UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
Form 10-Q
________________________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MarchDecember 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission file number: 001-34814
Capitol Federal Financial, Inc.
(Exact name of registrant as specified in its charter)
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Maryland | 27-2631712 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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700 South Kansas Avenue, | Topeka, | Kansas | 66603 |
(Address of principal executive offices) | (Zip Code) |
(785) (785) 235-1341
(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:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | CFFN | The 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 requirements for the past 90 days. Yes ☒ 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). Yes ☒ 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.
Large accelerated filer ☒Accelerated filer ☐Non-accelerated filer ☐
Smaller reporting company ☐Emerging growth company ☐
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 ☐ No ☒
As of May 1, 2020,February 2, 2021, there were 141,511,716138,808,396 shares of Capitol Federal Financial, Inc. common stock outstanding.
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PART I - FINANCIAL INFORMATION | Page Number |
Item 1. | | |
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Item 2. | | |
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Item 3. | | |
Item 4. | | |
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PART II - OTHER INFORMATION | |
Item 1. | | |
Item 1A. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
Item 5. | | |
Item 6. | | |
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS (Unaudited) |
(Dollars in thousands, except per share amounts) |
| | | |
| December 31, | | September 30, |
| 2020 | | 2020 |
ASSETS: | | | |
Cash and cash equivalents (includes interest-earning deposits of $139,031 and $172,430) | $ | 168,032 | | | $ | 185,148 | |
| | | |
Available-for-sale ("AFS") securities, at estimated fair value (amortized cost of $1,880,972 and $1,529,605) | 1,913,866 | | | 1,560,950 | |
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Loans receivable, net (allowance for credit losses ("ACL") of $26,125 and $31,527) | 7,004,094 | | | 7,202,851 | |
Federal Home Loan Bank Topeka ("FHLB") stock, at cost | 84,693 | | | 93,862 | |
Premises and equipment, net | 101,238 | | | 101,875 | |
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Other assets | 335,041 | | | 342,532 | |
TOTAL ASSETS | $ | 9,606,964 | | | $ | 9,487,218 | |
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LIABILITIES: | | | |
Deposits | $ | 6,410,842 | | | $ | 6,191,408 | |
Borrowings | 1,734,275 | | | 1,789,313 | |
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Advance payments by borrowers for taxes and insurance | 33,216 | | | 65,721 | |
Income taxes payable, net | 3,180 | | | 795 | |
Deferred income tax liabilities, net | 9,318 | | | 8,180 | |
Accounts payable and accrued expenses | 139,585 | | | 146,942 | |
Total liabilities | 8,330,416 | | | 8,202,359 | |
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STOCKHOLDERS' EQUITY: | | | |
Preferred stock, $.01 par value; 100,000,000 shares authorized, 0 shares issued or outstanding | 0 | | | 0 | |
Common stock, $.01 par value; 1,400,000,000 shares authorized, 138,792,496 and 138,956,296 shares issued and outstanding as of December 31, 2020 and September 30, 2020, respectively | 1,388 | | | 1,389 | |
Additional paid-in capital | 1,188,636 | | | 1,189,853 | |
Unearned compensation, Employee Stock Ownership Plan ("ESOP") | (32,627) | | | (33,040) | |
Retained earnings | 130,522 | | | 143,162 | |
Accumulated other comprehensive (loss) income ("AOCI"), net of tax | (11,371) | | | (16,505) | |
Total stockholders' equity | 1,276,548 | | | 1,284,859 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,606,964 | | | $ | 9,487,218 | |
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See accompanying notes to consolidated financial statements. | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED BALANCE SHEETS (Unaudited) |
(Dollars in thousands, except per share amounts) |
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| March 31, | | September 30, |
| 2020 | | 2019 |
ASSETS: | | | |
Cash and cash equivalents (includes interest-earning deposits of $5,512 and $198,809) | $ | 118,374 |
| | $ | 220,370 |
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Available-for-sale ("AFS") securities, at estimated fair value | 1,236,037 |
| | 1,204,863 |
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Loans receivable, net (allowance for credit losses ("ACL") of $31,196 and $9,226) | 7,476,805 |
| | 7,416,747 |
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Federal Home Loan Bank Topeka ("FHLB") stock, at cost | 101,575 |
| | 98,456 |
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Premises and equipment, net | 98,589 |
| | 96,784 |
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Income taxes receivable, net | 4,255 |
| | 2 |
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Other assets | 335,558 |
| | 302,796 |
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TOTAL ASSETS | $ | 9,371,193 |
| | $ | 9,340,018 |
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LIABILITIES: | | | |
Deposits | $ | 5,774,619 |
| | $ | 5,581,867 |
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Borrowings | 2,115,869 |
| | 2,239,989 |
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Advance payments by borrowers for taxes and insurance | 55,306 |
| | 65,686 |
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Deferred income tax liabilities, net | 10,236 |
| | 14,282 |
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Accounts payable and accrued expenses | 127,370 |
| | 101,868 |
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Total liabilities | 8,083,400 |
| | 8,003,692 |
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STOCKHOLDERS' EQUITY: | | | |
Preferred stock, $.01 par value; 100,000,000 shares authorized, no shares issued or outstanding | — |
| | — |
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Common stock, $.01 par value; 1,400,000,000 shares authorized, 141,512,165 and 141,440,030 | | | |
shares issued and outstanding as of March 31, 2020 and September 30, 2019, respectively | 1,415 |
| | 1,414 |
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Additional paid-in capital | 1,211,466 |
| | 1,210,226 |
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Unearned compensation, Employee Stock Ownership Plan ("ESOP") | (33,866 | ) | | (34,692 | ) |
Retained earnings | 130,756 |
| | 174,277 |
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Accumulated other comprehensive (loss) income ("AOCI"), net of tax | (21,978 | ) | | (14,899 | ) |
Total stockholders' equity | 1,287,793 |
| | 1,336,326 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 9,371,193 |
| | $ | 9,340,018 |
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See accompanying notes to consolidated financial statements. | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
(Dollars in thousands, except per share amounts) |
| | | | | |
| For the Three Months Ended | | |
| December 31, | | |
| 2020 | | 2019 | | | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 60,694 | | | $ | 69,914 | | | | | |
Mortgage-backed securities ("MBS") | 5,710 | | | 6,102 | | | | | |
FHLB stock | 1,069 | | | 1,826 | | | | | |
Investment securities | 683 | | | 1,507 | | | | | |
Cash and cash equivalents | 51 | | | 687 | | | | | |
Total interest and dividend income | 68,207 | | | 80,036 | | | | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | 14,067 | | | 17,962 | | | | | |
Borrowings | 10,327 | | | 13,377 | | | | | |
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Total interest expense | 24,394 | | | 31,339 | | | | | |
NET INTEREST INCOME | 43,813 | | | 48,697 | | | | | |
PROVISION FOR CREDIT LOSSES | (1,532) | | | 225 | | | | | |
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NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES | 45,345 | | | 48,472 | | | | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | 2,947 | | | 3,062 | | | | | |
Insurance commissions | 638 | | | 691 | | | | | |
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Other non-interest income | 1,485 | | | 1,751 | | | | | |
Total non-interest income | 5,070 | | | 5,504 | | | | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | 14,138 | | | 13,471 | | | | | |
Information technology and related expense | 4,233 | | | 4,141 | | | | | |
Occupancy, net | 3,379 | | | 3,207 | | | | | |
Regulatory and outside services | 1,585 | | | 1,343 | | | | | |
Advertising and promotional | 838 | | | 1,410 | | | | | |
Deposit and loan transaction costs | 766 | | | 711 | | | | | |
Federal insurance premium | 621 | | | 0 | | | | | |
Office supplies and related expense | 424 | | | 519 | | | | | |
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Other non-interest expense | 1,083 | | | 1,698 | | | | | |
Total non-interest expense | 27,067 | | | 26,500 | | | | | |
INCOME BEFORE INCOME TAX EXPENSE | 23,348 | | | 27,476 | | | | | |
INCOME TAX EXPENSE | 4,450 | | | 4,965 | | | | | |
NET INCOME | $ | 18,898 | | | $ | 22,511 | | | | | |
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Basic earnings per share ("EPS") | $ | 0.14 | | | $ | 0.16 | | | | | |
Diluted EPS | $ | 0.14 | | | $ | 0.16 | | | | | |
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Basic weighted average common shares | 135,397,691 | | | 137,898,010 | | | | | |
Diluted weighted average common shares | 135,398,884 | | | 137,976,122 | | | | | |
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See accompanying notes to consolidated financial statements. | | | | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) |
(Dollars in thousands, except per share amounts) |
| | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, | | March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 69,613 |
| | $ | 71,657 |
| | $ | 139,527 |
| | $ | 142,429 |
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Mortgage-backed securities ("MBS") | 5,866 |
| | 6,301 |
| | 11,968 |
| | 12,824 |
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FHLB stock | 1,714 |
| | 1,831 |
| | 3,540 |
| | 3,802 |
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Investment securities | 1,382 |
| | 1,505 |
| | 2,889 |
| | 2,946 |
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Cash and cash equivalents | 380 |
| | 743 |
| | 1,067 |
| | 2,457 |
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Total interest and dividend income | 78,955 |
| | 82,037 |
| | 158,991 |
| | 164,458 |
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INTEREST EXPENSE: | | | | | | | |
Deposits | 17,804 |
| | 16,096 |
| | 35,766 |
| | 31,821 |
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Borrowings | 12,483 |
| | 13,344 |
| | 25,860 |
| | 27,739 |
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Total interest expense | 30,287 |
| | 29,440 |
| | 61,626 |
| | 59,560 |
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NET INTEREST INCOME | 48,668 |
| | 52,597 |
| | 97,365 |
| | 104,898 |
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PROVISION FOR CREDIT LOSSES | 22,075 |
| | — |
| | 22,300 |
| | — |
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NET INTEREST INCOME AFTER | | | | | | | |
PROVISION FOR CREDIT LOSSES | 26,593 |
| | 52,597 |
| | 75,065 |
| | 104,898 |
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NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | 2,783 |
| | 3,091 |
| | 5,845 |
| | 6,443 |
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Insurance commissions | 400 |
| | 541 |
| | 1,091 |
| | 1,167 |
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Other non-interest income | 1,488 |
| | 1,369 |
| | 3,239 |
| | 2,815 |
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Total non-interest income | 4,671 |
| | 5,001 |
| | 10,175 |
| | 10,425 |
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NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | 13,235 |
| | 12,789 |
| | 26,706 |
| | 25,751 |
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Information technology and related expense | 4,268 |
| | 4,284 |
| | 8,409 |
| | 8,883 |
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Occupancy, net | 3,449 |
| | 3,292 |
| | 6,656 |
| | 6,544 |
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Advertising and promotional | 1,359 |
| | 1,390 |
| | 2,769 |
| | 2,150 |
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Regulatory and outside services | 1,297 |
| | 1,056 |
| | 2,640 |
| | 2,822 |
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Deposit and loan transaction costs | 678 |
| | 465 |
| | 1,389 |
| | 1,201 |
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Office supplies and related expense | 592 |
| | 736 |
| | 1,111 |
| | 1,195 |
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Federal insurance premium | — |
| | 659 |
| | — |
| | 1,187 |
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Other non-interest expense | 1,286 |
| | 1,470 |
| | 2,984 |
| | 3,190 |
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Total non-interest expense | 26,164 |
| | 26,141 |
| | 52,664 |
| | 52,923 |
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INCOME BEFORE INCOME TAX EXPENSE | 5,100 |
| | 31,457 |
| | 32,576 |
| | 62,400 |
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INCOME TAX EXPENSE | 824 |
| | 6,903 |
| | 5,789 |
| | 13,463 |
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NET INCOME | $ | 4,276 |
| | $ | 24,554 |
| | $ | 26,787 |
| | $ | 48,937 |
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Basic earnings per share ("EPS") | $ | 0.03 |
| | $ | 0.18 |
| | $ | 0.19 |
| | $ | 0.36 |
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Diluted EPS | $ | 0.03 |
| | $ | 0.18 |
| | $ | 0.19 |
| | $ | 0.36 |
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Basic weighted average common shares | 137,968,327 |
| | 137,634,820 |
| | 137,932,976 |
| | 137,592,409 |
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Diluted weighted average common shares | 138,000,334 |
| | 137,690,717 |
| | 137,988,649 |
| | 137,641,126 |
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See accompanying notes to consolidated financial statements. | | | | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
(Dollars in thousands) |
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| For the Three Months Ended | | |
| December 31, | | |
| 2020 | | 2019 | | | | |
Net income | $ | 18,898 | | | $ | 22,511 | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized gains (losses) on AFS securities arising during the period, net of taxes of $(409) and $145 | 1,140 | | | (452) | | | | | |
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Changes in unrealized gains (losses) on cash flow hedges, net of taxes of $(1,220) and $(1,741) | 3,994 | | | 5,424 | | | | | |
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Comprehensive income | $ | 24,032 | | | $ | 27,483 | | | | | |
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See accompanying notes to consolidated financial statements. | | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
(Dollars in thousands) |
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| For the Three Months Ended | | For the Six Months Ended |
| March 31, | | March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income | $ | 4,276 |
| | $ | 24,554 |
| | $ | 26,787 |
| | $ | 48,937 |
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Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized gains (losses) on AFS securities arising during the period, | | | | | | |
net of taxes of $(3,332), $(982), $(3,187) and $(2,115) | 10,378 |
| | 3,061 |
| | 9,926 |
| | 6,588 |
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Changes in unrealized gains (losses) on cash flow hedges, | | | | | | | |
net of taxes of $7,200, $2,118, $5,459 and $5,246 | (22,429 | ) | | (6,600 | ) | | (17,005 | ) | | (16,344 | ) |
Comprehensive (loss) income | $ | (7,775 | ) | | $ | 21,015 |
| | $ | 19,708 |
| | $ | 39,181 |
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See accompanying notes to consolidated financial statements. | | | | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) |
(Dollars in thousands, except per share amounts) |
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| For the Three Months Ended December 31, 2020 |
| | | Additional | | Unearned | | | | | | Total |
| Common | | Paid-In | | Compensation | | Retained | | | | Stockholders' |
| Stock | | Capital | | ESOP | | Earnings | | AOCI | | Equity |
Balance at September 30, 2020 | $ | 1,389 | | | $ | 1,189,853 | | | $ | (33,040) | | | $ | 143,162 | | | $ | (16,505) | | | $ | 1,284,859 | |
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Net income | | | | | | | 18,898 | | | | | 18,898 | |
Other comprehensive income, net of tax | | | | | | | | 5,134 | | | 5,134 | |
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Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-13, net of tax | | | | | | | (2,288) | | | | | (2,288) | |
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ESOP activity | | | 80 | | | 413 | | | | | | | 493 | |
Restricted stock activity, net | | | (8) | | | | | | | | | (8) | |
Stock-based compensation | | | 118 | | | | | | | | | 118 | |
Repurchase of common stock | (1) | | | (1,407) | | | | | (122) | | | | | (1,530) | |
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Cash dividends to stockholders ($0.215 per share) | | | | (29,128) | | | | | (29,128) | |
Balance at December 31, 2020 | $ | 1,388 | | | $ | 1,188,636 | | | $ | (32,627) | | | $ | 130,522 | | | $ | (11,371) | | | $ | 1,276,548 | |
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| | | Additional | | Unearned | | | | | | Total |
| Common | | Paid-In | | Compensation | | Retained | | | | Stockholders' |
| Stock | | Capital | | ESOP | | Earnings | | AOCI | | Equity |
Balance at September 30, 2019 | $ | 1,414 | | | $ | 1,210,226 | | | $ | (34,692) | | | $ | 174,277 | | | $ | (14,899) | | | $ | 1,336,326 | |
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Cumulative effect of adopting ASU 2016-02, net of tax | | | | | | | 88 | | | | | 88 | |
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Net income | | | | | | | 22,511 | | | | | 22,511 | |
Other comprehensive income, net of tax | | | | | | | | 4,972 | | | 4,972 | |
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ESOP activity | | | 169 | | | 413 | | | | | | | 582 | |
Restricted stock activity, net | | | (1) | | | | | | | | | (1) | |
Stock-based compensation | | | 166 | | | | | | | | | 166 | |
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Stock options exercised | 1 | | | 612 | | | | | | | | | 613 | |
Cash dividends to stockholders ($0.425 per share) | | | | (58,663) | | | | | (58,663) | |
Balance at December 31, 2019 | $ | 1,415 | | | $ | 1,211,172 | | | $ | (34,279) | | | $ | 138,213 | | | $ | (9,927) | | | $ | 1,306,594 | |
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CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) |
(Dollars in thousands, except per share amounts) |
| | | | | | | | | | | |
| For the Six Months Ended March 31, 2020 |
| | | Additional | | Unearned | | | | | | Total |
| Common | | Paid-In | | Compensation | | Retained | | | | Stockholders' |
| Stock | | Capital | | ESOP | | Earnings | | AOCI | | Equity |
Balance at September 30, 2019 | $ | 1,414 |
| | $ | 1,210,226 |
| | $ | (34,692 | ) | | $ | 174,277 |
| | $ | (14,899 | ) | | $ | 1,336,326 |
|
Net income | | | | | | | 22,511 |
| | | | 22,511 |
|
Other comprehensive income, net of tax | | | | | | | | 4,972 |
| | 4,972 |
|
Cumulative effect of adopting Accounting Standards Update ("ASU") 2016-02 | | | | | | | 88 |
| | | | 88 |
|
ESOP activity | | | 169 |
| | 413 |
| | | | | | 582 |
|
Restricted stock activity, net | | | (1 | ) | | | | | | | | (1 | ) |
Stock-based compensation | | | 166 |
| | | | | | | | 166 |
|
Stock options exercised | 1 |
| | 612 |
| | | | | | | | 613 |
|
Cash dividends to stockholders ($0.425 per share) | | | | | | (58,663 | ) | | | | (58,663 | ) |
Balance at December 31, 2019 | $ | 1,415 |
| | $ | 1,211,172 |
| | $ | (34,279 | ) | | $ | 138,213 |
| | $ | (9,927 | ) | | $ | 1,306,594 |
|
Net income | | | | | | | 4,276 |
| | | | 4,276 |
|
Other comprehensive loss, net of tax | | | | | | | | | (12,051 | ) | | (12,051 | ) |
ESOP activity | | | 117 |
| | 413 |
| | | | | | 530 |
|
Stock-based compensation | | | 152 |
| | | | | | | | 152 |
|
Stock options exercised | | | 25 |
| | | | | | | | 25 |
|
Cash dividends to stockholders ($0.085 per share) | | | | | | (11,733 | ) | | | | (11,733 | ) |
Balance at March 31, 2020 | 1,415 |
| | 1,211,466 |
| | (33,866 | ) | | 130,756 |
| | (21,978 | ) | | 1,287,793 |
|
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(Dollars in thousands) |
| |
| For the Three Months Ended |
| December 31, |
| 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 18,898 | | | $ | 22,511 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
FHLB stock dividends | (1,069) | | | (1,826) | |
Provision for credit losses | (1,532) | | | 225 | |
Originations of loans receivable held-for-sale ("LHFS") | (364) | | | 0 | |
Proceeds from sales of LHFS | 366 | | | 0 | |
Amortization and accretion of premiums and discounts on securities | 1,017 | | | 228 | |
Depreciation and amortization of premises and equipment | 2,304 | | | 2,286 | |
Amortization of intangible assets | 422 | | | 500 | |
Amortization of deferred amounts related to FHLB advances, net | 254 | | | 2 | |
Common stock committed to be released for allocation - ESOP | 493 | | | 582 | |
Stock-based compensation | 118 | | | 166 | |
| | | |
Changes in: | | | |
| | | |
Other assets, net | 1,942 | | | 1,237 | |
Income taxes payable/receivable, net | 2,372 | | | 3,808 | |
Deferred income tax liabilities, net | 248 | | | (597) | |
Accounts payable and accrued expenses | (6,266) | | | (2,312) | |
Net cash provided by operating activities | 19,203 | | | 26,810 | |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of AFS securities | (504,780) | | | (149,359) | |
| | | |
Proceeds from calls, maturities and principal reductions of AFS securities | 152,396 | | | 123,810 | |
| | | |
| | | |
Proceeds from the redemption of FHLB stock | 10,238 | | | 421 | |
| | | |
Net change in loans receivable | 203,698 | | | (12,844) | |
Purchase of premises and equipment | (2,058) | | | (3,882) | |
Proceeds from sale of other real estate owned ("OREO") | 53 | | | 585 | |
| | | |
| | | |
| | | |
Proceeds from bank-owned life insurance ("BOLI") death benefit | 443 | | | 490 | |
Net cash used in investing activities | (140,010) | | | (40,779) | |
| | | |
| | | |
| | | (Continued) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2019 |
| | | Additional | | Unearned | | | | | | Total |
| Common | | Paid-In | | Compensation | | Retained | | | | Stockholders' |
| Stock | | Capital | | ESOP | | Earnings | | AOCI | | Equity |
Balance at September 30, 2018 | $ | 1,412 |
| | $ | 1,207,644 |
| | $ | (36,343 | ) | | $ | 214,569 |
| | $ | 4,340 |
| | $ | 1,391,622 |
|
Net income | | | | | | | 24,383 |
| | | | 24,383 |
|
Other comprehensive loss, net of tax | | | | | | | | | (6,217 | ) | | (6,217 | ) |
Cumulative effect of adopting ASU 2014-09 | | | | | | | 394 |
| | | | 394 |
|
ESOP activity | | | 118 |
| | 413 |
| | | | | | 531 |
|
Stock-based compensation | | | 95 |
| | | | | | | | 95 |
|
Stock options exercised | 1 |
| | 466 |
| | | | | | | | 467 |
|
Cash dividends to stockholders ($0.475 per share) | | | | | | (65,362 | ) | | | | (65,362 | ) |
Balance at December 31, 2018 | $ | 1,413 |
| | $ | 1,208,323 |
| | $ | (35,930 | ) | | $ | 173,984 |
| | $ | (1,877 | ) | | $ | 1,345,913 |
|
Net income | | | | | | | 24,554 |
| | | | 24,554 |
|
Other comprehensive loss, net of tax | | | | | | | | | (3,539 | ) | | (3,539 | ) |
ESOP activity | | | 134 |
| | 413 |
| | | | | | 547 |
|
Stock-based compensation | | | 90 |
| | | | | | | | 90 |
|
Stock options exercised | | | 118 |
| | | | | | | | 118 |
|
Cash dividends to stockholders ($0.085 per share) | | | | | | (11,700 | ) | | | | (11,700 | ) |
Balance at March 31, 2019 | 1,413 |
| | 1,208,665 |
| | (35,517 | ) | | 186,838 |
| | (5,416 | ) | | 1,355,983 |
|
| | | | | | | | | | | |
See accompanying notes to consolidated financial statements. | | | | | | | | |
| | | | | | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(Dollars in thousands) |
| |
| | | |
| | | |
| | | |
| | | |
|
|
|
| |
| For the Three Months Ended |
| December 31, |
| 2020 | | 2019 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Cash dividends paid | (29,128) | | | (58,663) | |
Net change in deposits | 219,434 | | | 3,984 | |
Proceeds from borrowings | 305,000 | | | 362,400 | |
Repayments on borrowings | (358,000) | | | (412,400) | |
| | | |
Change in advance payments by borrowers for taxes and insurance | (32,505) | | | (38,402) | |
Payment of FHLB prepayment penalties | (2,292) | | | 0 | |
Repurchase of common stock | (4,568) | | | 0 | |
Stock options exercised | 0 | | | 613 | |
| | | |
| | | |
Net cash provided by (used in) financing activities | 97,941 | | | (142,468) | |
| | | |
NET DECREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS | (22,866) | | | (156,437) | |
| | | |
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS: | | |
Beginning of period | 239,708 | | | 253,700 | |
End of period | $ | 216,842 | | | $ | 97,263 | |
| | | |
| | | |
| | | |
| | | |
| | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | |
| | | |
Operating lease right-of-use assets obtained | $ | 0 | | | $ | 15,658 | |
Operating lease liabilities obtained | $ | 0 | | | $ | 15,543 | |
| | | |
| | | |
| | | |
See accompanying notes to consolidated financial statements. | | | (Concluded) |
|
| | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(Dollars in thousands) |
| |
| For the Six Months Ended |
| March 31, |
| 2020 | | 2019 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 26,787 |
| | $ | 48,937 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
FHLB stock dividends | (3,540 | ) | | (3,802 | ) |
Provision for credit losses | 22,300 |
| | — |
|
Amortization and accretion of premiums and discounts on securities | 556 |
| | 737 |
|
Depreciation and amortization of premises and equipment | 4,564 |
| | 4,710 |
|
Amortization of intangible assets | 997 |
| | 1,189 |
|
Amortization of deferred amounts related to FHLB advances, net | 95 |
| | 4 |
|
Common stock committed to be released for allocation - ESOP | 1,112 |
| | 1,078 |
|
Stock-based compensation | 318 |
| | 185 |
|
Changes in: | | | |
Unrestricted cash collateral (provided to)/received from derivative counterparties, net | — |
| | (9,970 | ) |
Other assets, net | 3,649 |
| | 1,418 |
|
Income taxes payable/receivable, net | (4,249 | ) | | 2,291 |
|
Deferred income tax liabilities, net | (1,800 | ) | | (745 | ) |
Accounts payable and accrued expenses | (12,413 | ) | | (13,894 | ) |
Net cash provided by operating activities | 38,376 |
| | 32,138 |
|
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchase of AFS securities | (288,319 | ) | | (172,506 | ) |
Proceeds from calls, maturities and principal reductions of AFS securities | 269,702 |
| | 149,524 |
|
Proceeds from calls, maturities and principal reductions of held-to-maturity ("HTM") securities | — |
| | 83,692 |
|
Proceeds from the redemption of FHLB stock | 421 |
| | 97,096 |
|
Purchase of FHLB stock | — |
| | (96,199 | ) |
Net change in loans receivable | (82,595 | ) | | (57,073 | ) |
Purchase of premises and equipment | (6,497 | ) | | (4,583 | ) |
Proceeds from sale of other real estate owned ("OREO") | 987 |
| | 1,062 |
|
Proceeds from bank-owned life insurance ("BOLI") death benefit | 490 |
| | — |
|
Net cash (used in) provided by investing activities | (105,811 | ) | | 1,013 |
|
| | | |
| | | (Continued) |
|
|
| | | | | | | |
CAPITOL FEDERAL FINANCIAL, INC. AND SUBSIDIARY |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
(Dollars in thousands) |
| |
| For the Six Months Ended |
| March 31, |
| 2020 | | 2019 |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Cash dividends paid | (70,396 | ) | | (77,062 | ) |
Net change in deposits | 192,752 |
| | 97,757 |
|
Proceeds from borrowings | 1,186,600 |
| | 2,680,000 |
|
Repayments on borrowings | (1,306,600 | ) | | (2,625,052 | ) |
Change in advance payments by borrowers for taxes and insurance | (10,380 | ) | | (16,963 | ) |
Payment of FHLB prepayment penalties | (4,215 | ) | | — |
|
Stock options exercised | 638 |
| | 585 |
|
Net cash (used in) provided by financing activities | (11,601 | ) | | 59,265 |
|
| | | |
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS | (79,036 | ) | | 92,416 |
|
| | | |
CASH, CASH EQUIVALENTS, RESTRICTED CASH AND RESTRICTED CASH EQUIVALENTS: | | |
Beginning of period | 253,700 |
| | 139,055 |
|
End of period | $ | 174,664 |
| | $ | 231,471 |
|
| | | |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: | | |
Operating lease right-of-use assets obtained | $ | 15,658 |
| | $ | — |
|
Operating lease liabilities obtained | $ | 15,543 |
| | $ | — |
|
| | | |
| | | |
See accompanying notes to consolidated financial statements. | | | (Concluded) |
|
Notes to Consolidated Financial Statements (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The 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, 2019,2020, 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 - Cash, cash equivalents, restricted cash and restricted cash equivalents reported in the statement of cash flows include cash and cash equivalents of $118.4$168.0 million and $220.4$185.1 million at MarchDecember 31, 2020 and September 30, 2019,2020, respectively, and restricted cash and cash equivalents of $56.3$48.8 million and $33.3$54.6 million at MarchDecember 31, 2020 atand September 30, 2019,2020, 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.
Net PresentationSecurities - Securities include MBS and agency debentures issued primarily by United States Government-Sponsored Enterprises ("GSEs"), including Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal Home Loan Banks, United States Government agencies, including Government National Mortgage Association ("GNMA"), and municipal bonds. Securities are classified as held-to maturity ("HTM"), AFS, or trading based on management's intention for holding the securities on the date of Cash Flows Relatedpurchase. Generally, classifications are made in response to Borrowingsliquidity needs, asset/liability management strategies, and the market interest rate environment at the time of purchase.
Accrued interest receivable for all securities is reported in other assets on the consolidated balance sheet. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude accrued interest from all required disclosures of amortized cost was elected. Additionally, an election was made to not measure ACL for accrued interest receivables. Interest accrued but not received is reversed against interest income.
Securities that management has the intention and ability to hold to maturity are classified as HTM and reported at amortized cost. Such securities are adjusted for the amortization of premiums and discounts which are recognized as adjustments to interest income over the life of the securities using the level-yield method. At times,December 31, 2020 and September 30, 2020, the Bank enters into certain FHLB advancesportfolio did not contain any securities classified as HTM.
Securities that management may sell if necessary for liquidity or asset management purposes are classified as AFS and reported at fair value, with contractual maturitiesunrealized gains and non-credit losses reported as a component of 90 daysAOCI within stockholders' equity, net of deferred income taxes. The amortization of premiums and discounts are recognized as adjustments to interest income over the life of the securities using the level-yield method. Gains or less. Cash flows relatedlosses on the disposition of AFS securities are recognized using the specific identification method. The Company primarily uses prices obtained from third-party pricing services to these advancesdetermine the fair value of securities. See additional discussion of fair value of AFS securities in "Note 6. Fair Value of Financial Instruments."
Securities that are purchased and held principally for resale in the near future are classified as trading securities and are reported on a net basisat fair value, with unrealized gains and losses included in non-interest income in the consolidated statements of income. Neither the Company nor the Bank maintained a trading securities portfolio during the three months ended December 31, 2020 or during fiscal year 2020.
Allowance for Credit Losses on AFS Debt Securities - Management monitors AFS debt securities for impairment on an ongoing basis and performs a formal review quarterly. If an AFS debt security is in an unrealized loss position at the time of the quarterly review, the Company first assesses whether it intends to sell, or if it is more likely than not that it will be required to sell the security before recovery of its amortized cost. If either condition is met, the entire loss in fair value is recognized in current earnings. If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. In making this assessment, management considers the security structure, the cause(s) and severity of the loss, expectations of future performance including recent events specific to the issuer or industry including
the issuer's financial condition and current ability to make future payments in a timely manner, and external credit ratings and recent downgrades in such ratings. Management's assessment involves a high degree of subjectivity and judgment that is based on information available at a point in time. If the assessment indicates that a credit loss exists, the present value of cash flows. Thereflows expected to be collected is compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss has occurred, and an ACL is recorded, which became effective October 1, 2020 when the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Accrued interest receivable on AFS debt securities is excluded from the estimate of credit losses. The ACL is limited by the amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit losses is recognized in other comprehensive income. Prior to the adoption of ASU 2016-13, management assessed all known facts and circumstances to determine whether an other-than-temporary loss should be recognized for impaired securities. If an other-than-temporary impairment had occurred, the difference between the amortized cost and fair value was recognized as a loss in earnings and the security was written down to fair value.
Changes in the ACL on AFS debt securities are recorded as an increase or decrease in the provision for credit losses on the consolidated statements of income. Losses are charged against the ACL on securities when management believes the collectability of an AFS security is in doubt or when either of the conditions regarding intent or requirement to sell is met. As of October 1, 2020 and December 31, 2020, the Company did not identify any credit losses related to the Company's AFS debt securities so there was no FHLB advance activityACL on AFS debt securities as of those dates.
Loans Receivable - Loans receivable that management has the intention and ability to hold for the foreseeable future are carried at amortized cost, excluding accrued interest. Amortized cost is the amount of unpaid principal, net of undisbursed loan funds, unamortized premiums and discounts, and deferred loan origination fees and costs. Net loan origination fees and costs, and premiums and discounts are amortized as yield adjustments to interest income using the level-yield method. Loans are presented on the consolidated balance sheet net of the ACL on loans.
Interest on loans is accrued based on the principal amount outstanding. When the Company adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost was elected. Additionally, an election was made to not measure ACL for accrued interest receivables.
Loan endorsements - Certain existing one- to four- family loan customers, including customers whose loans were purchased from a correspondent lender, have the opportunity, for a fee, to endorse their original loan terms to current loan terms being offered by the Bank, without being required to complete the standard application and underwriting process. The fee received for each endorsement is deferred and amortized as an adjustment to interest income over the life of the loan. If the change in loan terms resulting from the endorsement is deemed to be more than minor, the loan is treated as a new loan and all existing unamortized deferred loan origination fees and costs are recognized at the time of endorsement. If the change in loan terms is deemed to be minor, the fee received for the endorsement is added to the net remaining unamortized deferred fee or deferred cost balance.
Coronavirus Disease 2019 ("COVID-19") loan modifications -In March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance of principal, interest, and in some cases, escrow. COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period, but an option for a three- to six-month forbearance of principal and interest was also available to our borrowers. The Company has followed the loan modification criteria within the Coronavirus Aid, Relief, and Economic Security ("CARES") Act or Interagency guidance when determining if a borrower's modification is subject to troubled debt restructuring ("TDR") classification. If it is determined that the modification does not meet the criteria under the CARES Act or Interagency guidance to be excluded from TDR classification, the Company evaluates the loan modifications under its existing TDR framework. Loans subject to forbearance under the COVID-19 loan modification program are not reported as past due or placed on nonaccrual status during the forbearance time period, and interest income continues to be recognized over the contractual life of the loans. Loans reported as being modified under the Bank's COVID-19 loan modification program includes all loans modified under the programs, including loans classified as TDRs.
Troubled debt restructurings - For borrowers experiencing financial difficulties, the Bank may grant a netconcession to the borrower. Such concessions generally involve extensions of loan maturity dates, the granting of periods during which reduced payment amounts are required, and/or reductions in interest rates. The Bank does not forgive principal or interest, nor does it commit to lend additional funds to these borrowers, except for situations generally involving the capitalization of delinquent interest and/or escrow on one- to four-family loans and consumer loans, not to exceed the original loan amount. In the case of commercial loans, the Bank does not forgive principal or interest or commit to lend additional funds unless the borrower provides additional collateral or other enhancements to improve the credit quality.
Delinquent loans - A loan is considered delinquent when payment has not been received within 30 days of its contractual due date. The number of days delinquent is determined by the number of scheduled payments that remain unpaid, assuming a period of 30 days between each scheduled payment.
Nonaccrual loans - The accrual of income on loans is generally discontinued when interest or principal payments are 90 days in arrears. We also report certain TDR loans as nonaccrual loans that are required to be reported as such pursuant to regulatory reporting requirements. Loans on which the accrual of income has been discontinued are designated as nonaccrual and outstanding interest previously credited beyond 90 days delinquent is reversed, except in the case of commercial loans in which all delinquent accrued interest is reversed. A nonaccrual one- to four-family or consumer loan is returned to accrual status once the contractual payments have been made to bring the loan less than 90 days past due or, in the case of a TDR loan, the borrower has made the required consecutive loan payments. A nonaccrual commercial loan is returned to accrual status once the loan has been current for a minimum of six months, all fees and interest are paid current, the loan has a sufficient debt service coverage ratio, and the loan is well secured and within policy.
Allowance for Credit Losses on Loans Receivable - The ACL is a valuation amount that is deducted from the amortized cost basis of loans. It represents management's current expectations of total expected credit losses included in the Company's loan portfolio as of the balance sheet date and is determined using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts, along with the application of qualitative factors when necessary. ACL is recorded upon origination or purchase of a loan and is updated at subsequent reporting dates. Changes in the ACL are recorded through increases or decreases to the provision for credit losses in the consolidated statements of income. The ACL is an estimate that requires significant judgment including projections of the macroeconomic environment. The macroeconomic environment continuously changes, which can cause fluctuations in estimated expected losses.
The Bank's ACL is measured on a collective ("pool") basis, with loans aggregated into pools based on similar risk characteristics such as collateral type, historical loss experience, loan-to-value ("LTV") for one- to four-family loans, and payment sources for commercial loans. Loans that do not share similar risk characteristics are evaluated on an individual basis. Charge-offs against the related ACL amounts for any loan type may be recorded at any time if the Bank has knowledge of the existence of a probable loss.
One- to four-family loans and consumer home equity loans are deemed to be collateral dependent and individually evaluated for loss when the loan is generally 180 days delinquent, and any identified losses are charged-off at that time. Losses are based on new collateral values obtained through appraisals, less estimated costs to sell. Anticipated private mortgage insurance proceeds are taken into consideration when calculating the loss amount. If the Bank holds the first and second mortgage, both loans are combined when evaluating whether there is a potential loss on the loan. When a non-real estate secured consumer loan is 120 days delinquent, any identified losses are charged-off. For commercial loans, loans are individually evaluated for loss if management determines they exhibit unique risk characteristics. Specific allocations of ACL are established and/or losses are charged-off prior to a loan becoming 120 days delinquent when it is determined, through the analysis of any available current financial information regarding the borrower, that the borrower is not able to service the debt and there is little or no prospect for near term improvement. In the case of secured loans, the loan is deemed to be collateral dependent when this occurs, and the specific allocation of ACL and/or charge-off amount is based on a comparison of the amounts due from the borrower and calculated current fair value of the collateral after consideration of estimated costs to sell.
The primary credit risk characteristics inherent in the one- to four-family and consumer loan portfolios are a decline in economic conditions, elevated levels of unemployment or underemployment, and declines in residential real estate values. Any one or a combination of these events may adversely affect the ability of borrowers to repay their loans, resulting in increased delinquencies, non-performing assets, charge-offs, and provisions for credit losses. Although the commercial loan portfolio is subject to the same risk of declines in economic conditions, the primary risk characteristics inherent in this portfolio include the ability of the borrower to sustain sufficient cash flows from leases and business operations, the ability to control operational or business expenses to satisfy their contractual debt payments, and the ability to utilize personal or business resources to pay their contractual debt payments if the cash flows are not sufficient. Additionally, if the Bank were to repossess the secured collateral of a commercial real estate loan, the pool of potential buyers is more limited than that for a residential property. Therefore, the Bank could hold the property for an extended period of time, or be forced to sell at a discounted price, resulting in additional losses. Our commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment, which may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the business.
For loans evaluated for credit losses on a pool basis, average historical loss rates are calculated for each pool using the Company's historical charge-offs, or peer data when the Company's own historical loss rates are not reflective of future loss expectations, and outstanding loan balances during a historical time period. The historical time periods can be different based on the individual pool and represent management's credit expectations for the pool of loans over the remaining contractual life. Generally, the historical time periods are at least one economic cycle. These historical loss rates are compared to historical data related to economic variables including national unemployment rate, changes in commercial real estate price index, changes in home values, and changes in the
United States gross domestic product during the six months ended March 31, 2020same time periods over which the historical loss rates were calculated, and 2019.a correlation is estimated using regression analysis. Each quarter, the Company's ACL model pairs the results of the regression analysis with an economic forecast of these same macroeconomic variables, which is provided by a third party, in order to project future loss rates. The forecast is applied for a reasonable and supportable time period, as determined by management, before reverting back to long-term historical averages at the macroeconomic variable level using a straight-line method. The forecast-adjusted loss rate is applied to the loans over their remaining contractual lives, adjusted for expected prepayments and curtailments. The contractual term excludes expected extensions, renewals and modifications unless there is a reasonable expectation that a TDR will be executed. In the case of revolving lines of credit, since the rate of principal reduction is generally at the discretion of the borrower, remaining contractual lives are calculated by estimating future cash flows expected to be received from the borrower until the outstanding balance has been reduced to zero.
Using all of these inputs, the ACL model generates aggregated estimated cash flows for the time period that remains in each loan's contractual life. These cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at a present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of future cash flows compared to the amortized cost basis of the loan pool.
Leases
Additionally, qualitative factors are considered for items not included in historical loss rates, macroeconomic forecasts, or other model inputs and/or other ACL processes, as deemed appropriate by management's current assessment of risks related to loan portfolio attributes and external factors. Such qualitative factor considerations include changes in the loan portfolio composition and credit concentrations, changes in lending policies and procedures and underwriting standards, changes in balances and/or trends in asset quality and/or loan credit performance, model imprecision, and/or external factors such as significant unique events or conditions. Management assesses the potential impact of such items and adjusts the modeled ACL as deemed appropriate based upon the assessment.
Reserve for Off-Balance Sheet Credit Exposures- The Company leases real estate propertyCompany's off-balance sheet credit exposures are comprised of unfunded portions of existing loans, such as lines of credit and construction loans, and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. Expected credit losses on these amounts are calculated using the same methodology that is applied in the ACL model; however, the estimate of credit risk for branches, ATMs, and certain equipment. Alloff-balance sheet credit exposures also takes into consideration the likelihood that funding of the leases in which the Companycommitment will occur. The reserve for these off-balance sheet credit exposures is the lessee are classifiedrecorded as operating leases. The Company determines if an arrangementa liability and is a lease at inception and if the lease is an operating lease or a finance lease.
Operating lease right-of-use assets represent the Company's right to use an underlying asset during the lease term and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. The right-of-use assets associated with operating leases are recorded in other assets in the Company's consolidated balance sheets. The lease liabilities associated with operating leases are includedpresented in accounts payable and accrued expenses on the consolidated balance sheets. The period over whichsheet. Changes to the right-of-use asset is amortized is generallyreserve on off-balance sheet credit exposures are recorded through increases or decreases to the lesser ofprovision for credit losses on the expected remaining term or the remaining useful life of the leased asset. The lease liability is decreased as periodic lease payments are made. The Company performs impairment assessments for right-of-use assets when events or changes in circumstances indicate that their carrying values may not be recoverable.
The calculated amount of the right-of-use assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of the minimum remaining lease payments. The Company's lease agreements often include one or more options to renew at the Company's discretion. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company includes the extended term in the calculation of the right-of-use asset and lease liability. Generally, the Company cannot practically determine the interest rate implicit in the lease so the Company's incremental borrowing rate is used as the discount rate for the lease. The Company uses FHLB advance interest rates, which have been deemed as the Company's incremental borrowing rate, at lease inception based upon the term of the lease. For operating leases existing prior to October 1, 2019, the rate for the remaining lease term as of October 1, 2019 was applied. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease expense, variable lease expense and short-term lease expense are included in occupancy expense in the Company's consolidated statements of income. For facility-related leases, the Company elected, by lease class, to not separate lease and non-lease components. Lease expense is recognized on a straight-line basis over the lease term. Variable lease expense primarily represents payments such as common area maintenance and utilities and are recognized as expense in the period when those payments are incurred. Short-term lease expense relates to leases with an initial term of 12 months or less. The Company has elected to not record a right-of-use asset or lease liability for short-term leases.
Recent Accounting Pronouncements - In FebruaryJune 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases. The ASU, as amended, revises lease accounting guidance by requiring that lessees recognize the assets and liabilities arising
from leases on the balance sheet. Additionally, the ASU requires entities to disclose both quantitative and qualitative information regarding their leasing activities. The accounting applied by a lessor is largely unchanged from that applied under the previous guidance. In July 2018, the FASB issued ASU 2018-11, Leases, which provides entities with relief from the costs of implementation by allowing the option to not restate comparative periods as part of the transition. The ASU, as amended, became effective for the Company on October 1, 2019. Upon adoption, the Company elected the modified retrospective approach and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. The optional practical expedients the Company elected include: (1) not reassessing whether any expired or existing contracts are or contain leases, (2) not reassessing the classification of any expired or existing contracts, (3) not reassessing initial direct costs for existing leases, and (4) using hindsight for leases existing at adoption date. For leases with an initial term of 12 months or less, the Company elected the short-term lease option, which entails not recognizing right-of-use assets and lease liabilities for these leases. Additionally, the Company elected, for facility-related leases, the practical expedient that allows an entity to elect, by lease class, the ability to not separate lease and non-lease components. Upon adoption, the Company recognized a right-of-use asset of $15.7 million and a lease liability of $15.5 million, related to the Company's non-cancellable operating lease commitments based on the present value of the expected remaining lease payments as of October 1, 2019. The cumulative-effect adjustment to retained earnings at the time of adoption totaled $88 thousand. These ASUs did not have a material impact on the Company's results of operations and cash flows at the time of adoption. The disclosures required by the ASU are included in Note 9. Leases.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. The ASU, as amended, replaces the incurred loss impairment methodology in current GAAP, which requiresrequired credit losses to be recognized when it is probable that a loss has been incurred, with a new impairmentan expected credit loss methodology, which is commonly known as the current expected credit loss ("CECL") methodology. The new impairmentCECL methodology requires an entity to measure, at each reporting date, the expected credit losses of financial assets not measured at fair value, such as loans and loan commitments,off-balance sheet credit exposures, over their remaining contractual lives. Under the new impairmentCECL methodology, expected credit losses will beare measured at each reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Additionally, the ASU amends the current credit loss measurements for AFS debt securities. Credit losses related to AFS debt securities will be recorded through the ACL rather than as a direct write-down as per current GAAP.write-down. The ASU also requires enhanced disclosures related to credit quality and significant estimates and judgments used by management when estimating credit losses. The ASU, will becomeas amended, became effective for the Company on October 1, 2020.
The Company continues to workadopted the ASU, as amended, on October 1, 2020 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Financial results for reporting periods beginning after October 1, 2020 are reported in accordance with a software provider on the application and implementation of the new accounting guidance,ASU, as amended, while prior period amounts continue to be reported in accordance with previous GAAP. Upon adoption, the Company recorded a cumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures of $2.3 million, net of tax of $739 thousand, which includes assistance with historical data analysis, loan segmentation, model development, and documentation.was recognized as a decrease in retained
earnings. The integration of the Company's data with the software provider is complete, along with an analysis of the historical data entered into the software. Management is currently working with the software provider on loan portfolio segmentations and model development, including incorporating economic forecasting into the models. While we are currently unable to reasonably estimatefollowing table presents the impact of adopting this ASU, we expect the impactcumulative-effect adjustment for the change in the ACL and reserve for off-balance sheet credit exposures.
| | | | | | | | | | | | | | | | | |
| September 30, | | | | |
| 2020 | | October 1, 2020 |
| Balance | | Cumulative-Effect Adjustment | | Balance |
| (Dollars in thousands) |
ACL | | | | | |
One- to four-family: | | | | | |
Originated | $ | 6,085 | | | $ | (4,452) | | | $ | 1,633 | |
Correspondent purchased | 2,691 | | | (367) | | | 2,324 | |
Bulk purchased | 467 | | | 436 | | | 903 | |
Commercial: | | | | | |
Commercial real estate | 20,349 | | | 699 | | | 21,048 | |
Commercial and industrial | 1,451 | | | (892) | | | 559 | |
Consumer: | | | | | |
Home equity | 370 | | | (289) | | | 81 | |
Other | 114 | | | 104 | | | 218 | |
Total ACL | 31,527 | | | (4,761) | | | 26,766 | |
Reserve for off-balance sheet credit exposures | 0 | | | 7,788 | | | 7,788 | |
ACL and reserve for off-balance sheet credit exposures | $ | 31,527 | | | $ | 3,027 | | | $ | 34,554 | |
The Company elected the practical expedient to exclude accrued interest receivable from the amortized cost of adoption will be influencedfinancing receivables and AFS debt securities. Accrued interest totaled $20.0 million and $3.1 million at December 31, 2020 for loans receivable and AFS securities, respectively, and was included in other assets on the consolidated balance sheet. Additionally, an election was made not to measure ACL for accrued interest receivables. All interest accrued on loans but not received is reversed against interest income once it becomes more than 90 days past due. Interest accrued on AFS debt securities but not received is also reversed against interest income.
The enhanced disclosures required by the composition of our loanASU, as amended, are included in the relevant significant accounting policies above and securities portfolios as well as the economic conditionsin "Note 4. Loans Receivable and forecasts at the time of adoption.Allowance for Credit Losses."
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosures Requirements for Fair Value Measurement. This ASU eliminates, modifies and adds certain disclosure requirements for fair value measurements. The ASU adds disclosure requirements for the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The effective date of thisThis ASU, for the Company iswhich was adopted on October 1, 2020, with early adoption permitted. Entities are allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. Since this ASU only requires disclosure changes, it willdid not have a significantmaterial impact on the Company's consolidated financial condition, and results of operations.operations, or disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include internal-use software license)licenses). The effective dateASU was adopted by the Company on October 1, 2020. The Company includes hosting arrangements that are service contracts in its evaluation of projects for capitalization. The adoption of this ASU for the Company is October 1, 2020, with early adoption permitted. The Company is currently evaluating the effect of the ASUdid not have a material impact on the Company's consolidated financial condition, results of operations, andor disclosures.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This ASU makes clarifications and corrections to the application of the guidance contained in each of the amended topics. According to the provisions of the ASU, entities that have not adopted ASU 2017-12 prior to the issuance of ASU 2019-04 shall adopt the provisions of both ASUs at the same time. Since the Company previously adopted ASU 2017-12, the related provisions included in ASU 2019-04 were adopted at the same time. The effective date ofCompany adopted the non-hedging amendments contained in ASU 2019-04, for the Company isincluding amendments related to ASU 2016-13, on October 1, 2020. The Company is currently evaluating the effectadoption of the non-hedging amendments contained in this ASU did not have a material impact on the Company's consolidated financial condition, results of operations, andor disclosures. For additional information regarding the impact of adopting ASU 2016-13, see ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments above.
2. EARNINGS PER SHARE
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.
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| December 31, | | |
| 2020 | | 2019 | | | | |
| (Dollars in thousands, except per share amounts) |
Net income | $ | 18,898 | | | $ | 22,511 | | | | | |
Income allocated to participating securities | (13) | | | (19) | | | | | |
Net income available to common stockholders | $ | 18,885 | | | $ | 22,492 | | | | | |
| | | | | | | |
Average common shares outstanding | 135,397,242 | | | 137,897,561 | | | | | |
Average committed ESOP shares outstanding | 449 | | | 449 | | | | | |
Total basic average common shares outstanding | 135,397,691 | | | 137,898,010 | | | | | |
| | | | | | | |
Effect of dilutive stock options | 1,193 | | | 78,112 | | | | | |
| | | | | | | |
Total diluted average common shares outstanding | 135,398,884 | | | 137,976,122 | | | | | |
| | | | | | | |
Net EPS: | | | | | | | |
Basic | $ | 0.14 | | | $ | 0.16 | | | | | |
Diluted | $ | 0.14 | | | $ | 0.16 | | | | | |
| | | | | | | |
Antidilutive stock options, excluded from the diluted average | | | | | | |
common shares outstanding calculation | 431,212 | | | 435,750 | | | | | |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, | | March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in thousands, except per share amounts) |
Net income | $ | 4,276 |
| | $ | 24,554 |
| | $ | 26,787 |
| | $ | 48,937 |
|
Income allocated to participating securities | (3 | ) | | (10 | ) | | (22 | ) | | (19 | ) |
Net income available to common stockholders | $ | 4,273 |
| | $ | 24,544 |
| | $ | 26,765 |
| | $ | 48,918 |
|
| | | | | | | |
Average common shares outstanding | 137,926,574 |
| | 137,593,062 |
| | 137,911,988 |
| | 137,571,533 |
|
Average committed ESOP shares outstanding | 41,753 |
| | 41,758 |
| | 20,988 |
| | 20,876 |
|
Total basic average common shares outstanding | 137,968,327 |
| | 137,634,820 |
| | 137,932,976 |
| | 137,592,409 |
|
| | | | | | | |
Effect of dilutive stock options | 32,007 |
| | 55,897 |
| | 55,673 |
| | 48,717 |
|
| | | | | | | |
Total diluted average common shares outstanding | 138,000,334 |
| | 137,690,717 |
| | 137,988,649 |
| | 137,641,126 |
|
| | | | | | | |
Net EPS: | | | | | | | |
Basic | $ | 0.03 |
| | $ | 0.18 |
| | $ | 0.19 |
| | $ | 0.36 |
|
Diluted | $ | 0.03 |
| | $ | 0.18 |
| | $ | 0.19 |
| | $ | 0.36 |
|
| | | | | | | |
Antidilutive stock options, excluded from the diluted average | | | | | | |
common shares outstanding calculation | 382,894 |
| | 494,395 |
| | 387,979 |
| | 529,261 |
|
3. SECURITIES
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").GSEs.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 1,427,216 | | | $ | 32,178 | | | $ | 94 | | | $ | 1,459,300 | |
GSE debentures | 444,964 | | | 747 | | | 0 | | | 445,711 | |
| | | | | | | |
Municipal bonds | 8,792 | | | 63 | | | 0 | | | 8,855 | |
| $ | 1,880,972 | | | $ | 32,988 | | | $ | 94 | | | $ | 1,913,866 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
MBS | $ | 947,549 |
| | $ | 26,223 |
| | $ | 454 |
| | $ | 973,318 |
|
GSE debentures | 250,080 |
| | 699 |
| | — |
| | 250,779 |
|
Municipal bonds | 11,887 |
| | 53 |
| | — |
| | 11,940 |
|
| $ | 1,209,516 |
| | $ | 26,975 |
| | $ | 454 |
| | $ | 1,236,037 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
MBS | $ | 923,256 |
| | $ | 15,571 |
| | $ | 2,340 |
| | $ | 936,487 |
|
GSE debentures | 249,828 |
| | 304 |
| | 178 |
| | 249,954 |
|
Municipal bonds | 18,371 |
| | 52 |
| | 1 |
| | 18,422 |
|
| $ | 1,191,455 |
| | $ | 15,927 |
| | $ | 2,519 |
| | $ | 1,204,863 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | Gross | | Gross | | Estimated |
| Amortized | | Unrealized | | Unrealized | | Fair |
| Cost | | Gains | | Losses | | Value |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 1,149,922 | | | $ | 31,212 | | | $ | 331 | | | $ | 1,180,803 | |
GSE debentures | 369,967 | | | 414 | | | 41 | | | 370,340 | |
| | | | | | | |
Municipal bonds | 9,716 | | | 91 | | | 0 | | | 9,807 | |
| $ | 1,529,605 | | | $ | 31,717 | | | $ | 372 | | | $ | 1,560,950 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
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.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 40,462 | | | $ | 93 | | | $ | 110 | | | $ | 1 | |
GSE debentures | 0 | | | 0 | | | 0 | | | 0 | |
| | | | | | | |
Municipal bonds | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 40,462 | | | $ | 93 | | | $ | 110 | | | $ | 1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
MBS | $ | 53,830 |
| | $ | 451 |
| | $ | 1,985 |
| | $ | 3 |
|
GSE debentures | — |
| | — |
| | — |
| | — |
|
Municipal bonds | — |
| | — |
| | — |
| | — |
|
| $ | 53,830 |
| | $ | 451 |
| | $ | 1,985 |
| | $ | 3 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2019 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
MBS | $ | 111,368 |
| | $ | 126 |
| | $ | 199,442 |
| | $ | 2,214 |
|
GSE debentures | — |
| | — |
| | 74,812 |
| | 178 |
|
Municipal bonds | 1,755 |
| | 1 |
| | — |
| | — |
|
| $ | 113,123 |
| | $ | 127 |
| | $ | 274,254 |
| | $ | 2,392 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| Less Than 12 Months | | Equal to or Greater Than 12 Months |
| Estimated | | Unrealized | | Estimated | | Unrealized |
| Fair Value | | Losses | | Fair Value | | Losses |
| (Dollars in thousands) |
| | | | | | | |
MBS | $ | 207,071 | | | $ | 330 | | | $ | 118 | | | $ | 1 | |
GSE debentures | 74,959 | | | 41 | | | 0 | | | 0 | |
| | | | | | | |
Municipal bonds | 0 | | | 0 | | | 0 | | | 0 | |
| $ | 282,030 | | | $ | 371 | | | $ | 118 | | | $ | 1 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The unrealized losses at MarchDecember 31, 2020 and September 30, 2019 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 generally views changesdid not record ACL on securities in fair value caused by changes in market yields as temporary. Therefore, these securities have not been classified as other-than-temporarily impaired. The impairment is also considered temporaryan unrealized loss position at December 31, 2020 because scheduled coupon payments have been made, it is anticipatedmanagement anticipates that the entire principal balance will be collected as scheduled, and management neither intendsdoes 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. As a result of the analysis, management has concluded that 0 other-than-temporary impairments existed at March 31, 2020 or September 30, 2019.
The amortized cost and estimated fair value of AFS debt securities as of MarchDecember 31, 2020, 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 prepayment penalty. For this reason, MBS are not included in the maturity categories.
| | | | | | | | | | | | | | | |
| | | |
| Amortized | | Estimated | | | | |
| Cost | | Fair Value | | | | |
| (Dollars in thousands) | | | | |
One year or less | $ | 4,915 | | | $ | 4,937 | | | | | |
One year through five years | 448,841 | | | 449,629 | | | | | |
| | | | | | | |
| | | | | | | |
| 453,756 | | | 454,566 | | | | | |
MBS | 1,427,216 | | | 1,459,300 | | | | | |
| $ | 1,880,972 | | | $ | 1,913,866 | | | | | |
|
| | | | | | | |
| Amortized | | Estimated |
| Cost | | Fair Value |
| (Dollars in thousands) |
One year or less | $ | 55,179 |
| | $ | 55,245 |
|
One year through five years | 206,788 |
| | 207,474 |
|
| 261,967 |
| | 262,719 |
|
MBS | 947,549 |
| | 973,318 |
|
| $ | 1,209,516 |
| | $ | 1,236,037 |
|
The following table presents the taxable and non-taxable components of interest income on investment securities for the periods presented.
| | | | | | | | | | | | | | | |
| | | |
| For the Three Months Ended | | |
| December 31, | | |
| 2020 | | 2019 | | | | |
| (Dollars in thousands) |
Taxable | $ | 645 | | | $ | 1,437 | | | | | |
Non-taxable | 38 | | | 70 | | | | | |
| $ | 683 | | | $ | 1,507 | | | | | |
|
| | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, | | March 31, |
| 2020 | | 2019 | | 2020 | | 2019 |
| (Dollars in thousands) |
Taxable | $ | 1,322 |
| | $ | 1,419 |
| | $ | 2,759 |
| | $ | 2,767 |
|
Non-taxable | 60 |
| | 86 |
| | 130 |
| | 179 |
|
| $ | 1,382 |
| | $ | 1,505 |
| | $ | 2,889 |
| | $ | 2,946 |
|
The following table summarizes the carrying value of securities pledged as collateral for the obligations indicated below as of the dates presented.
| | | | | | | | | | | |
| |
| December 31, 2020 | | September 30, 2020 |
| (Dollars in thousands) |
Public unit deposits | $ | 304,768 | | | $ | 330,986 | |
Federal Reserve Bank of Kansas City ("FRB of Kansas City") | 207,401 | | | 259,851 | |
| | | |
Retail deposits | 47,362 | | | 0 | |
| $ | 559,531 | | | $ | 590,837 | |
|
| | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| (Dollars in thousands) |
Federal Reserve Bank of Kansas City ("FRB of Kansas City") | $ | 396,458 |
| | $ | 6,636 |
|
Public unit deposits | 321,451 |
| | 381,143 |
|
Repurchase agreements | 109,425 |
| | 108,271 |
|
| $ | 827,334 |
| | $ | 496,050 |
|
4. LOANS RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES
Loans receivable, net at the dates presented is summarized as follows:
| | | | | | | | | | | |
| December 31, 2020 | | September 30, 2020 |
| (Dollars in thousands) |
One- to four-family: | | | |
Originated | $ | 3,946,073 | | | $ | 3,937,310 | |
Correspondent purchased | 1,974,086 | | | 2,101,082 | |
Bulk purchased | 199,673 | | | 208,427 | |
Construction | 32,871 | | | 34,593 | |
Total | 6,152,703 | | | 6,281,412 | |
Commercial: | | | |
Commercial real estate | 609,936 | | | 626,588 | |
Commercial and industrial | 69,378 | | | 97,614 | |
Construction | 84,564 | | | 105,458 | |
Total | 763,878 | | | 829,660 | |
Consumer: | | | |
Home equity | 97,717 | | | 103,838 | |
Other | 9,328 | | | 10,086 | |
Total | 107,045 | | | 113,924 | |
| | | |
Total loans receivable | 7,023,626 | | | 7,224,996 | |
| | | |
Less: | | | |
ACL | 26,125 | | | 31,527 | |
Discounts/unearned loan fees | 28,825 | | | 29,190 | |
Premiums/deferred costs | (35,418) | | | (38,572) | |
| $ | 7,004,094 | | | $ | 7,202,851 | |
|
| | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| (Dollars in thousands) |
One- to four-family: | | | |
Originated | $ | 3,944,782 |
| | $ | 3,873,851 |
|
Correspondent purchased | 2,385,907 |
| | 2,349,877 |
|
Bulk purchased | 228,730 |
| | 252,347 |
|
Construction | 35,798 |
| | 36,758 |
|
Total | 6,595,217 |
| | 6,512,833 |
|
Commercial: | | | |
Commercial real estate | 584,236 |
| | 583,617 |
|
Commercial and industrial | 62,153 |
| | 61,094 |
|
Construction | 126,266 |
| | 123,159 |
|
Total | 772,655 |
| | 767,870 |
|
Consumer: | | | |
Home equity | 114,571 |
| | 120,587 |
|
Other | 10,837 |
| | 11,183 |
|
Total | 125,408 |
| | 131,770 |
|
| | | |
Total loans receivable | 7,493,280 |
| | 7,412,473 |
|
| | | |
Less: | | | |
ACL | 31,196 |
| | 9,226 |
|
Discounts/unearned loan fees | 29,645 |
| | 31,058 |
|
Premiums/deferred costs | (44,366 | ) | | (44,558 | ) |
| $ | 7,476,805 |
| | $ | 7,416,747 |
|
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")LTV ratios on commercial
real estate loans generally do not exceed 85% of the appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15. For commercial construction loans, LTV ratios generally do not exceed 80% of the projected appraised value of the property securing the loans and the minimum debt service coverage ratio is generally 1.15, 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. WorkingWith the exception of Paycheck Protection Program ("PPP") loans, 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 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. See discussion regarding the credit risks for these loan segments in Note 1. Summary of Significant Accounting Policies - Allowance for Credit Losses. These segments are further divided into classes for purposes of providing disaggregated information about the credit quality ofinformation 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 either the originated class or correspondent purchased class, and commercial construction loans are included in the commercial real estate class.
The Bank's primary As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators for the one-including trends related to four-familyloan classification and consumer - home equity loan portfolios are delinquency status, asset classifications, LTV ratios, and borrower credit scores. The Bank's primary credit quality indicators for the commercial and consumer - other loan portfolios are delinquency status and asset classifications.status.
The following tables present the recorded investment, by class, in loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and total recorded investment at the dates presented. The recorded investment in loans is defined as the unpaid principal balance of a loan, less charge-offs and inclusive of unearned loan fees and deferred costs. At March 31, 2020 and September 30, 2019, all loans 90 or more days delinquent were on nonaccrual status. |
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| | | 90 or More Days | | Total | | | | Total |
| 30 to 89 Days | | Delinquent or | | Delinquent | | Current | | Recorded |
| Delinquent | | in Foreclosure | | Loans | | Loans | | Investment |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | |
Originated | $ | 8,333 |
| | $ | 4,503 |
| | $ | 12,836 |
| | $ | 3,953,549 |
| | $ | 3,966,385 |
|
Correspondent purchased | 4,602 |
| | 1,362 |
| | 5,964 |
| | 2,411,591 |
| | 2,417,555 |
|
Bulk purchased | 2,950 |
| | 641 |
| | 3,591 |
| | 226,167 |
| | 229,758 |
|
Commercial: | | | | | | | | | |
Commercial real estate | 1,560 |
| | 546 |
| | 2,106 |
| | 705,058 |
| | 707,164 |
|
Commercial and industrial | — |
| | 172 |
| | 172 |
| | 61,695 |
| | 61,867 |
|
Consumer: | | | | | | | | | |
Home equity | 594 |
| | 304 |
| | 898 |
| | 113,577 |
| | 114,475 |
|
Other | 34 |
| | 22 |
| | 56 |
| | 10,741 |
| | 10,797 |
|
| $ | 18,073 |
| | $ | 7,550 |
| | $ | 25,623 |
| | $ | 7,482,378 |
| | $ | 7,508,001 |
|
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | 90 or More Days | | Total | | | | Total |
| 30 to 89 Days | | Delinquent or | | Delinquent | | Current | | Recorded |
| Delinquent | | in Foreclosure | | Loans | | Loans | | Investment |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | |
Originated | $ | 7,187 |
| | $ | 3,261 |
| | $ | 10,448 |
| | $ | 3,885,335 |
| | $ | 3,895,783 |
|
Correspondent purchased | 2,762 |
| | 1,023 |
| | 3,785 |
| | 2,377,629 |
| | 2,381,414 |
|
Bulk purchased | 3,624 |
| | 1,484 |
| | 5,108 |
| | 248,376 |
| | 253,484 |
|
Commercial: | | | | | | | | | |
Commercial real estate | 762 |
| | — |
| | 762 |
| | 702,377 |
| | 703,139 |
|
Commercial and industrial | 70 |
| | 173 |
| | 243 |
| | 60,340 |
| | 60,583 |
|
Consumer: | | | | | | | | | |
Home equity | 446 |
| | 302 |
| | 748 |
| | 119,688 |
| | 120,436 |
|
Other | 78 |
| | 21 |
| | 99 |
| | 11,035 |
| | 11,134 |
|
| $ | 14,929 |
| | $ | 6,264 |
| | $ | 21,193 |
| | $ | 7,404,780 |
| | $ | 7,425,973 |
|
The recorded investment in mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of March 31, 2020 and September 30, 2019 was $1.7 million and $1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table 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 $187 thousand at March 31, 2020 and $745 thousand at September 30, 2019.
The following table presents the recorded investment, by class, in loans classified as nonaccrual at the dates presented.
|
| | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| (Dollars in thousands) |
One- to four-family: | | | |
Originated | $ | 5,313 |
| | $ | 4,436 |
|
Correspondent purchased | 1,553 |
| | 1,023 |
|
Bulk purchased | 775 |
| | 1,551 |
|
Commercial: | | | |
Commercial real estate | 670 |
| | — |
|
Commercial and industrial | 172 |
| | 173 |
|
Consumer: | | | |
Home equity | 347 |
| | 337 |
|
Other | 22 |
| | 21 |
|
| $ | 8,852 |
| | $ | 7,541 |
|
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 non-performing 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.
The following table sets forth, as of December 31, 2020, the amortized cost of loans by class of financing receivable, year of origination 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, 2020, there were 0 loans classified as doubtful, and all loans classified as loss were fully charged-off.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Current | | Fiscal | | Fiscal | | Fiscal | | Fiscal | | | | Revolving | | |
| Fiscal | | Year | | Year | | Year | | Year | | Prior | | Line of | | |
| Year | | 2020 | | 2019 | | 2018 | | 2017 | | Years | | Credit | | Total |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | |
Originated | | | | | | | | | | | | | | | |
Pass | $ | 274,145 | | | $ | 805,755 | | | $ | 404,651 | | | $ | 315,587 | | | $ | 354,212 | | | $ | 1,784,798 | | | $ | 0 | | | $ | 3,939,148 | |
Special Mention | 124 | | | 443 | | | 244 | | | 241 | | | 639 | | | 7,572 | | | 0 | | | 9,263 | |
Substandard | 0 | | | 285 | | | 903 | | | 52 | | | 259 | | | 14,364 | | | 0 | | | 15,863 | |
Correspondent purchased | | | | | | | | | | | | | | |
Pass | 58,120 | | | 408,309 | | | 112,323 | | | 200,255 | | | 246,482 | | | 963,862 | | | 0 | | | 1,989,351 | |
Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,149 | | | 0 | | | 3,149 | |
Substandard | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 5,498 | | | 0 | | | 5,498 | |
Bulk purchased | | | | | | | | | | | | | | | |
Pass | 0 | | | 0 | | | — | | | 0 | | | 0 | | | 194,336 | | | 0 | | | 194,336 | |
Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 96 | | | 0 | | | 96 | |
Substandard | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 6,124 | | | 0 | | | 6,124 | |
| 332,389 | | | 1,214,792 | | | 518,121 | | | 516,135 | | | 601,592 | | | 2,979,799 | | | 0 | | | 6,162,828 | |
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | |
Pass | 68,729 | | | 155,596 | | | 129,381 | | | 122,344 | | | 51,233 | | | 53,767 | | | 5,895 | | | 586,945 | |
Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 101,276 | | | 0 | | | 101,276 | |
Substandard | 1,296 | | | 674 | | | 229 | | | 695 | | | 391 | | | 0 | | | 0 | | | 3,285 | |
Commercial and industrial | | | | | | | | | | | | | | |
Pass | 4,856 | | | 34,835 | | | 9,295 | | | 4,342 | | | 3,886 | | | 1,031 | | | 8,487 | | | 66,732 | |
Special Mention | 0 | | | 0 | | | 223 | | | 0 | | | 402 | | | 0 | | | 0 | | | 625 | |
Substandard | 0 | | | 2 | | | 0 | | | 94 | | | 54 | | | 0 | | | 1,336 | | | 1,486 | |
| 74,881 | | | 191,107 | | | 139,128 | | | 127,475 | | | 55,966 | | | 156,074 | | | 15,718 | | | 760,349 | |
Consumer: | | | | | | | | | | | | | | | |
Home equity | | | | | | | | | | | | | | | |
Pass | 467 | | | 3,653 | | | 2,540 | | | 2,051 | | | 908 | | | 3,505 | | | 83,639 | | | 96,763 | |
Special Mention | 0 | | | 0 | | | 0 | | | 13 | | | 0 | | | 9 | | | 236 | | | 258 | |
Substandard | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 24 | | | 687 | | | 711 | |
Other | | | | | | | | | | | | | | | |
Pass | 1,166 | | | 3,309 | | | 2,182 | | | 1,392 | | | 691 | | | 277 | | | 278 | | | 9,295 | |
Special Mention | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Substandard | 0 | | | 4 | | | 0 | | | 5 | | | 4 | | | 2 | | | 0 | | | 15 | |
| 1,633 | | | 6,966 | | | 4,722 | | | 3,461 | | | 1,603 | | | 3,817 | | | 84,840 | | | 107,042 | |
| | | | | | | | | | | | | | | |
Total | $ | 408,903 | | | $ | 1,412,865 | | | $ | 661,971 | | | $ | 647,071 | | | $ | 659,161 | | | $ | 3,139,690 | | | $ | 100,558 | | | $ | 7,030,219 | |
The following table sets forth the recorded investment in loans classified as special mention or substandard, by class, at September 30, 2020 (prior to the dates presented. Special mention and substandard loans are included in the ACL formula analysis model if the loans are not individually evaluated for loss. Loans classified as doubtful or loss are individually evaluated for loss.adoption of CECL). At the dates presented,that date, there were 0 loans classified as doubtful, and all loans classified as loss were fully charged-off.
| | | | | | | | | | | | | | | |
| | | September 30, 2020 |
| | | | | Special Mention | | Substandard |
| | | | | (Dollars in thousands) |
One- to four-family: | | | | | | | |
Originated | | | | | $ | 9,249 | | | $ | 15,729 | |
Correspondent purchased | | | | | 2,076 | | | 4,512 | |
Bulk purchased | | | | | 0 | | | 5,319 | |
Commercial: | | | | | | | |
Commercial real estate | | | | | 50,957 | | | 3,541 | |
Commercial and industrial | | | | | 1,040 | | | 1,368 | |
Consumer: | | | | | | | |
Home equity | | | | | 331 | | | 581 | |
Other | | | | | 0 | | | 8 | |
| | | | | $ | 63,653 | | | $ | 31,058 | |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| Special Mention | | Substandard | | Special Mention | | Substandard |
| (Dollars in thousands) |
One- to four-family: | | | | | | | |
Originated | $ | 10,586 |
| | $ | 17,308 |
| | $ | 12,941 |
| | $ | 15,628 |
|
Correspondent purchased | 3,092 |
| | 3,741 |
| | 2,349 |
| | 2,785 |
|
Bulk purchased | — |
| | 4,910 |
| | 102 |
| | 5,294 |
|
Commercial: | | | | | | | |
Commercial real estate | 51,416 |
| | 2,232 |
| | 52,891 |
| | 2,472 |
|
Commercial and industrial | 1,082 |
| | 2,301 |
| | 1,215 |
| | 3,057 |
|
Consumer: | | | | | | | |
Home equity | 471 |
| | 637 |
| | 280 |
| | 696 |
|
Other | 7 |
| | 22 |
| | 2 |
| | 24 |
|
| $ | 66,654 |
| | $ | 31,151 |
| | $ | 69,780 |
| | $ | 29,956 |
|
Delinquency Status - The following table showssets forth, as of December 31, 2020, the weighted averageamortized 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. All revolving lines of credit scoreare presented separately, regardless of origination year.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Current | | Fiscal | | Fiscal | | Fiscal | | Fiscal | | | | Revolving | | |
| Fiscal | | Year | | Year | | Year | | Year | | Prior | | Line of | | |
| Year | | 2020 | | 2019 | | 2018 | | 2017 | | Years | | Credit | | Total |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | |
Originated | | | | | | | | | | | | | | | |
Current | $ | 274,269 | | | $ | 806,483 | | | $ | 405,610 | | | $ | 315,538 | | | $ | 354,482 | | | $ | 1,797,714 | | | $ | 0 | | | $ | 3,954,096 | |
30-89 | 0 | | | 0 | | | 0 | | | 290 | | | 369 | | | 5,164 | | | 0 | | | 5,823 | |
90+/FC | 0 | | | 0 | | | 188 | | | 52 | | | 259 | | | 3,856 | | | 0 | | | 4,355 | |
Correspondent purchased | | | | | | | | | | | | | | |
Current | 58,120 | | | 408,309 | | | 112,153 | | | 199,766 | | | 246,078 | | | 965,396 | | | 0 | | | 1,989,822 | |
30-89 | 0 | | | 0 | | | 170 | | | 489 | | | 404 | | | 3,694 | | | 0 | | | 4,757 | |
90+/FC | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,419 | | | 0 | | | 3,419 | |
Bulk purchased | | | | | | | | | | | | | | | |
Current | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 195,018 | | | 0 | | | 195,018 | |
30-89 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,768 | | | 0 | | | 1,768 | |
90+/FC | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,770 | | | 0 | | | 3,770 | |
| 332,389 | | | 1,214,792 | | | 518,121 | | | 516,135 | | | 601,592 | | | 2,979,799 | | | 0 | | | 6,162,828 | |
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | | | | | | | | | | | | | | |
Current | 70,025 | | | 155,490 | | | 129,381 | | | 122,444 | | | 51,624 | | | 155,005 | | | 5,895 | | | 689,864 | |
30-89 | 0 | | | 106 | | | 229 | | | 595 | | | 0 | | | 38 | | | 0 | | | 968 | |
90+/FC | 0 | | | 674 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 674 | |
Commercial and industrial | | | | | | | | | | | | | | |
Current | 4,856 | | | 34,835 | | | 9,448 | | | 4,341 | | | 4,288 | | | 1,031 | | | 9,823 | | | 68,622 | |
30-89 | 0 | | | 0 | | | 70 | | | 1 | | | 0 | | | 0 | | | 0 | | | 71 | |
90+/FC | 0 | | | 2 | | | 0 | | | 94 | | | 54 | | | 0 | | | 0 | | | 150 | |
| 74,881 | | | 191,107 | | | 139,128 | | | 127,475 | | | 55,966 | | | 156,074 | | | 15,718 | | | 760,349 | |
Consumer: | | | | | | | | | | | | | | | |
Home equity | | | | | | | | | | | | | | | |
Current | 467 | | | 3,653 | | | 2,540 | | | 2,064 | | | 908 | | | 3,484 | | | 83,678 | | | 96,794 | |
30-89 | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 41 | | | 439 | | | 480 | |
90+/FC | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 13 | | | 445 | | | 458 | |
Other | | | | | | | | | | | | | | | |
Current | 1,165 | | | 3,292 | | | 2,170 | | | 1,388 | | | 691 | | | 277 | | | 278 | | | 9,261 | |
30-89 | 1 | | | 17 | | | 12 | | | 4 | | | 0 | | | 0 | | | 0 | | | 34 | |
90+/FC | 0 | | | 4 | | | 0 | | | 5 | | | 4 | | | 2 | | | 0 | | | 15 | |
| 1,633 | | | 6,966 | | | 4,722 | | | 3,461 | | | 1,603 | | | 3,817 | | | 84,840 | | | 107,042 | |
| | | | | | | | | | | | | | | |
Total | $ | 408,903 | | | $ | 1,412,865 | | | $ | 661,971 | | | $ | 647,071 | | | $ | 659,161 | | | $ | 3,139,690 | | | $ | 100,558 | | | $ | 7,030,219 | |
Delinquent and weighted average LTV for one-Nonaccrual Loans - The following tables present the amortized cost at December 31, 2020 and, prior to four-familythe adoption of CECL, the recorded investment, which is identical to amortized cost, at September 30, 2020, by class, of loans 30 to 89 days delinquent, loans 90 or more days delinquent or in foreclosure, total delinquent loans, current loans, and consumer home equitytotal. At December 31, 2020 and September 30, 2020, all loans 90 or more days delinquent were on nonaccrual status.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | 90 or More Days | | Total | | | | Total |
| 30 to 89 Days | | Delinquent or | | Delinquent | | Current | | Amortized |
| Delinquent | | in Foreclosure | | Loans | | Loans | | Cost |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | |
Originated | $ | 5,823 | | | $ | 4,355 | | | $ | 10,178 | | | $ | 3,954,096 | | | $ | 3,964,274 | |
Correspondent purchased | 4,757 | | | 3,419 | | | 8,176 | | | 1,989,822 | | | 1,997,998 | |
Bulk purchased | 1,768 | | | 3,770 | | | 5,538 | | | 195,018 | | | 200,556 | |
Commercial: | | | | | | | | | |
Commercial real estate | 968 | | | 674 | | | 1,642 | | | 689,864 | | | 691,506 | |
Commercial and industrial | 71 | | | 150 | | | 221 | | | 68,622 | | | 68,843 | |
Consumer: | | | | | | | | | |
Home equity | 480 | | | 458 | | | 938 | | | 96,794 | | | 97,732 | |
Other | 34 | | | 15 | | | 49 | | | 9,261 | | | 9,310 | |
| $ | 13,901 | | | $ | 12,841 | | | $ | 26,742 | | | $ | 7,003,477 | | | $ | 7,030,219 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | 90 or More Days | | Total | | | | Total |
| 30 to 89 Days | | Delinquent or | | Delinquent | | Current | | Recorded |
| Delinquent | | in Foreclosure | | Loans | | Loans | | Investment |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | |
Originated | $ | 3,001 | | | $ | 4,347 | | | $ | 7,348 | | | $ | 3,950,387 | | | $ | 3,957,735 | |
Correspondent purchased | 3,170 | | | 2,433 | | | 5,603 | | | 2,122,085 | | | 2,127,688 | |
Bulk purchased | 2,558 | | | 2,938 | | | 5,496 | | | 203,844 | | | 209,340 | |
Commercial: | | | | | | | | | |
Commercial real estate | 40 | | | 1,206 | | | 1,246 | | | 728,191 | | | 729,437 | |
Commercial and industrial | 5 | | | 157 | | | 162 | | | 96,124 | | | 96,286 | |
Consumer: | | | | | | | | | |
Home equity | 323 | | | 296 | | | 619 | | | 103,210 | | | 103,829 | |
Other | 75 | | | 8 | | | 83 | | | 9,980 | | | 10,063 | |
| $ | 9,172 | | | $ | 11,385 | | | $ | 20,557 | | | $ | 7,213,821 | | | $ | 7,234,378 | |
The amortized cost of mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of December 31, 2020 and September 30, 2020 was $912 thousand and $1.5 million, respectively, which is included in loans 90 or more days delinquent or in foreclosure in the table 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 $129 thousand at December 31, 2020 and $183 thousand at September 30, 2020.
The following table presents the dates presented. Borrower credit scores are intended to provide an indication asamortized cost at December 31, 2020 and, prior to the likelihoodadoption of CECL, the recorded investment at September 30, 2020, by class, of loans classified as nonaccrual. Additionally, the amortized cost of nonaccrual loans that a borrower will repay their debts. Credit scores are updated at least annually, with the last update in September 2019, from a nationally recognized consumer rating agency. The LTV ratios provide an estimatehad no related ACL is presented as of the extent toDecember 31, 2020, all of which the Bank may incur awere individually evaluated for loss onand any given loan that may go into foreclosure. The consumer - home equity LTV does not take into account the first lien position, if applicable. 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.identified losses have been charged off.
| | | | | | | | | | | | | | | | | |
| |
| December 31, 2020 | | September 30, 2020 |
| Nonaccrual Loans | | Nonaccrual Loans with No ACL | | Nonaccrual Loans |
| (Dollars in thousands) |
One- to four-family: | | | | | |
Originated | $ | 5,323 | | | $ | 2,361 | | | $ | 5,037 | |
Correspondent purchased | 3,418 | | | 308 | | | 2,433 | |
Bulk purchased | 3,771 | | | 1,463 | | | 2,938 | |
Commercial: | | | | | |
Commercial real estate | 1,076 | | | 72 | | | 1,663 | |
Commercial and industrial | 150 | | | 94 | | | 157 | |
Consumer: | | | | | |
Home equity | 467 | | | 9 | | | 305 | |
Other | 15 | | | 0 | | | 8 | |
| $ | 14,220 | | | $ | 4,307 | | | $ | 12,541 | |
|
| | | | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| Credit Score | | LTV | | Credit Score | | LTV |
One- to four-family - originated | 767 | | 62 | % | | 768 | | 62 | % |
One- to four-family - correspondent | 764 | | 65 |
| | 765 | | 65 |
|
One- to four-family - bulk purchased | 763 | | 61 |
| | 762 | | 61 |
|
Consumer - home equity | 752 | | 19 |
| | 754 | | 19 |
|
| 766 | | 62 |
| | 766 | | 62 |
|
Troubled Debt Restructurings ("TDRs") - The following tables present the amortized cost for the current period and, prior to the adoption of CECL, the recorded investment for the prior period, prior to restructuring and immediately after restructuring in all loans restructured during the periods presented. These tables do not reflect the recorded investmentamortized cost at the end of the periods indicated. Any increase in the recorded investmentamortized cost at the time of the restructuring was generally due to the capitalization of delinquent interest and/or escrow balances.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| December 31, 2020 | | |
| Number | | Pre- | | Post- | | | | | | |
| of | | Restructured | | Restructured | | | | | | |
| Contracts | | Outstanding | | Outstanding | | | | | | |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | 4 | | | $ | 647 | | | $ | 645 | | | | | | | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | | | | | |
Bulk purchased | 0 | | | 0 | | | 0 | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 0 | | | 0 | | | 0 | | | | | | | |
Commercial and industrial | 0 | | | 0 | | | 0 | | | | | | | |
Consumer: | | | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | | | | | |
Other | 0 | | | 0 | | | 0 | | | | | | | |
| 4 | | | $ | 647 | | | $ | 645 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, 2020 | | March 31, 2020 |
| Number | | Pre- | | Post- | | Number | | Pre- | | Post- |
| of | | Restructured | | Restructured | | of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding | | Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | 3 |
| | $ | 138 |
| | $ | 140 |
| | 5 |
| | $ | 241 |
| | $ | 242 |
|
Correspondent purchased | 1 |
| | 192 |
| | 191 |
| | 1 |
| | 192 |
| | 191 |
|
Bulk purchased | — |
| | — |
| | — |
| | 1 |
| | 75 |
| | 134 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 1 |
| | 837 |
| | 837 |
| | 1 |
| | 837 |
| | 837 |
|
Commercial and industrial | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | |
Home equity | 2 |
| | 45 |
| | 44 |
| | 2 |
| | 45 |
| | 44 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 7 |
| | $ | 1,212 |
| | $ | 1,212 |
| | 10 |
| | $ | 1,390 |
| | $ | 1,448 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, 2019 | | March 31, 2019 |
| Number | | Pre- | | Post- | | Number | | Pre- | | Post- |
| of | | Restructured | | Restructured | | of | | Restructured | | Restructured |
| Contracts | | Outstanding | | Outstanding | | Contracts | | Outstanding | | Outstanding |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | — |
| | $ | — |
| | $ | — |
| | 1 |
| | $ | 117 |
| | $ | 117 |
|
Correspondent purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Bulk purchased | 1 |
| | 308 |
| | 308 |
| | 1 |
| | 308 |
| | 308 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | |
Home equity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 1 |
| | $ | 308 |
| | $ | 308 |
| | 2 |
| | $ | 425 |
| | $ | 425 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | |
| December 31, 2019 | | |
| Number | | Pre- | | Post- | | | | | | |
| of | | Restructured | | Restructured | | | | | | |
| Contracts | | Outstanding | | Outstanding | | | | | | |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | 2 | | | $ | 103 | | | $ | 102 | | | | | | | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | | | | | |
Bulk purchased | 1 | | | 75 | | | 134 | | | | | | | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 0 | | | 0 | | | 0 | | | | | | | |
Commercial and industrial | 0 | | | 0 | | | 0 | | | | | | | |
Consumer: | | | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | | | | | |
Other | 0 | | | 0 | | | 0 | | | | | | | |
| 3 | | | $ | 178 | | | $ | 236 | | | | | | | |
The following table provides information on TDRs that became delinquent during the periods presented within 12 months after being restructured.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| For the Three Months Ended | | |
| December 31, 2020 | | December 31, 2019 | | | | |
| Number of | | Amortized | | Number of | | Recorded | | | | | | | | |
| Contracts | | Cost | | Contracts | | Investment | | | | | | | | |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | 0 | | | $ | 0 | | | 1 | | | $ | 38 | | | | | | | | | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | |
Bulk purchased | 0 | | | 0 | | | 1 | | | 134 | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | |
Commercial and industrial | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | |
Consumer: | | | | | | | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | | | | | | | |
| 0 | | | $ | 0 | | | 2 | | | $ | 172 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | March 31, 2019 |
| Number of | | Recorded | | Number of | | Recorded | | Number of | | Recorded | | Number of | | Recorded |
| Contracts | | Investment | | Contracts | | Investment | | Contracts | | Investment | | Contracts | | Investment |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | — |
| | $ | — |
| | 1 |
| | $ | 45 |
| | 1 |
| | $ | 38 |
| | 1 |
| | $ | 45 |
|
Correspondent purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Bulk purchased | — |
| | — |
| | — |
| | — |
| | 1 |
| | 134 |
| | — |
| | — |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | | | | | |
Home equity | 1 |
| | 9 |
| | — |
| | — |
| | 1 |
| | 9 |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 1 |
| | $ | 9 |
| | 1 |
| | $ | 45 |
| | 3 |
| | $ | 181 |
| | 1 |
| | $ | 45 |
|
In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the Coronavirus Disease 2019 ("COVID-19") pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance, with the deferred principal, interest, and escrow added to the loan payoff amount. COVID-19 loan modifications of commercial loans mainly consist of up to a six-month interest-only payment period. The COVID-19 loan modifications are not considered troubled debt restructurings per current GAAP, nor are the loans with payment forbearance reported as past due or placed on non-accrual status during the forbearance time period.
Impaired loans Loans - The following information pertains to impaired loans, by class, as of the dates presented.date and for the period presented (prior to the adoption of CECL). Prior to the adoption of CECL, a loan was considered impaired when, based on current information and events, it was probable that the Bank would be unable to collect all amounts due, including principal and interest, according to the original contractual terms of the loan agreement.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | September 30, 2019 |
| | | Unpaid | | | | | | Unpaid | | |
| Recorded | | Principal | | Related | | Recorded | | Principal | | Related |
| Investment | | Balance | | ACL | | Investment | | Balance | | ACL |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 14,406 |
| | $ | 15,013 |
| | $ | — |
| | $ | 14,683 |
| | $ | 15,241 |
| | $ | — |
|
Correspondent purchased | 1,946 |
| | 2,049 |
| | — |
| | 1,763 |
| | 1,868 |
| | — |
|
Bulk purchased | 4,909 |
| | 5,630 |
| | — |
| | 4,943 |
| | 5,661 |
| | — |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 512 |
| | 840 |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | — |
| | 148 |
| | — |
| | 60 |
| | 184 |
| | — |
|
Consumer: | | | | | | | | | | | |
Home equity | 336 |
| | 446 |
| | — |
| | 345 |
| | 462 |
| | — |
|
Other | — |
| | 33 |
| | — |
| | — |
| | 29 |
| | — |
|
| 22,109 |
| | 24,159 |
| | — |
| | 21,794 |
| | 23,445 |
| | — |
|
With an allowance recorded | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Correspondent purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Bulk purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | 2,076 |
| | 2,074 |
| | 240 |
| | — |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | |
Home equity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2,076 |
| | 2,074 |
| | 240 |
| | — |
| | — |
| | — |
|
Total | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | |
Originated | 14,406 |
| | 15,013 |
| | — |
| | 14,683 |
| | 15,241 |
| | — |
|
Correspondent purchased | 1,946 |
| | 2,049 |
| | — |
| | 1,763 |
| | 1,868 |
| | — |
|
Bulk purchased | 4,909 |
| | 5,630 |
| | — |
| | 4,943 |
| | 5,661 |
| | — |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 512 |
| | 840 |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | 2,076 |
| | 2,222 |
| | 240 |
| | 60 |
| | 184 |
| | — |
|
Consumer: | | | | | | | | | | | |
Home equity | 336 |
| | 446 |
| | — |
| | 345 |
| | 462 |
| | — |
|
Other | — |
| | 33 |
| | — |
| | — |
| | 29 |
| | — |
|
| $ | 24,185 |
| | $ | 26,233 |
| | $ | 240 |
| | $ | 21,794 |
| | $ | 23,445 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | For the Three Months Ended |
| September 30, 2020 | | December 31, 2019 |
| | | Unpaid | | | | Average | | Interest |
| Recorded | | Principal | | Related | | Recorded | | Income |
| Investment | | Balance | | ACL | | Investment | | Recognized |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | |
One- to four-family: | | | | | | | | | |
Originated | $ | 12,385 | | | $ | 12,813 | | | $ | — | | | $ | 14,621 | | | $ | 161 | |
Correspondent purchased | 1,955 | | | 2,058 | | | — | | | 1,760 | | | 18 | |
Bulk purchased | 3,843 | | | 4,302 | | | — | | | 4,978 | | | 52 | |
Commercial: | | | | | | | | | |
Commercial real estate | 1,052 | | | 1,379 | | | — | | | 0 | | | 0 | |
Commercial and industrial | 99 | | | 244 | | | — | | | 33 | | | 0 | |
Consumer: | | | | | | | | | |
Home equity | 280 | | | 360 | | | — | | | 337 | | | 6 | |
Other | 0 | | | 45 | | | — | | | 0 | | | 0 | |
| 19,614 | | | 21,201 | | | — | | | 21,729 | | | 237 | |
With an allowance recorded | | | | | | | | | |
One- to four-family: | | | | | | | | | |
Originated | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Correspondent purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Bulk purchased | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Commercial: | | | | | | | | | |
Commercial real estate | 660 | | | 660 | | | 83 | | | 0 | | | 0 | |
Commercial and industrial | 1,269 | | | 1,268 | | | 240 | | | 608 | | | 12 | |
Consumer: | | | | | | | | | |
Home equity | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Other | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
| 1,929 | | | 1,928 | | | 323 | | | 608 | | | 12 | |
Total | | | | | | | | | |
One- to four-family: | | | | | | | | | |
Originated | 12,385 | | | 12,813 | | | 0 | | | 14,621 | | | 161 | |
Correspondent purchased | 1,955 | | | 2,058 | | | 0 | | | 1,760 | | | 18 | |
Bulk purchased | 3,843 | | | 4,302 | | | 0 | | | 4,978 | | | 52 | |
Commercial: | | | | | | | | | |
Commercial real estate | 1,712 | | | 2,039 | | | 83 | | | 0 | | | 0 | |
Commercial and industrial | 1,368 | | | 1,512 | | | 240 | | | 641 | | | 12 | |
Consumer: | | | | | | | | | |
Home equity | 280 | | | 360 | | | 0 | | | 337 | | | 6 | |
Other | 0 | | | 45 | | | 0 | | | 0 | | | 0 | |
| $ | 21,543 | | | $ | 23,129 | | | $ | 323 | | | $ | 22,337 | | | $ | 249 | |
The following information pertains to impaired loans, by class, for the periods presented.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 | | March 31, 2020 | | March 31, 2019 |
| Average | | Interest | | Average | | Interest | | Average | | Interest | | Average | | Interest |
| Recorded | | Income | | Recorded | | Income | | Recorded | | Income | | Recorded | | Income |
| Investment | | Recognized | | Investment | | Recognized | | Investment | | Recognized | | Investment | | Recognized |
| (Dollars in thousands) |
With no related allowance recorded | | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | $ | 14,441 |
| | $ | 161 |
| | $ | 15,928 |
| | $ | 167 |
| | $ | 14,526 |
| | $ | 322 |
| | $ | 16,980 |
| | $ | 352 |
|
Correspondent purchased | 1,854 |
| | 19 |
| | 2,177 |
| | 23 |
| | 1,814 |
| | 37 |
| | 2,251 |
| | 45 |
|
Bulk purchased | 4,965 |
| | 50 |
| | 5,230 |
| | 43 |
| | 4,965 |
| | 102 |
| | 5,453 |
| | 86 |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | 547 |
| | 4 |
| | — |
| | — |
| | 312 |
| | 4 |
| | — |
| | — |
|
Commercial and industrial | — |
| | — |
| | — |
| | — |
| | 19 |
| | — |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | | | | | |
Home equity | 332 |
| | 5 |
| | 436 |
| | 7 |
| | 335 |
| | 11 |
| | 461 |
| | 16 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 22,139 |
| | 239 |
| | 23,771 |
| | 240 |
| | 21,971 |
| | 476 |
| | 25,145 |
| | 499 |
|
With an allowance recorded | | | | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Correspondent purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Bulk purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Commercial and industrial | 2,244 |
| | 42 |
| | — |
| | — |
| | 1,282 |
| | 54 |
| | — |
| | — |
|
Consumer: | | | | | | | | | | �� | | | | | |
Home equity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| 2,244 |
| | 42 |
| | — |
| | — |
| | 1,282 |
| | 54 |
| | — |
| | — |
|
Total | | | | | | | | | | | | | | | |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | 14,441 |
| | 161 |
| | 15,928 |
| | 167 |
| | 14,526 |
| | 322 |
| | 16,980 |
| | 352 |
|
Correspondent purchased | 1,854 |
| | 19 |
| | 2,177 |
| | 23 |
| | 1,814 |
| | 37 |
| | 2,251 |
| | 45 |
|
Bulk purchased | 4,965 |
| | 50 |
| | 5,230 |
| | 43 |
| | 4,965 |
| | 102 |
| | 5,453 |
| | 86 |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | 547 |
| | 4 |
| | — |
| | — |
| | 312 |
| | 4 |
| | — |
| | — |
|
Commercial and industrial | 2,244 |
| | 42 |
| | — |
| | — |
| | 1,301 |
| | 54 |
| | — |
| | — |
|
Consumer: | | | | | | | | | | | | | | | |
Home equity | 332 |
| | 5 |
| | 436 |
| | 7 |
| | 335 |
| | 11 |
| | 461 |
| | 16 |
|
Other | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 24,383 |
| | $ | 281 |
| | $ | 23,771 |
| | $ | 240 |
| | $ | 23,253 |
| | $ | 530 |
| | $ | 25,145 |
| | $ | 499 |
|
Allowance for Credit Losses - Management maintains an ACL to absorb inherent losses in the loan portfolio based on quarterly assessments of the loan portfolio. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors are applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. Due to the deterioration of economic conditions as a result of the COVID-19 pandemic, management increased some of the historical loss factors and qualitative factors in the formula analysis model to account for the increase in the estimated inherent losses in the loan portfolio at March 31, 2020 which accounts for the majority of the increase in the ACL during the current quarter. If economic conditions continue to worsen and/or the current and future government programs do not provide adequate relief to borrowers, it is possible the Bank's ACL will need to increase in future periods.
The following is a summary of ACL activity, by loan portfolio segment, for the periods presented, andpresented. Activity during the ending balancethree months ended December 31, 2019 occurred prior to the adoption of ACL based on the Company's impairment methodology.CECL.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended December 31, 2020 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,800 | | | $ | 484 | | | $ | 31,527 | |
Adoption of CECL | (4,452) | | | (367) | | | 436 | | | (4,383) | | | (193) | | | (185) | | | (4,761) | |
Balance at October 1, 2020 | 1,633 | | | 2,324 | | | 903 | | | 4,860 | | | 21,607 | | | 299 | | | 26,766 | |
Charge-offs | (14) | | | 0 | | | 0 | | | (14) | | | (515) | | | (3) | | | (532) | |
Recoveries | 34 | | | 0 | | | 0 | | | 34 | | | 12 | | | 22 | | | 68 | |
Provision for credit losses | (115) | | | (566) | | | (51) | | | (732) | | | 603 | | | (48) | | | (177) | |
Ending balance | $ | 1,538 | | | $ | 1,758 | | | $ | 852 | | | $ | 4,148 | | | $ | 21,707 | | | $ | 270 | | | $ | 26,125 | |
| | | For the Three Months Ended March 31, 2020 | | For the Three Months Ended December 31, 2019 |
| One- to Four-Family | | | | | | | | One- to Four-Family | |
|
| | Correspondent | | Bulk | |
| |
| | | | | | | Correspondent | | Bulk | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total | | Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) | | (Dollars in thousands) |
Beginning balance | $ | 2,047 |
| | $ | 1,200 |
| | $ | 612 |
| | $ | 3,859 |
| | $ | 5,418 |
| | $ | 158 |
| | $ | 9,435 |
| Beginning balance | $ | 2,000 | | | $ | 1,203 | | | $ | 687 | | | $ | 3,890 | | | $ | 5,171 | | | $ | 165 | | | $ | 9,226 | |
Charge-offs | (46 | ) | | — |
| | — |
| | (46 | ) | | (325 | ) | | (4 | ) | | (375 | ) | Charge-offs | (18) | | | 0 | | | 0 | | | (18) | | | (24) | | | (6) | | | (48) | |
Recoveries | 3 |
| | — |
| | — |
| | 3 |
| | 54 |
| | 4 |
| | 61 |
| Recoveries | 0 | | | 0 | | | 0 | | | 0 | | | 27 | | | 5 | | | 32 | |
Provision for credit losses | 4,463 |
| | 2,155 |
| | (55 | ) | | 6,563 |
| | 15,181 |
| | 331 |
| | 22,075 |
| Provision for credit losses | 65 | | | (3) | | | (75) | | | (13) | | | 244 | | | (6) | | | 225 | |
Ending balance | $ | 6,467 |
| | $ | 3,355 |
| | $ | 557 |
| | $ | 10,379 |
| | $ | 20,328 |
| | $ | 489 |
| | $ | 31,196 |
| Ending balance | $ | 2,047 | | | $ | 1,200 | | | $ | 612 | | | $ | 3,859 | | | $ | 5,418 | | | $ | 158 | | | $ | 9,435 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2020 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| |
| | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 2,000 |
| | $ | 1,203 |
| | $ | 687 |
| | $ | 3,890 |
| | $ | 5,171 |
| | $ | 165 |
| | $ | 9,226 |
|
Charge-offs | (64 | ) | | — |
| | — |
| | (64 | ) | | (349 | ) | | (10 | ) | | (423 | ) |
Recoveries | 3 |
| | — |
| | — |
| | 3 |
| | 81 |
| | 9 |
| | 93 |
|
Provision for credit losses | 4,528 |
| | 2,152 |
| | (130 | ) | | 6,550 |
| | 15,425 |
| | 325 |
| | 22,300 |
|
Ending balance | $ | 6,467 |
| | $ | 3,355 |
| | $ | 557 |
| | $ | 10,379 |
| | $ | 20,328 |
| | $ | 489 |
| | $ | 31,196 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended March 31, 2019 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| |
| | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 2,761 |
| | $ | 1,748 |
| | $ | 836 |
| | $ | 5,345 |
| | $ | 3,034 |
| | $ | 179 |
| | $ | 8,558 |
|
Charge-offs | (10 | ) | | — |
| | — |
| | (10 | ) | | — |
| | (2 | ) | | (12 | ) |
Recoveries | 2 |
| | — |
| | 17 |
| | 19 |
| | 25 |
| | 29 |
| | 73 |
|
Provision for credit losses | (580 | ) | | (356 | ) | | (51 | ) | | (987 | ) | | 1,029 |
| | (42 | ) | | — |
|
Ending balance | $ | 2,173 |
| | $ | 1,392 |
| | $ | 802 |
| | $ | 4,367 |
| | $ | 4,088 |
| | $ | 164 |
| | $ | 8,619 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended March 31, 2019 |
| One- to Four-Family | | | | | | |
|
| | Correspondent | | Bulk | |
| |
| | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Beginning balance | $ | 2,953 |
| | $ | 1,861 |
| | $ | 925 |
| | $ | 5,739 |
| | $ | 2,556 |
| | $ | 168 |
| | $ | 8,463 |
|
Charge-offs | (30 | ) | | — |
| | (26 | ) | | (56 | ) | | — |
| | (12 | ) | | (68 | ) |
Recoveries | 5 |
| | — |
| | 106 |
| | 111 |
| | 27 |
| | 86 |
| | 224 |
|
Provision for credit losses | (755 | ) | | (469 | ) | | (203 | ) | | (1,427 | ) | | 1,505 |
| | (78 | ) | | — |
|
Ending balance | $ | 2,173 |
| | $ | 1,392 |
| | $ | 802 |
| | $ | 4,367 |
| | $ | 4,088 |
| | $ | 164 |
| | $ | 8,619 |
|
The following is a summary of the loan portfolio and related ACL balances at the dates presented, by loan portfolio segment disaggregated by the Company's impairment method.method as of September 30, 2020 (prior to the adoption of CECL).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| One- to Four-Family | | | | | | |
| | | Correspondent | | Bulk | | | | | | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 3,945,350 | | | $ | 2,125,733 | | | $ | 205,497 | | | $ | 6,276,580 | | | $ | 822,643 | | | $ | 113,612 | | | $ | 7,212,835 | |
Individually evaluated for impairment | 12,385 | | | 1,955 | | | 3,843 | | | 18,183 | | | 3,080 | | | 280 | | | 21,543 | |
| $ | 3,957,735 | | | $ | 2,127,688 | | | $ | 209,340 | | | $ | 6,294,763 | | | $ | 825,723 | | | $ | 113,892 | | | $ | 7,234,378 | |
| | | | | | | | | | | | | |
ACL for loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,477 | | | $ | 484 | | | $ | 31,204 | |
Individually evaluated for impairment | 0 | | | 0 | | | 0 | | | 0 | | | 323 | | | 0 | | | 323 | |
| $ | 6,085 | | | $ | 2,691 | | | $ | 467 | | | $ | 9,243 | | | $ | 21,800 | | | $ | 484 | | | $ | 31,527 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| One- to Four-Family | |
| | | | |
|
| | Correspondent | | Bulk | |
| |
| | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 3,951,979 |
| | $ | 2,415,609 |
| | $ | 224,849 |
| | $ | 6,592,437 |
| | $ | 766,443 |
| | $ | 124,936 |
| | $ | 7,483,816 |
|
Individually evaluated for impairment | 14,406 |
| | 1,946 |
| | 4,909 |
| | 21,261 |
| | 2,588 |
| | 336 |
| | 24,185 |
|
| $ | 3,966,385 |
| | $ | 2,417,555 |
| | $ | 229,758 |
| | $ | 6,613,698 |
| | $ | 769,031 |
| | $ | 125,272 |
| | $ | 7,508,001 |
|
| | | | | | | | | | | | | |
ACL for loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 6,467 |
| | $ | 3,355 |
| | $ | 557 |
| | $ | 10,379 |
| | $ | 20,088 |
| | $ | 489 |
| | $ | 30,956 |
|
Individually evaluated for impairment | — |
| | — |
| | — |
| | — |
| | 240 |
| | — |
| | 240 |
|
| $ | 6,467 |
| | $ | 3,355 |
| | $ | 557 |
| | $ | 10,379 |
| | $ | 20,328 |
| | $ | 489 |
| | $ | 31,196 |
|
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, 2020. The key assumptions utilized in estimating the Company's ACL at December 31, 2020 are discussed below.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2019 |
| One- to Four-Family | |
| | | | |
|
| | Correspondent | | Bulk | |
| |
| | | | |
| Originated | | Purchased | | Purchased | | Total | | Commercial | | Consumer | | Total |
| (Dollars in thousands) |
Recorded investment in loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 3,881,100 |
| | $ | 2,379,651 |
| | $ | 248,541 |
| | $ | 6,509,292 |
| | $ | 763,662 |
| | $ | 131,225 |
| | $ | 7,404,179 |
|
Individually evaluated for impairment | 14,683 |
| | 1,763 |
| | 4,943 |
| | 21,389 |
| | 60 |
| | 345 |
| | 21,794 |
|
| $ | 3,895,783 |
| | $ | 2,381,414 |
| | $ | 253,484 |
| | $ | 6,530,681 |
| | $ | 763,722 |
| | $ | 131,570 |
| | $ | 7,425,973 |
|
| | | | | | | | | | | | | |
ACL for loans: | | | | | | | | | | | | | |
Collectively evaluated for impairment | $ | 2,000 |
| | $ | 1,203 |
| | $ | 687 |
| | $ | 3,890 |
| | $ | 5,171 |
| | $ | 165 |
| | $ | 9,226 |
|
Individually evaluated for impairment | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| $ | 2,000 |
| | $ | 1,203 |
| | $ | 687 |
| | $ | 3,890 |
| | $ | 5,171 |
| | $ | 165 |
| | $ | 9,226 |
|
•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, 2020. The forecasted economic indices applied to the model at December 31, 2020 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, 2020 was the national unemployment rate. The forecast national unemployment rate in the economic scenario selected by management at December 31, 2020 had the national unemployment rate peaking at 8.0% at June 30, 2021 and then a gradual decline to 7.5% at December 31, 2021 which was the end of our four quarter forecast time period.•Forecast and reversion to mean time period - The forecasted time period for all of the economic indices was four quarters at December 31, 2020. The reversion to mean time period was eight quarters for the national unemployment rate and four quarters for all other economic indices at December 31, 2020.
•Prepayment and curtailment assumptions - The assumptions used at December 31, 2020 were generally based on actual prepayment and curtailment speeds for each respective loan pool in the model.
•Qualitative factors - The qualitative considerations by management at December 31, 2020 included the COVID-19 loan modification programs considering the payment performance of the loans that had exited their deferral periods, the increase in special mention commercial loans during the current quarter and the special mention commercial loans still in their COVID-19 loan modification time period, and the economic uncertainties related to the political party changes in U.S. government offices, the effectiveness of the latest federal stimulus package, potential additional economic stimulus from the federal government, and the impact the increasing COVID-19 cases and limited vaccine distribution may have on the economy. Management determined a qualitative amount was not necessary at December 31, 2020 for the loans in the COVID-19 loan modification program due to the significant decrease in the dollar amount of the loans in the program and the fact that the majority of the loans that have exited the program are current on their payments. See discussion below regarding the qualitative amount at December 31, 2020 for special mention commercial loans and the economic uncertainty.
At December 31, 2020, the ACL was composed of $15.1 million calculated by the model, $6.6 million related to the economic uncertainty qualitative factor, and $4.4 million related to the special mention qualitative factor, resulting in a total ACL of $26.1 million. The decrease in ACL during the current quarter was due to net charge-offs of $464 thousand and a negative provision for credit losses of $177 thousand. The negative provision for credit losses was due primarily to a reduction in the correspondent one-to four-family loan portfolio during the current quarter, partially offset by an increase in the commercial loan ACL due to the related qualitative factor. The commercial loan portfolio balance decreased during the current quarter, but due to the related qualitative factors, any reduction in the ACL due to a reduction in the loan balance was offset. The economic forecast selected at December 31, 2020 improved from October 1, 2020 when CECL was adopted by the Company, but the improvement in the forecast was largely offset by the qualitative factors discussed above.
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 three months ended December 31, 2020 (dollars in thousands).
| | | | | |
Beginning balance | $ | 0 | |
Adoption of CECL | 7,788 | |
Balance at October 1, 2020 | 7,788 | |
Provision for credit losses | (1,355) | |
Ending balance | $ | 6,433 | |
At December 31, 2020, the Company also applied a qualitative factor for economic uncertainty related to the calculation of the reserve for off-balance sheet credit exposures, but the impact of this qualitative factor was smaller compared to the economic uncertainty factor applied in the calculation of ACL, in consideration of the fact the commitments are being underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The $1.4 million reduction in the reserve compared to October 1, 2020, which was recognized as a negative provision for credit losses, was due to an improvement in the economic forecast during the current quarter, partially offset by an increase in the balance of off-balance sheet credit exposures.
5. BORROWED FUNDS
FHLB Borrowings and Interest Rate Swaps - At MarchDecember 31, 2020 and September 30, 2019,2020, the Bank had entered into interest rate swap agreements with a total notional amount of $640.0 million in order to hedge the variable cash flows associated with $640.0 million of adjustable-rate FHLB advances. At MarchDecember 31, 2020 and September 30, 2019,2020, the interest rate swap agreements had an average remaining term to maturity of 4.03.2 years and 4.53.5 years, respectively. The interest rate swaps were designated as cash flow hedges and involve 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 MarchDecember 31, 2020 and September 30, 2019,2020, the interest rate swaps were in a loss position with a total fair value of $55.6$47.9 million and $33.1$53.1 million, respectively, which was reported in accounts payable and accrued expenses on the consolidated balance sheet. During the three and six months ended MarchDecember 31, 2020, $983 thousand and $1.7$3.0 million respectively, was reclassified from AOCI as an increase to interest expense. During the three months ended MarchDecember 31, 2019, $100 thousand was reclassified from AOCI as a decrease to interest expense. During the six months ended March 31, 2019, $51$709 thousand was reclassified from AOCI as an increase to interest expense. There was 0 hedge ineffectiveness recognized in the consolidated statements of income during any of these periods. At MarchDecember 31, 2020, the Company estimated that $13.0$15.0 million of interest expense associated with the interest rate swaps will 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 $56.3$48.8 million at MarchDecember 31, 2020 and $33.3$54.6 million at September 30, 2019.2020.
During the current quarter, the Bank prepaid a fixed-rate FHLB advancesadvance totaling $350.0$100.0 million with a weighted average contractual interest rate of 2.42%2.21% and a weighted average remaining term of 1.01.2 years, and replaced these advancesthis advance with $350.0a $100.0 million of fixed-rate FHLB advancesadvance with a weighted average contractual interest rate of 1.43%0.62% and a weighted average term of 4.75.0 years. The Bank paid penalties totaling $4.2a penalty of $2.3 million to FHLB as a result of prepaying the FHLB advances.advance. The effective interest rate of the new advance is 1.09%. The prepayment penalties arepenalty is being recognized in interest expense over the life of the new FHLB advances.advance
6. FAIR 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 its fair values on the price that would be received from the sale of a financial 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 sixthree months ended MarchDecember 31, 2020 or during fiscal year 2019.2020. 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)
•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 accounts payable and accrued expenses 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 during the sixthree months ended MarchDecember 31, 2020 or during fiscal year 2019.2020. (Level 2)
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 not0t have any Level 3 financial instruments measured at fair value on a recurring basis at MarchDecember 31, 2020 or September 30, 2019.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 1,459,300 | | | $ | 0 | | | $ | 1,459,300 | | | $ | 0 | |
GSE debentures | 445,711 | | | 0 | | | 445,711 | | | 0 | |
Municipal bonds | 8,855 | | | 0 | | | 8,855 | | | 0 | |
| | | | | | | |
| $ | 1,913,866 | | | $ | 0 | | | $ | 1,913,866 | | | $ | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 47,935 | | | $ | 0 | | | $ | 47,935 | | | $ | 0 | |
|
| | | | | | | | | | | | | | | |
| March 31, 2020 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 973,318 |
| | $ | — |
| | $ | 973,318 |
| | $ | — |
|
GSE debentures | 250,779 |
| | — |
| | 250,779 |
| | — |
|
Municipal bonds | 11,940 |
| | — |
| | 11,940 |
| | — |
|
| $ | 1,236,037 |
| | $ | — |
| | $ | 1,236,037 |
| | $ | — |
|
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 55,555 |
| | $ | — |
| | $ | 55,555 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2019 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 936,487 |
| | $ | — |
| | $ | 936,487 |
| | $ | — |
|
GSE debentures | 249,954 |
| | — |
| | 249,954 |
| | — |
|
Municipal bonds | 18,422 |
| | — |
| | 18,422 |
| | — |
|
| $ | 1,204,863 |
| | $ | — |
| | $ | 1,204,863 |
| | $ | — |
|
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 33,090 |
| | $ | — |
| | $ | 33,090 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 |
| | | Quoted Prices | | Significant | | Significant |
| | | in Active Markets | | Other Observable | | Unobservable |
| Carrying | | for Identical Assets | | Inputs | | Inputs |
| Value | | (Level 1) | | (Level 2) | | (Level 3) |
| (Dollars in thousands) |
Assets: | | | | | | | |
AFS Securities: | | | | | | | |
MBS | $ | 1,180,803 | | | $ | 0 | | | $ | 1,180,803 | | | $ | 0 | |
GSE debentures | 370,340 | | | 0 | | | 370,340 | | | 0 | |
Municipal bonds | 9,807 | | | 0 | | | 9,807 | | | 0 | |
| | | | | | | |
| $ | 1,560,950 | | | $ | 0 | | | $ | 1,560,950 | | | $ | 0 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities: | | | | | | | |
Interest rate swaps | $ | 53,149 | | | $ | 0 | | | $ | 53,149 | | | $ | 0 | |
The Company's significant Level 3 measurements that are measured on a non-recurring basis pertain to the Company's loans receivable and OREO.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 - With the adoption of CECL, collateral dependent assets are assets evaluated as part of the ACL on an individual basis. Those assets for which there is an associated ACL are considered financial assets measured at fair value on a non-recurring basis. Prior to the adoption of CECL, loans identified as impaired were considered financial assets measured at fair value on a non-recurring basis. The valuation method for collateral dependent assets and impaired loans is identical.
The fair value of impaired collateral dependent loans/loans individually evaluated for impairmentloss on a non-recurring basis during the sixthree months ended MarchDecember 31, 2020 and 2019 that were still held in the portfolio as of MarchDecember 31, 2020 and 2019 was $4.9$5.9 million and $2.8$3.9 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 10%. 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 the 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
impaired commercial loans individually evaluated for impairment during the sixthree months ended MarchDecember 31, 2020 and December 31, 2019 were downward adjustments to the book value of the collateral for lack of marketability. TheDuring the three months ended December 31, 2020, the adjustments ranged from 10% to 50%, with a weighted average of 20%26%. There were no impaired commercial loans individually evaluated duringDuring the sixthree months ended MarchDecember 31, 2019.2019, the adjustments ranged from 10% to 50%, with a weighted average of 18%. The basis utilized in calculating the weighted averages for these adjustments was the original unadjusted value of each collateral item.
Fair values of impaired collateral dependent loans/loans individually evaluated for impairmentloss 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 10%. 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. The fair value of OREO measured on a non-recurring basis during the sixthree months ended MarchDecember 31, 2020 and 2019 that was still held in the portfolio as of MarchDecember 31, 2020 and 2019 was $183$30 thousand and $582$193 thousand, respectively. The carrying value of the properties equaled the fair value of the properties at MarchDecember 31, 2020 and 2019.
Fair Value Disclosures - The Company determined 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.
The carrying amounts and estimated fair values of the Company's financial instruments by fair value hierarchy, at the dates presented, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 168,032 | | | $ | 168,032 | | | $ | 168,032 | | | $ | 0 | | | $ | 0 | |
AFS securities | 1,913,866 | | | 1,913,866 | | | 0 | | | 1,913,866 | | | 0 | |
| | | | | | | | | |
Loans receivable | 7,004,094 | | | 7,532,104 | | | 0 | | | 0 | | | 7,532,104 | |
| | | | | | | | | |
FHLB stock | 84,693 | | | 84,693 | | | 84,693 | | | 0 | | | 0 | |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Deposits | 6,410,842 | | | 6,475,389 | | | 3,392,685 | | | 3,082,704 | | | 0 | |
Borrowings | 1,734,275 | | | 1,783,034 | | | 0 | | | 1,783,034 | | | 0 | |
| | | | | | | | | |
Interest rate swaps | 47,935 | | | 47,935 | | | 0 | | | 47,935 | | | 0 | |
| | | | | | | | | |
| September 30, 2020 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 185,148 | | | $ | 185,148 | | | $ | 185,148 | | | $ | 0 | | | $ | 0 | |
AFS securities | 1,560,950 | | | 1,560,950 | | | 0 | | | 1,560,950 | | | 0 | |
| | | | | | | | | |
Loans receivable | 7,202,851 | | | 7,663,000 | | | 0 | | | 0 | | | 7,663,000 | |
| | | | | | | | | |
FHLB stock | 93,862 | | | 93,862 | | | 93,862 | | | 0 | | | 0 | |
| | | | | | | | | |
| | | | | | | | | |
Liabilities: | | | | | | | | | |
Deposits | 6,191,408 | | | 6,259,080 | | | 3,170,164 | | | 3,088,916 | | | 0 | |
Borrowings | 1,789,313 | | | 1,840,605 | | | 0 | | | 1,840,605 | | | 0 | |
| | | | | | | | | |
Interest rate swaps | 53,149 | | | 53,149 | | | 0 | | | 53,149 | | | 0 | |
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2020 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 118,374 |
| | $ | 118,374 |
| | $ | 118,374 |
| | $ | — |
| | $ | — |
|
AFS securities | 1,236,037 |
| | 1,236,037 |
| | — |
| | 1,236,037 |
| | — |
|
Loans receivable | 7,476,805 |
| | 7,934,879 |
| | — |
| | — |
| | 7,934,879 |
|
FHLB stock | 101,575 |
| | 101,575 |
| | 101,575 |
| | — |
| | — |
|
Liabilities: | | | | | | | | | |
Deposits | 5,774,619 |
| | 5,852,187 |
| | 2,732,263 |
| | 3,119,924 |
| | — |
|
Borrowings | 2,115,869 |
| | 2,165,705 |
| | 30,000 |
| | 2,135,705 |
| | — |
|
Interest rate swaps | 55,555 |
| | 55,555 |
| | — |
| | 55,555 |
| | — |
|
| | | | | | | | | |
| September 30, 2019 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (Dollars in thousands) |
Assets: | | | | | | | | | |
Cash and cash equivalents | $ | 220,370 |
| | $ | 220,370 |
| | $ | 220,370 |
| | $ | — |
| | $ | — |
|
AFS securities | 1,204,863 |
| | 1,204,863 |
| | — |
| | 1,204,863 |
| | — |
|
Loans receivable | 7,416,747 |
| | 7,654,586 |
| | — |
| | — |
| | 7,654,586 |
|
FHLB stock | 98,456 |
| | 98,456 |
| | 98,456 |
| | — |
| | — |
|
Liabilities: | | | | | | | | | |
Deposits | 5,581,867 |
| | 5,614,895 |
| | 2,594,242 |
| | 3,020,653 |
| | — |
|
Borrowings | 2,239,989 |
| | 2,253,353 |
| | 100,001 |
| | 2,153,352 |
| | — |
|
Interest rate swaps | 33,090 |
| | 33,090 |
| | — |
| | 33,090 |
| | — |
|
7. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following tables present the changes in the components of AOCI, net of tax, for the periods indicated.
| | | For the Three Months Ended March 31, 2020 | | For the Three Months Ended December 31, 2020 |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | |
| Gains (Losses) | | Gains (Losses) | | | | Gains (Losses) | | Gains (Losses) | |
| on AFS | | on Cash Flow | | Total | | on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI | | Securities | | Hedges | | AOCI |
| (Dollars in thousands) | | (Dollars in thousands) |
Beginning balance | $ | 9,698 |
| | $ | (19,625 | ) | | $ | (9,927 | ) | Beginning balance | $ | 23,728 | | | $ | (40,233) | | | $ | (16,505) | |
| Other comprehensive income (loss), before reclassifications | 10,378 |
| | (23,412 | ) | | (13,034 | ) | Other comprehensive income (loss), before reclassifications | 1,140 | | | 1,024 | | | 2,164 | |
Amount reclassified from AOCI | — |
| | 983 |
| | 983 |
| |
Amount reclassified from AOCI, net of taxes of $(959) | | Amount reclassified from AOCI, net of taxes of $(959) | 0 | | | 2,970 | | | 2,970 | |
Other comprehensive income (loss) | 10,378 |
| | (22,429 | ) | | (12,051 | ) | Other comprehensive income (loss) | 1,140 | | | 3,994 | | | 5,134 | |
| Ending balance | $ | 20,076 |
| | $ | (42,054 | ) | | $ | (21,978 | ) | Ending balance | $ | 24,868 | | | $ | (36,239) | | | $ | (11,371) | |
| | | For the Six Months Ended March 31, 2020 | | For the Three Months Ended December 31, 2019 |
| Unrealized | | Unrealized | | | | Unrealized | | Unrealized | |
| Gains (Losses) | | Gains (Losses) | | | | Gains (Losses) | | Gains (Losses) | |
| on AFS | | on Cash Flow | | Total | | on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI | | Securities | | Hedges | | AOCI |
| (Dollars in thousands) | | (Dollars in thousands) |
Beginning balance | $ | 10,150 |
| | $ | (25,049 | ) | | $ | (14,899 | ) | Beginning balance | $ | 10,150 | | | $ | (25,049) | | | $ | (14,899) | |
| Other comprehensive income (loss), before reclassifications | 9,926 |
| | (18,697 | ) | | (8,771 | ) | Other comprehensive income (loss), before reclassifications | (452) | | | 4,715 | | | 4,263 | |
Amount reclassified from AOCI | — |
| | 1,692 |
| | 1,692 |
| |
Amount reclassified from AOCI, net of taxes of $(228) | | Amount reclassified from AOCI, net of taxes of $(228) | 0 | | | 709 | | | 709 | |
Other comprehensive income (loss) | 9,926 |
| | (17,005 | ) | | (7,079 | ) | Other comprehensive income (loss) | (452) | | | 5,424 | | | 4,972 | |
| Ending balance | $ | 20,076 |
| | $ | (42,054 | ) | | $ | (21,978 | ) | Ending balance | $ | 9,698 | | | $ | (19,625) | | | $ | (9,927) | |
|
| | | | | | | | | | | |
| For the Three Months Ended March 31, 2019 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (Dollars in thousands) |
Beginning balance | $ | 537 |
| | $ | (2,414 | ) | | $ | (1,877 | ) |
Other comprehensive income (loss), before reclassifications | 3,061 |
| | (6,500 | ) | | (3,439 | ) |
Amount reclassified from AOCI | — |
| | (100 | ) | | (100 | ) |
Other comprehensive income (loss) | 3,061 |
| | (6,600 | ) | | (3,539 | ) |
Ending balance | $ | 3,598 |
| | $ | (9,014 | ) | | $ | (5,416 | ) |
|
| | | | | | | | | | | |
| For the Six Months Ended March 31, 2019 |
| Unrealized | | Unrealized | | |
| Gains (Losses) | | Gains (Losses) | | |
| on AFS | | on Cash Flow | | Total |
| Securities | | Hedges | | AOCI |
| (Dollars in thousands) |
Beginning balance | $ | (2,990 | ) | | $ | 7,330 |
| | $ | 4,340 |
|
Other comprehensive income (loss), before reclassifications | 6,588 |
| | (16,395 | ) | | (9,807 | ) |
Amount reclassified from AOCI | — |
| | 51 |
| | 51 |
|
Other comprehensive income (loss) | 6,588 |
| | (16,344 | ) | | (9,756 | ) |
Ending balance | $ | 3,598 |
| | $ | (9,014 | ) | | $ | (5,416 | ) |
8. REVENUE RECOGNITION
Details of the Company's primary types of non-interest income revenue streams by financial statement line item reported in the consolidated statements of income that are within the scope of ASC Topic 606 are below. During the six months ended March 31, 2020 and 2019, revenue from contracts with customers totaled $7.5 million and $8.1 million, respectively.
Deposit Service Fees
Interchange Transaction Fees - Interchange transaction fee income primarily consists of interchange fees earned on a transactional basis through card payment networks. The performance obligation for these types of transactions is satisfied as services are rendered for each transaction and revenue is recognized daily concurrently with the transaction processing services provided to the cardholder.
In order to participate in the card payment networks, the Company must pay various transaction related costs established by the networks ("interchange network charges"), including membership fees and a per unit charge for each transaction. The Company is acting as an agent for its debit card customers when they are utilizing the card payment networks; therefore, interchange transaction fee income is reported net of interchange network charges. Interchange network charges totaled $1.6 million and $1.7 million for the six months ended March 31, 2020 and 2019, respectively.
Service Charges on Deposit Accounts - Service charges on deposit accounts consist of account maintenance and transaction-based fees such as overdrafts, insufficient funds, wire transfers and the use of out-of-network ATMs. The Company's performance obligation is satisfied over a period of time, generally a month, for account maintenance and at the time of service for transaction-based fees. Revenue is recognized after the performance obligation is satisfied. Payments are typically collected from the customer's deposit account at the time the transaction is processed and/or at the end of the customer's statement cycle (typically monthly).
Insurance Commissions
Commissions are received on insurance product sales. The Company acts in the capacity of an agent between the Company's customer and the insurance carrier. The Company's performance obligation is satisfied when the terms of the policy have been agreed upon and the insurance policy becomes effective. Additionally, the Company earns performance-based incentives ("contingent insurance commissions") based on certain criteria established by the insurance carriers.
Other Non-Interest Income
Trust Asset Management Income - The Company provides trust asset management services to customers. The Company primarily earns fees for these services over time as the monthly services are provided and the Company assesses revenue at each month end. Fees are charged based on a tiered scale of the market value of the individual trust asset accounts at the end of the month.
9. LEASES
The Company leases real estate property for branches, ATMs, and certain equipment. These leases have remaining terms that range from one year to 47 years, some of which include the exercising of renewal options that the Company considers to be reasonably certain. As of March 31, 2020, a right-of-use asset of $15.1 million was included in other assets and a lease liability of $15.1 million was included in accounts payable and accrued expenses on the consolidated balance sheets.
As of March 31, 2020, for the Company's operating leases, the weighted average remaining lease term was 23.3 years and the weighted average discount rate was 2.70%. The Company did not enter into any new lease obligations during the six months ended March 31, 2020.
The following tables presents lease expenses and supplemental cash flow information related to the Company's leases for the periods presented.
|
| | | | | | | |
| For the Three Months Ended | | For the Six Months Ended |
| March 31, 2020 | | March 31, 2020 |
| (Dollars in thousands) |
Operating lease expense | $ | 376 |
| | $ | 765 |
|
Variable lease expense | 58 |
| | 108 |
|
Short-term lease expense | 7 |
| | 16 |
|
Cash paid for amounts included in the measurement of lease liabilities | 339 |
| | 683 |
|
The following table presents future minimum payments, rounded to the nearest thousand, for operating leases with initial or remaining terms in excess of one year as of March 31, 2020:
|
| | | |
Remainder of fiscal year 2020 | $ | 573 |
|
Fiscal year 2021 | 1,361 |
|
Fiscal year 2022 | 1,327 |
|
Fiscal year 2023 | 1,234 |
|
Fiscal year 2024 | 1,025 |
|
Fiscal year 2025 | 854 |
|
Thereafter | 15,391 |
|
Total future minimum lease payments | 21,765 |
|
Amounts representing interest | (6,708 | ) |
Present value of net future minimum lease payments | $ | 15,057 |
|
The Company elected the modified retrospective approach for its adoption of ASU 2016-02, and the optional transition method under which the Company used the effective date as the date of initial application of the amendments. These elections require the inclusion of ASC Topic 840 disclosures for periods that continue to be presented in accordance with ASC Topic 840. As of September 30, 2019, future minimum rental commitments, rounded to the nearest thousand, required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year were as follows:
|
| | | |
2020 | $ | 1,298 |
|
2021 | 1,187 |
|
2022 | 1,069 |
|
2023 | 930 |
|
2024 | 637 |
|
Thereafter | 1,115 |
|
| $ | 6,236 |
|
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 by us 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 cost savings, synergies and other benefits from our acquisition of Capital City Bancshares, Inc. ("CCB") might not be realized within the anticipated time frames or at all;activities;
•our ability to extend theour commercial banking and trust asset management expertise acquired from CCB through our existing branch footprint;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 the economic conditions in the Company's local market areas and other market areas where the Bank has lending relationships, on other aspects of the Company's business operations and on financial markets;
•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.
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, 20192020 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, 2019,2020, 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.
Management's Evolving Response to COVID-19
We continue to be confronted with a significant and unfamiliar degree of uncertainty as to how a COVID-19 resurgence may impact our customers, employees, and operations and how actions taken by governmental authorities and other third parties in response to a resurgence would impact our customers, employees, and operations. We will continue to monitor COVID-19 cases and will adjust operational plans as necessary. We will also continue to assist our customers as necessary during these uncertain times.
Impact on Market Interest Rates as a Result of the COVID-19 Pandemic
During the current quarter, the COVID-19 pandemic had a significant impact on our customers, employees, business operations and financial results. Management's actions related to COVID-19 and the impact of COVID-19 on certain aspects of the Company's business and financial results are summarized below.
Response
Customer, employee, and community health precautions
- In response to the rapidly evolving COVID-19 pandemic, the Company focused first on the well-being of its people, customers and communities. Preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in the office, adjusting branch banking hours and operational measures to promote social distancing when customers do visit branches, and preventative cleaning at offices and branches. The Company also focused on business continuity measures, including activating its Crisis Management Team to put into action our business continuity plan, monitoring potential business interruptions, making further improvements to our technology allowing employees to work from home, and conducting regular discussions with our technology vendors.
Lobby services have been changed to appointment only while drive-through, mobile, and online banking have become the Bank's primary channels of serving customers. Retail loan closings have been conducted with customers coming to our drive-through facilities and commercial loans are closed in person only when necessary. All employees continue to be paid their regular salary and receive full benefits.
Loan modification programs - In late March 2020, the Bank announced loan modification programs to support and provide relief for its borrowers during the COVID-19 pandemic. Generally, loan modifications under these programs ("COVID-19 loan modifications") for one- to four-family loans and consumer loans consist of a three-month payment forbearance, with the deferred principal, interest, and escrow added to the loan payoff amount. COVID-19 loan modifications of commercial loans mainly consist of a six-month interest-only payment period. The COVID-19 loan modifications are not considered troubled debt restructurings per current GAAP.
As of April 30, 2020, COVID-19 loan modifications had been processed for 494 one- to four-family loans totaling $137.0 million for which the borrowers had a weighted average credit score of 734, and 105 consumer loans totaling $2.7 million for which the borrowers had a weighted average credit score of 707. As of April 30, 2020, 263 additional COVID-19 loan modification agreements had been sent to one- to four-family borrowers but were still pending. The pending COVID-19 loan modifications had a total balance of $51.9 million and a weighted average credit score of 729.
As of April 30, 2020, the Bank had processed 181 COVID-19 loan modifications of commercial loans totaling $200.0 million, and were in the process of modifying an additional 32 commercial loans totaling $165.8 million.
Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans - The first PPP authorized up to $349 billion and the second PPP authorized up to $320 billion in loans to small businesses primarily to pay their employees during the first eight weeks after receiving their loan proceeds with loan payments deferred for six months and the final balance due 24 months after funding, subject to potential debt forgiveness. These loans are fully guaranteed by the SBA. The first PPP application process started April 3,
2020 and the full $349 billion was exhausted on April 16, 2020. The Bank continued to take applications for PPP loans after the first PPP was exhausted in anticipation of a second PPP. The second PPP application process started April 27, 2020. Between the two PPPs, the Bank has processed 575 applications for PPP loans totaling $40.7 million, of which $34.1 million had been funded as of April 30, 2020. The origination fees associated with the PPP loans processed by the Bank are expected to be $1.7 million. Based on discussions with borrowers, we anticipate that more than 75% of the balances of the PPP loans will be forgiven after eight weeks from the funding date.
Provision for credit losses and allowance for credit losses - As a result of the deterioration of economic conditions due to the COVID-19 pandemic, the Bank recorded a provision for credit losses of $22.1 million during the current quarter. The provision for credit losses increased the ACL to $31.2 million at March 31, 2020 resulting in an ACL to loans receivable ratio of 0.42% compared to 0.12% at September 30, 2019. The ACL to loans receivable ratio for one- to four-family loans was 0.16% at March 31, 2020 compared to 0.06% at September 30, 2019 and the ACL to loans receivable ratio for commercial loans was 2.63% at March 31, 2020 compared to 0.67% at September 30, 2019. See additional ACL discussion in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" section below, and additional discussion regarding the composition of the Bank's loan portfolio in the "Financial Condition - Loans Receivable" section below.
Suspension of correspondent loan activity - In an effort to manage the influx of refinance requests from current customers during the initial days of the COVID-19 pandemic, the Bank suspended its purchase of correspondent one- to four-family loans. Correspondent applications and commitments in the pipeline at the time of the suspension continue to progress through the approval and funding process.
Capital, liquidity, and dividends - Management performed stress test scenarios during April 2020. Based on the Company's existing capital levels, conservative loan underwriting policies, loan concentration, and geographical diversification, no liquidity or capital concerns were identified as a result of the stress tests. Management anticipates being able to manage the economic risks and uncertainties associated with the COVID-19 pandemic and remain well capitalized with sufficient liquidity to serve our customers. With earnings of $0.19 per share, year-to-date, and a cash balance at the holding company level of $101.0 million, the Company has the resources to continue to pay its regular quarterly dividend of $0.085 per share for the foreseeable future. Given the current state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company has elected to defer the annual True Blue dividend in June 2020 and not ask for a regulatory non-objection to move capital from the Bank to the Company to pay that dividend. It is management's intent to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.
Summary of Financial Condition and Results of Operation
For the quarter ended March 31, 2020, the Company recognized net income of $4.3 million, or $0.03 per share, compared to net income of $24.6 million, or $0.18 per share, for the quarter ended March 31, 2019. The decrease was due primarily to the $22.1 million provision for credit losses during the current quarter, partially offset by a reduction in income tax expense. The net interest margin decreased 14 basis points, from 2.33% for the prior year quarter to 2.19% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in the loan portfolio yield, as well as an increase in the cost of deposits.
For the six months ended March 31, 2020, the Company recognized net income of $26.8 million, or $0.19 per share, a decrease of $22.2 million, or 45.3%, from the six-month period ended March 31, 2019. The decrease in net income was due primarily to the $22.3 million provision for credit losses during the current period. The net interest margin decreased eleven basis points, from 2.30% for the prior year period to 2.19% for the current period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. When the leverage strategy is in place, it reduces the net interest margin due to the small amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 14 basis points, from 2.33% for the prior year period to 2.19% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield.
The Federal Reserve,FRB, in response to economic risks resulting from the COVID-19 responses by businesses, individuals, and government entities,pandemic, returned to a zero-interest rate policy in March 2020. This was after most broader market rates decreased significantly in response to evolving news about COVID-19. However, while liability costs decreased, mortgagethe COVID-19 pandemic. Many areas of consumer spending, not related to travel and entertainment, have rebounded in recent months. We adjusted our operations in response to the COVID-19 pandemic and continue to work with both our retail and commercial customers to help them manage their debt during this period of economic uncertainty. There is uncertainty about the longer lasting impact on local business as well as travel and entertainment resulting from the COVID-19 pandemic. This could cause a longer recovery time for all sectors of the economy and could make it challenging for sectors that have had better recoveries to maintain that recovery in the long run.
Since the onset of the COVID-19 pandemic, the Bank has lowered its offered rates did not, primarily due to a rapidon all retail deposit products except checking and unexpected increase in refinance activity. The Bank was able to restructuresavings accounts. Reducing rates on non-maturity deposits lowers the cost of $350.0 milliondeposits immediately, while the impact of its FHLB advancesreducing rates offered on our certificate of deposit products lowers the cost of deposits as certificates of deposit reprice to a lower rate when they mature and as new accounts are opened. We responded to lower market rates for lending by lowering their cost 72 bps, which reducedrates offered on our interest expense on those advances immediately and primarily led to the stability in our net interest margin.loan products. Given current levels of yieldsrates offered on new loans, increased prepayments on existing loans, and the amountvolume of one- to four-family refinances and endorsements, of terms to lower current market rates, the yield on the total loan portfolio is likely to continue to decrease. Additionally,With significant cash inflows realized due to investment securities being called and prepayments on loans and MBS increasing, the current yields on reinvested funds into new securities are lower than existing portfolio yields.
We continue to respond to local market conditions regarding the portfolio yield. While the Bank had begun to lowerloan and deposit rates in February,
by late March and into the month of April, the Bank was able to lower deposit rates further in response to the changes in market rates and competition. Considering the drastic changes in market rates and the continued economic uncertainty, it is likely that with the changes the Bank has made to its cost of funding, if the rates on mortgage loans are reduced as capacity constraints are lessened in the mortgage origination system, our net interest margin should remain stable with some downside risk as a result of prepayments and premium amortization on correspondent loans.
Total assets increased $31.2 million, or 0.3% from September 30, 2019 to March 31, 2020, due mainly to loan portfolio growth which was largely funded with excess operating cash. The operating cash balance at September 30, 2019 was higher than normal due partially to anticipated loan fundings. Total loans increased $60.1 million from September 30, 2019 to March 31, 2020. The increase was primarily in the originated one- to four-family loan portfolio. During the current year-to-date period, the Bank originated and refinanced $450.0 million of one- to four-family and consumer loans with a weighted average rate of 3.49% and purchased $253.1 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.42%. The Bank also originated $67.6 million of commercial loans with a weighted average rate of 4.65% and entered into commercial real estate loan participations of $28.4 million at a weighted average rate of 4.65%. The commercial loan portfolio totaled $772.7 million at March 31, 2020 and was composed of 76% commercial real estate, 16% commercial construction, and 8% commercial and industrial. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $167.2 million, was $877.7 million at March 31, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $18.8 million, was $80.9 million at March 31, 2020.we offer. Given the current level of the Company's total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially in the near future. As noted above, the Bank has lowered rates paid on money market accounts and certificate of deposit products. Despite this, since March 31, 2020, the Bank's retail deposits increased $408.3 million and business deposits increased $264.6 million. The Bank secured a new business deposit relationship during the remainder ofprior fiscal year, which between March 31, 2020 and December 31, 2020 brought $206.4 million of new deposit balances. Because some of the deposits received from the new relationship are COVID-19-related payments, we do not expect the full balance of deposits received to be retained through fiscal year 2021. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid deposit options such as the Bank's retail money market accounts.
Considering the drastic changes in market rates and the ongoing economic uncertainty, our net interest margin could continue to decrease, with further downside risk as a result of high levels of prepayments and premium amortization on correspondent one- to four-family loans and MBS.
Summary of Results of Operation and Financial Condition
The Company recognized net income of $18.9 million, or $0.14 per share, for the quarter ended December 31, 2020 compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease in net income was due primarily to a decrease in net interest income compared to the prior year quarter, partially offset by recording a negative provision for credit losses in the current quarter. Net interest income decreased $4.9 million, or 10.0%, from the prior year quarter to $43.8 million for the current quarter. The net interest margin decreased 26 basis points, from 2.18% for the prior year quarter to 1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits and borrowings.
Total assets increased $119.7 million, or 1.3% from September 30, 2020 to December 31, 2020, due mainly to an increase in securities, partially offset by a decrease in loans receivable. Securities were purchased with cash flows from the loan portfolio and growth in the deposit portfolio.
Total loans decreased $198.8 million from September 30, 2020 to December 31, 2020. The decrease was primarily in the one- to four-family correspondent loans and commercial loans. During the current quarter, the Bank originated and refinanced $329.6 million of one- to four-family and consumer loans with a weighted average rate of 2.76% and purchased $105.8 million of one- to four-family loans from correspondent lenders with a weighted average rate of 2.85%. The Bank also originated $38.1 million of commercial loans with a weighted average rate of 3.77% and entered into commercial real estate loan participations of $60.0 million at a weighted average rate of 4.00%. The commercial loan portfolio totaled $763.9 million at December 31, 2020 and was composed of 80% commercial real estate, 9% commercial and industrial, and 11% commercial construction. Total commercial real estate and commercial construction potential exposure, including undisbursed amounts and outstanding commitments totaling $275.9 million, was $970.4 million at December 31, 2020. Total commercial and industrial potential exposure, including undisbursed amounts and outstanding commitments of $22.2 million, was $91.6 million at December 31, 2020.
Total securities increased $352.9 million, or 22.6%, from September 30, 2020 to December 31, 2020, including a $278.5 million increase in MBS and a $74.4 million increase in investment securities. The increase was due primarily to cash flows from the loan portfolio being reinvested into the securities portfolio.
Total deposits increased $192.8$219.4 million, or 3.5%, from September 30, 20192020 to MarchDecember 31, 2020. Non-maturityThe increase was in non-maturity deposits, which increased $138.0$222.5 million, including a $131.1 million increase in checking accounts, a $69.6 million increase in money market accounts, and retail/a $21.8 million increase in savings accounts. Retail/business certificates of deposit increased $72.4$11.5 million partiallyduring the quarter, offset by a $17.6$14.6 million decrease in public unit certificates of deposit. The increase in retail/business certificates of deposit was primarily in intermediate-term certificates, followed by short-term certificates.
Total borrowings at MarchDecember 31, 2020 were $2.12$1.73 billion, a decrease of $124.1$55.0 million, or 5.5%3.0%, from September 30, 2019.2020. The decrease was due to repaying the FHLB line of credit balance and not renewing a portion of the FHLB advancesborrowings that matured during the current year period, partially offset by a $30.0 million draw onquarter. Cash flows from the FRB of Kansas City line of credit at March 31, 2020. Management is currently using the FRB of Kansas City line of credit rather than the FHLB line of credit for short-term funding needs as the interest rate on the FRB of Kansas City line of credit is lower than the FHLB line of credit.deposit portfolio were used to pay off maturing borrowings.
Stockholders' equity was $1.29$1.28 billion at Marchboth December 31, 2020 compared to $1.34 billion atand September 30, 2019. The $48.52020. During the quarter, the Company paid cash dividends totaling $29.1 million decrease was due primarily to the payment of $70.4and repurchased common stock totaling $1.5 million, in cash dividends, partially offset by net income of $26.8 million$18.9 million. The cash dividends paid during the current year-to-date period.quarter totaled $0.215 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year 2020 earnings and a regular quarterly cash dividend of $0.085 per share. On January 26, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. In the long run, management considers a Bank stockholders'the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At MarchDecember 31, 2020, this ratio was 12.2%. The cash dividends paid during the current year-to-date period totaled $0.51 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17 per share. On April 21, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on May 15, 2020 to stockholders of record as of the close of business on May 1, 2020.
At times, the Bank has utilized a leverage strategy to increase earnings. The leverage strategy involves borrowing up to $2.10 billion either on the Bank's FHLB line of credit or by entering into short-term FHLB advances, depending on the rates offered by FHLB. The borrowings are repaid at quarter end, or earlier if the strategy is suspended. The proceeds from the borrowings, net of the required FHLB stock holdings which yield approximately 7.25% from dividends, are deposited at the FRB of Kansas City. Net income attributable to the leverage strategy is largely derived from the dividends received on FHLB stock holdings, plus the net interest rate spread between the yield on the cash at the FRB of Kansas City and the rate paid on the related FHLB borrowings, less applicable federal insurance premiums and estimated taxes. Net income attributable to the leverage strategy was $14 thousand during the prior year period. The leverage strategy was not in place during the current year period, due to the large negative interest rate spread making the strategy unprofitable. Management continues to monitor the net interest rate spread and overall profitability of the strategy. It is expected that the strategy will be reimplemented if it reaches a position that is profitable.
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.
Critical Accounting Policies
Our most critical accounting policies are the methodologies used to determine the ACL and reserve for off-balance sheet credit exposures and fair value measurements. These policies 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 or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could affect reported results materially. These critical accounting policies and their application are reviewed at least annually by our audit committee. ForThe following is a full discussiondescription of our critical accounting policies see Item 7 - "Management's Discussion and Analysisan explanation of Financial Conditionthe methods and Resultsassumptions underlying their application.
Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures. The ACL is a valuation amount that is deducted from the amortized cost basis of Operations - Critical Accounting Policies"loans and represents management's current expectations of total expected credit losses included in the Company's Annual Reportloan portfolio as of the balance sheet date. The reserve for off-balance sheet credit exposures represents expected credit losses on unfunded portions of existing loans and commitments to originate or purchase loans that are not unconditionally cancellable by the Company. The reserve for off-balance sheet credit exposures is reported as a liability and is presented in accounts payable and accrued expenses on the consolidated balance sheet. The ACL and reserve for off-balance sheet credit exposures is maintained through provisions for credit losses which are either charged or credited to income.Form 10-K The methodology for determining the ACL is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in forecasted macroeconomic conditions that could result in fluctuations in the amount of the recorded ACL. The reserve for off-balance sheet credit exposures is calculated using the same methodology as the ACL; however, the estimate of credit risk for off-balance sheet credit exposures takes into consideration the likelihood that funding of the commitment will occur.
Each quarter end, the Company prepares an ACL model to calculate expected credit losses. The Company aggregates loans into pools in the ACL model based on similar risk characteristics. Loans that do not share similar risk characteristics are evaluated on an individual basis and are not included in the ACL model. 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. Using all of these inputs and assumptions, the ACL model generates aggregated estimated cash flows for the fiscal year endedtime period that remains for each loan's contractual life. The cash flows are discounted back to the reporting date using each loan's effective yield, to arrive at the present value of future cash flows. Each loan pool's ACL is equal to the aggregate shortage, if any, of the present value of the future cash flows compared to the amortized cost basis of the loan pool.
Management considers qualitative factors such as changes in the loan portfolio composition and credit concentrations, changes in lending policies and procedures and underwriting standards, changes in the balances and/or trends in asset quality and or loan credit performance, and/or other external factors such as significant unique events or conditions when evaluating the adequacy of the ACL and reserve for off-balance sheet credit exposures calculated by the ACL model. Management may increase or decrease the ACL and reserve for off-balance sheet credit exposures based on the evaluation of the qualitative factors.
See "Allowance for Credit Losses" and "Reserve for Off-Balance Sheet Credit Exposures" within "Note 1. Summary of Significant Accounting Policies" above for additional information.
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 ASC 820 and ASC 825. The Company groups its financial instruments at fair value in three levels based on the markets in which the instruments are traded and the reliability of the assumptions used to determine fair value, with Level 1 (quoted prices for identical assets in an active market) being considered the most reliable, and Level 3 having the most unobservable inputs and therefore being considered the least reliable. The Company bases its fair values on the price that would be received from the sale of an asset in an orderly transaction between market participants at the measurement date. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.
The Company's AFS securities are measured at fair value on a recurring basis. Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as AOCI in stockholders' equity. The Company primarily uses prices obtained from third-party pricing services to determine the fair value of its AFS securities. Various modeling techniques are used to determine pricing for the Company's securities, including option pricing, discounted cash flow models, and similar techniques. The inputs to these models may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. All AFS securities are classified as Level 2.
The Company's interest rate swaps are measured at fair value on a recurring basis. The estimated fair value of the interest rate swaps are obtained from the counterparty and are determined by a discounted cash flow analysis using observable market-based inputs. Changes in the fair value of the interest rate swaps are recorded, net of tax, as AOCI in stockholders' equity. The Company did not have any other financial instruments that were measured at fair value on a recurring basis at December 31, 2020 and September 30, 2019.2020.
Financial Condition
The following table presents selected balance sheet information as of the dates indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
| (Dollars in thousands) |
Total assets | $ | 9,606,964 | | | $ | 9,487,218 | | | $ | 9,558,814 | | | $ | 9,371,193 | | | $ | 9,236,572 | |
Cash and cash equivalents | 168,032 | | | 185,148 | | | 396,219 | | | 118,374 | | | 70,703 | |
AFS securities | 1,913,866 | | | 1,560,950 | | | 1,220,054 | | | 1,236,037 | | | 1,229,587 | |
| | | | | | | | | |
Loans receivable, net | 7,004,094 | | | 7,202,851 | | | 7,388,090 | | | 7,476,805 | | | 7,429,207 | |
FHLB stock, at cost | 84,693 | | | 93,862 | | | 102,782 | | | 101,575 | | | 99,861 | |
Deposits | 6,410,842 | | | 6,191,408 | | | 6,069,684 | | | 5,774,619 | | | 5,585,851 | |
Borrowings | 1,734,275 | | | 1,789,313 | | | 1,989,089 | | | 2,115,869 | | | 2,189,991 | |
Stockholders' equity | 1,276,548 | | | 1,284,859 | | | 1,300,520 | | | 1,287,793 | | | 1,306,594 | |
Equity to total assets at end of period | 13.3 | % | | 13.5 | % | | 13.6 | % | | 13.7 | % | | 14.1 | % |
|
| | | | | | | | | | | | | | | | | | | |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| 2020 | | 2019 | | 2019 | | 2019 | | 2019 |
| (Dollars in thousands) |
Total assets | $ | 9,371,193 |
| | $ | 9,236,572 |
| | $ | 9,340,018 |
| | $ | 9,286,275 |
| | $ | 9,534,551 |
|
Cash and cash equivalents | 118,374 |
| | 70,703 |
| | 220,370 |
| | 43,051 |
| | 218,051 |
|
AFS securities | 1,236,037 |
| | 1,229,587 |
| | 1,204,863 |
| | 769,393 |
| | 746,728 |
|
HTM securities | — |
| | — |
| | — |
| | 483,858 |
| | 527,460 |
|
Loans receivable, net | 7,476,805 |
| | 7,429,207 |
| | 7,416,747 |
| | 7,507,468 |
| | 7,570,806 |
|
FHLB stock, at cost | 101,575 |
| | 99,861 |
| | 98,456 |
| | 100,109 |
| | 102,631 |
|
Deposits | 5,774,619 |
| | 5,585,851 |
| | 5,581,867 |
| | 5,580,871 |
| | 5,701,111 |
|
Borrowings | 2,115,869 |
| | 2,189,991 |
| | 2,239,989 |
| | 2,239,987 |
| | 2,339,985 |
|
Stockholders' equity | 1,287,793 |
| | 1,306,594 |
| | 1,336,326 |
| | 1,327,099 |
| | 1,355,983 |
|
Equity to total assets at end of period | 13.7 | % | | 14.1 | % | | 14.3 | % | | 14.3 | % | | 14.2 | % |
Total assets were $9.37 billion at March 31, 2020, an increase of $134.6 million, or 1.5%, from December 31, 2019, due primarily to increases in the loan portfolio and cash and cash equivalents. The increase in cash and cash equivalents was due mainly to increasing the amount of cash on hand in anticipation of customer cash needs during the COVID-19 pandemic. Total loans were $7.48 billion at March 31, 2020, an increase of $47.6 million, or 0.6%, from December 31, 2019. The increase was primarily in the one- to four-family correspondent loan portfolio and commercial construction portfolio, partially offset by an increase in ACL. During the current quarter, the Bank originated and refinanced $193.6 million of one- to four-family and consumer loans with a weighted average rate of 3.45% and purchased $144.6 million of one- to four-family loans from correspondent lenders with a weighted average rate of 3.40%. The Bank also originated $35.2 million of commercial loans with a weighted average rate of 4.42% and processed commercial loan disbursements, excluding lines of credit, of approximately $49 million at a weighted average rate of 4.56%. Given the current level of total assets and the economic and interest rate environment, it is unlikely that the total loan portfolio will increase materially during the remainder of fiscal year 2020.
Total deposits were $5.77 billion at March 31, 2020, an increase of $188.8 million, or 3.4%, from December 31, 2019. Retail/business certificates of deposit increased $108.8 million due primarily to the Presidents' Day certificate of deposit campaign in February 2020, and non-maturity deposits increased $66.7 million. The increase in the retail/business certificates of deposit was primarily in intermediate-term certificates.
Stockholders' equity was $1.29 billion at March 31, 2020 compared to $1.31 billion at December 31, 2019. The $18.8 million decrease was due primarily to other comprehensive loss, net of tax of $12.1 million, which was due to a reduction in the fair value of our interest rate swaps, partially offset by an increase in unrealized gains on our AFS securities, and the payment of $11.7 million in cash dividends. These decreases were partially offset by net income of $4.3 million during the current quarter.
Loans Receivable. The following table presents the balance and weighted average rate of our loan portfolio as of the dates indicated. Approximately 68% of the one- to four-family loan portfolio balance at March 31, 2020 was comprised of loans that had a balance of $510 thousand or less at the time of origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | September 30, 2020 | | |
| Amount | | Rate | | Amount | | Rate | | | | |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 3,946,073 | | | 3.39 | % | | $ | 3,937,310 | | | 3.50 | % | | | | |
Correspondent purchased | 1,974,086 | | | 3.40 | | | 2,101,082 | | | 3.49 | | | | | |
Bulk purchased | 199,673 | | | 2.24 | | | 208,427 | | | 2.41 | | | | | |
Construction | 32,871 | | | 3.22 | | | 34,593 | | | 3.30 | | | | | |
Total | 6,152,703 | | | 3.36 | | | 6,281,412 | | | 3.46 | | | | | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 609,936 | | | 4.23 | | | 626,588 | | | 4.29 | | | | | |
Commercial and industrial | 69,378 | | | 3.41 | | | 97,614 | | | 2.79 | | | | | |
Construction | 84,564 | | | 3.89 | | | 105,458 | | | 4.04 | | | | | |
Total | 763,878 | | | 4.12 | | | 829,660 | | | 4.08 | | | | | |
Consumer loans: | | | | | | | | | | | |
Home equity | 97,717 | | | 4.64 | | | 103,838 | | | 4.66 | | | | | |
Other | 9,328 | | | 4.40 | | | 10,086 | | | 4.40 | | | | | |
Total | 107,045 | | | 4.62 | | | 113,924 | | | 4.64 | | | | | |
Total loans receivable | 7,023,626 | | | 3.46 | | | 7,224,996 | | | 3.55 | | | | | |
| | | | | | | | | | | |
Less: | | | | | | | | | | | |
ACL | 26,125 | | | | | 31,527 | | | | | | | |
Discounts/unearned loan fees | 28,825 | | | | | 29,190 | | | | | | | |
Premiums/deferred costs | (35,418) | | | | | (38,572) | | | | | | | |
Total loans receivable, net | $ | 7,004,094 | | | | | $ | 7,202,851 | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 3,944,782 |
| | 3.68 | % | | $ | 3,927,015 |
| | 3.71 | % | | $ | 3,873,851 |
| | 3.74 | % |
Correspondent purchased | 2,385,907 |
| | 3.60 |
| | 2,343,750 |
| | 3.62 |
| | 2,349,877 |
| | 3.64 |
|
Bulk purchased | 228,730 |
| | 2.88 |
| | 237,691 |
| | 2.93 |
| | 252,347 |
| | 2.94 |
|
Construction | 35,798 |
| | 3.61 |
| | 38,771 |
| | 3.82 |
| | 36,758 |
| | 4.00 |
|
Total | 6,595,217 |
| | 3.62 |
| | 6,547,227 |
| | 3.65 |
| | 6,512,833 |
| | 3.68 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 584,236 |
| | 4.45 |
| | 583,848 |
| | 4.48 |
| | 583,617 |
| | 4.48 |
|
Commercial and industrial | 62,153 |
| | 4.62 |
| | 57,019 |
| | 4.97 |
| | 61,094 |
| | 5.14 |
|
Construction | 126,266 |
| | 4.40 |
| | 107,372 |
| | 4.68 |
| | 123,159 |
| | 4.81 |
|
Total | 772,655 |
| | 4.45 |
| | 748,239 |
| | 4.54 |
| | 767,870 |
| | 4.58 |
|
Consumer loans: | | | | | | | | | | | |
Home equity | 114,571 |
| | 5.67 |
| | 118,491 |
| | 5.73 |
| | 120,587 |
| | 6.15 |
|
Other | 10,837 |
| | 4.56 |
| | 10,877 |
| | 4.58 |
| | 11,183 |
| | 4.57 |
|
Total | 125,408 |
| | 5.58 |
| | 129,368 |
| | 5.63 |
| | 131,770 |
| | 6.02 |
|
Total loans receivable | 7,493,280 |
| | 3.74 |
| | 7,424,834 |
| | 3.77 |
| | 7,412,473 |
| | 3.81 |
|
| | | | | | | | | | | |
Less: | | | | | | | | | | | |
ACL | 31,196 |
| | | | 9,435 |
| | | | 9,226 |
| | |
Discounts/unearned loan fees | 29,645 |
| | | | 30,323 |
| | | | 31,058 |
| | |
Premiums/deferred costs | (44,366 | ) | | | | (44,131 | ) | | | | (44,558 | ) | | |
Total loans receivable, net | $ | 7,476,805 |
| | | | $ | 7,429,207 |
| | | | $ | 7,416,747 |
| | |
Loan Activity - The following tables summarize activity in the loan portfolio, along with weighted average rates where applicable, for the periods indicated, excluding changes in ACL, discounts/unearned loan fees, and premiums/deferred costs. Loans that were paid-offpaid off as a result of refinances and loans that were sold are included in repayments. Loan endorsements are not included in the activity in the following table because a new loan is not generated at the time of the endorsement. The endorsed balance and rate are included in the ending loan portfolio balance and rate. During the current yearyear-to-date period, the Bank endorsed $170.9$285.2 million of one- to four-family loans, reducing the average rate on those loans by 8187 basis points. Commercial loan renewals are not included in the activity in the following table unless new funds are disbursed at the time of renewal. As noted earlier, during the initial days of the COVID-19 pandemic, correspondent one- to four-family lending activities were suspended by the Bank but correspondent applicationsThe renewal balance and commitmentsrate are included in the pipeline continue to progress through the approvalending loan portfolio balance and funding process.rate.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
Beginning balance | $ | 7,224,996 | | | 3.55 | % | | $ | 7,407,442 | | | 3.64 | % | | $ | 7,493,280 | | | 3.74 | % | | $ | 7,424,834 | | | 3.77 | % |
Originated and refinanced: | | | | | | | | | | | | | | | |
Fixed | 318,690 | | | 2.75 | | | 265,424 | | | 2.98 | | | 277,904 | | | 2.83 | | | 172,891 | | | 3.44 | |
Adjustable | 48,946 | | | 3.60 | | | 44,625 | | | 3.68 | | | 60,626 | | | 3.75 | | | 55,946 | | | 4.11 | |
Purchased and participations: | | | | | | | | | | | | | | | |
Fixed | 100,518 | | | 2.86 | | | 61,435 | | | 3.07 | | | 131,739 | | | 3.28 | | | 125,612 | | | 3.46 | |
Adjustable | 65,315 | | | 3.89 | | | 4,396 | | | 2.76 | | | 62,510 | | | 3.76 | | | 18,985 | | | 2.96 | |
| | | | | | | | | | | | | | | |
Change in undisbursed loan funds | (70,323) | | | | | 13,898 | | | | | (32,202) | | | | | 24,049 | | | |
Repayments | (664,055) | | | | | (572,536) | | | | | (586,434) | | | | | (328,644) | | | |
Principal (charge-offs)/recoveries, net | (464) | | | | | 312 | | | | | 19 | | | | | (314) | | | |
Other | 3 | | | | | — | | | | | — | | | | | (79) | | | |
Ending balance | $ | 7,023,626 | | | 3.46 | | | $ | 7,224,996 | | | 3.55 | | | $ | 7,407,442 | | | 3.64 | | | $ | 7,493,280 | | | 3.74 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 |
| Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
Beginning balance | $ | 7,424,834 |
| | 3.77 | % | | $ | 7,412,473 |
| | 3.81 | % | | $ | 7,501,741 |
| | 3.83 | % | | $ | 7,564,076 |
| | 3.82 | % |
Originated and refinanced: | | | | | | | | | | | | | | | |
Fixed | 172,891 |
| | 3.44 |
| | 233,693 |
| | 3.52 |
| | 188,753 |
| | 3.60 |
| | 121,871 |
| | 4.09 |
|
Adjustable | 55,946 |
| | 4.11 |
| | 55,126 |
| | 4.30 |
| | 59,550 |
| | 4.37 |
| | 63,341 |
| | 4.87 |
|
Purchased and participations: | | | | | | | | | | | | | | | |
Fixed | 125,612 |
| | 3.46 |
| | 123,118 |
| | 3.77 |
| | 49,161 |
| | 4.12 |
| | 29,447 |
| | 4.65 |
|
Adjustable | 18,985 |
| | 2.96 |
| | 13,801 |
| | 3.06 |
| | 12,305 |
| | 3.55 |
| | 10,018 |
| | 3.85 |
|
Change in undisbursed loan funds | 24,049 |
| | | | (9,743 | ) | | | | 12,293 |
| | | | 34,742 |
| | |
Repayments | (328,644 | ) | | | | (403,361 | ) | | | | (410,624 | ) | | | | (321,439 | ) | | |
Principal (charge-offs)/recoveries, net | (314 | ) | | | | (16 | ) | | | | (110 | ) | | | | (33 | ) | | |
Other | (79 | ) | | | | (257 | ) | | | | (596 | ) | | | | (282 | ) | | |
Ending balance | $ | 7,493,280 |
| | 3.74 |
| | $ | 7,424,834 |
| | 3.77 |
| | $ | 7,412,473 |
| | 3.81 |
| | $ | 7,501,741 |
| | 3.83 |
|
|
| | | | | | | | | | | | | |
| | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Amount | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
Beginning balance | $ | 7,412,473 |
| | 3.81 | % | | $ | 7,507,645 |
| | 3.74 | % |
Originated and refinanced: | | | | | | | |
Fixed | 406,584 |
| | 3.48 |
| | 194,710 |
| | 4.58 |
|
Adjustable | 111,072 |
| | 4.20 |
| | 196,717 |
| | 4.87 |
|
Purchased and participations: | | | | | | | |
Fixed | 248,730 |
| | 3.61 |
| | 107,527 |
| | 4.88 |
|
Adjustable | 32,786 |
| | 3.00 |
| | 53,982 |
| | 4.70 |
|
Change in undisbursed loan funds | 14,306 |
| | | | 5,185 |
| | |
Repayments | (732,005 | ) | | | | (501,094 | ) | | |
Principal (charge-offs)/recoveries, net | (330 | ) | | | | 156 |
| | |
Other | (336 | ) | | | | (752 | ) | | |
Ending balance | $ | 7,493,280 |
| | 3.74 |
| | $ | 7,564,076 |
| | 3.82 |
|
The following tables presenttable 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | December 31, 2019 |
| Amount | | Rate | | % of Total | | Amount | | Rate | | % of Total |
| (Dollars in thousands) |
Fixed-rate: | | | | | | | | | | | |
One- to four-family:(1) | | | | | | | | | | | |
<= 15 years | $ | 133,990 | | | 2.36 | % | | 25.1 | % | | $ | 84,504 | | | 2.98 | % | | 19.8 | % |
> 15 years | 230,175 | | | 2.93 | | | 43.1 | | | 210,470 | | | 3.59 | | | 49.4 | |
One- to four-family construction | 34,021 | | | 2.76 | | | 6.4 | | | 11,131 | | | 3.40 | | | 2.6 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 10,127 | | | 3.60 | | | 1.9 | | | 9,400 | | | 5.12 | | | 2.2 | |
Commercial and industrial | 5,444 | | | 3.57 | | | 1.0 | | | 4,047 | | | 4.09 | | | 1.0 | |
Commercial construction | 4,043 | | | 3.89 | | | 0.8 | | | 34,731 | | | 4.69 | | | 8.2 | |
Home equity | 473 | | | 5.44 | | | 0.1 | | | 1,363 | | | 5.91 | | | 0.3 | |
Other | 935 | | | 5.27 | | | 0.2 | | | 1,165 | | | 5.58 | | | 0.3 | |
Total fixed-rate | 419,208 | | | 2.77 | | | 78.6 | | | 356,811 | | | 3.60 | | | 83.8 | |
| | | | | | | | | | | |
Adjustable-rate: | | | | | | | | | | | |
One- to four-family:(2) | | | | | | | | | | | |
<= 36 months | 252 | | | 2.38 | | | — | | | 2,098 | | | 2.86 | | | 0.5 | |
> 36 months | 18,732 | | | 2.60 | | | 3.5 | | | 31,209 | | | 3.06 | | | 7.3 | |
One- to four-family construction | 2,709 | | | 2.70 | | | 0.5 | | | 5,990 | | | 3.04 | | | 1.4 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 16,978 | | | 3.88 | | | 3.2 | | | 9,175 | | | 4.89 | | | 2.2 | |
Commercial and industrial | 1,138 | | | 4.05 | | | 0.2 | | | 2,525 | | | 5.15 | | | 0.6 | |
Commercial construction | 60,337 | | | 4.00 | | | 11.3 | | | 979 | | | 5.54 | | | 0.2 | |
Home equity | 13,790 | | | 4.40 | | | 2.6 | | | 16,283 | | | 5.73 | | | 3.8 | |
Other | 325 | | | 2.70 | | | 0.1 | | | 668 | | | 4.14 | | | 0.2 | |
Total adjustable-rate | 114,261 | | | 3.76 | | | 21.4 | | | 68,927 | | | 4.05 | | | 16.2 | |
| | | | | | | | | | | |
Total originated, refinanced and purchased | $ | 533,469 | | | 2.99 | | | 100.0 | % | | $ | 425,738 | | | 3.68 | | | 100.0 | % |
| | | | | | | | | | | |
Purchased and participation loans included above: | | | | | | | | | | |
Fixed-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | $ | 100,518 | | | 2.86 | | | | | $ | 94,692 | | | 3.50 | | | |
| | | | | | | | | | | |
Participations - commercial | — | | | — | | | | | 28,426 | | | 4.65 | | | |
| | | | | | | | | | | |
Total fixed-rate purchased/participations | 100,518 | | | 2.86 | | | | | 123,118 | | | 3.77 | | | |
| | | | | | | | | | | |
Adjustable-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | 5,315 | | | 2.66 | | | | | 13,801 | | | 3.06 | | | |
| | | | | | | | | | | |
Participations - commercial | 60,000 | | | 4.00 | | | | | — | | | — | | | |
| | | | | | | | | | | |
Total adjustable-rate purchased/participations | 65,315 | | | 3.89 | | | | | 13,801 | | | 3.06 | | | |
Total purchased/participation loans | $ | 165,833 | | | 3.26 | | | | | $ | 136,919 | | | 3.70 | | | |
|
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Amount | | Rate | | % of Total | | Amount | | Rate | | % of Total |
| (Dollars in thousands) |
Fixed-rate: | | | | | | | | | | | |
One- to four-family:(1) | | | | | | | | | | | |
<= 15 years | $ | 68,559 |
| | 2.95 | % | | 18.4 | % | | $ | 13,873 |
| | 4.25 | % | | 5.5 | % |
> 15 years | 198,373 |
| | 3.54 |
| | 53.1 |
| | 66,993 |
| | 4.45 |
| | 27.0 |
|
One- to four-family construction | 13,971 |
| | 3.44 |
| | 3.7 |
| | 11,801 |
| | 4.56 |
| | 4.8 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 3,872 |
| | 4.71 |
| | 1.0 |
| | 15,027 |
| | 7.23 |
| | 6.0 |
|
Commercial and industrial | 9,992 |
| | 3.82 |
| | 2.7 |
| | 3,956 |
| | 5.29 |
| | 1.6 |
|
Commercial construction | 1,522 |
| | 5.40 |
| | 0.4 |
| | — |
| | — |
| | — |
|
Home equity | 1,124 |
| | 5.85 |
| | 0.3 |
| | 1,189 |
| | 5.83 |
| | 0.5 |
|
Other | 1,090 |
| | 5.51 |
| | 0.3 |
| | 1,226 |
| | 4.67 |
| | 0.5 |
|
Total fixed-rate | 298,503 |
| | 3.45 |
| | 79.9 |
| | 114,065 |
| | 4.85 |
| | 45.9 |
|
| | | | | | | | | | | |
Adjustable-rate: | | | | | | | | | | | |
One- to four-family:(2) | | | | | | | | | | | |
<= 36 months | 1,571 |
| | 2.86 |
| | 0.4 |
| | 2,459 |
| | 3.83 |
| | 1.0 |
|
> 36 months | 35,099 |
| | 2.98 |
| | 9.4 |
| | 30,068 |
| | 4.03 |
| | 12.1 |
|
One- to four-family construction | 4,007 |
| | 3.00 |
| | 1.1 |
| | 3,467 |
| | 3.87 |
| | 1.4 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 17,347 |
| | 4.53 |
| | 4.7 |
| | 72,879 |
| | 4.69 |
| | 29.3 |
|
Commercial and industrial | 1,950 |
| | 5.00 |
| | 0.5 |
| | 11,615 |
| | 5.35 |
| | 4.7 |
|
Commercial construction | 508 |
| | 5.50 |
| | 0.1 |
| | — |
| | — |
| | — |
|
Home equity | 13,686 |
| | 5.16 |
| | 3.7 |
| | 13,450 |
| | 6.42 |
| | 5.4 |
|
Other | 763 |
| | 3.96 |
| | 0.2 |
| | 399 |
| | 3.50 |
| | 0.2 |
|
Total adjustable-rate | 74,931 |
| | 3.82 |
| | 20.1 |
| | 134,337 |
| | 4.73 |
| | 54.1 |
|
| | | | | | | | | | | |
Total originated, refinanced and purchased | $ | 373,434 |
| | 3.52 |
| | 100.0 | % | | $ | 248,402 |
| | 4.79 |
| | 100.0 | % |
| | | | | | | | | | | |
Purchased and participation loans included above: | | | | | | | | | | |
Fixed-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | $ | 125,612 |
| | 3.46 |
| | | | $ | 24,611 |
| | 4.35 |
| | |
Participations - commercial | — |
| | — |
| | | | 10,776 |
| | 8.00 |
| | |
Total fixed-rate purchased/participations | 125,612 |
| | 3.46 |
| | | | 35,387 |
| | 5.46 |
| | |
| | | | | | | | | | | |
Adjustable-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | 18,985 |
| | 2.96 |
| | | | 11,331 |
| | 4.01 |
| | |
Participations - commercial | — |
| | — |
| | | | — |
| | — |
| | |
Total adjustable-rate purchased/participations | 18,985 |
| | 2.96 |
| | | | 11,331 |
| | 4.01 |
| | |
Total purchased/participation loans | $ | 144,597 |
| | 3.40 |
| | | | $ | 46,718 |
| | 5.11 |
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| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Amount | | Rate | | % of Total | | Amount | | Rate | | % of Total |
| (Dollars in thousands) |
Fixed-rate: | | | | | | | | | | | |
One- to four-family:(1) | | | | | | | | | | | |
<= 15 years | $ | 153,063 |
| | 2.96 | % | | 19.1 | % | | $ | 36,928 |
| | 4.21 | % | | 6.7 | % |
> 15 years | 408,843 |
| | 3.56 |
| | 51.2 |
| | 173,127 |
| | 4.53 |
| | 31.3 |
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One- to four-family construction | 25,102 |
| | 3.42 |
| | 3.1 |
| | 28,279 |
| | 4.53 |
| | 5.1 |
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Commercial: | | | | | | | | | | | |
Commercial real estate | 13,272 |
| | 5.00 |
| | 1.7 |
| | 22,829 |
| | 6.40 |
| | 4.1 |
|
Commercial and industrial | 14,039 |
| | 3.90 |
| | 1.8 |
| | 6,358 |
| | 5.31 |
| | 1.2 |
|
Commercial construction | 36,253 |
| | 4.72 |
| | 4.5 |
| | 29,919 |
| | 4.78 |
| | 5.4 |
|
Home equity | 2,487 |
| | 5.88 |
| | 0.3 |
| | 2,383 |
| | 6.16 |
| | 0.4 |
|
Other | 2,255 |
| | 5.55 |
| | 0.3 |
| | 2,414 |
| | 4.68 |
| | 0.5 |
|
Total fixed-rate | 655,314 |
| | 3.53 |
| | 82.0 |
| | 302,237 |
| | 4.69 |
| | 54.7 |
|
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Adjustable-rate: | | | | | | | | | | | |
One- to four-family:(2) | | | | | | | | | | | |
<= 36 months | 3,669 |
| | 2.86 |
| | 0.5 |
| | 7,687 |
| | 3.76 |
| | 1.4 |
|
> 36 months | 66,308 |
| | 3.02 |
| | 8.3 |
| | 63,147 |
| | 4.03 |
| | 11.4 |
|
One- to four-family construction | 9,997 |
| | 3.03 |
| | 1.2 |
| | 11,712 |
| | 4.23 |
| | 2.1 |
|
Commercial: | | | | | | | | | | | |
Commercial real estate | 26,522 |
| | 4.65 |
| | 3.3 |
| | 93,583 |
| | 4.79 |
| | 16.9 |
|
Commercial and industrial | 4,475 |
| | 5.08 |
| | 0.6 |
| | 13,950 |
| | 5.46 |
| | 2.5 |
|
Commercial construction | 1,487 |
| | 5.53 |
| | 0.2 |
| | 28,650 |
| | 5.35 |
| | 5.2 |
|
Home equity | 29,969 |
| | 5.47 |
| | 3.7 |
| | 30,876 |
| | 6.36 |
| | 5.6 |
|
Other | 1,431 |
| | 4.04 |
| | 0.2 |
| | 1,094 |
| | 3.15 |
| | 0.2 |
|
Total adjustable-rate | 143,858 |
| | 3.93 |
| | 18.0 |
| | 250,699 |
| | 4.83 |
| | 45.3 |
|
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Total originated, refinanced and purchased | $ | 799,172 |
| | 3.60 |
| | 100.0 | % | | $ | 552,936 |
| | 4.75 |
| | 100.0 | % |
| | | | | | | | | | | |
Purchased and participation loans included above: | | | | | | | | | | |
Fixed-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | $ | 220,304 |
| | 3.48 |
| | | | $ | 63,550 |
| | 4.46 |
| | |
Participations - commercial | 28,426 |
| | 4.65 |
| | | | 43,977 |
| | 5.49 |
| | |
Total fixed-rate purchased/participations | 248,730 |
| | 3.61 |
| | | | 107,527 |
| | 4.88 |
| | |
| | | | | | | | | | | |
Adjustable-rate: | | | | | | | | | | | |
Correspondent - one- to four-family | 32,786 |
| | 3.00 |
| | | | 25,332 |
| | 3.97 |
| | |
Participations - commercial | — |
| | — |
| | | | 28,650 |
| | 5.35 |
| | |
Total adjustable-rate purchased/participations | 32,786 |
| | 3.00 |
| | | | 53,982 |
| | 4.70 |
| | |
Total purchased/participation loans | $ | 281,516 |
| | 3.54 |
| | | | $ | 161,509 |
| | 4.82 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| |
(1) | The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years. | | |
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| |
(2) | The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination. | | | | | | | | | | |
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(1)The fixed-rate one- to four-family loans less than or equal to 15 years have an original maturity at origination of less than or equal to 15 years, while fixed-rate one- to four-family loans greater than 15 years have an original maturity at origination of greater than 15 years.
(2)The adjustable-rate one- to four-family loans less than or equal to 36 months have a term to first reset of less than or equal to 36 months at origination and adjustable-rate one- to four-family loans greater than 36 months have a term to first reset of greater than 36 months at origination.
One- to Four-Family Loans - The following table presents, for our portfolio of one- to four-family loans, the amount, percent of total, weighted average credit score, weighted average LTV ratio, and average balance per loan as of the dates presented. Credit scores are updated at least annually, with the latest update in September 2019,December 2020, from a nationally recognized consumer rating agency. The LTV ratios were based on the current loan balance and either the lesser of the purchase price or original appraisal, or the most recent Bank appraisal, if available. In most cases, the most recent appraisal was obtained at the time of origination.
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| December 31, 2020 | | September 30, 2020 |
| | | % of | | Credit | | | | Average | | | | % of | | Credit | | | | Average |
| Amount | | Total | | Score | | LTV | | Balance | | Amount | | Total | | Score | | LTV | | Balance |
| (Dollars in thousands) |
Originated | $ | 3,946,073 | | | 64.5 | % | | 770 | | | 62 | % | | $ | 147 | | | $ | 3,937,310 | | | 63.0 | % | | 771 | | | 62 | % | | $ | 145 | |
Correspondent purchased | 1,974,086 | | | 32.2 | | | 764 | | | 64 | | | 380 | | | 2,101,082 | | | 33.6 | | | 765 | | | 64 | | | 379 | |
Bulk purchased | 199,673 | | | 3.3 | | | 770 | | | 59 | | | 301 | | | 208,427 | | | 3.4 | | | 767 | | | 60 | | | 300 | |
| $ | 6,119,832 | | | 100.0 | % | | 768 | | | 62 | | | 187 | | | $ | 6,246,819 | | | 100.0 | % | | 768 | | | 63 | | | 187 | |
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| March 31, 2020 | | September 30, 2019 |
| | | % of | | Credit | | | | Average | | | | % of | | Credit | | | | Average |
| Amount | | Total | | Score | | LTV | | Balance | | Amount | | Total | | Score | | LTV | | Balance |
| (Dollars in thousands) |
Originated | $ | 3,944,782 |
| | 60.1 | % | | 767 |
| | 62 | % | | $ | 143 |
| | $ | 3,873,851 |
| | 59.8 | % | | 768 |
| | 62 | % | | $ | 140 |
|
Correspondent purchased | 2,385,907 |
| | 36.4 |
| | 764 |
| | 65 |
| | 375 |
| | 2,349,877 |
| | 36.3 |
| | 765 |
| | 65 |
| | 371 |
|
Bulk purchased | 228,730 |
| | 3.5 |
| | 763 |
| | 61 |
| | 302 |
| | 252,347 |
| | 3.9 |
| | 762 |
| | 61 |
| | 304 |
|
| $ | 6,559,419 |
| | 100.0 | % | | 766 |
| | 63 |
| | 189 |
| | $ | 6,476,075 |
| | 100.0 | % | | 767 |
| | 63 |
| | 186 |
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The following tables present originated, refinanced, and correspondent purchased activity in our one- to four-family loan portfolio, excluding endorsement activity, along with associated weighted average LTVs and weighted average credit scores for the periods indicated. Included in the "Refinanced by Bank customers" line item are correspondent loans that were refinanced with the Bank. Of the loans originated during the current year period, $127.4quarter, $101.5 million were refinanced from other lenders. Of the loans originated and refinanced during the current year period, 78% had loan values of $510 thousand or less. Of the correspondent loans purchased during the current year period, 23% had loan values of $510 thousand or less.
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| For the Three Months Ended |
| December 31, 2020 | | December 31, 2019 |
| | | | | Credit | | | | | | Credit |
| Amount | | LTV | | Score | | Amount | | LTV | | Score |
| (Dollars in thousands) |
Originated | $ | 221,196 | | | 71 | % | | 768 | | | $ | 172,386 | | | 74 | % | | 768 | |
Refinanced by Bank customers | 92,850 | | | 64 | | | 769 | | | 64,523 | | | 68 | | | 761 | |
Correspondent purchased | 105,833 | | | 69 | | | 776 | | | 108,493 | | | 72 | | | 767 | |
| | | | | | | | | | | |
| $ | 419,879 | | | 69 | | | 770 | | | $ | 345,402 | | | 72 | | | 766 | |
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| For the Three Months Ended |
| March 31, 2020 | | March 31, 2019 |
| | | | | Credit | | | | | | Credit |
| Amount | | LTV | | Score | | Amount | | LTV | | Score |
| (Dollars in thousands) |
Originated | $ | 133,513 |
| | 75 | % | | 764 |
| | $ | 83,101 |
| | 77 | % | | 755 |
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Refinanced by Bank customers | 43,470 |
| | 68 |
| | 758 |
| | 9,618 |
| | 67 |
| | 749 |
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Correspondent purchased | 144,597 |
| | 71 |
| | 766 |
| | 35,942 |
| | 74 |
| | 761 |
|
| $ | 321,580 |
| | 73 |
| | 764 |
| | $ | 128,661 |
| | 76 |
| | 756 |
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| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| | | | | Credit | | | | | | Credit |
| Amount | | LTV | | Score | | Amount | | LTV | | Score |
| (Dollars in thousands) |
Originated | $ | 305,900 |
| | 75 | % | | 766 |
| | $ | 209,426 |
| | 77 | % | | 755 |
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Refinanced by Bank customers | 107,992 |
| | 68 |
| | 760 |
| | 22,572 |
| | 67 |
| | 746 |
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Correspondent purchased | 253,090 |
| | 71 |
| | 767 |
| | 88,882 |
| | 74 |
| | 762 |
|
| $ | 666,982 |
| | 72 |
| | 765 |
| | $ | 320,880 |
| | 75 |
| | 756 |
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The following table presents the amount, percent of total, and weighted average rate, by state, of one- to four-family loan originations and correspondent purchases where originations and purchases in the state exceeded five percent of the total amount originated and purchased during the current quarter.
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| | For the Three Months Ended | | |
| | December 31, 2020 | | |
State | | Amount | | % of Total | | Rate | | | | | | |
| | (Dollars in thousands) |
Kansas | | $ | 264,680 | | | 63.0 | % | | 2.69 | % | | | | | | |
Missouri | | 78,150 | | | 18.6 | | | 2.69 | | | | | | | |
Texas | | 24,302 | | | 5.8 | | | 2.87 | | | | | | | |
Other states | | 52,747 | | | 12.6 | | | 2.84 | | | | | | | |
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| | $ | 419,879 | | | 100.0 | % | | 2.72 | | | | | | | |
As of December 31, 2020, there were $14.2 million of one- to-four family loans with COVID-19 loan modifications that were still in their deferral period. There was $218.3 million of one- to four-family loans with COVID-19 loan modifications that were out of their deferral period ended Marchby December 31, 2020. Of the COVID-19 loan modifications that had completed the deferral period by December 31, 2020, $4.3 million were 30 to 89 days delinquent and $1.5 million were 90 or more days delinquent as of December 31, 2020.
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| | For the Three Months Ended | | For the Six Months Ended |
| | March 31, 2020 | | March 31, 2020 |
State | | Amount | | % of Total | | Rate | | Amount | | % of Total | | Rate |
| | (Dollars in thousands) |
Kansas | | $ | 153,911 |
| | 47.8 | % | | 3.30 | % | | $ | 361,548 |
| | 54.2 | % | | 3.33 | % |
Missouri | | 59,433 |
| | 18.5 |
| | 3.37 |
| | 119,514 |
| | 17.9 |
| | 3.38 |
|
Texas | | 59,371 |
| | 18.5 |
| | 3.29 |
| | 103,439 |
| | 15.5 |
| | 3.32 |
|
Other states | | 48,865 |
| | 15.2 |
| | 3.47 |
| | 82,481 |
| | 12.4 |
| | 3.48 |
|
| | $ | 321,580 |
| | 100.0 | % | | 3.34 |
| | $ | 666,982 |
| | 100.0 | % | | 3.35 |
|
One- to Four-Family Loan Commitments - 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 MarchDecember 31, 2020, along with associated weighted average rates. Loan commitments generally have fixed expiration dates or other termination clauses and may require the
payment of a rate lock fee. It is expected that some of the loan commitments will expire unfunded, so the amounts reflected in the table below are not necessarily indicative of our future cash needs. As discussed above, the Bank suspended its purchase of correspondent one- to four-family loans during the initial days of the COVID-19 pandemic, but the Bank continues to progress through the approval and funding of the commitments in the pipeline at the time of the suspension.
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| Fixed-Rate | | | | | | |
| 15 years | | More than | | Adjustable- | | Total |
| or less | | 15 years | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
| | | | | | | | | |
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Originate/refinance | $ | 40,270 | | | $ | 58,716 | | | $ | 8,301 | | | $ | 107,287 | | | 2.74 | % |
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Correspondent | 27,737 | | | 84,768 | | | 9,236 | | | 121,741 | | | 2.69 | |
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| $ | 68,007 | | | $ | 143,484 | | | $ | 17,537 | | | $ | 229,028 | | | 2.72 | |
| | | | | | | | | |
Rate | 2.35 | % | | 2.91 | % | | 2.56 | % | | | | |
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| Fixed-Rate | | | | | | |
| 15 years | | More than | | Adjustable- | | Total |
| or less | | 15 years | | Rate | | Amount | | Rate |
| (Dollars in thousands) |
Originate/refinance | $ | 27,472 |
| | $ | 49,544 |
| | $ | 12,376 |
| | $ | 89,392 |
| | 3.27 | % |
Correspondent | 28,065 |
| | 68,986 |
| | 15,668 |
| | 112,719 |
| | 3.25 |
|
| $ | 55,537 |
| | $ | 118,530 |
| | $ | 28,044 |
| | $ | 202,111 |
| | 3.26 |
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Rate | 2.90 | % | | 3.50 | % | | 2.96 | % | | | | |
Commercial Loans - During the current year period,quarter, the Bank originated $67.6$38.1 million of commercial loans and entered into commercial real estate loan participations totaling $28.4 million, and$60.0 million. The Bank also processed commercial loan disbursements, excluding lines of credit, of approximately $89$45.4 million at a weighted average rate of 4.72%3.99%. Early during the current quarter, two large participation loans totaling $57.3 million, with a weighted average rate of 3.93%, were paid off. Additionally, during the current quarter $25.5 million of PPP loans were paid off, primarily by the U.S. Small Business Administration ("SBA") following completion of the loan forgiveness process.
The following table presents the Bank's commercial real estate and commercial construction loans and loan commitments by type of primary collateral, as of MarchDecember 31, 2020. Included in the gross loan amounts in the table, which does not include outstanding commitments, are fixed-rate loans totaling $482.7 million at a weighted average rate of 4.34% and adjustable-rate loans totaling $340.8 million at a weighted average rate of 4.65%. The weighted average rate of fixed-rate loans is lower than that of adjustable-rate loans due primarily to the majority of the fixed-rate loans in the portfolio at March 31, 2020 having shorter terms to maturity. Because the commitments to pay out undisbursed funds are not cancellable by the Bank, unless the loan is in default, we anticipate fully funding the related projects.project.
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| | | Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Count | | Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| | | (Dollars in thousands) |
Senior housing | 25 | | | $ | 175,348 | | | $ | 29,801 | | | $ | 205,149 | | | $ | 35,500 | | | $ | 240,649 | | | 24.8 | % |
Hotel | 9 | | | 132,194 | | | 46,717 | | | 178,911 | | | — | | | 178,911 | | | 18.4 | |
Retail building | 131 | | | 126,963 | | | 12,023 | | | 138,986 | | | 15,113 | | | 154,099 | | | 15.9 | |
Office building | 101 | | | 59,008 | | | 63,566 | | | 122,574 | | | 556 | | | 123,130 | | | 12.7 | |
Multi-family | 42 | | | 67,792 | | | 17,418 | | | 85,210 | | | 25,052 | | | 110,262 | | | 11.4 | |
One- to four-family property | 380 | | | 60,037 | | | 4,749 | | | 64,786 | | | 944 | | | 65,730 | | | 6.8 | |
Single use building | 22 | | | 43,069 | | | 5,095 | | | 48,164 | | | 14,155 | | | 62,319 | | | 6.4 | |
Other | 95 | | | 30,089 | | | 3,469 | | | 33,558 | | | 1,709 | | | 35,267 | | | 3.6 | |
| 805 | | | $ | 694,500 | | | $ | 182,838 | | | $ | 877,338 | | | $ | 93,029 | | | $ | 970,367 | | | 100.0 | % |
| | | | | | | | | | | | | |
Weighted average rate | | 4.19 | % | | 4.06 | % | | 4.16 | % | | 3.81 | % | | 4.13 | % | | |
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| Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| (Dollars in thousands) |
Senior housing | $ | 227,102 |
| | $ | 45,545 |
| | $ | 272,647 |
| | $ | — |
| | $ | 272,647 |
| | 31.1 | % |
Hotel | 117,462 |
| | 19,137 |
| | 136,599 |
| | 43,757 |
| | 180,356 |
| | 20.5 |
|
Retail building | 120,333 |
| | 21,609 |
| | 141,942 |
| | 4,999 |
| | 146,941 |
| | 16.7 |
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Multi-family | 59,294 |
| | 15,452 |
| | 74,746 |
| | 1,720 |
| | 76,466 |
| | 8.7 |
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One- to four-family property | 57,434 |
| | 4,882 |
| | 62,316 |
| | 1,652 |
| | 63,968 |
| | 7.3 |
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Office building | 53,469 |
| | 1,039 |
| | 54,508 |
| | 590 |
| | 55,098 |
| | 6.3 |
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Single use building | 44,539 |
| | 4,556 |
| | 49,095 |
| | 807 |
| | 49,902 |
| | 5.7 |
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Other | 30,869 |
| | 787 |
| | 31,656 |
| | 675 |
| | 32,331 |
| | 3.7 |
|
| $ | 710,502 |
| | $ | 113,007 |
| | $ | 823,509 |
| | $ | 54,200 |
| | $ | 877,709 |
| | 100.0 | % |
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Weighted average rate | 4.44 | % | | 4.65 | % | | 4.47 | % | | 5.35 | % | | 4.52 | % | | |
The following table summarizes the Bank's commercial real estate and commercial construction loans and loan commitments by state as of MarchDecember 31, 2020.
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| | | Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Count | | Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| | | (Dollars in thousands) |
Kansas | 624 | | | $ | 287,371 | | | $ | 21,118 | | | $ | 308,489 | | | $ | 52,120 | | | $ | 360,609 | | | 37.2 | % |
Texas | 11 | | | 121,514 | | | 108,930 | | | 230,444 | | | 31,777 | | | 262,221 | | | 27.0 | |
Missouri | 146 | | | 181,235 | | | 45,025 | | | 226,260 | | | 7,632 | | | 233,892 | | | 24.1 | |
Nebraska | 6 | | | 33,745 | | | 16 | | | 33,761 | | | — | | | 33,761 | | | 3.5 | |
Kentucky | 1 | | | 25,559 | | | — | | | 25,559 | | | — | | | 25,559 | | | 2.6 | |
California | 3 | | | 5,810 | | | 4,300 | | | 10,110 | | | 1,500 | | | 11,610 | | | 1.2 | |
Other | 14 | | | 39,266 | | | 3,449 | | | 42,715 | | | — | | | 42,715 | | | 4.4 | |
| 805 | | | $ | 694,500 | | | $ | 182,838 | | | $ | 877,338 | | | $ | 93,029 | | | $ | 970,367 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| (Dollars in thousands) |
Kansas | $ | 285,283 |
| | $ | 10,817 |
| | $ | 296,100 |
| | $ | 2,919 |
| | $ | 299,019 |
| | 34.1 | % |
Missouri | 227,267 |
| | 66,363 |
| | 293,630 |
| | 3,401 |
| | 297,031 |
| | 33.8 |
|
Texas | 99,316 |
| | 27,934 |
| | 127,250 |
| | 43,697 |
| | 170,947 |
| | 19.5 |
|
Nebraska | 31,919 |
| | 1,690 |
| | 33,609 |
| | — |
| | 33,609 |
| | 3.8 |
|
Kentucky | 25,230 |
| | 330 |
| | 25,560 |
| | — |
| | 25,560 |
| | 2.9 |
|
California | 5,941 |
| | 4,300 |
| | 10,241 |
| | — |
| | 10,241 |
| | 1.2 |
|
Other | 35,546 |
| | 1,573 |
| | 37,119 |
| | 4,183 |
| | 41,302 |
| | 4.7 |
|
| $ | 710,502 |
| | $ | 113,007 |
| | $ | 823,509 |
| | $ | 54,200 |
| | $ | 877,709 |
| | 100.0 | % |
The following table presents the Bank's commercial and industrial loans and loan commitments by business purpose, as of MarchDecember 31, 2020. Included in the working capital loan category are $17.3 million of PPP loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Count | | Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| | | (Dollars in thousands) |
Working capital | 569 | | | $ | 28,694 | | | $ | 15,474 | | | $ | 44,168 | | | $ | 200 | | | $ | 44,368 | | | 48.4 | % |
Equipment | 124 | | | 13,737 | | | 302 | | | 14,039 | | | 2,715 | | | 16,754 | | | 18.3 | |
Purchase/lease autos | 201 | | | 11,962 | | | 19 | | | 11,981 | | | 669 | | | 12,650 | | | 13.8 | |
Business investment | 67 | | | 10,232 | | | 50 | | | 10,282 | | | 245 | | | 10,527 | | | 11.5 | |
Other | 22 | | | 4,753 | | | 2,538 | | | 7,291 | | | — | | | 7,291 | | | 8.0 | |
| | | | | | | | | | | | | |
| 983 | | | $ | 69,378 | | | $ | 18,383 | | | $ | 87,761 | | | $ | 3,829 | | | $ | 91,590 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Unpaid | | Undisbursed | | Gross Loan | | Outstanding | | | | % of |
| Principal | | Amount | | Amount | | Commitments | | Total | | Total |
| (Dollars in thousands) |
Working capital | $ | 17,789 |
| | $ | 13,116 |
| | $ | 30,905 |
| | $ | 2,910 |
| | $ | 33,815 |
| | 41.8 | % |
Equipment | 16,943 |
| | 536 |
| | 17,479 |
| | 70 |
| | 17,549 |
| | 21.7 |
|
Business investment | 11,993 |
| | 80 |
| | 12,073 |
| | 125 |
| | 12,198 |
| | 15.1 |
|
Purchase/lease autos | 8,954 |
| | 95 |
| | 9,049 |
| | — |
| | 9,049 |
| | 11.2 |
|
Other | 6,474 |
| | 1,825 |
| | 8,299 |
| | — |
| | 8,299 |
| | 10.2 |
|
| $ | 62,153 |
| | $ | 15,652 |
| | $ | 77,805 |
| | $ | 3,105 |
| | $ | 80,910 |
| | 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 MarchDecember 31, 2020.
| | | | | | | | | | | |
| Count | | Amount |
| (Dollars in thousands) |
Greater than $30 million | 4 | | | $ | 185,500 | |
>$15 to $30 million | 13 | | | 308,014 | |
>$10 to $15 million | 4 | | | 45,795 | |
>$5 to $10 million | 15 | | | 94,788 | |
$1 to $5 million | 104 | | | 225,597 | |
Less than $1 million | 1,648 | | | 202,263 | |
| 1,788 | | | $ | 1,061,957 | |
|
| | | | | | |
| Count | | Amount |
| (Dollars in thousands) |
Greater than $30 million | 3 |
| | $ | 121,748 |
|
>$15 to $30 million | 12 |
| | 296,150 |
|
>$10 to $15 million | 4 |
| | 50,192 |
|
>$5 to $10 million | 13 |
| | 83,795 |
|
$1 to $5 million | 95 |
| | 214,002 |
|
Less than $1 million | 1,223 |
| | 192,732 |
|
| 1,350 |
| | $ | 958,619 |
|
The Bank's commercial lending team is workingcontinues to proactively work with our commercial customers as the COVID-19 pandemic continues to present challenging operating conditions. As discussed above, through April 30,of December 31, 2020, we have modified or are in the process of modifying $365.8 million ofthere were commercial loans under ourwith a gross balance, including undisbursed amounts, totaling $75.1 million with COVID-19 loan modification program. We have also processed 575 PPP loans for $40.7modifications that were still in their deferral period, which includes one loan with a $50.0 million for which we expect to receive approximately $1.7 million in fees underbalance. Approximately 88% of the first PPP. Approximately 60%commercial loan balance with COVID-19 loan modifications during fiscal year 2020 was either out of PPP loans processed are in the following industries: construction, professional/scientific/technical, health care/social assistance, and retail trade.
The following table presents the unpaid principal balance of Bank's commercial real estate loans, by type of primary collateral, and commercial and industrial loans, by business purpose, that either have been modifieddeferral period or are in the process of being modifiedpaid off as of AprilDecember 31, 2020. Of the loans that had completed the deferral period by December 31, 2020, one loan for $340 thousand was 30 2020. The information is split by typeto 89 days delinquent and none were 90 or more days delinquent as of modification and presented as a percentage of total modifications, as well as by a percentage of the related unpaid principal balance of the related property type or business purpose category.December 31, 2020.
|
| | | | | | | | | | | | | | | | | |
| Modification Type | | | | % of |
| Interest | | Payment | | | | % of | | Property Type/ |
| Only | | Deferral | | Total | | Total | | Business Purpose |
| (Dollars in thousands) | | | | |
Commercial real estate | | | | | | | | | |
Senior housing | $ | 101,904 |
| | $ | 46,220 |
| | $ | 148,124 |
| | 40.5 | % | | 65.2 | % |
Hotel | 76,249 |
| | 19,266 |
| | 95,515 |
| | 26.1 |
| | 81.3 |
|
Single use building | 30,450 |
| | 5,331 |
| | 35,781 |
| | 9.8 |
| | 80.3 |
|
Retail building | 31,814 |
| | 3,119 |
| | 34,933 |
| | 9.6 |
| | 29.0 |
|
Office building | 16,415 |
| | 7,012 |
| | 23,427 |
| | 6.4 |
| | 43.8 |
|
Multi-family | 8,233 |
| | — |
| | 8,233 |
| | 2.3 |
| | 13.9 |
|
One- to four-family property | 7,680 |
| | — |
| | 7,680 |
| | 2.1 |
| | 13.4 |
|
Other | 3,297 |
| | — |
| | 3,297 |
| | 0.9 |
| | 10.7 |
|
| 276,042 |
| | 80,948 |
| | 356,990 |
| | 97.7 |
| | 50.2 |
|
Commercial and industrial | | | | | | | | | |
Equipment | 4,141 |
| | — |
| | 4,141 |
| | 1.1 |
| | 24.4 |
|
Business investment | 2,372 |
| | — |
| | 2,372 |
| | 0.6 |
| | 19.8 |
|
Working capital | 869 |
| | — |
| | 869 |
| | 0.2 |
| | 4.9 |
|
Purchase/lease autos | 587 |
| | — |
| | 587 |
| | 0.2 |
| | 6.6 |
|
Other | 807 |
| | — |
| | 807 |
| | 0.2 |
| | 12.5 |
|
| 8,776 |
| | — |
| | 8,776 |
| | 2.3 |
| | 14.1 |
|
Total | $ | 284,818 |
| | $ | 80,948 |
| | $ | 365,766 |
| | 100.0 | % | | 47.3 | % |
Asset Quality. The Bank's traditional one- to four-family underwriting guidelines have provided the Bank with generally low delinquencies and low levels of non-performing assets within this loan category compared to national levels. Of particular importance is the complete and full documentation required for each loan the Bank originates, participates in or purchases. This allows the Bank to make an informed credit decision based upon a thorough assessment of the borrower's ability to repay the loan. The Bank performs more extensive due diligence when underwriting commercial loans than loans secured by one- to four-family residential properties due to the larger loan amounts, the more complex sources of repayment and the riskier nature of such loans. When participating in a commercial loan, the Bank performs the same underwriting procedures as if the loan was being originated by the Bank. See additional discussion regarding underwriting standards in "Part I, Item 1. Business - Lending Practices and Underwriting Standards" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020.
Delinquent and non-performing loans and OREO - The following table presents the Company's 30 to 89 day delinquent loans at the dates indicated. Loans subject to payment forbearance under the Bank's COVID-19 loan modification program are not reported as delinquent during the forbearance time period. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Of the loans 30 to 89 days delinquent at MarchDecember 31, 2020, approximately 78%76% were 59 days or less delinquent.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans Delinquent for 30 to 89 Days at: |
| December 31, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
| Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | | | | | | |
Originated | 62 | | $ | 5,844 | | | 42 | | $ | 3,012 | | | 57 | | $ | 5,085 | | | 92 | | | $ | 8,360 | | | 96 | | | $ | 9,004 | |
Correspondent purchased | 13 | | 4,694 | | | 8 | | 3,123 | | | 10 | | 2,919 | | | 13 | | | 4,531 | | | 13 | | | 4,117 | |
Bulk purchased | 9 | | 1,750 | | | 12 | | 2,532 | | | 19 | | 4,536 | | | 12 | | | 2,914 | | | 14 | | | 3,307 | |
Commercial | 8 | | 1,047 | | | 2 | | 45 | | | 9 | | 1,543 | | | 7 | | | 1,555 | | | 7 | | | 1,192 | |
| | | | | | | | | | | | | | | | | | | |
Consumer | 30 | | 515 | | | 26 | | 398 | | | 21 | | 431 | | | 43 | | | 628 | | | 40 | | | 488 | |
| 122 | | $ | 13,850 | | | 90 | | $ | 9,110 | | | 116 | | $ | 14,514 | | | 167 | | | $ | 17,988 | | | 170 | | | $ | 18,108 | |
| | | | | | | | | | | | | | | | | | | |
Loans 30 to 89 days delinquent | | | | | | | | | | | | | | | | | | |
to total loans receivable, net | | 0.20 | % | | | | 0.13 | % | | | | 0.20 | % | | | | 0.24 | % | | | | 0.24 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans Delinquent for 30 to 89 Days at: |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| 2020 | | 2019 | | 2019 | | 2019 | | 2019 |
| Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | | | | | | |
Originated | 92 | | $ | 8,360 |
| | 96 | | $ | 9,004 |
| | 90 | | $ | 7,223 |
| | 94 |
| | $ | 7,749 |
| | 79 |
| | $ | 8,694 |
|
Correspondent purchased | 13 | | 4,531 |
| | 13 | | 4,117 |
| | 9 | | 2,721 |
| | 14 |
| | 3,727 |
| | 13 |
| | 4,133 |
|
Bulk purchased | 12 | | 2,914 |
| | 14 | | 3,307 |
| | 16 | | 3,581 |
| | 13 |
| | 2,249 |
| | 13 |
| | 2,722 |
|
Commercial | 7 | | 1,555 |
| | 7 | | 1,192 |
| | 8 | | 826 |
| | 12 |
| | 1,699 |
| | 13 |
| | 1,361 |
|
Consumer | 43 | | 628 |
| | 40 | | 488 |
| | 42 | | 525 |
| | 43 |
| | 630 |
| | 37 |
| | 481 |
|
| 167 | | $ | 17,988 |
| | 170 | | $ | 18,108 |
| | 165 | | $ | 14,876 |
| | 176 |
| | $ | 16,054 |
| | 155 |
| | $ | 17,391 |
|
| | | | | | | | | | | | | | | | | | | |
Loans 30 to 89 days delinquent | | | | | | | | | | | | | | | | | | | |
to total loans receivable, net | | | 0.24 | % | | | | 0.24 | % | | | | 0.20 | % | | | | 0.21 | % | | | | 0.23 | % |
The table below presents the Company's non-performing loans and OREO at the dates indicated. The amounts in the table represent the unpaid principal balance of the loans less related charge-offs. Non-performing 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 non-performing loans and OREO. OREO primarily includes assets acquired in settlement of loans. Over the past 12 months, one- to four-family OREO properties acquired in settlement of one- to four-family loans were owned by the Bank, on average, for approximately threefour months before the properties were sold.
In late March 2020, the Bank suspended the initiation of foreclosure proceedings for owner-occupied one- to four-family loans.
| | | Non-Performing Loans and OREO at: | | Non-Performing Loans and OREO at: |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2019 | | 2019 | | 2019 | | 2019 | | 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
| Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount | | Number | | Amount |
| (Dollars in thousands) | | (Dollars in thousands) |
Loans 90 or More Days Delinquent or in Foreclosure: | Loans 90 or More Days Delinquent or in Foreclosure: | | | | | | | | | | | | | | | | | Loans 90 or More Days Delinquent or in Foreclosure: | |
One- to four-family: | | | | | | | | | | | | | | | | | | | | One- to four-family: | |
Originated | 53 |
| | $ | 4,517 |
| | 44 |
| | $ | 3,552 |
| | 44 |
| | $ | 3,268 |
| | 58 |
| | $ | 5,069 |
| | 67 |
| | $ | 5,172 |
| Originated | 51 | | | $ | 4,370 | | | 51 | | | $ | 4,362 | | | 47 | | | $ | 4,026 | | | 53 | | | $ | 4,517 | | | 44 | | | $ | 3,552 | |
Correspondent purchased | 4 |
| | 1,342 |
| | 4 |
| | 1,376 |
| | 4 |
| | 1,008 |
| | 2 |
| | 871 |
| | 3 |
| | 918 |
| Correspondent purchased | 9 | | | 3,371 | | | 6 | | | 2,397 | | | 7 | | | 2,740 | | | 4 | | | 1,342 | | | 4 | | | 1,376 | |
Bulk purchased | 1 |
| | 630 |
| | 2 |
| | 689 |
| | 6 |
| | 1,465 |
| | 7 |
| | 2,194 |
| | 10 |
| | 2,782 |
| Bulk purchased | 13 | | | 3,724 | | | 12 | | | 2,903 | | | 3 | | | 1,291 | | | 1 | | | 630 | | | 2 | | | 689 | |
Commercial | 4 |
| | 716 |
| | — |
| | — |
| | 4 |
| | 170 |
| | — |
| | — |
| | — |
| | — |
| Commercial | 5 | | | 820 | | | 5 | | | 1,360 | | | 4 | | | 709 | | | 4 | | | 716 | | | — | | | — | |
Consumer | 17 |
| | 326 |
| | 20 |
| | 340 |
| | 25 |
| | 362 |
| | 25 |
| | 437 |
| | 27 |
| | 567 |
| Consumer | 26 | | | 473 | | | 14 | | | 304 | | | 23 | | | 278 | | | 17 | | | 326 | | | 20 | | | 340 | |
| 79 |
| | 7,531 |
| | 70 |
| | 5,957 |
| | 83 |
| | 6,273 |
| | 92 |
| | 8,571 |
| | 107 |
| | 9,439 |
| | 104 | | | 12,758 | | | 88 | | | 11,326 | | | 84 | | | 9,044 | | | 79 | | | 7,531 | | | 70 | | | 5,957 | |
| | | | | | | | | | | | | | | | | | | | |
Loans 90 or more days delinquent or in foreclosure | Loans 90 or more days delinquent or in foreclosure | | | | | | | | | | | | | | | | | | | Loans 90 or more days delinquent or in foreclosure | |
as a percentage of total loans | | | 0.10 | % | | | | 0.08 | % | | | | 0.08 | % | | | | 0.11 | % | | | | 0.12 | % | as a percentage of total loans | | 0.18 | % | | 0.16 | % | | 0.12 | % | | 0.10 | % | | 0.08 | % |
| | | | | | | | | | | | | | | | | | | | |
Nonaccrual loans less than 90 Days Delinquent:(1) | Nonaccrual loans less than 90 Days Delinquent:(1) | | | | | | | | | | | | | | | | | | | Nonaccrual loans less than 90 Days Delinquent:(1) | |
One- to four-family: | | | | | | | | | | | | | | | | | | | | One- to four-family: | |
Originated | 13 |
| | $ | 811 |
| | 11 |
| | $ | 634 |
| | 16 |
| | $ | 1,183 |
| | 15 |
| | $ | 1,057 |
| | 18 |
| | $ | 1,761 |
| Originated | 9 | | | $ | 968 | | | 9 | | | $ | 691 | | | 14 | | | $ | 1,132 | | | 13 | | | $ | 811 | | | 11 | | | $ | 634 | |
Correspondent purchased | 1 |
| | 189 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Correspondent purchased | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 189 | | | — | | | — | |
Bulk purchased | 1 |
| | 134 |
| | 1 |
| | 134 |
| | 1 |
| | 65 |
| | 2 |
| | 374 |
| | — |
| | — |
| Bulk purchased | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 134 | | | 1 | | | 134 | |
Commercial | 2 |
| | 129 |
| | 6 |
| | 363 |
| | 1 |
| | 7 |
| | 1 |
| | 7 |
| | 2 |
| | 1,712 |
| Commercial | 3 | | | 411 | | | 3 | | | 464 | | | 1 | | | 6 | | | 2 | | | 129 | | | 6 | | | 363 | |
Consumer | 2 |
| | 43 |
| | — |
| | — |
| | 2 |
| | 35 |
| | 2 |
| | 4 |
| | 3 |
| | 14 |
| Consumer | 1 | | | 9 | | | 1 | | | 9 | | | 1 | | | 33 | | | 2 | | | 43 | | | — | | | — | |
| 19 |
| | 1,306 |
| | 18 |
| | 1,131 |
| | 20 |
| | 1,290 |
| | 20 |
| | 1,442 |
| | 23 |
| | 3,487 |
| | 13 | | | 1,388 | | | 13 | | | 1,164 | | | 16 | | | 1,171 | | | 19 | | | 1,306 | | | 18 | | | 1,131 | |
Total non-performing loans | 98 |
| | 8,837 |
| | 88 |
| | 7,088 |
| | 103 |
| | 7,563 |
| | 112 |
| | 10,013 |
| | 130 |
| | 12,926 |
| Total non-performing loans | 117 | | | 14,146 | | | 101 | | | 12,490 | | | 100 | | | 10,215 | | | 98 | | | 8,837 | | | 88 | | | 7,088 | |
| | | | | | | | | | | | | | | | | | | | |
Non-performing loans as a percentage of total loans | Non-performing loans as a percentage of total loans | | 0.12 | % | | | | 0.10 | % | | | | 0.10 | % | | | | 0.13 | % | | | | 0.17 | % | Non-performing loans as a percentage of total loans | 0.20 | % | | 0.17 | % | | 0.14 | % | | 0.12 | % | | 0.10 | % |
| | | | | | | | | | | | | | | | | | | | |
OREO: | | | | | | | | | | | | | | | | | | | | OREO: | |
One- to four-family: | | | | | | | | | | | | | | | | | | | | One- to four-family: | |
Originated(2) | 5 |
| | $ | 187 |
| | 8 |
| | $ | 414 |
| | 8 |
| | $ | 745 |
| | 8 |
| | $ | 546 |
| | 5 |
| | $ | 549 |
| Originated(2) | 3 | | | $ | 129 | | | 4 | | | $ | 183 | | | 4 | | | $ | 183 | | | 5 | | | $ | 187 | | | 8 | | | $ | 414 | |
Bulk purchased | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 322 |
| |
Commercial | — |
| | — |
| | — |
| | — |
| | 1 |
| | 600 |
| | 1 |
| | 600 |
| | 1 |
| | 600 |
| |
| Consumer | — |
| | — |
| | 1 |
| | 98 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Consumer | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1 | | | 98 | |
| | 5 |
| | 187 |
| | 9 |
| | 512 |
| | 9 |
| | 1,345 |
| | 9 |
| | 1,146 |
| | 7 |
| | 1,471 |
| | 3 | | | 129 | | | 4 | | | 183 | | | 4 | | | 183 | | | 5 | | | 187 | | | 9 | | | 512 | |
Total non-performing assets | 103 |
| | $ | 9,024 |
| | 97 |
| | $ | 7,600 |
| | 112 |
| | $ | 8,908 |
| | 121 |
| | $ | 11,159 |
| | 137 |
| | $ | 14,397 |
| Total non-performing assets | 120 | | | $ | 14,275 | | | 105 | | | $ | 12,673 | | | 104 | | | $ | 10,398 | | | 103 | | | $ | 9,024 | | | 97 | | | $ | 7,600 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-performing assets as a percentage of total assets | Non-performing assets as a percentage of total assets | | 0.10 | % | | | | 0.08 | % | | | | 0.10 | % | | | | 0.12 | % | | | | 0.15 | % | Non-performing assets as a percentage of total assets | 0.15 | % | | 0.13 | % | | 0.11 | % | | 0.10 | % | | 0.08 | % |
| |
(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. |
(1)Includes loans required to be reported as nonaccrual pursuant to accounting and/or regulatory reporting requirements and/or internal policies, even if the loans are current.
(2)Real estate-related consumer loans where we also hold the first mortgage are included in the one- to four-family category as the underlying collateral is one- to four-family property.
The following table presents 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 MarchDecember 31, 2020. 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 MarchDecember 31, 2020, 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 | | $ | 3,529,714 | | | 57.7 | % | | $ | 6,163 | | | 50.2 | % | | $ | 4,360 | | | 38.0 | % | | 66 | % |
Missouri | | 1,057,808 | | | 17.3 | | | 1,075 | | | 8.7 | | | 1,318 | | | 11.5 | | | 55 | |
Texas | | 651,048 | | | 10.6 | | | 2,389 | | | 19.4 | | | 1,440 | | | 12.6 | | | 55 | |
Other states | | 881,262 | | | 14.4 | | | 2,661 | | | 21.7 | | | 4,347 | | | 37.9 | | | 56 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | $ | 6,119,832 | | | 100.0 | % | | $ | 12,288 | | | 100.0 | % | | $ | 11,465 | | | 100.0 | % | | 59 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | | $ | 3,592,113 |
| | 54.7 | % | | $ | 6,655 |
| | 42.1 | % | | $ | 4,229 |
| | 65.2 | % | | 63 | % |
Missouri | | 1,179,941 |
| | 18.0 |
| | 2,300 |
| | 14.5 |
| | 804 |
| | 12.4 |
| | 64 |
|
Texas | | 759,064 |
| | 11.6 |
| | 1,591 |
| | 10.1 |
| | 441 |
| | 6.8 |
| | 44 |
|
Other states | | 1,028,301 |
| | 15.7 |
| | 5,259 |
| | 33.3 |
| | 1,015 |
| | 15.6 |
| | 71 |
|
| | $ | 6,559,419 |
| | 100.0 | % | | $ | 15,805 |
| | 100.0 | % | | $ | 6,489 |
| | 100.0 | % | | 63 |
|
Classified loans - The following table presents loans classified as special mention or substandard at the dates presented. The amountsincrease in the table represent the unpaid principal balance of the loans less related charge-offs. The increase incommercial special mention loans at MarchDecember 31, 2020 compared to March 31, 2019September 30, 2020 was due primarilymainly to one $50.0the addition of two commercial loans totaling $51.3 million for which the borrowers have been impacted by the COVID-19 pandemic. Both of these loans were subject to COVID-19 loan modifications during fiscal year 2020 and have since resumed full payments. There are underlying economic conditions that management is monitoring in association with these loans resulting in the special mention classification during the current quarter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
| Special Mention | | Substandard | | Special Mention | | Substandard | | Special Mention | | Substandard |
| (Dollars in thousands) |
One- to four-family | $ | 12,536 | | | $ | 27,607 | | | $ | 11,339 | | | $ | 25,630 | | | $ | 15,778 | | | $ | 25,376 | |
Commercial | 101,921 | | | 4,772 | | | 52,006 | | | 4,914 | | | 52,809 | | | 5,356 | |
Consumer | 257 | | | 726 | | | 332 | | | 589 | | | 375 | | | 683 | |
| $ | 114,714 | | | $ | 33,105 | | | $ | 63,677 | | | $ | 31,133 | | | $ | 68,962 | | | $ | 31,415 | |
Allowance for Credit Losses and Reserve for Off-Balance Sheet Credit Exposures - As discussed previously, ASU 2016-13 became effective for the Company on October 1, 2020. This ASU replaced the incurred loss impairment methodology for calculating ACL under GAAP with a new impairment methodology, commonly known as the CECL methodology. The new methodology requires the Company to measure, at each reporting date, the expected credit losses for loans and loan commitments over their contractual lives based on historical experience, current conditions, and reasonable and supportable forecasts. Upon adoption of the ASU, the Company recorded a cumulative-effect adjustment to retained earnings of $2.3 million (net of tax of $739 thousand), which reduced the ACL by $4.8 million, to $26.8 million, and established a reserve for off-balance sheet credit exposures of $7.8 million, which is recorded in accounts payable and accrued expenses in the consolidated balance sheet. The Bank's off-balance sheet credit exposures are comprised of unfunded portions of existing loans and commitments to originate or purchase new loans that are not unconditionally cancellable by the Bank.
The Bank is utilizing a discounted cash flow approach for estimating expected credit losses for pooled loans and loan commitments. The credit loss estimate for off-balance sheet credit exposures also takes into consideration the likelihood that the commitment will fund. The economic indices used for the reasonable and supportable forecasted time period are the national unemployment rate, changes in commercial participation real estate loan being classifiedprice index, changes in home values, and changes in the United States gross domestic product. Management considers several economic forecast scenarios provided by a third party and selects the scenario believed to be the most appropriate considering the facts and circumstances at quarter end. Management also considers several qualitative factors. The qualitative factors account for items not included in historical loss rates, the macroeconomic forecast, and/or other model inputs/assumptions. Any changes to the ACL and reserves on off-balance sheet credit exposures are recorded through increases/decreases in the provision for credit losses on the consolidated statements of income.
The economic forecast scenario selected by management improved at December 31, 2020 compared to October 1, 2020 which resulted in a reduction in the ACL as special mention duringcalculated by the quarter ended June 30, 2019. Management continuesmodel. Due to closely monitor the project and surrounding activities. Includedcontinued economic uncertainty regarding political party changes in substandard commercial loans at MarchU.S. government offices, the effectiveness of the latest federal stimulus package, potential additional economic stimulus from the
federal government, increasing COVID-19 cases, limited vaccine distribution as of December 31, 2020, and December 31, 2019 were $3.4 million and $3.8 million, respectively, of loans addedan increase in the CCB acquisition which have since been renewed and on which the related purchase acquisition adjustments have been accreted; as such, these loans are now included in the Bank's ACL formula analysis model or are individually evaluated for impairment. There were no such loans at March 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | March 31, 2019 |
| Special Mention | | Substandard | | Special Mention | | Substandard | | Special Mention | | Substandard |
| (Dollars in thousands) |
One- to four-family | $ | 13,678 |
| | $ | 26,077 |
| | $ | 15,778 |
| | $ | 25,376 |
| | $ | 11,943 |
| | $ | 28,774 |
|
Commercial | 52,515 |
| | 4,538 |
| | 52,809 |
| | 5,356 |
| | 5,330 |
| | 1,712 |
|
Consumer | 479 |
| | 659 |
| | 375 |
| | 683 |
| | 125 |
| | 882 |
|
| $ | 66,672 |
| | $ | 31,274 |
| | $ | 68,962 |
| | $ | 31,415 |
| | $ | 17,398 |
| | $ | 31,368 |
|
Allowance for credit losses and Provision for credit losses - Management maintains an ACL to absorb inherent losses in thecommercial special mention loan portfolio based on quarterly assessments of the loan portfolio. The ACL is maintained through provisions for credit losses which are either charged to or credited to income. Each quarter a formula analysis model is prepared which segregates the loan portfolio into categories based on certain risk characteristics. Historical loss factors and qualitative factors arebalances, management applied to each loan category in the formula analysis model. The factors are reviewed by management quarterly to assess whether the factors adequately cover probable and estimable losses inherent in the loan portfolio. Due to the deterioration of economic conditions as a result of the COVID-19 pandemic, management increased some of the historical loss factors and qualitative factors to account for those uncertainties which mostly offset the increase in the estimated inherent losses in the loan portfolio at March 31, 2020.
One- to Four- Family and Consumer Loans: Management took into consideration the unprecedented increase in layoffs/furloughs as a result of COVID-19 and the industries and employee groups impacted by the layoffs/furloughs, the Bank's historical ACL to loans receivable ratios compared to the historical unemployment and housing price index trending, and the Bank's historical charge-off percentages when evaluating the Bank's historical loss factors and qualitative loss factors at March 31, 2020. As a result of the analysis, management increased the historical loss factors and qualitative factors for one- to four-family and consumer loans at March 31, 2020. Management selected the worst historical time periods reviewed and used those factorsreduction in the ACL formula analysis model at March 31, 2020. Management then evaluated the calculated ACLdue to the Bank's historical ACL to loan ratios to determine the appropriate amount of ACL at March 31, 2020.
Commercial Loans: As a result of the very limited historical loan loss experience for our commercial loan portfolio, management considered historical peer ACL to loans receivable percentages and peer charge-off percentages and the economic conditions during those time periods when evaluating the level of ACL at March 31, 2020 for commercial loans. Management also considered the layoffs/furloughs information noted above, along with impacts to certain categories of our commercial loan portfolio related to stay-at-home orders, mandatory closures, social distancing requirements, work-from-home requirements, and populations generally disproportionately
impacted by COVID-19 (e.g., senior housing), among others. Additionally, the commercial lending team closely analyzed the Bank's largest commercial relationships in late March 2020. Approximately 83% of all commercial loan balances outstanding at March 31, 2020 were analyzed. There were $162.5 million of commercial loans, or 21% of the unpaid commercial loan balance at March 31, 2020, considered most at risk of short-term operational cash flow issues and/or to have collateral concerns, primarily in the hotel and single use building categories, which were both among the categories with the highest usage of the Bank's COVID-19 loan modification program. The weighted average LTV ratios based on the unpaid principal balance of senior housing, retail building, hotel, office building, and single use building loans were 68%, 76%, 58%, 80%, and 68%, respectively, at March 31, 2020. We also considered the largest credits in these loan categories. The evaluation of most of our commercial and industrial loans concluded that many of these loans are to businesses that are deemed essential, which we believe reduces the risk of loss on these loans at this time. Management was not aware of any construction delays or other issues that would significantly delay or impact funding of the commercial construction loans at March 31, 2020. After reviewing the economic information noted above, management established a COVID-19 qualitative factor at March 31, 2020. The COVID-19 qualitative factor was developed by analyzing historical peer ACL to loans receivable percentages and peer charge-off percentages.
Overall: Programs under the Coronavirus Aid, Relief, and Economic Security ("CARES") Act were not sufficiently in effect at March 31, 2020 to provide relief to borrowers and the extent of the relief to borrowers related to the CARES Act programs is not yet known. Management believes the ACL at March 31, 2020 was adequate to absorb inherent losses in the loan portfolio at that point in time based on the known facts and circumstancesimprovement of the economic environment.forecasts. Management will continue to closely monitor economic conditions and will work with borrowers as necessary to assist them through this challenging economic climate. If economic conditions worsen or do not improve in the near term, if COVID-19 cases continue to worsen and/increase and the vaccine distribution and adoption is more limited than anticipated, or the CARES Act programs andif future government programs, if any, do not provide adequate relief to borrowers,businesses and individuals, it is possible the Bank's ACL and reserve for off-balance sheet credit exposures will need to increase in future periods.
The following table presents a summary of changes in ACL and reserve for off-balance sheet credit exposures occurring during the quarter ended December 31, 2020.
| | | | | | | | | | | | | | | | | |
| ACL | | Reserve for off-balance sheet credit exposures | | ACL and Reserve for off-balance sheet credit exposures |
| (Dollars in thousands) |
Balance at September 30, 2020 | $ | 31,527 | | | $ | — | | | $ | 31,527 | |
Adoption of CECL | (4,761) | | | 7,788 | | | 3,027 | |
Balance at October 1, 2020 | 26,766 | | | 7,788 | | | 34,554 | |
For the quarter ended December 31, 2020: | | | | |
Charge-offs | (532) | | | — | | | (532) | |
Recoveries | 68 | | | — | | | 68 | |
Net charge-offs | (464) | | | — | | | (464) | |
Provision for credit losses | (177) | | | (1,355) | | | (1,532) | |
Balance at December 31, 2020 | $ | 26,125 | | | $ | 6,433 | | | $ | 32,558 | |
See "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Allowance
The negative provision for
Credit Losses" and "Part II, Item 8. Financial Statements and Supplementary Data – Notescredit losses related to
Consolidated Financial Statements – Note 1. Summary of Significant Accounting Policies"the ACL was primarily due to a reduction in the
Company's Annual Report on Form 10-K forcorrespondent one-to four-family loan portfolio during the fiscal year ended September 30, 2019 for a full discussioncurrent quarter. It was partially offset by an increase in the commercial loan ACL due to an increase in special mention loans during the current quarter. The commercial loan portfolio balance decreased during the current quarter, but due to the increase in commercial special mention loans, any reduction in ACL associated with the decrease in the commercial loan portfolio balance was offset by the ACL related to the higher balance of our ACL methodology. See "Note 4. Loans Receivable and Allowance for Credit Losses" for additional information on the ACL.special mention loans at December 31, 2020.
The distributionnegative provision for credit losses related to the reserve for off-balance sheet credit exposures was a result of our ACL at the dates indicated is summarized below.improvement in the economic forecast since October 1, 2020, after taking into consideration the fact these loans are being underwritten during a challenging economic environment and are still meeting/exceeding the Bank's conservative underwriting requirements. The balance of off-balance sheet credit exposures increased during the current quarter, but the improvement in the economic forecast as of December 31, 2020 more than offset the impact of the increase in the balance. The gross balance of off-balance sheet credit exposures was $838.0 million as of December 31, 2020 and $688.0 million as of October 1, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At |
| March 31, 2020 | | September 30, 2019 |
| | | % of ACL | | | | % of | | | | % of ACL | | | | % of |
| Amount | | to Total | | Total | | Loans to | | Amount | | to Total | | Total | | Loans to |
| of ACL | | ACL | | Loans | | Total Loans | | of ACL | | ACL | | Loans | | Total Loans |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | | | | | |
Originated | $ | 6,420 |
| | 20.6 | % | | $ | 3,944,782 |
| | 52.6 | % | | $ | 1,982 |
| | 21.6 | % | | $ | 3,873,851 |
| | 52.2 | % |
Correspondent purchased | 3,355 |
| | 10.7 |
| | 2,385,907 |
| | 31.8 |
| | 1,203 |
| | 13.0 |
| | 2,349,877 |
| | 31.7 |
|
Bulk purchased | 557 |
| | 1.8 |
| | 228,730 |
| | 3.1 |
| | 687 |
| | 7.4 |
| | 252,347 |
| | 3.4 |
|
Construction | 47 |
| | 0.2 |
| | 35,798 |
| | 0.5 |
| | 18 |
| | 0.2 |
| | 36,758 |
| | 0.5 |
|
Total | 10,379 |
| | 33.3 |
| | 6,595,217 |
| | 88.0 |
| | 3,890 |
| | 42.2 |
| | 6,512,833 |
| | 87.8 |
|
Commercial: | | | | | | | | | | | | | | | |
Commercial real estate | 14,672 |
| | 47.0 |
| | 584,236 |
| | 7.8 |
| | 3,448 |
| | 37.4 |
| | 583,617 |
| | 7.9 |
|
Commercial and industrial | 1,489 |
| | 4.8 |
| | 62,153 |
| | 0.8 |
| | 472 |
| | 5.1 |
| | 61,094 |
| | 0.8 |
|
Construction | 4,167 |
| | 13.4 |
| | 126,266 |
| | 1.7 |
| | 1,251 |
| | 13.5 |
| | 123,159 |
| | 1.7 |
|
Total | 20,328 |
| | 65.2 |
| | 772,655 |
| | 10.3 |
| | 5,171 |
| | 56.0 |
| | 767,870 |
| | 10.4 |
|
Consumer loans: | | | | | | | | | | | | | | | |
Home equity | 397 |
| | 1.3 |
| | 114,571 |
| | 1.5 |
| | 97 |
| | 1.1 |
| | 120,587 |
| | 1.6 |
|
Other consumer | 92 |
| | 0.2 |
| | 10,837 |
| | 0.2 |
| | 68 |
| | 0.7 |
| | 11,183 |
| | 0.2 |
|
Total consumer loans | 489 |
| | 1.5 |
| | 125,408 |
| | 1.7 |
| | 165 |
| | 1.8 |
| | 131,770 |
| | 1.8 |
|
| $ | 31,196 |
| | 100.0 | % | | $ | 7,493,280 |
| | 100.0 | % | | $ | 9,226 |
| | 100.0 | % | | $ | 7,412,473 |
| | 100.0 | % |
The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
|
| | | | | | | | | | | | | | |
| At |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| 2020 | | 2019 | | 2019 | | 2019 | | 2019 |
One- to four-family: | | | | | | | | | |
Originated | 0.16 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % | | 0.05 | % |
Correspondent purchased | 0.14 |
| | 0.05 |
| | 0.05 |
| | 0.05 |
| | 0.06 |
|
Bulk purchased | 0.24 |
| | 0.26 |
| | 0.27 |
| | 0.28 |
| | 0.29 |
|
Construction | 0.13 |
| | 0.05 |
| | 0.05 |
| | 0.05 |
| | 0.05 |
|
Total | 0.16 |
| | 0.06 |
| | 0.06 |
| | 0.06 |
| | 0.07 |
|
Commercial: | | | | | | | | | |
Commercial real estate | 2.51 |
| | 0.62 |
| | 0.59 |
| | 0.55 |
| | 0.51 |
|
Commercial and industrial | 2.40 |
| | 1.25 |
| | 0.77 |
| | 0.38 |
| | 0.30 |
|
Construction | 3.30 |
| | 1.02 |
| | 1.02 |
| | 1.00 |
| | 0.99 |
|
Total | 2.63 |
| | 0.72 |
| | 0.67 |
| | 0.61 |
| | 0.56 |
|
Consumer | 0.39 |
| | 0.12 |
| | 0.13 |
| | 0.11 |
| | 0.12 |
|
Total | 0.42 |
| | 0.13 |
| | 0.12 |
| | 0.12 |
| | 0.11 |
|
The following tables present ACL activity and related ratios at the dates and for the periods indicated. See "Note 4 - Loans Receivable and Allowance for Credit Losses" for additional information related to ACL activity by specific loan categories.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 | | December 31, 2019 |
| (Dollars in thousands) |
ACL beginning balance | $ | 31,527 | | | $ | 31,215 | | | $ | 31,196 | | | $ | 9,435 | | | $ | 9,226 | |
Adoption of CECL | (4,761) | | | — | | | — | | | — | | | — | |
Charge-offs | (532) | | | (15) | | | (5) | | | (375) | | | (48) | |
Recoveries | 68 | | | 327 | | | 24 | | | 61 | | | 32 | |
Provision for credit losses | (177) | | | — | | | — | | | 22,075 | | | 225 | |
ACL ending balance | $ | 26,125 | | | $ | 31,527 | | | $ | 31,215 | | | $ | 31,196 | | | $ | 9,435 | |
| | | | | | | | | |
ACL to loans receivable at end of period | 0.37 | % | | 0.44 | % | | 0.42 | % | | 0.42 | % | | 0.13 | % |
ACL to non-performing loans at end of period | 184.68 | | | 252.42 | | | 305.58 | | | 353.02 | | | 133.11 | |
Ratio of net charge-offs (recoveries) during the | | | | | | | | |
period to average loans outstanding | 0.01 | | | — | | | — | | | — | | | — | |
Ratio of net charge-offs (recoveries) during the | | | | | | | | |
period to average non-performing assets | 3.44 | | | (2.70) | | | (0.20) | | | 3.78 | | | 0.19 | |
ACL to net charge-offs (annualized) | 14.1x | | N/M(1) | | N/M(1) | | 24.9x | | 144.5x |
|
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 | | March 31, 2019 |
| (Dollars in thousands) |
ACL beginning balance | $ | 9,435 |
| | $ | 9,226 |
| | $ | 9,036 |
| | $ | 8,619 |
| | $ | 8,558 |
|
Charge-offs | (375 | ) | | (48 | ) | | (133 | ) | | (61 | ) | | (12 | ) |
Recoveries | 61 |
| | 32 |
| | 23 |
| | 28 |
| | 73 |
|
Provision for credit losses | 22,075 |
| | 225 |
| | 300 |
| | 450 |
| | — |
|
ACL ending balance | $ | 31,196 |
| | $ | 9,435 |
| | $ | 9,226 |
| | $ | 9,036 |
| | $ | 8,619 |
|
| | | | | | | | | |
ACL to loans receivable at end of period | 0.42 | % | | 0.13 | % | | 0.12 | % | | 0.12 | % | | 0.11 | % |
ACL to non-performing loans at end of period | 353.02 |
| | 133.11 |
| | 121.99 |
| | 90.24 |
| | 66.68 |
|
Ratio of net charge-offs (recoveries) during the | | | | | | | | | |
period to average loans outstanding | — |
| | — |
| | — |
| | — |
| | — |
|
Ratio of net charge-offs (recoveries) during the | | | | | | | | | |
period to average non-performing assets | 3.78 |
| | 0.19 |
| | 1.09 |
| | 0.26 |
| | (0.41 | ) |
ACL to net charge-offs (annualized) | 24.9x |
| | 144.5x |
| | 21.1x |
| | 68.1x |
| | N/M(1) |
|
|
| | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| (Dollars in thousands) |
ACL beginning balance | $ | 9,226 |
| | $ | 8,463 |
|
Charge-offs | (423 | ) | | (68 | ) |
Recoveries | 93 |
| | 224 |
|
Provision for credit losses | 22,300 |
| | — |
|
ACL ending balance | $ | 31,196 |
| | $ | 8,619 |
|
| | | |
Ratio of net charge-offs during the period to | | | |
average loans outstanding during the period | — | % | | — | % |
Ratio of net charge-offs during the period to | | | |
average non-performing assets during the period | 3.68 |
| | (1.14 | ) |
ACL to net charge-offs (annualized) | 47.3x |
| | N/M(1) |
|
| | | | | | | | | | | |
| | | |
| |
(1) | This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods. | | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
(1)This ratio is not presented for the time periods noted due to loan recoveries exceeding loan charge-offs during these periods.
The distribution of our ACL at the dates indicated is summarized below. The October 1, 2020 column represents the ACL at the time the Company adopted ASU 2016-13. The decrease in the ACL on correspondent one- to four-family loans and commercial construction loans since October 1, 2020 was due primarily to a reduction in the loan balance during the current quarter. The increase in the ACL on commercial real estate loans since October 1, 2020 was due mainly to an increase in special mention loans during the current quarter.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At |
| December 31, | | October 1, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
| (Dollars in thousands) |
One- to four-family: | | | | | | | | | | | |
Originated | $ | 1,516 | | | $ | 1,609 | | | $ | 6,044 | | | $ | 6,298 | | | $ | 6,420 | | | $ | 2,027 | |
Correspondent purchased | 1,758 | | | 2,324 | | | 2,691 | | | 3,189 | | | 3,355 | | | 1,200 | |
Bulk purchased | 852 | | | 903 | | | 467 | | | 506 | | | 557 | | | 612 | |
Construction | 22 | | | 25 | | | 41 | | | 48 | | | 47 | | | 20 | |
Total | 4,148 | | | 4,861 | | | 9,243 | | | 10,041 | | | 10,379 | | | 3,859 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 17,813 | | | 16,595 | | | 16,869 | | | 16,353 | | | 14,672 | | | 3,608 | |
Commercial and industrial | 553 | | | 559 | | | 1,451 | | | 1,465 | | | 1,489 | | | 710 | |
Construction | 3,341 | | | 4,452 | | | 3,480 | | | 2,886 | | | 4,167 | | | 1,100 | |
Total | 21,707 | | | 21,606 | | | 21,800 | | | 20,704 | | | 20,328 | | | 5,418 | |
Consumer | 270 | | | 299 | | | 484 | | | 470 | | | 489 | | | 158 | |
Total | $ | 26,125 | | | $ | 26,766 | | | $ | 31,527 | | | $ | 31,215 | | | $ | 31,196 | | | $ | 9,435 | |
The ratio of ACL to loans receivable, by loan type, at the dates indicated is summarized below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At |
| December 31, | | October 1, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
One- to four-family: | | | | | | | | | | | |
Originated | 0.04 | % | | 0.04 | % | | 0.15 | % | | 0.16 | % | | 0.16 | % | | 0.05 | % |
Correspondent purchased | 0.09 | | | 0.11 | | | 0.13 | | | 0.14 | | | 0.14 | | | 0.05 | |
Bulk purchased | 0.43 | | | 0.43 | | | 0.22 | | | 0.23 | | | 0.24 | | | 0.26 | |
Construction | 0.07 | | | 0.07 | | | 0.12 | | | 0.13 | | | 0.13 | | | 0.05 | |
Total | 0.07 | | | 0.08 | | | 0.15 | | | 0.16 | | | 0.16 | | | 0.06 | |
Commercial: | | | | | | | | | | | |
Commercial real estate | 2.92 | | | 2.65 | | | 2.69 | | | 2.62 | | | 2.51 | | | 0.62 | |
Commercial and industrial | 0.80 | | | 0.57 | | | 1.49 | | | 1.47 | | | 2.40 | | | 1.25 | |
Construction | 3.95 | | | 4.22 | | | 3.30 | | | 3.30 | | | 3.30 | | | 1.02 | |
Total | 2.84 | | | 2.60 | | | 2.63 | | | 2.55 | | | 2.63 | | | 0.72 | |
Consumer | 0.25 | | | 0.26 | | | 0.42 | | | 0.40 | | | 0.39 | | | 0.12 | |
Total | 0.37 | | | 0.37 | | | 0.44 | | | 0.42 | | | 0.42 | | | 0.13 | |
The distribution of our reserve for off-balance sheet credit exposures at the dates indicated is summarized below. The October 1, 2020 column represents the reserve at the time the Company adopted ASU 2016-13. Prior to October 1, 2020, no such reserve had been recorded. The $1.4 million reduction in the reserve between October 1, 2020 and December 31, 2020 was recorded as a negative provision for credit losses during the current quarter.
| | | | | | | | | | | |
| At |
| December 31, | | October 1, |
| 2020 | | 2020 |
| (Dollars in thousands) |
One- to four-family | $ | 131 | | | $ | 144 | |
Commercial | 6,261 | | | 7,584 | |
Consumer | 41 | | | 60 | |
| $ | 6,433 | | | $ | 7,788 | |
Securities. Securities increased $352.9 million, or 22.6%, from September 30, 2020 to December 31, 2020, including a $278.5 million increase in MBS and a $74.4 million increase in investment securities. The increase was due primarily to cash flows from the loan portfolio being reinvested into the securities portfolio. The weighted average yield on the securities portfolio decreased 22 basis points, from 1.62% at September 30, 2020 to 1.40% at December 31, 2020, due primarily to purchases at lower market yields. The following table presents the distribution of our securities portfolio, at amortized cost, at the dates indicated. Overall, fixed-rate securities comprised 79%91% of our securities portfolio at MarchDecember 31, 2020. The weighted average life ("WAL") is the estimated remaining maturity (in years) after three-month historical prepayment speeds and projected call option assumptions have been applied. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Fixed-rate securities: | | | | | | | | | | | | | | | | | |
MBS | $ | 1,249,115 | | | 1.56 | % | | 4.1 | | | $ | 945,432 | | | 1.82 | % | | 3.7 | | | $ | 648,663 | | | 2.40 | % | | 2.8 | |
GSE debentures | 444,964 | | | 0.52 | | | 1.0 | | | 369,967 | | | 0.62 | | | 1.7 | | | 274,994 | | | 2.03 | | | 0.8 | |
Municipal bonds | 8,792 | | | 1.66 | | | 0.5 | | | 9,716 | | | 1.69 | | | 0.7 | | | 17,050 | | | 1.60 | | | 0.9 | |
Total fixed-rate securities | 1,702,871 | | | 1.29 | | | 3.3 | | | 1,325,115 | | | 1.49 | | | 3.1 | | | 940,707 | | | 2.28 | | | 2.2 | |
| | | | | | | | | | | | | | | | | |
Adjustable-rate securities: | | | | | | | | | | | | | | | | |
MBS | 178,101 | | | 2.44 | | | 3.3 | | | 204,490 | | | 2.49 | | | 2.9 | | | 276,069 | | | 3.09 | | | 4.3 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Total securities portfolio | $ | 1,880,972 | | | 1.40 | | | 3.3 | | | $ | 1,529,605 | | | 1.62 | | | 3.1 | | | $ | 1,216,776 | | | 2.46 | | | 2.7 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Fixed-rate securities: | | | | | | | | | | | | | | | | | |
MBS | $ | 690,220 |
| | 2.33 | % | | 3.1 |
| | $ | 648,663 |
| | 2.40 | % | | 2.8 |
| | $ | 625,840 |
| | 2.46 | % | | 2.9 |
|
GSE debentures | 250,080 |
| | 1.88 |
| | 0.3 |
| | 274,994 |
| | 2.03 |
| | 0.8 |
| | 249,828 |
| | 2.15 |
| | 0.7 |
|
Municipal bonds | 11,887 |
| | 1.66 |
| | 0.9 |
| | 17,050 |
| | 1.60 |
| | 0.9 |
| | 18,371 |
| | 1.63 |
| | 1.0 |
|
Total fixed-rate securities | 952,187 |
| | 2.20 |
| | 2.3 |
| | 940,707 |
| | 2.28 |
| | 2.2 |
| | 894,039 |
| | 2.35 |
| | 2.3 |
|
| | | | | | | | | | | | | | | | | |
Adjustable-rate securities: | | | | | | | | | | | | | | | | | |
MBS | 257,329 |
| | 2.97 |
| | 4.9 |
| | 276,069 |
| | 3.09 |
| | 4.3 |
| | 297,416 |
| | 3.10 |
| | 4.7 |
|
Total securities portfolio | $ | 1,209,516 |
| | 2.36 |
| | 2.9 |
| | $ | 1,216,776 |
| | 2.46 |
| | 2.7 |
| | $ | 1,191,455 |
| | 2.54 |
| | 2.9 |
|
The following table presents the carrying value of MBS in our portfolio by issuer at the dates presented.
| | | | | | | | | | | | | | | | | |
| |
| December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
| (Dollars in thousands) |
FNMA | $ | 938,387 | | | $ | 809,232 | | | $ | 681,383 | |
FHLMC | 482,173 | | | 327,167 | | | 192,821 | |
GNMA | 38,740 | | | 44,404 | | | 63,113 | |
| | | | | |
| $ | 1,459,300 | | | $ | 1,180,803 | | | $ | 937,317 | |
|
| | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| (Dollars in thousands) |
Federal National Mortgage Association ("FNMA") | $ | 735,385 |
| | $ | 681,383 |
| | $ | 656,799 |
|
Federal Home Loan Mortgage Corporation ("FHLMC") | 179,987 |
| | 192,821 |
| | 208,745 |
|
Government National Mortgage Association | 57,946 |
| | 63,113 |
| | 70,943 |
|
| $ | 973,318 |
| | $ | 937,317 |
| | $ | 936,487 |
|
Mortgage-Backed Securities - The balance of MBS, which primarily consists of securities of U.S. GSEs, increased $36.8$278.5 million, from $936.5 million$1.18 billion at September 30, 2019,2020, to $973.3 million$1.46 billion at MarchDecember 31, 2020. The following tables summarizetable summarizes the activity in our portfolio of MBS for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented and are generally derived from recent prepayment activity on the securities in the portfolio as of the dates presented. The beginning and ending WALWALs are the estimated remaining principal repayment termterms (in years) after three-month historical prepayment speeds have been applied.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 1,180,803 | | | 1.94 | % | | 3.5 | | | $ | 982,587 | | | 2.35 | % | | 3.3 | | | $ | 973,318 | | | 2.50 | % | | 3.6 | | | $ | 937,317 | | | 2.61 | % | | 3.3 | |
Maturities and repayments | (101,496) | | | | | | | (95,842) | | | | | | | (75,293) | | | | | | | (65,767) | | | | | |
Net amortization of (premiums)/discounts | (1,003) | | | | | | | (608) | | | | | | | (363) | | | | | | | (279) | | | | | |
Purchases: | | | | | | | | | | | | | | | | | | | | | | | |
Fixed | 379,793 | | | 1.04 | | | 5.4 | | | 297,024 | | | 1.06 | | | 5.9 | | | 77,455 | | | 1.29 | | | 5.0 | | | 88,863 | | | 1.80 | | | 4.5 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Change in valuation on AFS securities | 1,203 | | | | | | | (2,358) | | | | | | | 7,470 | | | | | | | 13,184 | | | | | |
Ending balance - carrying value | $ | 1,459,300 | | | 1.67 | | | 4.0 | | | $ | 1,180,803 | | | 1.94 | | | 3.5 | | | $ | 982,587 | | | 2.35 | | | 3.3 | | | $ | 973,318 | | | 2.50 | | | 3.6 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 937,317 |
| | 2.61 | % | | 3.3 |
| | $ | 936,487 |
| | 2.67 | % | | 3.5 |
| | $ | 979,256 |
| | 2.68 | % | | 3.4 |
| | $ | 985,294 |
| | 2.67 | % | | 3.7 |
|
Maturities and repayments | (65,767 | ) | | | | | | (72,635 | ) | | | | | | (70,865 | ) | | | | | | (74,335 | ) | | | | |
Net amortization of (premiums)/discounts | (279 | ) | | | | | | (248 | ) | | | | | | (270 | ) | | | | | | (375 | ) | | | | |
Purchases: | | | | | | | | | | | | | | | | | | | | | | | |
Fixed | 88,863 |
| | 1.80 |
| | 4.5 |
| | 74,359 |
| | 2.05 |
| | 3.8 |
| | 25,214 |
| | 1.93 |
| | 3.2 |
| | 23,620 |
| | 2.74 |
| | 3.8 |
|
Adjustable | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 40,362 |
| | 2.79 |
| | 4.5 |
|
Valuation transferred from HTM to AFS | — |
| | | | | | — |
| | | | | | 3,039 |
| | | | | | — |
| | | | |
Change in valuation on AFS securities | 13,184 |
| | | | | | (646 | ) | | | | | | 113 |
| | | | | | 4,690 |
| | | | |
Ending balance - carrying value | $ | 973,318 |
| | 2.50 |
| | 3.6 |
| | $ | 937,317 |
| | 2.61 |
| | 3.3 |
| | $ | 936,487 |
| | 2.67 |
| | 3.5 |
| | $ | 979,256 |
| | 2.68 |
| | 3.4 |
|
|
| | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 936,487 |
| | 2.67 | % | | 3.5 |
| | $ | 1,036,990 |
| | 2.57 | % | | 3.4 |
|
Maturities and repayments | (138,402 | ) | | | | | | (129,916 | ) | | | | |
Net amortization of (premiums)/discounts | (527 | ) | | | | | | (659 | ) | | | | |
Purchases: | | | | | | | | | | | |
Fixed | 163,222 |
| | 1.91 |
| | 4.2 |
| | 28,921 |
| | 2.89 |
| | 5.1 |
|
Adjustable | — |
| | — |
| | — |
| | 43,776 |
| | 2.69 |
| | 4.3 |
|
Change in valuation on AFS securities | 12,538 |
| | | | | | 6,182 |
| | | | |
Ending balance - carrying value | $ | 973,318 |
| | 2.50 |
| | 3.6 |
| | $ | 985,294 |
| | 2.67 |
| | 3.7 |
|
Investment Securities - Investment securities, which consist of U.S. GSE debentures (primarily issued by FNMA, FHLMC, or Federal Home Loan Banks) and municipal investments, decreased $5.7increased $74.4 million, from $268.4$380.1 million at September 30, 2019,2020, to $262.7$454.6 million at MarchDecember 31, 2020. Municipal investments totaled $11.9$8.8 million at MarchDecember 31, 2020. The following tables summarizetable summarizes the activity of investment securities for the periods presented. The weighted average yields and WALs for purchases are presented as recorded at the time of purchase. The weighted average yields for the beginning balances are as of the last day of the period previous to the period presented and the weighted average yields for the ending balances are as of the last day of the period presented. The beginning and ending WALs represent the estimated remaining principal repayment terms (in years) of the securities after projected call dates have been considered, based upon market rates at each date presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 380,147 | | | 0.65 | % | | 1.7 | | | $ | 237,467 | | | 1.23 | % | | 0.8 | | | $ | 262,719 | | | 1.87 | % | | 0.3 | | | $ | 292,270 | | | 2.00 | % | | 0.8 | |
Maturities, calls and sales | (50,900) | | | | | | | (102,115) | | | | | | | (125,000) | | | | | | | (80,125) | | | | | |
Net amortization of (premiums)/discounts | (14) | | | | | | | (54) | | | | | | | (80) | | | | | | | (49) | | | | | |
Purchases: | | | | | | | | | | | | | | | | | | | | | | | |
Fixed | 124,987 | | | 0.48 | | | 3.2 | | | 244,975 | | | 0.51 | | | 3.2 | | | 99,990 | | | 0.58 | | | 1.2 | | | 50,097 | | | 1.42 | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Change in valuation on AFS securities | 346 | | | | | | | (126) | | | | | | | (162) | | | | | | | 526 | | | | | |
Ending balance - carrying value | $ | 454,566 | | | 0.54 | | | 1.0 | | | $ | 380,147 | | | 0.65 | | | 1.7 | | | $ | 237,467 | | | 1.23 | | | 0.8 | | | $ | 262,719 | | | 1.87 | | | 0.3 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 292,270 |
| | 2.00 | % | | 0.8 |
| | $ | 268,376 |
| | 2.11 | % | | 0.8 |
| | $ | 273,995 |
| | 2.30 | % | | 1.0 |
| | $ | 288,894 |
| | 2.38 | % | | 1.0 |
|
Maturities, calls and sales | (80,125 | ) | | | | | | (51,175 | ) | | | | | | (80,690 | ) | | | | | | (65,781 | ) | | | | |
Net amortization of (premiums)/discounts | (49 | ) | | | | | | 20 |
| | | | | | (13 | ) | | | | | | 153 |
| | | | |
Purchases: | | | | | | | | | | | | | | | | | | | | | | | |
Fixed | 50,097 |
| | 1.42 |
| | 0.4 |
| | 75,000 |
| | 1.90 |
| | 1.7 |
| | 75,000 |
| | 2.02 |
| | 1.1 |
| | 50,000 |
| | 2.60 |
| | 1.0 |
|
Valuation transferred from HTM to AFS | — |
| | | | | | — |
| | | | | | 47 |
| | | | | | — |
| | | | |
Change in valuation on AFS securities | 526 |
| | | | | | 49 |
| | | | | | 37 |
| | | | | | 729 |
| | | | |
Ending balance - carrying value | $ | 262,719 |
| | 1.87 |
| | 0.3 |
| | $ | 292,270 |
| | 2.00 |
| | 0.8 |
| | $ | 268,376 |
| | 2.11 |
| | 0.8 |
| | $ | 273,995 |
| | 2.30 |
| | 1.0 |
|
|
| | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Amount | | Yield | | WAL | | Amount | | Yield | | WAL |
| (Dollars in thousands) |
Beginning balance - carrying value | $ | 268,376 |
| | 2.11 | % | | 0.8 |
| | $ | 289,942 |
| | 2.05 | % | | 2.2 |
|
Maturities, calls and sales | (131,300 | ) | | | | | | (103,300 | ) | | | | |
Net amortization of (premiums)/discounts | (29 | ) | | | | | | (78 | ) | | | | |
Purchases: | | | | | | | | | | | |
Fixed | 125,097 |
| | 1.71 |
| | 1.2 |
| | 99,809 |
| | 2.67 |
| | 0.7 |
|
Change in valuation on AFS securities | 575 |
| | | | | | 2,521 |
| | | | |
Ending balance - carrying value | $ | 262,719 |
| | 1.87 |
| | 0.3 |
| | $ | 288,894 |
| | 2.38 |
| | 1.0 |
|
Liabilities
Deposits - Total deposits increased $219.4 million, or 3.5%, from September 30, 2020 to December 31, 2020. The increase was in non-maturity deposits, which increased $222.5 million, including a $131.1 million increase in checking accounts, a $69.6 million increase in money market accounts, and a $21.8 million increase in savings accounts. Retail/business certificates of deposit increased $11.5 million during the quarter, offset by a $14.6 million decrease in public unit certificates of deposit. As retail certificates of deposit mature, not all are being renewed. Rather, customers are moving some of those funds to more liquid deposit options such as the Bank's retail money market accounts.
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 increase in retail/business certificates of deposit at March 31, 2020 compared to December 31, 2019 was due primarily to the Presidents' Day certificate of deposit campaign in February 2020. As of April 30, 2020, the Bank has processed $101.2 million of deposits related to some form of Economic Impact Payments from the U.S. government to individuals as authorized by the CARES Act, and deposits from PPP loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
| | | | | % of | | | | | | % of | | | | | | % of |
| Amount | | Rate | | Total | | Amount | | Rate | | Total | | Amount | | Rate | | Total |
| (Dollars in thousands) |
Non-interest-bearing checking | $ | 494,375 | | | — | % | | 7.7 | % | | $ | 451,394 | | | — | % | | 7.3 | % | | $ | 368,311 | | | — | % | | 6.6 | % |
Interest-bearing checking | 953,927 | | | 0.08 | | | 14.9 | | | 865,782 | | | 0.10 | | | 14.0 | | | 745,436 | | | 0.08 | | | 13.3 | |
Savings | 455,633 | | | 0.06 | | | 7.1 | | | 433,808 | | | 0.06 | | | 7.0 | | | 358,817 | | | 0.09 | | | 6.4 | |
Money market | 1,488,749 | | | 0.31 | | | 23.2 | | | 1,419,180 | | | 0.37 | | | 22.9 | | | 1,192,972 | | | 0.69 | | | 21.4 | |
Retail/business certificates of deposit | 2,777,948 | | | 1.68 | | | 43.3 | | | 2,766,461 | | | 1.83 | | | 44.7 | | | 2,656,379 | | | 2.11 | | | 47.6 | |
Public unit certificates of deposit | 240,210 | | | 0.64 | | | 3.8 | | | 254,783 | | | 0.74 | | | 4.1 | | | 263,936 | | | 2.14 | | | 4.7 | |
| $ | 6,410,842 | | | 0.84 | | | 100.0 | % | | $ | 6,191,408 | | | 0.95 | | | 100.0 | % | | $ | 5,585,851 | | | 1.27 | | | 100.0 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 |
| | | | | % of | | | | | | % of | | | | | | % of |
| Amount | | Rate | | Total | | Amount | | Rate | | Total | | Amount | | Rate | | Total |
| (Dollars in thousands) |
Non-interest-bearing checking | $ | 385,092 |
| | — | % | | 6.7 | % | | $ | 368,311 |
| | — | % | | 6.6 | % | | $ | 357,284 |
| | — | % | | 6.4 | % |
Interest-bearing checking | 761,589 |
| | 0.10 |
| | 13.2 |
| | 745,436 |
| | 0.08 |
| | 13.3 |
| | 717,121 |
| | 0.09 |
| | 12.8 |
|
Savings | 377,212 |
| | 0.08 |
| | 6.5 |
| | 358,817 |
| | 0.09 |
| | 6.4 |
| | 321,494 |
| | 0.05 |
| | 5.8 |
|
Money market | 1,208,370 |
| | 0.62 |
| | 20.9 |
| | 1,192,972 |
| | 0.69 |
| | 21.4 |
| | 1,198,343 |
| | 0.70 |
| | 21.5 |
|
Retail/business certificates of deposit | 2,765,142 |
| | 2.11 |
| | 47.9 |
| | 2,656,379 |
| | 2.11 |
| | 47.6 |
| | 2,692,770 |
| | 2.08 |
| | 48.2 |
|
Public unit certificates of deposit | 277,214 |
| | 1.87 |
| | 4.8 |
| | 263,936 |
| | 2.14 |
| | 4.7 |
| | 294,855 |
| | 2.29 |
| | 5.3 |
|
| $ | 5,774,619 |
| | 1.25 |
| | 100.0 | % | | $ | 5,585,851 |
| | 1.27 |
| | 100.0 | % | | $ | 5,581,867 |
| | 1.29 |
| | 100.0 | % |
The following tables set forth scheduled maturity information for our certificates of deposit, including public unit certificates of deposit, along with associated weighted average rates, as of MarchDecember 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount Due | | | | |
| | | | More than | | More than | | | | | | |
| | 1 year | | 1 year to | | 2 years to 3 | | More than | | Total |
Rate range | | or less | | 2 years | | years | | 3 years | | Amount | | Rate |
| | (Dollars in thousands) | | |
0.00 – 0.99% | | $ | 635,809 | | | $ | 115,800 | | | $ | 35,879 | | | $ | 31,409 | | | $ | 818,897 | | | 0.54 | % |
1.00 – 1.99% | | 607,355 | | | 293,640 | | | 76,179 | | | 164,873 | | | 1,142,047 | | | 1.63 | |
2.00 – 2.99% | | 319,185 | | | 419,584 | | | 219,945 | | | 98,247 | | | 1,056,961 | | | 2.39 | |
3.00 – 3.99% | | — | | | — | | | 253 | | | — | | | 253 | | | 3.00 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | $ | 1,562,349 | | | $ | 829,024 | | | $ | 332,256 | | | $ | 294,529 | | | $ | 3,018,158 | | | 1.60 | |
| | | | | | | | | | | | |
Percent of total | | 51.8 | % | | 27.5 | % | | 11.0 | % | | 9.7 | % | | | | |
Weighted average rate | | 1.31 | | | 1.91 | | | 2.06 | | | 1.74 | | | | | |
Weighted average maturity (in years) | | 0.5 | | | 1.5 | | | 2.5 | | | 3.6 | | | 1.3 | | | |
Weighted average maturity for the retail/business certificate of deposit portfolio (in years) | | 1.4 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount Due | | |
| | | Over | | Over | | | | |
| 3 months | | 3 to 6 | | 6 to 12 | | Over | | |
| or less | | months | | months | | 12 months | | Total |
| (Dollars in thousands) |
Retail/business certificates of deposit less than $100,000 | $ | 170,244 | | | $ | 192,528 | | | $ | 310,417 | | | $ | 819,935 | | | $ | 1,493,124 | |
Retail/business certificates of deposit of $100,000 or more | 144,816 | | | 174,244 | | | 338,850 | | | 626,914 | | | 1,284,824 | |
| | | | | | | | | |
Public unit certificates of deposit of $100,000 or more | 77,551 | | | 70,688 | | | 83,011 | | | 8,960 | | | 240,210 | |
| $ | 392,611 | | | $ | 437,460 | | | $ | 732,278 | | | $ | 1,455,809 | | | $ | 3,018,158 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Amount Due | | | | |
| | | | More than | | More than | | | | | | |
| | 1 year | | 1 year to | | 2 years to 3 | | More than | | Total |
Rate range | | or less | | 2 years | | years | | 3 years | | Amount | | Rate |
| | (Dollars in thousands) | | |
0.00 – 0.99% | | $ | 24,636 |
| | $ | 3,040 |
| | $ | 9 |
| | $ | — |
| | $ | 27,685 |
| | 0.62 | % |
1.00 – 1.99% | | 815,587 |
| | 390,098 |
| | 164,390 |
| | 52,050 |
| | 1,422,125 |
| | 1.79 |
|
2.00 – 2.99% | | 641,838 |
| | 282,295 |
| | 436,272 |
| | 231,894 |
| | 1,592,299 |
| | 2.38 |
|
3.00 – 3.99% | | — |
| | — |
| | 247 |
| | — |
| | 247 |
| | 3.00 |
|
| | $ | 1,482,061 |
| | $ | 675,433 |
| | $ | 600,918 |
| | $ | 283,944 |
| | $ | 3,042,356 |
| | 2.09 |
|
| | | | | | | | | | | | |
Percent of total | | 48.7 | % | | 22.2 | % | | 19.8 | % | | 9.3 | % | | | | |
Weighted average rate | | 1.99 |
| | 2.03 |
| | 2.28 |
| | 2.36 |
| | | | |
Weighted average maturity (in years) | | 0.4 |
| | 1.5 |
| | 2.5 |
| | 3.8 |
| | 1.4 |
| | |
Weighted average maturity for the retail/business certificate of deposit portfolio (in years) | | 1.5 |
| | |
|
| | | | | | | | | | | | | | | | | | | |
| Amount Due | | |
| | | Over | | Over | | | | |
| 3 months | | 3 to 6 | | 6 to 12 | | Over | | |
| or less | | months | | months | | 12 months | | Total |
| (Dollars in thousands) |
Retail/business certificates of deposit less than $100,000 | $ | 233,608 |
| | $ | 145,979 |
| | $ | 316,771 |
| | $ | 877,976 |
| | $ | 1,574,334 |
|
Retail/business certificates of deposit of $100,000 or more | 195,779 |
| | 131,187 |
| | 221,913 |
| | 641,929 |
| | 1,190,808 |
|
Public unit certificates of deposit of $100,000 or more | 139,526 |
| | 47,228 |
| | 50,070 |
| | 40,390 |
| | 277,214 |
|
| $ | 568,913 |
| | $ | 324,394 |
| | $ | 588,754 |
| | $ | 1,560,295 |
| | $ | 3,042,356 |
|
Borrowings - Total borrowings at December 31, 2020 were $1.73 billion, a decrease of $55.0 million, or 3.0%, from September 30, 2020. The decrease was due to not renewing borrowings that matured during the current quarter. Cash flows from the deposit portfolio were used to pay off maturing borrowings.
The following tables present borrowing activity for the periods shown. The borrowings presented in the table have original contractual terms of one year or longer or are tied to interest rate swaps with original contractual terms of one year or longer. FHLB advances are presented at par. The effective rate is shown as a weighted average and includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The weighted average maturity ("WAM") is the remaining weighted average contractual term in years. The beginning and ending WAMs represent the remaining maturity at each date presented. For new borrowings, the WAMs presented are as of the date of issue. During
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | June 30, 2020 | | March 31, 2020 |
| | | Effective | | | | | | Effective | | | | | | Effective | | | | | | Effective | | |
| Amount | | Rate | | WAM | | Amount | | Rate | | WAM | | Amount | | Rate | | WAM | | Amount | | Rate | | WAM |
| (Dollars in thousands) |
Beginning balance | $ | 1,790,000 | | | 2.31 | % | | 3.0 | | | $ | 1,990,000 | | | 2.29 | % | | 2.9 | | | $ | 2,090,000 | | | 2.25 | % | | 3.0 | | | $ | 2,090,000 | | | 2.37 | % | | 2.6 | |
Maturities and prepayments: | | | | | | | | | | | | | | | | | | | | | | |
FHLB advances | (350,000) | | | 2.40 | | | | | (440,000) | | | 2.49 | | | | | (200,000) | | | 2.35 | | | | | (415,000) | | | 2.45 | | | |
Repurchase agreements | — | | | — | | | | | (100,000) | | | 2.53 | | | | | — | | | — | | | | | — | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
New FHLB borrowings: | | | | | | | | | | | | | | | | | | | | | | |
Fixed-rate | 100,000 | | | 1.09 | | | 5.0 | | | — | | | — | | | — | | | — | | | — | | | — | | | 350,000 | | | 1.70 | | | 4.7 | |
Interest rate swaps(1) | 200,000 | | | 2.63 | | | 1.5 | | | 340,000 | | | 2.73 | | | 3.5 | | | 100,000 | | | 3.20 | | | 8.0 | | | 65,000 | | | 2.61 | | | 4.0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Ending balance | $ | 1,740,000 | | | 2.26 | | | 3.0 | | | $ | 1,790,000 | | | 2.31 | | | 3.0 | | | $ | 1,990,000 | | | 2.29 | | | 2.9 | | | $ | 2,090,000 | | | 2.25 | | | 3.0 | |
(1)Represents adjustable-rate FHLB advances for which the current quarter,Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps.
Maturities -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, 2020. Subsequent to December 31, 2020, the Bank prepaid a $100.0 million fixed-rate FHLB advancesadvance with a rate of 2.25% scheduled to mature within the next 12 months totaling $350.0 millionin fiscal year 2022, and replaced this advance with a weighted average rate of 2.42%, and replaced these advances with $350.0$100.0 million of fixed-rate FHLB advancesadvance with a weighted average term of 4.7six years and a weighted averagean effective rate of 1.70%1.22%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances. This activityadvance and which is not reflected in the table below.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 | | September 30, 2019 | | June 30, 2019 |
| | | Effective | | | | | | Effective | | | | | | Effective | | | | | | Effective | | |
| Amount | | Rate | | WAM | | Amount | | Rate | | WAM | | Amount | | Rate | | WAM | | Amount | | Rate | | WAM |
| (Dollars in thousands) |
Beginning balance | $ | 2,090,000 |
| | 2.37 | % | | 2.6 |
| | $ | 2,140,000 |
| | 2.38 | % | | 2.6 |
| | $ | 2,140,000 |
| | 2.35 | % | | 2.6 |
| | $ | 2,240,000 |
| | 2.29 | % | | 2.8 |
|
Maturities and prepayments: | | | | | | | | | | | | | | | | | | | | | | |
FHLB advances | (415,000 | ) | | 2.45 |
| | | | (350,000 | ) | | 2.40 |
| | | | (375,000 | ) | | 2.38 |
| | | | (200,000 | ) | | 2.11 |
| | |
New FHLB borrowings: | | | | | | | | | | | | | | | | | | | | | | | |
Fixed-rate | 350,000 |
| | 1.70 |
| | 4.7 |
| | 100,000 |
| | 1.96 |
| | 5.0 |
| | 100,000 |
| | 2.14 |
| | 4.0 |
| | — |
| | — |
| | — |
|
Interest rate swaps(1) | 65,000 |
| | 2.61 |
| | 4.0 |
| | 200,000 |
| | 2.57 |
| | 2.5 |
| | 275,000 |
| | 2.70 |
| | 4.5 |
| | 100,000 |
| | 3.09 |
| | 9.0 |
|
Ending balance | $ | 2,090,000 |
| | 2.25 |
| | 3.0 |
| | $ | 2,090,000 |
| | 2.37 |
| | 2.6 |
| | $ | 2,140,000 |
| | 2.38 |
| | 2.6 |
| | $ | 2,140,000 |
| | 2.35 |
| | 2.6 |
|
|
| | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| | | Effective | | | | | | Effective | | |
| Amount | | Rate | | WAM | | Amount | | Rate | | WAM |
| (Dollars in thousands) |
Beginning balance | $ | 2,140,000 |
| | 2.38 | % | | 2.6 |
| | $ | 2,185,052 |
| | 2.17 | % | | 2.9 |
|
Maturities and prepayments: | | | | | | | | | | |
FHLB advances | (765,000 | ) | | 2.43 |
| | | | (300,000 | ) | | 1.73 |
| | |
CCB acquisition - junior subordinated debentures assumed (redeemed) | — |
| | — |
| | — |
| | (10,052 | ) | | 8.76 |
| | 12.3 |
|
New FHLB borrowings: | | | | | | | | | | | |
Fixed-rate | 450,000 |
| | 1.76 |
| | 4.8 |
| | 100,000 |
| | 3.39 |
| | 5.0 |
|
Interest rate swaps(1) | 265,000 |
| | 2.58 |
| | 2.9 |
| | 265,000 |
| | 2.49 |
| | 3.9 |
|
Ending balance | $ | 2,090,000 |
| | 2.25 |
| | 3.0 |
| | $ | 2,240,000 |
| | 2.29 |
| | 2.8 |
|
| |
(1) | Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps to hedge the variability in cash flows associated with the advances. The effective rate and WAM presented include the effect of the interest rate swaps. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Borrowings Amount | | | | | | | | |
Maturity by | | | | Interest rate | | | | Total | | Contractual | | Effective |
Fiscal Year | | Fixed-rate | | swaps(1) | | | | Amount | | Rate | | Rate(2) |
| | (Dollars in thousands) | | | | |
2021 | | $ | 150,000 | | | $ | 440,000 | | | | | $ | 590,000 | | | 0.77 | % | | 2.62 | % |
2022 | | 100,000 | | | 200,000 | | | | | 300,000 | | | 1.00 | | | 2.50 | |
2023 | | 300,000 | | | — | | | | | 300,000 | | | 1.70 | | | 1.81 | |
2024 | | 100,000 | | | — | | | | | 100,000 | | | 3.39 | | | 3.39 | |
2025 | | 250,000 | | | — | | | | | 250,000 | | | 1.82 | | | 1.94 | |
2026 | | 200,000 | | | — | | | | | 200,000 | | | 0.95 | | | 1.35 | |
| | | | | | | | | | | | |
| | $ | 1,100,000 | | | $ | 640,000 | | | | | $ | 1,740,000 | | | 1.29 | | | 2.26 | |
Maturities
(1) -The following table presentsRepresents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of term borrowings (which includes FHLB advances,the interest rate swaps. The expected WAL of the interest rate swaps was 3.2 years at par, and repurchase agreements), along with associated weighted average contractual and effective rates as of MarchDecember 31, 2020.
(2)The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. |
| | | | | | | | | | | | | | | | |
| | Term Borrowings Amount | | | | | | |
Maturity by | |
| | Interest rate | | Total | | Contractual | | Effective |
Fiscal Year | | Fixed-rate | | swaps(1) | | Amount | | Rate | | Rate(2) |
| | (Dollars in thousands) | | | | |
2020 | | $ | 300,000 |
| | $ | 440,000 |
| | $ | 740,000 |
| | 1.85 | | 2.46 |
2021 | | 200,000 |
| | 200,000 |
| | 400,000 |
| | 1.91 | | 2.28 |
2022 | | 200,000 |
| | — |
| | 200,000 |
| | 2.23 | | 2.23 |
2023 | | 300,000 |
| | — |
| | 300,000 |
| | 1.70 | | 1.81 |
2024 | | 100,000 |
| | — |
| | 100,000 |
| | 3.39 | | 3.39 |
2025 | | 250,000 |
| | — |
| | 250,000 |
| | 1.82 | | 1.94 |
2026 | | 100,000 |
| | — |
| | 100,000 |
| | 1.28 | | 1.60 |
| | $ | 1,450,000 |
| | $ | 640,000 |
| | $ | 2,090,000 |
| | 1.92 | | 2.25 |
| |
(1) | Represents adjustable-rate FHLB advances for which the Bank has entered into interest rate swaps with a notional amount of $640.0 million to hedge the variability in cash flows associated with the advances. These advances are presented based on their contractual maturity dates and will be renewed periodically until the maturity or termination of the interest rate swaps. The expected WAL of the interest rate swaps was 4.0 years at March 31, 2020. |
| |
(2) | The effective rate includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. |
As of March 31, 2020, the Bank did not have a balance outstanding on its FHLB line of credit. The average outstanding balance of FHLB line of credit borrowings during the current year period was $91.7 million at an average rate of 1.85%, and during the current quarter was $82.4 million at an average rate of 1.74%. During the current quarter, the Bank began utilizing the FRB of Kansas City line of credit rather than the FHLB line of credit, as the rate at the FRB of Kansas City was lower. At March 31, 2020, the Bank had an outstanding balance of $30.0 million on its FRB of Kansas City line of credit. The average outstanding balance of the FRB of Kansas City line of credit borrowing during the current quarter was $5.5 million at an average rate of 0.23%.
The following table presents the maturity and weighted average repricing rate, which is also the weighted average effective rate, of certificates of deposit, split between retail/business and public unit amounts, and term borrowings for the next four quarters as of December 31, 2020. The term borrowings amount of $150.0 million presented in the table below as maturing during the quarter ending March 31, 2020.2021 matured in January 2021 and was not replaced.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Retail/ Business | | | | Public Unit | | | | Term | | | | | | |
Maturity by | | Certificate | | Repricing | | Certificate | | Repricing | | Borrowings | | Repricing | | | | Repricing |
Quarter End | | Amount | | Rate | | Amount | | Rate | | Amount(1) | | Rate | | Total | | Rate |
| | (Dollars in thousands) |
March 31, 2021 | | $ | 315,060 | | | 1.73 | % | | $ | 77,551 | | | 0.66 | % | | $ | 150,000 | | | 1.97 | % | | $ | 542,611 | | | 1.64 | % |
June 30, 2021 | | 366,772 | | | 1.43 | | | 70,688 | | | 0.36 | | | — | | | — | | | 437,460 | | | 1.26 | |
September 30, 2021 | | 308,089 | | | 1.38 | | | 53,451 | | | 0.87 | | | 75,000 | | | 2.99 | | | 436,540 | | | 1.59 | |
December 31, 2021 | | 341,178 | | | 1.22 | | | 29,560 | | | 0.52 | | | 100,000 | | | 3.12 | | | 470,738 | | | 1.58 | |
| | $ | 1,331,099 | | | 1.44 | | | $ | 231,250 | | | 0.60 | | | $ | 325,000 | | | 2.56 | | | $ | 1,887,349 | | | 1.53 | |
(1)The maturity date for FHLB advances tied to interest rate swaps is based on the maturity date of the related interest rate swap.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Retail/ Business | | | | Public Unit | | | | Term | | | | | | |
Maturity by | | Certificate | | Repricing | | Certificate | | Repricing | | Borrowings | | Repricing | | | | Repricing |
Quarter End | | Amount | | Rate | | Amount | | Rate | | Amount | | Rate | | Total | | Rate |
| | (Dollars in thousands) |
June 30, 2020 | | $ | 429,387 |
| | 2.07 | % | | $ | 139,526 |
| | 1.76 | % | | $ | 200,000 |
| | 2.35 | % | | $ | 768,913 |
| | 2.08 | % |
September 30, 2020 | | 277,166 |
| | 2.03 |
| | 47,228 |
| | 2.10 |
| | 540,000 |
| | 2.50 |
| | 864,394 |
| | 2.33 |
|
December 31, 2020 | | 275,542 |
| | 1.94 |
| | 29,261 |
| | 1.68 |
| | 250,000 |
| | 2.47 |
| | 554,803 |
| | 2.17 |
|
March 31, 2021 | | 263,142 |
| | 2.00 |
| | 20,809 |
| | 2.04 |
| | 150,000 |
| | 1.97 |
| | 433,951 |
| | 1.99 |
|
| | $ | 1,245,237 |
| | 2.02 |
| | $ | 236,824 |
| | 1.84 |
| | $ | 1,140,000 |
| | 2.40 |
| | $ | 2,622,061 |
| | 2.17 |
|
Stockholders' Equity. Stockholders' equity was $1.29$1.28 billion at Marchboth December 31, 2020 compared to $1.34 billion atand September 30, 2019. The $48.52020. During the quarter, the Company paid cash dividends totaling $29.1 million decrease was due primarily to the payment of $70.4and repurchased common stock totaling $1.5 million, in cash dividends, partially offset by net income of $26.8 million$18.9 million. The cash dividends paid during the current quarter totaled $0.215 per share and consisted of a $0.13 per share cash true-up dividend related to fiscal year period.2020 earnings and a regular quarterly cash dividend of $0.085 per share. On January 26, 2021, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.5 million, payable on February 19, 2021 to stockholders of record as of the close of business on February 5, 2021. In the long run, management considers a Bank stockholders'the Bank's equity to total assets ratio of at least 10% an appropriate level of capital. At MarchDecember 31, 2020, this ratio was 12.2%. The cash dividends paid during the current period totaled $0.51 per share and consisted of a $0.34 per share cash true-up dividend related to fiscal year 2019 earnings per the Company's dividend policy, and two regular quarterly cash dividends totaling $0.17 per share. On April 21, 2020, the Company announced a regular quarterly cash dividend of $0.085 per share, or approximately $11.7 million, payable on May 15, 2020 to stockholders of record as of the close of business on May 1, 2020.
At MarchDecember 31, 2020, Capitol Federal Financial, Inc., at the holding company level, had $101.0$66.7 million on deposit at the Bank. For fiscal year 2020,2021, it is currently the intent of the Board of Directors to continue the payout of 100% of the Company's earnings to the Company's stockholders. Dividend payments depend upon a number of factors including the Company's financial condition and results of operations, regulatory capital requirements, regulatory limitations on the Bank's ability to make capital distributions to the Company, and the amount of cash at the holding company.
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 approval for the Company to repurchase shares extends through August 2021.
The Company works to find multiple ways to provide stockholder value. This has primarily been through the payment of cash dividends and historically the Company has also utilized 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 has paid a True Blue Capitol cash dividend of $0.25 per share in June of each of the pastfor six years.consecutive years ending in 2019. 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. Given the current state of economic uncertainty and how that may play out with the credit risk exposure in the Bank's loan portfolio, the Company has elected to defer the annual True Blue dividend in June 2020 and did not ask for a regulatory non-objection at that time to move capital from the Bank to the Company to pay that dividend. It is management's intentintention to ask for a regulatory non-objection at some point in the future and to pay this dividend when economic conditions are more certain. It remains the Company's intent to pay out 100% of its earnings.
The following table presents regular quarterly cash dividends and special cash dividends paid in calendar years 2021, 2020, 2019, and 2018.2019. The amounts represent cash dividends paid during each period. For the quarter ending June 30, 2020,March 31, 2021, the amount presented represents the dividend payable on May 15, 2020February 19, 2021 to stockholders of record as of the close of business on May 1, 2020.February 5, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Calendar Year |
| 2021 | | 2020 | | 2019 |
| Amount | | Per Share | | Amount | | Per Share | | Amount | | Per Share |
| (Dollars in thousands, except per share amounts) |
Regular quarterly dividends paid | | | | | | | | | | | |
Quarter ended March 31 | $ | 11,518 | | | $ | 0.085 | | | $ | 11,733 | | | $ | 0.085 | | | $ | 11,700 | | | $ | 0.085 | |
Quarter ended June 30 | — | | | — | | | 11,733 | | | 0.085 | | | 11,708 | | | 0.085 | |
Quarter ended September 30 | — | | | — | | | 11,733 | | | 0.085 | | | 11,713 | | | 0.085 | |
Quarter ended December 31 | — | | | — | | | 11,514 | | | 0.085 | | | 11,731 | | | 0.085 | |
True-up dividends paid | — | | | — | | | 17,614 | | | 0.130 | | | 46,932 | | | 0.340 | |
True Blue dividends paid | — | | | — | | | — | | | — | | | 34,446 | | | 0.250 | |
Calendar year-to-date dividends paid | $ | 11,518 | | | $ | 0.085 | | | $ | 64,327 | | | $ | 0.470 | | | $ | 128,230 | | | $ | 0.930 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Calendar Year |
| 2020 | | 2019 | | 2018 |
| Amount | | Per Share | | Amount | | Per Share | | Amount | | Per Share |
| (Dollars in thousands, except per share amounts) |
Regular quarterly dividends paid | | | | | | | | | | | |
Quarter ended March 31 | $ | 11,733 |
| | $ | 0.085 |
| | $ | 11,700 |
| | $ | 0.085 |
| | $ | 11,427 |
| | $ | 0.085 |
|
Quarter ended June 30 | 11,734 |
| | 0.085 |
| | 11,708 |
| | 0.085 |
| | 11,429 |
| | 0.085 |
|
Quarter ended September 30 |
| |
| | 11,713 |
| | 0.085 |
| | 11,430 |
| | 0.085 |
|
Quarter ended December 31 |
| |
| | 11,731 |
| | 0.085 |
| | 11,696 |
| | 0.085 |
|
True-up dividends paid |
| |
| | 46,932 |
| | 0.340 |
| | 53,666 |
| | 0.390 |
|
True Blue dividends paid |
| |
| | 34,446 |
| | 0.250 |
| | 33,614 |
| | 0.250 |
|
Calendar year-to-date dividends paid | $ | 23,467 |
| | $ | 0.170 |
| | $ | 128,230 |
| | $ | 0.930 |
| | $ | 133,262 |
| | $ | 0.980 |
|
The Company has authorized the repurchase of up to $70.0 million of its common stock under its stock repurchase plan. Shares may be repurchased from time to time based upon market conditions, available liquidity and other factors. There is no expiration for this repurchase plan and no shares have been repurchased under this repurchase plan.
Operating Results
The following table presents selected income statement and other information for the quarters indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| December 31, | | September 30, | | June 30, | | March 31, | | December 31, |
| 2020 | | 2020 | | 2020 | | 2020 | | 2019 |
| (Dollars in thousands, except per share data) |
Interest and dividend income: | | | | | | | | | |
Loans receivable | $ | 60,694 | | | $ | 64,315 | | | $ | 66,652 | | | $ | 69,613 | | | $ | 69,914 | |
MBS | 5,710 | | | 5,425 | | | 5,616 | | | 5,866 | | | 6,102 | |
FHLB stock | 1,069 | | | 1,080 | | | 1,207 | | | 1,714 | | | 1,826 | |
Investment securities | 683 | | | 731 | | | 847 | | | 1,382 | | | 1,507 | |
Cash and cash equivalents | 51 | | | 55 | | | 59 | | | 380 | | | 687 | |
Total interest and dividend income | 68,207 | | | 71,606 | | | 74,381 | | | 78,955 | | | 80,036 | |
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Deposits | 14,067 | | | 15,299 | | | 16,533 | | | 17,804 | | | 17,962 | |
Borrowings | 10,327 | | | 10,624 | | | 11,561 | | | 12,483 | | | 13,377 | |
| | | | | | | | | |
Total interest expense | 24,394 | | | 25,923 | | | 28,094 | | | 30,287 | | | 31,339 | |
| | | | | | | | | |
Net interest income | 43,813 | | | 45,683 | | | 46,287 | | | 48,668 | | | 48,697 | |
| | | | | | | | | |
Provision for credit losses | (1,532) | | | — | | | — | | | 22,075 | | | 225 | |
| | | | | | | | | |
Net interest income | | | | | | | | | |
(after provision for credit losses) | 45,345 | | | 45,683 | | | 46,287 | | | 26,593 | | | 48,472 | |
| | | | | | | | | |
Non-interest income | 5,070 | | | 4,985 | | | 4,439 | | | 4,671 | | | 5,504 | |
Non-interest expense | 27,067 | | | 27,176 | | | 26,164 | | | 26,164 | | | 26,500 | |
Income tax expense | 4,450 | | | 5,213 | | | 5,088 | | | 824 | | | 4,965 | |
Net income | $ | 18,898 | | | $ | 18,279 | | | $ | 19,474 | | | $ | 4,276 | | | $ | 22,511 | |
| | | | | | | | | |
Efficiency ratio | 55.37 | % | | 53.64 | % | | 51.58 | % | | 49.05 | % | | 48.89 | % |
| | | | | | | | | |
Basic EPS | $ | 0.14 | | | $ | 0.13 | | | $ | 0.14 | | | $ | 0.03 | | | $ | 0.16 | |
Diluted EPS | 0.14 | | | 0.13 | | | 0.14 | | | 0.03 | | | 0.16 | |
|
| | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, | | December 31, | | September 30, | | June 30, | | March 31, |
| 2020 | | 2019 | | 2019 | | 2019 | | 2019 |
| (Dollars in thousands, except per share data) |
Interest and dividend income: | | | | | | | | | |
Loans receivable | $ | 69,613 |
| | $ | 69,914 |
| | $ | 70,366 |
| | $ | 71,434 |
| | $ | 71,657 |
|
MBS | 5,866 |
| | 6,102 |
| | 6,293 |
| | 6,613 |
| | 6,301 |
|
FHLB stock | 1,714 |
| | 1,826 |
| | 2,156 |
| | 1,865 |
| | 1,831 |
|
Investment securities | 1,382 |
| | 1,507 |
| | 1,585 |
| | 1,835 |
| | 1,505 |
|
Cash and cash equivalents | 380 |
| | 687 |
| | 2,885 |
| | 464 |
| | 743 |
|
Total interest and dividend income | 78,955 |
| | 80,036 |
| | 83,285 |
| | 82,211 |
| | 82,037 |
|
| | | | | | | | | |
Interest expense: | | | | | | | | | |
Deposits | 17,804 |
| | 17,962 |
| | 17,471 |
| | 16,909 |
| | 16,096 |
|
Borrowings | 12,483 |
| | 13,377 |
| | 16,003 |
| | 13,621 |
| | 13,344 |
|
Total interest expense | 30,287 |
| | 31,339 |
| | 33,474 |
| | 30,530 |
| | 29,440 |
|
| | | | | | | | | |
Net interest income | 48,668 |
| | 48,697 |
| | 49,811 |
| | 51,681 |
| | 52,597 |
|
| | | | | | | | | |
Provision for credit losses | 22,075 |
| | 225 |
| | 300 |
| | 450 |
| | — |
|
| | | | | | | | | |
Net interest income | | | | | | | | | |
(after provision for credit losses) | 26,593 |
| | 48,472 |
| | 49,511 |
| | 51,231 |
| | 52,597 |
|
| | | | | | | | | |
Non-interest income | 4,671 |
| | 5,504 |
| | 5,859 |
| | 5,674 |
| | 5,001 |
|
Non-interest expense | 26,164 |
| | 26,500 |
| | 26,330 |
| | 27,691 |
| | 26,141 |
|
Income tax expense | 824 |
| | 4,965 |
| | 6,631 |
| | 6,317 |
| | 6,903 |
|
Net income | $ | 4,276 |
| | $ | 22,511 |
| | $ | 22,409 |
| | $ | 22,897 |
| | $ | 24,554 |
|
| | | | | | | | | |
Efficiency ratio | 49.05 | % | | 48.89 | % | | 47.30 | % | | 48.28 | % | | 45.38 | % |
| | | | | | | | | |
Basic EPS | $ | 0.03 |
| | $ | 0.16 |
| | $ | 0.16 |
| | $ | 0.17 |
| | $ | 0.18 |
|
Diluted EPS | 0.03 |
| | 0.16 |
| | 0.16 |
| | 0.17 |
| | 0.18 |
|
Comparison of Operating Results for the Six Months Ended March 31, 2020 and 2019
The Company recognized net income of $26.8 million, or $0.19 per share, for the six-month period ended March 31, 2020 compared to net income of $48.9 million, or $0.36 per share, for the six-month period ended March 31, 2019. The decrease in net income was due primarily to a $22.3 million provision for credit losses during the current period.
Net interest income decreased $7.5 million, or 7.2%, from the prior year period to $97.4 million for the current year period. The net interest margin decreased 11 basis points, from 2.30% for the prior year period to 2.19% for the current year period. The leverage strategy was suspended at certain times during the prior year period and during all of the current year period due to the negative interest rate spreads between the related FHLB borrowings and cash held at the FRB of Kansas City, making the transaction unprofitable. See additional discussion regarding the leverage strategy in the Financial Condition section below. When the leverage strategy is in place, it reduces the net interest margin due to the amount of earnings from the transaction in comparison to the size of the transaction. Excluding the effects of the leverage strategy, the net interest margin would have decreased 14 basis points, from 2.33% for the prior year period to 2.19% for the current year period. The decrease in the net interest margin, excluding the effects of the leverage strategy, was due mainly to an increase in the cost of retail/business certificates of deposit, as well as a decrease in the loan portfolio yield.
Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased four basis points, from 3.60% for the prior year period to 3.56% for the current year period, and the average balance of interest-earning assets decreased $221.2 million. Absent the impact of the leverage strategy, the weighted average yield on total interest-earning assets would have decreased six basis points, from 3.62% for the prior year period to 3.56% for the current year period, and the average balance of interest-earning assets would have decreased $105.8 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield discussed below. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
|
| | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 139,527 |
| | $ | 142,429 |
| | $ | (2,902 | ) | | (2.0 | )% |
MBS | 11,968 |
| | 12,824 |
| | (856 | ) | | (6.7 | ) |
FHLB stock | 3,540 |
| | 3,802 |
| | (262 | ) | | (6.9 | ) |
Investment securities | 2,889 |
| | 2,946 |
| | (57 | ) | | (1.9 | ) |
Cash and cash equivalents | 1,067 |
| | 2,457 |
| | (1,390 | ) | | (56.6 | ) |
Total interest and dividend income | $ | 158,991 |
| | $ | 164,458 |
| | $ | (5,467 | ) | | (3.3 | ) |
The decrease in interest income on loans receivable was due mainly to a decrease in yield resulting from an increase in the amortization of premiums related to correspondent loan payoff and endorsement activity. This was partially offset by a shift in the mix of the loan portfolio, as the average balance of lower-yielding one- to four-family loans decreased $201.6 million, or 3.0%, partially offset by a $128.6 million, or 20%, increase in the average balance of higher-yielding commercial loans. The weighted average yield on the loans receivable portfolio decreased four basis points, from 3.77% for the prior year period to 3.73% for the current year period.
The decrease in interest income on the MBS portfolio was due primarily to a $57.1 million, or 5.8%, decrease in the average balance of the portfolio. The decrease in dividend income on FHLB stock and the decrease in interest income on cash and cash equivalents were due primarily to the leverage strategy being in place for a portion of the prior year period and not being in place during the current period. See additional discussion regarding the leverage strategy in the Executive Summary above.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased eight basis points, from 1.49% for the prior year period to 1.57% for the current year period, while the average balance of interest-bearing liabilities decreased $155.4 million. Absent the impact of the leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have increased nine basis points, from 1.48% for the prior year period to 1.57% for the current year period, while the average balance of interest-bearing liabilities would have decreased $40.0 million. The increase in the weighted average rate from the prior year period was due primarily to an increase in the cost of deposits, specifically the retail/business certificate of deposit portfolio. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
|
| | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | $ | 35,766 |
| | $ | 31,821 |
| | $ | 3,945 |
| | 12.4 | % |
Borrowings | 25,860 |
| | 27,739 |
| | (1,879 | ) | | (6.8 | ) |
Total interest expense | $ | 61,626 |
| | $ | 59,560 |
| | $ | 2,066 |
| | 3.5 |
|
The increase in interest expense on deposits was due primarily to an increase in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of the retail/business certificate of deposit portfolio increased 26 basis points, to 2.10% for the current year period, and the average balance increased $190.6 million, or approximately 7%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit in an effort to encourage customers to move funds to those terms and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-term certificates of deposit.
The "Borrowings" line item in the table above includes interest expense associated and not associated with the leverage strategy. Interest expense on borrowings not related to the leverage strategy decreased $503 thousand from the prior year period due primarily to the redemption of the junior subordinated debentures previously added in the CCB acquisition. Additionally, interest expense on the FHLB line of credit decreased $454 thousand, largely offset by an increase in the weighted average effective rate paid on FHLB advances between periods. Interest expense on FHLB borrowings associated with the leverage strategy decreased $1.4 million from the prior year period due to the leverage strategy being in place for a portion of the prior year period and not being in place at all during the current year period.
Provision for Credit Losses
The Bank recorded a provision for credit losses during the current period of $22.3 million, compared to no provision for credit losses during the prior year period. The $22.3 million provision for credit losses in the current period was primarily related to the deterioration of economic conditions as a result of COVID-19. See additional ACL discussion in the "Financial Condition - Asset Quality - Allowance for credit losses and Provision for credit losses" 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 Six Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 5,845 |
| | $ | 6,443 |
| | $ | (598 | ) | | (9.3 | )% |
Insurance commissions | 1,091 |
| | 1,167 |
| | (76 | ) | | (6.5 | ) |
Other non-interest income | 3,239 |
| | 2,815 |
| | 424 |
| | 15.1 |
|
Total non-interest income | $ | 10,175 |
| | $ | 10,425 |
| | $ | (250 | ) | | (2.4 | ) |
The decrease in deposit service fees was due mainly to the discontinuation of point-of-sale service charges, which the Bank ceased charging in April 2019. The increase in other non-interest income was due mainly to the receipt of a BOLI death benefit during the current period.
Non-Interest Expense
The following table presents the components of non-interest expense for the time periods presented, along with the change measured in dollars and percent.
|
| | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 26,706 |
| | $ | 25,751 |
| | $ | 955 |
| | 3.7 | % |
Information technology and related expense | 8,409 |
| | 8,883 |
| | (474 | ) | | (5.3 | ) |
Occupancy, net | 6,656 |
| | 6,544 |
| | 112 |
| | 1.7 |
|
Advertising and promotional | 2,769 |
| | 2,150 |
| | 619 |
| | 28.8 |
|
Regulatory and outside services | 2,640 |
| | 2,822 |
| | (182 | ) | | (6.4 | ) |
Deposit and loan transaction costs | 1,389 |
| | 1,201 |
| | 188 |
| | 15.7 |
|
Office supplies and related expense | 1,111 |
| | 1,195 |
| | (84 | ) | | (7.0 | ) |
Federal insurance premium | — |
| | 1,187 |
| | (1,187 | ) | | (100.0 | ) |
Other non-interest expense | 2,984 |
| | 3,190 |
| | (206 | ) | | (6.5 | ) |
Total non-interest expense | $ | 52,664 |
| | $ | 52,923 |
| | $ | (259 | ) | | (0.5 | ) |
The increase in salaries and employee benefits expense was due primarily to an increase in loan commissions and merit increases. The decrease in information technology and related expense was due mainly to the prior year period including costs related to the integration of CCB operations. The increase in advertising and promotional expense was due to running advertising campaigns in the early part of our fiscal year as we will do less advertising during the various election campaigns in the fall, as well as to the timing of sponsorships. The decrease in the federal insurance premium was due mainly to the Bank receiving an assessment credit from the FDIC. During the prior fiscal year, the Bank began utilizing a credit from the FDIC as a result of the FDIC deposit insurance fund ratio exceeding 1.38%. Pursuant to regulatory guidance, once the insurance fund exceeds 1.38% of insured deposits, deposit insurance assessment credits are allocated to banks with less than $10 billion in assets, to compensate for premiums previously paid that contributed to growth of the fund past 1.15%. These credits fully offset the Bank's premium assessments during the current year period and will continue to offset the Bank's premium assessments as long as the insurance fund ratio remains at or above 1.35% of insured deposits and the Bank still has a remaining assessment credit balance. As of March 31, 2020, the Bank had a remaining assessment credit of approximately $320 thousand. The assessment credit will be fully utilized during the third quarter of fiscal year 2020, so management anticipates recognizing federal insurance premium expense during the next quarter.
Management anticipates that salaries and employee benefits expense in fiscal year 2020 will increase approximately $1.0 million from fiscal year 2019, a decrease from our original estimate of a $4.0 million increase. The reduction in the expense estimate was due primarily to a delay in the implementation of information technology changes pertaining to commercial banking activities and related back office functions, a reduction in commercial lending hiring, along with expense reductions related to the impact of COVID-19, including the postponement of annual merit increases which were to be implemented later this year and the deferral of the True Blue dividend and related compensation expense as discussed above.
The Company's efficiency ratio was 48.97% for the current period compared to 45.89% for the prior year period. The change in the efficiency ratio was due to lower net interest income in the current period compared to the prior year period. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a proportionally lower level of expense.
Income Tax Expense
Income tax expense was $5.8 million for the current period compared to $13.5 million for the prior year period. The decrease in income tax expense was due primarily to lower pretax income in the current period, as well as a lower effective tax rate. The effective tax rate was 17.8% for the current period compared to 21.6% for the prior year period. The lower effective tax rate in the current period compared to the prior year period was due mainly to the Company's permanent differences having a proportionately larger impact given the lower pretax income in the current year period and a discrete benefit recognized as a result of favorable federal tax guidance that was issued during the current period related to certain BOLI policies added in the CCB acquisition.
Average Balance Sheet
The following table presents the average balances of our assets, liabilities, and stockholders' equity, and the related annualized weighted average yields and rates on our interest-earning assets and interest-bearing liabilities for the periods indicated, as well as selected performance ratios and other information, for the periods 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.
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Average | | Interest | | | | Average | | Interest | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate |
Assets: | (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
One- to four-family loans | $ | 6,568,525 |
| | $ | 117,199 |
| | 3.57 | % | | $ | 6,770,175 |
| | $ | 122,309 |
| | 3.61 | % |
Commercial loans | 762,799 |
| | 18,652 |
| | 4.81 |
| | 634,229 |
| | 15,787 |
| | 4.92 |
|
Consumer loans | 128,491 |
| | 3,676 |
| | 5.72 |
| | 138,369 |
| | 4,333 |
| | 6.28 |
|
Total loans receivable(1) | 7,459,815 |
| | 139,527 |
| | 3.73 |
| | 7,542,773 |
| | 142,429 |
| | 3.77 |
|
MBS(2) | 926,969 |
| | 11,968 |
| | 2.58 |
| | 984,033 |
| | 12,824 |
| | 2.61 |
|
Investment securities(2)(3) | 282,759 |
| | 2,889 |
| | 2.04 |
| | 277,292 |
| | 2,946 |
| | 2.13 |
|
FHLB stock | 99,128 |
| | 3,540 |
| | 7.14 |
| | 104,023 |
| | 3,802 |
| | 7.33 |
|
Cash and cash equivalents(4) | 133,908 |
| | 1,067 |
| | 1.57 |
| | 215,660 |
| | 2,457 |
| | 2.25 |
|
Total interest-earning assets(1)(2) | 8,902,579 |
| | 158,991 |
| | 3.56 |
| | 9,123,781 |
| | 164,458 |
| | 3.60 |
|
Other non-interest-earning assets | 441,199 |
| | | | | | 368,864 |
| | | | |
Total assets | $ | 9,343,778 |
| | | | | | $ | 9,492,645 |
| | | | |
| | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | $ | 1,096,466 |
| | 351 |
| | 0.06 |
| | $ | 1,063,346 |
| | 294 |
| | 0.06 |
|
Savings | 361,592 |
| | 153 |
| | 0.08 |
| | 357,243 |
| | 113 |
| | 0.06 |
|
Money market | 1,190,938 |
| | 4,044 |
| | 0.68 |
| | 1,260,999 |
| | 4,441 |
| | 0.71 |
|
Retail/business certificates | 2,686,028 |
| | 28,215 |
| | 2.10 |
| | 2,495,475 |
| | 22,947 |
| | 1.84 |
|
Wholesale certificates | 286,328 |
| | 3,003 |
| | 2.10 |
| | 392,693 |
| | 4,026 |
| | 2.06 |
|
Total deposits | 5,621,352 |
| | 35,766 |
| | 1.27 |
| | 5,569,756 |
| | 31,821 |
| | 1.15 |
|
Borrowings(5) | 2,204,903 |
| | 25,860 |
| | 2.33 |
| | 2,411,905 |
| | 27,739 |
| | 2.29 |
|
Total interest-bearing liabilities | 7,826,255 |
| | 61,626 |
| | 1.57 |
| | 7,981,661 |
| | 59,560 |
| | 1.49 |
|
Other non-interest-bearing liabilities | 194,698 |
| | | | | | 142,060 |
| | | | |
Stockholders' equity | 1,322,825 |
| | | | | | 1,368,924 |
| | | | |
Total liabilities and stockholders' equity | $ | 9,343,778 |
| | | | | | $ | 9,492,645 |
| | | | |
| | | | | | | | | | | |
Net interest income(6) | | | $ | 97,365 |
| | | | | | $ | 104,898 |
| | |
Net interest rate spread(7)(8) | | | | | 1.99 |
| | | | | | 2.11 |
|
Net interest-earning assets | $ | 1,076,324 |
| | | | | | $ | 1,142,120 |
| | | | |
Net interest margin(8)(9) | | | | | 2.19 |
| | | | | | 2.30 |
|
Ratio of interest-earning assets to interest-bearing liabilities | | 1.14x |
| | | | | | 1.14x |
|
| | | | | | | | | | | |
Selected performance ratios: | | | | | | | | | | | |
Return on average assets (annualized)(8) | | | | 0.57 |
| | | | | | 1.03 |
|
Return on average equity (annualized)(8) | | | | 4.05 |
| | | | | | 7.15 |
|
Average equity to average assets | | | | | 14.16 |
| | | | | | 14.42 |
|
Operating expense ratio(10) | | | | | 1.13 |
| | | | | | 1.12 |
|
Efficiency ratio(8)(11) | | | | | 48.97 |
| | | | | | 45.89 |
|
Pre-tax yield on leverage strategy(12) | | | | | — |
| | | | | | 0.03 |
|
| |
(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) | MBS and investment securities classified as AFS are stated at amortized cost, adjusted for unamortized purchase premiums or discounts. |
| |
(3) | The average balance of investment securities includes an average balance of nontaxable securities of $16.1 million and $22.8 million for the six months ended March 31, 2020 and March 31, 2019, respectively. |
| |
(4) | There were no cash and cash equivalents related to the leverage strategy during the six months ended March 31, 2020. The average balance of cash and cash equivalents includes an average balance of cash related to the leverage strategy of $110.2 million for the six months ended March 31, 2019. |
| |
(5) | There were no FHLB borrowings related to the leverage strategy during the six months ended March 31, 2020. Included in this line item, for the six months ended March 31, 2019, are FHLB borrowings related to the leverage strategy with an average outstanding balance of $115.4 million and interest paid of $1.4 million, at a weighted average rate of 2.36%, and FHLB borrowings not related to the leverage strategy with an average outstanding balance of $2.30 billion and interest paid of $26.4 million, at a weighted average rate of 2.29%. 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. |
| |
(6) | 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. |
| |
(7) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| |
(8) | The table below provides a reconciliation between certain performance ratios presented in accordance with GAAP and the performance ratios excluding the effects of the leverage strategy, which are not presented in accordance with GAAP. Management believes it is important for comparability purposes to provide the performance ratios without the leverage strategy because of the unique nature of the leverage strategy. The leverage strategy reduces some of our performance ratios due to the small amount of earnings associated with the transaction in comparison to the size of the transaction, while increasing our net income. |
|
| | | | | | | | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Actual | | Leverage | | Adjusted | | Actual | | Leverage | | Adjusted |
| (GAAP) | | Strategy | | (Non-GAAP) | | (GAAP) | | Strategy | | (Non-GAAP) |
Return on average assets (annualized) | 0.57 | % | | — | % | | 0.57 | % | | 1.03 | % | | (0.01 | )% | | 1.04 | % |
Return on average equity (annualized) | 4.05 |
| | — |
| | 4.05 |
| | 7.15 |
| | — |
| | 7.15 |
|
Net interest margin | 2.19 |
| | — |
| | 2.19 |
| | 2.30 |
| | (0.03 | ) | | 2.33 |
|
Net interest rate spread | 1.99 |
| | — |
| | 1.99 |
| | 2.11 |
| | (0.03 | ) | | 2.14 |
|
Efficiency Ratio | 48.97 |
| | — |
| | 48.97 |
| | 45.89 |
| | — |
| | 45.89 |
|
| |
(9) | Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. |
| |
(10) | The operating expense ratio represents annualized non-interest expense as a percentage of average assets. |
| |
(11) | The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. |
| |
(12) | The pre-tax yield on the leverage strategy represents annualized pre-tax income resulting from the transaction as a percentage of the average interest-earning assets associated with the transaction. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| December 31, 2020 | | September 30, 2020 | | December 31, 2019 |
| Average | | Interest | | | | Average | | Interest | | | | Average | | Interest | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate | | Amount | | Paid | | Rate |
Assets: | (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | | | | | | | |
One- to four-family loans | $ | 6,220,204 | | | $ | 50,005 | | | 3.22 | % | | $ | 6,411,923 | | | $ | 53,858 | | | 3.36 | % | | $ | 6,543,298 | | | $ | 58,361 | | | 3.57 | % |
Commercial loans | 770,096 | | | 9,404 | | | 4.78 | | | 815,222 | | | 9,092 | | | 4.37 | | | 766,232 | | | 9,657 | | | 4.94 | |
Consumer loans | 110,048 | | | 1,285 | | | 4.65 | | | 115,247 | | | 1,365 | | | 4.71 | | | 130,253 | | | 1,896 | | | 5.77 | |
Total loans receivable(1) | 7,100,348 | | | 60,694 | | | 3.41 | | | 7,342,392 | | | 64,315 | | | 3.49 | | | 7,439,783 | | | 69,914 | | | 3.75 | |
MBS(2) | 1,302,074 | | | 5,710 | | | 1.75 | | | 1,027,875 | | | 5,425 | | | 2.11 | | | 933,448 | | | 6,102 | | | 2.61 | |
Investment securities(2)(3) | 431,493 | | | 683 | | | 0.63 | | | 309,118 | | | 731 | | | 0.95 | | | 284,587 | | | 1,507 | | | 2.12 | |
FHLB stock | 85,187 | | | 1,069 | | | 4.99 | | | 101,163 | | | 1,080 | | | 4.25 | | | 98,384 | | | 1,826 | | | 7.36 | |
Cash and cash equivalents | 201,468 | | | 51 | | | 0.10 | | | 217,475 | | | 55 | | | 0.10 | | | 162,126 | | | 687 | | | 1.66 | |
Total interest-earning assets | 9,120,570 | | | 68,207 | | | 2.98 | | | 8,998,023 | | | 71,606 | | | 3.17 | | | 8,918,328 | | | 80,036 | | | 3.58 | |
Other non-interest-earning assets | 453,422 | | | | | | | 466,789 | | | | | | | 427,858 | | | | | |
Total assets | $ | 9,573,992 | | | | | | | $ | 9,464,812 | | | | | | | $ | 9,346,186 | | | | | |
| | | | | | | | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | | | | | | | |
Checking | $ | 1,360,864 | | | 223 | | | 0.07 | | | $ | 1,294,557 | | | 212 | | | 0.07 | | | $ | 1,085,818 | | | 170 | | | 0.06 | |
Savings | 442,906 | | | 68 | | | 0.06 | | | 426,798 | | | 70 | | | 0.07 | | | 357,674 | | | 79 | | | 0.09 | |
Money market | 1,474,720 | | | 1,184 | | | 0.32 | | | 1,362,042 | | | 1,252 | | | 0.37 | | | 1,173,545 | | | 2,063 | | | 0.70 | |
Retail/business certificates | 2,745,836 | | | 12,178 | | | 1.76 | | | 2,760,645 | | | 13,142 | | | 1.89 | | | 2,681,081 | | | 14,111 | | | 2.09 | |
Wholesale certificates | 251,634 | | | 414 | | | 0.66 | | | 267,967 | | | 623 | | | 0.92 | | | 275,941 | | | 1,539 | | | 2.21 | |
Total deposits | 6,275,960 | | | 14,067 | | | 0.89 | | | 6,112,009 | | | 15,299 | | | 1.00 | | | 5,574,059 | | | 17,962 | | | 1.28 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Borrowings(4) | 1,775,380 | | | 10,327 | | | 2.30 | | | 1,819,601 | | | 10,624 | | | 2.31 | | | 2,233,327 | | | 13,377 | | | 2.36 | |
Total interest-bearing liabilities | 8,051,340 | | | 24,394 | | | 1.20 | | | 7,931,610 | | | 25,923 | | | 1.30 | | | 7,807,386 | | | 31,339 | | | 1.59 | |
Other non-interest-bearing liabilities | 240,476 | | | | | | | 227,915 | | | | | | | 206,253 | | | | | |
Stockholders' equity | 1,282,176 | | | | | | | 1,305,287 | | | | | | | 1,332,547 | | | | | |
Total liabilities and stockholders' equity | $ | 9,573,992 | | | | | | | $ | 9,464,812 | | | | | | | $ | 9,346,186 | | | | | |
| | | | | | | | | | | | | | | | | |
Net interest income(5) | | | $ | 43,813 | | | | | | | $ | 45,683 | | | | | | | $ | 48,697 | | | |
Net interest rate spread(6) | | | | | 1.78 | | | | | | | 1.87 | | | | | | | 1.99 | |
Net interest-earning assets | $ | 1,069,230 | | | | | | | $ | 1,066,413 | | | | | | | $ | 1,110,942 | | | | | |
Net interest margin(7) | | | | | 1.92 | | | | | | | 2.03 | | | | | | | 2.18 | |
Ratio of interest-earning assets to interest-bearing liabilities | | 1.13x | | | | | | 1.13x | | | | | | 1.14x |
| | | | | | | | | | | | | | | | | |
Selected performance ratios: | | | | | | | | | | | | | | | | | |
Return on average assets (annualized) | | | | 0.79 | % | | | | | | 0.77 | % | | | | | | 0.96 | % |
Return on average equity (annualized) | | | | 5.90 | | | | | | | 5.60 | | | | | | | 6.76 | |
Average equity to average assets | | | | 13.39 | | | | | | | 13.79 | | | | | | | 14.26 | |
Operating expense ratio(8) | | | | | 1.13 | | | | | | | 1.15 | | | | | | | 1.13 | |
Efficiency ratio(9) | | | | | 55.37 | | | | | | | 53.64 | | | | | | | 48.89 | |
| | | | | | | | | | | | | | | | |
(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 $9.1 million, $10.9 million and $17.3 million for the three months ended December 31, 2020, September 30, 2020 and December 31, 2019, 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 rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(7)Net interest margin represents annualized net interest income as a percentage of average interest-earning assets.
(8)The operating expense ratio represents annualized non-interest expense as a percentage of average assets.
(9)The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income.
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 Three Months Ended |
| December 31, 2020 vs. December 31, 2019 | | December 31, 2020 vs. September 30, 2020 |
| Increase (Decrease) Due to | | Increase (Decrease) Due to |
| Volume | | Rate | | Total | | Volume | | Rate | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
Loans receivable | $ | (3,016) | | | $ | (6,204) | | | $ | (9,220) | | | $ | (2,162) | | | $ | (1,459) | | | $ | (3,621) | |
MBS | 1,977 | | | (2,369) | | | (392) | | | 1,297 | | | (1,012) | | | 285 | |
Investment securities | 546 | | | (1,370) | | | (824) | | | 238 | | | (286) | | | (48) | |
FHLB stock | (221) | | | (536) | | | (757) | | | (185) | | | 174 | | | (11) | |
Cash and cash equivalents | 134 | | | (770) | | | (636) | | | (4) | | | — | | | (4) | |
Total interest-earning assets | (580) | | | (11,249) | | | (11,829) | | | (816) | | | (2,583) | | | (3,399) | |
| | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | 45 | | | 9 | | | 54 | | | 11 | | | — | | | 11 | |
Savings | 16 | | | (27) | | | (11) | | | 3 | | | (5) | | | (2) | |
Money market | 437 | | | (1,317) | | | (880) | | | 98 | | | (166) | | | (68) | |
Certificates of deposit | 211 | | | (3,269) | | | (3,058) | | | (141) | | | (1,032) | | | (1,173) | |
Borrowings | (2,032) | | | (1,018) | | | (3,050) | | | (179) | | | (118) | | | (297) | |
| | | | | | | | | | | |
Total interest-bearing liabilities | (1,323) | | | (5,622) | | | (6,945) | | | (208) | | | (1,321) | | | (1,529) | |
| | | | | | | | | | | |
Net change in net interest income | $ | 743 | | | $ | (5,627) | | | $ | (4,884) | | | $ | (608) | | | $ | (1,262) | | | $ | (1,870) | |
|
| | | | | | | | | | | |
| For the Six Months Ended |
| March 31, 2020 vs. March 31, 2019 |
| Increase (Decrease) Due to |
| Volume | | Rate | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | |
Loans receivable | $ | (722 | ) | | $ | (2,180 | ) | | $ | (2,902 | ) |
MBS | (738 | ) | | (118 | ) | | (856 | ) |
Investment securities | 58 |
| | (115 | ) | | (57 | ) |
FHLB stock | (164 | ) | | (98 | ) | | (262 | ) |
Cash and cash equivalents | (771 | ) | | (619 | ) | | (1,390 | ) |
Total interest-earning assets | (2,337 | ) | | (3,130 | ) | | (5,467 | ) |
| | | | | |
Interest-bearing liabilities: | | | | | |
Checking | 10 |
| | 47 |
| | 57 |
|
Savings | 1 |
| | 39 |
| | 40 |
|
Money market | (228 | ) | | (168 | ) | | (396 | ) |
Certificates of deposit | 838 |
| | 3,406 |
| | 4,244 |
|
Borrowings | (2,654 | ) | | 775 |
| | (1,879 | ) |
Total interest-bearing liabilities | (2,033 | ) | | 4,099 |
| | 2,066 |
|
| | | | | |
Net change in net interest income | $ | (304 | ) | | $ | (7,229 | ) | | $ | (7,533 | ) |
Comparison of Operating Results for the Three Months Ended MarchDecember 31, 2020 and 2019
For the quarter ended March 31, 2020, theThe Company recognized net income of $4.3$18.9 million, or $0.03 per share, compared to net income of $24.6 million, or $0.18$0.14 per share, for the quarter ended MarchDecember 31, 2020 compared to net income of $22.5 million, or $0.16 per share, for the quarter ended December 31, 2019. The decrease in net income was due primarily to $22.1 million ofa decrease in net interest income compared to the prior year quarter, partially offset by recording a negative provision for credit losses duringin the current quarter. Net interest income decreased $4.9 million, or 10.0%, from the prior year quarter to $43.8 million for the current quarter. The net interest margin decreased 1426 basis points, from 2.33%2.18% for the prior year quarter to 2.19%1.92% for the current quarter. The decrease in the net interest margin was due mainly to a decrease in asset yields, along with a change in asset mix as cash flows from the loan portfolio yield and an increasehave been used to purchase lower yielding securities, partially offset by a decrease in the cost of deposits.deposits and borrowings.
Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased nine60 basis points, from 3.64%3.58% for the prior year quarter to 3.55%2.98% for the current quarter, andwhile the average balance of interest-earning assets decreased $133.7increased $202.2 million. The decrease in the weighted average yield between periods was due primarily to a decrease in the loan portfolio yield, along with a change in asset mix as cash flows from the loan portfolio have been used to purchase lower yielding securities. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | |
Loans receivable | $ | 60,694 | | | $ | 69,914 | | | $ | (9,220) | | | (13.2) | % |
MBS | 5,710 | | | 6,102 | | | (392) | | | (6.4) | |
FHLB stock | 1,069 | | | 1,826 | | | (757) | | | (41.5) | |
Investment securities | 683 | | | 1,507 | | | (824) | | | (54.7) | |
Cash and cash equivalents | 51 | | | 687 | | | (636) | | | (92.6) | |
Total interest and dividend income | $ | 68,207 | | | $ | 80,036 | | | $ | (11,829) | | | (14.8) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 69,613 |
| | $ | 71,657 |
| | $ | (2,044 | ) | | (2.9 | )% |
MBS | 5,866 |
| | 6,301 |
| | (435 | ) | | (6.9 | ) |
FHLB stock | 1,714 |
| | 1,831 |
| | (117 | ) | | (6.4 | ) |
Investment securities | 1,382 |
| | 1,505 |
| | (123 | ) | | (8.2 | ) |
Cash and cash equivalents | 380 |
| | 743 |
| | (363 | ) | | (48.9 | ) |
Total interest and dividend income | $ | 78,955 |
| | $ | 82,037 |
| | $ | (3,082 | ) | | (3.8 | ) |
The decrease in interest income on loans receivable was due mainly to a 34 basis point decrease in yield resulting from an increase in the amortization of premiums related to correspondent loan payoff and endorsement activity. The weighted average yield on the loans receivable portfolio, decreased seven basis points, from 3.79%3.75% for the prior year quarter to 3.72%3.41% for the current quarter, primarily on correspondent loans related to higher premium amortization resulting from increases in payoff and endorsement activity, as well as adjustable-rate loans repricing to lower market rates, endorsements and refinances of one- to four-family originated loans to lower market rates, and the origination of new loans at lower market rates. Additionally, the average balance of the portfolio decreased $339.4 million compared to the prior year quarter. The majority of the decrease in the average balance of the loan portfolio between periods was due to a reduction in the correspondent one-to four-family loan portfolio as we suspended accepting new applications for these loans in mid-March 2020 to mid-June 2020. This was done to manage the influx of refinance requests from current customers in our local market areas during that time period while also managing changing Bank operations due to the COVID-19 pandemic.
The decrease in interest income on the MBS portfolio was due primarily to a $39.5 million, or 4.1%, decrease in the average balance of the portfolio, along with an eight86 basis point decrease in the weighted average yield on the portfolio, from 2.63% for the prior year quarter to 2.55% for1.75% in the current quarter. quarter as a result of new purchases at lower market yields and the repricing of existing adjustable-rate MBS to lower market yields, partially offset by a $368.6 million increase in the average balance of the portfolio.
The decrease in dividend income on FHLB stock was due mainly to a decrease in the dividend rate paid by FHLB, along with a decrease in the average balance of FHLB stock. The average balance decreased as the Bank did not replace certain maturing FHLB advances between periods, which reduced the amount of FHLB stock owned by the Bank per FHLB requirements.
The decrease in interest income on investment securities was due to a 149 basis point decrease in the weighted average yield was due primarily to 0.63% for the purchasecurrent quarter as a result of MBSnew purchases at lower market rates lower thanyields, partially offset by a $146.9 million increase in the existingaverage balance of the portfolio.
The decrease in interest income on cash and cash equivalents was due mainly to a decrease in the yield earned on cash held at the FRB of Kansas City, as well aspartially offset by a decrease$39.3 million increase in the average balance of operating cash.balance.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities increased fourdecreased 39 basis points, from 1.51%1.59% for the prior year quarter to 1.55%1.20% for the current quarter, while the average balance of interest-bearing liabilities decreased $67.2increased $244.0 million. The increase in the average balance was primarily in checking, savings and money market accounts, partially offset by a decrease in borrowings. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | |
Deposits | $ | 14,067 | | | $ | 17,962 | | | $ | (3,895) | | | (21.7) | % |
Borrowings | 10,327 | | | 13,377 | | | (3,050) | | | (22.8) | |
Total interest expense | $ | 24,394 | | | $ | 31,339 | | | $ | (6,945) | | | (22.2) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | $ | 17,804 |
| | $ | 16,096 |
| | $ | 1,708 |
| | 10.6 | % |
Borrowings | 12,483 |
| | 13,344 |
| | (861 | ) | | (6.5 | ) |
Total interest expense | $ | 30,287 |
| | $ | 29,440 |
| | $ | 847 |
| | 2.9 |
|
The increasedecrease in interest expense on deposits was due primarilymainly to an increasea decrease in the cost of the retail/business certificate of deposit portfolio. The weighted average rate of thepaid on retail/business certificate of deposit portfolio increased 24 basis points, to 2.11% for the current quarter, and the average balance increased $199.2 million, or approximately 8%. Late in the third quarter of fiscal year 2019, the Bank increased offered rates on short-term and certain intermediate-term certificates of deposit, in an effort to encourage customers to move funds to those termsmoney market accounts, and during the fourth quarter of fiscal year 2019, the Bank held the unTraditional campaign, resulting in growth in the short-term and certain intermediate-termwholesale certificates of deposit.deposit, which decreased by 33 basis points, 38 basis points, and 155 basis points, respectively. Since the onset of the COVID-19 pandemic, certificates of deposit have been gradually repricing down as they renew or are replaced at lower offered rates and rates on money market accounts have been lowered.
The decrease in interest expense on borrowings was due primarily to a $457.9 million decrease in the average balance, ofas certain maturing FHLB advances asand repurchase agreements were not all ofreplaced and the advances maturing between periods were renewed, as well as a decrease in the average rateBank paid on thedown its FHLB line of credit.
credit with funds generated from the deposit portfolio.
Provision for Credit Losses
TheFor the quarter ended December 31, 2020, the Bank recorded a negative provision for credit losses during the current quarter of $22.1$1.5 million, compared to noa $225 thousand provision for credit losses during the prior year quarter. The $22.1 millionnegative provision for credit losses in the current quarter was in recognitioncomposed of the deterioration of economic conditions as a result of the COVID-19 pandemic. See additional ACL discussion$177 thousand decrease in the ACL for loans and a $1.4 million decrease in the reserve for off-balance sheet credit exposures. The $177 thousand decrease in the ACL for loans was due primarily to a reduction in the correspondent one- to four-family loan portfolio, partially offset by a slight increase in the ACL for commercial loans due to an increase in the balance of special mention loans during the current quarter. The $1.4 million reduction in the reserve for off-balance sheet credit exposures was due primarily to an improved economic forecast during the current quarter with consideration given to the current economic climate in which these loans are being underwritten. See "Financial Condition - Asset Quality - AllowanceQuality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit losses and Provision for credit losses" section above.exposures at December 31, 2020.
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: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 2,947 | | | $ | 3,062 | | | $ | (115) | | | (3.8) | % |
Insurance commissions | 638 | | | 691 | | | (53) | | | (7.7) | |
| | | | | | | |
| | | | | | | |
Other non-interest income | 1,485 | | | 1,751 | | | (266) | | | (15.2) | |
Total non-interest income | $ | 5,070 | | | $ | 5,504 | | | $ | (434) | | | (7.9) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 2,783 |
| | $ | 3,091 |
| | $ | (308 | ) | | (10.0 | )% |
Insurance commissions | 400 |
| | 541 |
| | (141 | ) | | (26.1 | ) |
Other non-interest income | 1,488 |
| | 1,369 |
| | 119 |
| | 8.7 |
|
Total non-interest income | $ | 4,671 |
| | $ | 5,001 |
| | $ | (330 | ) | | (6.6 | ) |
The decrease in deposit service feesother non-interest income was due mainly the result of a decrease in income from BOLI compared to the discontinuation of point-of-sale service charges, whichprior year quarter due to a reduction in the yield and lower death benefit receipts between the two periods.
Subsequent to December 31, 2020, the Bank ceased charging in April 2019. The decrease in insurance commissions was due primarilysold its Class B VISA shares and expects to recognize a gain of approximately $7 million during the receipt of annual contingent insurance commissions and adjustments to the related accruals.March 31, 2021 quarter.
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: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 14,138 | | | $ | 13,471 | | | $ | 667 | | | 5.0 | % |
Information technology and related expense | 4,233 | | | 4,141 | | | 92 | | | 2.2 | |
Occupancy, net | 3,379 | | | 3,207 | | | 172 | | | 5.4 | |
Regulatory and outside services | 1,585 | | | 1,343 | | | 242 | | | 18.0 | |
Advertising and promotional | 838 | | | 1,410 | | | (572) | | | (40.6) | |
Deposit and loan transaction costs | 766 | | | 711 | | | 55 | | | 7.7 | |
Federal insurance premium | 621 | | | — | | | 621 | | | N/A |
Office supplies and related expense | 424 | | | 519 | | | (95) | | | (18.3) | |
| | | | | | | |
Other non-interest expense | 1,083 | | | 1,698 | | | (615) | | | (36.2) | |
Total non-interest expense | $ | 27,067 | | | $ | 26,500 | | | $ | 567 | | | 2.1 | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 13,235 |
| | $ | 12,789 |
| | $ | 446 |
| | 3.5 | % |
Information technology and related expense | 4,268 |
| | 4,284 |
| | (16 | ) | | (0.4 | ) |
Occupancy, net | 3,449 |
| | 3,292 |
| | 157 |
| | 4.8 |
|
Advertising and promotional | 1,359 |
| | 1,390 |
| | (31 | ) | | (2.2 | ) |
Regulatory and outside services | 1,297 |
| | 1,056 |
| | 241 |
| | 22.8 |
|
Deposit and loan transaction costs | 678 |
| | 465 |
| | 213 |
| | 45.8 |
|
Office supplies and related expense | 592 |
| | 736 |
| | (144 | ) | | (19.6 | ) |
Federal insurance premium | — |
| | 659 |
| | (659 | ) | | (100.0 | ) |
Other non-interest expense | 1,286 |
| | 1,470 |
| | (184 | ) | | (12.5 | ) |
Total non-interest expense | $ | 26,164 |
| | $ | 26,141 |
| | $ | 23 |
| | 0.1 |
|
The increase in salaries and employee benefits expense was due mainlyprimarily to an increase in loan commissions, an increase in full-time equivalent employees, and merit increases between periods.higher non-officer related bonuses paid in the current quarter. The increase in regulatory and outside services was due primarilymainly to cash delivery services relatedhigher progress billings from our external auditors and other professional service fees. The decrease in advertising and promotional expenses was due mainly to increasing the amounttiming of cash on hand in anticipation of customer cash needs during the COVID-19 pandemic, as well as an increase in consulting expenses.campaigns. The increase in deposit and loan transaction costs was due primarily to an increase in loan activities in the current quarter as compared to the prior year quarter. The decrease in federal insurance premium was due mainly to the Bank receivingutilizing an assessment credit from the FDIC as discussed above.Federal Deposit Insurance Corporation ("FDIC") during the prior year quarter. The decrease in other non-interest expense was due primarily to a decrease in write-downs of OREO properties in the current quarter compared to the prior year quarter.
The Company's efficiency ratio was 49.05%55.37% for the current quarter compared to 45.38%48.89% for the prior year quarter. The change in the efficiency ratio was due mainly to a decrease inlower net interest income.
Income Tax Expense
Income tax expense was $824 thousand forincome in the current quarter compared to $6.9 million for the prior year quarter. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A higher value indicates that the financial institution is generating revenue with a proportionally higher level of expense, relative to the net interest margin.
Income Tax Expense
The following table presents pretax income, income tax expense, and net income for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
Income before income tax expense | $ | 23,348 | | | $ | 27,476 | | | $ | (4,128) | | | (15.0) | % |
Income tax expense | 4,450 | | | 4,965 | | | (515) | | | (10.4) | |
Net income | $ | 18,898 | | | $ | 22,511 | | | $ | (3,613) | | | (16.0) | |
| | | | | | | |
Effective Tax Rate | 19.1 | % | | 18.1 | % | | | | |
The decrease in income tax expense was due primarily to lower pretax income in the current quarter, as well as a lowerpartially offset by an increase in the effective tax rate. The effective tax rate for the current quarter was 16.2% compared to 21.9% forlower in the prior year quarter. The lower effective tax ratedue primarily to a discrete benefit recognized in the current quarter compared to the prior year quarter was due mainlyrelated to certain BOLI policies that were acquired in fiscal year 2018. Management anticipates the Company's permanent differences having a proportionately larger impact given the lower pretaxeffective income in the current quarter.tax rate for fiscal year 2021 will be approximately 21% to 22%.
Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balance of the related assets, and weighted average rates are derived by dividing annualized expense by the average balance of the related liabilities, for the periods shown. Average outstanding balances are derived from average daily balances. The weighted average yields and rates include amortization of fees, costs, premiums and discounts, which are considered adjustments to yields/rates. Weighted average yields on tax-exempt securities are not calculated on a fully taxable equivalent basis.
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | March 31, 2019 |
| Average | | Interest | | | | Average | | Interest | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate |
Assets: | (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
One- to four-family loans | $ | 6,594,029 |
| | $ | 58,838 |
| | 3.57 | % | | $ | 6,746,611 |
| | $ | 61,325 |
| | 3.64 | % |
Commercial loans | 759,328 |
| | 8,994 |
| | 4.69 |
| | 680,110 |
| | 8,186 |
| | 4.80 |
|
Consumer loans | 126,710 |
| | 1,781 |
| | 5.65 |
| | 137,342 |
| | 2,146 |
| | 6.33 |
|
Total loans receivable(1) | 7,480,067 |
| | 69,613 |
| | 3.72 |
| | 7,564,063 |
| | 71,657 |
| | 3.79 |
|
MBS(2) | 920,419 |
| | 5,866 |
| | 2.55 |
| | 959,897 |
| | 6,301 |
| | 2.63 |
|
Investment securities(2)(3) | 280,911 |
| | 1,382 |
| | 1.97 |
| | 272,218 |
| | 1,505 |
| | 2.21 |
|
FHLB stock | 99,879 |
| | 1,714 |
| | 6.90 |
| | 99,725 |
| | 1,831 |
| | 7.45 |
|
Cash and cash equivalents(4) | 105,381 |
| | 380 |
| | 1.43 |
| | 124,444 |
| | 743 |
| | 2.39 |
|
Total interest-earning assets(1)(2) | 8,886,657 |
| | 78,955 |
| | 3.55 |
| | 9,020,347 |
| | 82,037 |
| | 3.64 |
|
Other non-interest-earning assets | 454,687 |
| | | | | | 370,396 |
| | | | |
Total assets | $ | 9,341,344 |
| | | | | | $ | 9,390,743 |
| | | | |
| | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | $ | 1,107,232 |
| | 181 |
| | 0.07 |
| | $ | 1,076,504 |
| | 149 |
| | 0.06 |
|
Savings | 365,554 |
| | 74 |
| | 0.08 |
| | 358,733 |
| | 56 |
| | 0.06 |
|
Money market | 1,208,521 |
| | 1,981 |
| | 0.66 |
| | 1,275,504 |
| | 2,269 |
| | 0.72 |
|
Retail/business certificates | 2,691,029 |
| | 14,103 |
| | 2.11 |
| | 2,491,814 |
| | 11,492 |
| | 1.87 |
|
Wholesale certificates | 296,828 |
| | 1,465 |
| | 1.98 |
| | 401,722 |
| | 2,130 |
| | 2.15 |
|
Total deposits | 5,669,164 |
| | 17,804 |
| | 1.26 |
| | 5,604,277 |
| | 16,096 |
| | 1.16 |
|
Borrowings(5) | 2,176,166 |
| | 12,483 |
| | 2.29 |
| | 2,308,271 |
| | 13,344 |
| | 2.33 |
|
Total interest-bearing liabilities | 7,845,330 |
| | 30,287 |
| | 1.55 |
| | 7,912,548 |
| | 29,440 |
| | 1.51 |
|
Other non-interest-bearing liabilities | 183,018 |
| | | | | | 123,280 |
| | | | |
Stockholders' equity | 1,312,996 |
| | | | | | 1,354,915 |
| | | | |
Total liabilities and stockholders' equity | $ | 9,341,344 |
| | | | | | $ | 9,390,743 |
| | | | |
| | | | | | | | | | | |
Net interest income(6) | | | $ | 48,668 |
| | | | | | $ | 52,597 |
| | |
Net interest rate spread(7)(8) | | | | | 2.00 |
| | | | | | 2.13 |
|
Net interest-earning assets | $ | 1,041,327 |
| | | | | | $ | 1,107,799 |
| | | | |
Net interest margin(8)(9) | | | | | 2.19 |
| | | | | | 2.33 |
|
Ratio of interest-earning assets to interest-bearing liabilities | | 1.13x |
| | | | | | 1.14x |
|
| | | | | | | | | | | |
Selected performance ratios: | | | | | | | | | | | |
Return on average assets (annualized)(8) | | | | | 0.18 | % | | | | | | 1.05 | % |
Return on average equity (annualized)(8) | | | | | 1.30 |
| | | | | | 7.25 |
|
Average equity to average assets | | | | | 14.06 |
| | | | | | 14.43 |
|
Operating expense ratio(10) | | | | | 1.12 |
| | | | | | 1.11 |
|
Efficiency ratio(8)(11) | | | | | 49.05 |
| | | | | | 45.38 |
|
| |
(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 $15.0 million and $22.0 million for the three months ended March 31, 2020 and March 31, 2019, respectively. |
| |
(4) | There were no cash and cash equivalents related to the leverage strategy during the quarters ended March 31, 2020 and March 31, 2019. |
| |
(5) | There were no borrowings related to the leverage strategy during the quarters ended March 31, 2020 and March 31, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties. |
| |
(6) | 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. |
| |
(7) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| |
(8) | The leverage strategy was not in place during the quarters ended March 31, 2020 and March 31, 2019. |
| |
(9) | Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. |
| |
(10) | The operating expense ratio represents annualized non-interest expense as a percentage of average assets. |
| |
(11) | The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. |
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 three months ended March 31, 2020 to the three months ended March 31, 2019. 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 year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year 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 Three Months Ended March 31, |
| 2020 vs. 2019 |
| Increase (Decrease) Due to |
| Volume | | Rate | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | |
Loans receivable | $ | (564 | ) | | $ | (1,480 | ) | | $ | (2,044 | ) |
MBS | (255 | ) | | (180 | ) | | (435 | ) |
Investment securities | 47 |
| | (170 | ) | | (123 | ) |
FHLB stock | 3 |
| | (120 | ) | | (117 | ) |
Cash and cash equivalents | (100 | ) | | (263 | ) | | (363 | ) |
Total interest-earning assets | (869 | ) | | (2,213 | ) | | (3,082 | ) |
| | | | | |
Interest-bearing liabilities: | | | | | |
Checking | 5 |
| | 27 |
| | 32 |
|
Savings | 1 |
| | 17 |
| | 18 |
|
Money market | (107 | ) | | (181 | ) | | (288 | ) |
Certificates of deposit | 498 |
| | 1,448 |
| | 1,946 |
|
Borrowings | (775 | ) | | (86 | ) | | (861 | ) |
Total interest-bearing liabilities | (378 | ) | | 1,225 |
| | 847 |
|
| | | | | |
Net change in net interest income | $ | (491 | ) | | $ | (3,438 | ) | | $ | (3,929 | ) |
Comparison of Operating Results for the Three Months Ended MarchDecember 31, 2020 and December 31, 2019September 30, 2020
For the quarter ended MarchDecember 31, 2020, the Company recognized net income of $4.3$18.9 million, or $0.03$0.14 per share, compared to net income of $22.5$18.3 million, or $0.16$0.13 per share, for the quarter ended December 31, 2019.September 30, 2020. The decreaseincrease was due primarily to recording a $22.1 million provision for credit losses duringlower effective tax rate compared to the currentprior quarter. The net interest margin increased onedecreased 11 basis point,points, from 2.18%2.03% for the prior quarter to 2.19%1.92% for the current quarter. The increasedecrease in the net interest margin was due mainly to a decrease in the loan portfolio and securities portfolio yields, along with a decrease in the average balance of the loan portfolio, partially offset by a decrease in the cost of borrowings compared to the prior quarter.deposits.
Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased three19 basis points, from 3.58%3.17% for the prior quarter to 3.55%2.98% for the current quarter, andwhile the average balance of interest-earning assets decreased $31.7increased $122.5 million between the two periods. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | September 30, | | Change Expressed in: |
| 2020 | | 2020 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | |
Loans receivable | $ | 60,694 | | | $ | 64,315 | | | $ | (3,621) | | | (5.6) | % |
MBS | 5,710 | | | 5,425 | | | 285 | | | 5.3 | |
FHLB stock | 1,069 | | | 1,080 | | | (11) | | | (1.0) | |
Investment securities | 683 | | | 731 | | | (48) | | | (6.6) | |
Cash and cash equivalents | 51 | | | 55 | | | (4) | | | (7.3) | |
Total interest and dividend income | $ | 68,207 | | | $ | 71,606 | | | $ | (3,399) | | | (4.7) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST AND DIVIDEND INCOME: | | | | | | | |
Loans receivable | $ | 69,613 |
| | $ | 69,914 |
| | $ | (301 | ) | | (0.4 | )% |
MBS | 5,866 |
| | 6,102 |
| | (236 | ) | | (3.9 | ) |
FHLB stock | 1,714 |
| | 1,826 |
| | (112 | ) | | (6.1 | ) |
Investment securities | 1,382 |
| | 1,507 |
| | (125 | ) | | (8.3 | ) |
Cash and cash equivalents | 380 |
| | 687 |
| | (307 | ) | | (44.7 | ) |
Total interest and dividend income | $ | 78,955 |
| | $ | 80,036 |
| | $ | (1,081 | ) | | (1.4 | ) |
The decrease in interest income on loans receivable was due to a $242.0 million decrease in the average balance and eight basis point decrease in the weighted average portfolio yield. The decrease in the average balance was primarily in the correspondent loan portfolio, as payoff activity outpaced purchases during the current quarter, along with a decrease in the commercial loan portfolio due primarily to the payoff of two large loans at the beginning of the current quarter. The weighted average yield on the loans receivable portfolio decreased three basis points, from 3.75%3.49% for the prior quarter to 3.72%3.41% for the current quarter, due mainly to a reductionendorsements and refinances of one- to four-family loans to lower current market rates, along with an increase in deferred fee recognitionpremium amortization related to commercialcorrespondent loan payoff activity, as well as the origination and purchase of new loans at market rates lower than the existing portfolio. activity.
The decreaseincrease in interest income on the MBS portfolio was due primarily to a six$274.2 million increase in the average balance as a result of purchases, primarily utilizing funds received from loan repayments. This was partially offset by a 36 basis point decrease in the weighted average yield, on the portfolio to 2.55%1.75% for the current quarter. The decrease in the weighted average yield wasquarter, due primarily to the purchase of MBSpurchases at lower market rates lower than the existing portfolio. The decrease in interest income on cash and cash equivalents was due mainly to a decreaseyields, along with an increase in the average balanceimpact of operating cash.net premium amortization.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased four10 basis points, from 1.59%1.30% for the prior quarter to 1.55%1.20% for the current quarter, while the average balance of interest-bearing liabilities increased $37.9$119.7 million between the two periods. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | September 30, | | Change Expressed in: |
| 2020 | | 2020 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | $ | 14,067 | | | $ | 15,299 | | | $ | (1,232) | | | (8.1) | % |
Borrowings | 10,327 | | | 10,624 | | | (297) | | | (2.8) | |
Total interest expense | $ | 24,394 | | | $ | 25,923 | | | $ | (1,529) | | | (5.9) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
INTEREST EXPENSE: | | | | | | | |
Deposits | $ | 17,804 |
| | $ | 17,962 |
| | $ | (158 | ) | | (0.9 | )% |
Borrowings | 12,483 |
| | 13,377 |
| | (894 | ) | | (6.7 | ) |
Total interest expense | $ | 30,287 |
| | $ | 31,339 |
| | $ | (1,052 | ) | | (3.4 | ) |
The decrease in interest expense on deposits was due primarily to a decrease in the weighted average rate paid on the certificate of deposit portfolio. Management has generally reduced deposit offer rates as discussed above. See "Financial Condition - Liabilities" above for additional information on deposits.
The decrease in interest expense on borrowings was due primarily to the replacement of certain FHLB advances to take advantage of lower market rates late in the December 31, 2019 quarter andnot replacing term borrowings that matured during the current quarter and prior quarter. DuringCash flows from the deposit portfolio were generally utilized to repay maturing term borrowings during the current quarter,and prior quarters. The average balance of borrowings decreased $44.2 million compared to the Bank prepaid fixed-rate FHLB advances scheduled to mature in the next year totaling $350.0 million with a weighted average rate of 2.42%, and replaced these advances with $350.0 million of fixed-rate FHLB advances with a weighted average term of 4.7 years and a weighted average effective rate of 1.70%, which includes the impact of deferred prepayment penalties being recognized over the life of the new advances.prior quarter.
Provision for Credit Losses
The Bank recorded a negative provision for credit losses during the current quarter of $22.1$1.5 million, compared to ano provision for credit losses duringfor the prior quarter ended September 30, 2020. See the Comparison of $225 thousand. The $22.1 millionOperating Results for the Three Months Ended December 31, 2020 and 2019 above for discussion regarding the negative provision for credit losses in the current quarter was in recognition of the deterioration of economic conditions as a result of the COVID-19 pandemic.quarter. See additional ACL discussion in the "Financial Condition - Asset Quality - AllowanceQuality" above for additional discussion regarding management's evaluation of the adequacy of the Bank's ACL and reserve for off-balance sheet credit losses and Provision for credit losses" section above.exposures at December 31, 2020.
Non-Interest Income
The following table presents the components of non-interest income for the time periods presented, along with the change measured in dollars and percent.
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 2,783 |
| | $ | 3,062 |
| | $ | (279 | ) | | (9.1 | )% |
Insurance commissions | 400 |
| | 691 |
| | (291 | ) | | (42.1 | ) |
Other non-interest income | 1,488 |
| | 1,751 |
| | (263 | ) | | (15.0 | ) |
Total non-interest income | $ | 4,671 |
| | $ | 5,504 |
| | $ | (833 | ) | | (15.1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| December 31, | | September 30, | | Change Expressed in: |
| 2020 | | 2020 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST INCOME: | | | | | | | |
Deposit service fees | $ | 2,947 | | | $ | 2,901 | | | $ | 46 | | | 1.6 | % |
Insurance commissions | 638 | | | 725 | | | (87) | | | (12.0) | |
| | | | | | | |
| | | | | | | |
Other non-interest income | 1,485 | | | 1,359 | | | 126 | | | 9.3 | |
Total non-interest income | $ | 5,070 | | | $ | 4,985 | | | $ | 85 | | | 1.7 | |
The decrease in deposit service fees was due mainly to a decrease in debit card income resulting from a reduction in transaction volume related to the seasonality of such activity, as well as a decrease in service charge income. The decrease in insurance commissions was due primarily to the receipt of annual contingent insurance commissions and adjustments to the related accruals. Contingent insurance commissions are performance-based incentives based on certain criteria established by the insurance carriers. Contingent insurance commissions are accrued based on management's expectations and are adjusted when the funds are received. The decrease in other non-interest income was due mainly to the receipt of a BOLI death benefit during the prior quarter, and no such benefit during the current quarter.
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: |
| 2020 | | 2020 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 14,138 | | | $ | 13,231 | | | $ | 907 | | | 6.9 | % |
Information technology and related expense | 4,233 | | | 4,280 | | | (47) | | | (1.1) | |
Occupancy, net | 3,379 | | | 3,658 | | | (279) | | | (7.6) | |
Regulatory and outside services | 1,585 | | | 1,574 | | | 11 | | | 0.7 | |
Advertising and promotional | 838 | | | 1,116 | | | (278) | | | (24.9) | |
Deposit and loan transaction costs | 766 | | | 804 | | | (38) | | | (4.7) | |
Federal insurance premium | 621 | | | 627 | | | (6) | | | (1.0) | |
Office supplies and related expense | 424 | | | 609 | | | (185) | | | (30.4) |
Other non-interest expense | 1,083 | | | 1,277 | | | (194) | | | (15.2) | |
Total non-interest expense | $ | 27,067 | | | $ | 27,176 | | | $ | (109) | | | (0.4) | |
|
| | | | | | | | | | | | | | |
| For the Three Months Ended | | | | |
| March 31, | | December 31, | | Change Expressed in: |
| 2020 | | 2019 | | Dollars | | Percent |
| (Dollars in thousands) | | |
NON-INTEREST EXPENSE: | | | | | | | |
Salaries and employee benefits | $ | 13,235 |
| | $ | 13,471 |
| | $ | (236 | ) | | (1.8 | )% |
Information technology and related expense | 4,268 |
| | 4,141 |
| | 127 |
| | 3.1 |
|
Occupancy, net | 3,449 |
| | 3,207 |
| | 242 |
| | 7.5 |
|
Advertising and promotional | 1,359 |
| | 1,410 |
| | (51 | ) | | (3.6 | ) |
Regulatory and outside services | 1,297 |
| | 1,343 |
| | (46 | ) | | (3.4 | ) |
Deposit and loan transaction costs | 678 |
| | 711 |
| | (33 | ) | | (4.6 | ) |
Office supplies and related expense | 592 |
| | 519 |
| | 73 |
| | 14.1 |
|
Other non-interest expense | 1,286 |
| | 1,698 |
| | (412 | ) | | (24.3 | ) |
Total non-interest expense | $ | 26,164 |
| | $ | 26,500 |
| | $ | (336 | ) | | (1.3 | ) |
The decreaseincrease in salaries and employee benefits expensewas due primarily to non-officer employee bonuses of $313 thousand paid during the current quarter in appreciation of all the hard work and dedication by our non-officer employees during these challenging times, along with an increase in loan commissions. The decrease in occupancy, net was due mainly to a decrease in loan commissions.utilities and maintenance
during the current quarter. The decrease in advertising and promotional expenses was due to the timing of campaigns. The decrease in office supplies and related expenses was due to the timing of supply purchases. The decrease in other non-interest expense was due primarily to the prior quarter including a write-downreduction in customer debit card fraud losses, a decrease in mortgage servicing asset valuation charges related to changes in prepayment speeds, and a decrease in amortization of an OREO property. This property was sold during the prior quarter.deposit intangibles.
The Company's efficiency ratio was 49.05%55.37% for the current quarter compared to 48.89%53.64% for the prior quarter. The change in the efficiency ratio was due primarily to lower non-interestnet interest income in the current quarter compared to the prior quarter.
Income Tax Expense
IncomeThe 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: |
| 2020 | | 2020 | | Dollars | | Percent |
| (Dollars in thousands) | | |
Income before income tax expense | $ | 23,348 | | | $ | 23,492 | | | $ | (144) | | | (0.6) | % |
Income tax expense | 4,450 | | | 5,213 | | | (763) | | | (14.6) | |
Net income | $ | 18,898 | | | $ | 18,279 | | | $ | 619 | | | 3.4 | |
| | | | | | | |
Effective Tax Rate | 19.1 | % | | 22.2 | % | | | | |
The decrease in income tax expense was $824 thousand for the current quarter,due mainly to a lower effective tax rate compared to $5.0 million for the prior quarter. The lower effective tax rate was 16.2% for the current quarter compared to 18.1% for the prior quarter. The effective tax rate was lower in the current quarter due primarily to lower pretax income due mainlytrue-ups related to the provision for credit losses in the current quarter. The decrease in pretax income resulted in the Company's permanent differences having a proportionately larger impact on the effective tax rate. Management anticipates the effective income tax rate for the remainder of fiscal year 2020 will be approximately 21% each quarter, resulting in an effective tax rate of approximately 20% for fiscal year 2020.
Average Balance Sheet
Weighted average yields are derived by dividing annualized income by the average balancepreparation of the related assets,September 30, 2020 federal 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.state tax returns.
|
| | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended |
| March 31, 2020 | | December 31, 2019 |
| Average | | Interest | | | | Average | | Interest | | |
| Outstanding | | Earned/ | | Yield/ | | Outstanding | | Earned/ | | Yield/ |
| Amount | | Paid | | Rate | | Amount | | Paid | | Rate |
Assets: | (Dollars in thousands) |
Interest-earning assets: | | | | | | | | | | | |
One- to four-family loans | $ | 6,594,029 |
| | $ | 58,838 |
| | 3.57 | % | | $ | 6,543,298 |
| | $ | 58,361 |
| | 3.57 | % |
Commercial loans | 759,328 |
| | 8,994 |
| | 4.69 |
| | 766,232 |
| | 9,657 |
| | 4.94 |
|
Consumer loans | 126,710 |
| | 1,781 |
| | 5.65 |
| | 130,253 |
| | 1,896 |
| | 5.77 |
|
Total loans receivable(1) | 7,480,067 |
| | 69,613 |
| | 3.72 |
| | 7,439,783 |
| | 69,914 |
| | 3.75 |
|
MBS(2) | 920,419 |
| | 5,866 |
| | 2.55 |
| | 933,448 |
| | 6,102 |
| | 2.61 |
|
Investment securities(2)(3) | 280,911 |
| | 1,382 |
| | 1.97 |
| | 284,587 |
| | 1,507 |
| | 2.12 |
|
FHLB stock | 99,879 |
| | 1,714 |
| | 6.90 |
| | 98,384 |
| | 1,826 |
| | 7.36 |
|
Cash and cash equivalents(4) | 105,381 |
| | 380 |
| | 1.43 |
| | 162,126 |
| | 687 |
| | 1.66 |
|
Total interest-earning assets(1)(2) | 8,886,657 |
| | 78,955 |
| | 3.55 |
| | 8,918,328 |
| | 80,036 |
| | 3.58 |
|
Other non-interest-earning assets | 454,687 |
| | | | | | 427,858 |
| | | | |
Total assets | $ | 9,341,344 |
| | | | | | $ | 9,346,186 |
| | | | |
| | | | | | | | | | | |
Liabilities and stockholders' equity: | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | | |
Checking | $ | 1,107,232 |
| | 181 |
| | 0.07 |
| | $ | 1,085,818 |
| | 170 |
| | 0.06 |
|
Savings | 365,554 |
| | 74 |
| | 0.08 |
| | 357,674 |
| | 79 |
| | 0.09 |
|
Money market | 1,208,521 |
| | 1,981 |
| | 0.66 |
| | 1,173,545 |
| | 2,063 |
| | 0.70 |
|
Retail/business certificates | 2,691,029 |
| | 14,103 |
| | 2.11 |
| | 2,681,081 |
| | 14,111 |
| | 2.09 |
|
Wholesale certificates | 296,828 |
| | 1,465 |
| | 1.98 |
| | 275,941 |
| | 1,539 |
| | 2.21 |
|
Total deposits | 5,669,164 |
| | 17,804 |
| | 1.26 |
| | 5,574,059 |
| | 17,962 |
| | 1.28 |
|
Borrowings(5) | 2,176,166 |
| | 12,483 |
| | 2.29 |
| | 2,233,327 |
| | 13,377 |
| | 2.36 |
|
Total interest-bearing liabilities | 7,845,330 |
| | 30,287 |
| | 1.55 |
| | 7,807,386 |
| | 31,339 |
| | 1.59 |
|
Other non-interest-bearing liabilities | 183,018 |
| | | | | | 206,253 |
| | | | |
Stockholders' equity | 1,312,996 |
| | | | | | 1,332,547 |
| | | | |
Total liabilities and stockholders' equity | $ | 9,341,344 |
| | | | | | $ | 9,346,186 |
| | | | |
| | | | | | | | | | | |
Net interest income(6) | | | $ | 48,668 |
| | | | | | $ | 48,697 |
| | |
Net interest rate spread(7)(8) | | | | | 2.00 |
| | | | | | 1.99 |
|
Net interest-earning assets | $ | 1,041,327 |
| | | | | | $ | 1,110,942 |
| | | | |
Net interest margin(8)(9) | | | | | 2.19 |
| | | | | | 2.18 |
|
Ratio of interest-earning assets to interest-bearing liabilities | | 1.13x |
| | | | | | 1.14x |
|
| | | | | | | | | | | |
Selected performance ratios: | | | | | | | | | | | |
Return on average assets (annualized)(8) | | | | | 0.18 | % | | | | | | 0.96 | % |
Return on average equity (annualized)(8) | | | | | 1.30 |
| | | | | | 6.76 |
|
Average equity to average assets | | | | | 14.06 |
| | | | | | 14.26 |
|
Operating expense ratio(10) | | | | | 1.12 |
| | | | | | 1.13 |
|
Efficiency ratio(8)(11) | | | | | 49.05 |
| | | | | | 48.89 |
|
| |
(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 $15.0 million and $17.3 million for the quarters ended March 31, 2020 and December 31, 2019, respectively. |
| |
(4) | There were no cash and cash equivalents related to the leverage strategy during the quarters ended March 31, 2020 and December 31, 2019. |
| |
(5) | There were no FHLB borrowings related to the leverage strategy during the quarters ended March 31, 2020 and December 31, 2019. The FHLB advance amounts and rates included in this line include the effect of interest rate swaps and are net of deferred prepayment penalties. |
| |
(6) | 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. |
| |
(7) | Net interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. |
| |
(8) | The leverage strategy was not in place during the quarters ended March 31, 2020 and December 31, 2019. |
| |
(9) | Net interest margin represents annualized net interest income as a percentage of average interest-earning assets. |
| |
(10) | The operating expense ratio represents annualized non-interest expense as a percentage of average assets. |
| |
(11) | The efficiency ratio represents non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. |
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 three months ended March 31, 2020 to the three months ended December 31, 2019. 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 year's average rate and (2) changes in rate, which are changes in the average rate multiplied by the average balance from the previous year 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 Three Months Ended |
| March 31, 2020 vs. December 31, 2019 |
| Increase (Decrease) Due to |
| Volume | | Rate | | Total |
| (Dollars in thousands) |
Interest-earning assets: | | | | | |
Loans receivable | $ | 267 |
| | $ | (568 | ) | | $ | (301 | ) |
MBS | (84 | ) | | (152 | ) | | (236 | ) |
Investment securities | (19 | ) | | (106 | ) | | (125 | ) |
FHLB stock | 23 |
| | (135 | ) | | (112 | ) |
Cash and cash equivalents | (220 | ) | | (87 | ) | | (307 | ) |
Total interest-earning assets | (33 | ) | | (1,048 | ) | | (1,081 | ) |
| | | | | |
Interest-bearing liabilities: | | | | | |
Checking | 3 |
| | 9 |
| | 12 |
|
Savings | 1 |
| | (6 | ) | | (5 | ) |
Money market | 52 |
| | (135 | ) | | (83 | ) |
Certificates of deposit | 44 |
| | (126 | ) | | (82 | ) |
Borrowings | (376 | ) | | (518 | ) | | (894 | ) |
Total interest-bearing liabilities | (276 | ) | | (776 | ) | | (1,052 | ) |
| | | | | |
Net change in net interest income | $ | 243 |
| | $ | (272 | ) | | $ | (29 | ) |
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, repurchase agreements, 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 intentintention 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. See the "Executive Summary" above for information regarding the impact of the COVID-19 pandemic on our liquidity.
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. Per FHLB's lending guidelines, total FHLB borrowings cannot exceed 40%See "Part I, Item 1. Business - Sources of regulatory total assets without the pre-approval of FHLB senior management. The president of FHLB has approved an increase, through July 2020,Funds" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for information regarding limits on the Bank's borrowing limit to 55% of Bank Call Report total assets. When the leverage strategy is in place, the Bank maintains the resulting excess cash reserves from the FHLB borrowings at the FRB of Kansas City, which can be used to meet any short-term liquidity needs.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 had testedtests the Bank's access to the FRB of Kansas City's discount window annually with a nominal, overnight borrowing. At March 31, 2020, the Bank had pledged securities with an estimated value of $396.5 million as collateral at the FRB of Kansas City and had drawn down $30.0 million on the related line-of-credit. Management is currently using the FRB line of credit rather than the FHLB line of credit for short-term funding needs as the interest rate on the FRB line of credit is lower than the FHLB line of credit.
If management observes a trendunusual trends in the amount and frequency of line of credit utilization and/or short-term borrowings, that is not in conjunction with a planned strategy, such as the leverage strategy, 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 MarchDecember 31, 2020, the Bank had total borrowings, at par, of $2.12$1.74 billion, or approximately 23%18% of total assets.assets, all of which were FHLB advances.
The amount of FHLB borrowings outstanding at MarchDecember 31, 2020 was $1.99$1.74 billion, of which $1.04 billion$790.0 million were advances scheduled to mature in the next 12 months, including $640.0 million of one-year floating-rate FHLB advances tied to interest rate swaps. All FHLB borrowings are secured by certain qualifying loans pursuant to a blanket collateral agreement with FHLB. At March 31, 2020, the ratio of the par value of the Bank's FHLB borrowings to Call Report total assets was 21%. When the full leverage strategy is in place, FHLB borrowings may be in excess of 40% of the Bank's Call Report total assets, and may be in excess of 40% as long as the Bank continues its leverage strategy and FHLB senior management continues to approve the Bank's borrowing limit being in excess of 40% of Call Report total assets. All or a portion of the FHLB borrowings in conjunction with the leverage strategy can be repaid at any point in time while the strategy is in effect, if necessary or desired.
At MarchDecember 31, 2020, the Bank had no repurchase agreements of $100.0 million, or approximately 1% of total assets, all of which were scheduled to mature in the next 12 months.agreements. The Bank may enter into additional 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 has pledged securities with an estimated fair value of $109.4 million as collateral for repurchase agreements as of March 31, 2020. The securities pledged for the repurchase agreements will be delivered back to the Bank when the repurchase agreements mature.
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 MarchDecember 31, 2020, the Bank had $759.3 million$1.55 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 MarchDecember 31, 2020, the Bank's policy allowed for combined brokered and public unit certificates of deposit up to 15% of total deposits. At MarchDecember 31, 2020, the Bank did not have any brokered certificates of deposit, and public unit certificates of deposit were approximately 5%4% of total deposits. The Bank had pledged securities with an estimated fair value of $321.5$304.8 million as collateral for public unit certificates of deposit at MarchDecember 31, 2020. 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 MarchDecember 31, 2020, $1.48$1.56 billion of the Bank's certificate of deposit portfolio was scheduled to mature within the next 12 months, including $236.8$231.3 million of public unit 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 the prevailing rate,rates, although no assurance can be given in this regard. We also anticipate the majority of the maturing public unit certificates of deposit will be replaced with similar wholesale funding products.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.
The following table presents the contractual maturities of our loan, MBS, and investment securities portfolios at MarchDecember 31, 2020, along with associated weighted average yields. Loans and securities which have adjustable interest rates are shown as maturing in the period during which the contract is due. The table does not reflect the effects of possible prepayments or enforcement of due on sale clauses. As of MarchDecember 31, 2020, the amortized cost of investment securities in our portfolio which are callable or have pre-refunding dates within one year was $202.9$252.3 million.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans(1) | | MBS | | Investment Securities | | Total |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| (Dollars in thousands) |
Amounts due: | | | | | | | | | | | | | | | |
Within one year | $ | 181,011 | | | 3.85 | % | | $ | 1,999 | | | 2.94 | % | | $ | 4,937 | | | 1.54 | % | | $ | 187,947 | | | 3.78 | % |
| | | | | | | | | | | | | | | |
After one year: | | | | | | | | | | | | | | | |
Over one to two years | 98,804 | | | 3.90 | | | 5,589 | | | 1.76 | | | 3,917 | | | 1.81 | | | 108,310 | | | 3.72 | |
Over two to three years | 77,144 | | | 4.63 | | | 24,855 | | | 1.67 | | | 75,071 | | | 0.36 | | | 177,070 | | | 2.40 | |
Over three to five years | 140,217 | | | 4.25 | | | 37,979 | | | 2.49 | | | 370,641 | | | 0.55 | | | 548,837 | | | 1.63 | |
Over five to ten years | 752,300 | | | 3.67 | | | 303,115 | | | 1.94 | | | — | | | — | | | 1,055,415 | | | 3.17 | |
Over ten to fifteen years | 1,526,380 | | | 3.10 | | | 839,404 | | | 1.43 | | | — | | | — | | | 2,365,784 | | | 2.51 | |
After fifteen years | 4,247,770 | | | 3.50 | | | 246,359 | | | 2.00 | | | — | | | — | | | 4,494,129 | | | 3.42 | |
Total due after one year | 6,842,615 | | | 3.46 | | | 1,457,301 | | | 1.67 | | | 449,629 | | | 0.53 | | | 8,749,545 | | | 3.01 | |
| | | | | | | | | | | | | | | |
| $ | 7,023,626 | | | 3.47 | | | $ | 1,459,300 | | | 1.67 | | | $ | 454,566 | | | 0.54 | | | $ | 8,937,492 | | | 3.03 | |
(1)The maturity date for home equity loans, including those that do not have a stated maturity date, assumes the customer always makes the required minimum payment. All other loans that do not have a stated maturity date and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans(1) | | MBS | | Investment Securities | | Total |
| Amount | | Yield | | Amount | | Yield | | Amount | | Yield | | Amount | | Yield |
| (Dollars in thousands) |
Amounts due: | | | | | | | | | | | | | | | |
Within one year | $ | 313,736 |
| | 4.31 | % | | $ | 5,196 |
| | 2.59 | % | | $ | 55,245 |
| | 1.52 | % | | $ | 374,177 |
| | 3.88 | % |
| | | | | | | | | | | | | | | |
After one year: | | | | | | | | | | | | | | | |
Over one to two years | 40,947 |
| | 4.52 |
| | 5,544 |
| | 2.64 |
| | 4,270 |
| | 1.75 |
| | 50,761 |
| | 4.08 |
|
Over two to three years | 60,480 |
| | 4.42 |
| | 27,140 |
| | 1.53 |
| | 27,490 |
| | 1.98 |
| | 115,110 |
| | 3.16 |
|
Over three to five years | 113,991 |
| | 4.68 |
| | 35,098 |
| | 1.83 |
| | 175,714 |
| | 1.96 |
| | 324,803 |
| | 2.90 |
|
Over five to ten years | 689,582 |
| | 3.70 |
| | 309,180 |
| | 2.38 |
| | — |
| | — |
| | 998,762 |
| | 3.29 |
|
Over ten to fifteen years | 1,280,491 |
| | 3.54 |
| | 339,352 |
| | 2.50 |
| | — |
| | — |
| | 1,619,843 |
| | 3.33 |
|
After fifteen years | 4,994,053 |
| | 3.72 |
| | 251,808 |
| | 2.84 |
| | — |
| | — |
| | 5,245,861 |
| | 3.67 |
|
Total due after one year | 7,179,544 |
| | 3.71 |
| | 968,122 |
| | 2.50 |
| | 207,474 |
| | 1.96 |
| | 8,355,140 |
| | 3.53 |
|
| | | | | | | | | | | | | | | |
| $ | 7,493,280 |
| | 3.74 |
| | $ | 973,318 |
| | 2.50 |
| | $ | 262,719 |
| | 1.87 |
| | $ | 8,729,317 |
| | 3.54 |
|
| |
(1) | Demand loans, loans having no stated maturity, and overdraft loans are included in the amounts due within one year. Construction loans are presented based on the estimated term to complete construction. The maturity date for home equity loans assumes the customer always makes the required minimum payment. |
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. 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. The Company has elected to not submit a regulatory non-objection notice of distribution of the Bank's current quarter earnings at this time due to the economic uncertainties associated with the COVID-19 pandemic. Management may submit a regulatory non-objection notice of distribution of the Bank's current quarter earnings in the future.
Off-Balance Sheet Arrangements, Commitments and Contractual Obligations
The Company, in the normal course of business, makes commitments to buy or sell assets, to extend credit, or to incur or fund liabilities. There have been no material changes in commitments, contractual obligations or off-balance sheet arrangements from September 30, 2019.2020. For additional information, see "Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Off-Balance Sheet Arrangements, Commitments and Contractual Obligations" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020. We anticipate we will continue to have sufficient funds, through repayments and maturities of loans and securities, deposits and borrowings, to meet our current commitments.
The maximum balance of short-term FHLB borrowings outstanding at any month-end during the sixthree months ended MarchDecember 31, 2020 was $1.24 billion,$840.0 million, and the average balance of short-term FHLB borrowings outstanding during this period was $1.14 billion$823.4 million at a weighted average contractual rate of 1.97%0.72%. The balance of short-term FHLB borrowings outstanding at MarchDecember 31, 2020 was $1.04 billion,$790.0 million, at a weighted average contractual rate of 1.81%0.66%. Short-term FHLB borrowings for this purpose are defined as those with maturity dates within the next 12 months.
Contingencies
In the normal course of business, the Company and its subsidiary are named defendants in various lawsuits and counter claims. In the opinion of management, after consultation with legal counsel, none of the currently pending suits had or are expected to have a materially adverse effect on the Company's consolidated financial statements for the quarter ended MarchDecember 31, 2020, or future periods.
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"). In September 2019, the regulatory agencies, including the OCC and FRB, adopted a final rule, effective January 1, 2020, creating the CBLR for institutions with total consolidated assets of less than $10 billion and that meet other qualifying criteria. The CBLR provides for a simple measure of capital adequacy for qualifying institutions. According to the final rule, qualifyingQualifying institutions that elect to use the CBLR framework, such as the Bank and the Company, that maintain athe required minimum leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the regulatory agencies' capital rules, and to have met the well-capitalized ratio requirements. In April 2020, the federal bank regulatory agencies announced the issuance of two interim final rules, effective immediately, to provide temporary relief to community banking organizations. Under the interim final rules, the CBLR requirement is a minimum of 8%capital requirements for the remainder of calendar year 2020, 8.5% for calendar year 2021, and 9% thereafter. The Bank electedwell capitalized category under the CBLR framework during the current quarter.agencies' PCA framework. As of MarchDecember 31, 2020, the Bank's CBLR was 12.4%12.2% and the Company's CBLR was 13.9%13.3%, which exceeded the minimum requirements. See "Part I, Item 1. Business - Regulation and Supervision - Regulatory Capital Requirements" in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 for additional information related to regulatory capital.
The following table presents a reconciliation of equity under GAAP to regulatory capital amounts, as of MarchDecember 31, 2020, for the Bank and the Company (dollars in thousands):
| | | | | | | | | | | |
| Bank | | Company |
Total equity as reported under GAAP | $ | 1,169,923 | | | $ | 1,276,548 | |
AOCI | 11,371 | | | 11,371 | |
Goodwill and other intangibles, net of associated deferred taxes | (13,493) | | | (13,493) | |
| | | |
Total tier 1 capital | $ | 1,167,801 | | | $ | 1,274,426 | |
| | | |
| | | |
|
| | | | | | | |
| Bank | | Company |
Total equity as reported under GAAP | $ | 1,145,134 |
| | $ | 1,287,793 |
|
AOCI | 21,978 |
| | 21,978 |
|
Goodwill and other intangibles, net of associated deferred taxes | (14,478 | ) | | (14,478 | ) |
Total tier 1 capital | $ | 1,152,634 |
| | $ | 1,295,293 |
|
Item 3. Quantitative and Qualitative Disclosure 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, 2019.2020. 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
At MarchDecember 31, 2020, the Bank's gap between the amount of interest-earning assets and interest-bearing liabilities projected to reprice within one year was $508.6$86.8 million, or 5.43%0.90% of total assets, compared to $251.9$436.4 million, or 2.73%4.6% of total assets, at December 31, 2019.September 30, 2020. The increasedecrease in the one-year gap amount was due primarily to loweran increase in non-maturity deposits during the quarter. In the Bank's interest rate risk model, short-term increases in non-maturity deposits are assumed to be unstable and thus are not considered to be long-term core deposits. As a result, these deposits are assumed to mature or reprice in the short term. At December 31, 2020, the amount of the Bank's non-maturity deposits projected to reprice in the first month was $829.5 million, which is $274.7 million higher than at September 30, 2020. This resulted in an increase in the amount of liabilities repricing in the one-year horizon. Additionally, interest rates as of Marchwere higher at December 31, 2020 compared to December 31, 2019. As interest rates decrease, borrowers have more economic incentive to refinance their mortgages and agency debt issuers have more economic incentive or opportunity to exercise their call options in order to issue new debt at lower interest rates,September 30, 2020, resulting in lower projected cash flows on these assets.a decrease in the prepayment projections of mortgage-related assets compared to the previous quarter.
The majority of interest-earning assets anticipated to reprice in the coming year are repayments and prepayments on one- to four-family loans and MBS, both of which include the option to prepay without a fee being paid by the contract holder. The amount of interest-bearing liabilities expected to reprice in a given period is not typically impacted significantly by changes in interest rates, but did increase this quarter, because the Bank's borrowings and certificate of deposit portfolios have contractual maturities and generally cannot be terminated early without a prepayment penalty, but did increase this quarter, as previously discussed.penalty. If interest rates were to increase 200 basis points, as of MarchDecember 31, 2020, the Bank's one-year gap is projected to be $(312.8)$(995.3) million, or (3.34)(10.36)% of total assets. The decrease in the gap compared to when there is no change in rates is due to lower anticipated net cash flows primarily due to lower repayments on mortgage-related assets in the higher rate environment. This compares to a one-year gap of $(523.0)$(609.6) million, or (5.66)(6.43)% of total assets, if interest rates were to have increased 200 basis points as of December 31, 2019.September 30, 2020.
During the current quarter, loan repayments totaled $328.6$664.1 million and cash flows from the securities portfolio totaled $145.9$152.4 million. The majority of these cash flows were reinvested into new loans and securities at current market interest rates. Total cash flows from
term liabilities that matured andand/or repriced into current market interest rates during the current quarter were $439.7$465.6 million, including $65.0$53.0 million in FHLBterm borrowings. These offsetting cash flows allow the Bank to manage its interest rate risk and gap position more precisely than if the Bank did not have offsetting cash flows due to its mix of assets or maturity structure of liabilities.
The Bank primarily uses long-term fixed-rate borrowings with no embedded options to lengthen the average life of the Bank's liabilities. The fixed-rate characteristics of these borrowings lock-in the cost until maturity and thus decrease the amount of liabilities repricing as interest rates move higher compared to funding with lower-cost short-term borrowings. These borrowings are laddered in order to prevent large amounts of liabilities repricing in any one period. The WAL of the Bank's term borrowings as of MarchDecember 31, 2020 was 1.92.0 years. However, including the impact of interest rate swaps related to $640.0 million of adjustable-rate FHLB advances, the WAL of the Bank's term borrowings as of MarchDecember 31, 2020 was 3.0 years. The interest rate swaps effectively convert the adjustable-rate borrowings into long-term, fixed-rate liabilities. It is anticipated that the Bank will renew the upcoming advances to lower costing term advances, or not renew them based upon our assessment of lending opportunities and our liquidity position at that time.
The Bank uses the securities portfolio to shorten the average life of the Bank's assets. Security purchases over the past few years have primarily been focused on callable agency debentures with maturities no longer than five years, shorter duration MBS, and adjustable-rate MBS. These securities have a shorter average life and provide a steady source of cash flow that can be reinvested in higher-yielding assets as interest rates rise.
In addition to these wholesale strategies, the Bank has sought tobenefited from an increase in non-maturity deposits. Non-maturity deposits are expected to reduce the risk of higherAs market interest rates because their interestrise, rates paid on non-maturity deposits are not expected to increase significantly as market interest rates rise.quickly. Specifically, checking accounts and savings accounts have had minimal interest rate fluctuations throughout historicalprevious interest rate cycles, though no assurance can be given that this will be the case in future interest rate cycles. The balances and rates of these accounts have historically tended to remain very stable over time, giving them the characteristic of long-term liabilities. The Bank uses historical data pertaining to these accounts to estimate their future balances. Additionally, to the extentas we expand the commercial banking business, we expect to have the ability to obtain lower-costing commercial deposits, which could be used to reduce the cost of funds by replacing FHLB borrowings and wholesale deposits.
With the significant decrease in interest rates during the current quarter,calendar year 2020, the Bank has decreased the rates on certificates of deposit and money market accounts at aon pace with competitors in its market areas. The Bank currently expects it will continue to loweradjust rates as market conditions allow.
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 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 | | | | | | More Than | | More Than | |
| Within | | One Year to | | Three Years | | Over | | | | Within | | One Year to | | Three Years | | Over | |
| One Year | | Three Years | | to Five Years | | Five Years | | Total | | One Year | | Three Years | | to Five Years | | Five Years | | Total |
Interest-earning assets: | (Dollars in thousands) | Interest-earning assets: | (Dollars in thousands) |
Loans receivable(1) | $ | 2,075,424 |
| | $ | 2,221,032 |
| | $ | 1,295,807 |
| | $ | 1,893,486 |
| | $ | 7,485,749 |
| Loans receivable(1) | $ | 2,166,912 | | | $ | 2,146,114 | | | $ | 1,010,178 | | | $ | 1,694,174 | | | $ | 7,017,378 | |
Securities(2) | 620,926 |
| | 320,938 |
| | 139,868 |
| | 127,784 |
| | 1,209,516 |
| Securities(2) | 688,893 | | | 656,438 | | | 229,747 | | | 305,894 | | | 1,880,972 | |
Other interest-earning assets | 5,336 |
| | — |
| | — |
| | — |
| | 5,336 |
| Other interest-earning assets | 138,542 | | | — | | | — | | | — | | | 138,542 | |
Total interest-earning assets | 2,701,686 |
| | 2,541,970 |
| | 1,435,675 |
| | 2,021,270 |
| | 8,700,601 |
| Total interest-earning assets | 2,994,347 | | | 2,802,552 | | | 1,239,925 | | | 2,000,068 | | | 9,036,892 | |
| | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities: | | | | | | | | | | Interest-bearing liabilities: | |
Non-maturity deposits(3) | 180,978 |
| | 313,620 |
| | 251,303 |
| | 2,087,371 |
| | 2,833,272 |
| Non-maturity deposits(3) | 1,018,765 | | | 389,182 | | | 410,162 | | | 1,641,260 | | | 3,459,369 | |
Certificates of deposit | 1,482,061 |
| | 1,276,351 |
| | 283,507 |
| | 437 |
| | 3,042,356 |
| Certificates of deposit | 1,562,350 | | | 1,161,280 | | | 294,082 | | | 446 | | | 3,018,158 | |
Borrowings(4) | 530,000 |
| | 575,000 |
| | 715,000 |
| | 339,971 |
| | 2,159,971 |
| Borrowings(4) | 326,401 | | | 602,940 | | | 618,134 | | | 231,139 | | | 1,778,614 | |
Total interest-bearing liabilities | 2,193,039 |
| | 2,164,971 |
| | 1,249,810 |
| | 2,427,779 |
| | 8,035,599 |
| Total interest-bearing liabilities | 2,907,516 | | | 2,153,402 | | | 1,322,378 | | | 1,872,845 | | | 8,256,141 | |
| | | | | | | | | | | | | | | | | | | |
Excess (deficiency) of interest-earning assets over | Excess (deficiency) of interest-earning assets over | | | | | | | | | Excess (deficiency) of interest-earning assets over | |
interest-bearing liabilities | $ | 508,647 |
| | $ | 376,999 |
| | $ | 185,865 |
| | $ | (406,509 | ) | | $ | 665,002 |
| interest-bearing liabilities | $ | 86,831 | | | $ | 649,150 | | | $ | (82,453) | | | $ | 127,223 | | | $ | 780,751 | |
| | | | | | | | | | | | | | | | | | | |
Cumulative excess of interest-earning assets over | Cumulative excess of interest-earning assets over | | | | | | | | | Cumulative excess of interest-earning assets over | |
interest-bearing liabilities | $ | 508,647 |
| | $ | 885,646 |
| | $ | 1,071,511 |
| | $ | 665,002 |
| | | interest-bearing liabilities | $ | 86,831 | | | $ | 735,981 | | | $ | 653,528 | | | $ | 780,751 | | |
| | | | | | | | | | | | | | | | | | |
Cumulative excess of interest-earning assets over interest-bearing | Cumulative excess of interest-earning assets over interest-bearing | | | | | | | Cumulative excess of interest-earning assets over interest-bearing | |
liabilities as a percent of total Bank assets at: | liabilities as a percent of total Bank assets at: | | | | | | | | | liabilities as a percent of total Bank assets at: | |
March 31, 2020 | 5.43 | % | | 9.45 | % | | 11.44 | % | | 7.10 | % | | | |
September 30, 2019 | 5.21 |
| | | | | | | | | |
December 31, 2020 | | December 31, 2020 | 0.90 | % | | 7.66 | % | | 6.80 | % | | 8.13 | % | |
| September 30, 2020 | | September 30, 2020 | 4.58 | | |
| | | | | | | | | | | |
Cumulative one-year gap - interest rates +200 bps at: | Cumulative one-year gap - interest rates +200 bps at: | | | | | | | | | Cumulative one-year gap - interest rates +200 bps at: | |
March 31, 2020 | (3.34 | ) | | | | | | | | | |
September 30, 2019 | (3.88 | ) | | | | | | | | | |
December 31, 2020 | | December 31, 2020 | (10.36) | | |
| September 30, 2020 | | September 30, 2020 | (6.44) | | |
(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, 2020, 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 $2.35 billion, for a cumulative one-year gap of (24.5)% of total assets.
(4)Borrowings exclude deferred prepayment penalty costs. Included in this line item are $640.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap.
| |
(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 March 31, 2020, 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 $2.14 billion, for a cumulative one-year gap of (22.9)% of total assets. |
| |
(4) | Borrowings exclude deferred prepayment penalty costs. Included in this line item are $640.0 million of FHLB adjustable-rate advances with interest rate swaps. The repricing for these liabilities is projected to occur at the maturity date of each interest rate swap. |
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change | | Net Interest Income At |
(in Basis Points) | | December 31, 2020 | | September 30, 2020 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
| | | | | | | | | | | | |
000 bp | | $ | 174,872 | | | $ | — | | | — | % | | $ | 183,596 | | | $ | — | | | — | % |
+100 bp | | 178,906 | | | 4,034 | | | 2.31 | | | 188,084 | | | 4,488 | | | 2.44 | |
+200 bp | | 178,582 | | | 3,710 | | | 2.12 | | | 188,417 | | | 4,821 | | | 2.63 | |
+300 bp | | 175,634 | | | 762 | | | 0.44 | | | 186,441 | | | 2,845 | | | 1.55 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change | | Net Interest Income At |
(in Basis Points) | | March 31, 2020 | | September 30, 2019 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
000 bp | | $ | 202,863 |
| | $ | — |
| | — | % | | $ | 193,329 |
| | $ | — |
| | — | % |
+100 bp | | 207,807 |
| | 4,944 |
| | 2.44 |
| | 194,093 |
| | 764 |
| | 0.40 |
|
+200 bp | | 206,017 |
| | 3,154 |
| | 1.55 |
| | 192,111 |
| | (1,218 | ) | | (0.63 | ) |
+300 bp | | 202,361 |
| | (502 | ) | | (0.25 | ) | | 188,752 |
| | (4,577 | ) | | (2.37 | ) |
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
| |
(1) | Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. |
The net interest income projection was higherlower in the base case scenario at MarchDecember 31, 2020 compared to September 30, 20192020 due primarily to a larger projected decrease in the balance and yield on the Bank's loans receivable portfolio. As a result of the low level of interest expense than interest income. Therates during the current quarter, the Bank continued to see a decrease in interest expensethe yield on loans receivable due to refinances and endorsements. In addition, the Bank experienced a decrease in the overall balance of the loans receivable portfolio, resulting in these cash flows being deployed into lower yielding securities. This was driven primarilypartially offset by a decrease in the actual cost of the Bank's deposits and borrowings. During the current quarter, the Bank modified $350.0 million of term borrowings into new long-term borrowings with a lower cost. As a result, the cost on the Bank's term borrowings portfolio decreased by 12 basis points. The Bank was also able to lower the cost of its deposit portfolio by two basis points due to lower money market rates and a decrease in the interest rates offered on certificates of deposit. In addition, during the current quarter management changed the way that future certificate of deposit rates are forecasted in the Bank's interest rate risk model. This change was made to more closely align the forecasted rates with the current rates offered, thus lowering the projected interest expense.quarter.
The net interest income projections increase from the base case in the +100 and +200 basis pointall rising interest rate scenarios at MarchDecember 31, 2020 and September 30, 2020. The increase in net interest income projection was more adversely impacted in the rising interest rate scenariossmaller at September 30, 2019December 31, 2020 compared to March 31,September 30, 2020, due primarily to higher interest rates at September 30, 2019. In addition,a decrease in the modification of $350.0 million of borrowingspositive gap during the current quarter lengthened the Bank's liabilities, thus reducing the risk to higher interest rates.quarter. The positive impact of rising interest rates is diminished as interest rates increase until turning negative in the +300 basis point scenario.increase. Higher interest rates decreased the projected cash flows from the Bank's mortgage-related assets, thus increasingdecreasing the negativepositive impact of rising interest rates.rates compared to the base case.
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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Change | | Market Value of Portfolio Equity At |
(in Basis Points) | | December 31, 2020 | | September 30, 2020 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
| | | | | | | | | | | | |
000 bp | | $ | 1,458,318 | | | $ | — | | | — | % | | $ | 1,301,409 | | | $ | — | | | — | % |
+100 bp | | 1,416,171 | | | (42,147) | | | (2.89) | | | 1,290,877 | | | (10,532) | | | (0.81) | |
+200 bp | | 1,263,224 | | | (195,094) | | | (13.38) | | | 1,157,368 | | | (144,041) | | | (11.07) | |
+300 bp | | 1,047,654 | | | (410,664) | | | (28.16) | | | 967,997 | | | (333,412) | | | (25.62) | |
|
| | | | | | | | | | | | | | | | | | | | | | |
Change | | Market Value of Portfolio Equity At |
(in Basis Points) | | March 31, 2020 | | September 30, 2019 |
in Interest Rates(1) | | Amount ($) | | Change ($) | | Change (%) | | Amount ($) | | Change ($) | | Change (%) |
| | (Dollars in thousands) |
000 bp | | $ | 1,087,074 |
| | $ | — |
| | — | % | | $ | 1,283,429 |
| | $ | — |
| | — | % |
+100 bp | | 1,185,836 |
| | 98,762 |
| | 9.09 |
| | 1,286,446 |
| | 3,017 |
| | 0.24 |
|
+200 bp | | 1,116,523 |
| | 29,449 |
| | 2.71 |
| | 1,162,151 |
| | (121,278 | ) | | (9.45 | ) |
+300 bp | | 980,783 |
| | (106,291 | ) | | (9.78 | ) | | 992,060 |
| | (291,369 | ) | | (22.70 | ) |
(1)Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities.
| |
(1) | Assumes an instantaneous, parallel, and permanent change in interest rates at all maturities. |
The percentage change in the Bank's MVPE at MarchDecember 31, 2020 was positive in the +100 and +200 basis point scenarios andSeptember 30, 2020 was negative in the +300 basis point scenario. At September 30, 2019 the percentage change inall scenarios. The negative impact to the Bank's MVPE was negative in the +200 and +300 basis point scenarios.is greater at December 31, 2020 compared to September 30, 2020. This change was due primarily to loweran increase in the duration of the Bank's mortgage-related assets at December 31, 2020 compared to the previous quarter. This was due in part to higher interest rates at MarchDecember 31, 2020 and the modification of $350.0 million of borrowings during the current quarter into long-term liabilities which reduced the Bank's risk to higher interest rates.2020. 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 diminished.
InOn the +100 and +200 basis point scenarios,liability side of the market value of liabilities decrease at a faster pace than the market value of assetsbalance sheet, deposit durations decreased between periods due to havingthe increase in the Bank's non-maturity deposits during the current quarter. Short-term increases in non-maturity deposits are not considered to be long-term liabilities in the Bank's interest rate risk model until sufficient time has passed for the model to reasonably assume that they will not leave the Bank in a longer duration in these scenarios. The longer duration makes the market valuerapid fashion. Both of these liabilities more sensitive to changes resulted in interest rates. In the +300 basis point scenario, prepayment speeds on mortgage-related assets and call projections on investment securities decrease to a point where the durations of assets are longer, and thus more sensitivean increased risk to rising interest rates. This results in a larger decrease in the market value of assets than liabilities in this scenario.rates at December 31, 2020 compared to September 30, 2020.
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 MarchDecember 31, 2020. Yields presented for interest-earning assets include the amortization of fees, costs, premiums and discounts, which are considered adjustments to the yield. The interest rate presented for term borrowings is the effective rate, which includes the impact of interest rate swaps and the amortization of deferred prepayment penalties resulting from FHLB advances previously prepaid. The WAL presented for term borrowings includes the effect of interest rate swaps. The maturity and repricing terms presented for one- to four-family loans represent the contractual terms of the loan.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amount | | Yield/Rate | | WAL | | % of Category | | % of Total |
| (Dollars in thousands) |
Investment securities | $ | 454,566 | | | 0.54 | % | | 1.0 | | | 23.7 | % | | 4.9 | % |
MBS - fixed | 1,276,159 | | | 1.56 | | | 3.4 | | | 66.7 | | | 13.9 | |
MBS - adjustable | 183,141 | | | 2.44 | | | 3.2 | | | 9.6 | | | 2.0 | |
Total securities | 1,913,866 | | | 1.40 | | | 2.8 | | | 100.0 | % | | 20.8 | |
Loans receivable: | | | | | | | | | |
Fixed-rate one- to four-family: | | | | | | | | | |
<= 15 years | 1,179,678 | | | 2.89 | | | 3.1 | | | 16.8 | % | | 12.8 | |
> 15 years | 4,178,726 | | | 3.58 | | | 4.2 | | | 59.5 | | | 45.5 | |
Fixed-rate commercial | 500,075 | | | 4.26 | | | 3.9 | | | 7.1 | | | 5.4 | |
All other fixed-rate loans | 43,802 | | | 4.46 | | | 4.7 | | | 0.6 | | | 0.5 | |
Total fixed-rate loans | 5,902,281 | | | 3.50 | | | 4.0 | | | 84.0 | | | 64.2 | |
Adjustable-rate one- to four-family: | | | | | | | | | |
<= 36 months | 183,690 | | | 2.11 | | | 4.9 | | | 2.6 | | | 2.0 | |
> 36 months | 577,738 | | | 2.99 | | | 3.1 | | | 8.2 | | | 6.3 | |
Adjustable-rate commercial | 263,803 | | | 4.58 | | | 6.6 | | | 3.8 | | | 2.9 | |
All other adjustable-rate loans | 96,114 | | | 4.21 | | | 2.4 | | | 1.4 | | | 1.0 | |
Total adjustable-rate loans | 1,121,345 | | | 3.32 | | | 4.1 | | | 16.0 | | | 12.2 | |
Total loans receivable | 7,023,626 | | | 3.47 | | | 4.0 | | | 100.0 | % | | 76.4 | |
FHLB stock | 84,693 | | | 4.97 | | | 2.0 | | | | | 0.9 | |
Cash and cash equivalents | 168,032 | | | 0.08 | | | — | | | | | 1.9 | |
Total interest-earning assets | $ | 9,190,217 | | | 2.99 | | | 3.6 | | | | | 100.0 | % |
| | | | | | | | | |
Non-maturity deposits | $ | 3,392,684 | | | 0.17 | | | 5.5 | | | 52.9 | % | | 41.6 | % |
Retail/business certificates of deposit | 2,777,948 | | | 1.68 | | | 1.4 | | | 43.3 | | | 34.1 | |
Public unit certificates of deposit | 240,210 | | | 0.64 | | | 0.4 | | | 3.8 | | | 2.9 | |
Total deposits | 6,410,842 | | | 0.84 | | | 3.5 | | | 100.0 | % | | 78.6 | |
Term borrowings | 1,740,000 | | | 2.26 | | | 3.0 | | | | | 21.4 | |
| | | | | | | | | |
| | | | | | | | | |
Total interest-bearing liabilities | $ | 8,150,842 | | | 1.14 | | | 3.4 | | | | | 100.0 | % |
|
| | | | | | | | | | | | | | | |
| Amount | | Yield/Rate | | WAL | | % of Category | | % of Total |
| (Dollars in thousands) |
Investment securities | $ | 262,719 |
| | 1.87 | % | | 0.3 |
| | 21.3 | % | | 2.9 | % |
MBS - fixed | 713,154 |
| | 2.33 |
| | 3.1 |
| | 57.7 |
| | 8.0 |
|
MBS - adjustable | 260,164 |
| | 2.97 |
| | 2.4 |
| | 21.0 |
| | 2.9 |
|
Total securities | 1,236,037 |
| | 2.36 |
| | 2.3 |
| | 100.0 | % | | 13.8 |
|
Loans receivable: | | | | | | | | | |
Fixed-rate one- to four-family: | | | | | | | | | |
<= 15 years | 1,061,681 |
| | 3.09 |
| | 3.4 |
| | 14.2 | % | | 11.9 |
|
> 15 years | 4,515,742 |
| | 3.82 |
| | 4.8 |
| | 60.3 |
| | 50.5 |
|
Fixed-rate commercial | 441,343 |
| | 4.45 |
| | 3.1 |
| | 5.9 |
| | 4.9 |
|
All other fixed-rate loans | 49,676 |
| | 4.81 |
| | 3.3 |
| | 0.7 |
| | 0.6 |
|
Total fixed-rate loans | 6,068,442 |
| | 3.75 |
| | 4.4 |
| | 81.1 |
| | 67.9 |
|
Adjustable-rate one- to four-family: | | | | | | | | | |
<= 36 months | 205,019 |
| | 2.55 |
| | 2.8 |
| | 2.7 |
| | 2.3 |
|
> 36 months | 776,977 |
| | 3.27 |
| | 2.1 |
| | 10.4 |
| | 8.7 |
|
Adjustable-rate commercial | 331,312 |
| | 4.84 |
| | 7.1 |
| | 4.4 |
| | 3.7 |
|
All other adjustable-rate loans | 111,530 |
| | 5.30 |
| | 1.6 |
| | 1.4 |
| | 1.2 |
|
Total adjustable-rate loans | 1,424,838 |
| | 3.69 |
| | 3.3 |
| | 18.9 |
| | 15.9 |
|
Total loans receivable | 7,493,280 |
| | 3.74 |
| | 4.2 |
| | 100.0 | % | | 83.8 |
|
FHLB stock | 101,575 |
| | 6.72 |
| | 2.0 |
| | | | 1.1 |
|
Cash and cash equivalents | 118,374 |
| | — |
| | — |
| | | | 1.3 |
|
Total interest-earning assets | $ | 8,949,266 |
| | 3.53 |
| | 3.9 |
| | | | 100.0 | % |
| | | | | | | | | |
Non-maturity deposits | $ | 2,732,263 |
| | 0.31 |
| | 15.3 |
| | 47.3 | % | | 34.6 | % |
Retail/business certificates of deposit | 2,765,142 |
| | 2.11 |
| | 1.5 |
| | 47.9 |
| | 35.0 |
|
Public unit certificates of deposit | 277,214 |
| | 1.87 |
| | 0.5 |
| | 4.8 |
| | 3.5 |
|
Total deposits | 5,774,619 |
| | 1.25 |
| | 7.9 |
| | 100.0 | % | | 73.1 |
|
Term borrowings | 2,090,000 |
| | 2.25 |
| | 3.0 |
| | 98.6 | % | | 26.5 |
|
Line of credit borrowings | 30,000 |
| | 0.25 |
| | — |
| | 1.4 |
| | 0.4 |
|
Total borrowings | 2,120,000 |
| | 2.22 |
| | 3.0 |
| | 100.0 | % | | 26.9 |
|
Total interest-bearing liabilities | $ | 7,894,619 |
| | 1.51 |
| | 6.6 |
| | | | 100.0 | % |
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 MarchDecember 31, 2020. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of MarchDecember 31, 2020, 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
Management reviewed the Company’s internal control over financial reporting in consideration of operational changes as a result of COVID-19. 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 MarchDecember 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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 material changes to our risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019; however, in light of recent developments relating to the COVID-19 pandemic, the Company is supplementing its risk factors in this Form 10-Q.2020.
The Impact of the COVID-19 Pandemic on Our Customers, Employees and Business Operations Has Had, and Will Likely Continue to Have, a Significant Adverse Effect on Our Business, Results of Operations and Financial Condition
The COVID-19 pandemic has created a global public-health crisis that has resulted in widespread market volatility and deteriorating economic conditions for households and businesses. The deteriorating economic conditions, most of which are unprecedented, include more than 20 million people becoming unemployed in the United States in one month's time, cuts in consumer spending on almost all categories of purchases except groceries and staples, and closure or significantly reduced operations of restaurants, bars, airlines, hotels, and entertainment and hospitality venues, among others. In the Bank's local markets, governments put stay-at-home orders into effect which only allow for essential businesses to remain open.
In response to the COVID-19 pandemic, an essential business, the Company implemented business continuity measures, including activating its Crisis Management Team to put into action our business continuity plan, monitoring potential business interruptions, making further improvements to our information technology allowing nearly half of our employees to work from home, and conducting regular discussions with our third-party service providers providing services to facilities that are open. Heightened cybersecurity, information security and operational risks may result from these remote work-from-home arrangements. Preventative health measures were put in place including elimination of business-related travel, implementing mandatory work from home for all employees able to do so, social distancing precautions for all employees in the office, adjusting branch banking hours and operational measures to promote social distancing when customers do visit branches, and preventative cleaning at offices and branches. These actions have resulted in changes to our business operations, but have not yet significantly impacted most business operations. Depending on the severity and length of the COVID-19 pandemic, which is impossible to predict, we could experience significant disruptions in our business operations if key personnel or a significant number of employees were to become unavailable due to the effects of, and restrictions resulting from, the COVID-19 pandemic, as well as decreased demand for our products and services.
There is pervasive uncertainty surrounding the future economic conditions that will emerge in the months and years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. The unknown economic recovery time resulting from the COVID-19 pandemic creates risks that loan modification programs made available to our customers will be insufficient to prevent or reduce delinquencies or help our customers stay in business. Businesses that do not take advantage of loan modification programs provided by the Bank could also be at risk of becoming delinquent or going out of business. The PPP loans made by the Bank are guaranteed by the SBA and, if used by the borrower for authorized purposes, may be fully forgiven. However, in the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from the Bank.
Since the commencement of the PPP, several larger banks have been subject to litigation regarding their processing of PPP loan applications. The Bank may be exposed to the risk of similar litigation, from both customers and non-customers that approached the Bank seeking PPP loans. PPP lenders, including the Bank, may also be subject to the risk of litigation in connection with other aspects of the PPP, including but not limited to borrowers seeking forgiveness of their loans. If any such litigation is filed against the Bank, it may result in significant financial or reputational harm to us.
It is likely that many of our individual borrowers have become unemployed and may not be able to continue making mortgage payments under the terms of their loans. Also included in the CARES Act were Economic Impact Payments to individuals meeting certain income requirements. Individuals began receiving those payments in mid-April 2020. This may help mitigate the risk that some borrowers become delinquent or delay the potential for default until they can return to work. However, it is uncertain how long borrowers may need some form of assistance or forbearance.
In order to help our customers, it is likely that utilization of our COVID-19 loan modification programs may increase in the future. Asset quality may deteriorate further and the amount of our ACL may not be sufficient for future loan losses we may experience. This could require us to increase our reserves and recognize more expense in future periods. The changes in market rates of interest and the impact that has on our ability to price our products may reduce our net interest income in the future or negatively impact the demand for our products. There is some risk that operational costs could increase as we maintain existing facilities in accordance with health guidelines as well as potentially continuing to have staff work remotely.
The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition, as well as our regulatory capital and liquidity ratios, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the COVID-19 pandemic and actions taken by governmental authorities and other third parties in response to the pandemic.
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 MarchDecember 31, 2020 and additional information regarding our stock repurchase program. The Company has $70.0$44.7 million of common stock authorized under its existing stock repurchase plan. There is no expiration for this repurchase plan.plan; however, the Federal Reserve Bank's approval for the Company to repurchase shares is through August 2021. Shares may be repurchased from time to time in the open-market based upon market conditions and available liquidity.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Total Number of | | Approximate Dollar |
| Total | | | | Shares Purchased as | | Value of Shares |
| Number of | | Average | | Part of Publicly | | that May Yet Be |
| Shares | | Price Paid | | Announced Plans | | Purchased Under the |
| Purchased | | per Share | | or Programs | | Plans or Programs |
October 1, 2020 through | | | | | | | |
October 31, 2020 | 164,400 | | | $ | 9.31 | | | 164,400 | | | $ | 44,665,205 | |
November 1, 2020 through | | | | | | | |
November 30, 2020 | — | | | — | | | — | | | 44,665,205 | |
December 1, 2020 through | | | | | | | |
December 31, 2020 | — | | | — | | | — | | | 44,665,205 | |
Total | 164,400 | | | 9.31 | | | 164,400 | | | 44,665,205 | |
|
| | | | | | | | | | | | | |
| | | | | Total Number of | | Approximate Dollar |
| Total | | | | Shares Purchased as | | Value of Shares |
| Number of | | Average | | Part of Publicly | | that May Yet Be |
| Shares | | Price Paid | | Announced Plans | | Purchased Under the |
| Purchased | | per Share | | or Programs | | Plans or Programs |
January 1, 2020 through | | | | | | | |
January 31, 2020 | — |
| | $ | — |
| | — |
| | $ | 70,000,000 |
|
February 1, 2020 through | | | | | | | |
February 29, 2020 | — |
| | — |
| | — |
| | 70,000,000 |
|
March 1, 2020 through | | | | | | | |
March 31, 2020 | — |
| | — |
| | — |
| | 70,000,000 |
|
Total | — |
| | — |
| | — |
| | 70,000,000 |
|
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
See Index to Exhibits.
INDEX TO EXHIBITS
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Exhibit Number
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| | 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 |
| | Bylaws of Capitol Federal Financial, Inc., as amended, filed on March 30, 2020, as Exhibit 3.2 to Form 8-K for Capitol Federal Financial Inc. and incorporated herein by reference
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| | Description of the Registrant's Securities, as filed on November 27, 2019, as Exhibit 4 to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with each of John B. Dicus, Kent G. Townsend, and Rick C. Jackson filed on January 20, 2011 as Exhibit 10.1 to the Registrant's Current Report on Form 8-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Natalie G. Haag filed on November 29, 2012 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Daniel L. Lehman filed on November 29, 2016 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Robert D. Kobbeman filed on November 29, 2018 as Exhibit 10.1(iv) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Employment Agreement with Robert D. Kobbeman, as amended, filed on November 29, 2018 as Exhibit 10.1(v) to the Registrant's Annual Report on Form 10-K and incorporated herein by reference |
| | Form of Change of Control Agreement with Anthony S. Barry filed on May 10, 2019 as Exhibit 10.1(vi) to the Registrant's March 31, 2019 Form 10-Q 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 Deferred Incentive Bonus Plan, as amended, filed on May 8, 2020 as Exhibit 10.3 to the Registrant's March 31, 2020 Form 10-Q and incorporated herein by reference |
| | Form of Incentive Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.5 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference |
| | Form of Non-Qualified Stock Option Agreement under the Stock Option Plan filed on February 4, 2005 as Exhibit 10.6 to the December 31, 2004 Form 10-Q for Capitol Federal Financial and incorporated herein by reference |
| | Description of Director Fee Arrangements filed on November 29, 2018 as Exhibit 10.6 to the Registrant's September 30, 2018 Form 10-K and incorporated herein by reference |
| | Short-term Performance Plan, as amended, filed on May 8, 2020 as Exhibit 10.7 to the Registrant's March 31, 2020 Form 10-Q 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 |
| | Form of Incentive Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.12 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Non-Qualified Stock Option Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.13 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Stock Appreciation Right Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.14 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Form of Restricted Stock Agreement under the Equity Incentive Plan filed on February 6, 2012 as Exhibit 10.15 to the Registrant's December 31, 2011 Form 10-Q and incorporated herein by reference |
| | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002 made by John B. Dicus, Chairman, President and Chief Executive Officer |
| | 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 |
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101 | | The following information from the Company's Quarterly Report on Form 10-Q for the quarterly period ended MarchDecember 31, 2020, filed with the Securities and Exchange Commission on May 8, 2020,February 9, 2021, has been formatted in Inline eXtensible Business Reporting Language ("XBRL"): (i) Consolidated Balance Sheets at MarchDecember 31, 2020 and September 30, 2019,2020, (ii) Consolidated Statements of Income for the three and six months ended MarchDecember 31, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended MarchDecember 31, 2020 and 2019, (iv) Consolidated Statements of Stockholders' Equity for the three and six months ended MarchDecember 31, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the sixthree months ended MarchDecember 31, 2020 and 2019, and (vi) Notes to the Unaudited Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File, formatted in Inline XBRL and included in Exhibit 101 |
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.
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CAPITOL FEDERAL FINANCIAL, INC. |
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CAPITOL FEDERAL FINANCIAL, INC. | | | |
| Date: February 9, 2021 | By: | |
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| Date: May 8, 2020 | By: | /s/ John B. Dicus |
| | | John B. Dicus, Chairman, President and Chief Executive Officer |
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| Date: May 8, 2020February 9, 2021 | By: | /s/ Kent G. Townsend |
| | | Kent G. Townsend, Executive Vice President, |
| | | Chief Financial Officer and Treasurer |