Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.82M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32 Certification -- §906 - SOA'02 HTML 20K
10: R1 Document And Entity Information HTML 71K
11: R2 Consolidated Balance Sheets HTML 93K
12: R3 Consolidated Balance Sheets (Parenthetical) HTML 43K
13: R4 Consolidated Statements Of Income HTML 123K
14: R5 Consolidated Statements Of Comprehensive Income HTML 39K
15: R6 Consolidated Statements Of Comprehensive Income HTML 23K
(Parenthetical)
16: R7 Consolidated Statements Of Stockholders' Equity HTML 61K
17: R8 Consolidated Statements Of Stockholders' Equity HTML 20K
(Parenthetical)
18: R9 Consolidated Statements Of Cash Flows HTML 118K
19: R10 Summary Of Significant Accounting Policies HTML 24K
20: R11 Earnings Per Share HTML 41K
21: R12 Securities HTML 108K
22: R13 Loans Receivable And Allowance For Credit Losses HTML 696K
23: R14 Borrowed Funds HTML 25K
24: R15 Fair Value Of Financial Instruments HTML 120K
25: R16 Accumulated Other Comprehensive Income HTML 54K
26: R17 Summary Of Significant Accounting Policies HTML 25K
(Policies)
27: R18 Earnings Per Share (Tables) HTML 40K
28: R19 Securities (Tables) HTML 114K
29: R20 Loans Receivable And Allowance For Credit Losses HTML 689K
(Tables)
30: R21 Fair Value Of Financial Instruments (Tables) HTML 107K
31: R22 Accumulated Other Comprehensive Income (Tables) HTML 54K
32: R23 Summary Of Significant Accounting Policies HTML 26K
(Narrative) (Details)
33: R24 Earnings Per Share (Details) HTML 67K
34: R25 Securities (Amortized Cost, Estimated Fair Value, HTML 38K
and Gross Unrealized Gains and Losses of AFS and
HTM Securities) (Details)
35: R26 Securities (Schedule Of Estimated Fair Value And HTML 41K
Gross Unrealized Losses Of Securities In
Continuous Unrealized Loss Position) (Details)
36: R27 Securities (Schedule Of Contractual Maturities) HTML 39K
(Details)
37: R28 Securities (Schedule Of Taxable And Non-taxable HTML 24K
Components Of Interest Income) (Details)
38: R29 Securities (Schedule Of Carrying Value Of HTML 27K
Securities Pledged As Collateral) (Details)
39: R30 Loans Receivable And Allowance For Credit Losses HTML 40K
(Narrative) (Details)
40: R31 Loans Receivable And Allowance For Credit Losses HTML 60K
(Summary Of Loans Receivable) (Details)
41: R32 Loans Receivable And Allowance For Credit Losses HTML 155K
(Classified Loans) (Details)
42: R33 Loans Receivable And Allowance For Credit Losses HTML 159K
(Delinquent Loans) (Details)
43: R34 Loans Receivable And Allowance For Credit Losses HTML 87K
(Loans, Past Due Aging Analysis) (Details)
44: R35 Loans Receivable And Allowance For Credit Losses HTML 45K
(Loans, Nonaccrual) (Details)
45: R36 Loans Receivable And Allowance For Credit Losses HTML 50K
(Troubled Debt Restructurings On Financing
Receivables) (Details)
46: R37 Loans Receivable And Allowance For Credit Losses HTML 45K
(Troubled Debt Restructurings On Financing
Receivables That Subsequently Defaulted) (Details)
47: R38 Loans Receivable And Allowance For Credit Losses HTML 77K
(Allowance For Credit Losses) (Details)
48: R39 Loans Receivable And Allowance For Credit Losses HTML 29K
(Reserve for Off-Balance Sheet Credit Exposures)
(Details)
49: R40 Borrowed Funds (Narrative) (Details) HTML 35K
50: R41 Fair Value Of Financial Instruments (Narrative) HTML 45K
(Details)
51: R42 Fair Value Of Financial Instruments (Schedule Of HTML 56K
Fair Value Assets Measured On A Recurring Basis)
(Details)
52: R43 Fair Value Of Financial Instruments (Schedule Of HTML 59K
Carrying Amounts And Estimated Fair Values Of
Financial Instruments) (Details)
53: R44 Accumulated Other Comprehensive Income (Details) HTML 63K
56: XML IDEA XML File -- Filing Summary XML 106K
54: XML XBRL Instance -- cffn-20211231_htm XML 4.12M
55: EXCEL IDEA Workbook of Financial Reports XLSX 84K
6: EX-101.CAL XBRL Calculations -- cffn-20211231_cal XML 195K
7: EX-101.DEF XBRL Definitions -- cffn-20211231_def XML 570K
8: EX-101.LAB XBRL Labels -- cffn-20211231_lab XML 1.11M
9: EX-101.PRE XBRL Presentations -- cffn-20211231_pre XML 806K
5: EX-101.SCH XBRL Schema -- cffn-20211231 XSD 92K
57: JSON XBRL Instance as JSON Data -- MetaLinks 310± 451K
58: ZIP XBRL Zipped Folder -- 0001490906-22-000009-xbrl Zip 328K
(Exact name of registrant as specified in its charter)
iMaryland
i27-2631712
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i700 South Kansas Avenue,
iTopeka,
iKansas
i66603
(Address
of principal executive offices)
(Zip Code)
(i785) i235-1341
(Registrant's telephone number, including area code)
_____________________________________
(Former name, former address
and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon
Stock, par value $0.01 per share
iCFFN
iThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated
filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Smaller reporting company i☐Emerging
growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
As of February 2, 2022, there were i138,847,284
shares of Capitol Federal Financial, Inc. common stock outstanding.
Cash
and cash equivalents (includes interest-earning deposits of $i106,225 and $i24,289)
$
i135,475
$
i42,262
Available-for-sale
("AFS") securities, at estimated fair value (amortized cost of $i1,899,027 and $i2,008,456)
i1,890,653
i2,014,608
Loans
receivable, net (allowance for credit losses ("ACL") of $i17,535 and $i19,823)
i7,095,605
i7,081,142
Federal
Home Loan Bank Topeka ("FHLB") stock, at cost
i75,261
i73,421
Premises
and equipment, net
i97,718
i99,127
Other
assets
i314,445
i320,686
TOTAL
ASSETS
$
i9,609,157
$
i9,631,246
LIABILITIES:
Deposits
$
i6,648,004
$
i6,597,396
Borrowings
i1,583,303
i1,582,850
Advance
payments by borrowers for taxes and insurance
i38,227
i72,729
Income
taxes payable, net
i3,733
i918
Deferred
income tax liabilities, net
i3,981
i5,810
Other
liabilities
i115,249
i129,270
Total
liabilities
i8,392,497
i8,388,973
STOCKHOLDERS'
EQUITY:
Preferred stock, $ii.01/
par value; ii100,000,000/ shares
authorized, iiiino///
shares issued or outstanding
i—
i—
Common
stock, $ii.01/ par value; ii1,400,000,000/
shares authorized, ii138,842,784/ and ii138,832,284/
shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively
i1,388
i1,388
Additional
paid-in capital
i1,189,827
i1,189,633
Unearned
compensation, Employee Stock Ownership Plan ("ESOP")
(i30,974)
(i31,387)
Retained
earnings
i79,745
i98,944
Accumulated
other comprehensive (loss) income ("AOCI"), net of tax
(i23,326)
(i16,305)
Total
stockholders' equity
i1,216,660
i1,242,273
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
$
i9,609,157
$
i9,631,246
See
accompanying notes to consolidated financial statements.
Change
in advance payments by borrowers for taxes and insurance
(i34,502)
(i32,505)
Payment
of FHLB prepayment penalties
i—
(i2,292)
Repurchase
of common stock
i—
(i4,568)
Net
cash (used in) provided by financing activities
(i25,279)
i97,941
NET
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS
i88,253
(i22,866)
CASH,
CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS:
Beginning of period
i70,292
i239,708
End
of period
$
i158,545
$
i216,842
See
accompanying notes to consolidated financial statements.
(Concluded)
8
Notes to Consolidated Financial Statements (Unaudited)
1. iSUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - iThe consolidated financial statements include the accounts of Capitol Federal Financial, Inc.® (the "Company") and its wholly-owned subsidiary, Capitol Federal Savings Bank (the "Bank"). The Bank has two wholly-owned subsidiaries, Capitol Funds, Inc. and Capital City Investments, Inc. Capitol Funds, Inc. has a wholly-owned subsidiary, Capitol
Federal Mortgage Reinsurance Company. Capital City Investments, Inc. is a real estate and investment holding company. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the Securities and Exchange Commission ("SEC"). Interim results are not necessarily indicative of results for a full year.
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - iCash,
cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $i135.5 million and $i42.3
million at December 31, 2021 and September 30, 2021, respectively, and restricted cash and cash equivalents of $i23.1 million and $i28.0
million at December 31, 2021 and September 30, 2021, respectively, which was included in other assets on the consolidated balance sheet. The restricted cash and cash equivalents relate to the collateral postings to/from the Bank's derivative counterparties associated with the Bank's interest rate swaps. See additional discussion regarding the interest rate swaps in Note 5. Borrowed Funds./
2.iEARNINGS
PER SHARE
i
Shares acquired by the ESOP are not included in basic average shares outstanding until the shares are committed for allocation or vested to an employee's individual account. Unvested shares awarded pursuant to the Company's restricted stock benefit plans are treated as participating securities in the computation of EPS pursuant to the two-class method as they contain nonforfeitable rights to dividends. The two-class method is an earnings allocation that
determines EPS for each class of common stock and participating security.
Antidilutive
stock options, excluded from the diluted average
common shares outstanding calculation
i543,761
i431,212
/
9
3.iSECURITIES
i
The following tables reflect the
amortized cost, estimated fair value, and gross unrealized gains and losses of AFS securities at the dates presented. The majority of the MBS and investment securities portfolios are composed of securities issued by United States Government-Sponsored Enterprises ("GSEs").
The
following tables summarize the estimated fair value and gross unrealized losses of those AFS securities on which an unrealized loss at the dates presented was reported and the continuous unrealized loss position for less than 12 months and equal to or greater than 12 months as of the dates presented.
The
unrealized losses at December 31, 2021 were a result of an increase in market yields from the time the securities were purchased. In general, as market yields rise, the fair value of securities will decrease; as market yields fall, the fair value of securities will increase. Management did not record ACL on securities in an unrealized loss position at December 31, 2021 because scheduled coupon payments have been made, management anticipates that the entire principal balance will be collected as scheduled, and neither does the Company intend to sell the securities, nor is it more likely than not that the Company will be required to sell the securities before the recovery of the remaining amortized
cost amount, which could be at maturity.
i
The amortized cost and estimated fair value of AFS debt securities as of December 31, 2021, by contractual maturity, are shown below. Actual principal repayments may differ from contractual maturities due to prepayment or early call privileges by the issuer. In the case of MBS, borrowers on the underlying loans generally have the right to prepay their loans without penalty. For this reason, MBS are not included in the maturity
categories.
Amortized
Estimated
Cost
Fair
Value
(Dollars in thousands)
One year or less
$
i3,344
$
i3,350
One
year through five years
i519,972
i511,064
i523,316
i514,414
MBS
i1,375,711
i1,376,239
$
i1,899,027
$
i1,890,653
/
i
The
following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
Lending
Practices and Underwriting Standards - Originating and purchasing one- to four-family loans is the Bank's primary lending business. The Bank also originates consumer loans primarily secured by one- to four-family residential properties and originates and participates in commercial loans. The Bank has a loan concentration in one- to four-family loans and a geographic concentration of these loans in Kansas and Missouri.
One- to four-family loans - Full documentation to support an applicant's credit and income, and sufficient funds to cover all applicable fees and reserves at closing, are required on all loans. Generally, loans are underwritten according to the "ability to repay" and "qualified mortgage" standards, as issued by the Consumer Financial Protection Bureau ("CFPB"). Properties securing one- to four-family
loans are appraised by either staff appraisers or fee appraisers, both of which are independent of the loan origination function.
The underwriting standards for loans purchased from correspondent lenders are generally similar to the Bank's internal underwriting standards. The underwriting of loans purchased from correspondent lenders on a loan-by-loan basis is performed by the Bank's underwriters.
The Bank also originates owner-occupied construction-to-permanent loans secured by one- to four-family residential real estate. Construction draw requests and the supporting documentation are reviewed and approved by designated personnel. The Bank also performs regular documented inspections of the construction project to ensure the funds are being used for the intended purpose and the project is being completed according to the plans and specifications
provided.
Commercial loans - The Bank's commercial real estate and commercial construction loans are originated by the Bank or are in participation with a lead bank. When underwriting a commercial real estate or commercial construction loan, several factors are considered, such as the income producing potential of the property, cash equity provided by the borrower, the financial strength of the borrower, managerial expertise of the borrower or tenant, feasibility studies, lending experience with the borrower and the marketability of the property. For commercial real estate and commercial construction participation loans, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. At the time of origination, loan-to-value ("LTV")
12
ratios
on commercial real estate loans generally do not exceed i85% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally i1.15. For
commercial construction loans, LTV ratios generally do not exceed i80% of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally i1.15,
but it applies to the projected cash flows, and the borrower must have successful experience with the construction and operation of properties similar to the subject property. Appraisals on properties securing these loans are performed by independent state certified fee appraisers.
The Bank's commercial and industrial loans are generally made in the Bank's market areas and are underwritten on the basis of the borrower's ability to service the debt from income. With the exception of Paycheck Protection Program ("PPP") loans, which are unsecured but are generally guaranteed by the U.S. Small Business Administration, working capital loans are primarily collateralized by short-term assets whereas term loans are primarily collateralized by long-term assets. In general, commercial and industrial loans involve more credit risk than commercial real estate loans due to the type of collateral securing these
loans. As a result of these additional complexities, variables and risks, these loans require more thorough underwriting and servicing than other types of loans.
Consumer loans - The Bank offers a variety of secured consumer loans, including home equity loans and lines of credit, home improvement loans, vehicle loans, and loans secured by deposits. The Bank also originates a very limited amount of unsecured consumer loans. The majority of the consumer loan portfolio is comprised of home equity lines of credit for which the Bank also has the first mortgage or the home equity line of credit is in the first lien position.
The underwriting standards for consumer loans include a determination of an applicant's payment history on other debts and an assessment of an applicant's ability to meet existing obligations and payments
on the proposed loan. Although creditworthiness of an applicant is a primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.
Credit Quality Indicators - Based on the Bank's lending emphasis and underwriting standards, management has segmented the loan portfolio into three segments: (1) one- to four-family; (2) consumer; and (3) commercial. These segments are further divided into classes for purposes of providing disaggregated credit quality information about the loan portfolio. The classes are: one- to four-family - originated, one- to four-family - correspondent purchased, one- to four-family - bulk purchased, consumer - home equity, consumer - other, commercial - commercial real estate, and commercial - commercial and industrial. One- to four-family construction loans
are included in the originated class and commercial construction loans are included in the commercial real estate class. As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to loan classification and delinquency status.
Loan Classification - In accordance with the Bank's asset classification policy, management regularly reviews the problem loans in the Bank's portfolio to determine whether any loans require classification. Loan classifications are defined as follows:
•Special mention - These loans are performing loans on which known information about the collateral pledged or the possible
credit problems of the borrower(s) have caused management to have doubts as to the ability of the borrower(s) to comply with present loan repayment terms and which may result in the future inclusion of such loans in the nonaccrual loan categories.
•Substandard - A loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans include those characterized by the distinct possibility the Bank will sustain some loss if the deficiencies are not corrected.
•Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses present make collection or liquidation in full on the basis of currently existing facts and conditions and values
highly questionable and improbable.
•Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as assets on the books is not warranted.
13
i
The following table sets forth, as of the dates indicated, the
amortized cost of loans by class of financing receivable, year of origination or most recent credit decision, and loan classification. All revolving lines of credit are presented separately, regardless of origination year. Loans classified as doubtful or loss are individually evaluated for loss. At December 31, 2021 and September 30, 2021, there were iino/
loans classified as doubtful, and all loans classified as loss were fully charged-off.
Delinquency
Status - The following tables set forth, as of the dates indicated, the amortized cost of current loans, loans 30 to 89 days delinquent, and loans 90 or more days delinquent or in foreclosure ("90+/FC"), by class of financing receivable and year of origination or most recent credit decision as of the dates indicated. All revolving lines of credit are presented separately, regardless of origination year.
Delinquent
and Nonaccrual Loans - iThe following tables present the amortized cost, at the dates indicated, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total loans. At December 31, 2021 and September 30, 2021, all loans 90 or more days delinquent were on nonaccrual status.
The
amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2021 and September 30, 2021 was $i845 thousand and $i799
thousand, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the tables above. The carrying value of residential OREO held as a result of obtaining physical possession upon completion of a foreclosure or through completion of a deed in lieu of foreclosure was $i319 thousand at December 31, 2021 and $i170
thousand at September 30, 2021.
18
i
The following table presents the amortized cost at December 31, 2021 and September 30, 2021, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that had no related
ACL is presented, all of which were individually evaluated for loss and any identified losses have been charged off.
Troubled
Debt Restructurings ("TDRs") -iThe following tables present the amortized cost prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the amortized cost at the end of the periods indicated. Any increase in the amortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
The
key assumptions in the Company's ACL model include the economic forecast, the forecast and reversion to mean time periods, and prepayment and curtailment assumptions. Management also considered certain qualitative factors when evaluating the adequacy of the ACL at December 31, 2021. The key assumptions utilized in estimating the Company's ACL at December 31, 2021 are discussed below.
•Economic Forecast - Management considered several economic forecasts provided by a third party and selected the economic forecast believed to be the most appropriate considering the facts and circumstances at December 31,
2021. The forecasted economic indices applied to the model at December 31, 2021 were the national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the U.S. gross domestic product. The economic index most impactful to all loan pools within the model at December 31, 2021 was the national unemployment rate. The forecast national unemployment rate in the economic scenario selected by management at December 31, 2021 had the national unemployment rate gradually declining to i3.5%
by December 31, 2022 which was the end of our four quarter forecast time period.
•Forecast and reversion to mean time period - The forecasted time period and the reversion to mean time period were each four quarters for all of the economic indices at December 31, 2021.
•Prepayment and curtailment assumptions - The assumptions used at December 31, 2021 were generally based on actual historical prepayment and curtailment speeds for each respective loan pool in the model over the trailing 12 months.
•Qualitative factors - The qualitative factors applied
by management at December 31, 2021 included the following:
◦The economic uncertainties related to (1) the job market, the labor force composition, the unemployment rate, and labor participation rate and how the significant federal assistance and other factors may be impacting those measures and (2) the unevenness of the recovery in certain industries in which the Bank has lending relationships;
◦The balance and trending of large-dollar special mention commercial loans; and
◦Coronavirus Disease 2019 ("COVID-19") loan modifications related to commercial real estate loans.
The decrease in ACL during the current quarter was primarily a
result of a negative provision for credit losses of $i2.3 million. The negative provision for credit losses associated with the ACL was due primarily to a reduction in the large-dollar special mention commercial loan qualitative factor due to two large-dollar special mention commercial loans moving to the pass classification during the current quarter. Additionally, the economic uncertainty qualitative factor for commercial loans also decreased during the current quarter as economic conditions continued to improve for the industries related
to this qualitative factor.
Reserve for Off-Balance Sheet Credit Exposures - The following is a summary of the changes in reserve for off-balance sheet credit exposures during the periods indicated. The negative provision for credit losses in the current quarter was due primarily to improvements in economic conditions in certain industries in which the Bank has lending relationships.
FHLB Borrowings and Interest Rate Swaps - At December 31, 2021 and September 30, 2021, the Bank had entered into interest rate swap agreements with a total notional amount of $ii365.0/
million in order to hedge the variable cash flows associated with $ii365.0/
million of adjustable-rate FHLB advances. At December 31, 2021 and September 30, 2021, the interest rate swap agreements had an average remaining term to maturity of i3.8 years and i4.1
years, respectively. The interest rate swaps were designated as cash flow hedges and involved the receipt of variable amounts from a counterparty in exchange for the Bank making fixed-rate payments over the life of the interest rate swap agreements. At December 31, 2021 and September 30, 2021, the interest rate swaps were in a loss position with a total fair value of $i22.5 million and $i27.7
million, respectively, which was reported in other liabilities on the consolidated balance sheet. During the three months ended December 31, 2021 and December 31, 2020, $i1.8 million and $i3.0
million, respectively, was reclassified from AOCI as an increase to interest expense. At December 31, 2021, the Company estimated that $i8.0 million of interest expense associated with the interest rate swaps would be reclassified from AOCI as an increase
to interest expense on FHLB borrowings during the next 12 months. The Bank has minimum collateral posting thresholds with its derivative counterparties and posts collateral on a daily basis. The Bank posted cash collateral of $i23.1 million at December 31, 2021 and $i28.0
million at September 30, 2021.
6. iFAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value Measurements - The Company uses fair value measurements to record fair value adjustments to
certain financial instruments and to determine fair value disclosures in accordance with Accounting Standards Codification ("ASC") 820 and ASC 825. The Company's AFS securities and interest rate swaps are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other financial instruments on a non-recurring basis, such as OREO and loans individually evaluated for impairment. These non-recurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual financial instruments.
The
Company groups its financial instruments at fair value in three levels based on the markets in which the financial instruments are traded and the reliability of the assumptions used to determine fair value. These levels are:
•Level 1 - Valuation is based upon quoted prices for identical instruments traded in active markets.
•Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
•Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect the Company's own estimates of assumptions that market participants would use in pricing the financial instrument. Valuation techniques include the use of option pricing models, discounted cash flow models, and similar techniques. The results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the financial instrument.
The Company bases the fair value of its financial instruments on the price that would be received from the sale of an instrument in an orderly transaction between market participants at the measurement date under current market conditions. The Company maximizes
the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The following is a description of valuation methodologies used for financial instruments measured at fair value on a recurring basis.
AFS Securities - The Company's AFS securities portfolio is carried at estimated fair value. The majority of the securities within the AFS portfolio were issued by GSEs. The Company primarily uses prices obtained from third party pricing services to determine the fair value of its securities. On a quarterly basis, management corroborates a sample of prices obtained from the third party pricing service for Level 2 securities
by comparing them to an independent source. If the price provided by the independent source varies by more than a predetermined percentage from the price received from the third party pricing service, then the variance is researched by management. The Company did not have to adjust prices obtained from the third party pricing service when determining the fair value of its securities during the three months ended December 31, 2021 or during fiscal year 2021. The Company's major security types, based on the nature and risks of the securities, are:
•GSE Debentures - Estimated fair values are based on a discounted cash flow method. Cash flows are determined
by taking any embedded options into consideration and are discounted using current market yields for similar securities. (Level 2)
•MBS - Estimated fair values are based on a discounted cash flow method. Cash flows are determined based on prepayment projections of the underlying mortgages and are discounted using current market yields for benchmark securities. (Level 2)
23
•Municipal Bonds - Estimated fair values are based on a discounted cash flow method. Cash flows are determined by taking any embedded options into consideration and are discounted using current market yields for securities with similar credit profiles. (Level 2)
Interest
Rate Swaps - The Company's interest rate swaps are designated as cash flow hedges and are reported at fair value in other assets on the consolidated balance sheet if in a gain position, and in other liabilities if in a loss position, with any unrealized gains and losses, net of taxes, reported as AOCI in stockholders' equity. See "Note 5. Borrowed Funds" for additional information. The estimated fair values of the interest rates swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. On a quarterly basis, management corroborates the estimated fair values by internally calculating the estimated fair value using a discounted cash flow analysis with independent observable market-based inputs from a third party. No adjustments were made to the estimated fair values obtained from
the counterparty during the three months ended December 31, 2021 or during fiscal year 2021. (Level 2)
i
The following tables provide the level of valuation assumption used to determine the carrying value of the Company's financial instruments measured at fair value on a recurring basis at the dates presented. The Company
did iino/t have any Level 3 financial instruments measured at fair
value on a recurring basis at December 31, 2021 or September 30, 2021.
The
following is a description of valuation methodologies used for significant financial instruments measured at fair value on a non-recurring basis. The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that, if changed, could result in higher or lower fair value measurements of these assets as of the reporting date.
Loans Receivable - Collateral dependent assets are assets evaluated on an individual basis. Those collateral dependent assets that are evaluated on an individual basis are considered financial assets measured at fair value on a non-recurring basis.
The fair value of collateral dependent loans/loans individually evaluated for loss on a non-recurring basis during the three months ended December 31,
2021 and 2020 that were still held in the portfolio as of December 31, 2021 and 2020 was $ii3.3/
million and $ii5.9/
million, respectively.
The one- to four-family loans included in this amount were individually evaluated to determine if the carrying value of the loan was in excess of the fair value of the collateral, less estimated selling costs of i10%. Fair values were estimated through current appraisals. Management does not adjust or apply a discount to the appraised value of one- to four-family loans, except for the estimated sales cost noted above, and the primary unobservable input for these loans was the appraisal.
For
commercial loans, if the most recent appraisal or book value of the collateral does not reflect current market conditions due to the passage of time and/or other factors, management will make adjustments to the existing appraised or book value based on knowledge of local market conditions, recent transactions, and estimated selling costs, if applicable. Adjustments to appraised or book values are generally based on assumptions not observable in the marketplace. The primary significant unobservable inputs for commercial loans individually evaluated during the three months ended December 31, 2021 and December 31, 2020 were downward adjustments to the book value of the collateral for lack of marketability. During the three months ended December 31, 2021, the adjustments ranged from i9%
to i56%, with a weighted average of i21%. During the three months ended December 31, 2020, the adjustments ranged from i10%
to i50%, with a weighted average of i26%. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.
Fair
values of collateral dependent loans/loans individually evaluated for loss cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the loan and, as such, are classified as Level 3.
OREO - OREO primarily represents real estate acquired as a result of foreclosure or by deed in lieu of foreclosure and is carried at lower of cost or fair value. The fair value for OREO is estimated through current appraisals or listing prices, less estimated selling costs of i10%. Management
does not adjust or apply a discount to the appraised value or listing price, except for the estimated sales costs noted above. The primary significant unobservable input for OREO was the appraisal or listing price. Fair values of foreclosed property cannot be determined with precision and may not be realized in an actual sale of the property and, as such, are classified as Level 3. There was iino/
OREO measured on a non-recurring basis during the three months ended December 31, 2021. The fair value of OREO measured on a non-recurring basis during the three months ended December 31, 2020 that was still held in the portfolio as of December 31, 2020 was $ii30/
thousand. The carrying value of the properties equaled the fair value of the properties at December 31, 2021 and 2020.
25
Fair Value Disclosures - The Company estimated fair value amounts using available market information and a variety of valuation methodologies as of the dates presented. Considerable judgment is required to interpret market data to develop the estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company
would realize from a current market exchange at subsequent dates.
i
The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
Other
comprehensive income (loss), before reclassifications
i1,140
i1,024
i2,164
Amount
reclassified from AOCI, net of taxes of $(i959)
i—
i2,970
i2,970
Other
comprehensive income (loss)
i1,140
i3,994
i5,134
Ending
balance
$
i24,868
$
(i36,239)
$
(i11,371)
/
27
Item
2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The Company and the Bank may from time to time make written or oral "forward-looking statements," including statements contained in documents filed or furnished by the Company with the SEC. These forward-looking statements may be included in this Quarterly Report on Form 10-Q and the exhibits attached to it, in the Company's reports to stockholders, in the
Company's press releases, and in other communications by the Company, which are made in good faith pursuant to the "safe harbor" provisions 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, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words "may,""could,""should,""would,""believe,""anticipate,""estimate,""expect,""intend,""plan" and similar expressions are intended to identify forward-looking
statements. The following factors, among others, could cause our future results to differ materially from the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions expressed in the forward-looking statements:
•our ability to maintain overhead costs at reasonable levels;
•our ability to originate and purchase a sufficient volume of one- to four-family loans in order to maintain the balance of that portfolio at a level desired by management;
•our ability to invest funds in wholesale or secondary markets at favorable yields compared to the related funding source;
•our ability to access cost-effective funding;
•the
expected synergies and other benefits from our acquisition activities;
•our ability to extend our commercial banking and trust asset management expertise;
•fluctuations in deposit flows;
•the future earnings and capital levels of the Bank and the continued non-objection by our primary federal banking regulators, to the extent required, to distribute capital from the Bank to the Company, which could affect the ability of the Company to pay dividends in accordance with its dividend policy;
•the strength of the U.S. economy in general
and the strength of the local economies in which we conduct operations, including areas where we have purchased large amounts of correspondent loans;
•changes in real estate values, unemployment levels, and the level and direction of loan delinquencies and charge-offs may require changes in the estimates of the adequacy of the ACL, which may adversely affect our business;
•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;
•increases in classified and/or non-performing assets, which may require the Bank to increase the ACL, charge-off loans and incur elevated collection and carrying costs related to such non-performing assets;
•results of examinations of the Bank and the Company by their respective primary federal banking regulators, including the possibility that the regulators may, among other things, require us to increase our ACL;
•changes in accounting principles, policies, or guidelines;
•the effects of, and changes in, monetary and interest rate policies of the Board of Governors of the Federal Reserve System
("FRB");
•the effects of, and changes in, trade and fiscal policies and laws of the United States government;
•the effects of, and changes in, foreign and military policies of the United States government;
•inflation, interest rate, market, monetary, and currency fluctuations;
•the timely development and acceptance of new products and services and the perceived overall value of these products and services by users, including the features, pricing, and quality compared to competitors' products and services;
•the willingness of users to substitute competitors' products and services for our products and services;
•our
success in gaining regulatory approval of our products and services and branching locations, when required;
•the impact of interpretations of, and changes in, financial services laws and regulations, including laws concerning taxes, banking, securities, consumer protection, trust and insurance and the impact of other governmental initiatives affecting the financial services industry;
•implementing business initiatives may be more difficult or expensive than anticipated;
•significant litigation;
•technological changes;
•our ability to maintain the security of our financial, accounting, technology, and other operating systems and facilities,
including the ability to withstand cyber-attacks;
•acquisitions and dispositions;
•changes in consumer spending, borrowing and saving habits; and
•our success at managing the risks involved in our business.
28
This list of important factors is not all inclusive. For a discussion of risks and uncertainties related to our business that could adversely impact our operations and/or financial results, see "Part I, Item 1A. Risk Factors" in the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 2021 and Part II, Item 1A. Risk Factors within this Quarterly Report on Form 10-Q. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company or the Bank.
As used in this Form 10-Q, unless we specify or the context indicates otherwise, "the Company,""we,""us," and "our" refer to Capitol Federal Financial,
Inc. a Maryland corporation, and its subsidiaries. "Capitol Federal Savings," and "the Bank," refer to Capitol Federal Savings Bank, a federal savings bank and the wholly-owned subsidiary of Capitol Federal Financial, Inc.
The following discussion and analysis is intended to assist in understanding the financial condition, results of operations, liquidity, and capital resources of the Company. The Bank comprises almost all of the consolidated assets and liabilities of the Company and the Company is dependent primarily upon the performance of the
Bank for the results of its operations. Because of this relationship, references to management actions, strategies and results of actions apply to both the Bank and the Company. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC.
Executive
Summary
The following summary should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section in its entirety.
The Company recognized net income of $22.2 million, or $0.16 per share, for the current quarter compared to net income of $18.9 million, or $0.14 per share, for the prior year quarter. The increase in net income was due primarily to a higher negative provision for credit losses in the current quarter and an increase in net interest income. The net interest margin increased seven basis points, from 1.92% for the prior year quarter to 1.99% for the current quarter. The increase in net interest income and net interest margin was due mainly to a reduction in the cost of retail certificates of deposit and borrowings,
which outpaced the decrease in asset yields.
The Bank's asset quality continued to remain strong during the current quarter, reflected in low delinquency and a net recovery during the quarter. At December 31, 2021, loans 30 to 89 days delinquent were 0.18% of total loans receivable, net, and loans 90 or more days delinquent or in foreclosure were 0.15% of total loans receivable, net. During the current quarter, net recoveries were $31 thousand.
At December 31, 2021, the Bank had a one-year gap position of $(928.0) million, or (9.7)% of total assets, meaning the amount of interest-bearing liabilities exceeds the amount of interest-earning assets maturing or repricing during the same period. Despite the negative gap, net interest income is projected
to increase in a rising interest rate environment due to the assumption that the Bank's deposit balances are not expected to reprice to the full extent of the interest rate change. This assumption is based on a historical analysis of the Bank's deposit pricing behavior.
At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing on either the Bank's FHLB line of credit or by entering into short-term FHLB advances with the proceeds from the borrowings, net of the required FHLB stock holdings, being deposited at the Federal Reserve Bank of Kansas City. The leverage strategy was not in place during the current quarter or in recent years as the strategy was not profitable. The strategy did, however, become profitable again in January 2022, and management reimplemented the strategy by entering into $1.80 billion of short-term FHLB advances. It is expected
that the strategy will continue to be used as long as it is profitable. The borrowing level related to the strategy may fluctuate while the strategy is in place.
Available Information
Financial and other Company information, including press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports can be obtained free of charge from our investor relations website, http://ir.capfed.com. SEC filings are available on our website
immediately after they are electronically filed with or furnished to the SEC, and are also available on the SEC's website at www.sec.gov.
29
Critical Accounting Estimates
Our most critical accounting estimates are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements. These estimates are important to the presentation of our financial condition and results of operations, involve a high degree of complexity, and
require management to make difficult and subjective judgments that may require assumptions about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting estimates and their application are reviewed at least annually by our audit committee. For a full discussion of our critical accounting estimates, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2021.
FinancialCondition
The following table summarizes the Company's financial condition at the dates indicated.
Annualized
December
31,
September 30,
Percent
2021
2021
Change
(Dollars in thousands)
Total assets
$
9,609,157
$
9,631,246
(0.9)
%
AFS
securities
1,890,653
2,014,608
(24.6)
Loans receivable, net
7,095,605
7,081,142
0.8
Deposits
6,648,004
6,597,396
3.1
Borrowings
1,583,303
1,582,850
0.1
Stockholders'
equity
1,216,660
1,242,273
(8.2)
Equity to total assets at end of period
12.7
%
12.9
%
Average
number of basic shares outstanding
135,627
135,571
0.2
Average number of diluted shares outstanding
135,627
135,571
0.2
The
decrease in total assets was due primarily to a decrease in securities, partially offset by an increase in cash and cash equivalents. The decrease in securities was due to not reinvesting all of the cash flows from the securities portfolio during the quarter. The increase in deposits was due primarily to an increase in non-maturity deposits, partially offset by a decrease in the certificate of deposit portfolio, as customers moved some of their funds from maturing certificates to more liquid investment options, such as the Bank's money market accounts. There is some uncertainty regarding how long the increased balance of non-maturity deposits will be retained by the Bank as customers return to more normal spending habits and/or choose to invest in higher-yielding investment options outside of the Bank. The Bank may be required to replace deposit outflows with higher costing borrowings, which would increase the cost of funds over time, or with cash flows from maturing
securities.
30
Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated.
Loan Activity -The following table summarizes activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid off as a result of refinances are included
in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. The renewal balance and rate are included in the ending loan portfolio balance and rate.
The following table presents loan origination, refinance, and purchase activity for the periods indicated, excluding endorsement activity, along with associated weighted average rates and percent of total. Commercial loan renewals are not included in
the activity in the following table except to the extent new funds are disbursed at the time of renewal. Loan originations, purchases, and refinances are reported together.
One-
to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average rate, weighted average credit score, weighted average LTV ratio, and average balance per loan as of December 31, 2021. Credit scores are updated at least annually, with the latest update in September 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.
%
of
Credit
Average
Amount
Total
Rate
Score
LTV
Balance
(Dollars in thousands)
Originated
$
3,941,568
64.6
%
3.15
%
771
61
%
$
153
Correspondent
purchased
1,991,944
32.7
2.97
766
64
410
Bulk purchased
165,339
2.7
1.52
771
58
290
$
6,098,851
100.0
%
3.05
769
62
196
The
following table presents originated and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average rates, weighted average LTVs, and weighted average credit scores for the current year-to-date period.
Credit
Amount
Rate
LTV
Score
(Dollars
in thousands)
Originated
$
194,107
2.75
%
70
%
764
Correspondent purchased
130,553
2.65
72
775
$
324,660
2.71
71
769
The
following table summarizes our one- to four-family loan origination and refinance commitments and one- to four-family correspondent loan purchase commitments as of December 31, 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.
Amount
Rate
(Dollars
in thousands)
Originate/refinance
$
84,954
2.85
%
Correspondent
66,225
2.63
$
151,179
2.75
Commercial
Loans - During the current year period, the Bank originated $49.2 million of commercial loans and entered into commercial loan participations totaling $36.7 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $70.6 million at a weighted average rate of 3.89%.
33
The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of December 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
34
$
237,020
$
58,909
$
295,929
$
—
$
295,929
27.6
%
Retail
building
140
170,725
44,868
215,593
4,750
220,343
20.5
Hotel
11
136,717
51,755
188,472
6,300
194,772
18.2
Office
building
93
49,717
60,134
109,851
1,420
111,271
10.4
Multi-family
37
55,681
10,158
65,839
6,503
72,342
6.7
One-
to four-family property
397
61,599
7,693
69,292
1,716
71,008
6.6
Single use building
26
47,639
4,832
52,471
15,750
68,221
6.4
Other
101
34,122
3,765
37,887
230
38,117
3.6
839
$
793,220
$
242,114
$
1,035,334
$
36,669
$
1,072,003
100.0
%
Weighted
average rate
3.99
%
3.92
%
3.97
%
4.18
%
3.98
%
The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of December 31,
2021.
Unpaid
Undisbursed
Gross
Loan
Outstanding
% of
Count
Principal
Amount
Amount
Commitments
Total
Total
(Dollars
in thousands)
Kansas
639
$
335,579
$
50,753
$
386,332
$
9,996
$
396,328
37.0
%
Texas
12
138,982
130,790
269,772
3,350
273,122
25.5
Missouri
163
221,409
18,534
239,943
21,823
261,766
24.4
Colorado
6
17,438
18,114
35,552
—
35,552
3.3
Arkansas
3
15,414
18,262
33,676
—
33,676
3.1
Nebraska
6
33,366
4
33,370
—
33,370
3.1
Other
10
31,032
5,657
36,689
1,500
38,189
3.6
839
$
793,220
$
242,114
$
1,035,334
$
36,669
$
1,072,003
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 December 31, 2021.
Count
Amount
(Dollars in thousands)
Greater than $30 million
4
$
178,756
>$15
to $30 million
16
361,649
>$10 to $15 million
7
84,921
>$5 to $10 million
17
107,297
$1 to $5 million
113
255,218
Less
than $1 million
1,270
190,396
1,427
$
1,178,237
As of December 31, 2021 and September 30, 2021, there were commercial loans with an aggregate gross balance, including undisbursed amounts, of $143.5 million and $146.4 million, respectively, 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.
34
Asset Quality
Delinquent and nonaccrual loans and OREO.The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Of the loans 30 to 89 days delinquent at December 31, 2021, approximately 73% were 59 days or
less delinquent.
The following table presents the
Company's nonaccrual loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. Nonaccrual loans are loans that are 90 or more days delinquent or in foreclosure and other loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current. At all dates presented, there were no loans 90 or more days delinquent that were still accruing interest. Non-performing assets include nonaccrual loans and OREO. Of the one- to four-family COVID-19 loan modifications that had completed the deferral period by December 31, 2021, $5.7 million were 30 to 89 days delinquent and $2.3 million were 90 or more days delinquent as of December 31, 2021. In late March 2020, the Bank suspended the initiation
of foreclosure proceedings for owner-occupied one- to four-family loans. At December 31, 2021, there were $5.5 million of nonaccrual one- to four-family loans for which foreclosure proceedings either had been initiated prior to the foreclosure suspension or would have been initiated if the foreclosure suspension were not in place. The foreclosure suspension was lifted in January 2022 resulting in foreclosure proceedings continuing or starting on a portion of the $5.5 million of such loans.
Loans
90 or More Days Delinquent or in Foreclosure:
One- to four-family:
Originated
48
$
3,943
50
$
3,693
Correspondent
purchased
10
3,115
10
3,210
Bulk purchased
6
1,945
9
2,974
Commercial
6
1,170
6
1,214
Consumer
25
477
21
498
95
10,650
96
11,589
Loans
90 or more days delinquent or in foreclosure
as a percentage of total loans
0.15
%
0.16
%
Nonaccrual loans
less than 90 Days Delinquent:(1)
One- to four-family:
Originated
5
$
451
7
$
1,288
Correspondent
purchased
—
—
—
—
Bulk purchased
—
—
1
131
Commercial
3
62
4
419
Consumer
—
—
1
9
8
513
13
1,847
Total
nonaccrual loans
103
11,163
109
13,436
Nonaccrual loans as a percentage of total loans
0.16
%
0.19
%
OREO:
One-
to four-family:
Originated(2)
2
$
319
3
$
170
Total
non-performing assets
105
$
11,482
112
$
13,606
Non-performing assets as a percentage of total assets
0.12
%
0.14
%
(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.
36
The following table presents the states where the properties securing five percent or more of the total amount of our one- to four-family loans are located and the corresponding balance of loans 30 to 89 days delinquent, 90 or more days delinquent or in foreclosure, and weighted average
LTV ratios for loans 90 or more days delinquent or in foreclosure at December 31, 2021. 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. At December 31, 2021, potential losses, after taking into consideration anticipated private mortgage insurance proceeds and estimated selling costs, have been charged-off.
Loans
30 to 89
Loans 90 or More Days Delinquent
One- to Four-Family
Days Delinquent
or in Foreclosure
State
Amount
% of Total
Amount
% of Total
Amount
%
of Total
LTV
(Dollars in thousands)
Kansas
$
3,504,868
57.5
%
$
5,864
47.7
%
$
3,805
42.3
%
60
%
Missouri
1,027,282
16.8
2,644
21.5
689
7.7
42
Texas
594,542
9.8
1,489
12.1
2,150
23.8
48
Other
states
972,159
15.9
2,299
18.7
2,359
26.2
56
$
6,098,851
100.0
%
$
12,296
100.0
%
$
9,003
100.0
%
55
Classified
loans.The following table presents loans classified as special mention or substandard at the dates presented. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs, if any. The decrease in commercial special mention loans at December 31, 2021 compared to September 30, 2021 was due mainly to two commercial loans moving to the pass classification during the current quarter as the underlying economic considerations being monitored by management improved to levels deemed appropriate by the Company.
Allowance
for Credit Losses.The distribution of our ACL and the ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to the calculation of ACL as of December 31, 2021.
The
following table presents ACL activity and related ratios at the dates and for the periods indicated. The ratio of net charge-offs (recoveries) ("NCOs") during the current year period to average non-performing assets was a negative percentage compared to a positive percentage in the prior year period due to a net recovery in the current year period and a net charge-off in the prior year period. The ACL to nonaccrual loans at end of period ratio and ACL to loans receivable, net at end of period ratio were lower in the current year period compared to the prior year period due primarily to a lower ACL balance at December 31, 2021. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
Securities. The
following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 94% of our securities portfolio at December 31, 2021. Weighted average yields on tax-exempt securities are not calculated on a fully tax-equivalent basis.
(1)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.
The following table summarizes the activity in our securities portfolio 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 and ending balances are as of the first and last days of the periods presented and are generally derived from recent prepayment activity on the securities in the portfolio. The beginning and ending WALs are the estimated remaining principal repayment terms (in years) after three-month historical prepayment speeds have been applied.
Liabilities.
Total liabilities were $8.39 billion at both December 31, 2021 and September 30, 2021. During the current quarter, deposits increased $50.6 million, largely offset by a seasonal decrease in advance payments by borrowers for taxes and insurance.
Deposits. The following table presents the amount, weighted average rate and percent of total for the components of our deposit portfolio at the dates presented. The decrease in the deposit portfolio rate from September 30, 2021 to December 31, 2021 was due primarily to retail certificates of deposit repricing to lower offered rates as balances renewed, along with growth in lower costing non-maturity deposits and a decrease in the balance of retail
certificates of deposit.
Borrowings. 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 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 December 31, 2021.
Term
Borrowings Amount
Maturity by
FHLB
Interest rate
Total
Contractual
Effective
Fiscal Year
Advances
swaps(1)
Amount
Rate
Rate(2)
(Dollars
in thousands)
2022
$
75,000
$
—
$
75,000
0.29
%
0.29
%
2023
300,000
—
300,000
1.70
1.81
2024
150,000
165,000
315,000
1.32
2.46
2025
300,000
100,000
400,000
1.33
2.09
2026
250,000
—
250,000
0.96
1.27
2027
150,000
—
150,000
0.93
1.24
2028
—
100,000
100,000
0.56
3.44
$
1,225,000
$
365,000
$
1,590,000
1.20
1.90
(1)Represents
adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $365.0 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 3.8 years at December 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.
41
The following table presents 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. 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.
Maturities
of Interest-Bearing Liabilities. 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/commercial and public unit amounts, and term borrowings for the next four quarters as of December 31, 2021.
(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 following table sets forth
the WAM information for our certificates of deposit, in years, as of December 31, 2021.
Retail certificates of deposit
1.2
Commercial certificates of deposit
0.5
Public unit certificates of deposit
0.4
Total certificates of deposit
1.1
42
Stockholders'
Equity. During the current quarter, the Company paid cash dividends totaling $41.4 million. These cash dividends totaled $0.305 per share and consisted of a $0.22 per share cash true-up dividend related to fiscal year 2021 earnings and a regular quarterly cash dividend of $0.085 per share. On January 25, 2022, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022. In the long run, management considers the Bank's equity to total assets ratio of at least 9% an appropriate
level of capital. At December 31, 2021, this ratio was 11.5%.
At December 31, 2021, Capitol Federal Financial, Inc., at the holding company level, had $70.8 million in cash on deposit at the Bank. For fiscal year 2022, 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 FRB's existing approval for the Company to repurchase shares extends through August 2022.
The Company works to
find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and stock buybacks. The Company has maintained a policy of paying out 100% of its earnings to stockholders in the form of quarterly cash dividends and an annual cash true-up dividend in December of each year. In order to provide additional stockholder value, the Company paid a True Blue Capitol cash dividend of $0.25 per share in June for six consecutive years ending in 2019. Given the state of economic uncertainty, the Company elected to defer the True Blue dividend originally planned for June 2020. In June 2021, the
Company paid a True Blue Capitol cash dividend of $0.40 per share. This cash dividend represented a $0.20 per share cash dividend from fiscal year 2020 and a $0.20 per share cash dividend from fiscal year 2021. The Company has paid the True Blue Capitol dividend primarily due to excess capital levels at the Company and Bank. The Company considers various business strategies and their impact on capital and asset measures on both a current and future basis, as well as regulatory capital levels and requirements, in determining the amount, if any, and timing of the True Blue dividend.
The following table presents regular quarterly cash dividends
and special cash dividends paid in calendar years 2022, 2021, and 2020. The amounts represent cash dividends paid during each period. For the quarter ending March 31, 2022, the amount presented represents the dividend payable on February 18, 2022 to stockholders of record as of the close of business on February 4, 2022.
Calendar
Year
2022
2021
2020
Amount
Per Share
Amount
Per Share
Amount
Per Share
(Dollars in thousands, except
per share amounts)
Regular quarterly dividends paid
Quarter ended March 31
$
11,535
$
0.085
$
11,518
$
0.085
$
11,733
$
0.085
Quarter
ended June 30
—
—
11,516
0.085
11,733
0.085
Quarter ended September 30
—
—
11,518
0.085
11,733
0.085
Quarter
ended December 31
—
—
11,535
0.085
11,514
0.085
True-up dividends paid
—
—
29,850
0.220
17,614
0.130
True
Blue dividends paid
—
—
54,210
0.400
—
—
Calendar year-to-date dividends paid
$
11,535
$
0.085
$
130,147
$
0.960
$
64,327
$
0.470
43
Operating
Results
The following table presents selected income statement and other information for the quarters indicated.
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.
Ratio of interest-earning assets to interest-bearing liabilities
1.21x
1.20x
1.20x
Selected
performance ratios:
Return on average assets (annualized)
0.93
%
0.77
%
0.79
%
Return
on average equity (annualized)
7.18
5.95
5.90
Average equity to average assets
12.88
12.88
13.39
Operating
expense ratio(7)
1.11
1.17
1.13
Efficiency ratio(8)
52.22
55.55
55.37
45
(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 $4.0 million, $4.9 million, and $9.1 million for the three months ended December 31, 2021, September 30, 2021, and December 31, 2020, respectively.
(4)The FHLB advance amounts and rates included in this line item 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 margin represents annualized net interest income as a percentage of average interest-earning assets.
(7)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(8)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.
Rate/Volume Analysis
The table below presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities, comparing the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (1) changes in volume, which are changes in the average balance multiplied by the previous period's average rate, and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the quarter ended December 31, 2021, the Company recognized net income of $22.2 million, or $0.16 per share, compared to net income of $18.6 million, or $0.14 per share, for the quarter ended September 30, 2021. The increase in net income was due primarily to a higher negative provision for credit losses compared to the prior quarter and lower non-interest expense. The net interest margin increased two basis points, from 1.97% for the prior quarter to 1.99% for the current quarter, due mainly to a decrease in the cost of retail certificates
of deposit.
Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December
31,
September 30,
Change Expressed in:
2021
2021
Dollars
Percent
(Dollars in thousands)
INTEREST AND DIVIDEND INCOME:
Loans
receivable
$
55,788
$
57,139
$
(1,351)
(2.4)
%
MBS
4,625
4,900
(275)
(5.6)
FHLB
stock
1,231
952
279
29.3
Investment securities
808
750
58
7.7
Cash
and cash equivalents
14
27
(13)
(48.1)
Total interest and dividend income
$
62,466
$
63,768
$
(1,302)
(2.0)
The
decrease in interest income on loans receivable was primarily in the one-to four-family portfolio due to a reduction in the weighted average rate of the portfolio due to originations, purchases, refinances and endorsements to lower market rates and payoffs of higher rate loans, along with a reduction in commercial loan deferred fee amortization related to the PPP. The decrease in interest income on MBS was due primarily to a decrease in the average balance of the portfolio. The increase in dividend income on FHLB stock was due mainly to a special year-end dividend of 1.00% paid by FHLB during the current quarter.
Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For
the Three Months Ended
December 31,
September 30,
Change Expressed in:
2021
2021
Dollars
Percent
(Dollars in thousands)
INTEREST
EXPENSE:
Deposits
$
9,267
$
10,335
$
(1,068)
(10.3)
%
Borrowings
7,585
7,889
(304)
(3.9)
Total
interest expense
$
16,852
$
18,224
$
(1,372)
(7.5)
The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate and the average balance of the retail certificate of deposit portfolio. See "Financial Condition" above for additional information on deposits. The decrease in interest expense on borrowings was due to the full impact during the current quarter of certain FHLB advances being replaced
at lower rates during the prior quarter.
Provision for Credit Losses
For the quarter ended December 31, 2021, the Bank recorded a negative provision for credit losses of $3.4 million, compared to a negative provision for credit losses of $1.3 million for the prior quarter. The negative provision in the current quarter was comprised of a $2.3 million decrease in the ACL for loans due primarily to a reduction in the balance of special mention commercial loans and a $1.1 million decrease in reserves for off-balance sheet credit exposures due mainly to continued improving economic conditions.
47
Non-Interest Income
The
following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December
31,
September 30,
Change Expressed in:
2021
2021
Dollars
Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit
service fees
$
3,430
$
3,294
$
136
4.1
%
Insurance commissions
711
781
(70)
(9.0)
Other
non-interest income
1,365
1,228
137
11.2
Total non-interest income
$
5,506
$
5,303
$
203
3.8
Non-Interest
Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December
31,
September 30,
Change Expressed in:
2021
2021
Dollars
Percent
(Dollars in thousands)
NON-INTEREST EXPENSE:
Salaries
and employee benefits
$
13,728
$
14,600
$
(872)
(6.0)
%
Information technology and related expense
4,432
4,354
78
1.8
Occupancy,
net
3,379
3,639
(260)
(7.1)
Regulatory and outside services
1,368
1,476
(108)
(7.3)
Advertising
and promotional
1,064
1,404
(340)
(24.2)
Deposit and loan transaction costs
697
638
59
9.2
Federal
insurance premium
639
657
(18)
(2.7)
Office supplies and related expense
468
426
42
9.9
Other
non-interest expense
919
1,053
(134)
(12.7)
Total non-interest expense
$
26,694
$
28,247
$
(1,553)
(5.5)
The
decrease in salaries and employee benefits was primarily related to incentive compensation, as fiscal year 2021 incentives were finalized during the prior quarter. The decrease in occupancy, net was due mainly to decreases in utilities, which was mainly weather related, and building maintenance expenses due to the timing of certain repairs and maintenance. The decrease in advertising and promotional expense was due primarily to the timing of campaigns.
The Company's efficiency ratio was 52.22% for the current quarter compared to 55.55% for the prior quarter. The improvement in the efficiency ratio was due primarily to lower non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses)
and non-interest income. A lower value indicates that the financial institution is generating revenue with a lower level of expense, relative to the net interest margin and non-interest income.
48
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
December 31,
September 30,
Change Expressed in:
2021
2021
Dollars
Percent
(Dollars in thousands)
Income
before income tax expense
$
27,865
$
23,923
$
3,942
16.5
%
Income tax expense
5,679
5,370
309
5.8
Net
income
$
22,186
$
18,553
$
3,633
19.6
Effective Tax Rate
20.4
%
22.4
%
The
increase in income tax expense was due primarily to higher pretax income, partially offset by a lower effective tax rate in the current quarter. The effective tax rate was higher in the prior quarter due mainly to year-end adjustments of permanent tax differences, specifically the Company's low income housing partnership amounts. Management anticipates the effective income tax rate for fiscal year 2022 will be approximately 21%.
Comparison of Operating Results for the Three Months Ended December 31, 2021 and 2020
The
Company recognized net income of $22.2 million, or $0.16 per share, for the current quarter compared to net income of $18.9 million, or $0.14 per share, for the prior year quarter. The increase in net income was due primarily to a higher negative provision for credit losses in the current quarter and an increase in net interest income. The net interest margin increased seven basis points, from 1.92% for the prior year quarter to 1.99% for the current quarter. The increase in net interest income and net interest margin was due mainly to a reduction in the average cost and balance of certificates of deposit and borrowings, which together outpaced the decrease in asset yields.
Interest and Dividend Income
The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
For
the Three Months Ended
December 31,
Change Expressed in:
2021
2020
Dollars
Percent
(Dollars in thousands)
INTEREST
AND DIVIDEND INCOME:
Loans receivable
$
55,788
$
60,694
$
(4,906)
(8.1)
%
MBS
4,625
5,710
(1,085)
(19.0)
FHLB
stock
1,231
1,069
162
15.2
Investment securities
808
683
125
18.3
Cash
and cash equivalents
14
51
(37)
(72.5)
Total interest and dividend income
$
62,466
$
68,207
$
(5,741)
(8.4)
The
decrease in interest income on loans receivable was due mainly to a decrease in the weighted average rate, primarily in the one- to four-family originated loan portfolio. The premium amortization related to the one- to four-family correspondent loan portfolio decreased significantly compared to the prior year quarter due to the slow-down in prepayments and endorsements; however, the decrease in the weighted average loan portfolio rate more than offset the reduction in premium amortization. The decrease in the weighted average rate for the one- to four-family originated and correspondent loan portfolios was due to endorsements and refinances to lower market rates and the origination and purchase of new loans at lower market rates.
The decrease in interest income on the MBS portfolio was due to a decrease in the weighted average yield as a result of higher premium amortization related to prepayment activity,
along with purchases at lower market yields, partially offset by an increase in the average balance of the portfolio.
49
Interest Expense
The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
For
the Three Months Ended
December 31,
Change Expressed in:
2021
2020
Dollars
Percent
(Dollars in thousands)
INTEREST
EXPENSE:
Deposits
$
9,267
$
14,067
$
(4,800)
(34.1)
%
Borrowings
7,585
10,327
(2,742)
(26.6)
Total
interest expense
$
16,852
$
24,394
$
(7,542)
(30.9)
The decrease in interest expense on deposits was due mainly to a decrease in the weighted average rate paid on retail certificates of deposit, money market accounts, and wholesale certificates of deposit. Retail certificates of deposit continue to reprice downward as they renew or are replaced at lower offered rates, and rates on money market accounts were also lowered
between periods.
The decrease in interest expense on borrowings was due primarily to lowering the cost of FHLB advances by terminating or not renewing certain interest rate swap agreements, not replacing certain maturing FHLB advances, and prepaying certain advances during fiscal year 2021. Cash flows from the deposit portfolio were used to pay down certain FHLB advances.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $3.4 million, compared to a negative provision for credit losses of $1.5 million during the prior year quarter. See additional information regarding the current quarter negative provision for credit losses in the "Comparison of Operating Results for the Three Months Ended December 31, 2021 and September
30, 2021" section above.
Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
For the Three Months Ended
December
31,
Change Expressed in:
2021
2020
Dollars
Percent
(Dollars in thousands)
NON-INTEREST INCOME:
Deposit
service fees
$
3,430
$
2,947
$
483
16.4
%
Insurance commissions
711
638
73
11.4
Other
non-interest income
1,365
1,485
(120)
(8.1)
Total non-interest income
$
5,506
$
5,070
$
436
8.6
The
increase in deposit service fees was due primarily to an increase in debit card income as a result of higher transaction volume, along with an increase in the amount per transaction. The decrease in other non-interest income was primarily related to lower income from BOLI, due to receiving death benefits during the prior year quarter, compared to none during the current quarter
50
Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
For
the Three Months Ended
December 31,
Change Expressed in:
2021
2020
Dollars
Percent
(Dollars in thousands)
NON-INTEREST
EXPENSE:
Salaries and employee benefits
$
13,728
$
14,138
$
(410)
(2.9)
%
Information technology and related expense
4,432
4,233
199
4.7
Occupancy,
net
3,379
3,379
—
—
Regulatory and outside services
1,368
1,585
(217)
(13.7)
Advertising
and promotional
1,064
838
226
27.0
Deposit and loan transaction costs
697
766
(69)
(9.0)
Federal
insurance premium
639
621
18
2.9
Office supplies and related expense
468
424
44
10.4
Other
non-interest expense
919
1,083
(164)
(15.1)
Total non-interest expense
$
26,694
$
27,067
$
(373)
(1.4)
The
decrease in salaries and employee benefits was due primarily to a decrease in loan commissions related to lower loan origination activity in the current quarter. The increase in advertising and promotional expense was due mainly to adjustments to advertising schedules during the prior year related to the COVID-19 pandemic.
The Company's efficiency ratio was 52.22% for the current year period compared to 55.37% for the prior year period. The improvement in the efficiency ratio was due primarily to higher net interest income, as well as lower non-interest expense and higher non-interest income.
Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along
with the change measured in dollars and percent.
For the Three Months Ended
December 31,
Change
Expressed in:
2021
2020
Dollars
Percent
(Dollars in thousands)
Income before income tax expense
$
27,865
$
23,348
$
4,517
19.3
%
Income
tax expense
5,679
4,450
1,229
27.6
Net income
$
22,186
$
18,898
$
3,288
17.4
Effective
Tax Rate
20.4
%
19.1
%
The increase in income tax expense was due primarily to higher pretax income in the current year, as well as a higher effective tax rate compared to the prior year. The higher effective tax rate in the current quarter compared to the prior year quarter was due primarily to a lower amount of favorable provision-to-return adjustments compared to the prior year quarter.
51
Liquidity
and Capital Resources
Liquidity refers to our ability to generate sufficient cash to fund ongoing operations, to repay maturing certificates of deposit and other deposit withdrawals, to repay maturing borrowings, and to fund loan commitments. Liquidity management is both a daily and long-term function of our business management. The Company's most available liquid assets are represented by cash and cash equivalents, AFS securities, and short-term investment securities. The Bank's primary sources of funds are deposits, FHLB borrowings, repayments and maturities of outstanding loans and MBS and other short-term investments, and funds provided by operations. The Bank's long-term borrowings primarily have been used to manage the Bank's interest rate risk with the intention to improve the earnings of the Bank while
maintaining capital ratios in excess of regulatory standards for well-capitalized financial institutions. In addition, the Bank's focus on managing risk has provided additional liquidity capacity by maintaining a balance of MBS and investment securities available as collateral for borrowings.
We generally intend to manage cash reserves sufficient to meet short-term liquidity needs, which are routinely forecasted for 10, 30, and 365 days. Additionally, on a monthly basis, we perform a liquidity stress test in accordance with the Interagency Policy Statement on Funding and Liquidity Risk Management. The liquidity stress test incorporates both short-term and long-term liquidity scenarios in order to identify and to quantify liquidity risk. Management also monitors key liquidity statistics related to items such as wholesale funding gaps, borrowings capacity, and available unpledged collateral, as well as various
liquidity ratios.
In the event short-term liquidity needs exceed available cash, the Bank has access to a line of credit at FHLB and the FRB of Kansas City's discount window. See "Part I, Item 1. Business - Sources of Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for information regarding limits on the Bank's FHLB borrowings. The amount that can be borrowed from the FRB of Kansas City's discount window is based upon the fair value of securities pledged as collateral and certain other characteristics
of those securities. Management tests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing.
If management observes unusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, the Bank will likely utilize long-term wholesale borrowing sources such as FHLB advances and/or repurchase agreements to provide long-term, fixed-rate funding. The maturities of these long-term borrowings are generally staggered in order to mitigate the risk of a highly negative cash flow position at maturity. The Bank's internal policy limits total borrowings to 55% of total assets. At December 31, 2021, the Bank had total borrowings, at par, of $1.59 billion, or approximately 16% of total assets, all of which were FHLB advances. Of this amount, $75.0 million were advances scheduled
to mature in the next 12 months. All FHLB borrowings are secured bycertain qualifying loans pursuant to a blanket collateral agreement with FHLB.
At December 31, 2021, the Bank had no repurchase agreements. The Bank may enter into repurchase agreements as management deems appropriate, not to exceed 15% of total assets, and subject to the total borrowings internal policy limit of 55% as discussed above.
The Bank could utilize the repayment and maturity of outstanding loans, MBS, and other investments for liquidity needs rather than reinvesting such funds into the related portfolios. At December 31, 2021, the Bank had $1.61 billion of securities that were eligible but unused as collateral for borrowing
or other liquidity needs.
The Bank has access to other sources of funds for liquidity purposes, such as brokered and public unit certificates of deposit. As of December 31, 2021, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At December 31, 2021, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 3% of total deposits. The Bank had pledged securities with an estimated fair value of $234.9 million as collateral for public unit certificates of deposit at December 31, 2021. The securities pledged as collateral for public unit certificates of deposit are held under joint custody with FHLB and generally will be released upon
deposit maturity.
At December 31, 2021, $1.63 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $183.6 million of public unit certificates of deposit and $125.8 million of commercial certificates of deposit. Based on our deposit retention experience and our current pricing strategy, we anticipate the majority of the maturing retail certificates of deposit will renew or transfer to other deposit products of the Bank at prevailing rates, although no assurance can be given in this regard. Due to the nature of commercial certificates of deposit, retention rates are not as predictable as for retail certificates of deposit. We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products, depending on availability and pricing.
While
scheduled payments from the amortization of loans and MBS and payments on short-term investments are relatively predictable sources of funds, deposit flows, prepayments on loans and MBS, and calls of investment securities are greatly influenced by general interest rates, economic conditions, and competition, and are less predictable sources of funds. To the extent possible, the Bank manages the cash flows of its loan and deposit portfolios by the rates it offers customers. We anticipate we will continue to have
52
sufficient funds, through the repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.
Limitations on Dividends and Other Capital Distributions
Office
of the Comptroller of the Currency ("OCC") regulations impose restrictions on savings institutions with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. Under FRB and OCC safe harbor regulations, savings institutions generally may make capital distributions during any calendar year equal to earnings of the previous two calendar years and current year-to-date earnings (to the extent not previously distributed). A savings institution that is a subsidiary of a savings and loan holding company, such as the Company, that proposes to make a capital distribution must submit written notice to the OCC and FRB 30 days prior to such distribution. The OCC and FRB may object to the distribution during that 30-day period based on safety and soundness
or other concerns. Savings institutions that desire to make a larger capital distribution, are under special restrictions, or are not, or would not be, sufficiently capitalized following a proposed capital distribution must obtain regulatory non-objection prior to making such a distribution.
The long-term ability of the Company to pay dividends to its stockholders is based primarily upon the ability of the Bank to make capital distributions to the Company. So long as the Bank remains well capitalized after each capital distribution (as evidenced by maintaining a Community Bank Leverage Ratio ("CBLR") greater than the required percentage), and operates in a safe and sound manner, it is management's belief that the OCC and FRB
will continue to allow the Bank to distribute its earnings to the Company, although no assurance can be given in this regard.
Capital
Consistent with our goal to operate a sound and profitable financial organization, we actively seek to maintain a well-capitalized status for the Bank per the regulatory framework for prompt corrective action ("PCA"). Qualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain the required minimum leverage ratio will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the capital
requirements for the well capitalized category under the agencies' PCA framework. As of December 31, 2021, the Bank's CBLR was 11.6% and the Company's CBLR was 12.8%, which exceeded the minimum requirements.
53
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Asset and Liability Management and Market Risk
For a complete discussion of the Bank's asset and liability management policies, as well as the potential
impact of interest rate changes upon the market value of the Bank's portfolios, see "Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk" in the Company's Annual Report on Form 10-K for the year ended September 30, 2021. The analysis presented in the tables below reflects the level of market risk at the Bank, including the cash the holding company has on deposit at the Bank.
The rates of interest the Bank earns on its assets and pays on its liabilities are generally established contractually for a period of time. Fluctuations
in interest rates have a significant impact not only upon our net income, but also upon the cash flows and market values of our assets and liabilities. Our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our interest-earning assets and interest-bearing liabilities. Risk associated with changes in interest rates on the earnings of the Bank and the market value of its financial assets and liabilities is known as interest rate risk. Interest rate risk is our most significant market risk, and our ability to adapt to changes in interest rates is known as interest rate risk management.
On a weekly basis, management reviews deposit flows, loan demand, cash levels, and changes in several market rates to assess all pricing strategies. The Bank's pricing strategy for first mortgage loan products includes setting interest
rates based on secondary market prices and competitor pricing for our local and correspondent lending markets. Pricing for commercial loans is generally based on competitor pricing and the credit risk of the borrower with consideration given to the overall relationship of the borrower. Generally, deposit pricing is based upon a survey of competitors in the Bank's market areas, and the need to attract funding and retain maturing deposits. The majority of our loans are fixed-rate products with maturities up to 30 years, while the majority of our retail deposits have stated maturities or repricing dates of less than two years.
The general objective of our interest rate risk management program is to determine and manage an appropriate level of interest rate risk while maximizing net interest income in a manner consistent with our policy to manage, to the extent practicable, the exposure of net interest income
to changes in market interest rates. The Board of Directors and Asset and Liability Management Committee ("ALCO") regularly review the Bank's interest rate risk exposure by forecasting the impact of hypothetical, alternative interest rate environments on net interest income and the market value of portfolio equity ("MVPE") at various dates. The MVPE is defined as the net of the present value of cash flows from existing assets, liabilities, and off-balance sheet instruments. The present values are determined based upon market conditions as of the date of the analysis, as well as in alternative interest rate environments providing potential changes in the MVPE under those alternative interest rate environments. Net interest income is projected in the same alternative interest rate environments with both a static balance sheet and management strategies considered. The MVPE and net interest income analyses are also conducted to estimate our sensitivity
to rates for future time horizons based upon market conditions as of the date of the analysis. In addition to the interest rate environments presented below, management also reviews the impact of non-parallel rate shock scenarios on a quarterly basis. These scenarios consist of flattening and steepening the yield curve by changing short-term and long-term interest rates independent of each other, and simulating cash flows and determining valuations as a result of these hypothetical changes in interest rates to identify rate environments that pose the greatest risk to the Bank. This analysis helps management quantify the Bank's exposure to changes in the shape of the yield curve.
Qualitative Disclosure about Market Risk
Gap Table. The following gap table summarizes the anticipated maturities or repricing periods of the
Bank's interest-earning assets and interest-bearing liabilities based on the information and assumptions set forth in the notes below. Cash flow projections for mortgage-related assets are calculated based in part on prepayment assumptions at current and projected interest rates. Prepayment projections are subjective in nature, involve uncertainties and assumptions and, therefore, cannot be determined with a high degree of accuracy. Although certain assets and liabilities may have similar maturities or periods to repricing, they may react differently to changes in market interest rates. Assumptions may not reflect how actual yields and costs respond to market interest rate changes. The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates. Certain assets, such as adjustable-rate loans, have
features that restrict changes in interest rates on a short-term basis and over the life of the asset. In the event of a change in interest rates, prepayment and early withdrawal levels would likely deviate significantly from those assumed in calculating the gap table below. A positive gap indicates more cash flows from assets are expected to reprice than cash flows from liabilities and would indicate, in a rising rate environment, that earnings should increase. A negative gap indicates more cash flows from liabilities are expected to reprice than cash flows from assets and would indicate, in a rising rate environment, that earnings should decrease. For
54
additional information regarding the impact of changes in interest rates, see the following Change in Net Interest Income and
Change in MVPE discussions and tables.
More Than
More Than
Within
One
Year to
Three Years
Over
One Year
Three Years
to Five Years
Five Years
Total
Interest-earning assets:
(Dollars
in thousands)
Loans receivable(1)
$
1,659,016
$
1,723,382
$
1,145,304
$
2,574,726
$
7,102,428
Securities(2)
397,682
501,673
603,831
395,841
1,899,027
Other
interest-earning assets
105,129
—
—
—
105,129
Total interest-earning assets
2,161,827
2,225,055
1,749,135
2,970,567
9,106,584
Interest-bearing
liabilities:
Non-maturity deposits(3)
1,382,421
439,232
381,353
1,926,824
4,129,830
Certificates
of deposit
1,630,954
770,386
186,967
623
2,588,930
Borrowings(4)
76,446
718,036
553,236
279,495
1,627,213
Total
interest-bearing liabilities
3,089,821
1,927,654
1,121,556
2,206,942
8,345,973
Excess (deficiency)
of interest-earning assets over
interest-bearing liabilities
$
(927,994)
$
297,401
$
627,579
$
763,625
$
760,611
Cumulative
excess of interest-earning assets over
interest-bearing liabilities
$
(927,994)
$
(630,593)
$
(3,014)
$
760,611
Cumulative
excess of interest-earning assets over interest-bearing
(1)Adjustable-rate loans are included in the period in which the rate is next scheduled to adjust or in the period in which repayments are expected to occur, or prepayments are expected to be received, prior to their next rate adjustment, rather than in the period in which the loans are due. Fixed-rate loans are included in the periods in which they are scheduled to be repaid, based on scheduled amortization and prepayment assumptions. Balances are net of undisbursed amounts and deferred fees and exclude loans 90 or more days
delinquent or in foreclosure.
(2)MBS reflect projected prepayments at amortized cost. Investment securities are presented based on contractual maturities, term to call dates or pre-refunding dates as of December 31, 2021, at amortized cost.
(3)Although the Bank's checking, savings, and money market accounts are subject to immediate withdrawal, management considers a substantial amount of these accounts to be core deposits having significantly longer effective maturities. The decay rates (the assumed rates at which the balances of existing accounts decline) used on these accounts is based on assumptions developed from our actual experiences with these accounts. If all of the Bank's checking, savings, and money market accounts had been assumed to be subject to repricing within one
year, interest-bearing liabilities which were estimated to mature or reprice within one year would have exceeded interest-earning assets with comparable characteristics by $3.68 billion, for a cumulative one-year gap of (38.3)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $365.0 million of FHLB adjustable-rate advances tied to interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.
At December 31, 2021, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $(928.0) million, or (9.7)% of total assets, compared to $(664.1) million, or (6.9)% of total assets, at September
30, 2021. The change in the one-year gap amount was due primarily to an increase in the amount of non-maturity deposits projected to reprice at December 31, 2021 compared to September 30, 2021. In addition, the amount of assets projected to reprice decreased due to higher interest rates at December 31, 2021 compared to September 30, 2021 which resulted in slower prepay projections on the Bank's mortgage-related assets.
The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract
holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically significantly impacted by changes in interest rates, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty. If interest rates were to increase 200 basis points, as of December 31, 2021, the Bank's one-year gap is projected to be $(1.44) billion, or (15.0)% of total assets. The change in the gap compared to when there is no change in rates is
55
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 $(1.29)
billion, or (13.4)% of total assets, if interest rates were to have increased 200 basis points as of September 30, 2021.
Change in Net Interest Income. For each date presented in the following table, the estimated change in the Bank's net interest income is based on the indicated instantaneous, parallel and permanent change in interest rates. The change in each interest rate environment represents the difference between estimated net interest income in the 0 basis point interest rate environment ("base case," assumes the forward market and product interest rates implied by the yield curve are realized) and the estimated net interest income in each alternative interest rate environment (assumes market and product interest rates have a parallel shift in rates across all maturities by the indicated change in rates). Projected cash
flows for each scenario are based upon varying prepayment assumptions to model likely customer behavior changes as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable. Estimations of net interest income used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change materially and that any repricing of assets or liabilities occurs at anticipated product and market rates for the alternative rate environments as of the dates presented. The estimation of net interest income does not include any projected gains or losses related to the sale of loans or securities, or income derived from non-interest income sources, but does include the use of different prepayment assumptions in the alternative interest rate environments. It is important to consider that
estimated changes in net interest income are for a cumulative four-quarter period. These do not reflect the earnings expectations of management.
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
The net interest income projection was higher
in the base case scenario at December 31, 2021 compared to September 30, 2021 due to an increase in the income projections on loans receivable and FHLB stock. The interest income projection on loans receivable was higher due to a higher balance and interest rates at December 31, 2021 compared to September 30, 2021. The increase in the dividend income projection on FHLB stock was due to an increase in the regular quarterly dividend yield on FHLB stock during the quarter ended December 31, 2021.
Despite a negative gap, net interest income increases in all rising interest rate scenarios due to the assumption that the Bank's deposit balances are not expected to
reprice to the full extent of the interest rate change. This assumption is based on a historical analysis of the Bank's deposit pricing behavior.
56
Change in MVPE. The following table sets forth the estimated change in the MVPE for each date presented based on the indicated instantaneous, parallel, and permanent change in interest rates. The change in each interest rate environment represents the difference between the MVPE in the base case (assumes the forward market interest rates implied by the yield curve are realized) and the MVPE in each alternative interest rate environment (assumes market interest rates have a parallel shift in rates). Projected cash flows for each scenario are based upon varying prepayment assumptions
to model likely customer behavior as market rates change. For the current quarter, multiple yields along the yield curve were less than one percent, so the -100 basis points scenario was not applicable. The estimations of the MVPE used in preparing the table below were based upon the assumptions that the total composition of interest-earning assets and interest-bearing liabilities does not change, that any repricing of assets or liabilities occurs at current product or market rates for the alternative rate environments as of the dates presented, and that different prepayment rates were used in each alternative interest rate environment. The estimated MVPE results from the valuation of cash flows from financial assets and liabilities over the anticipated lives of each for each interest rate environment. The table below presents the effects of the changes in interest rates on our assets and liabilities as they mature, repay, or reprice, as shown by the change in the
MVPE for alternative interest rates.
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
The percentage change in the Bank's
MVPE at December 31, 2021 and September 30, 2021 was negative in all scenarios. The negative impact to the Bank's MVPE is greater at December 31, 2021 compared to September 30, 2021 due primarily to an increase in the duration of the Bank's mortgage-related assets at December 31, 2021 compared to September 30, 2021. This was due in part to higher interest rates at December 31, 2021. As interest rates increase, borrowers have less economic incentive to refinance 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. As interest rates increase in the rising rate scenarios, repayments on mortgage-related assets are more likely to decrease and only be realized through significant changes in borrowers' lives such as divorce, death, job-related relocations, or other events as there is less economic incentive for borrowers to prepay their debt, resulting in an increase in the average life of mortgage-related assets. Similarly, call projections for the Bank's callable agency debentures decrease as interest rates rise, which results in cash flows related to these assets moving closer to the contractual maturity dates. The higher expected average lives of these assets, relative to the assumptions in the base case interest rate environment, increases the sensitivity of their market value to changes in interest rates. In addition, as mortgage loans are refinanced or endorsed to lower interest rates, their average lives also increase
as further prepayments are expected to be diminished.
57
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 December 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.
Amount
Yield/Rate
WAL
%
of Category
% of Total
(Dollars in thousands)
Securities
$
1,890,653
1.15
%
4.0
—
%
20.5
%
Loans
receivable:
Fixed-rate one- to four-family
5,563,567
3.11
5.6
78.3
%
60.4
Fixed-rate
commercial
454,400
4.15
3.6
6.4
4.9
All other fixed-rate loans
59,954
3.52
6.7
0.9
0.7
Total
fixed-rate loans
6,077,921
3.19
5.5
85.6
66.0
Adjustable-rate one- to four-family
535,284
2.39
4.1
7.5
5.8
Adjustable-rate
commercial
415,074
4.07
7.2
5.8
4.5
All other adjustable-rate loans
79,779
4.23
2.5
1.1
0.9
Total
adjustable-rate loans
1,030,137
3.21
5.2
14.4
11.2
Total loans receivable
7,108,058
3.19
5.4
100.0
%
77.2
FHLB
stock(1)
75,261
6.56
3.1
0.8
Cash and cash equivalents
135,475
0.12
—
1.5
Total
interest-earning assets
$
9,209,447
2.75
5.0
100.0
%
Non-maturity deposits
$
3,459,105
0.13
5.6
57.2
%
45.3
%
Retail
certificates of deposit
2,254,560
1.31
1.2
37.3
29.5
Commercial certificates of deposit
137,419
0.64
0.5
2.3
1.8
Public
unit certificates of deposit
196,951
0.17
0.4
3.2
2.6
Total interest-bearing deposits
6,048,035
0.58
3.7
100.0
%
79.2
Term
borrowings
1,590,000
1.90
3.1
20.8
Total
interest-bearing liabilities
$
7,638,035
0.86
3.5
100.0
%
(1)The FHLB stock yield as of December 31, 2021 includes a special year-end dividend paid by FHLB. Excluding this special year-end dividend, the FHLB stock yield as of December 31.2021 would have been 5.59%.
Item
4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Act") as of December 31, 2021. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2021, such disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in
the reports it files or submits under the Act is accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) to allow timely decisions regarding required disclosure, and is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Act) that occurred during the Company's quarter ended December 31,
2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
58
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and the Bank are involved as
plaintiff or defendant in various legal actions arising in the normal course of business. In our opinion, after consultation with legal counsel, we believe it unlikely that such pending legal actions will have a material adverse effect on our financial condition, results of operations or liquidity.
Item 1A. Risk Factors
There have been no changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
See "Liquidity and Capital Resources - Capital" in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding OCC restrictions on dividends from the Bank to the Company.
The following table summarizes our stock repurchase activity during the three months ended December 31, 2021 and additional information regarding our stock repurchase program. The Company has $44.7 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan; however, the Federal Reserve Bank's existing
approval for the Company to repurchase shares is through August 2022. Shares may be repurchased from time to time in the open-market or in privately negotiated transactions based upon market conditions and available liquidity.
Charter of Capitol Federal Financial, Inc., as filed on May 6, 2010, as Exhibit 3(i) to Capitol Federal Financial, Inc.'s Registration Statement on Form S-1 (File No. 333-166578)
and incorporated herein by reference
Capitol Federal Financial's 2000 Stock Option and Incentive Plan (the "Stock Option Plan") filed on April 13, 2000 as Appendix A to Capitol Federal Financial's Revised Proxy Statement (File No. 000-25391) and incorporated herein by reference
Capitol Federal Financial, Inc. 2012 Equity Incentive Plan (the "Equity Incentive Plan") filed on December 22, 2011 as Appendix A to Capitol Federal Financial, Inc.'s Proxy Statement (File No. 001-34814) and incorporated herein by reference
Certification
pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer, and Kent G. Townsend, Executive Vice President, Chief Financial Officer and Treasurer
60
101
The
following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2021, filed with the Securities and Exchange Commission on February 9, 2022, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at December 31, 2021 and September 30, 2021, (ii) Consolidated Statements of Income for the three months ended December 31, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three months ended December 31, 2021
and 2020, (iv) Consolidated Statements of Stockholders' Equity for the three months ended December 31, 2021 and 2020, (v) Consolidated Statements of Cash Flows for the three months ended December 31, 2021 and 2020, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104
Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101
61
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
