,655

 

 

4

 

 

33,659

 

 

 

 

33,659

 

 

3.4

 

Other

11

 

 

32,504

 

 

7,725

 

 

40,229

 

 

1,500

 

 

41,729

 

 

4.3

 

 

796

 

 

$

717,804

 

 

$

229,173

 

 

$

946,977

 

 

$

28,987

 

 

$

975,964

 

 

100.0

%

The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of March 31, 2021. Included in the working capital line item are $25.3 million of PPP loans.

 

 

 

Unpaid

 

Undisbursed

 

Gross Loan

 

Outstanding

 

 

 

% of

 

Count

 

Principal

 

Amount

 

Amount

 

Commitments

 

Total

 

Total

 

 

 

(Dollars in thousands)

Working capital

636

 

 

$

36,046

 

 

$

16,809

 

 

$

52,855

 

 

$

1,115

 

 

$

53,970

 

 

53.8

%

Equipment

118

 

 

13,815

 

 

245

 

 

14,060

 

 

1,882

 

 

15,942

 

 

15.9

 

Purchase/lease autos

228

 

 

15,113

 

 

57

 

 

15,170

 

 

55

 

 

15,225

 

 

15.2

 

Business investment

59

 

 

7,701

 

 

223

 

 

7,924

 

 

 

 

7,924

 

 

7.9

 

Other

22

 

 

4,535

 

 

2,713

 

 

7,248

 

 

 

 

7,248

 

 

7.2

 

 

1,063

 

 

$

77,210

 

 

$

20,047

 

 

$

97,257

 

 

$

3,052

 

 

$

100,309

 

 

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 March 31, 2021.

 

Count

 

Amount

 

(Dollars in thousands)

Greater than $30 million

3

 

 

$

150,000

 

>$15 to $30 million

14

 

 

331,514

 

>$10 to $15 million

5

 

 

57,267

 

>$5 to $10 million

15

 

 

93,842

 

$1 to $5 million

109

 

 

240,461

 

Less than $1 million

1,713

 

 

203,189

 

 

1,859

 

 

$

1,076,273

 

The Bank's commercial lending team continues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As of March 31, 2021, there were commercial loans with a gross balance, including undisbursed amounts, totaling $134.0 million with COVID-19 loan modifications that were still in their deferral period. There were $270.7 million of commercial loans with COVID-19 loan modifications that were out of their deferral period by March 31, 2021. See "Asset Quality" below for additional information regarding the performance of loans that have exited the deferral period.

Asset Quality

Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by March 31, 2021, $2.3 million were 30 to 89 days delinquent and $1.8 million were 90 or more days delinquent as of March 31, 2021. Of the commercial COVID-19 loan modifications that had completed the deferral period by March 31, 2021, one loan for $150 thousand was 30 to 89 days delinquent and none were 90 or more days delinquent as of March 31, 2021.

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 March 31, 2021, approximately 74% 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.

 

Loans Delinquent for 30 to 89 Days at:

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

March 31, 2020

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

45

 

 

$

4,151

 

 

62

 

 

$

5,844

 

 

42

 

 

$

3,012

 

 

57

 

 

$

5,085

 

 

92

 

 

$

8,360

 

Correspondent purchased

9

 

 

2,910

 

 

13

 

 

4,694

 

 

8

 

 

3,123

 

 

10

 

 

2,919

 

 

13

 

 

4,531

 

Bulk purchased

5

 

 

352

 

 

9

 

 

1,750

 

 

12

 

 

2,532

 

 

19

 

 

4,536

 

 

12

 

 

2,914

 

Commercial

5

 

 

806

 

 

8

 

 

1,047

 

 

2

 

 

45

 

 

9

 

 

1,543

 

 

7

 

 

1,555

 

Consumer

17

 

 

287

 

 

30

 

 

515

 

 

26

 

 

398

 

 

21

 

 

431

 

 

43

 

 

628

 

 

81

 

 

$

8,506

 

 

122

 

 

$

13,850

 

 

90

 

 

$

9,110

 

 

116

 

 

$

14,514

 

 

167

 

 

$

17,988

 

30 to 89 days delinquent loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to total loans receivable, net

 

0.12

%

 

 

 

0.20

%

 

 

 

0.13

%

 

 

 

0.20

%

 

 

 

0.24

%

 

 

Non-Performing Loans and OREO at:

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

March 31, 2020

 

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

55

 

 

$

4,433

 

 

51

 

 

$

4,370

 

 

51

 

 

$

4,362

 

 

47

 

 

$

4,026

 

 

53

 

 

$

4,517

 

Correspondent purchased

10

 

 

3,749

 

 

9

 

 

3,371

 

 

6

 

 

2,397

 

 

7

 

 

2,740

 

 

4

 

 

1,342

 

Bulk purchased

10

 

 

3,172

 

 

13

 

 

3,724

 

 

12

 

 

2,903

 

 

3

 

 

1,291

 

 

1

 

 

630

 

Commercial

6

 

 

1,068

 

 

5

 

 

820

 

 

5

 

 

1,360

 

 

4

 

 

709

 

 

4

 

 

716

 

Consumer

26

 

 

531

 

 

26

 

 

473

 

 

14

 

 

304

 

 

23

 

 

278

 

 

17

 

 

326

 

 

107

 

 

12,953

 

 

104

 

 

12,758

 

 

88

 

 

11,326

 

 

84

 

 

9,044

 

 

79

 

 

7,531

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans 90 or more days delinquent or in foreclosure

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

as a percentage of total loans

 

 

0.19

%

 

 

 

0.18

%

 

 

 

0.16

%

 

 

 

0.12

%

 

 

 

0.10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans less than 90 Days Delinquent:(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated

9

 

 

$

1,646

 

 

9

 

 

$

968

 

 

9

 

 

$

691

 

 

14

 

 

$

1,132

 

 

13

 

 

$

811

 

Correspondent purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

189

 

Bulk purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

134

 

Commercial

4

 

 

642

 

 

3

 

 

411

 

 

3

 

 

464

 

 

1

 

 

6

 

 

2

 

 

129

 

Consumer

 

 

 

 

1

 

 

9

 

 

1

 

 

9

 

 

1

 

 

33

 

 

2

 

 

43

 

 

13

 

 

2,288

 

 

13

 

 

1,388

 

 

13

 

 

1,164

 

 

16

 

 

1,171

 

 

19

 

 

1,306

 

Total non-performing loans

120

 

 

15,241

 

 

117

 

 

14,146

 

 

101

 

 

12,490

 

 

100

 

 

10,215

 

 

98

 

 

8,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing loans as a percentage of total loans

 

0.22

%

 

 

 

0.20

%

 

 

 

0.17

%

 

 

 

0.14

%

 

 

 

0.12

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OREO:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated(2)

2

 

 

$

105

 

 

3

 

 

$

129

 

 

4

 

 

$

183

 

 

4

 

 

$

183

 

 

5

 

 

$

187

 

Total non-performing assets

122

 

 

$

15,346

 

 

120

 

 

$

14,275

 

 

105

 

 

$

12,673

 

 

104

 

 

$

10,398

 

 

103

 

 

$

9,024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-performing assets as a percentage of total assets

 

0.16

%

 

 

 

0.15

%

 

 

 

0.13

%

 

 

 

0.11

%

 

 

 

0.10

%

(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. The increase in commercial special mention loans at March 31, 2021 compared to September 30, 2020 was due mainly to the addition of two commercial loans totaling $50.7 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification.

 

March 31, 2021

 

September 30, 2020

 

March 31, 2020

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

Special Mention

 

Substandard

 

(Dollars in thousands)

One- to four-family

$

14,299

 

 

$

26,562

 

 

$

11,339

 

 

$

25,630

 

 

$

13,678

 

 

$

26,077

 

Commercial

100,655

 

 

4,497

 

 

52,006

 

 

4,914

 

 

52,515

 

 

4,538

 

Consumer

250

 

 

764

 

 

332

 

 

589

 

 

479

 

 

659

 

 

$

115,204

 

 

$

31,823

 

 

$

63,677

 

 

$

31,133

 

 

$

66,672

 

 

$

31,274

 

Allowance for Credit Losses: Accounting Standard Update ("ASU") 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating ACL under GAAP with a new impairment methodology, commonly known as the current expected credit loss ("CECL") methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and loan commitments over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption of the ASU, the Company recorded a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand), which reduced the ACL by $4.8 million, to $26.8 million, and established a reserve for off-balance sheet credit exposures of $7.8 million, which is recorded in other liabilities in the consolidated balance sheet. The Bank's off-balance sheet credit exposures are comprised of unfunded portions of existing loans and commitments to originate or purchase new loans that are not unconditionally cancellable by the Bank.

The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The credit loss estimate for off-balance sheet credit exposures also takes into consideration the likelihood that the commitment will fund. The economic indices used for the reasonable and supportable forecasted time period are the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the United States gross domestic product. Management considers several economic forecast scenarios provided by a third party and selects the scenario believed to be the most appropriate considering the facts and circumstances at quarter end. Management also considers several qualitative factors. The qualitative factors account for items not included in historical loss rates, the macroeconomic forecast, and/or other model inputs/assumptions. Any changes to the ACL and reserves on off-balance sheet credit exposures are recorded through increases/decreases in the provision for credit losses on the consolidated statements of income.

The economic forecast scenario selected by management improved at March 31, 2021 compared to December 31, 2020 which resulted in a reduction in the ACL calculated by the model. Management applied qualitative factors to account for the continued economic uncertainties, along with the balance and trending of large-dollar special mention commercial loans. These qualitative factors partially offset the reduction in the ACL related to the improvement in the economic forecast. The economic uncertainties related to (1) the job market, specifically the unemployment rate, labor participation rate and the effectiveness of the latest federal stimulus package to the unemployed and the economic stimulus payments to qualifying households, (2) the unevenness of the recovery in certain industries, and (3) the impact to the housing market as a result of the foreclosure moratorium and how the housing market may react when the foreclosure moratorium is eventually lifted. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate.

The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended March 31, 2021.

 

ACL

 

Reserve for off-

balance sheet

credit exposures

 

ACL and

Reserve for off-

balance sheet

credit exposures

 

(Dollars in thousands)

Balance at December 31, 2020

$

26,125

 

 

 

$

6,433

 

 

 

$

32,558

 

 

For the quarter ended March 31, 2021

 

 

Charge-offs

(138

)

 

 

 

 

 

(138

)

 

Recoveries

68

 

 

 

 

 

 

68

 

 

Net charge-offs

(70

)

 

 

 

 

 

(70

)

 

Provision for credit losses

(2,658

)

 

 

(306

)

 

 

(2,964

)

 

Balance at March 31, 2021

$

23,397

 

 

 

$

6,127

 

 

 

$

29,524

 

 

The negative provision for credit losses was due primarily to a reduction in commercial loan ACL and reserves for off-balance sheet credit exposures as a result of improvements in the economic forecast used in the model, partially offset by an increase in qualitative factors, primarily the economic uncertainty qualitative factor, as discussed above.

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

 

For the Three Months Ended

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

2021

 

 

2020

 

 

2020

 

 

2020

 

 

2020

 

 

(Dollars in thousands)

Balance at beginning of period

$

26,125

 

 

 

$

31,527

 

 

 

$

31,215

 

 

 

$

31,196

 

 

 

$

9,435

 

 

Adoption of CECL

 

 

 

(4,761

)

 

 

 

 

 

 

 

 

 

 

Charge-offs:

 

 

 

 

 

 

 

 

 

One- to four-family

(131

)

 

 

(14

)

 

 

 

 

 

 

 

 

(46

)

 

Commercial

 

 

 

(515

)

 

 

 

 

 

 

 

 

(325

)

 

Consumer

(7

)

 

 

(3

)

 

 

(15

)

 

 

(5

)

 

 

(4

)

 

Total charge-offs

(138

)

 

 

(532

)

 

 

(15

)

 

 

(5

)

 

 

(375

)

 

Recoveries:

 

 

 

 

 

 

 

 

 

One- to four-family

57

 

 

 

34

 

 

 

303

 

 

 

 

 

 

3

 

 

Commercial

8

 

 

 

12

 

 

 

12

 

 

 

17

 

 

 

54

 

 

Consumer

3

 

 

 

22

 

 

 

12

 

 

 

7

 

 

 

4

 

 

Total recoveries

68

 

 

 

68

 

 

 

327

 

 

 

24

 

 

 

61

 

 

Net (charge-offs) recoveries

(70

)

 

 

(464

)

 

 

312

 

 

 

19

 

 

 

(314

)

 

Provision for credit losses

(2,658

)

 

 

(177

)

 

 

 

 

 

 

 

 

22,075

 

 

Balance at end of period

$

23,397

 

 

 

$

26,125

 

 

 

$

31,527

 

 

 

$

31,215

 

 

 

$

31,196

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

 

 

 

 

 

to average loans outstanding during the period

 

%

 

0.01

 

%

 

 

%

 

 

%

 

 

%

Ratio of net charge-offs (recoveries) during the

 

 

 

 

 

 

 

 

period to average non-performing assets

0.47

 

 

 

3.44

 

 

 

(2.70

)

 

 

(0.20

)

 

 

3.78

 

 

ACL to non-performing loans at end of period

153.51

 

 

 

184.68

 

 

 

252.42

 

 

 

305.58

 

 

 

353.02

 

 

ACL to loans receivable at end of period

0.33

 

 

 

0.37

 

 

 

0.44

 

 

 

0.42

 

 

 

0.42

 

 

ACL to net charge-offs (annualized)

83.8x

 

14.1x

 

N/M(1)

 

N/M(1)

 

24.9x

 

For the Six Months Ended

 

March 31,

 

2021

 

 

2020

 

 

(Dollars in thousands)

Balance at beginning of period

$

31,527

 

 

 

$

9,226

 

 

Adoption of CECL

(4,761

)

 

 

 

 

Charge-offs:

 

 

 

One- to four-family

(145

)

 

 

(64

)

 

Commercial

(515

)

 

 

(349

)

 

Consumer

(10

)

 

 

(10

)

 

Total charge-offs

(670

)

 

 

(423

)

 

Recoveries:

 

 

 

One- to four-family

91

 

 

 

3

 

 

Commercial

20

 

 

 

81

 

 

Consumer

25

 

 

 

9

 

 

Total recoveries

136

 

 

 

93

 

 

Net (charge-offs) recoveries

(534

)

 

 

(330

)

 

Provision for credit losses

(2,835

)

 

 

22,300

 

 

Balance at end of period

$

23,397

 

 

 

$

31,196

 

 

 

 

 

 

Ratio of net charge-offs during the period

 

 

 

to average loans outstanding during the period

0.01

 

%

 

 

%

Ratio of net charge-offs (recoveries) during the

 

 

 

period to average non-performing assets

3.81

 

 

 

3.68

 

 

ACL to net charge-offs (annualized)

21.9x

 

47.3x

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

The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13.

 

At

 

March 31,

 

December 31,

 

October 1,

 

September 30,

 

June 30,

 

March 31,

 

2021

 

2020

 

2020

 

2020

 

2020

 

2020

 

(Dollars in thousands)

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

Originated

$

1,517

 

 

$

1,516

 

 

$

1,609

 

 

$

6,044

 

 

$

6,298

 

 

$

6,420

 

Correspondent purchased

1,705

 

 

1,758

 

 

2,324

 

 

2,691

 

 

3,189

 

 

3,355

 

Bulk purchased

747

 

 

852

 

 

903

 

 

467

 

 

506

 

 

557

 

Construction

19

 

 

22

 

 

25

 

 

41

 

 

48

 

 

47

 

Total

3,988

 

 

4,148

 

 

4,861

 

 

9,243

 

 

10,041

 

 

10,379

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

17,016

 

 

17,813

 

 

16,595

 

 

16,869

 

 

16,353

 

 

14,672

 

Commercial and industrial

445

 

 

553

 

 

559

 

 

1,451

 

 

1,465

 

 

1,489

 

Construction

1,696

 

 

3,341

 

 

4,452

 

 

3,480

 

 

2,886

 

 

4,167

 

Total

19,157

 

 

21,707

 

 

21,606

 

 

21,800

 

 

20,704

 

 

20,328

 

Consumer

252

 

 

270

 

 

299

 

 

484

 

 

470

 

 

489

 

Total

$

23,397

 

 

$

26,125

 

 

$

26,766

 

 

$

31,527

 

 

$

31,215

 

 

$

31,196

 

The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.

 

At

 

March 31,

 

December 31,

 

October 1,

 

September 30,

 

June 30,

 

March 31,

 

2021

 

2020

 

2020

 

2020

 

2020

 

2020

One- to four-family:

 

 

 

 

 

 

 

 

 

 

 

Originated

0.04

%

 

0.04

%

 

0.04

%

 

0.15

%

 

0.16

%

 

0.16

%

Correspondent purchased

0.09

 

 

0.09

 

 

0.11

 

 

0.13

 

 

0.14

 

 

0.14

 

Bulk purchased

0.40

 

 

0.43

 

 

0.43

 

 

0.22

 

 

0.23

 

 

0.24

 

Construction

0.07

 

 

0.07

 

 

0.07

 

 

0.12

 

 

0.13

 

 

0.13

 

Total

0.07

 

 

0.07

 

 

0.08

 

 

0.15

 

 

0.16

 

 

0.16

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

2.56

 

 

2.92

 

 

2.65

 

 

2.69

 

 

2.62

 

 

2.51

 

Commercial and industrial

0.58

 

 

0.80

 

 

0.57

 

 

1.49

 

 

1.47

 

 

2.40

 

Construction

3.18

 

 

3.95

 

 

4.22

 

 

3.30

 

 

3.30

 

 

3.30

 

Total

2.41

 

 

2.84

 

 

2.60

 

 

2.63

 

 

2.55

 

 

2.63

 

Consumer

0.26

 

 

0.25

 

 

0.26

 

 

0.42

 

 

0.40

 

 

0.39

 

Total

0.33

 

 

0.37

 

 

0.37

 

 

0.44

 

 

0.42

 

 

0.42

 

The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The amount is reported in the other liabilities line item on the consolidated balance sheet. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded.

 

At

 

March 31,

 

December 31,

 

October 1,

 

2021

 

2020

 

2020

 

(Dollars in thousands)

One- to four-family

$

197

 

 

$

131

 

 

$

144

 

Commercial

5,887

 

 

6,261

 

 

7,584

 

Consumer

43

 

 

41

 

 

60

 

 

$

6,127

 

 

$

6,433

 

 

$

7,788

 

Securities Portfolio

The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 93% of our securities portfolio at March 31, 2021. 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.

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Fixed-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

$

1,384,981

 

 

1.46

%

 

4.1

 

 

$

1,249,115

 

 

1.56

%

 

4.1

 

 

$

945,432

 

 

1.82

%

 

3.7

 

U.S. government-sponsored enterprise debentures

544,967

 

 

0.55

 

 

3.6

 

 

444,964

 

 

0.52

 

 

1.0

 

 

369,967

 

 

0.62

 

 

1.7

 

Municipal bonds

5,447

 

 

1.79

 

 

0.5

 

 

8,792

 

 

1.66

 

 

0.5

 

 

9,716

 

 

1.69

 

 

0.7

 

Total fixed-rate securities

1,935,395

 

 

1.20

 

 

3.9

 

 

1,702,871

 

 

1.29

 

 

3.3

 

 

1,325,115

 

 

1.49

 

 

3.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjustable-rate securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS

155,325

 

 

2.24

 

 

3.2

 

 

178,101

 

 

2.44

 

 

3.3

 

 

204,490

 

 

2.49

 

 

2.9

 

Total securities portfolio

$

2,090,720

 

 

1.28

 

 

3.9

 

 

$

1,880,972

 

 

1.40

 

 

3.3

 

 

$

1,529,605

 

 

1.62

 

 

3.1

 

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

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,459,300

 

 

 

1.67

%

 

4.0

 

 

$

1,180,803

 

 

 

1.94

%

 

3.5

 

 

$

982,587

 

 

 

2.35

%

 

3.3

 

 

$

973,318

 

 

 

2.50

%

 

3.6

 

Maturities and repayments

(109,141

)

 

 

 

 

 

 

(101,496

)

 

 

 

 

 

 

(95,842

)

 

 

 

 

 

 

(75,293

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(1,572

)

 

 

 

 

 

 

(1,003

)

 

 

 

 

 

 

(608

)

 

 

 

 

 

 

(363

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

223,804

 

 

 

1.31

 

 

5.9

 

 

379,793

 

 

 

1.04

 

 

5.4

 

 

297,024

 

 

 

1.06

 

 

5.9

 

 

77,455

 

 

 

1.29

 

 

5.0

 

Change in valuation on AFS securities

(22,490

)

 

 

 

 

 

 

1,203

 

 

 

 

 

 

 

(2,358

)

 

 

 

 

 

 

7,470

 

 

 

 

 

 

Ending balance - carrying value

$

1,549,901

 

 

 

1.54

 

 

4.0

 

 

$

1,459,300

 

 

 

1.67

 

 

4.0

 

 

$

1,180,803

 

 

 

1.94

 

 

3.5

 

 

$

982,587

 

 

 

2.35

 

 

3.3

 

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2020

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

1,180,803

 

 

 

1.94

%

 

3.5

 

 

$

936,487

 

 

 

2.67

%

 

3.5

 

Maturities and repayments

(210,637

)

 

 

 

 

 

 

(138,402

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(2,575

)

 

 

 

 

 

 

(527

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

603,597

 

 

 

1.14

 

 

5.6

 

 

163,222

 

 

 

1.91

 

 

4.2

 

Change in valuation on AFS securities

(21,287

)

 

 

 

 

 

 

12,538

 

 

 

 

 

 

Ending balance - carrying value

$

1,549,901

 

 

 

1.54

 

 

4.0

 

 

$

973,318

 

 

 

2.50

 

 

3.6

 

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

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

454,566

 

 

 

0.54

%

 

1.0

 

 

$

380,147

 

 

 

0.65

%

 

1.7

 

 

$

237,467

 

 

 

1.23

%

 

0.8

 

 

$

262,719

 

 

 

1.87

%

 

0.3

 

Maturities, calls and sales

(3,325

)

 

 

 

 

 

 

(50,900

)

 

 

 

 

 

 

(102,115

)

 

 

 

 

 

 

(125,000

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(18

)

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

(80

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

100,000

 

 

 

0.70

 

 

4.6

 

 

124,987

 

 

 

0.48

 

 

3.2

 

 

244,975

 

 

 

0.51

 

 

3.2

 

 

99,990

 

 

 

0.58

 

 

1.2

 

Change in valuation on AFS securities

(5,200

)

 

 

 

 

 

 

346

 

 

 

 

 

 

 

(126

)

 

 

 

 

 

 

(162

)

 

 

 

 

 

Ending balance - carrying value

$

546,023

 

 

 

0.56

 

 

3.6

 

 

$

454,566

 

 

 

0.54

 

 

1.0

 

 

$

380,147

 

 

 

0.65

 

 

1.7

 

 

$

237,467

 

 

 

1.23

 

 

0.8

 

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2020

 

Amount

 

Yield

 

WAL

 

Amount

 

Yield

 

WAL

 

(Dollars in thousands)

Beginning balance - carrying value

$

380,147

 

 

 

0.65

%

 

1.7

 

 

$

268,376

 

 

 

2.11

%

 

0.8

 

Maturities, calls and sales

(54,225

)

 

 

 

 

 

 

(131,300

)

 

 

 

 

 

Net amortization of (premiums)/discounts

(32

)

 

 

 

 

 

 

(29

)

 

 

 

 

 

Purchases:

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

224,987

 

 

 

0.58

 

 

3.8

 

 

125,097

 

 

 

1.71

 

 

1.2

 

Change in valuation on AFS securities

(4,854

)

 

 

 

 

 

 

575

 

 

 

 

 

 

Ending balance - carrying value

$

546,023

 

 

 

0.56

 

 

3.6

 

 

$

262,719

 

 

 

1.87

 

 

0.3

 

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.

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

 

 

 

 

% of

 

 

 

 

 

% of

 

 

 

 

 

% of

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

Amount

 

Rate

 

Total

 

(Dollars in thousands)

Non-interest-bearing checking

$

549,158

 

 

%

 

8.2

%

 

$

494,375

 

 

%

 

7.7

%

 

$

451,394

 

 

%

 

7.3

%

Interest-bearing checking

1,009,096

 

 

0.07

 

 

15.2

 

 

953,927

 

 

0.08

 

 

14.9

 

 

865,782

 

 

0.10

 

 

14.0

 

Savings

511,014

 

 

0.06

 

 

7.7

 

 

455,633

 

 

0.06

 

 

7.1

 

 

433,808

 

 

0.06

 

 

7.0

 

Money market

1,602,573

 

 

0.24

 

 

24.1

 

 

1,488,749

 

 

0.31

 

 

23.2

 

 

1,419,180

 

 

0.37

 

 

22.9

 

Retail/business certificates of deposit

2,730,354

 

 

1.55

 

 

41.1

 

 

2,777,948

 

 

1.68

 

 

43.3

 

 

2,766,461

 

 

1.83

 

 

44.7

 

Public unit certificates of deposit

248,670

 

 

0.45

 

 

3.7

 

 

240,210

 

 

0.64

 

 

3.8

 

 

254,783

 

 

0.74

 

 

4.1

 

 

$

6,650,865

 

 

0.73

 

 

100.0

%

 

$

6,410,842

 

 

0.84

 

 

100.0

%

 

$

6,191,408

 

 

0.95

 

 

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 March 31, 2021.

 

 

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%

 

$

796,738

 

 

$

154,580

 

 

$

53,117

 

 

$

66,028

 

 

$

1,070,463

 

 

0.50

%

1.00 – 1.99%

 

509,600

 

 

251,609

 

 

76,521

 

 

134,232

 

 

971,962

 

 

1.62

 

2.00 – 2.99%

 

282,968

 

 

426,895

 

 

183,936

 

 

42,546

 

 

936,345

 

 

2.38

 

3.00 – 3.99%

 

 

 

254

 

 

 

 

 

 

254

 

 

3.00

 

 

 

$

1,589,306

 

 

$

833,338

 

 

$

313,574

 

 

$

242,806

 

 

$

2,979,024

 

 

1.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent of total

 

53.3

%

 

28.0

%

 

10.5

%

 

8.2

%

 

 

 

 

Weighted average rate

 

1.16

 

 

1.84

 

 

1.93

 

 

1.42

 

 

 

 

 

Weighted average maturity (in years)

 

0.5

 

 

1.5

 

 

2.5

 

 

3.7

 

 

1.2

 

 

 

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

 

1.3

 

 

 

Borrowings

The following table presents the maturity of term borrowings, which consist entirely of FHLB advances, along with associated weighted average contractual and effective rates as of March 31, 2021. As discussed previously, the Bank terminated interest rate swaps with a notional amount of $200.0 million during the quarter ended March 31, 2021. In the table below, the $200.0 million of adjustable-rate FHLB advances previously tied to these terminated interest rate swaps are presented in the FHLB advances column as maturing in fiscal year 2022.

 

 

Term Borrowings Amount

 

 

 

 

Maturity by

 

FHLB

 

Interest rate

 

Contractual

 

Effective

Fiscal Year

 

Advances

 

swaps(1)

 

Rate

 

Rate(2)

 

 

(Dollars in thousands)

 

 

 

 

2021

 

$

 

 

$

440,000

 

 

0.33

%

 

2.84

%

2022

 

200,000

 

 

 

 

0.35

 

 

0.35

 

2023

 

300,000

 

 

 

 

1.70

 

 

1.81

 

2024

 

100,000

 

 

 

 

3.39

 

 

3.39

 

2025

 

250,000

 

 

 

 

1.82

 

 

1.94

 

2026

 

200,000

 

 

 

 

0.95

 

 

1.35

 

2027

 

100,000

 

 

 

 

0.76

 

 

1.24

 

 

 

$

1,150,000

 

 

$

440,000

 

 

1.12

 

 

1.94

 

(1) Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $440.0 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 3.9 years at March 31, 2021.

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

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 March 31, 2021.

 

 

Retail/ Business

 

 

 

Public Unit

 

 

 

Term

 

 

 

 

 

 

Maturity by

 

Certificate

 

Repricing

 

Certificate

 

Repricing

 

Borrowings

 

Repricing

 

 

 

Repricing

Quarter End

 

Amount

 

Rate

 

Amount

 

Rate

 

Amount(1)

 

Rate

 

Total

 

Rate

 

 

(Dollars in thousands)

June 30, 2021

 

$

370,606

 

 

1.41

%

 

$

86,691

 

 

0.31

%

 

$

 

 

%

 

$

457,297

 

 

1.20

%

September 30, 2021

 

333,429

 

 

1.29

 

 

87,958

 

 

0.56

 

 

75,000

 

 

2.99

 

 

496,387

 

 

1.42

 

December 31, 2021

 

345,989

 

 

1.20

 

 

49,561

 

 

0.35

 

 

200,000

 

 

0.35

 

 

595,550

 

 

0.84

 

March 31, 2022

 

297,696

 

 

1.26

 

 

17,376

 

 

0.89

 

 

 

 

 

 

315,072

 

 

1.24

 

 

 

$

1,347,720

 

 

1.29

 

 

$

241,586

 

 

0.45

 

 

$

275,000

 

 

1.07

 

 

$

1,864,306

 

 

1.15

 

(1) The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap. The term borrowings maturing in the December 31, 2021 quarter with a repricing rate of 0.35% are adjustable-rate advances that were previously tied to the terminated interest rate swaps discussed above. Of the $200.0 million maturing in the December 31, 2021 quarter, $100.0 million was prepaid in April 2021 and replaced with $100.0 million of advances with a weighted average rate of 0.69% and a weighted average term of 3.5 years. Management may prepay the remaining $100.0 million during the June 30, 2021 quarter.

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

 

For the Three Months Ended

 

March 31, 2021

 

December 31, 2020

 

September 30, 2020

 

June 30, 2020

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

1,740,000

 

 

 

2.26

%

 

3.0

 

 

$

1,790,000

 

 

 

2.31

%

 

3.0

 

 

$

1,990,000

 

 

 

2.29

%

 

2.9

 

 

$

2,090,000

 

 

 

2.25

%

 

3.0

 

Maturities and prepayments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FHLB advances

(315,000

)

 

 

2.20

 

 

 

 

(350,000

)

 

 

2.40

 

 

 

 

(440,000

)

 

 

2.49

 

 

 

 

(200,000

)

 

 

2.35

 

 

 

Repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100,000

)

 

 

2.53

 

 

 

 

 

 

 

 

 

 

New FHLB borrowings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-rate

100,000

 

 

 

1.24

 

 

6.0

 

 

100,000

 

 

 

1.09

 

 

5.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps(1)

65,000

 

 

 

2.65

 

 

3.1

 

 

200,000

 

 

 

2.63

 

 

1.5

 

 

340,000

 

 

 

2.73

 

 

3.5

 

 

100,000

 

 

 

3.20

 

 

8.0

 

Ending balance

$

1,590,000

 

 

 

1.94

 

 

3.3

 

 

$

1,740,000

 

 

 

2.26

 

 

3.0

 

 

$

1,790,000

 

 

 

2.31

 

 

3.0

 

 

$

1,990,000

 

 

 

2.29

 

 

2.9

 

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2020

 

 

 

Effective

 

 

 

 

 

Effective

 

 

 

Amount

 

Rate

 

WAM

 

Amount

 

Rate

 

WAM

 

(Dollars in thousands)

Beginning balance

$

1,790,000

 

 

 

2.31

%

 

3.0

 

 

$

2,140,000

 

 

 

2.38

%

 

2.6

 

Maturities and prepayments:

 

 

 

 

 

 

 

 

 

 

FHLB advances

(665,000

)

 

 

2.30

 

 

 

 

(765,000

)

 

 

2.43

 

 

 

New FHLB borrowings:

 

 

 

 

 

 

 

 

 

 

Fixed-rate

200,000

 

 

 

1.16

 

 

5.5

 

 

450,000

 

 

 

1.76

 

 

4.8

 

Interest rate swaps(1)

265,000

 

 

 

2.63

 

 

1.9

 

 

265,000

 

 

 

2.58

 

 

2.9

 

Ending balance

$

1,590,000

 

 

 

1.94

 

 

3.3

 

 

$

2,090,000

 

 

 

2.25

 

 

3.0

 

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

Average Rates and Lives

At March 31, 2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(652.3) million, or (6.7)% of total assets, compared to $86.8 million, or 0.9% of total assets, at December 31, 2020. The decrease in the one-year gap amount was due primarily to higher interest rates as of March 31, 2021 compared to December 31, 2020. As interest rates increase, borrowers have less economic incentive to refinances their mortgages and agency debt issuers have less economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates, resulting in lower projected cash flows on these assets. In addition, the decrease was due to an increase in non-maturity deposits during the quarter. In the Bank's interest rate risk model, short-term increases in non-maturity deposits are assumed to be unstable and thus are not considered to be long-term core deposits. As a result, these deposits are assumed to reprice in the short term. This resulted in an increase in the amount of liabilities repricing in the one-year horizon.

The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, but did increase this quarter, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of March 31, 2021, the Bank's one-year gap is projected to be $(1.32) billion, or (13.6)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(995.3) million, or (10.36)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2020.

During the current quarter, loan repayments totaled $606.9 million and cash flows from the securities portfolio totaled $112.5 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from term liabilities that matured and/or repriced into current market interest rates during the current quarter were $542.6 million, including $150.0 million in term borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.

The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of March 31, 2021 was 2.3 years. However, including the impact of interest rate swaps related to $440.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of March 31, 2021 was 3.3 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities.

In addition to these wholesale strategies, the Bank has benefited from an increase in non-maturity deposits. As market interest rates rise, rates paid on non-maturity deposits are not expected to increase as quickly. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout previous interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. Additionally, as we expand the commercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.

With the significant decrease in interest rates during calendar year 2020, the Bank decreased its rates on certificates of deposit and money market accounts on pace with competitors in its market areas. The Bank will continue to adjust rates as market conditions allow.

The following table presents the weighted average yields/rates and WALs (in years), after applying prepayment, call assumptions, and decay rates for our interest-earning assets and interest-bearing liabilities as of March 31, 2021. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.

 

Amount

 

Yield/Rate

 

WAL

 

% of Category

 

% of Total

 

(Dollars in thousands)

Investment securities

$

546,023

 

 

0.56

%

 

3.6

 

 

26.0

%

 

5.9

%

MBS - fixed

1,389,393

 

 

1.46

 

 

4.3

 

 

66.3

 

 

14.9

 

MBS - adjustable

160,508

 

 

2.24

 

 

3.5

 

 

7.7

 

 

1.7

 

Total securities

2,095,924

 

 

1.28

 

 

4.0

 

 

100.0

%

 

22.5

 

Loans receivable:

 

 

 

 

 

 

 

 

 

Fixed-rate one- to four-family:

 

 

 

 

 

 

 

 

 

<= 15 years

1,233,559

 

 

2.78

 

 

3.8

 

 

17.6

%

 

13.3

 

> 15 years

4,142,479

 

 

3.46

 

 

6.1

 

 

59.3

 

 

44.5

 

Fixed-rate commercial

440,168

 

 

4.29

 

 

4.2

 

 

6.3

 

 

4.7

 

All other fixed-rate loans

42,361

 

 

4.29

 

 

6.3

 

 

0.6

 

 

0.5

 

Total fixed-rate loans

5,858,567

 

 

3.39

 

 

5.5

 

 

83.8

 

 

63.0

 

Adjustable-rate one- to four-family:

 

 

 

 

 

 

 

 

<= 36 months

175,872

 

 

1.98

 

 

5.0

 

 

2.5

 

 

1.9

 

> 36 months

518,858

 

 

2.92

 

 

3.5

 

 

7.4

 

 

5.6

 

Adjustable-rate commercial

354,846

 

 

4.23

 

 

6.8

 

 

5.1

 

 

3.8

 

All other adjustable-rate loans

85,016

 

 

4.26

 

 

2.4

 

 

1.2

 

 

0.9

 

Total adjustable-rate loans

1,134,592

 

 

3.29

 

 

4.7

 

 

16.2

 

 

12.2

 

Total loans receivable

6,993,159

 

 

3.37

 

 

5.4

 

 

100.0

%

 

75.2

 

FHLB stock

74,464

 

 

5.15

 

 

2.3

 

 

 

 

0.8

 

Cash and cash equivalents

139,472

 

 

0.09

 

 

 

 

 

 

1.5

 

Total interest-earning assets

$

9,303,019

 

 

2.87

 

 

5.0

 

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

$

3,671,841

 

 

0.13

 

 

5.7

 

 

55.2

%

 

44.6

%

Retail/business certificates of deposit

2,730,354

 

 

1.55

 

 

1.3

 

 

41.1

 

 

33.1

 

Public unit certificates of deposit

248,670

 

 

0.45

 

 

0.4

 

 

3.7

 

 

3.0

 

Total deposits

6,650,865

 

 

0.73

 

 

3.7

 

 

100.0

%

 

80.7

 

Term borrowings

1,590,000

 

 

1.94

 

 

3.3

 

 

 

 

19.3

 

Total interest-bearing liabilities

$

8,240,865

 

 

0.96

 

 

3.6

 

 

 

 

100.0

%

Average Balance Sheets

The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information for the periods shown. Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.

 

For the Six Months Ended

 

March 31, 2021

 

March 31, 2020

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans

$

6,177,836

 

 

$

97,557

 

 

3.16

%

 

$

6,568,525

 

 

$

117,199

 

 

3.57

%

Commercial loans

768,552

 

 

17,963

 

 

4.62

 

 

762,799

 

 

18,652

 

 

4.81

 

Consumer loans

106,371

 

 

2,459

 

 

4.64

 

 

128,491

 

 

3,676

 

 

5.72

 

Total loans receivable(1)

7,052,759

 

 

117,979

 

 

3.34

 

 

7,459,815

 

 

139,527

 

 

3.73

 

MBS(2)

1,372,531

 

 

11,139

 

 

1.62

 

 

926,969

 

 

11,968

 

 

2.58

 

Investment securities(2)(3)

448,595

 

 

1,312

 

 

0.58

 

 

282,759

 

 

2,889

 

 

2.04

 

FHLB stock

81,332

 

 

2,020

 

 

4.98

 

 

99,128

 

 

3,540

 

 

7.14

 

Cash and cash equivalents

180,242

 

 

91

 

 

0.10

 

 

133,908

 

 

1,067

 

 

1.57

 

Total interest-earning assets

9,135,459

 

 

132,541

 

 

2.90

 

 

8,902,579

 

 

158,991

 

 

3.56

 

Other non-interest-earning assets

449,883

 

 

 

 

 

 

441,199

 

 

 

 

 

Total assets

$

9,585,342

 

 

 

 

 

 

$

9,343,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,409,870

 

 

407

 

 

0.06

 

 

$

1,096,466

 

 

351

 

 

0.06

 

Savings

460,252

 

 

136

 

 

0.06

 

 

361,592

 

 

153

 

 

0.08

 

Money market

1,508,935

 

 

2,222

 

 

0.30

 

 

1,190,938

 

 

4,044

 

 

0.68

 

Retail/business certificates

2,749,596

 

 

23,094

 

 

1.68

 

 

2,686,028

 

 

28,215

 

 

2.10

 

Wholesale certificates

256,123

 

 

737

 

 

0.58

 

 

286,328

 

 

3,003

 

 

2.10

 

Total deposits

6,384,776

 

 

26,596

 

 

0.84

 

 

5,621,352

 

 

35,766

 

 

1.27

 

Borrowings(4)

1,690,363

 

 

19,059

 

 

2.25

 

 

2,204,903

 

 

25,860

 

 

2.33

 

Total interest-bearing liabilities

8,075,139

 

 

45,655

 

 

1.13

 

 

7,826,255

 

 

61,626

 

 

1.57

 

Other non-interest-bearing liabilities

227,189

 

 

 

 

 

 

194,698

 

 

 

 

 

Stockholders' equity

1,283,014

 

 

 

 

 

 

1,322,825

 

 

 

 

 

Total liabilities and stockholders' equity

$

9,585,342

 

 

 

 

 

 

$

9,343,778

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(5)

 

 

$

86,886

 

 

 

 

 

 

$

97,365

 

 

 

Net interest rate spread(6)

 

 

 

 

1.77

 

 

 

 

 

 

1.99

 

Net interest-earning assets

$

1,060,320

 

 

 

 

 

 

$

1,076,324

 

 

 

 

 

Net interest margin(7)

 

 

 

 

1.90

 

 

 

 

 

 

2.19

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.13x

 

 

 

 

 

1.14x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)

 

 

 

0.82

%

 

 

 

 

 

0.57

%

Return on average equity (annualized)

 

 

 

6.13

 

 

 

 

 

 

4.05

 

Average equity to average assets

 

 

 

 

13.39

 

 

 

 

 

 

14.16

 

Operating expense ratio(8)

 

 

 

 

1.25

 

 

 

 

 

 

1.13

 

Efficiency ratio(9)

 

 

 

 

57.19

 

 

 

 

 

 

48.97

 

 

For the Three Months Ended

 

March 31, 2021

 

December 31, 2020

 

Average

 

Interest

 

 

 

Average

 

Interest

 

 

 

Outstanding

 

Earned/

 

Yield/

 

Outstanding

 

Earned/

 

Yield/

 

Amount

 

Paid

 

Rate

 

Amount

 

Paid

 

Rate

Assets:

(Dollars in thousands)

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

One- to four-family loans

$

6,134,527

 

 

$

47,552

 

 

3.10

%

 

$

6,220,204

 

 

$

50,005

 

 

3.22

%

Commercial loans

766,972

 

 

8,559

 

 

4.46

 

 

770,096

 

 

9,404

 

 

4.78

 

Consumer loans

102,613

 

 

1,174

 

 

4.64

 

 

110,048

 

 

1,285

 

 

4.65

 

Total loans receivable(1)

7,004,112

 

 

57,285

 

 

3.27

 

 

7,100,348

 

 

60,694

 

 

3.41

 

MBS(2)

1,444,554

 

 

5,429

 

 

1.50

 

 

1,302,074

 

 

5,710

 

 

1.75

 

Investment securities(2)(3)

466,077

 

 

629

 

 

0.54

 

 

431,493

 

 

683

 

 

0.63

 

FHLB stock

77,391

 

 

951

 

 

4.98

 

 

85,187

 

 

1,069

 

 

4.99

 

Cash and cash equivalents

158,544

 

 

40

 

 

0.10

 

 

201,468

 

 

51

 

 

0.10

 

Total interest-earning assets

9,150,678

 

 

64,334

 

 

2.81

 

 

9,120,570

 

 

68,207

 

 

2.98

 

Other non-interest-earning assets

446,265

 

 

 

 

 

 

453,422

 

 

 

 

 

Total assets

$

9,596,943

 

 

 

 

 

 

$

9,573,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

Checking

$

1,459,964

 

 

183

 

 

0.05

 

 

$

1,360,864

 

 

223

 

 

0.07

 

Savings

477,985

 

 

69

 

 

0.06

 

 

442,906

 

 

68

 

 

0.06

 

Money market

1,543,911

 

 

1,038

 

 

0.27

 

 

1,474,720

 

 

1,184

 

 

0.32

 

Retail/business certificates

2,753,439

 

 

10,917

 

 

1.61

 

 

2,745,836

 

 

12,178

 

 

1.76

 

Wholesale certificates

260,712

 

 

322

 

 

0.50

 

 

251,634

 

 

414

 

 

0.66

 

Total deposits

6,496,011

 

 

12,529

 

 

0.78

 

 

6,275,960

 

 

14,067

 

 

0.89

 

Borrowings(4)

1,603,459

 

 

8,732

 

 

2.19

 

 

1,775,380

 

 

10,327

 

 

2.30

 

Total interest-bearing liabilities

8,099,470

 

 

21,261

 

 

1.06

 

 

8,051,340

 

 

24,394

 

 

1.20

 

Other non-interest-bearing liabilities

213,602

 

 

 

 

 

 

240,476

 

 

 

 

 

Stockholders' equity

1,283,871

 

 

 

 

 

 

1,282,176

 

 

 

 

 

Total liabilities and stockholders' equity

$

9,596,943

 

 

 

 

 

 

$

9,573,992

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income(5)

 

 

$

43,073

 

 

 

 

 

 

$

43,813

 

 

 

Net interest rate spread(6)

 

 

 

 

1.75

 

 

 

 

 

 

1.78

 

Net interest-earning assets

$

1,051,208

 

 

 

 

 

 

$

1,069,230

 

 

 

 

 

Net interest margin(7)

 

 

 

 

1.88

 

 

 

 

 

 

1.92

 

Ratio of interest-earning assets to interest-bearing liabilities

 

1.13x

 

 

 

 

 

1.13x

 

 

 

 

 

 

 

 

 

 

 

 

Selected performance ratios:

 

 

 

 

 

 

 

 

 

 

Return on average assets (annualized)

 

 

 

0.85

%

 

 

 

 

 

0.79

%

Return on average equity (annualized)

 

 

 

 

6.37

 

 

 

 

 

 

5.90

 

Average equity to average assets

 

 

 

 

13.38

 

 

 

 

 

 

13.39

 

Operating expense ratio(8)

 

 

 

 

1.36

 

 

 

 

 

 

1.13

 

Efficiency ratio(9)

 

 

 

58.78

 

 

 

 

 

 

55.37

 

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

(2) AFS securities are adjusted for unamortized purchase premiums or discounts.

(3) The average balance of investment securities includes an average balance of nontaxable securities of $8.3 million and $16.1 million for the six months ended March 31, 2021 and March 31, 2020, respectively, and $7.5 million and $9.1 million for the quarters ended March 31, 2021 and December 31, 2020, respectively.

(4) The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties.

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

(6) Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

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

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

(9) The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.

 

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