Capitol Federal Financial(CFFN) - 2025 Q3 - Quarterly Results

News Release & Highlights Capitol Federal Financial, Inc. is strategically expanding its commercial banking operations by integrating technology, people, products, and services, and reported strong quarterly financial results Strategic Banking Initiatives The Company is strategically expanding its commercial banking operations by integrating technology, people, products, and services to meet diverse financial needs - The Company is strategically growing commercial banking by aligning technology, people, products, and services, focusing on meeting financial needs of growing and established companies and small businesses[2] - Implementation of commercial loan pricing and profitability software is ongoing, with additional modules planned for market insight on competitor pricing[3] - Efforts are underway to grow non-interest bearing deposits and diversify fee-based revenue through treasury management, trust, wealth management, and small business banking services, including new digital checking products and planned digital onboarding for small businesses[4] - A seamless digital banking experience is being created for all customers, including a new deposit account onboarding platform (Nov 2024) and digital debit card enhancements (Q4 FY2025)[5] - The Bank is building a suite of private banking products and services, having hired seasoned wealth management professionals to manage initial relationships and transform the trust and wealth management business[6] Quarterly Financial Highlights For the quarter ended June 30, 2025, the Company reported net income of $18.4 million and EPS of $0.14, with an improved net interest margin of 1.98% Quarterly Financial Metrics | Metric | Value | | :----------------------- | :---------- | | Net Income | $18.4 million | | Basic & Diluted EPS | $0.14 | | Net Interest Margin (NIM) | 1.98% | | Cash Dividend per Share | $0.085 | - Net interest margin increased by six basis points from the prior quarter, reaching 1.98%[7] - A cash dividend of $0.085 per share was announced on July 22, 2025, payable on August 15, 2025[7] Comparison of Operating Results (QoQ) This section compares the Company's operating results for the three months ended June 30, 2025, against the prior quarter Overall Performance Net income increased to $18.4 million (or $0.14 per share) from $15.4 million (or $0.12 per share) in the prior quarter, driven by higher net interest income and lower tax expense Overall Performance Metrics (QoQ) | Metric | Q3 FY2025 (June 30, 2025) (in millions) | Q2 FY2025 (March 31, 2025) (in millions) | Change (QoQ) (in millions) | | :----------------------- | :------------------------ | :----------------------- | :----------- | | Net Income | $18.4 | $15.4 | +$3.0 | | EPS | $0.14 | $0.12 | +$0.02 | | Net Interest Margin (NIM) | 1.98% | 1.92% | +6 bps | - The increase in net income was primarily due to higher net interest income and lower tax expense[8] - Net interest margin increased by six basis points, mainly attributed to an increase in the average balance of commercial loans as the loan portfolio continued to remix[8] Interest and Dividend Income Total interest and dividend income increased by $1.5 million (1.5%) quarter-over-quarter to $99.7 million, primarily from loans receivable and mortgage-backed securities Interest and Dividend Income Breakdown (QoQ) | Component | Q3 FY2025 (June 30, 2025) (in thousands) | Q2 FY2025 (March 31, 2025) (in thousands) | Change (in thousands) | Change (Percent) | | :---------------------------- | :------------------------ | :----------------------- | :--------------- | :--------------- | | Loans receivable | $82,914 | $80,867 | $2,047 | 2.5% | | Mortgage-backed securities (MBS) | $12,163 | $11,264 | $899 | 8.0% | | Federal Home Loan Bank (FHLB) stock | $2,197 | $2,285 | ($88) | (3.9%) | | Cash and cash equivalents | $1,620 | $2,729 | ($1,109) | (40.6%) | | Investment securities | $784 | $1,030 | ($246) | (23.9%) | | Total | $99,678 | $98,175 | $1,503 | 1.5% | - Increase in interest income on loans receivable was mainly due to an increase in the average balance of the commercial loan portfolio[10] - Decrease in interest income on cash and cash equivalents was due to a decrease in the average balance as operating cash was utilized for commercial loan activities and to repay borrowings[10] Interest Expense Total interest expense slightly decreased by $115 thousand (0.2%) to $54.2 million, as growth in high-yield savings was offset by lower costs in retail certificates of deposit Interest Expense Breakdown (QoQ) | Component | Q3 FY2025 (June 30, 2025) (in thousands) | Q2 FY2025 (March 31, 2025) (in thousands) | Change (in thousands) | Change (Percent) | | :---------------- | :------------------------ | :----------------------- | :--------------- | :--------------- | | Deposits | $35,860 | $35,853 | $7 | —% | | Borrowings | $18,360 | $18,482 | ($122) | (0.7%) | | Total | $54,220 | $54,335 | ($115) | (0.2%) | - Increased interest expense from high yield savings accounts was almost entirely offset by a decrease in the cost of retail certificates of deposits[12] Provision for Credit Losses The Company recorded a release of provision for credit losses of $451 thousand, primarily due to a $1.1 million decrease in the allowance for credit losses for loans - Release of provision for credit losses: $451 thousand[13] - Decrease in ACL for loans: $1.1 million, mainly related to the commercial loan portfolio due to an update to the ACL model's regression analyses[13] - Increase in reserve for off-balance sheet credit exposures: $686 thousand, primarily due to an increase in commercial and industrial off-balance sheet credit exposures[13] Non-Interest Income Total non-interest income increased by $335 thousand (6.8%) to $5.3 million, mainly driven by higher deposit service fees from increased debit card usage Non-Interest Income Breakdown (QoQ) | Component | Q3 FY2025 (June 30, 2025) (in thousands) | Q2 FY2025 (March 31, 2025) (in thousands) | Change (in thousands) | Change (Percent) | | :---------------------- | :------------------------ | :----------------------- | :--------------- | :--------------- | | Deposit service fees | $2,867 | $2,596 | $271 | 10.4% | | Insurance commissions | $884 | $927 | ($43) | (4.6%) | | Other non-interest income | $1,537 | $1,430 | $107 | 7.5% | | Total | $5,288 | $4,953 | $335 | 6.8% | - The increase in deposit service fees was primarily due to an increase in debit card usage, generating additional interchange and service charge income[15] Non-Interest Expense Total non-interest expense remained stable at $29.6 million, with increased advertising offset by lower customer fraud losses, improving the efficiency ratio to 58.26% Non-Interest Expense Breakdown (QoQ) | Component | Q3 FY2025 (June 30, 2025) (in thousands) | Q2 FY2025 (March 31, 2025) (in thousands) | Change (in thousands) | Change (Percent) | | :------------------------------ | :------------------------ | :----------------------- | :--------------- | :--------------- | | Salaries and employee benefits | $15,277 | $14,938 | $339 | 2.3% | | Information technology and related expense | $5,163 | $4,924 | $239 | 4.9% | | Occupancy, net | $3,270 | $3,502 | ($232) | (6.6%) | | Regulatory and outside services | $1,261 | $1,469 | ($208) | (14.2%) | | Federal insurance premium | $1,072 | $1,095 | ($23) | (2.1%) | | Advertising and promotional | $1,453 | $760 | $693 | 91.2% | | Deposit and loan transaction costs | $715 | $879 | ($164) | (18.7%) | | Office supplies and related expense | $370 | $437 | ($67) | (15.3%) | | Other non-interest expense | $983 | $1,536 | ($553) | (36.0%) | | Total | $29,564 | $29,540 | $24 | 0.1% | - The increase in advertising and promotional expense was primarily due to the timing of seasonal sponsorships and campaigns[17] - The efficiency ratio improved to 58.26% from 60.54% in the prior quarter, driven by higher net interest income[18] Income Tax Expense Income tax expense decreased by $603 thousand (15.6%) to $3.3 million, resulting in a lower effective tax rate of 15.0% due to a change in Kansas tax law Income Tax Expense and Net Income (QoQ) | Metric | Q3 FY2025 (June 30, 2025) (in thousands) | Q2 FY2025 (March 31, 2025) (in thousands) | Change (in thousands) | Change (Percent) | | :------------------------- | :------------------------ | :----------------------- | :--------------- | :--------------- | | Income before income tax expense | $21,633 | $19,253 | $2,380 | 12.4% | | Income tax expense | $3,251 | $3,854 | ($603) | (15.6%) | | Net income | $18,382 | $15,399 | $2,983 | 19.4% | | Effective Tax Rate | 15.0% | 20.0% | | | - The primary reason for the lower effective tax rate and income tax expense was an $857 thousand reduction in net state income tax expense due to a change in Kansas tax law, effective October 1, 2027[21] - Management anticipates the effective tax rate for fiscal year 2025 will be 18% to 19%, lower than originally expected due to the Kansas law change[21] Comparison of Operating Results (YTD) This section compares the Company's operating results for the nine months ended June 30, 2025, against the prior year period Overall Performance & Securities Strategy Impact Net income significantly increased to $49.2 million (or $0.38 per share) from $26.0 million (or $0.20 per share) in the prior year, largely due to the absence of securities strategy losses Overall Performance Metrics (YTD) | Metric | YTD FY2025 (June 30, 2025) (in millions) | YTD FY2024 (June 30, 2024) (in millions) | Change (YTD) (in millions) | | :----------------------- | :------------------------- | :------------------------- | :----------- | | Net Income | $49.2 | $26.0 | +$23.2 | | EPS | $0.38 | $0.20 | +$0.18 | | Net Interest Margin (NIM) | 1.92% | 1.77% | +15 bps | - The lower net income in the prior year period was primarily a result of $13.3 million ($10.0 million net of tax) of net losses on the sale of securities associated with the securities strategy[22] - Excluding the effects of the net loss associated with the securities strategy, earnings per share would have been $0.28 for the prior year period[22] - The net interest margin increased 15 basis points, from 1.77% for the prior year period to 1.92% for the current year period, mainly due to higher yields on the loan portfolio[23] Securities Strategy to Improve Earnings In October 2023, the Company executed a securities strategy by selling $1.30 billion of securities, incurring $192.6 million in impairment losses, to reinvest in higher-yielding assets and reduce borrowings - In October 2023, the Company sold $1.30 billion of securities (94% of its portfolio) as part of a strategy to improve earnings[24] - The strategy resulted in a $192.6 million impairment loss (FY2023) and an additional $13.3 million ($10.0 million net of tax) loss in Q1 FY2024[24] - Proceeds were used to purchase $632.0 million of securities yielding 5.75% (compared to 1.22% for sold securities), pay down $500.0 million of borrowings (4.70% cost), and hold remaining cash for liquidity[24] Interest and Dividend Income Total interest and dividend income for the nine months ended June 30, 2025, increased by $15.5 million (5.5%) to $295.5 million, driven by higher income from loans and MBS Interest and Dividend Income Breakdown (YTD) | Component | YTD FY2025 (June 30, 2025) (in thousands) | YTD FY2024 (June 30, 2024) (in thousands) | Change (in thousands) | Change (Percent) | | :---------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Loans receivable | $245,175 | $228,866 | $16,309 | 7.1% | | Mortgage-backed securities (MBS) | $34,451 | $23,238 | $11,213 | 48.3% | | Federal Home Loan Bank (FHLB) stock | $6,834 | $7,591 | ($757) | (10.0%) | | Cash and cash equivalents | $6,220 | $13,166 | ($6,946) | (52.8%) | | Investment securities | $2,795 | $7,115 | ($4,320) | (60.7%) | | Total | $295,475 | $279,976 | $15,499 | 5.5% | - Increase in interest income on loans receivable was primarily due to the continued shift from one- to four-family loans to higher yielding commercial loans[26] - Increase in interest income on MBS was due to an increase in average balance and weighted average yield, largely influenced by the securities strategy reinvestment into higher yielding securities[26] Interest Expense Total interest expense for the nine months ended June 30, 2025, increased by $5.2 million (3.3%) to $163.9 million, mainly due to higher deposit costs, partially offset by lower borrowing balances Interest Expense Breakdown (YTD) | Component | YTD FY2025 (June 30, 2025) (in thousands) | YTD FY2024 (June 30, 2024) (in thousands) | Change (in thousands) | Change (Percent) | | :---------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Deposits | $109,058 | $102,091 | $6,967 | 6.8% | | Borrowings | $54,889 | $56,648 | ($1,759) | (3.1%) | | Total | $163,947 | $158,739 | $5,208 | 3.3% | - The increase in interest expense on deposits was primarily due to an increase in the weighted average rate paid on savings accounts (specifically high yield savings) and retail certificates of deposit[28] - The decrease in interest expense on borrowings was mainly due to a decrease in the average balance, as FHLB borrowings matured and were not renewed, and BTFP borrowings were repaid using proceeds from the securities strategy[29] Provision for Credit Losses For the nine months ended June 30, 2025, the Company recorded a provision for credit losses of $226 thousand, a significant decrease from $1.9 million in the prior year period Provision for Credit Losses (YTD) | Metric | YTD FY2025 (June 30, 2025) | YTD FY2024 (June 30, 2024) | | :-------------------------- | :------------------------- | :------------------------- | | Provision for Credit Losses | $226 thousand | $1.9 million | - The current year's provision was comprised of a $321 thousand increase in the reserve for off-balance sheet credit exposures, partially offset by a $95 thousand decrease in the ACL for loans[30] Non-Interest Income Total non-interest income dramatically increased to $14.9 million from $458 thousand in the prior year, primarily due to the absence of $13.3 million in securities transaction losses Non-Interest Income Breakdown (YTD) | Component | YTD FY2025 (June 30, 2025) (in thousands) | YTD FY2024 (June 30, 2024) (in thousands) | Change (in thousands) | Change (Percent) | | :------------------------------ | :------------------------- | :------------------------- | :--------------- | :--------------- | | Deposit service fees | $8,170 | $7,732 | $438 | 5.7% | | Insurance commissions | $2,587 | $2,503 | $84 | 3.4% | | Net loss from securities transactions | — | ($13,345) | $13,345 | 100.0% | | Other non-interest income | $4,177 | $3,568 | $609 | 17.1% | | Total | $14,934 | $458 | $14,476 | 3,160.7% | - The significant increase in total non-interest income was primarily due to the absence of the $13.3 million net loss from securities transactions recorded in the prior year period[32] - Deposit service fees increased mainly due to growth in treasury management service fees, along with modest increases in interchange revenue and retail service fees[32] Non-Interest Expense Total non-interest expense increased by $1.3 million (1.6%) to $86.3 million, driven by higher salaries and employee benefits, with the efficiency ratio improving to 58.89% Non-Interest Expense Breakdown (YTD) | Component | YTD FY2025 (June 30, 2025) (in thousands) | YTD FY2024 (June 30, 2024) (in thousands) | Change (in thousands) | Change (Percent) | | :------------------------------ | :------------------------- | :------------------------- | :--------------- | :--------------- | | Salaries and employee benefits | $44,447 | $39,186 | $5,261 | 13.4% | | Information technology and related expense | $14,637 | $15,687 | ($1,050) | (6.7%) | | Occupancy, net | $10,105 | $10,116 | ($11) | (0.1%) | | Regulatory and outside services | $3,843 | $4,345 | ($502) | (11.6%) | | Federal insurance premium | $3,205 | $4,939 | ($1,734) | (35.1%) | | Advertising and promotional | $3,035 | $3,210 | ($175) | (5.5%) | | Deposit and loan transaction costs | $2,185 | $2,135 | $50 | 2.3% | | Office supplies and related expense | $1,206 | $1,185 | $21 | 1.8% | | Other non-interest expense | $3,589 | $4,100 | ($511) | (12.5%) | | Total | $86,252 | $84,903 | $1,349 | 1.6% | - The increase in salaries and employee benefits was mainly attributable to an increase in the number of employees, merit increases, salary adjustments, and higher incentive compensation accrual[34] - The efficiency ratio improved to 58.89% for the current year period compared to 69.77% for the prior year period (62.87% excluding securities strategy losses), primarily due to higher net interest income[36] Income Tax Expense Income tax expense for the nine months ended June 30, 2025, increased by $1.8 million (20.5%) to $10.8 million, reflecting higher pretax income, with the effective tax rate decreasing to 18.0% Income Tax Expense and Net Income (YTD) | Metric | YTD FY2025 (June 30, 2025) (in thousands) | YTD FY2024 (June 30, 2024) (in thousands) | Change (in thousands) | Change (Percent) | | :------------------------- | :------------------------- | :------------------------- | :--------------- | :--------------- | | Income before income tax expense | $59,984 | $34,896 | $25,088 | 71.9% | | Income tax expense | $10,772 | $8,943 | $1,829 | 20.5% | | Net income | $49,212 | $25,953 | $23,259 | 89.6% | | Effective Tax Rate | 18.0% | 25.6% | | | - Income tax expense was higher in the current year period due to higher pretax income[38] - The effective tax rate was higher in the prior year period due mainly to the income tax associated with the pre-1988 bad debt recapture[38] Financial Condition This section provides an overview of the Company's financial position as of June 30, 2025, including balance sheet, loan portfolio, equity, and capital management Balance Sheet Summary Total assets were $9.69 billion, with loans receivable increasing by $147.6 million QoQ, deposits growing by $58.6 million QoQ, and stockholders' equity reaching $1.05 billion Consolidated Balance Sheet Summary (in thousands) | Metric | June 30, 2025 | March 31, 2025 | September 30, 2024 | | :---------------------- | :------------ | :------------- | :----------------- | | Total assets | $9,692,739 | $9,718,184 | $9,527,608 | | Loans receivable, net | $8,023,554 | $7,875,905 | $7,907,338 | | Deposits | $6,431,137 | $6,372,545 | $6,129,982 | | Borrowings | $2,071,585 | $2,142,956 | $2,179,564 | | Stockholders' equity | $1,046,158 | $1,037,110 | $1,032,270 | | Equity to total assets | 10.8% | 10.7% | 10.8% | - The loan portfolio increased $147.6 million during the current quarter, with a $243.5 million increase in commercial loans offsetting a $99.3 million decrease in one- to four-family loans[40] - Deposits increased $58.6 million during the current quarter, mainly due to a $123.9 million increase in the Bank's high yield savings account offering[42] - Borrowings decreased $71.4 million (13.3% annualized) due to a $50.0 million matured borrowing not replaced and principal payments on FHLB advances[42] Loan Portfolio Composition and Activity The loan portfolio continued its strategic shift, with commercial loans growing significantly while one- to four-family loans decreased, and $445.2 million in total originations and purchases for the quarter Loan Portfolio Composition (QoQ) (in thousands) | Loan Type (QoQ) | June 30, 2025 | March 31, 2025 | Change (Dollars) | | :---------------- | :------------ | :------------- | :--------------- | | One- to four-family | $6,018,486 | $6,117,810 | ($99,324) | | Commercial | $1,911,841 | $1,668,327 | $243,514 | | Consumer | $112,673 | $108,483 | $4,190 | | Total Loans | $8,043,000| $7,894,620 | $148,380 | Loan Activity (QoQ) (in thousands) | Loan Activity (QoQ) | Amount (Q3 FY2025) | Rate (Q3 FY2025) | | :-------------------- | :----------------- | :--------------- | | Originated & Refinanced | $422,501 | 6.99% | | Purchased & Participations | $22,689 | 6.91% | | Repayments | ($268,493) | | | Ending Balance | $8,043,000 | 4.25% | - As of June 30, 2025, the Bank had $146.2 million of commercial real estate loan commitments expected to fund during the September 30, 2025 quarter, mainly in July 2025[40] - One- to four-family origination and refinance activity has slowed due to continued high interest rates and a lack of housing inventory; the Bank suspended correspondent lending channels in FY2024[41] One- to Four-Family Loans The one- to four-family loan portfolio totaled $6.02 billion, representing 74.8% of total loans, with a weighted average rate of 3.65% and strong credit quality One- to Four-Family Loan Portfolio Details (in thousands) | Category | Amount (June 30, 2025) | % of Total | Rate | Credit Score | LTV | Average Balance per Loan (in thousands) | | :-------------------- | :--------------------- | :--------- | :---- | :----------- | :---- | :----------------------- | | Originated | $3,828,171 | 63.6% | 3.74% | 771 | 58% | $170 | | Correspondent purchased | $2,058,749 | 34.2% | 3.49% | 767 | 61% | $394 | | Bulk purchased | $116,706 | 2.0% | 3.30% | 773 | 53% | $275 | | Construction | $14,860 | 0.2% | 6.27% | 773 | 39% | $270 | | Total | $6,018,486 | 100.0% | 3.65% | 770 | 59% | $213 | One- to Four-Family Loan Activity (QoQ) (in thousands) | Activity (QoQ) | Amount (Q3 FY2025) | Rate | LTV | Credit Score | | :--------------- | :----------------- | :---- | :---- | :----------- | | Origination & Refinance | $86,769 | 6.23% | 75% | 767 | Commercial Loans The commercial loan portfolio grew to $1.91 billion, comprising 23.8% of total loans, with a weighted average rate of 5.93%, driven by significant commercial real estate and industrial growth Commercial Loan Portfolio Details (in thousands) | Commercial Loan Type | Amount (June 30, 2025) | % of Total | Rate | | :------------------- | :--------------------- | :--------- | :---- | | Commercial real estate | $1,561,691 | 19.4% | 5.76% | | Commercial and industrial | $184,390 | 2.3% | 6.94% | | Construction | $165,760 | 2.1% | 6.39% | | Total | $1,911,841 | 23.8% | 5.93% | Commercial Loan Origination & Participation (QoQ) (in thousands) | Commercial Origination & Participation (QoQ) | Amount (Q3 FY2025) | Rate | LTV | DSCR | | :------------------------------------------- | :----------------- | :---- | :---- | :---- | | Commercial real estate | $169,496 | 7.00% | 51.2% | 1.55x |\ | Commercial and industrial | $113,289 | 7.32% | N/A | 1.73 |\ | Commercial construction | $57,214 | 7.00% | 77.1% | 1.34 |\ | Total | $339,999 | 7.11% | 57.7% | 1.58 | - The commercial and industrial gross loan amount increased $96.6 million, or 52%, during the current quarter, with three loans to two borrower relationships accounting for $85.3 million of this increase[86] - The largest commercial and industrial lending relationship at June 30, 2025, had a gross loan balance of $81.8 million, representing 29% of the portfolio[86] Stockholders' Equity & Dividends Stockholders' equity reached $1.05 billion, with the Bank maintaining a well-capitalized status and the Board intending to pay $0.34 per share in regular quarterly cash dividends for FY2025 - Stockholders' equity totaled $1.05 billion at June 30, 2025, an increase of $13.9 million from September 30, 2024[47] - The Bank's capital ratios exceeded well-capitalized requirements, and its community bank leverage ratio was 9.7% as of June 30, 2025[47] - During the nine months ended June 30, 2025, the Company paid regular quarterly cash dividends totaling $33.2 million, or $0.255 per share[48] - The Board of Directors intends to pay a regular quarterly cash dividend of $0.085 per share for FY2025, totaling $0.34 per share for the year, with consideration for additional dividends if earnings exceed this amount[49] - No distributions are expected from the Bank to the Company in FY2025 to limit tax associated with pre-1988 bad debt recapture, with distributions anticipated in FY2026[50] Stock Repurchase Plan The Company has a $75.0 million authorized stock repurchase plan, but no shares were repurchased in the current year, and future repurchases are contingent on rebuilding the holding company's cash balance - The Company has $75.0 million authorized under an existing stock repurchase plan, with FRB approval expiring in February 2026[51] - There were no share repurchases during the current year period[51] - Repurchases are not expected until a sufficient cash balance is rebuilt at the holding company level due to limited cash based on the capital management plan[51] Supplemental Financial Information This section provides detailed financial statements and supplementary data, including balance sheets, income statements, and asset quality metrics Consolidated Balance Sheets Total assets were $9.69 billion at June 30, 2025, with net loans receivable at $8.02 billion, deposits at $6.43 billion, and stockholders' equity at $1.05 billion Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2025 | March 31, 2025 | September 30, 2024 | | :-------------------- | :------------ | :------------- | :----------------- | | Cash and cash equivalents | $174,965 | $340,389 | $217,307 | | AFS securities | $956,229 | $961,417 | $856,266 | | Loans receivable, net | $8,023,554 | $7,875,905 | $7,907,338 | | FHLB stock | $98,225 | $99,334 | $101,175 | | TOTAL ASSETS | $9,692,739| $9,718,184 | $9,527,608 | | LIABILITIES (in thousands) | | | | | Deposits | $6,431,137 | $6,372,545 | $6,129,982 | | Borrowings | $2,071,585 | $2,142,956 | $2,179,564 | | Total liabilities | $8,646,581| $8,681,074 | $8,495,338 | | STOCKHOLDERS' EQUITY (in thousands) | | | | | Total stockholders' equity | $1,046,158| $1,037,110 | $1,032,270 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $9,692,739| $9,718,184 | $9,527,608 | Consolidated Statements of Income Net income for Q3 FY2025 was $18.4 million, and YTD FY2025 net income was $49.2 million, significantly higher than the prior year due to increased net interest income and the absence of securities losses Consolidated Statements of Income (in thousands) | (Dollars in thousands) | Q3 FY2025 (June 30, 2025) | Q2 FY2025 (March 31, 2025) | YTD FY2025 (June 30, 2025) | YTD FY2024 (June 30, 2024) | | :--------------------- | :------------------------ | :----------------------- | :------------------------- | :------------------------- | | Total interest and dividend income | $99,678 | $98,175 | $295,475 | $279,976 | | Total interest expense | $54,220 | $54,335 | $163,947 | $158,739 | | NET INTEREST INCOME | $45,458 | $43,840 | $131,528 | $121,237 | | PROVISION FOR CREDIT LOSSES | ($451) | — | $226 | $1,896 | | Total non-interest income | $5,288 | $4,953 | $14,934 | $458 | | Total non-interest expense | $29,564 | $29,540 | $86,252 | $84,903 | | INCOME BEFORE INCOME TAX EXPENSE | $21,633 | $19,253 | $59,984 | $34,896 | | INCOME TAX EXPENSE | $3,251 | $3,854 | $10,772 | $8,943 | | NET INCOME | $18,382 | $15,399 | $49,212 | $25,953 | Average Balance Sheets and Yields/Rates The net interest margin improved to 1.98% QoQ and 1.92% YTD, with enhanced ROAA and ROAE reflecting improved profitability and efficiency, especially when excluding prior year's securities strategy impact Selected Performance Ratios (Annualized) | Selected Performance Ratios (Annualized) | Q3 FY2025 (June 30, 2025) | Q2 FY2025 (March 31, 2025) | YTD FY2025 (June 30, 2025) | YTD FY2024 (June 30, 2024) | | :--------------------------------------- | :------------------------ | :----------------------- | :------------------------- | :------------------------- | | Net interest margin | 1.98% | 1.92% | 1.92% | 1.77% | | Return on average assets | 0.76% | 0.64% | 0.68% | 0.36% | | Return on average equity | 7.05% | 5.96% | 6.33% | 3.35% | | Efficiency ratio | 58.26% | 60.54% | 58.89% | 69.77% | YTD FY2024 Performance (Excluding Securities Strategy) | YTD FY2024 Performance (Excluding Securities Strategy) | Actual (GAAP) | Securities Strategy Impact | Excluding Securities Strategy (Non-GAAP) | | :----------------------------------------------------- | :------------ | :------------------------- | :--------------------------------------- | | Return on average assets | 0.36% | (0.14%) | 0.50% | | Return on average equity | 3.35% | (1.31%) | 4.66% | | Efficiency Ratio | 69.77% | 6.90 | 62.87% | | Earnings per share | $0.20 | ($0.08) | $0.28 | - Management believes presenting certain financial measures excluding the securities strategy is meaningful to investors to better evaluate the Company's core operations, as the strategy was non-recurring[66] Asset Quality Asset quality shows a slight increase in delinquent loans and a significant rise in nonaccrual commercial real estate loans, but management deems the $22.8 million ACL and $6.3 million off-balance sheet reserve adequate Delinquency Status (in thousands) | Delinquency Status (Dollars in thousands) | June 30, 2025 | March 31, 2025 | September 30, 2024 | | :---------------------------------------- | :------------ | :------------- | :----------------- | | Loans 30 to 89 Days Delinquent | $16,029 | $14,440 | $16,030 | | Nonaccrual loans | $48,453 | $10,833 | $10,092 | | Non-performing assets | $48,545 | $10,833 | $10,147 | | Non-performing assets as % of total assets | 0.50% | 0.11% | 0.11% | - The increase in nonaccrual commercial real estate loans was primarily due to two participation loans related to the same borrowing relationship ($40.3 million) that were moved to substandard during the period[88][90] - The $1.1 million decrease in the ACL for loans was mainly related to the commercial loan portfolio, as an increase due to growth was more than offset by an update to the ACL model's regression analyses[13] - As of June 30, 2025, the ACL balance was $22.8 million and the reserve for off-balance sheet credit exposures totaled $6.3 million, which management believes is adequate for the credit risk characteristics in the loan portfolio[99][102] Delinquent and Non-Performing Loans Loans 30 to 89 days delinquent increased slightly to $16.0 million, while nonaccrual loans significantly rose to $48.5 million, primarily due to two commercial real estate participation loans moved to substandard status Delinquent Loans (30-89 Days) (in thousands) | Loan Type (30-89 Days Delinquent) | June 30, 2025 (Amount) | March 31, 2025 (Amount) | | :-------------------------------- | :--------------------- | :---------------------- | | One- to four-family | $12,575 | $11,179 | | Commercial | $2,820 | $2,820 | | Consumer | $634 | $441 | | Total | $16,029 | $14,440 | Non-Performing Loans and Assets (in thousands) | Non-Performing Loans (Dollars in thousands) | June 30, 2025 | March 31, 2025 | | :------------------------------------------ | :------------ | :------------- | | Loans 90 or More Days Delinquent or in Foreclosure | $8,018 | $9,563 | | Nonaccrual loans less than 90 Days Delinquent | $40,435 | $1,270 | | Total Nonaccrual Loans | $48,453 | $10,833 | | OREO | $92 | — | | Total Non-Performing Assets | $48,545 | $10,833 | - The increase in nonaccrual commercial real estate loans was due primarily to two participation loans related to the same borrowing relationship that were moved to substandard during the period[88] Classified Loans (Special Mention/Substandard) Substandard loans significantly increased to $107.8 million from $67.9 million, mainly due to $40.2 million and $38.9 million in commercial real estate participation loans secured by hotels, despite strong LTVs and guaranties Classified Loans by Type (in thousands) | Loan Type (Dollars in thousands) | Special Mention (June 30, 2025) | Substandard (June 30, 2025) | Special Mention (March 31, 2025) | Substandard (March 31, 2025) | | :------------------------------- | :------------------------------ | :-------------------------- | :------------------------------- | :--------------------------- | | One- to four-family | $12,583 | $21,524 | $11,793 | $20,340 | | Commercial real estate | $8,111 | $84,771 | $8,352 | $45,961 | | Commercial and industrial | $882 | $1,201 | $899 | $1,054 | | Consumer | $365 | $323 | $162 | $566 | | Total | $21,941 | $107,819 | $21,206 | $67,921 | - The increase in commercial real estate substandard loans was mainly due to two participation loans ($40.2 million) related to the same borrowing relationship and another $38.9 million participation loan, both secured by hotels[92] - These substandard loans have strong LTVs (45% and 47%) and personal guaranties, with no charge-offs or specific valuation allowances set aside as of June 30, 2025[92] Allowance for Credit Losses (ACL) The ACL for loans decreased by $1.1 million due to a model update, resulting in an ACL to total loans ratio of 0.28%, which management deems adequate alongside the $6.3 million off-balance sheet reserve ACL Distribution by Loan Type (in thousands) | ACL Distribution (Dollars in thousands) | June 30, 2025 | March 31, 2025 | September 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :----------------- | | One- to four-family | $3,532 | $3,562 | $3,673 | | Commercial | $19,039 | $20,176 | $19,154 | | Consumer | $237 | $232 | $208 | | Total ACL | $22,808 | $23,970 | $23,035 | | Ratio of ACL to Loans Receivable | 0.28% | 0.30% | 0.29% | ACL Activity Summary (in thousands) | ACL Activity (Dollars in thousands) | Q3 FY2025 (June 30, 2025) | YTD FY2025 (June 30, 2025) | | :---------------------------------- | :------------------------ | :------------------------- | | Balance at beginning of period | $23,970 | $23,035 | | Net (charge-offs) recoveries | ($25) | ($132) | | Provision for credit losses | ($1,137) | ($95) | | Balance at end of period | $22,808 | $22,808 | | ACL to non-performing loans at end of period | 47.07 | 47.07 | | ACL to loans receivable at end of period | 0.28 | 0.28 | - The decrease in the ratio of the ACL to total loans was primarily due to a decrease in the commercial real estate ACL, resulting from a regression analysis update in the ACL model[98] - Management applied qualitative factors for large dollar commercial real estate loan concentrations and potential risk of loss in market value for newer one- to four-family loans[95][97] Securities Portfolio The securities portfolio, at amortized cost, totaled $933.4 million at June 30, 2025, with 92% in fixed-rate securities, a weighted average yield of 5.47%, and a weighted average life of 4.6 years Securities Portfolio Composition (in thousands) | Securities Portfolio (Amortized Cost) | Amount (June 30, 2025) | Yield | WAL (Years) | | :------------------------------------ | :--------------------- | :---- | :---------- | | MBS | $874,360 | 5.49% | 4.5 | | U.S. government-sponsored enterprise debentures | $55,000 | 5.16% | 5.3 | | Corporate bonds | $4,000 | 5.12% | 6.9 | | Total | $933,360 | 5.47% | 4.6 | - Overall, fixed-rate securities comprised 92% of the securities portfolio at June 30, 2025[103] Securities Portfolio Activity (QoQ) (in thousands) | Securities Activity (QoQ) | Amount (Q3 FY2025) | Yield | WAL (Years) | | :------------------------ | :----------------- | :---- | :---------- | | Beginning balance | $961,417 | 5.46% | 5.6 | | Purchases | $38,749 | 5.02% | 5.8 | | Ending balance | $956,229 | 5.47% | 4.6 | Deposit Portfolio The deposit portfolio increased to $6.43 billion with a weighted average rate of 2.24%, driven by high-yield savings growth, while 14% of deposits were uninsured Deposit Portfolio Composition (in thousands) | Deposit Type (Dollars in thousands) | June 30, 2025 (Amount) | Rate | % of Total | | :---------------------------------- | :--------------------- | :---- | :--------- | | Non-interest-bearing checking | $579,595 | —% | 9.0% | | Interest-bearing checking | $884,838 | 0.24% | 13.8% | | High yield savings | $408,018 | 3.88% | 6.4% | | Other savings | $433,188 | 0.07% | 6.7% | | Money market | $1,203,917 | 1.22% | 18.7% | | Certificates of deposit | $2,921,581 | 3.81% | 45.4% | | Total | $6,431,137 | 2.24% | 100.0% | - The decrease in the deposit portfolio rate at June 30, 2025, compared to prior periods was mainly due to lower rates on retail certificates of deposit[107] - Approximately $899.4 million (14%) of the Bank's deposit balance was uninsured, with $509.4 million (8%) related to commercial and retail deposit accounts[111] Borrowings Term borrowings totaled $2.07 billion with a weighted average contractual rate of 3.60%, as the Bank prepaid $200 million of FHLB advances and replaced them with new, lower-rate, longer-term advances Borrowings Maturity Schedule (in thousands) | Maturity by Fiscal Year | Amount (June 30, 2025) | Contractual Rate | Effective Rate | | :---------------------- | :--------------------- | :--------------- | :------------- | | 2025 | $100,000 | 4.69% | 3.03% | | 2026 | $425,000 | 2.11% | 2.30% | | 2027 | $745,000 | 3.49% | 3.56% | | 2028 | $570,902 | 4.37% | 4.14% | | 2029 | $141,250 | 4.45% | 4.45% | | 2030 | $90,000 | 4.20% | 4.20% | | Total | $2,072,152 | 3.60% | 3.52% | - During the current quarter, the Bank prepaid $200.0 million of fixed-rate FHLB advances (4.70% rate, 0.6-year term) and replaced them with $200.0 million of new fixed-rate FHLB advances (3.83% rate, 2.5-year term)[115] Borrowing Activity (QoQ) (in thousands) | Borrowing Activity (QoQ) | Amount (Q3 FY2025) | Effective Rate | WAM (Years) | | :----------------------- | :----------------- | :------------- | :---------- | | Beginning balance | $2,143,320 | 3.54% | 1.6 | | Maturities and repayments | ($371,168) | 3.93% | | | New FHLB borrowings | $300,000 | 3.93% | 2.5 | | Ending balance | $2,072,152 | 3.52% | 1.7 | Maturities of Interest-Bearing Liabilities $2.41 billion in certificates of deposit and non-amortizing FHLB advances are maturing over the next four quarters, with a weighted average repricing rate of 3.61% and a WAM of 0.9 years for total certificates of deposit Maturities of Interest-Bearing Liabilities (in thousands) | Maturity Period (Dollars in thousands) | September 30, 2025 | December 31, 2025 | March 31, 2026 | June 30, 2026 | Total | | :------------------------------------- | :----------------- | :---------------- | :------------- | :------------ | :---- | | Retail/Commercial Certificates (Amount) | $453,811 | $618,835 | $302,603 | $556,155 | $1,931,404 | | Public Unit Certificates (Amount) | $10,983 | $14,329 | $43,110 | $9,001 | $77,423 | | Non-Amortizing FHLB Advances (Amount) | $100,000 | $100,000 | $100,000 | $100,000 | $400,000 | | Total Amount | $564,794 | $733,164 | $445,713 | $665,156 | $2,408,827 | | Total Repricing Rate | 4.00% | 3.56% | 3.19% | 3.63% | 3.61% | Certificates of Deposit Weighted Average Maturity (Years) | Certificates of Deposit | WAM (Years) | | :---------------------- | :---------- | | Retail certificates of deposit | 0.9 | | Commercial certificates of deposit | 0.7 | | Public unit certificates of deposit | 0.9 | | Total certificates of deposit | 0.9 | Average Rates and Lives (Interest Rate Sensitivity) The one-year interest rate sensitivity gap improved to $(963.3) million (9.9% of total assets), primarily due to decreased projected interest-bearing liability cash flows from FHLB advance management - The one-year gap between interest-earning assets and interest-bearing liabilities projected to reprice improved to $(963.3) million, or (9.9)% of total assets, at June 30, 2025, from $(1.11) billion, or (11.4)% of total assets, at March 31, 2025[120] - The change in the one-year gap was primarily due to a decrease in the amount of projected interest-bearing liability cash flows, related to the prepayment and replacement of $200.0 million of fixed-rate FHLB advances[120] Interest-Earning Assets and Liabilities Overview (June 30, 2025) | Interest-Earning Assets (June 30, 2025) | Amount (Thousands) | Yield/Rate | WAL (Years) | % of Total | | :-------------------------------------- | :----------------- | :--------- | :---------- | :--------- | | Securities | $956,229 | 5.47% | 3.7 | 10.3% | | Fixed-rate loans | $5,706,971 | 3.71% | 6.4 | 61.5% | | Adjustable-rate loans | $2,336,029 | 5.57% | 3.8 | 25.2% | | FHLB stock | $98,225 | 9.11% | 1.9 | 1.1% | | Cash and cash equivalents | $174,965 | 3.79% | — | 1.9% | | Total Interest-Earning Assets | $9,272,419 | 4.42% | 5.3 | 100.0% | | Interest-Bearing Liabilities (June 30, 2025) | | | | | | Non-maturity deposits | $2,929,961 | 1.12% | 5.2 | 37.0% | | Certificates of deposit | $2,921,581 | 3.81% | 0.9 | 36.8% | | Term borrowings | $2,073,225 | 3.52% | 1.7 | 26.2% | | Total Interest-Bearing Liabilities | $7,924,767 | 2.74% | 2.7 | 100.0% | Forward-Looking Statements This section outlines forward-looking statements, which are subject to various risks and uncertainties, and actual results may differ materially from current expectations - Forward-looking statements involve risks and uncertainties, including changes in regulatory policies, interest rates, inflation, potential recession, bank failures, loan demand, future earnings and capital levels, and dividend policies[55] - Actual results may differ materially from those currently expected, and the Company disclaims any intent or obligation to update these statements[55] Contact Information For further information, investors can contact Kent Townsend, Executive Vice President, Chief Financial Officer and Treasurer, via phone or email - Contact: Kent Townsend, Executive Vice President, Chief Financial Officer and Treasurer[56] - Phone: (785) 270-6055 (Investor Relations) or (785) 231-6360. Email: investorrelations@capfed.com or ktownsend@capfed.com[56]