CAPITOL FEDERAL FINANCIAL, INC. FOR IMMEDIATE RELEASE
January 28, 2016 CAPITOL FEDERAL FINANCIAL, INC. REPORTS FIRST QUARTER FISCAL YEAR 2016 RESULTSTopeka, KS - Capitol Federal® Financial, Inc. (NASDAQ: CFFN) (the "Company") announced results today for the quarter ended December 31, 2015. Detailed results will be available in the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 2015, which will be filed with the Securities and Exchange Commission ("SEC") on or about February 9, 2016 and posted on our website, http://ir.capfed.com. For best viewing results, please view this release in Portable Document Format (PDF) on our website.
Highlights for the quarter include:
net income of $20.7 million, including $583 thousand from the daily leverage strategy;
basic and diluted earnings per share of $0.16;
annualized deposit portfolio growth of 12%;
net interest margin of 1.75% (2.11% excluding the effects of the daily leverage strategy); and
paid dividends of $44.6 million, or $0.335 per share.
Net income increased $1.9 million, or 10.3%, from the quarter ended September 30, 2015 to $20.7 million, or $0.16 per share, for the quarter ended December 31, 2015, due primarily to a decrease in non-interest expense, along with the benefit of a lower effective income tax rate in the current quarter. Net income attributable to the daily leverage strategy was $583 thousand during the current quarter compared to $669 thousand in the prior quarter. The decrease in the net income attributable to the daily leverage strategy was due to an increase in the Federal Home Loan Bank Topeka ("FHLB") line of credit borrowings rate, which was larger than the increase in the average yield earned on cash at the Federal Reserve Bank.
Net interest income increased $42 thousand, or 0.1%, from the prior quarter to $48.0 million for the current quarter. The net interest margin was 1.75% for the current quarter, unchanged from the prior quarter. Excluding the effects of the daily leverage strategy, the net interest margin would have been 2.11% for the current quarter compared to 2.10% for the prior quarter.
Interest and Dividend Income
The weighted average yield on total interest-earning assets for the current quarter was 2.71%, unchanged from the prior quarter, while the average balance of interest-earning assets increased $19.8 million between the two periods. Absent the impact of the daily leverage strategy, the weighted average yield on total interest-earning assets would have decreased two basis points from the prior quarter, to 3.21%, while the average balance would have increased $25.8 million. The following table presents the components of interest and dividend income for the time periods presented, along with the change measured in dollars and percent.
December 31, | September 30, | Change Expressed in: | |
2015 | 2015 | Dollars Percent | |
INTEREST AND DIVIDEND INCOME: | (Dollars in thousands) | ||
Loans receivable | $ 60,223 | $ 59,761 | $ 462 0.8% |
Mortgage-backed securities ("MBS") | 7,831 | 8,260 | (429) (5.2) |
FHLB stock | 3,152 | 3,167 | (15) (0.5) |
Cash and cash equivalents | 1,620 | 1,303 | 317 24.3 |
Investment securities | 1,533 | 1,920 | (387) (20.2) |
Total interest and dividend income | $ 74,359 | $ 74,411 | $ (52) (0.1) |
The increase in interest income on loans receivable was due to an $85.0 million increase in the average balance of the portfolio, partially offset by a two basis point decrease in the weighted average yield on the portfolio, to 3.62% for the current quarter.
The decrease in interest income on MBS was due to a $94.4 million decrease in the average balance of the portfolio, partially offset by a three basis point increase in the weighted average yield on the portfolio. Cash flows from the portfolio were primarily used to fund loan growth. During the current quarter, $1.2 million of net premiums on MBS were amortized, which decreased the weighted average yield on the portfolio by 33 basis points. During the prior quarter, $1.4 million of net premiums were amortized, which decreased the weighted average yield on the portfolio by 36 basis points.
The increase in interest income on cash and cash equivalents was due primarily to a four basis point increase in the weighted average yield resulting from an increase in yield earned on balances held at the Federal Reserve Bank, as well as to a $166.3 million increase in the average balance due to an increase in operating cash.
The decrease in interest income on investment securities was due to a $136.7 million decrease in the average balance of the portfolio, partially offset by a two basis point increase in the weighted average yield on the portfolio. Cash flows from the portfolio during the current quarter were primarily held as operating cash in anticipation of loan growth and other operational cash flow needs.
Interest Expense
The weighted average rate paid on total interest-bearing liabilities decreased one basis point from the prior quarter, to 1.08%, while the average balance of interest-bearing liabilities increased $61.3 million between the two periods. Absent the impact of the daily leverage strategy, the weighted average rate paid on total interest-bearing liabilities would have decreased three basis points from the prior quarter, to 1.28%, and the average balance would have increased $68.9 million. The following table presents the components of interest expense for the time periods presented, along with the change measured in dollars and percent.
(Dollars in thousands)
INTEREST EXPENSE: | ||||
FHLB borrowings | $ 16,074 | $ 16,539 | $ (465) | (2.8)% |
Deposits | 8,799 | 8,390 | 409 | 4.9 |
Repurchase agreements | 1,504 | 1,542 | (38) | (2.5) |
Total interest expense | $ 26,377 | $ 26,471 | $ (94) | (0.4) |
The decrease in interest expense on FHLB borrowings was due largely to a 10 basis point decrease in the weighted average rate paid on FHLB advances during the current quarter, to 2.24%, due primarily to a full quarter impact of the prepayment of a $175.0 million advance during the prior quarter that had an effective rate of 5.08% and a remaining term-to-maturity of just over six months. The
prepaid FHLB advance was replaced with a $175.0 million fixed-rate advance with an effective rate of 2.18% and a term of three years.
The increase in interest expense on deposits was primarily a result of deposit growth, which increased the average balance of the portfolio by $105.6 million. The average balance of wholesale certificates of deposit increased $53.5 million and the average balance of retail deposits increased $52.1 million, largely in the certificate of deposit and checking portfolios.
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.
December 31, | September 30, | Change Expressed in: | |
2015 | 2015 | Dollars Percent | |
NON-INTEREST INCOME: | (Dollars in thousands) | ||
Retail fees and charges | $ 3,814 | $ 3,845 | $ (31) (0.8)% |
Insurance commissions | 516 | 724 | (208) (28.7) |
Loan fees | 342 | 345 | (3) (0.9) |
Other non-interest income | 894 | 547 | 347 63.4 |
Total non-interest income | $ 5,566 | $ 5,461 | $ 105 1.9 |
The decrease in insurance commissions was due largely to the receipt of annual commissions from certain insurance providers during the prior quarter. The increase in other non-interest income was due primarily to a full quarter impact from the purchase of a new bank-owned life insurance ("BOLI") investment during the prior 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.
NON-INTEREST EXPENSE:
For the Three Months Ended(Dollars in thousands)
Salaries and employee benefits $ 10,487 $ 11,382 $ (895) (7.9)%
Occupancy, net | 2,672 | 2,507 | 165 | 6.6 |
Information technology and communications | 2,558 | 2,634 | (76) | (2.9) |
Regulatory and outside services | 1,486 | 1,480 | 6 | 0.4 |
Federal insurance premium | 1,382 | 1,403 | (21) | (1.5) |
Deposit and loan transaction costs | 1,274 | 1,352 | (78) | (5.8) |
Advertising and promotional | 1,154 | 1,840 | (686) | (37.3) |
Office supplies and related expense | 887 | 528 | 359 | 68.0 |
Low income housing partnerships | 773 | 1,168 | (395) | (33.8) |
Other non-interest expense | 917 | 968 | (51) | (5.3) |
Total non-interest expense | $ 23,590 | $ 25,262 | $ (1,672) | (6.6) |
The decrease in salaries and employee benefits expense was due primarily to the prior quarter including compensation expense on unallocated Employee Stock Ownership Plan ("ESOP") shares related to the True Blue Capitol dividend paid during the prior fiscal year. The decrease in advertising and promotional expense was due primarily to the timing of media campaigns and sponsorships. The increase in office supplies and related expense was due primarily to the purchase of cards enabled with chip card technology. The decrease in low income housing partnerships expense was due primarily to impairments in the prior quarter and no such impairments in the current quarter.
The Company's efficiency ratio was 44.05% for the current quarter compared to 47.31% for the prior quarter. The change in the efficiency ratio was due primarily to a decrease in non-interest expense. The efficiency ratio is a measure of a financial institution's total non-interest expense as a percentage of the sum of net interest income (pre-provision for credit losses) and non-interest income. A lower value indicates that the financial institution is generating revenue with a lower level of expense.
Income Tax Expense
Income tax expense was $9.2 million for the current quarter compared to $9.4 million for the prior quarter. The decrease between periods was due to a decrease in the effective income tax rate, from 33.2% for the prior quarter, to 30.8% for the current quarter. The decrease in the effective income tax rate between quarters was due primarily to the current quarter including favorable discrete items related to state income tax liabilities, along with an increase in nontaxable income related to BOLI and an increase in low income housing tax credits in the current fiscal year. Management anticipates the effective tax rate for fiscal year 2016 will be approximately 32%, based on fiscal year 2016 estimates as of December 31, 2015.
For the quarter ended December 31, 2015, the Company recognized net income of $20.7 million, or $0.16 per share, compared to net income of $20.5 million, or $0.15 per share, for the quarter ended December 31, 2014. The $246 thousand, or 1.2%, increase in net income was due primarily to a $309 thousand increase in non-interest income and a $266 thousand decrease in income tax expense, partially offset by an $448 thousand increase in non-interest expense. Net income attributable to the daily leverage strategy was $583 thousand during the current quarter, compared to $795 thousand for the prior year quarter. The decrease in the net income attributable to the daily leverage strategy was due to an increase in the FHLB line of credit borrowings rate, which was larger than the increase in the average yield earned on the cash at the Federal Reserve Bank.
Net interest income decreased $54 thousand, or 0.1%, from the prior year quarter to $48.0 million for the current quarter. The net interest margin decreased one basis point, from 1.76% for the prior year quarter to 1.75% for the current year quarter. Excluding the effects of the daily leverage strategy, the net interest margin would have been 2.11% for the current year quarter, unchanged from the prior year quarter.
Interest and Dividend Income
The weighted average yield on total interest-earning assets decreased three basis points, from 2.74% for the prior year quarter to 2.71% for the current quarter, while the average balance of interest-earning assets increased $55.9 million from the prior year quarter. Absent the impact of the daily leverage strategy, the weighted average yield on total interest-earning assets would have decreased five basis points, from 3.26% for the prior year quarter to 3.21% for the current year quarter. 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.
INTEREST AND DIVIDEND INCOME:
For the Three Months Ended December 31, Change Expressed in: 2015 2014 Dollars Percent(Dollars in thousands)
Loans receivable $ 60,223 $ 58,619 $ 1,604 2.7%
MBS 7,831 10,001 (2,170) (21.7)
FHLB stock 3,152 3,181 (29) (0.9)
Cash and cash equivalents 1,620 1,424 196 13.8
Investment securities 1,533 1,675 (142) (8.5)
Total interest and dividend income $ 74,359 $ 74,900 $ (541) (0.7)
The increase in interest income on loans receivable was due to a $395.1 million increase in the average balance of the portfolio, partially offset by a 13 basis point decrease in the weighted average yield on the portfolio, to 3.62% for the current quarter. The decrease in the weighted average yield was due primarily to adjustable-rate loans, endorsements, and refinances repricing loans to lower market rates, along with an increase in net deferred premium amortization and the origination and purchase of loans between periods at rates less than the existing portfolio rate.
The decrease in interest income on the MBS portfolio was due primarily to a $332.2 million decrease in the average balance of the portfolio as cash flows not reinvested were used to fund loan growth. Additionally, the weighted average yield on the MBS portfolio decreased seven basis points, from 2.29% during the prior year quarter to 2.22% for the current year quarter. The decrease in the weighted average yield was due primarily to repayments of MBS with yields greater than the weighted average yield on the existing
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Capitol Federal Financial Inc. issued this content on 28 January 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 28 January 2016 14:30:22 UTC
Original Document: http://ir.capfed.com/file/Index?KeyFile=1001206199
